The #1 Real Estate Investments Nobody Talks About - Arthur Hood

Welcome back to the Hannah Hammond Show. I'm here today with Arthur Hood, who is a serial entrepreneur and real estate developer and investor and he's been through a wide range of businesses and still owns and operates multiple different companies. And we just spent eight hours touring. Was it four or five of your projects between.

Five projects between here and in Las Vegas?

Yeah. So we got up early this morning, watched their new project development in downtown Phoenix, right by the stadium and then we hopped on as plane and flew over to Vegas and walked. Four projects there, one that was completed and a few that are just sites. So I'm super excited to be sitting with him here today and to hear his story and share his journey with you. And you're currently the VP of your Space America, which is a large.

I'm currently a VP of Capital markets, member of board of directors and one of the three original shareholders.

You said it better than me. Yeah. Of your Space America, which is a large storage brand and they are raising capital for their projects and have completed some projects and so it was really cool to see what you got going on today. And you flew all the way here from Dallas, Texas, jumped in the jet.

Flew out last night from Dallas, got in here, met you with you this morning. We went out to our Phoenix site, then we went up to Vegas and we went out to our site on Owens, which is almost done. So you saw two of the four Opportunity Zone projects and then you saw a completed project up there, Rancho, and then two in the pipeline, the Mount Hood project which we are currently raising capital on. That'll be a 15 acre storage development, a huge site, boat, RV, climate controlled and even some old non climate controlled out there next to the Air Force base. And then a very nice site over in Henderson that's going to be a very modern but not really look like a storage. It's going to look like an apartment building.

And that was the one by the.

Residential residential neighborhood there in Henderson.

Yeah, it was so cool to see these projects and most of these projects other than the really big one, Mount Hood, are about 150,000 square foot. So these are.

Yeah, they're all 120 to 160,000 square feet. Thousand to twelve hundred units.

So cool. So cool. I'm excited to be a part of it. It was cool to, to go look at them all. So. But yeah, thank you for being on the show. You're just awesome and it's been so great to get to know you today. And I know we were connected through a friend through one of the Masterminds that we're a part of. And I just really would love to dive into your story first and then we'll get into some technical stuff about your deals. But I mean you're a serial entrepreneur and you have been forever. You started businesses really young. So can you walk us through kind of that journey and what led you to get into entrepreneurship and how you just progressed down that path and ultimately ended up in real estate development?

I mean I think it was, it, it was just kind of a natural progression. We talked about a little bit in the airplane. My dad was an entrepreneur, had a manufacturing company engineering background, liked to invent machinery and equipment and things like that. Never really wanted anything to do with a chemical plant manufacturing business. I just didn't got interested in real estate at a young age and I knew that I didn't really care that much for school nor did it care for me. And I knew I wasn't going to be a doctor, lawyer or engineer so that wasn't going to happen. And I decided I wanted to work for myself because I valued freedom over anything. And then I just kind of grew into different, different, different things. You tried some things that didn't work, tried some things, they did work. And then I, over time, you know, I built up a real estate company. I'm involved heavily now in self storage development but I still own a home building company. I'm still in land entitlement land development. I also own multi family single family rentals. Got a little industrial so pretty heavy in the real estate space. I've got investments with a couple of other partners and some industrial metal and other mining operations across Africa. We're in a couple different mining operations have been in earlier years. I was in the coal business. I had some coal mining operations that kind of transitioned to how I wound up with some of those same people in the industrial metals mining in Africa. Been in oil and gas, still have some BP production, done a little bit of mineral rights, still own some royalty rights. And then I started getting in the last couple years started getting into a little more industrial metal manufacturing. We're now have, I have an equity investment in a company that does manufacturers truck bodies there in Southern California called DS24 and we manufacture truck bodies, refrigerated bodies, containers roll offs, everything that you can, that you can mount on a cabin chassis. We're even doing some, some fire bodies and some other things like that. So that's a manufacturing company we're trying to grow that have a glass installation and cutting and manufacturing company in Birmingham. We do some residential showers and that's kind of how it started. But over the years, last year or so, we've done a lot more commercial storefronts, a lot more buildings, a lot more complicated glass. We do some high end conference rooms and that's kind of fed into the home building company. We supply our own glass and showers. So pretty wide variety of things. And then I've been a private equity investor in a telemedicine company in Latin America and some other deals. So I'm always involved in just different things.

That's so awesome. When did you get, I mean, obviously your dad was a entrepreneur and when did you, did you have that bug right away just watching him or when did you.

I think so. As we went over, over earlier, he was much older, so there's definitely some age difference there and other reasons. But I think I always saw doing something on my own, I always saw owning the store instead of working in the store. I think that was the biggest difference. I just never could see myself working for anybody other than me.

Yeah. And you think it was him that instilled that in you?

I would say half him and half me.

Yeah. Just in your blood.

Yeah.

Yeah, I know. I always wonder that, right is if, if I was in a whole different environment, a whole different childhood, whole different situation, would I still have ended up being an entrepreneur? And the answer is 100% yes, because it's just in my blood.

I would agree with that. I think, you know, like I said earlier, most people don't do the entrepreneurial journey because it is easier to get a job. This is the most difficult way to earn a living. And for a long time you won't make as much money as somebody else, but eventually you'll make way more money. You just have to go through and pay the time to get there. If somebody says, well, how do I teach you how to do? Or can you teach me to do it? Not really. You know, I can help you do it. If you're already predisposed to be an entrepreneur, I can help you become a better entrepreneur. If you're predisposed to be a real estate developer and you have, you've done, you know, flip some houses, maybe, you know, bought a lot, done a lot, split you have some basic knowledge, I can help you grow and become a lot better. But what I can't do is take somebody from the couch who wants to, who's never done anything, who in their mind wants to do it, but they're not committed to do it, can't fix that, that's different. I can't do that. Because you've got to be. To be an entrepreneur, you have to be part attorney, part accountant, part stubborn as a mule, which helps. And you've gotta be able to figure out everything. You know, I always go with Fitfo, figure it the fuck out. There ain't a damn thing I can't figure out how to do. And you've gotta be willing to figure it out. Put in the blood, sweat and the tears, fight the ups, fight the downs, some of which are out of your control. Market cycles. And you're in real estate, you could have finished a project that's worth $3 million. Well, market cycle, there's no buyers for it. I mean, there are things that are beyond your control. You have to be willing to work hard, be stubborn, work more than anyone else, put in 100 hours a week for years before you start seeing the real reward of that lifestyle. And it takes a toll. People that are married, they've got kids or whatever, you know, you're not going to be there for every baseball game or football game or whatever. You have a business to run and you run that business through building connections. You're going to travel, you're going to be with people. You know, you may not be home for every holiday. And when you are, you know, I can think the number of holidays that I've been on the computer doing emails or on the phone. There's a lot of. Some of the very successful guys I do business with, they work really hard. They'll answer the phone on Christmas morning. Not that you should, but they do. You know, it's just people work. Might be a short call, but everybody's doing something because the people that are very successful, it's part of their life, that's what they want to do.

Yeah, I know. And I, I say that, and we were talking about that on the plane is just the relentless tenacity to just keep going. Because it's going to be hard and you're going to lose and you're going to work a lot and you're going to not know the answers and you're going to make bad mistakes and you're going to work for free or work for losing money.

Correct.

But you just keep going.

You have to keep going. You have to decide that's what you want to do. It has to be in your blood. Yeah, somebody that's. That it's in their blood that they want to do it. I can help them and help them grow and learn, but somebody who thinks they're just going to go from making nothing to all of a sudden having the magic formula to get rich and you know, have all this stuff. They don't see the years it took to get there.

Yep.

And they just want the result without the work.

They just want to get rich quick. Take the next pill, take the next business opportunity, jump on the next fad, whatever. Yeah. And not put in the work and.

Not build a core foundation. I have a core foundation of businesses. I have income producing real estate, have some bar and entertainment venues that produce cash flow. I have some other businesses in manufacturing and in other areas that all produce revenue that then I can go and deploy and invest in real estate. Then as we grew the real estate company, now that we're doing these large storage products now, we raise outside capital. We bring in family offices at private equity investors, people that have sold businesses, people that need to deploy capital for tax benefits or what have you. And then we really build the storage business out of that. So it's everything going towards a reason.

Yeah. And what were some of the early struggles that you experienced in your life that, that you had to face and overcome?

I think the earliest, probably the earliest struggles were just figuring out what you didn't know without a lot of help because, you know, I'm only 43, but I'm a little pre everything being on YouTube and you know, that wasn't all there. So you kind of really did have to figure it out. Luckily I had a decent network, some good attorneys that helped send some deals my way, some good realtors. You had to work your network. Your biggest strength in any business is your network. Having people in your froladex that you can reach out to when you need something. But also they reach out to you when they need something. You help them, but you also wind up with deal flow. Opportunity comes in groups and in waves. You're good at something. Things happen your way.

Right. And what gave you. I think I was reading about you that you, you started a drilling farm and a catfish farm early on. Before you were.

Early on, I had a couple hundred acres in just outside of Utah, Alabama that we turned into catfish commercial catfish farm. Ended up selling that. And then I had a small trucking company running about six dump trucks and then that grew into a directional drilling company. So we installed the fiber lines for like level three and a few of the other telecommunication companies. We would do the road and the river and the creek crossings. Things that you couldn't open trench. We would drill underneath and run fiber lines.

How the Hell do you get into this stuff?

I don't even know that. That one. I don't know. I just, I did.

That's so wild. And then what got you into real estate? Because you also shared, you got into land entitlements.

Just understanding a little bit of, you know, you got the 20 acres on the corner isn't worth much as a Hay field, but 20 acres on the corner approved and subdivided for the gas station, the fast food restaurant, the mini center a mile up the road from the Walmart. That had value. And I learned early on you could option or tie up the property for not that much money and then you could work the entitlement improvement process relatively easily. And then you had a piece of property that, you know, value might have doubled or tripled just because now it had an entitled use.

And how did you learn that?

I have no idea. I just figured it out. Somebody tried to say, well, how'd you learn that? I saw people do it. I grew up in a fairly affluent community of Mountain Brook, Alabama, which was very old Southern in lots of ways, but people there were either doctors, lawyers, engineers, or entrepreneurs that owned businesses. So you saw people do lots of things that made money. There was a wealthy family there that owned a scrap metal business. They literally owned seven houses, including Aspen, out of scrap metal. So you just saw growing up people making money from not the sexiest businesses, but they just made money.

Yeah, yeah. It's really cool to see all the different opportunities out there to make money and to grow and build wealth. And that's awesome because I think about that, you know, I came up, I grew up in a not affluent neighborhood or family and so but I still had that bug of like, I want to be successful, I want to push, I want to build. And I had a friend who had her parents owned a general construction company and that's what ended up giving me the idea of like, oh, I'm going to start a construction company and I'm going to get into real estate and all that stuff. So it's always fascinating to me to see where people come from and how those early days influence, like what path they take in their life. And I think it just helps bring out more of who you are as you lean into the things that bring you energy and that you get excited about when you're younger and you just start to follow those types of paths.

You know, I think I, you know, I knew I never really wanted to. School never really fascinated me. I was really good at history and math, not so much in English. I still can write a. Probably the only guy that can write a three page sentence. Just was never my strong student. But I can do mental math easily. Math has always done well for me. And I liked history. Studying the past, studying successful people throughout history have found that fascinating. When I was younger we had some family friends that had a big farm in Utah, Alabama. And then the guy that used to do a lot of their excavating and construction work, I helped out a little bit just for fun. And so when I was little, let's say little, 8, 9, 10, 11, 12, 13 years old, you know, I was driving tractors, four wheelers, bulldozers, excavators, lowboy, 18 wheeler around moving equipment, just stuff when I was little. And I still liked running equipment, but I knew early on I liked doing that, but I wasn't gonna make a living doing that. And then kind of full circle. Now I still make a living with equipment, I'm just not the one running it. Make a living with equipment on our construction sites, on our subdivision developments and in the mining business. So all of it kind of came full circle. I can still get to play with a bulldozer when I want to, but I don't have to run one for a living.

Right. It's the best way to be because then you can still enjoy it. When your hobbies become work, they're not so fun anymore.

Right?

Yeah. So and so I mean how did you make your first million?

First million was like everybody was hard. It was combination of doing a little bit of everything. The trucking and the drilling company made me money, put money in my pocket, took some of that money, started investing little bits in real estate. And I had built up a little money from that. And then I had first time I flipped a couple of entitled piece of properties across the million.

Oh nice.

Yeah. And then, and then for a while I did a lot of loan brokering, financial loan brokering on larger commercial deals. I did a with me and incidentally, one of the guys, the third partner in your space is a guy I used to do some with and we did a couple of pretty big transactions. We did a 30 million land loan that I get paid well on down in Gulf Shores. We did a 36 million refinance of a building, 30 million over a span of a couple years, did a couple hundred million dollars in financing, pick up. A lot of that stuff was complex. A lot of that stuff was two points. There's a couple of million bucks in your pocket. You take that money and then you start doing things with it. But that gave you the first influx of real cash that I didn't have because you close one loan, all of a sudden you had 300 grand in the bank.

I know, tell me about it. I love this business.

So it's a complicated loan that you got two points on. On 20 million you have 400,000 overnight. Now at first it goes to your head and you waste a little bit of it because you know, I'll make another 400,000 next week. Well, not really, but you know, but that was the first start to having liquidity to do something.

Yeah, yeah. I like those complex loans because you can, you got to work hard, you get paid more. The easy loans, you don't get paid much, especially on the big deals they try.

No, we've done some big loans at a quarter and a half a point, but I mean, we're basically, we're pushing them to banks. I mean, but I like the complicated stuff that not everybody can do because you get paid well for it.

Yeah, land is tough and land is extremely tough.

And horizontal work and horizontal financing, Horizontal construction is tough land. Horizontal construction, which is just another facet of land. You're just improving the dirt, but you don't have a true exit. And most of your home builder takedown contracts are at best hope certificates anyway. If you look at the contracts of most any of the national home builders and I've done subdivisions that I've sold to them, you know, they agree to buy so many lots at a certain time or so many lots at a certain price, but you have to provide the infrastructure and keep building for them. But if they ever want to stop buying, they pretty much just forfeit a deposit and stop buying. So that's what makes those hard to finance.

Yeah. Especially if. And especially if you're in turmoil in the market.

Correct.

And you're in a down market and they want.

Luckily I just sold a 600 lot subdivision last year to Dr. Horton in Baldwin County, Alabama. A little over 600 lot subdivision, 300 plus acres. Was a little nervous about them closing because the market had just started to slow. But it's. Baldwin county is a strong market for them and they went ahead and closed and I did quite well on that deal.

Gee, 600.

600 lot subdivision lots. That one was in my personal company, HV Properties.

HP.

HV.

HV. Okay, I got HB. So HV and HV. So it's so fast. And now you have like 200 rentals and all these come. I mean you've just absolutely exploded. And so you got into entitlements. Then you got into the same business I'm in, you know, capital brokerage.

And then yeah, I was doing capital brokerage probably since 06.

For how long did you do it?

I still do a little bit of it now, but not as a. Not as a job or under an entity. Had a company called Global Capital Solutions. I did a bunch of it way back. I think I still own the entity, but I don't really use it anymore. Haven't probably done that since probably 2015 when I just started doing mostly my own projects. But I'll still help out if a developer associate of mine's really having some trouble. You know, I could help structure something.

Yeah.

I'm not cheap, but I can make a couple of points on 20 or 30 million dollars and pick up half million dollars quick. And it's something that I believe in the project and it's doable. Then I'll sit there and figure it out.

Yeah, that's cool. I love this business. I have so much fun. But. And so when did you start buying single family rentals or were you like just buying one house at a time.

Or you just buying one house at a time? I have had. At different times, I've had portfolios. I'd build up 10 or 20 of them, sell them off, build up 10 or 20 more, sell them off. I'd buy run down crap, fix them up, refinance them, keep them for a while. I got out of most of them about four years ago when the market went crazy. Three years ago. Four years ago I sold most of them because I was. My upside was huge. And then here recently, I did a deal where I picked up controlling interest of a pretty big portfolio. And I'll probably do the same thing with it.

Is it stabilized?

Some of it is, some of it isn't. We'll probably refinance some of it will, stabilize some of it, fix up some of it, keep some, sell some cool and cherry pick the good stuff. That's close enough to home to manage and get rid of the outliers. You know, four houses in Fayetteville, North Carolina can go away just because I'm not gonna mess with it.

Yeah. And the nice thing about being on the capital side and being a mortgage broker in the commercial real estate business is you get to really understand the development process because you're the one seeing.

You see it all.

Yeah.

I mean, before I did a lot of development deals. Helping finance them definitely help understanding the business.

Yeah.

And understanding what is finance and what's not because one of the biggest problems that entrepreneurs have, especially development entrepreneurs, they get not deal fatigue as they're tired of the deal, but they believe so much in their deal, they don't necessarily understand why it's not financeable. Because everything has to be financeable. You have to be able to underwrite it, put it on a piece of paper, understand what the backup exit is, understand what the alternative value if it doesn't work for the lender is. How do they recover their money? Regardless of how successful the developer's been in other projects, you have to understand the deal. And a lot of developers have trouble seeing it. They have trouble taking off their developer hat and then they put on their sales hat, but they can't get the sales hat off to actually understand the underwriting in the deal of why it may or may not finance the way they want it to. Most good deals can obviously be financed, but not always the way the developer likes. You know, you may have to have prep equity, you may need mezzanine finance, you may have to raise a little bit of additional equity. You know, senior debt at a cheap rate is only going to take so much of each deal.

Right. And especially right now, it's getting a little bit lower and lower.

It is.

Yeah, it is.

I mean, three years ago you get 85% on infrastructure development. Now you're at 50% on infrastructure development.

Yeah.

The equity checks bigger.

Yep.

And as the developer, you have to be willing to sit on, especially on a single family, you've got to be willing to sit on it for a while. I have fairly low leverage on most of the single family I build. I'm definitely under 50% debt and I prefer to keep it that way. If I have to sit on it, that's fine. I can refinance and turn it into a rental. So far that hasn't happened. But I'm not levered to the point that it would. That it won't. Cash flow as a rental. Now have I got more cash tied up than I should? Probably. But I don't have to worry about it.

Being able to sleep at night is priceless. Yeah, it's a fine balance.

Definitely is.

Because we were talking about this too, is like debt is part of some of the biggest part of the American dream. Like their ability to borrow money and not have to go work for it to do projects is huge. And be able to scale and compound our wealth using other people's money is awesome. But with big risk comes big reward too. So that fine line of like, what's you know, safe and cautious.

It's like I always say, for me, the Dave Ramsey method isn't what I want to do. But, but for some people, they should do that. They're not equipped to do that. But if you can manage debt correctly, understand your leverage. Match that leverage with cash flow. So the payments always are a little bit less than the cash flow and have enough reserve to cover vacancy, re lease up an air conditioner repair or whatever. You can build massive wealth using controlled debt. If you can get cheap bank money, you can build massive wealth off of it and make a good cash flow spread between the debt, the taxes, and frankly get a lot of tax breaks. But some people don't know how to use debt and they really should be.

Cash because they're responsible and they're going to make decisions.

And there's probably also a point if you use debt well and you've built a massive NET Worth, you're 60 years old and you don't want to work anymore. Well, okay, maybe you sell off a 30 year portfolio, generate a bunch of cash, pay off the other 2/3 and then you're debt free. Yeah, that's more of an individual question.

Right. Where are you at in your journey? And it changes as you go through each quarter of life, correct? Yeah. And so were, did you get into development while you were in the capital?

I did.

Okay. And what was that first development project that you got?

Well, the way I got into development because I had done some more complicated deals. I had some deals where I, in lieu of a cash fee, I took small equity percentages in the deal, some of them not so small. So that's kind of the first foray into that. And then during the 08 crisis, a few of the deals that I was in, you know, stalled out. A couple of them, I wound up owning the whole damn deal.

Oh geez.

Because the developer basically walked away. So I learned from, you know, the bottom back up as far as how to recapitalize and fix some deals.

What were some of the things you learned or some of the strategies you used to recapitalize and fix?

Figure out everything you can to get to cash flow quickly. You know, if you've got a project, a property that, well, you could master plan it and it's gonna sell off at this and this and this and this. But if you just go and sell that corner right there and not owe a damn thing and sit on the rest of it free and clear, sell off the damn corner, a lot easier to carry it because land isn't free. Even if it's paid for. You got taxes, you got everything else to carry it.

Right.

And me personally, I try to use very limited debt on land deals because it has no cash flow. So I don't like a lot of debt on land. A couple of those big subdivisions I did, now they were big. I had to have some debt on the land, but I only had a little over 2 1/2 million of debt on it. And my other operating businesses could cover that carry. Otherwise I wouldn't want that kind of debt on dirt. Yeah, I don't mind debt on something that pays, but something that costs. I don't like a lot of debt on liabilities.

Take money out.

Liabilities that are taking money out that aren't putting money back in your pocket.

Yeah, that's why land is tough and it's hard to lend on.

And in the right scenario, if you. If you catch the land just at the bottom of the cycle and then as the cycle starts to increase, you know, every demand picks up, you get the land entitled and you're exiting the land mid cycle, you're great. You don't want to buy and entitle a bunch of land end of cycle and have to sit through the next three to seven years.

Yeah, that's not fun. And so what were those first projects that you did? You said you ended up taking a project back that you.

Just a couple of small subdivisions in Baldwin county that I was involved with. And then I wound up with a couple of beachfront property deals where I wound up with some condos in lieu of payment.

Were these the ones that you had given? Gotten equity in lieu of the loan payment? The loan fee?

I did.

Oh, wow. And you got the whole properties back?

One of them got the whole property back. Another one, I just got some selected condos in the building.

Gotcha. Cool. And then what happened from there I.

Just kept working that angle. Ran a small company that did complex financial structuring for debt deals. Helped raise a little bit of equity and at that point started transitioning into some bar, restaurants and some entertainment venues that were. That had come my way. One was through a shopping center development. I started doing that. I was also involved in another couple shopping center developments where I helped put the tenants in and ended up owning a piece of that and then started doing some of the single family was buying, you know, the original fix and flip junk houses, fixing them up to at least be inhabitable rentals. And then it started moving more into okay, well, you know, I've been through four or five cycles on development deals, helping provide initial financing and permanent financing. So then I started doing my own deals and then I take a little bit of cash and said I want to diversify a little bit. And I started, you know, looking at operating businesses that were going to pay me money. Because the one thing I did learn from the real estate business, make a lot of money this month, starve for six months. Make a lot of money this month, starve for six months. So I started getting into operating businesses really heavily in the last seven years where I'm in various industries on stuff that's, you know, has sales, generates revenue every day, makes money every day. Makes money while you sleep, makes money while you're awake. You're generating money every day. All that, you know, combines together. And now that gives me the ability to go out, tie up bigger parcels of property entitled bigger pieces of property, hold stuff for development, build more multifamily, build more storage. Now, generally the storage, I may pick up the property, entitle it, and then may flip it to our storage development company. But it gives me some flexibility because I have cash flow coming in. One of the things that I think some real estate entrepreneurs miss is they don't run enough cash flow businesses or invest outside of their niche of real estate so that there's always money coming in the door.

That is a fact.

You need money coming in the door. You need operating businesses that are paying you money every day. That way you can invest in apartments, hotels, whatever you do, but you've got money coming in the door every day.

Yeah, yeah. I see so many sponsors get in those situations where they're developers, you know, on these big projects and they're equity rich, cash poor, and they're always running into cash issues and having to inject cash back into the projects and they're in this really not fun situation and they work so much.

And I made some great deals that way. I've had developers come to me that need a chunk of cash and they're very wealthy on paper. You know, guy was worth a hundred million bucks on paper, but was out of cash. And I was able to cut a very sweet deal for myself because I was able to inject the cash at a time they really needed it, where if the developer had had other cash flowing, businesses might not have wound up in that position. So I think it's important that every entrepreneur, if they're heavy into real estate, also has other sources of income that are paying money every day, every week. There's always money coming in.

Yeah. Because These are long ass projects, you know, three, four, five, seven, ten years.

Yeah. Some of these subdivision developments could be 15 years, three phase major developments. And you may not really see money coming into your pocket till the latter five or six years.

Yeah. And how do you recommend people navigate that? Because you, we all hear the thing, jack of all trades and master of none. Just focus on the one thing.

The true statement of that is not that, you know the true statement of that.

What is it?

I'd have to google it. Somebody have to google it. But it's. It's jack of all trades, master of none. But better to be somebody actually should Google that really quick because it's actually cool. Because it is not what it says.

It's the opposite.

It is absolutely opposite of jack of all trades, master of none. The full statement is completely opposite of that. Because as an entrepreneur you pretty well are a jack of all trades and you better be pretty damn good at all of it.

And you just find the right, who's the right operators or the masters in their craft. I guess you could see it that way. But as entrepreneurs we have to wear every single hat. As you said, the cfo, the cmo, the cto, the CEO. Like you have to be everything at some point.

I always say you're HMFIC head motherfucker in charge and you better figure it out.

Yeah, yeah, yeah. How? I mean how do you advise people? Because like if you're somebody who is.

Like I said, I'm really good at advising people that have already done something right and are growing. I have a really hard time advising people that have never done anything to get started because just the knowledge gap is so far.

Right? No, I'm talking about already successful people that are successful real estate developers and don't have that reliable cash flowing enterprise or business or means over here, how do you. But they're already working 12, 18 hour days, 7 days a day.

They need to figure out how to work a little more and how to buy some cash flowing businesses. There are entrepreneurs, investors and business owners in boring blue collar businesses that want to retire every day. Figure out a way to start buying those businesses so that you have that cash flow coming in.

And so do you normally buy businesses versus start them?

Usually I've done both. But I'd always like to buy something that's got a little bit of cash flow and grow it, then start from scratch.

And what type of industries do you like outside of real estate from just the cash flow perspective?

Just the cash flow perspective. I like certain entertainment venues Bar, nightclub, live music. Very particular on that. I like manufacturing, domestic US manufacturing of something that's got a decent barrier to entry that nobody's just going to create tomorrow. And then I like home services, heating, air conditioning, electric, you name it. Any of the trades. Because as we talked about earlier with the foreman on our Phoenix site, people aren't in the trades. That will not be replaced by AI at any point in time. Jack of all trades is the master of none. But it's sometimes better than the master of one.

Yeah, it's always better. I think it is.

That's why I always hate when people quote that. Because they only quote half the thing.

Yeah.

Because it's jack of all trades. But better than a master of one.

Yeah, I mean you have to be to be an entrepreneur. And most people who are become very successful at some level own their own businesses or invest in businesses. They're not just doing the one thing. Even, you know, if they're a doctor that's a master heart surgeon, they're still investing their money in that.

We can talk about it more with when Jeff comes on a little bit. But the tax code's not written for anybody except business owners and entrepreneurs. If you work a normal W2 job, you get fucked, the government fucks you. There's no two ways about it. But if you're an entrepreneur, you own your own business and you spend a little time educating yourself on the tax code, you can keep a lot more of the money you make because you get to spend money, invest money, take care of growth expenses before you pay tax. Where a W2 employee, you just. Tax man's there for the first. For the first penny.

Yep.

You know, and I'm not here to debate whether right, wrong or indifferent. I don't get into that. I'm just stating tax code is written for you to own a business.

Yeah. I remember when I became an engineer for Cat. 20 years old or yeah, I think it was 20. The first paycheck I got after 401k. Taxes, insurance, all these things, it was nothing.

Correct.

And I sat there at my desk and I literally started crying. I was so pissed. I'm like, I work so hard. Where'd all my buddy go? And I was like, there's got to be a better way. I'm not doing this.

No, there is a better way.

Yeah. Oh yeah. And it's way better. I mean, if you look at a compound calculator and you can compound your wealth tax free or with very little taxes over time, it's a game changer versus going and being a W2. And if you are a W2, there are strategies.

Well, in real estate you get equity growth, so you get appreciation and depreciation on the same asset. You don't do that on your W2 job. So the depreciation generally covers most of the rental income. So that's more or less tax free. Then you get other depreciation that covers some of your other income while the property is becoming more and more valuable. And then at a later date, you can refinance the property, take cash back in your pocket, which is in the form of debt, and that's a tax free exchange. So you buy a property for 100 grand, put a hundred grand in it, it's worth 200. Our cost basis is 200. Now it's worth 400. Go to the bank, you borrow 300, you put 100 in your pocket tax free. Plus you get to depreciate the asset to offset your other income. I mean, the system is rigged for owning a business, not for a W2 job. So if you really want to see the in, the compounding difference is massive. If you make a hundred grand a year in the real estate business and you keep most of it versus if you make 100 grand a year in a job and you pay a good chunk of it to the government, one's going to grow a lot faster than the other.

Yep. Yeah. I don't know how everyone is an entrepreneur, but it's just they're not at. Everyone's cut out for it. Unfortunately.

Everyone's not cut out for it. I'll agree with that. But also, there's no financial education in the school system. Yeah, I mean, people are barely. People don't know what a checkbook is, a credit score. They hear a lot on the Internet about credit, but they really don't understand it. But they have no idea how to structure themselves as a business. I mean, even a W2 employee can do certain things. They could invest. One spouse can become a real estate professional and they can take advantage of passive losses. But nobody teaches this. I think one of the biggest failures we've made in the school system is we just create employees. We do not create free thinking entrepreneurs.

I know, it's so sad. And that's, I mean, I know that's.

Robert Kiyosaki's mission, but that's another, you know, that's another. That's a whole other subject.

So I think it's rigged like that. They don't want to create.

You know, you don't you want employees?

Yeah. Well, I, I don't. I.

Corporations would.

Yeah, right. Big corporations. Right. I like 1099 contractors because then they can have their own business and write off their expenses and they get to act like an entrepreneur, like an entrepreneur within the business. And I like that. And then I don't have to pay their taxes. And they don't have to pay their taxes because I can teach them these strategies to help them grow. Because I want all my team members to be successful and make tons of money. I don't want to be, like, sitting on my ivory tower and everybody's miserable and giving all their money to the government. So I try to.

You made a comment earlier. You know, millionaires are very good at making themselves money. Billionaires are very good at making everyone around them a lot of money.

Yeah.

And that. And that's a key difference.

Yep. Yeah. And that's what you do now with raising capital. And you make up people a lot.

Of money and it just makes yourself more money.

Right. I mean, that's what you've always done. This foundation of the business, the. The money that you make is a direct correlation of the size of the problems that you solve for other people.

Correct.

Yeah.

So I've always liked that saying. Yeah.

Solve big problems, make big money, solve.

Little problems, not make much money.

Yeah. I had one of my. My mentors is a billionaire right. Right around there. And he said that same thing. He's like, don't worry about your own growth. Just worry about the size of the problems that you can solve for other people. And your growth is a byproduct, like you will grow as big as you want to grow. So it was an interesting viewpoint, and it's true. I think it's just solid.

And be careful how you spend your time. You know, like we talked about earlier, you know, I don't, you know, I have a housekeeper that comes in a couple of days a week. And it's not because I too good or not going to do that stuff, but my time's better suited doing other things. So I've kind of learned that, you know, I have a couple of assistants that work for me and they take care of a lot of things. And, you know, basically, if it's not making money or growing the business or the goal of one of the businesses, I don't do it. I'm better off. Big vision, thinking, putting people in the right places, meeting new people, understanding opportunities, underwriting deals, doing the things that I know how to do, and let somebody else take care of everything.

Else do what you do best and delegate the rest.

Correct?

Yeah. What, so moving into your space, America, what got you into the storage space? Because you were doing land, were you in a specific asset class when you were brokering loans or.

Not really just any form of, I mean, whatever came through the door to some degree, got into the storage space heavily. Russ Colvin, my partner in the storage company, had built another big storage company as an employee and really was the only one building their storage business. Built it up quite large, it sold, made a lot of money, but he was still an employee for it and he got a nice bonus. But it was what it should have been. And then he started wanting to do it on his own. He created your space. He partnered with a guy named Robert Papiri who knew me. And then Robert and I came in and helped entitle, help put up the deposits, tie up properties, finance the land acquisitions, which are tough to finance, as you know. So we bought some of the dirt and then I put some of my core investors, some of my friends together and we all had cash and we were able to take down the initial properties in cash. And then internally we raised the equity to build these. And that's how I wound up on the board and as a large shareholder of your space. And we just decided to grow that. Our goal, I really think over the next five to seven years is to do at least two to two and a half billion of construction cost within seven years and hopefully have an asset's worth in excess of 5 billion within seven years. We have the deal flow for that. We're starting to get traction on the equity and the institutional equity to get there. And then we'll be a very large player in the storage space, but we're finding that it's better. And we've all done one off deals that are value add or storage conversions. But the equity gain of a ground up deal, buying raw dirt, entitling it. You know, we had a property that we purchased for $700,000 and after we got entitled, it was reappraised at 3 million. So our biggest value is entitlement. And then of course taking that entitled property, building something, because our equity upside, I mean we got deals that will be in for 25 million that'll be worth 50 shortly after stabilization. You know, that's allowed us to generate an average IRR of 39%.

That's insane.

A 2.9 multiple on equity. You know, we got one deal that'll probably be a 4 multiple on equity. Most are gonna be in the 2 and 2.7 to 3, three times on equity. So a million in, 2 million, nine back. Yeah, you know, we're working very hard to make most of the deals you put your money in. You'll earn a 10% pref or an 8% pref depending on the deal. From day one that'll accrue until there's cash flow. But once the deal is completed, built and starts to be leased, we'll then refinance the deal rate dependent on this and you may get 100% of your money back or 70%, but some large chunk, if not all of your money will be returned and then your prep stops. But now you still have your equity in the deal. And then if you've got all your money back, the return is infinite. So if you got a deal that you put a million dollars in, two years later you get most of that money back and then three years after that. So by year five we flipped a deal we built for 20 million for 45 million. And your 1 million gives you a total of 3 million over the history of the deal. It's a 3x return between cash flow and equity appreciation. It's not bad. Yeah, you know, storage to me is one of the best asset classes because you have multiple tenants. So you got diversity of tenants. You know, if I've got a warehouse and I lose a tenant, I'm going to feel it. And it could take a year or two to re rent a warehouse or a shopping center space where I have to redo the space I got to put money in for tenant improvement, even an apartment. I may have to replace carpet or I may have to do this, that or the other. Well in the storage, I sweep the fucker out and move somebody else in.

It's easy, so nice.

And we don't have to worry about eviction in most states, not every state, but in most states they don't pay. You lock them out after a certain notice time you can sell the locker, storage wars, sweep it out and rent it again. You don't get the down lost time, which I think is very valuable to the investor. And then as Jeff will talk about in a little bit, storage has really good opportunities for accelerated depreciation.

Do you think more so than other asset classes or just in cost segregation.

In general, more so than certain asset classes? Way more than certain asset class. Because a lot of that building that you were in is all quickly depreciable things. The garage doors, the roll ups, the non structural walls, the landscape, all of those things can be Written off on an accelerated schedule.

Yeah, I guess I never thought of it like that. Of the different asset classes and how that might change the depreciation on the cost segregation.

Absolutely.

I really like this whole. Because I love the idea of entitling land because I know so many people that entitle land and they triple the money the value of once it's entitled. But I don't know really much about that space. I've just seen people talk about it and do it, but I've never really dove into it.

Right now it can be a great space, but the problem is right now, with a little bit slower market, you may be sitting on that dirt for a little while, you may get it entitled and triple the value, but you still have to have somebody willing to transact and pay you that value.

Right. And it's not cash flowing until it does.

Correct?

Yeah. So what is the process to entitle land and what are some of the risks involved in. Did and like, if someone wanted to get into this business of land entitlements and make land worth more money, two.

Or three years, work with somebody that's done it. I mean, can the land. What is the land zone for? Do you have to do a zoning change? Is it an administrative change? Does it have to go to the county commission or the city council? Are you going to get public neighborhood put. Resist pushback and resistance? Do you have to do public notice where you're going to get a hearing with every Karen in the county showing up because you know she doesn't want anything built there. So you got to know what you're doing and navigate it correctly. And you also need to entitle for things that are not only needed and that will make you economic money, whether it's the corner lot for the gas station or the subdivision or whatever. But you. You don't want to swim upstream and entitle for something that the county's going to push back on. You know, what they don't want in a certain area.

How do you know?

Pay attention to learn the area. Find out the local attorney that helps with entitlement there. A lot of times you'll hire somebody local that's not really an attorney, but they work on entitlements. We have a company in Vegas, we use. We have some guys around the country that we use that specialize in entitlement. They'll work with a law firm or work separate, but they help you navigate the political process of entitlement on property.

That was gonna be. The next question is how Political. Is it really? Cause everyone that I know everywhere is.

Different, but it's always a little political.

Yeah.

I mean, you're changing zoning. It's always gonna be a little political.

Yeah, I know. People are like, yeah, you know that building, it's supposed to be three stories, but it's five. It's because of who I know or whatever.

You know, there's a little bit of that. And I've worked in some political stuff over the years. You know, we talked about. I did the ibogaine. I worked on the Ivy Gate thing in Texas to, you know, help PTSD and veterans and substance abuse with Brian Hubbard and Governor Abbott and some other people. Actually cash and a bunch of people. We all kind of came together about eight months ago and kind of worked together. Everybody. And they. And some people did a lot of stuff. They brought in a lot of military veterans and got that done. But everything. If you, if you get everybody on the same page to the same goal, same thing with land entitlement, you can get things done.

Yeah, I guess. What would the first step be like if. If let's say I went out, wanted to go out and there was a piece of raw land and I wanted to build a storage facility on it. We who. What's the process from start to finish to get it entitled in a.

Call us, we'll do it.

30 second call us, we'll do it.

If it can be done, make sure that it's not something that. That's prohibitively prohibited on the property.

Number one, for the current zoning.

For the current zoning. Because now you got to go for zoning variances and that can be done potentially. But now you're into public notice, your hearings and the Karens get to show up. You try to want to stay within the guise of what is allowable under that zoning. But then if you do have to change zoning, which is okay, you know, like farm land to something else, just make sure you understand the county rules and get buy in from the county. Show them how it's going to benefit them, their tax base, the revenue base and the population.

Yeah. What does that process take?

It's different in different municipalities. It could take you three months to two years.

Do you have an except in California?

Could take forever.

Yeah, but how do you. Where I'm going is how do you mitigate risk? If you're going to lock up a property and try to get.

You want to lock it up and have a contract where maybe you go hard on small amounts, but you don't buy the property to get it entitled.

Yeah.

Close on. But just because you got entitled, sometimes that can be a little bit of trick because let's say you tied up the property for a million bucks, put up 25 grand, you paying 5 grand a month option fee, all of a sudden you get it entitled. Now you gotta pay the million dollars, and it may be another year before you sell it. So you definitely don't want to close unless you have to until you get it entitled for the intended use. But then you still have to market it for that intended use and liquidate it and find a willing buyer. So now you may be able to make a lot of money at you a piece you paid a million for, you may sell it for 3 million, may have a half a million tied up and carrying entitlement costs, you may double your money, you may triple your money. But you got to have the stomach to carry it.

Right.

That's where the cash flow businesses come in, where you can't afford to carry it.

Yeah. And then you can not worry about it because you're not relying on it for your cash flow. What are some of the biggest mistakes that you've learned throughout your life in entrepreneurship and real estate?

Hire people when you need them and get rid of them when you don't, or when you find out they don't meet the culture, get rid of them. If somebody has a. Doesn't see the vision you're going towards, get rid of them. You know, if you're, if you're growing the business too big for their comfort them. Get rid of them.

Yeah.

How does their work against you without even realizing it?

How do you find a players? How have you found them?

I've done everything from the headhunters to connections to people. And, and like I've said, hire fast, fire faster. You know, I made the mistakes in some of the business, keeping people too long because you like them or you think you can change them, but either they're going where you're going, or they can go out the door.

Yeah. That's something Pace Moreby told me, too, is just, you're gonna have to go. You could might have to go through 20 people to find one person that's really good for one role.

That's correct. And you, and you got to be willing to say, you know, your values are great, but you don't align for the business. And then you get people say, oh, you're gonna try to grow that too big. I don't want to see it that big. They may not say that verbally, but you can Tell by their action, they don't want to see you get there. So if they're not a cheerleader to where you're going, they're out the door.

What else? What other mistakes?

No negative activity, no negative attitudes, period. Because it just affects everybody around them.

Yeah, everything is energy. And when there's good energy, when you're in a state of flow, your productivity is 5x correct. And if one bad apple will rot the whole bag, just get rid of them.

Yeah, they got a bad attitude, bad life at home, you know, can't fix everybody, move on, find somebody else.

What other good lessons have you learned?

Never give up and just figure it the fuck out one way or the other. Make it happen and just continually make it happen, you know? And then sometimes you'll see people that you don't necessarily think you should get rid of, but you just found a better, a different role for them. Some people will fail in one role, succeed in another.

Right. It's got to be right person, right seat. It might be the right person, but.

Not the right, right person, right seat. And you got to do a little bit of ego management, especially like me, where I'm running a bunch of different businesses. You've got to make sure that you put people in the right places with enough authority to do what they need to do, but not so much that they hide the problems from you. Because one of the things that I've. I've said is, you know, my phone's on 24 hours a day. You can, everybody can reach me, preferably. I don't want idiots reaching me, but I'd rather have an idiot tell me a problem that I can step in and deal with than not know about the problem. So you, you know, and then I show up at all my different businesses at different times and listen, even not directly by asking questions, but just seeing what's going on and see if you know something needs to change. Because you've always got to keep everything moving towards something better.

Do you run your businesses off a specific operating system or no?

No, probably should. I've looked at it, but probably should do Eos, but I haven't yet.

Yeah, there's a bunch different out. Different ones out there. There's a guy in Genius Network that has a company called Next Level Growth, where he kind of creates a custom system based on each business and what they need. That seems to be cool, too.

That'd be cool to check out.

Yeah. Because Eos is just like. That's just what it is. But different businesses might need a Little bit of a different variation.

I know you said you're using eos.

Yeah, I implemented it recently and it's been good. It's been good. I just need to find that, I think. Yeah. I don't know. As I grow, I eventually want to find that COO operator, like really own that operational role. But we're just, we're not at that point yet. I mean, we're so new on the capital side, so. But cool. So we're gonna wrap up here and I'm going to interview Jeff with. We're going to talk all about cost segregation and tax.

We're talking about our number one cost seg guy.

Yeah.

The one that makes sure we're going to have negative K1s the first couple years. So you can take your, your passive.

Losses speaking my language.

Exactly.

Yep. Negative K1s is what I get excited about. So what is your goal for your space America? I mean, you had, you had one project that was already completed and you're somewhere in the high 30s of IRR, which is.

My goal is to try to maintain our high 30 IRR, try to maintain 2 1/2 to 3x multiple on equity and just keep growing that till we become a massive owner of self storage. Developer and owner of self storage.

And at that point do you plan to sell them off into a reit or.

We might sell them off into a reit. We may package some up and sell them to private equity. We may keep some forever. At this point we're in a growth mode. We're in a mode to make ourselves and our investors a lot of money and we'll see where that goes. It's a little too early to state how you're going to, you know, start talking about dispositions prior to knowing exactly where the market's going to be at the time.

Right.

Yes, we are going to sell some so we can generate cash for the company. We are going to hold some. But if we amass a big enough package, maybe we do go to, you know, a reit, which would be a tax free event. But we'll figure that out as we go. Our number one goal, make money. Passive cash flow and capital appreciation.

Love it. And for those out there who are listening that either are newer developers or want to get in development or want to scale their development company. Do you have any lessons off the top of your head that you've learned that that might be valuable for them to to mistakes that maybe they shouldn't make or lessons you've learned that be.

Understand having enough cash Reserve for double the time you think you need. And if you're not going to have the cash reserve, have the cash flow businesses that can fund it.

Yeah, number one cause of business failure is lack of working capital.

And I think another thing is pay a little more for a better contractor. We're using Arco Murray pretty much exclusively now. Nobody's perfect, but they've done a massively good job for us. And when the little problems arise, they just take care of them. You heard some of that today. They had a problem with some of the corrugated steel. They took care of it, got the manufacturer in there, we fixed it. I mean, they just do a little bit more. And when you got projects all over, it's, it's good to have a contractor you can count on A plus players. And you met both of the superintendents today. Both of them kind of knew what they were doing.

They were amazing. I was like, oh my God, these guys are really good. Yeah, it was cool to see and.

Hopefully we'll start seeing some young people decide to get into the trades because as you can see, they're getting a little gray.

Yeah, I know. It was nice that one superintendent was younger and he was a, you know, aerospace engineer.

Yeah, he was a foreman. Yeah. Under the other guy.

But yeah, that was. Yeah, it was really cool to see.

And out of the Dallas area.

So how has it been? Yeah, your area, your hood, no pun intended. How has it been? Because you sound like you've had a lot of, you know, self funded projects in your, your days and our partnerships and things like that. So the world of capital raising is a whole new world for you, right?

Correct.

Over the past recent years, how has that experience been? It definitely hasn't been the best market either, like raising capital.

It's definitely been different because in the past I either did projects all on my own or with three, four, five people that I knew that would just text each other and I'd do some of their deals, I'd do some of mine. So it was very closed group of people or a friend of a friend that, hey, I got this, can you split it with me? That type of thing. And I also do some hard money lending. So I'd done stuff with outside people, but not that much. This has been different because I've had to kind of rethink how we do it. We've had to go out and raise private capital from individual investors, from other entrepreneurs. Now we're getting deals with family offices and larger quasi institutions and private equity groups because our equity need is Much larger. You know, our average deal is probably 7 or 8 million of equity. You can only do so many of those yourself or with your small group. So, you know, we're probably at about 70 million raised, give or take. Goal would probably be break 100 million by the end of the year in equity. Using our ratio of 30, 35% equity, that's a significant amount of construction will be underway.

Yeah. Significant amount of structure. What are some of the lessons you've learned in capital raising? What are some of the roadblocks that you weren't anticipating and what are some of the strategies that you're doing to raise capital?

Found it easier to raise from other. Other developers that are kind of retiring. They don't want to do new projects, but have a lot of. That's the leisure. Because they understand what you're doing. The hardest part is when you have a lot of smaller investors, which we welcome. We love the smaller investor, but it's more challenging when you have more people in a deal than fewer people. But overall, we have a great group of investors so far and we have a great group of projects. I'm pretty happy with it.

That's cool.

And I'm still learning the capital raising every day.

Yeah, it's a whole different world. And I know it's when you have a lot of. What's your minimum investment?

50,000, but really it's 100, right?

Yeah, that's my. My fund is the same structure, but it's. It's a lot more challenging. And we're starting to see people start to get away from the small check writers because it's a lot of work. I mean, if you have 1500 investors and they all don't really understand development and you really have to educate them. And if one thing is delayed or one thing doesn't happen perfectly, they don't necessarily understand it. And it's a lot of money for them sometimes. And they. It can be definitely.

You know, anybody that sees this, that wants to reach out, that is interested in investing, you know, they could reach me directly, which is arthur@arthurhood.com or arthur@your space america.com but it's easier just to do me directly.

Yeah, perfect. Well, thanks for sharing your information. And so 50,000 minimum investment. Arthur knows what he's doing. He's got an amazing team. They have the best contractors, amazing sites. They're adding so much more irr and value through entitling the sites versus already getting them entitled and paying a premium for them. So it's cool. I'm super excited to see these projects break ground, these other projects that are coming up that you'll be raising capital for and start to see some more of these get completed.

Awesome. Thank you very much.

Thanks, Arthur.