EP33: From CPA to Real Estate Mogul: Mathew Owens' Journey and Investment Strategies

And then if I'm looking at moving forward with that and I'm like, hey, this one is interesting. I go through a full 200 point due diligence checklist on that operator where I am vetting the operator in massive detail, background checks and criminal checks, and going into a massive amount of detail about how do they think about risk and what are their financial assumptions? Are they pushing it to make the deal look better or are they being really conservative, saying there's no way we don't hit this because we're being so conservative. It's insane. Right? And I love that because especially when there's risk in the market, you want to see an operator that looks at it from that angle, right? That's saying how to playing defense as an investor first when there's economic volatility out there, right?

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Hey, hey, hey. Welcome back to another episode with Think Outside the Stocks. I am your host Madhvi Jain and if you want to learn about what goes in a CPA's mind when he is investing, we have our very interesting guest today, Matthew Owens who is going to spotlight just on that. But before we go ahead, I do want to mention that this is information and education purpose only. Whatever we are providing as an education on this podcast, please be sure to do your own due diligence on it. Consult your tax professionals, your lawyers, so that you can implement this strategy in your financial structure. So Matthew, welcome to Think Outside this Talks.

Thank you so much. Super happy to be here and try to share as much as I can.

Absolutely. And Matthew, I'd like to introduce my guest with three fun facts and actually your resume shows many more fun facts. I'm gonna pick just three out of them. So listeners, the first fun facts is he has bought, renovated or held over thousand single family Homes. So his real estate journey actually goes way, way back. He's been also a private lender to people who are doing it and he has lent over $35 million money so that they can get that help. And the third fun fact is actually actively or passively participate in over 50 syndicated deals. So Matthew, we're going to pick your brain today that what do you look for in those investments? Right. So with that fun fact, again, I'm grateful to have you here. Matthew comes from some mastermind that I'm part of and you know, just yesterday I was on a call with him. He's just this super analytical person and I think that's the most I resonated with you, Matthew, that you're a numbers person and super analytical. But tell us our listeners a little bit more about you in your own language.

These two screens back here are 47 inch wide monitors just for Excel, just for Microsoft Excel. So it's like amazing for me being a CPA doing this stuff. So thank you so much for the kind intro. I greatly appreciate it and you know, I'd love to just provide as much value as I can. And you know, I quit my CPA firm job in 2006 to go into real estate full time. Was a real estate genius for about a year and a half before I got punched in the face and lost everything, of course, was probably honestly the best thing that ever happened to me from a business perspective and a learning perspective because it taught me how to stand back up after taking that hit down and how to actually have a much stronger mindset so you can control your emotions during those trials and tribulations that we all go through in one way, shape or form. Right. And still struggle with it sometimes. But at the same time it's a matter of, you know, dialing yourself back in and looking for that opportunity. But we've, you know, I'd say my biggest mistake was actually selling over a thousand houses in the first place instead of just holding them all, but definitely got some brain damage from contractors along the way. At the same time, it's been a massive learning experience where I became a specialist of course, at single family investing and fixing and flipping and buying and holding rentals and doing seller financing and strategic partnerships and kind of deal structuring as a whole through all of that that I then brought into the, you know, multifamily mobile home space, the debt space on a higher level and love making money in these different strategic ways. So it's great to diversify into different asset classes and different markets of the country and different operators that you can invest with.

You know, that's amazing. Trials and tribulations. I love that perspective of looking at your challenges and learning from it and rising from it. Right, Matthew? I think we all do it in different parts of the life, right? So tell us about one learning lesson or one kind of a lesson from that life of flipping going into syndication. And listeners today are looking at just being landlord or fixing and flipping that houses. What is that one thing that they should keep it in mind?

I mean, really, at the end of the day, I wish that I would have gone into syndications faster because you can leverage other people's time more efficiently and grow your portfolio and grow your own net worth at a much faster pace when you're utilizing other people's expertise. You know, for one, if you're an operator and you're buying property directly, it's a lot of work. And your learning curve in the beginning is through the roof and you're going to take some losses and you're going to do a ton more work than you ever thought you would need to do in that situation. Until you get learn how to do the right processes and systems and put those things in place or scale to that level where you can do that. And so there's you go through this grinding phase where you're doing this learning over here, but you don't have to always do that. You can start to go and learn how to do the homework and invest passively where that's where I really love investing as a passive investor in a lot of syndications, where I can diversify into different asset classes like multifamily mobile homes, self storage debt, you know, alternative investments and different things, and can then go through and do the homework. There's a lot of homework that goes into it up front to make sure that that operator is a good operator. The investment's a good opera investment, that market's a good, good market. But once you're able to get through that hurdle, there isn't really a whole lot of work that you have to do on the back end of that. Right. So it makes it a lot easier. There's still work involved in being active or being passive and still risk involved with being active and passive. But if you look at how passive you can be over here, it's you get more bang for your buck. You can make really great returns on the active side. But if you look at the cost of your time, then maybe you're not making as much of a return on the active side, as you really thought was possible. If you were to outsource yourself completely and get out of that and have someone else do it all for you, how profitable is it then in that case? Right. And so, and what I really think is, I do believe the syndication space is far less risky as well. Just because you're not. If as an LP investor, as a passive investor, you are not qualifying for the financing, you are only at risk for the capital you put in, which is still a risk. Right, for sure. But you're not at risk for, you know, extra money on top of that, you're not borrowing the money and personally guaranteeing that money yourself on those deals. Right. So that to me is a big win when it comes to, you know, risk mitigation and structuring your life.

You know what eloquently put Matthew there because you know, first of all that learning curve, right? So you are actually riding on somebody else's learning curve. You're not putting your own learning curve in there.

Right.

You are not just leveraging the loans from the bank, but you're leveraging somebody's time and expertise too. And at the same time when you still have to do your own due diligence, there is that expert behind it. You're actually utilizing that and becoming completely passive. And I sometimes think about passive investors because they're the one listeners, they are, you know, busy professionals. They're working full time time in their job and they're probably spending that 2x time already what they're supposed to do in their life and then they have a little bit time for their families. So if they can leverage somebody else's expertise like this, somebody else's time like this, I think that's incredible. So unless we have a cloning technology where one person can be a busy professional and work and the other person could be for completely active in, in any of the investments, I think what you recommended is the best option. Then be completely passive, do your due diligence, you know, put it in there.

Right.

And another thing I'm going to highlight that you said it's very, very important is your risk is just your money. Right?

Right.

You have these syndicated investments which have typically the non recourse loan which I often talk about and you know, if something goes wrong they, you know, you're not even on the loans. So that's kind of keeps you in that safety net there. So I love that. So given that, you know, it's a very interesting time we are in and we always, you know, think about what's going on? We kind of have that trifecta in the market right now, the high interest rate, which is, oh my God, that's really scary. The market cycle where we are, is recession looming. We are in recession, something like that. And trillions of dollars are being on the sideline. I mean, I don't blame if the investors are afraid of investing into it. Right. So, you know, and coming back from that, you know, super analytical numbers perspective and being a cpa, we want to pick your brain and see that what goes in your mind as a CPA in the current market cycle, what would you say is prominent that investors should keep in mind whether they should invest or not invest in current market cycles.

I think the biggest factor is realizing that every deal is independent from each other. Right. Like you have different some deals that are going to be good in the upcoming environment and some deals that are not going to be good in that upcoming environment. For example, you know, I invest a lot in multifamily. I think that the interest rate environment really harmed multifamily's sales values on the back end of this. And so I think there might be a lot of opportunity coming, especially when there's trillions of loans that are going to be coming due in the next, you know, few years that need to be refinanced or worked out with the banks at a higher interest rate, which a lot of people didn't pencil into their calculations when they originally got those loans. And so there's going to be some distress, I think, in that sector. And so gearing up to take advantage of that in the future because rates already rose. So what does that mean? That means pricing already readjusted because you can't go buy and make the same return. And so you might as well go and look at opportunity in that realm to see what kind of cash flow you can get going forward, what kind of value add you can put together. I also like looking at this when there's economic volatility, then I like looking at this and saying how much value can I add to a specific unit so that I have enough equity protection now? So even if everything crashed by 20%, I'm still going to feel a lot very comfortable because I'm in it for less than that no matter what. Right. And so we just finishing up a mobile home park that we are doing where we're adding 55 brand new units and then rehabbing 26 units as well on top of that and doing utility recapture as well. So we're looking at like a 13% plus cap rate at our cost, which is really, really interesting. And then you want to be looking at what are the financial assumptions within the financial model, what does that debt look like? Because we've seen the risk of what happens when interest rates are volatile or the ones you're investing in. It's important to make sure you're very aware of that financing risk and when that occurs into the future, when the refinance needs to happen. Right. And making sure you're being very conservative on your rent bumps and your numbers there or that operator is when you're investing with them. So that that way you are geared correctly. If there's a market crash or a softening in rents, which happens too, people think, oh, rents always go up because of inflation. No, they soften just like houses soften. Right. So being very, very smart about some of your assumptions and talking to operators about what their assumptions are and what risks they see in the market and how they mitigated those risks are really, really key to being successful moving forward with some risk in the market right now. You know, we talked about the, the commercial lending market issue. There's also, you know, banks are having financial stability issues right now that could cause a liquidity issue long term. You know, there's a lot of potential distress that could be happening, especially with inflation and people's affordability is being crazy squeezed right now. And I think personally housing is probably going to, you know, maybe decline a little bit, but also, you know, maybe even break even. Because I think we'll see future inflation occur, but I think it'll be at a lesser pace. The values of real estate compared to inflation, where over time wages will rise, affordability will get better, but the pricing may not go crazy rising into the future like it has just because of the affordability alone.

That's very interesting. Right. And one of the points that you make that, yes, that multifamily has suffered, but right now in the market cycle is getting into that phase where the opportunities are kind of coming back. And even I'm seeing that a lot of these, which are 20, 25% discounted than what they were just a year or two ago. Right. So I think you make that interesting point and also as a passive investor to look, keep it into mind, the top three things that you just mentioned is the debt structure. That's really important in this high interest cyc. Looking at the conservative assumptions and you know, what they're projecting, I call it a shiny number syndrome, that if somebody is giving you 20% projected returns, just look into, dig into that assumptions because you're right, softening has happened, right? There's kind of a reverse direction of the rent. But again it's going to go normalize because you know, whether we are in recession or not, the job market is really strong. People still have jobs, people are, their wages are still going up. So that's important. And third thing, and that's a very important thing you mentioned is what is, is that sponsor team's risk tolerance, right? How do they calculate risk? So on that point, let's talk a little about, you know, how do you calculate risk in a, in a deal?

So it depends on the asset that I'm looking at. The very first thing that I'm doing is I'm looking at is this deal even something I have any interest in at all? From a size of the deal, location deal, the profitability that I'm seeing on that deal from a numbers perspective, the initial sniff test from that perspective and usually I'm looking at, you know, how much value add does it, cash flow, who's the sponsor team, etc. What are the experience of the sponsor team. And then if I'm looking at moving forward with that and I'm like, hey, this one is, is interesting. I go through a full 200 point due diligence checklist on that operator where I am vetting the operator in massive detail, background checks and criminal checks and going into a massive amount of detail about how do they think about risk and what are their financial assumptions, Are they pushing it to make the deal look better or are they being really conservative saying there's no way we don't hit this because we're being so conservative. It's insane. Right? And I love that because especially when there's risk in the market, you want to see an operator that looks at it from that angle, right? That's saying how to playing defense as an investor first when there's economic volatility out there, right? And so that's the biggest piece honestly is the operator in itself and then obviously the deal in itself too. Where you're looking at, at, you know, the financial model associated with it and looking at all their detailed assumptions. Do you agree with that exit cap rate, do you agree with the interest rate environment? You know, do you agree with their rental assumptions and increases in vacancy rates and things like that. Does that make sense? And if you don't know, ask other operators what they would use, you know, go through and talk to other people to see what engage what is real and what is not. Because There's a lot of fluff in these things that you got to be careful about. And then it's a matter of, hey, does their business plan make sense in the first place? They might have some crazy value add structure that is just too much for the size of that operational team or they've never done that before in the past. That kind of level of operational increase. Right. And so understanding is that entire deal feasible and then what are the legal structures, the tax structures of the legal documents and everything in there, there, how does it all work? Is there tax benefits that comes with that, for example, all of these things. And I even go through in a team where you're looking at the property management team on the ground there, who's working with them on the asset management team, who's their accounting person? Because like a lot of business owners are bad at the accounting piece of this. And I'm a cpa, so obviously I'm seeing that side of the risk, you know, so that's what I typically do when I'm diving into this to really understand how do I mitigate my risk on the right operators that are doing this. If I'm doing a deal myself and doing the value add, obviously I have the most confidence in myself most of the time, you know, depending on what type of deal it is. And I know how to mitigate that risk on those individual deals by padding extra cushion on every aspect and having extra cash reserves and things like that. And you, as you know, the listeners may actually want to go through and be an active investor versus a passive investor and that's fine. But realize you got to put that extra pad in yourself and be very, very conservative yourself. On the other side over here, the investors are looking at the operator saying you better, you know, understand all these risk factors and how they work. What's your break even analysis on a deal? For example, if rents crash and rates go up even further, are you break even? Are you still making decent money or are you losing money and losing the asset? Right. So these are the things that I think about. How do I relate that deal to the current risks of the overall environment that I see out there? Right.

Very, very interesting. And I was sharing that with you yesterday. Even I have like 192 point checklist to evaluate a deal. So I think I'm like 8 point shorter than what you have. But yes, you know, these are the factors I look for because this kind of, you know, provides that tangible parameter on how to evaluate rather than just going with the gut feeling that Oh, I think this team is good. I think these numbers are good or they am going to make it. So thank you for spilling the bills behind the curtain that what do we look at, what do we evaluate and how do you calculate this risk? Right. So, so I think, you know, that's tremendous amount of value that you have added to our listeners today. So moving on, you know, just one last question on this note is as a cpa, you know, what would you recommend from the tax perspective that passive investors should look for either in syndicated real estate and what kind of strategies should they look out for to implement in their own financial structure so that they get benefit? Because you know, sometimes the passive investments, real estate can get limited, but you know, passive or active. What kind of tax strategies should they implement?

Absolutely. It's one of the coolest things out there is these strategies. I actually invested in some deals last year where I put in $600,000 and got a $600,000 year one tax deduction just for investing in the assets and then also did some installment sales on some properties that I was selling. So I claimed the gain over a period of time and because I did seller financing instead of taking all the gain this year and through doing that I paid no taxes at all. So which is amazing through these different strategies. And I also go through and invest and I have my own self directed 401k, my own self directed Ira, my own self directed health savings account, you know, my family does as well. We go through and put these things in place to siphon as much cash off the top as possible so that we're not actually going and paying tax on that, you know, as much as we can. We strategically invest in syndications that, that provide very big tax benefits through what I like what, what is called cost segregation deductions. And all they're doing is they're taking the building and saying, hey, let's break that up into a bunch of little pieces into furniture and fixtures and you know, maybe it's the lighting and the flooring and the window blinds and every little thing on the house and they're putting it as what's called five year property or seven year or 15 year property instead of 39 year commercial property. And you are front loading it all into year one as much as possible and you still have some tax benefits long term, but you get a giant year one tax deduction for doing that. And that can then go against all your other passive income first. So all your other rental income that you have coming in as well and other Passive income. And then if you don't make as much, like I think the limit might be 150,000, I could be wrong on the exact limit, I can't remember now. But if you're making under that limit, then you can get up to $25,000 personal deduction. Where it goes from your loss flows through to go against your ordinary W2 income from your job or active income from your business as well. If your husband or wife or you are a real estate professional status which requires certain things like 750 hours having to be your primary income source, then you can get take advantage of all of those cost segregation deductions against your other income. So if there's a husband and wife and the wife is working a W2, for example, job and making a good salary, say she's making 2, 300,000 a year and the husband is a full time real estate investor and qualifies for that and he gets these big tax deductions, she can wipe out her salary completely off the books. Because they have one person that's a, a full time real estate investor status person which allows you to take all of your passive losses against even active gains in this case, which is really super cool because nobody wants to pay the government money, they're just stealing it anyway.

So absolutely, I love that. And if you're not able to take that passive losses, you can actually roll over and keep on using it till it's completely utilized. So thank you so much for elaborating that cost segregation benefit and the real estate passive, you know, tax losses benefit. Really, really appreciate that. As much as I want to continue this conversation, we are coming to the end of our show and I'd like to ask you, you know, basically with the show theme that how do you, Matthew, think outside the stocks in terms of your alternate strategies, your alternate kind of, you know, estate planning or tax strategies? So give us a little bit insight on that, please.

No problem. And what's funny is that my brother will kill me if I start another entity up and structure this differently. So I have probably 15 different entities or 20 different entities that I utilize for different investment strategies that I do or different projects that I'm working on consistently. And in addition to the entity structuring based on the states that you're doing business in and where you live and things like that and what your income sources are, we go, you know, the structure is a little different depending on those particular items, of course. So I'm just talking about my own deals. We have flip income, we have rental income, we have interest income. I have a lending company as well. And so I like to diversify into these different strategies. I primarily relate it to real estate, but I also invest in other, you know, accounts receivable financing, for example, marijuana deals, other types of alternative investments and startup companies that I think have a viable team member that may not even necessarily have cash flow right now. But I'm making a bet on the operator because I've done a ton of homework on them and, and I really like what they're doing and I think they're providing something extremely valuable. Right. So I like to diversify into that. I even hold some gold and silver and things like that because it's like an insurance policy in different ways for inflation and different problems that could happen in the market as a whole with cash. And so I like to be able to do that type of stuff and then set up different trusts so that you're taken care of there from a retirement standpoint. You know, and we talked yesterday about the infinite banking system and everything that you can implement from a life insurance standpoint point as well. Really interesting structures that most people are not taught at all. Even CPAs and attorneys and even estate planning attorneys don't understand some of the tax mitigation strategies that are at like a whole nother level where you can literally pay zero tax federally and state or estate taxes through different trust structures and life insurance structures like that, which are just incredible and it's really a disservice to society as a whole. But I guess they kind of want these things hidden. So this is why in my eyes the politicians don't care about how much money they tax us because they're all in these structures, you know, so but you know, at the end of the day it's a really, really cool. And there's ways to pay no tax, ways to structure to get rid of liability if you learn the right strategies and follow the right people, that's all.

Wow, that's incredible. You're right, that's doing a disservice by not knowing them. Right. So thank you so much for throwing so much light on that. Unfortunately we have come to the end of the show. I typically have a rapid fire round where I ask three kind of a quick answering questions. But I know you're running out of time, but I'm going to ask you just one what is the last thought that you will leave our passive investors today? You know, what is that last advice that you would recommend them?

I would say vet your operators thoroughly. Do not just do it based off of trust and invest that of trust. Do everything you can to vet your operators in the beginning and their mindset and come up with a specific plan for how you're going to vet them so that that way you have something to go on versus just a gut feeling on a referral or someone you like. Right. So and that's how a lot of investors invest. But I would highly recommend making sure you have a process and no matter how much you like the person doing the process anyways, that's a pure golden nugget.

Thank you so much for that. And if they want to get in touch with you Matthew, how can they reach you?

They can go to matthewowens.com with one T&Matthew so M A T H E W O W e n s so matthewowens.com that's awesome.

Well, thank you so much again for being on our show. This was incredible conversation. I hope the listeners, you know, have sat down with a pen and paper because they were incredible nuggets for them to take away from that. Thank you so much again for being on my show.

Thank you.

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