ITF 51 | Commercial Real Estate

 

Paul Moore of BiggerPockets joins Craig and Zeona in today’s show to talk about his real estate journey. After a 5-year stint at Ford Motor Company, he became a serial entrepreneur and then a commercial real estate developer. Now, he is a managing partner at Wellings Capital, a podcast host, and an author.

Paul goes a little bit into his books “The Perfect Investor” and “Storing Up Profits” as he explains why he jumped from residential to commercial real estate investing. He weighs in on the pandemic, triple net leases, and even offers marriage advice. Tune in until the very end for an interesting story on how he gave(!) his way out of a $2.5-million debt.

Listen to the podcast here


 

Navigating Commercial Real Estate And Funding With Paul Moore

What’s up, everyone? Welcome to the show. Z, what’s new in your life? Is there anything big and exciting things happening?

I’m going to Europe soon. I think that’ll be very big and exciting since COVID. Getting on an international flight sounds crazy, so I’m looking forward to that. I’m doing a lot of real estate. It’s fun for me when I go check out a client’s house that we are under contract and almost closed and I never went to the house. I’ve got to love the leverage of the teams.

I think growing a real estate team has been probably one of the best things I’ve ever done, and it sounds like you’re enjoying it too. It’s fun. Helping other people do things that everyone loves to do frees you up to do so much more time, like hanging out on the show with me. You probably all know Paul Moore from BiggerPockets. If you don’t, then I highly recommend you check him out. He’s an awesome dude. He’s dropping tons and tons of wisdom in this episode. I don’t even want to start to get into it because I’ll end up speaking the whole episode, so why don’t we hop right on and get Paul in here?

Paul Moore, welcome to the show. How is it going?

How are you? It’s great to be here. What an honor.

It is great to have you here. I learned that I was one of the last guests on your podcast. We hope that you are one of our first guests because I think we’re 50 something episodes in. We’re having a lot of fun with it. You’ve got a super compelling story. I think a lot of people know a lot about you already, but why don’t we start from the beginning? Where did you first learn about financial independence and the idea of financial independence?

I was working at Ford Motor Company, and about a month in, my buddy came too. We both went to grad school together. We both got an MBA. I think he was the controller right out of grad school on the Ford Taurus, so he had a really big job, but he was bored to death. He came to me and he’s like, “They do a headcount at 6:30 PM to make sure you’re still working.” He said he was redoing his files. He would move the pens around on his desk. He was dying, and I was like, “I like my job,” but we started scheming to start a side business.

From a month into working at Ford, we looked ahead 20, 30 and 40 years at what people were doing. We were like, “My dad did this. His dad did this, but we don’t want to do this. We want to be entrepreneurs. We want to be financially independent.” That was 1988. We started all these things that didn’t work, including a property tax consulting business that I learned some stuff I still use. Anyway, we finally launched a company that did work, and in 1993, I left Ford Motor Company and my wife was seven months pregnant. We decided to leave Ford and start our own company. The rest is history.

That’s an interesting story. Getting to Corporate America and realizing that, “F this. We don’t want to do that anymore.” What were some of those stupid ideas that you thought of? I think I can resonate with thinking of stupid ideas and wanting to get out of the corporate world, but I’m curious to see.

It’s hard to remember right now. Can I count the ones I had since I left Ford?

Sure.

I had a wireless internet company in North Dakota. We didn’t know that the radios froze at 40 below zero. We wasted a lot of money on that deal, and that was frustrating. I told you about the property tax consulting. There was this new thing called oil change shops where you could get an oil change in 30 minutes. People used to change their oil. I don’t know if you knew that.

I tried it once and we thought, “We’ll start an oil change shop here in Farmington Hills, Michigan.” We thought of that and ran down the road with that a little bit. I had some other things. I tried to start a thing where we wired up a whole neighborhood with fiber optics. Let’s say there were 300 homes. We would control the wireless internet that got in there, the cable TV, and everything else that came into that subdivision. We would charge a toll, and that’s a pretty good idea until it doesn’t work.

I want to say that most of these things are actual viable businesses, so I don’t think you were that off. It sounds like you were at the beginning of a curve. You just maybe didn’t strike gold in that particular thing.

I don’t want to make you jealous, and I’m pretty sure you’re going to be, but I bought cardboard for $0.06 a ton, and they said if I kept it at my house, they would give me a penny off, so I got cardboard at $0.05 a ton, and now, it’s $0.08 a ton. I got three tons of it. You can do the math on that.

Were that a few cents extra?

I made $0.08. The whole thing was a joke.

I think showing the personality is something that we love to do. It seems like a lot of these businesses wasn’t quite real estate businesses, though. The property tax one was sort of one. What was that business that you landed on in 1993 that seemed to have taken off from you, and how’d you come up with that idea?

I forgot to tell you. Another thing we did was sell cost segregation studies, which was awesome, but the guy who was running that business turned out to be a scammer, so that was awful. The business we started in ‘93 was a PEO, Professional Employer Organization. We provide offsite staffing. We did the HR, payroll, taxes, benefits and workers’ comp. We did all this stuff for these companies, like a dentist’s office, a doctor’s office or a small factory.

ITF 51 | Commercial Real Estate
The Perfect Investment: Create Enduring Wealth from the Historic Shift to Multifamily Housing

They might have anywhere from 3 to 50 employees, and they would put them all on our payroll, including the owner, the secretary, the janitor and the engineers, and then we did all that administration so they could focus on making money. It was a pretty cool business. Wall Street caught wind of this business and loved it, not our company, but the business as a whole. They did a whole bunch of public offerings in ‘96 and ‘97, and one of those public companies bought our company. I was 33 years old. We made almost $3 million and we were out.

You made $3 million in four years, which is quite the payday.

In the ‘90s, that was a lot of money.

That’s amazing, especially being in your 30s. What happened next? What did you do with that money? You could retire off that, but something tells me you didn’t do that.

I tried to semi-retire. I thought, “I’m a full-time investor now,” and I was not. It turns out, in retrospect, and I didn’t know at the time, but I was a full-time speculator. I didn’t know the difference between investing and speculating, and one of my life messages now is investing is when your principal is generally safe and you’ve got a chance to make a return. Speculating is when your principal is not at all safe and you’ve got a chance to make a return. I was a speculator. I thought investing should be exciting, like being an entrepreneur was exciting. Speculating can work. I made some money doing it, but I also lost a lot of money. It was very painful. I blew through a ton of that money and found myself. Let’s put it this way. I had $1.5 million in the bank in 1997. Several years to the month later, I had $2.5 million in debt.

You had a negative net worth of $2.5 million.

We had a bunch of real estate we had invested in. I started investing in real estate in 2000. I started flipping houses, flipping lots and then started building some modular homes. I also did a couple of mobile homes. By ‘07, I had a large number of waterfront lots at a resort that I had bought on speculation. I made more money per hour doing that in ‘04 to ‘06 than anything else I’ve ever done, but in ‘07, the market ground to a halt, as you can imagine, and virtually, nobody was buying lots, so we found ourselves with a lot of debt. That included my vacation home and everything else. It was a difficult time.

It sounds like perhaps in 1997, did you suffer from the dot-com boom? Were you investing in those tech companies or anything like that?

Not at all.

Was it all of your speculation in the housing market? Where did you lose a lot of your money?

I’ve lost some money investing with this guy who was doing Forex trading making 3% or 4% a month. To my credit, I will have to say I had $100,000 with him. I went to meet him in person to give him a check for another $100,000, so I would have had $200,000 with him. I got this gut feeling that something was wrong and I didn’t give him the money. A month later, the FBI caught him and he had 2,000 investors’ money stashed offshore somewhere. It was a Ponzi scheme. He got 158 years in prison.

Let’s back it up a little. I think it’d be interesting for people to know how you got into your first real estate deal and how you got wind of going, “I want to buy real estate. That seems like that could be a vehicle for me.”

One of the dumb business ideas I had was I found out there were wholesale cars, and I bought a car wholesale. I thought, “This car’s worth $5,000 more than I got it for,” so I tried to start a used car business, and that didn’t work at all, but my friend and I who were scheming to do that turned out he had all these real estate skills, like maintenance, fixing up houses, and all this stuff that he had done for an employer. We said, “Why don’t we start a real estate business?”

We intentionally took no money at all. We didn’t take a checkbook. We didn’t take any significant amount of cash. We went to an auction on December 20th, 2000. There was ice and snow. This was in Virginia. We went to the auction to see all these people descend and bid up this house. We pre-screened the house and decided it was worth $65,000. We didn’t know, but we thought it might be, and it looked like it was in perfect shape. We looked through the windows and it was empty. It looked like the appliances were all there, and they turned out they were.

We got there and we thought, “If this thing goes for anything under $55,000, it’ll be a great deal.” I wouldn’t think that now, but the bidding opened at $33,000 and there was nobody else there at all. We were frustrated. We begged the auctioneer to go to Taco Bell and we would go get a cashier’s check for $3,300, so we’d have our 10% down. We ran back, met her, and bought the house. Three weeks later, we put it back on the market with a For Sale by Owner sign at 8:30 AM, and by noon, we had a full price offer of $65,000. We thought, “This is easy. We can do one a week.”

Did they do cashier’s checks at Taco Bell?

No. I sent her to Taco Bell so she could have lunch while we scrambled in this ice and snow to get across town to our bank, get a check, and get back there. That has never happened since. I’ve never seen an auctioneer be that flexible.

You paid $3,300 for this auction deal. It sounds like you got it for almost half off, or at least from what your research is.

We got $33,000. The short version of the story is we made approximately $20,000 on that deal.

Enjoy the journey towards financial independence. Otherwise, you may wake up feeling miserable and left alone. Click To Tweet

Did you sell it?

We sold it three weeks later. We literally put a coat of paint on the first floor and put it back on the market for $65,000. We sold it at full price by the time we put it on the market. When we should’ve known, we didn’t realize that that town had about 22% to 23% unemployment. We lost money on two of the next three deals. My point is it wasn’t as easy as we thought

Can someone go to an auction in the middle of nowhere in Arkansas and buy a house and do that? Is that strategy repeatable or is that a 2010 thing?

I think it’s repeatable except that in the towns where you want to buy. That was Martinsville, Virginia. If you’ve ever heard of that, that’s the big furniture capital. They had a lot of textiles and garments industry. All that had pulled out of there because of NAFTA, so it was a terrible place to invest. If you move to a town like Roanoke, Virginia, an hour away, which is where we promptly pulled up stakes and moved our investing business to, and we did dozens and dozens of houses there, it’s so competitive. People are paying retail on the courthouse steps to get these houses. It doesn’t make sense at this moment.

I think that’s probably the same in a lot of markets. You’re saying you lost money on these next two deals. You probably were licking your wounds a little bit, but it sounds like you guys are unstoppable. What made you pick Roanoke, and how’d you figure out that next path?

We weren’t really smart. It was just nearby. We were twenty minutes from Martinsville, where I lived up in the Blue Ridge Mountains. We had moved to the Blue Ridge Mountains on 120 acres on a mountain top after selling our company in Detroit. We wanted to raise our kids out in the country. We were 40 minutes from Roanoke, so we thought, “If Martinsville doesn’t work, let’s drive twice as far to do Roanoke,” and that’s how we picked it. We didn’t have a lot of strategy behind it, but it worked well.

I get the question all the time, like, “What market should I invest in? What’s the best place to invest?” There are millions of markets out there that you could invest in, and all of them have deals in them. I think you just have to figure out what your goals are and if you’re okay investing out of state or investing 40 minutes down the road.

If you’re okay with investing 40 minutes down the road, then do that. Personally, when I pick up a market to invest in, it’s always, “Where do I have a team?” That’s the hardest thing for me to do. It’s to find people that I trust, so that’s why I’m in Denver. I’m in Denver and I’m in North Carolina because I’ve got a team I can trust out there, and perhaps, that’s why you chose Roanoke and wherever else you invest.

We had friends who were contractors in the area, so we had a nice team set up to go there, and I got my realtor’s license about a year or two later, so it worked really well.

You’ve got a couple of deals here in Roanoke. Were these flips that you were doing or were these buy and holds?

These were all flips at the time. We started doing buy and holds later.

When did you start getting into that buy and hold? You had this idea of financial independence that you acquired in 1990 or so. Flipping houses is not getting you closer to financial independence. It’s like a job, so were you aware of that at the time?

In retrospect, it should have been blatantly obvious, but I don’t think I was as aware of it as I should have been. I looked at the people holding and I thought, “They’re only making a small amount a month,” and I wasn’t looking at the chance to grow the equity, refinance, pull out equity and multiply that as much as I would now.

At the time, again, I feel like it was a little bit like my earlier experiences where I went in a little bit blind. I didn’t get the education that I should have had. I didn’t have BiggerPockets. I hadn’t discovered Rich Dad Poor Dad. I hadn’t discovered a lot of things that I know now as second nature. I think it really speaks to the importance of getting educated, getting in a great community, and not trying to do this alone.

I can echo that. I think BiggerPockets has changed a lot of people’s lives, and again, getting around people is so big, but when did you think that you had that mindset of like, “I’m done with my primary business being flipping out. I want to do the buy and holds, and now, I’m interested in actual, legitimate, passive income.” When did that tick for you?

I did a small subdivision that went okay. I built some houses that didn’t go okay. I had another business that was generating leads for realtors, and I’ve had that for seventeen years. In fact, my first client in that business was a Senior Vice President of Freddie Mac, who called me and gave me the idea for the business. Anyway, I was trying to figure out how to get involved in commercial real estate.

I looked at all the wealthiest people in the world that I knew of, and they all seemed to have commercial real estate. I thought, “I need to get in commercial real estate. How do I do that?” We fell into it. We invested in an oil and gas deal in North Dakota, which was a big mistake. We noticed that they had a huge housing shortage, so we built two multifamily facilities next door to each other in North Dakota, and then I was off to the races in commercial. That was in 2011.

I have a little of a sideline question. What is your motivation at this point? You made $3 million and then you’ve got a family. Are you a tinker? You’re like, “I have to create businesses. I have to have a hustle. I’m this kind of guy,” because it seems like the financial independence piece is not necessarily a need.

To be clear, I only made half of that $3 million myself, but you nailed it. I was more driven by my desire to be productive, to do something fun, and to do something exciting than I was by financial independence at the time. I had it, then I lost it, and then I had it again, but when I was 34 with this money in the bank, I was so driven even when I was semi-retired to do something, create something, and start some new business.

ITF 51 | Commercial Real Estate
Commercial Real Estate: Multifamily up one to four units are considered residential multifamily, while five units are commercial.

 

Thank you. I love hearing that because I think the mindset is so much about what drives us and creates good entrepreneurs and successful people. I’m just getting people on that page.

I think financial independence allows people like yourself to be the tinkers that they want and need to be. If that’s what fulfills, I think that’s super important. Who cares what you do with your financial independence? I think we talked about this in a previous episode where there’s no retirement police coming to your house and saying, “You’re working even though you’re financially independent.” You do what you want to do. If you like creating businesses, do that, and someday when you wish to stop, then stop.

I love that you said that you made it, then you lost it, then you made it again. My dad was like that. He was like a forever creator business guy, but I feel like he never allowed himself to fully be successful because if he was, he’s not okay with that. He’d be like, “What would I do now?” He would create these things and have a flash in the pan success and then lose it all, and it was very dramatic all the time.

I was with Dave Zook at the Real Estate Guys’ annual summit. Dave was talking about his friend who’s the CEO, I think, of Auntie Anne’s Pretzels. He made $151 million and he was out in one day. They had sold the company, and he was miserable the next day when he woke up with no purpose in his life. Dave said, “The point of that story is we need to enjoy the journey, because if we think we’ll only have happiness at the end whether that’s retirement or financial independence, whatever it is. If we think that’s when we’ll finally be happy, we’re going to wake up really miserable, and possibly, wake up without family and friends because we were so driven along the journey,” and that spoke to me when he said that.

I think that’s one of the things they don’t tell you about financial independence. Everybody’s excited about this fire movement and people are racing to do it younger and younger. I remember when I was 28 and I’ve considered myself financially independent, I was like, “What now?” It felt like an existential crisis. It was this thing where you had to figure out what life was really about and fulfill those days and still make yourself happy. It’s almost more work than just having a job and being like, “I can’t be happy because of this job.”

I think everyone on this call has tasted and has financial independence. What financial independence gives you is a plethora of options, and it gives you the stress-free life where you’d be like, “I can go take risks. I can go do this.” I feel the same thing, Z. I have financial dependence. I’m like, “I could quit. I could retire,” and my parents were like, “When are you going to stop?” My neighbors were asking me, “When are you going to stop?” I’m like, “When I feel like it.” The extra things in life are starting to become more fun now, and taking these risks is more fun because there’s less of a downside. That’s how I feel about the whole thing.

I found with myself that after semi-retiring at 34 or so, I would never plan to do it again. I don’t want to be doing the pace I’m doing right now forever, but I want to get to a place where I’m just creating, like writing blog posts, maybe doing a podcast, and maybe doing videos. I’d love to get to a place where that’s my main thing because I feel like I was born with that creativity. I think we’re all born with creativity, but I feel like that is so fulfilling and enjoyable. If was 100 years old, I could do it. I’d still want to be doing it.

That’s how you know you’re doing something that you love. Let’s head back now to the 2011 timeframe, which I think is where we left off when you started collecting the rental properties. Did you start with single-family and graduate up, or did you get right into that commercial because you knew that’s what made people wealthy?

We jumped into the commercial. I don’t think I was as thoughtful as that. We were just trying to fulfill a need as entrepreneurs in the luck in oil rush of the early-2010 to 2015 range, but that’s where we jumped in. I don’t think I fully realized it until I wrote my book, believe it or not, but the power of the commercial real estate value formula is so powerful for creating wealth that I never wanted to do anything else after I discovered that formula.

Can you explain that formula, what that is, and maybe get into your book a little bit?

Yeah. The book is called The Perfect Investment, and it’s about multifamily investing, and then I have a new book coming out that touches on the same exact topic. It’s a book called Storing Up Profits. It is published by BiggerPockets and the value formula works like this. If I buy a house for $200,000, and let’s say I go in and finish the basement, the attic, put on a huge addition, put gold-plated fixtures in, and high-dollar fences.

Let’s say I see myself as Chip and Joanna Gaines and I put $400,000 in improvements into this $200,000 house. I got $600,000 in it. I plan to sell it for $1 million. If that’s in a $300,000 neighborhood, it’s going to be hard to sell it for $1 million or even breakeven. We know this because residential real estate is generally based on comps or comparables. We know that. The value formula of commercial real estate means that commercial real estate is entirely different. It’s based on math, and the math is beautiful. It’s my favorite formula in the world.

The value in change in commercial real estate is value equals net operating income divided by the rate of return, so the net operating income, which is the operating revenue, minus operating expenses, comes down to a certain number, not including the mortgage. That NOI is divided by the cap rate, which is the general rate of return you would expect for that type of asset in that condition and in that location at that time, divide the income by the cap rate and you get the value. If I can increase the net operating income, I can drive value, and if I use leverage, it makes it even better.

Go back and rewind that if you’re into commercial real estate investing or want to get into commercial real estate investing because that formula is what commercial real estate investing is in a nutshell. It sounds like there are two parts to that formula. The net operating income, which seems like it’s very controllable, you increase revenue decrease expenses, and then you have that bottom number, which is the cap rate, return on investment, or whatever you want to call it, and that is more market-driven, so that goes up and down with the market. My question is, how do you really know what that number is? Even half a percentage point is millions and millions of dollars, so how do you predict what that is in the area?

That’s a subjective question, and of course, it comes down to almost anything else in the world. It’s what a willing buyer and a willing seller will agree on. You can look back at comps in the sense that you’ll see what those other ones sold for, what cap rate, and you can survey real estate brokers, survey investors in the area and see what other things have sold for, and then see where offers start coming in. The cap rates used to be in the 8%, 10% or 12% for a lot of commercial real estate, and now, they’re down around the 4%, 5% or 6% range, so some operators by doing nothing other than likely being mediocre, they doubled the value of their commercial real estate assets just from that.

I have two questions. When you say commercial, do you mean multifamily buildings or shopping centers or is it a whole variety of things you are buying?

I need to clarify that my book, The Perfect Investment. It’s about multifamily, but it’s commercial-grade multifamily. The audience might not all know that multifamily at 1 to 4 units is considered residential multifamily. Five units and up is commercial, so it’s valued under this cap rate type formula in theory. It’s multifamily, self-storage and mobile home parks. Those are my three favorite asset classes, but it also includes senior living, malls, triple net leases, retail, industrial, cell towers and solar leases. All kinds of things like that are under that commercial asset formula.

There are so many. It feels like a whole other world if you’ve lived in residential real estate. People can be like, “You’re such an expert,” and I’m like, “I only know this tiny little slice of real estate. There’s so much more that I want to learn, but it seems daunting sometimes.” I appreciate that. My second question was, how do you feel about commercials since COVID? Maybe it’s a little too broad, but I’m thinking more buildings, offices and retail spaces because that seems to have changed a bit.

There’s a K-shaped recovery from COVID as we’ve heard, which means some people did well and it went right back up, and other people did poorly. I think retail, office, hotels and hospitality cruises have done pretty poorly. Sometimes, occupancy rates in some hotels are still below 50%. There are two different streams. Self-storage did great through COVID. Mobile home parks did even better. Multifamily did pretty well. Cell tower leases and data centers did fabulously, and then there were those other things that didn’t do so well, and there’s a long-term shift, as we all know, away from traditional retail, and in some cases, and we can talk about this if you have time, away from the traditional office, but that’s what’s happening right now. There are two different streams, if you will.

Real investing should be boring. There's nothing wrong with speculating. Click To Tweet

I think that makes sense when you think logically about what would suffer and what wouldn’t. As you mentioned, you like self-storage, mobile home parks and multifamily. I’ve been getting into the triple net lease stuff, and I’m more intrigued with that, so I would love to know what your opinion is like, or why don’t you like triple net lease as much as these other ones? What makes those so sexy for you?

No one’s ever asked me that. I love triple net leases. The last third of my new book on self-storage is seven different paths to get involved in commercial real estate, and I’ve done this a whole lot on my BiggerPockets live shows, so that’s all out there. Those seven paths include being a passive investor. If you want to keep your day job, enjoy your retirement, enjoy your life, do whatever you’re doing, and have passive income or financial independence, if you will, running in the background without you having to do much, commercial real estate can be a good place for that, and triple net leases are the best places for that.

My friend was saying that he was leasing a Topgolf, believe it or not, to the Topgolf company. The investor group was making an enormous income stream from that. I think it was like $200,000 a month. They were leasing the facility to them, and then that same guy was telling me he was leasing Hardee’s restaurants and Burger King restaurants on 100 triple net leases. The problem with it is it is so easy that the cap rates are very low. In other words, the return on investment is typically very low. If we have time, I could tell you why I think mobile home parks and self-storage are very high sometimes.

Z, I know you’ve got something to say, but real quick, I think that’s that trade-off that a lot of people want. If you want something truly passive, you’re going to have a lower return. If you want to put in more work, you’re going to have a higher return. I think that is the exact answer that I was hoping you’d say. For me personally, I came to the conclusion that I don’t think I want to be a big shot real estate investor doing multifamily syndications where I’m like, “Paul, I’d love to give you some money and I would love to get a return from that.” I would love to put it in a commercial lease like I would a residential place to let that appreciate over time and have a great tenant pay me rent. It depends on what your goals are and what you want to do. Z, do you have something to say?

I was hoping you could explain triple net leases for the audience because Craig has explained it to me twice, and I still don’t know what it is.

I think Craig is probably going to have to correct me on this, but I believe what it means is that you own the building and then the tenant is responsible for all, let’s say, utilities, taxes, and one more thing. What’s the third for triple net?

Insurance.

You own the asset. A perfect example is residential assisted living, if you guys have looked into that at all. If you own the building, you own the house and lease it to them, and then they do all the business out of the house.

You’re renting it to high-quality, publicly traded companies like Ed Hardy’s, Topgolf, Fidelity, or Walgreens. Those are the types of companies that are going to pay you. Their financials are public. Go look at them. Make sure they’re of good quality. Collect your rent every month. That’s why it’s super passive. That’s the investment that you get there. It sounds like you’ve ventured into this commercial space. You’re buying apartment complexes, self-storage and mobile home parks. How do you raise money for this stuff? I’m assuming you’re raising money. Where does that come from? How’d you get started with that?

To be clear, my company, after beating our head up against the wall for years trying to find multifamily assets, shifted gears. We realized that we’re in fragmented markets like mobile home parks and self-storage. There was a massive difference in well-run or professionally run asset versus a mom-and-pop, and some of these larger assets, for example, in mobile home parks, we acquired through an operating partner a 311-unit mobile home park. That’s a large park that was still run completely like a tiny mom-and-pop.

That disparity makes for a potential of massive profits, so because of that, we wanted to get into these fragmented markets, but we didn’t have a team. We didn’t have a track record. We didn’t know how to do it. We had investors who liked the idea, but we didn’t think it was right for us to take their money. We told our investors, and this was years ago, that we’d be a due diligence partner. We’ll go out and find the very best operators. We’ll go out and find the very best deals, and then we’ll give them money and we’ll create a vehicle to allow you to invest in a diversified group of these, and those are funds.

We have put together four funds now where investors can give us, let’s say, $50,000 or $100,000 and we spread it across all these deals. To answer your question, there’s a wonderful analogy of somebody who wants to live up North. They want to live on salmon. They become a spear fisherman and they have to work really hard.

They look for a salmon in the dark water and they throw this homemade spear and hope that they hit the fish. They hope they can reel it in. They hope that they can have dinner. They may not, and then there’s the other strategy, which is a little silly. You become a bear in the waterfall. I was in Canada, and these bears stand there with their jaws unhinged and the salmon jumps right into their mouth, and that is the way we decided we wanted to raise money.

We decided we wanted to be educators. We wanted to be the resource for people who wanted to learn about these things, so I started my podcast. I wrote a book. I’ve written three books on real estate. I’d become a guest on a lot of shows. I write blogs and do videos for BiggerPockets. I speak at the Real Estate Guy Summit, and by doing that, people come to us and they ask if they can invest.

I think that’s very similar to what we do with The FI Team, which is you constantly provide a lot of value to people, and then people want to work with you. You seem more authentic and trustworthy. We call it the hunter versus the farmer approach. You’re the farmer where you’re planting the seeds, you’re watering your seeds, you’re making sure your crops grow well, and eventually, that’s going to bear lots and lots of fruit that you go and pick versus the hunting approach, which is you’ve got to go cold calling and you’ve got to go nail someone down. It’s a lot harder to sell that way. You get a lot more decline and it can ruin your ego a little bit. It takes a certain person to be able to do that.

That’s right. We think we have to sell by nature, but once you’ve tried it this way, I would never go back just trying to sell.

If you haven’t read the book Ninja Selling, that’s what it’s all about. I love that book.

I wanted to hear a little bit about funds because I love the idea of a fund. Being a lazy landlord and getting into syndications, how would you suggest someone pick apart what a good fund over a not-so-good fund is? I imagine it’s based on what they’re investing in. Can you speak to that a little?

I don’t have an answer to that exact question. I’ll back up a little and say that if you want to invest with a certain syndicator, whether that’s a fund or a single deal, you’re going to want to get Brian Burke’s book. I think you’re both aware of it, but it’s called The Hands-off Investor. For those that are reading, I’m holding up a copy of it, but the book is over 300 pages of how to pick the right syndicator, and if you’re talking about funds, it’s the same thing. It’s how to pick the right fund.

ITF 51 | Commercial Real Estate
Commercial Real Estate: After the pandemic, occupancy rates in some hotels are still below 50%. Meanwhile, self-storage did great through COVID, and mobile home parks did even better.

 

There are lots of questions to ask and lots of due diligence ideas. Find out how much skin they have in the game and how long they’ve been doing it. Tell them, “Tell me about your track record and team.” Fly out there. Even if it’s only investing $50,000, drop the money for the flight. Go spend time in their office. See how they treat their employees, talk about their spouses, and treat the waiter or waitress. It’s important. There’s going to be trouble, and you’ve got to ask yourself, “Do you want to be in trouble with this person if and when things go wrong for 5 or 10 years?” It’s a big decision. Get to know them and follow your gut after you’ve done all the research

It’s probably 300 pages of me because Brian Burke’s is a pretty big syndicator too.

This is a great book, and I’m so glad BiggerPockets published it.

This is my theory, and maybe this is not the best advice. Take Paul’s advice and read that book because I agree, but I was like, “If I’m going to invest in this indication, it’s going to be with Brian Burke, Ben Leybovich, Paul Moore and Brandon Turner. It’s going to be the people that I know, and I know they have a huge reputation to lose, because Warren Buffett says, “It takes twenty years to build a reputation and five minutes to lose it, and if someone loses a lot of people’s money, they’re going to destroy their entire career,” so I want to invest with someone that has a lot to lose. That’s my two cents. I don’t know if that’s in the book. I have not read that one, which is a surprise since I’ve read most BiggerPockets books.

That’s great advice, and I love that quote too. I’m working on a book called Warren Buffett’s Rules for Real Estate Investors where I’m taking his principles for stock and corporate investing and translating them into real estate. I’m hoping BiggerPockets will publish that. Put in a good word for me, okay?

Yeah. We’ll do that.

Do you sleep? I feel like you don’t sleep.

I’m really working on this. I hired Brandon Turner’s coach, Jason Drees, to be my coach, and he’s encouraging me to try to set a definite quit time every day, like 5:00 PM, or he would even say 3:00 PM, and quit at that time and not work all evening. It’s hard. I grew up with this mindset from my dear wonderful mom that said, “You’re going to be valuable if you produce,” so even on my days off, I can either get depressed or try to act like I’m busy so nobody will think I’m slacking.

Out of curiosity, what does your family think of all this? How was it raising the kid suffering from a little bit of workaholism?

It was big. It was hard. I have four kids. I think it has been hard for them. I think it has been hard for my wife. I really am working on this. I feel like it’s a constant struggle for me. I don’t struggle with a lot of horrible things in my life, and the problem is the thing I do struggle with looks good when I’m doing it well. If I’m over-producing or if I’m doing the workaholic thing, people say, “Look at him go,” and I’ll get patted on the back for doing something bad, so it’s hard. The joy in the journey is so important.

That really hits home.

I’m curious. Do you do anything with your family, like weekly meetings or anything like that where you come down and you allow yourself and your wife to get vulnerable with each other and say, “I didn’t like what you did this week,” or, “This was hard for me this week?”

Yeah. We do that. We went to a cabin out in the Blue Ridge mountains that had no cell or internet for a couple of days. My son has a cabin. He’s a real estate investor too, and he stumbled into this. We love doing stuff like that. We’re very vulnerable and honest. Just like my show, How to Lose Money, I’m the same way with my family too.

That’s incredible, and I think it’s doing that and making sure that you don’t let those deep conversations pass by, and they happen. If your wife or your kid says something that you need to improve on, think about it and improve on it. I think more of those conversations need to happen in families across the United States. There’s a lot of wisdom in this episode, but unfortunately, we are going to have to move into the final parts of the episode. Are there parting words of wisdom before we head into the final four?

Yeah. We talked about investing versus speculating. I want to hammer that home one more little time here, and that is if you’re an entrepreneur, like my buddy and I were, if we invest like entrepreneurs, we can get in trouble. Warren Buffett was asked by Jeff Bezos. He said, “Your investing strategy is not that complex. Why doesn’t everybody do what you do?” He said, “People don’t want to get rich that slowly.”

The point is real investing should be boring. There’s nothing wrong with speculating. I’m not against Bitcoin, but it is speculating. It doesn’t have true value. True wealth is assets that produce income. In my view, financial independence is based on assets that produce income. The first US economist to win the Nobel Peace Prize, Paul Samuelson, said, “Real investing should be boring. It should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”

I think I saw somewhere that Warren Buffett has gotten close to $100 billion of wealth. I’m not sure of the exact number now, but I think I saw somewhere that he has achieved 90% of that wealth has been in the last couple of years. He’s 90, so it took him many years to get 10%, and then the last couple of years is where he really got rich. I think that’s an interesting way to look at it too.

Speaking of financial independence, he said, “You need to learn to make money while you sleep, and if you don’t, you’ll work until you die.”

It’s very true.

You need to learn to make money while you sleep. If you don't, you'll work until you die. Click To Tweet

This is a good episode. It’s feeling all deep.

I love the deep ones, but let’s head over to the final four. Z, kick us off.

Whenever you’re not writing your own books, are you reading something? What do you have on your nightstand right now?

I switched over to audible books. I’m finding a lot more joy, and I can remember those a little bit better. I went through a very short book that was named one of the top 100 Business Books of All Time. It’s called ZAG, and if you’ve read Blue Ocean Strategy, ZAG is the Blue Ocean Strategy book for marketing. It’s basically when everybody zigs, you zag.

What is the best piece of advice you’ve ever received?

It’s really tough, but I think my dad, I don’t think he gave me a ton of advice, but I learned a lot from his example. He was a great father and husband. He said, “Never go to bed angry.” He gave me that advice as I departed for my honeymoon, and I thought, “Why would I ever be angry at her? We got married that day. About a day later, I found out what he was talking about. We have tried to apply that to our marriage, and I found out that I haven’t listened to him more than a few times. It did cause a lot of havoc on our marriage.

How many years have you been married to your wife?

More than thirty years.

It’s a successful marriage at that.

It wasn’t easy, though. Honestly, about 25 years, it’s really hard.

I don’t think I’ve ever heard of a marriage being easy. Anyone getting into it, be ready for that. I think that’s part of the fun. That’s the journey. You’re growing together, and it’s tough. I’m sure you’re not the same person many years ago as you are now, so it becomes tough.

It’s true, and a lot of people who give up in, let’s say, year five, if they would have stuck it out to, let’s say, year eight, they would be happy, but they won’t know that because they pulled the plug.

Question number three, and I think we’ve touched on this a few times, but what is your why now?

We haven’t touched this completely because I am shifting into being much more vocal about our big why. When I so-called semi-retired at 33 or 34 years old, I wasn’t any happier. In fact, I was less happy than I was when I was working hard before that, and I realized we really need a big why. About a few years ago, I discovered this horrible thing that we have all heard of now called human trafficking. Did you know if you took the record profits, and not the average, of Apple, General Motors, Nike and Starbucks, and added those together, triple that number is the approximate revenue generated by human trafficking every year worldwide.

I’d like to believe that if I was alive in the 1800s, I’d be abolitionist fighting against slavery, and I’d like to believe if I was an adult in the 1960s, I would have been fighting for civil rights. This is a civil right. It is slavery. These lives have been destroyed. Since we started this episode, approximately 200 people have been sold into slavery, and I want to do something about it. Wellings Capital, my company, is doing what we can to try to develop a program where when people invest with us and we’re putting a portion of our profits toward rescuing slaves.

That’s a good reason to invest with him. That’s how he gets you.

Do you have a place in your site where maybe if people don’t have the minimum investment, can that invest a couple of hundred bucks in that, or do you not do it that way?

In the trafficking, you mean?

Yeah, or is there an organization that you want to support?

ITF 51 | Commercial Real Estate
The Hands-Off Investor: An Insider’s Guide to Investing in Passive Real Estate Syndications

I’ll tell you now. I would recommend that people look at Exodus Cry. That’s ExodusCry.com. They have an amazing movie they put out quite a while ago called Nefarious, and that movie is what opened my eyes to human trafficking. I’ve gone to meet with them twice and have a call with them again. I believe in what they’re doing to get the word out, change regulations, and try to rescue people from this horrible end.

To reiterate this, and I’ve said this before, but giving is such a tremendous part in building wealth and charitable causes. I don’t think I know a single multi-millionaire that is successful that does not have some sort of charitable cause that they donate to. In church counts, whether they’re doing tithing, or it’s Exodus Cry, or it’s some school in Mexico or whatever it is. Readers, if you’re reading this and looking to build wealth, your homework is to find a charity you like to give to. Get in the habit of giving. It can be $15, $20, or $30 a month. It doesn’t have to be a lot of money, but get into the habit of giving, and as you grow your wealth, you can give more and more.

I didn’t tell you this, but I went from $2.5 million in debt to debt-free during the great financial crisis. I told you I was $2.5 million in debt in ‘07. By ‘09, I was completely debt-free, and I believe that I gave my way out of debt, and that’s a story for another day.

Can you try and get back on the show, Craig?

I was going to say, can you give us a SparkNotes version of that?

No. You’ll have to invite me. No, I’m kidding. On January 1st, 2008, I had a bunch of people approach me that knew my situation, including my CPA’s husbands and some other friends. They said, “You’re going to declare bankruptcy, aren’t you?” I said, “I’m not. We’re going to give our way out of debt,” and that went over well.

On January 1st, 2008, our family decided to start giving a set amount or a large amount to a painful amount, considering the debt we were in, our local church, and charities we cared about. We started giving that set amount every week, and four weeks into that, I had a light bulb idea that changed everything. Even though we were going into the worst financial crisis since The Great Depression, I was able to sell a whole bunch of this waterfront land that I wasn’t selling for any price. I was able to sell it at a profit, and we were completely debt-free within thirteen months.

That’s an incredible story. There is something about that karma.

It’s true, and there’s a great podcast out there, or go online in Google, that’s Arthur C. Brooks’ Why Giving Matters. I just discovered this. This guy from Syracuse University, I think, did the study on why giving makes you wealthier.

We’ll have to look that up. Here’s the final question for you. What is the dumbest thing you ever did as a kid?

I thought it would be funny to drive down the road in the dark and have our lights turned off, and then right when we were about to pass an oncoming car, flip them on and surprise them. What a great idea until somebody turned right in front of us.

Did you get into an accident?

We barely missed it, but it still goes down in history as one of the dumbest things. I was 17 or 18.

You don’t need a bad result for it to be the dumbest thing. I think everyone’s got those stupid stories, I think, especially people of your generation. I know my father’s got some really funny kid stories that are always fun to listen to.

I’ve got so many more. If you invite me back, I’ll tell you.

We’ll have to invite you back. Thanks again so much for coming on. Where could people find out more about you, your investment, your books, and all that good stuff?

It’d be at WellingsCapital.com, and if they want a free guide on getting involved in commercial real estate, they can go to WellingsCapital.com/resources. We have that available for free.

Thank you so much for coming on. I’m looking forward to seeing you at the BiggerPockets conference this 2022 and anywhere else I may see you.

I’ll see you in October 2022. Thanks.

ITF 51 | Commercial Real Estate
Zag: The Number-one Strategy of High-performance Brands: a Whiteboard Overview

That was Mr. Paul Moore. Z, what did you think of Paul?

I loved it. I was telling you earlier, I took a ton of notes. I’ve got all these books to read now and movies to watch. I’m super excited, but I think the biggest thing was that I appreciated his vulnerability and ability to talk about the failures you need to get to the good stuff. I feel like I learned a lot about commercials, which I’m excited to look into some more. I’m always growing in this field.

It’s an endless amount of knowledge that you can get in real estate, and I think Paul has got a lot of it. He has got some years behind him, which is great, and he’s got tons of experience through many different market cycles, which he shared with us. He was a serial entrepreneur in more than just real estate and other things.

Every person I know that’s successful has had their share of failures, so know that when your failures come up, it’s part of the process, and failing is part of being successful, so keep persisting. I love how he got super vulnerable about his family, about what he wants, and about the human trafficking stuff. There is a lot of stuff that we were oblivious to in our perfect little bubble of Denver, Boulder, or even the United States in general, so it’s cool to open up and see what’s out there. Z, do you have anything else before we depart?

I think the one takeaway I want to reiterate is, find your cause. Find the thing that will help you have a why because that does help connect you to something. On our last show, we also talked about that. I think it’s great to figure out why you are gaining all this information, who you can help with it, or why you are collecting all this money and who you can help with it. That’ll help you attract even more of it, so it’s an important part.

The why will get you to where you want to be way more than the what, the how, or whatever it is. Thanks again, everyone, for tuning in. If you guys could please leave us a review or a rating on iTunes, Spotify and all of those good places, we’d like to look at these reviews and use the feedback to make the show even better and give you all an even better product tune in to. With that being said, we will see you all in the next episode.

 

Important Links

 

About Paul Moore

Paul Moore is the managing partner of Wellings Capital, a private equity real estate firm.

Experience

After college, Paul entered the management development track at Ford Motor Company in Detroit. After five years, he departed to start a staffing company with a partner. They scaled and sold the company to a publicly traded firm five years later.

After reaching financial independence at the age of 33 and a brief “retirement,” Paul began investing in real estate in 2000 to protect and grow his own wealth. He completed over 85 real estate investments and exits, appeared on HGTV’s House Hunters, rehabbed and managed dozens of rental properties, built a number of new homes, developed a subdivision, and started two successful online real estate marketing firms.

Three successful commercial developments, including assisting with the development of a Hyatt hotel and a very successful multifamily project in 2010, convinced him of the power of commercial real estate.

Press

Paul was a finalist for Ernst & Young’s Michigan Entrepreneur of the Year two years straight (1996 & 1997). Paul is the author of The Perfect Investment – Create Enduring Wealth from the Historic Shift to Multifamily Housing (2016) and has a forthcoming book on self-storage investing. Paul also co-hosts a wealth-building podcast called How to Lose Money and he’s been a featured guest on 150+ podcasts, including episode #285 of the BiggerPockets Podcast.

Education

Paul earned a B.S. in Petroleum Engineering from Marietta College (Magna Cum Laude 1986) and an M.B.A. from The Ohio State University (Magna Cum Laude 1988). Paul is a licensed real estate broker in the state of Virginia.

 

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