Making alt investing a family affair with Darrell Gargala

Hey, if you're a listener of the Invest Like a Billionaire podcast, I already know that you're interested in alt passive income, creating wealth outside of the public markets. So let me tell you about another podcast you might really enjoy, Wealth Without Wall Street. This is hosted by my good friends, Russ Morgan and Joey Murray. These guys are doing incredible work, helping people break free from the traditional financial models and actually replace their income with cash flowing assets. They go deep on strategies like infinite banking, short-term rentals, passive syndications, and more. And I've had the privilege of being on their show a few times. In episode 421, we talked about recession resilient investing. In episode 555, we dove into oil and gas and why we're so bullish on energy right now. So if you want to get a feel for what they're all about, start there. Check out Wealth Without Wall Street wherever you listen to podcasts. I think you'll be glad you did.

We're trying to instill a lot of that, you know, with bringing the kids into the whole picture and just get them exposed to that early so they're not waiting until they're in their late 50s or 60s like we did to start really putting that all together.

Darryl Gargala is an investor who pretty much tripped and fell into real estate investing. In fact, he didn't start investing seriously until after and early retirement from the military. But it turns out he was pretty good at it and he's built a sizable portfolio over the past 20 years. What I love about Darrell is that for him, investing is a family affair and he brings his kids along on his journey of learning and wealth building. Check it out. So Darrell, thanks for coming on the podcast. Yeah.

Glad to be here, Ben.

Awesome. Well, give us a little background. So, Share a little bit of your story and kind of how you became the investor you are today, so to speak.

So my background is I was in the Air Force for 20 years. My wife was also active duty in the Air Force. So we did that. We were both retired a little over 20 years ago and never really focused a lot on investing. We just did our thing and have 4 kids that we were busy with and When we retired, I kind of became Mr. Mom. I mean, we always had 1 or 2 little rental properties, you know, while we were in the Air Force. We just kind of ended up with them by default, you know, moving different places. I didn't really get a J-O-B after I retired. I was running the kids around and playing soccer coach and doing all that kind of stuff. So I started flipping a house here and there just to keep me out of trouble. And then after a while, we ended up with a small portfolio of single families, couple of condos up in Breckenridge, some fourplexes in Colorado Springs. Then one day I kind of looked at it and thought, well, this is a lot of work. There's gotta be something easier. And I started hearing about multifamily investing and some of the benefits of going bigger than four units. I thought, that sounds a lot better than dealing with the fourplexes that we have.

And what year was that roughly?

That was probably in 2017.

Okay.

And I started looking into it a little bit, and we had always managed all our own properties, so I thought, well, this can't be any worse if I buy a small apartment building than managing the other stuff that we have. So we threw a bunch of our smaller stuff on the market and sold a few of them, and I started shopping around for some small apartments on LoopNet and found some. And bought a 24-unit apartment building in the middle of nowhere in Nebraska. Did a 1031 exchange, and that one worked out pretty well. So we bought another one about 6 months later in Minnesota. The idea was to turn them around and sell them. Then COVID happened. So we just kind of buckled down and survived COVID. Basically, this is where we're at. The one in Minnesota we have under contract right now to sell. So hopefully that's going to go through in the next month or so.

That's awesome.

And then I'll get to start a new project.

There you go. Yeah, good thing on the podcast we can maybe get some buyers here to buy it. I'm so curious on the kind of early part of your story. So you retired 20 years ago, so I'm assuming you're kind of younger than most people would consider retiring age-wise. And what kind of allowed you at that point to decide Hey, we're okay to retire. What kind of led to that decision?

Well, when I say retired, I mean just retired from the military after 20 years. So you can just get your pension, right? Molly was still working part-time 2 or 3 days a week in a community health clinic here in town. But we still did the real estate thing. So I don't know if I'll ever retire. I have to keep busy. Otherwise I just get in trouble. I get too bored.

So when you retire from the military, Was it life-changing money at that point, or was it still like, hey, we gotta figure something out, or we can live off what we had forever at this point where I don't gotta go the corporate W-2 route from here?

I mean, we were always very frugal. Both of us came from families that, you know, raised us that way, very frugal. And then when my daughter, my oldest daughter, decided to go to a private school, I started doing mortgages because it was a little more expensive than what we had saved for her to go to college. So I started doing mortgages and that was about 9 years ago. So I still do them. My daughter and I, we have our own brokerage. So we do that. Mostly it's her doing all the work and I just hang around to be the pretty face and talk to people.

So what was the transition into real estate? So was that kind of a happy accident and then eventually led to multifamily?

Yeah, so we ended up with our first rental property in 1986 just by default because before we got married, Molly bought a half a duplex in Belleville, Illinois where we were stationed. And then 6 months later, we were living in Wiesbaden, Germany and we kept the duplex, you know, double-digit interest rates on that kind of thing, so.

In the '80s, right? Yeah, that was normal.

And we just kind of managed it ourself. And so we ended up keeping that one as a rental property and kind of cut our teeth because neither one of us had any background from our families on how to do any of that kind of stuff. Right. So I don't know, just dumb luck, I guess. And we kept that one for a while and kind of paid the mortgage with it. And then we ended up selling it, I think.

How did you fund it? Were you liquidating some retirement accounts or what was the process to start acquiring, you know, some of these?

Just over time, just building up equity. Our goal, like anytime we bought something, was more of an equity than a cash flow. I never really bought anything focused on a cash flow. And I guess you could say I always loved debt. I was never afraid to refinance properties and pull out equity and then just go buy more stuff with it.

So you would allow the properties to appreciate, and once you had enough margin where you could take out some new debt or a line of credit, take the equity out and use that as a down payment for the next one. Is that kind of the idea?

Yep, absolutely. Yeah, most of the stuff we bought, we had to do pretty deep rehabs on them. Yeah, you know, so we forced a lot of equity gain that way. And we got in the Breckenridge market.

In hindsight, that was probably, uh, one of the best moves you made, right, from an appreciation standpoint?

Yeah, that was always double-digit years up there.

Do you remember what your basis was on some of the assets there?

Well, the first one we bought, a condo, it's about a 1,500 square foot condo right downtown in Breckenridge in '04. And I think we paid $270,000 for that. So I just went up there and hung out for like 3 or 4 days a week and did all the rehab myself.

Okay, wow.

And turned that into a nice little, you know, we had that one for, I don't know, 10, 12 years. And I think we refinanced it 3 or 4 times. Just to pull equity out and go buy other stuff.

What'd you end up selling it at roughly down the road? Do you remember?

That one, I think we ended up selling around $800,000.

Wow. So 2.5x increase on purchase. Yeah.

Yeah. Now those same units are well over $1 million, like 5 years later.

So that's not too bad.

Yeah.

And then talk about the transition to multifamily. So you're hearing folks talk about getting benefit through scale with larger properties.

Mm-hmm.

Now having done it a few times, do you prefer that over some of the single family that you owned?

You know, I had 3 fourplexes at the time, so I thought it'd be a lot better to just have them all in one place rather than 3 buildings spread out in different parts of town. So, I mean, and it just made a lot of sense to me. And we've always just focused on workforce housing for folks. and I was used to doing some pretty deep remodels, so I wasn't afraid of some of the condition. A lot of it's just cosmetic most of the time when you're looking at places, but significant things didn't scare me.

So what, what was your strategy? You know, when you're looking at these properties, I mean, it sounds like you don't mind the workforce housing, which is maybe a lower income potential tenant. You don't mind some of the heavier rehab. You maybe sound like you went into a couple smaller markets. Did you have kind of a formula that you found worked really well when you're acquiring these properties?

Yeah, for the apartments, I guess I was just looking for ugly ducks with really high cap rates on them, you know, and then I just looking at the market rents around there and they made sense. And, you know, again, when we went into these, we weren't necessarily looking for monthly cash flow. We were just looking for equity gain on those two. And so we were able to do that on both of them. The first one we bought, once we got on the other side of COVID we did a cash-out refi and got a 4.5x exit on the money we put into the deal. And we still own it, still cash flows. We write ourselves a dividend check every month. So it's 100% full.

So 4.5x what you put into it, but that's only at what, 70% leverage and a non-taxable event because it's debt.

Yeah.

You still own it and you're still getting checks on it, you're saying? Yeah. That's not too bad of a deal.

Yeah. I mean, going into both of these, I was kind of excited. I was like, hey, I want to roll these as fast as I can and really build up my net worth. I kind of had a, you know, goal in mind where I wanted to go. And then when we did that refinance on that first one, I kind of slowed everything down because I went down to Cozumel and bought a house down there because I like to scuba dive. So now I have a place to go and, you know, we just hang out down there and scuba dive. So that kind of slowed down my role a little bit, if you will.

Sounds pretty fun. So what are your goals now? You said you don't want to retire. Do you want to keep doing what you're doing? Do you want to shift more to a passive investing role?

I mean, I still have goals where I'd like to get, you know, net worth-wise. It's just kind of something I put out in front of me as something to do. And I've kind of wrangled all the kids together and they're getting exposed to this and they get pretty excited about it. So we created an LLC with the family in it and we want to go buy a multifamily unit. So we've been doing some things the past year and a half to build up some cash in that LLC so we can go find us an ugly duck multifamily somewhere and do that with all of them involved. But, you know, Molly and I wrestle with passive versus active. She wants to go more passive. I still like to stay active because it's fun. I enjoy it. So we're doing a combination of both. We've done some passive deals with you guys. So yeah, she's kind of won out. Lately on some of those.

So it sounds like some of your goals, you want to hit a certain net worth number. And, you know, I don't know if you're comfortable sharing what your goal is, or is it more just kind of to keep your head in the game, keep you focused on staying active, or is there a real meaning to the number that you're shooting for?

No, I just, when I kind of really started thinking about it, I just made a number. I put $20 million out there within the next 5 years. So it's just kind of as a number that's out there in front of me to keep working toward. We started doing a lot of estate planning. Makes you think about giving and contributing back to the community and those kind of things. So we're trying to instill a lot of that, you know, with bringing the kids in to the whole picture and just get them exposed to that early so they're not waiting until they're in their late 50s or 60s like we did to, you know, start really putting that all together.

Yeah, that's pretty cool. You're doing it with your kids. You said you have 4 kids. Mm-hmm. You've created a family LLC, and your goal is to go buy a first multifamily property. Is that right? And what kind of led you to want to do that? And how did you get your kids excited or interested in that? Because I think a lot of people listening would probably be in the same boat, right, where they want to do this more with the kids or the family and think more legacy-focused?

Yeah, so the kids kind of got stuck with it by default, you know, growing up with us, because, you know, owning, remodeling houses and doing landscaping and all that, you know, they were out there when they were in elementary school raking rock and mulch and doing all that kind of stuff. Gave them, you know, sledgehammers and let them go in and do demos. So they— it was kind of in their blood from the beginning. They didn't really have a choice to kind of get involved with it. So they all enjoy it. You know, like I said, my daughter, we have the mortgage brokerage, you know, so we're in that every day. And then my oldest son, he's a custom trim carpenter. So he works for some semi-custom and custom home builders around here doing— he's been doing that for like going on 15 years, I think. And he's gotten pretty good. So You know, all of them are somewhat involved in the real estate stuff to some degree. And my second son, he's just, he just loved— they have 3 rentals, him and his wife. So they've been doing that for going on 10 years now. So they all kind of have it in their blood. So we were just looking at a way to kind of lift everybody up to the next.

They've all kind of caught the bug.

Yeah.

So let's shift a little bit to your portfolio.

Yeah. So I mean, right now, as far as our portfolio goes, we've got a 24-unit apartment building, and then we've got a 40-unit, and then we have 7 single-family homes. All of them are in Colorado except for the one in Mexico. And then we have some passive investments. We got into an apartment syndication back in '22, I believe. That one's kind of hanging on by the skin of its teeth. But they haven't done a capital call yet, so it's okay. It'll survive. And then we've done a couple of investments with you guys, a couple of oil and then industrial development. So we're just anxious to see where those all end up. But I don't really do any stock market stuff. I used to do a bunch of day trading when I first retired from the Air Force, and I didn't like that a whole lot. I like real estate. It's not going to move as fast. I understand it a lot better. And I feel like although I don't really have any control over it, I do to the extent where I can kind of add value to it. And it doesn't seem to move as fast as Wall Street can. So I like it a little better. So that's kind of where we're at right now. Right.

What would you say percentage-wise your active portfolio is relative to maybe your passive investment portfolio on a percentage basis? And do you see that shifting over time or do you like where that percentage is right now?

Yeah, we're probably 85% active, and that's all just in real estate. So I think we'll probably start shifting some of that maybe in the next 2 to 3 years. I mean, if the right opportunities pop up, then we're open to 'em. I mean, I'm always kind of keeping an eye out. I like doing this stuff, and I'm blessed to be healthy, and my brain works most days, so I like to just keep doing it. It keeps me active.

So looking back in your investing journey, what have been some of the best investments that you made over the last decade or so? And what kind of comes to mind?

Probably some of the best were getting into the Breckenridge real estate market when we did. We first went in there in 2004, and I think we ended up owning 10 different properties up there over the years. And it was I always say it's better to be lucky than good. I mean, we had a couple of places that we flipped and we were using as short-term rentals up there and we sold them like right before the market crashed in '07. And we sold them and made a lot of money on them. And then actually we bought one of them back after the crash about 18 months later for less than what we paid for it originally. So.

Oh, wow.

Yeah. And it rebounded pretty well. So that was a good market to be in.

And what, what led you to sell in 2007? Were you getting a little nervous or was it just, again, pure luck?

No, just the values on those places just got so high and I was like, all right, let's sell them and go do something else. Because we always bought them and fixed them up and then used them as short-term rentals and until we sold them. And so we would put them on the market and just kind of wait for somebody to come by that liked it. And we just lucked out on those two and sold them. I wouldn't have dumped them if I still had them when the market went down. I didn't dump anything when the market went down. I just kept everything and kept it rented and came out the other side.

So yeah, that's great. Well, Darrell, share a little bit, if you would, on some takeaways. What are some lessons that you've learned along the way, either from mistakes or from the things that have worked well? And what What would you tell yourself, the 20-year-old Darrell, things you know now that maybe you didn't know then that you wish you would've?

Yeah. One thing that's really been on my heart the last few years is you don't get exposed to this stuff until you run into the right person.

Yeah.

Or a right group of people. You just don't get exposed to this stuff. When I ask most people now, when I run into 'em, you know, if they know what alternative investments are or what an accredited investor is, they just look at me with their eyes kind of glazed over. And they have no idea. And I was the same way, and I just feel like it's almost criminal that we don't get exposed to this stuff early on. So I guess that's why I'm passionate about exposing my kids to this. And, you know, I send them links to podcasts to listen to all the time, and they probably roll their eyes, but at least they know most of this stuff now. And I've kind of got it on my heart to try and start some kind of a community just for basic stuff, because I'll be out and about doing my stuff, I'll have, you know, young people that are working on one of our houses, you know, whether they're hanging cabinets or whatever, and they come up and ask me, hey, what's the best way for me to buy a new car? Or like, we've been thinking about buying a house, how do we get started? Just basic kind of stuff. And a lot of people don't have anybody to turn to to ask those kind of things. So I've been trying to think of a way to start some kind of a Maybe just start locally here in the local community, have a place where people feel like they can connect for that and ask somebody if they don't have family that they feel like they can ask those kind of questions. I guess that's the biggest thing is just try and soak this stuff up. I know, know everybody's not interested in this. Like when we were young, the thing was start an IRA and buy some mutual funds and put it in there and just do monthly investments. And that was it. And that was kind of the extent of our stuff. We were just having fun living. I just wish there was a way to expose people when they're younger to this stuff and so they're not waiting until they're older and trying to figure it out and get started. I got a lot of those kind of people that come to me too that are older than I am that are trying to figure out how to generate some monthly cash flow so they can quit their J-O-B.

Yeah.

I try to get exposed to new stuff every week, so it's a lot of fun.

Well, Darrell, this has been really fun, and thanks so much for sharing a little bit of your journey and just what you're doing and what's worked well for you. And it's exciting, just the goals you've continued to set for yourself, even though you've had so much success. And I love it. Yeah, got to keep the fire burning, right? Got to keep learning and stay curious. And I love that you've brought your kids into it as well and got them excited and given them a leg up. I mean, that's, you know, what more could your kids ask for from that standpoint? So thanks so much for coming on and sharing. I know I got a lot out of it, and I'm sure our listeners will too. Okay.

Thanks. That was fun.

I really enjoyed talking to Darryl and especially loved hearing about how he's getting his family involved in the wealth-building journey. He runs a mortgage company with his daughter, has an LLC plan with the whole family. I think it's just a really important part of this whole story that he shared of legacy, not just building equity to pass on, but sharing knowledge and skills so the next generation can continue that growth and the values can live on. I also found it really interesting to hear how active Darrell still is with his investments. You know, most people we talked to in this podcast are more excited to move towards the passive investing side of things and slow down after retirement. But you know, Darrell shows no signs of stopping, although his wife Molly is influencing his move to do more passive investing. And happy to hear how Darrell joined us on some deals and hopefully can contribute to to him having more time scuba diving and less demolitions in his future. And a reminder, our book Invest Like a Billionaire that I wrote with Bob Fraser is in pre-sale now. If you're like Darryl and you want to pass on these kind of lessons to your own family, it'll make a great gift. Just saying. Well, that's it for this week. If you got something out of today's episode, please drop us a 5-star rating to let other listeners know what you're enjoying. Share with a friend, and we'll see you next week.