Exploring Real Estate Investments That Make The Most Sense

Hey, it's Mark Podolski, the land geek with your favorite niche real estate website, www.thelandgeek.com. and I'm really excited for today's guest. He is all about passive income in a big, big way. But before we talk to our guests, I'd be remiss. I properly introduce our co host. You know him, you love him. Scott Todd from scotttodd.net landmodo calm. If you're not automating your Craigslist and your Facebook postings, posting domination.com thelandgeek and of course, if you want to start learning more about everything from zapier to land investing to whatever it is, check out investor ninjas.com Scott Todd. How are you, Mark?

I'm great. How are you?

Pulse is still normal. Respiration is fine. Let's talk to the smartest guy in the room, Paul Moore.

What?

Yeah, of course. Paul is a big deal. After graduating with an engineering degree and an MBA from big ten Ohio State. Paul, I don't know if you. I'm an IU grad. My son's at iu.

Oh, okay. Yeah, Great school too.

Yeah. There you go. Paul sold a had a publicly traded firm that he sold out for 2.9 million. Five years later from after working at Ford, he was a finalist for Erson Young's Michigan entrepreneur of the Year two years straight. But then he entered the real estate sector. He's completed 85 real estate investments and exits. He's appeared on an HGTV special, rehabbed and managed dozens of rental properties, developed a waterfront subdivision, started two successful online real estate marketing firms. I can go on and on, but Paul is currently the managing director of two commercial real estate funds at Wellings Capital. Paul Moore, how are you?

Hey, great, Mark. Great to be here. Hey, Scott.

Hey, how's it going?

So, Paul, let's just rewind the tape and kind of give us your. Your story that we didn't really, you know, the bio doesn't really do. It's just do it justice.

Yeah. You know, after I sold my company in Michigan, I was only 33, had a couple million dollars in the bank, and I thought, I'm going to kind of semi retire to the mountains. I bought 120 acres on the top of a Blue Ridge mountain in Virginia. And I said, people, I'm an investor. And you know what? I really didn't know the first thing about investing. Guys, I confused investing and speculating. You know, invest investing is when your principal is generally safe and you've got a chance to make a return. And speculating is when your principal is not at all safe and you have a chance to make a return. And I confused the two, and it got me in a lot of trouble. I mean, I made a lot of money occasionally, but I lost a lot of money more often. I kept swinging for the fences, which is fun as an entrepreneur, but often foolish as an investor, and especially if you do with all your capital. So I went through about 20 years of with that, and when I realized the difference, I ended up in commercial real estate. And we'll talk more about that later. But I went through all types of residential real estate. You know, I'd make a lot of money on a deal, then instead of sinking 20% of it into another deal, I, you know, put it all into another deal and then lose it all. You know what I realized? If you keep playing double or nothing with all of your capital, you're going to land on nothing at some point and you'll have to start over. I did that a bunch of times.

Yeah, that totally makes sense. And Scott Todd, what are your thoughts?

Well, I definitely agree that as an investor, you definitely don't want to take all the risks that you would as an entrepreneur. Right. That's part of the deal. You want to make sure that if you're investing, you have a recipe, you know, that you put this in and it's going to come out on the other side. It's something that's greater than what you put it in at. And there's always risk or things that don't go as planned. But, man, like that. There is an element of risk in there. But, man, if you can just get dialed in to, hey, this is what we do, and repeatable and boring. That is the best formula for an investor. Something that's repeatable and boring.

I wrote an article about why investing should be boring. Paul Samuelson was the first US Economics Nobel Prize winner, and he said investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas. And I didn't realize that I'm a musician on the side, just for fun. And I think about people like my favorite band, Rush, or James Taylor, who spend years and years, decades, playing the same songs every night from, like James Taylor, Fire and rain. What's that, 1970? But he has to put the same energy in it because it's new for that crowd that night. You know, that's boring. He's gotta be bored, you know, almost 50 years playing that song. But he does it. And that's what a true pro does. An amateur keeps chasing shiny objects and trying to start something new without a formula. And I love what you said there. That's very true, Scott. That's. That's what we need to do. We need to be getting to a place where we're willing to deal with and survive and thrive in a man, you know, in with the monotony of boredom, you know?

So, Mark, I went. I was just in Vegas, and I'm not a gambler, but, man, I actually got back yesterday. But yesterday morning, I fell for, like, the Vegas, like, trap. Like, I was there for four days, and. And I did great not spending a dime in the casino. And then I'm just walking through, and guess what? Right there in front of me was the penny slots. So I'm like, penny slots? How can I lose? So I put in $5 into the penny slots. Well, the penny slots, the deal with it is that you have to play 100 pennies per game. So I basically had five games, right? And it's like, bloom lost. Bloom lost. I won 40 cents, if you can figure that right at the end, it's like, here, print out your certificate for 40 cent out. I look at it, I'm like, I can't even go cash this thing in. That's how you literally, it was like seconds, seconds. Like, not even a minute, $5 was gone. So to me, that's like the way that sometimes people go about the investing piece. I just literally just handed it to some other guy. I'm like, here, man. Good luck. He probably won, like, 40 million off.

Of it, but that's great.

Yeah. I don't believe in unearned income, Scott. Todd, I think if you won 40 million, you would have blown it because you wouldn't appreciate it. But that's a whole other subject.

Yeah, right.

So, Paul, I want to ask you because I've been on your podcast, how to Lose Money, which is really a lot of fun for me. You got a great co host. But the question is, why did you title your podcast how to Lose Money?

You know, over the years, I got to know. I would go to these real estate investing meetings or other types of things I've been involved with over the years. And the people would always be on stage with, trumpeting their glorious stories and all their. You know, some of them in their 20s, they'd be, you know, multimillionaire, whatever. And I would watch the people around my table, and sometimes we had discussion groups, and their shoulders would just Shrink down, you know, And I would look at them and say, you know, that story was great, but it caused discouragement. It caused people to think, well, I'll never be able to do that. I'll never be that great of an entrepreneur or real estate investor or a father or whatever. And I thought, wouldn't it be great if we could all know the struggles these people went through along the way? And then I got to know some of those people as I got on stage and realized they had terrible discouragements and struggles and pain along the way. And when they would tell me this, all of a sudden, I would feel great hope. I'm like, oh, I can relate to that. And you're still this successful. Well, that's great. And I just realized, you know, if we could tell people's failure, defeat, discouragement, struggles, you know, that these heroes had along the path to success, we can give people hope that they, you know, everybody's the hero of their own story. We can give people hope that you can, you know, you can change, you can overcome, you can succeed as well. I think we learn a lot more from failure than we do from success anyway. And so that's why we called it how to Lose Money.

I love it. I love it. So, Paul, you. You've been investing in all different types of real estate, residential, commercial, self storage. And if I was a listener, and let's just say I've never done any type of investing at all, where would you recommend based on your experience? Somebody would start, and let's just say their goal is they want to earn 15% on their money in a passive way. They're sick of making 0% in the bank.

Yeah, a lot of people with all the House Hunters and all types of other HGTV shows, I mean, I was on House Hunters, and I can tell you that a lot of people think, well, I could do that. My buddy and I started flipping houses almost 20 years ago, before flipping was a thing. I mean, it applied to pancakes and birds, but anyway, it didn't apply to houses, but we were actually buying fixer uppers, as we called them. And a lot of people think that's the perfect entry point. But, you know, I talk to people every day from bigger pockets where I do a lot of work, and from podcasts. And I realized these people were really frustrated. They realized, you know, that the spending every waking moment chasing deals in this overheated market, and then spending their evenings and weekends swinging a hammer or painting, it's really not paying off the way they hoped. And what People realize is I want the great opportunity to be a real estate investor. But I don't think this time things working for me. I talked to an oral surgeon who, what would he make? Probably hundreds and hundreds of dollars an hour. He was building a portfolio of 20 rental homes and he was on number three and it was driving him nuts. He said, I had oral surgery yesterday between surgeries. I was on the phone with painters and plumbers and it's just not working for me. And here's the thing. Residential real estate is valued by comps, as we almost all know. And that means if you're Chip and Joanna Gaines Jr. And you can go out and beautifully renovate this $300,000 house, let's say you add 250,000 to it and you got 550 in it, you've got a finished attic, finished basement, build out an addition, gold plated fixtures, everything. If that neighborhood only supports a $300,000 house, you're not going to get your 550 out of it. That's because residential real estate is based on the comparable properties in the neighborhood. Commercial real estate is not at all like that. It's based on a value formula. And this is probably the most important thing I'll say on this show. The value of commercial real estate is the income divided by the rate of return. And more specifically, it's the net operating income divided by what we call the cap rate or the capitalization rate, which is the normal rate of return that an investor would expect for that type of property in this market at this time. Now, cap rates used to run about 8 to 10% or more. I was just at a mobile home park University in Vegas over the weekend myself and they were talking about cap rates of 10 or 12 or 14%. But typically they're running around 5 or 6 or 7% these days. But if you take the net operating income divided by the cap rate, you'll get the value. Well, that means you can force appreciation. You can do specific things to increase the net operating income. And you can do specific things sometimes, not always, to compress the cap rate. And by doing that, you can dramatically improve the value of an asset. The problem most of us have is we don't know how to get access to these commercial real estate opportunities. And in a minute, if you'll give me time, I will go over an example of how this value formula can work. But the problem is most of us don't have meaningful access to this. I was talking to an investor in Europe recently and she said she was struggling to manage these single family and small multifamily from across the Atlantic. And she said even if she was in town, she realized she'd still have these same struggles dealing with vacancy and property managers and all these massive hassles. And then I told her about commercial real estate, and the light bulb went on for her. She said, wait a minute. Why am I working harder than I need to to make less than I could? And she realized that our company could give her access. And there's a lot of other companies out there that can give people access to commercial real estate. The jobs act of 2012 and all kinds of other things have opened doors for crowdfunding and for hundreds and hundreds of syndicators who can take people's money, invest them passively, grow their income, expand their wealth massively by this formula I mentioned. And people can have access without lifting a finger. They can stay on their day job, they can slow down eventually on their day job, maybe retire, and they can make the same. And if they invest it with the right syndicator, which is tough to find, if they can make same or much, much more money than they could doing it on their own, and they just, all they have to do is walk to their mailbox to get it makes sense.

Scott Todd, I mean, you know, some people have more time than money, and other people have more money than time, right? You know, like, and I think that if you can find the people have what you don't have, whether it's time or money, well, then, you know, then you, you're off to a winning formula. And I think that a lot of times people think that they're, that investing has to be a, you know, kind of a, an independent sport, and it doesn't have to be right. You know, like, if you reference the oral surgeon. Well, the oral surgeon should continue to do what he does best and let somebody else who has the time or even the desire to go out there and to manage some property or to invest the money a lot. Like, why do you go to, you know, why do you go to a financial advisor? Because their whole job is to understand what's happening in the marketplace. Is now the time to be in bonds or is now the time to be in stocks or equities or whatever it is. Let somebody who lives and breathes this stuff every single day, Let them be your expert, if you will. Why do it yourself? But I know that we live in that do it yourself or type of mentality that I'm going to do it myself. Well, if you do you're going to waste a lot of time and money probably.

It's good thought.

Yeah, no, no, absolutely. I mean, it's, it's. Yeah, it's one of those things where I think you just have to be really realistic about your bandwidth. And if you don't have the bandwidth, it's, you're better off making a nice return with somebody that this is all they do all day long. They have a track record of success doing it. So, Paul, you've got two funds at Wellings Capital. And what is the focus of those funds? Where are you putting your money for investors now?

Well, you know, I wrote a book on multifamily investing in 2016 and it was not at all arrogantly called the Perfect Investment. And that book's still selling pretty well. But, you know, the problem with the Perfect Investment is it's not perfect anymore if you can't find any deals that make sense. And a lot of people are finding these days that they're not finding deals that make sense in multifamily. And they're wondering, you know, if, you know, I read Howard Marks book recently, Mastering the Market Cycle, and realized, you know, people are taking the biggest risks at the time, they should be the most conservative. And that's right near the top of the market. And I started thinking, you know, maybe we should try to find other assets that are not as risky and that do well and that not as overheated as what I meant to say and that do really well in any economy. Well, I think apartments generally did pretty well during the recession. I've got a lot of data for that. But we also found other asset classes, including self storage and mobile home parks that have something that apartments don't right now and that is a very fragmented ownership base. The owners of self storage and mobile home parks are often mom and pops and because of that they leave a lot of money on the table. They don't have the time, the resources or even the desire to operate and juice every dollar they can out of a property. And because of this value formula I mentioned, it's possible for a professional operator to take over to acquire one of these mom and pop owned parks or self storage facilities and dramat increase the income and through leverage significantly increase returns for investors. So we've been investing in these funds in those three asset classes, self storage, mobile home parks, and to a very small degree, opportunistically, apartments. And the returns that these operators we're investing with have been seeing are pretty hard to believe. But I can use this formula to show you how they're doing it, but they're getting returns of 40 to 60 or even more percent annually. Now, that won't go on forever. The mom and pops are dying off and selling off. Institutionals are coming into these spaces and jumping in and grabbing these assets, which, by the way, makes a great seller for our operators. Because if you can buy at a 7% cap rate and even if you didn't improve the income at all and you can sell it to an institutional at a 5.5% cap rate, that's about a 25 or 30% increase in asset value. But with leverage, that's a 60 or 70% appreciation just from having the right buyer and the right seller. Not to mention all the income you're driving in the numerator of your equation, which takes your return, your appreciation, well over 100%. Let's say it takes three years to get, well, 140% return in three years. You know, that's, you know, that's a pretty big, that's a pretty nice annual return in the 40, 50% range.

Wow. I love it. I love it. Scott. Todd, what are your thoughts? I agree.

There's not much more to say beyond that.

Yeah. I would add that leverage makes it even better. I mean, if you have 66% leverage, you're only putting a third of your money, and that means you can multiply that number for the return on equity by 3. And so it significantly increases the return for the investor.

Yeah. I think what's interesting, Paul, about those two asset classes that a lot of people don't understand, or they don't understand, they don't think about it. It's not really talked about a lot. There's two safest asset classes in real estate. They have the lowest default rates. Number one is self storage. Number two are mobile home parks.

That's exactly right.

Even though when you say mobile home parks, I mean, people kind of put their nose up to it and they're like, oh, gosh, I wouldn't touch that. Those are, you know, toxic or I don't know what is, you know, today, what is the stigma for mobile home park?

There's a lot of stigma. You know, most of us have lived in apartments or rental homes. Most of us, or many of us at least, have used self storage units. And there's no stigma there. But most of us have not lived in a mobile home park. Most of us don't even know somebody who lives in a mobile home park. And there is a stigma. But, you know, 10,000 people a day are turning 65 years old and over half of them have less than $10,000 saved for retirement. Well, a lot of them don't have a lot of options and they do have home equity in many cases, and they can trade that in for a decent mobile home and a 2 to 400, 200, 200 to $500 lot rent. And they can have a lot of freedom. They can enjoy retirement. They can, you know, make that $1,500 Social Security check stretch and be able to afford their home and have a lot less stress than managing their own home. The stigma is there. But like Robert Helms on the Real Estate Guys Radio loves to say, you know, invest, live where you want, invest where it makes sense. And I'll tell you, mobile home parks really make a lot of sense.

Yeah, absolutely. Absolutely. Well, we're at that point now, Paul, where we're going to ask you for your tip of the week. A website, a resource, a book, something actionable where the art of passive income listeners can go improve their businesses, improve their lives. What do you got?

All right, Well, I, you know, I. Neuroscience tells us that we spend up to about a third of our time during the day daydreaming. And they do brain scan scans and watch people's brains and see that they're daydreaming, they're fantasizing about their potential future or what, you know, they're fearing the potential outcome of their life. But they don't do that when they're listening to or watching a story. Their brains lock in. So we need to learn to tell good stories. Donald Miller has a book out called Storybrand, and I just read the book over the weekend while I was in Vegas and I'm really fairly obsessed with it right now. So I'd recommend the book storybrand. If you want to learn more, you can go to their website and learn how to tell your. Whatever you're doing here as an investor, an entrepreneur, a business person, learn to tell your story. And they really help a lot at the story brand, book and podcast.

All right, fantastic. I actually have that book on Audible and it's really a phenomenal book and makes so much sense and there's so much wisdom in it because that's how we learn and how our brains remember things are through stories. It's really phenomenal. Scott, Todd, what's your tip of the week?

All right, Mark, we all fall into this trap and it's like productivity, right? We all go in our email and like everybody and their brother send us an email. Everybody. And as marketers, we want to send these emails, but it kills our productivity. So you've been to these websites. We're like, hey, give us your email address and get on our newsletter. And you get this thing, and you want this thing, but yet then you don't want the emails that come along with it. And then it's like, if you're like me, man, you're like, I don't really want to unsubscribe because what do I do? You know, I might want it. And then months go on, and next thing you know, it's like, delete, delete, delete, delete, delete. You don't even open them up anymore. Well, look, here's the Solution. Go to subscription0.com and I just put in the chat for you, too, subscription0.com. Because when you go there, you can sign up, you get an email address, like a subscription 0 email address that you give to all of these things. And then what happens is you're on their newsletters, but they don't come right to your inbox. They go to your subscription zero inbox that gets forwarded to you, like, once a day with a summary of everything that you missed.

Nice.

Like, 40 emails. You get, like, one email that summarizes everything that you missed, and it, like, puts your brain at ease and you're more productive.

I love it.

I love this.

That's good stuff right there.

That is a great tip of the week.

I'm writing that down.

I'm already. I'm already in there. I'm already putting in my delivery day. My delivery time Sunday.

Hey, guys, so what do you do? Do you actually go back to a lot of your current subscriptions that you occasionally read and you change your email to that one?

You could. Or you could just unsubscribe. And it's like I always say, like, if you're not reading it, just unsubscribe it, because they haven't meant that big of an impact to you anyway. And then if you ever want to go back, you'd be like, let me go find them again. And then you'll find them again. But just unsubscribe. It'll save you a lot of work.

I love it.

All the future ones just go there.

It's like, I just got my dummy email, Scott.

What's that?

I just got my dummy email. So now I'm gonna go to a text, and then I'm gonna add that as a shortcut.

Yeah.

And this is great.

Yeah. So you have a new email address. And, you know, you get a weekly. Weekly digest.

So you can do a weekly or a daily.

Mark did. When I did my.

I couldn't.

I thought it was.

It's. It's actually. You get. It's once a week. You get a one delivery day.

Even better.

Yeah.

You know.

What day did you choose? Mark, what day did you choose?

I choose. I chose Sunday.

Sunday. Okay, so, like, Sunday.

You can change it. You can change it.

You're not locked into it.

Yeah, brilliant. I love it.

All right, well, my tip of the week is learn more about Paul, his investment philosophy, his funds. Go to wellingscapital.com wellingscapital.com and learn more there. And I want to thank the listeners and I implore you to do us one little favor. It's actually three little favors because the only way. The only way we're getting the quality guests, like a Palm Moore from WellingsCapital.com is if you do this, you got to subscribe, you got a rate, you got to review the podcast. Send us a screenshot of that review to supportlandgeek.com we are going to send you for free the $97 passive income launch kit course. So please do that. Today's podcast is sponsored by Flight School. Learn how to start investing in raw land with the best in the business. Scott Todd, let him be your Sherpa. Just go to thelandgeek.com training to learn more there. All right, Paul, are we good?

We're good. It's great to be here. Thanks.

Thanks so much for being here. Scott Todd, are we good?

We're good, Mark.

All right. I want to thank the listeners again and let freedom ring. Thanks, everybody.