How do you become an effective passive investor? This week our very special guest is Spencer Hilligoss who is an active syndicator and leading business operations and investor relations for his company maddison investing. He spent over 13 years in tech building building high performance teams and was recently leading up originations at the highly respected Lending Home. Spencer is a technology leader with a 13 year track record of building high-performing teams across five companies - three of them, software "unicorns" - valued at more than $1B. He built and led the origination teams for LendingHome and currently leads their Professional Development group. LendingHome is the largest residential flip lender in the country, responsible for more than $4B in transactions and is actively funding more than 500 deals per month. We dive into how you can find what your goals are, before you start investing, and how to move forward with a plan to achieve said goals. It's absolutely vital that you have a clear game plan from day 1 and this episode sets out to help you along that route. Don't miss this episode that is truly packed full of FREE information from an investing pro!
How do you become an effective passive investor?
This week our very special guest is Spencer Hilligoss who is an active syndicator and leading business operations and investor relations for his company maddison investing. He spent over 13 years in tech building building high performance teams and was recently leading up originations at the highly respected Lending Home.
Spencer is a technology leader with a 13 year track record of building high-performing teams across five companies - three of them, software "unicorns" - valued at more than $1B. He built and led the origination teams for LendingHome and currently leads their Professional Development group. LendingHome is the largest residential flip lender in the country, responsible for more than $4B in transactions and is actively funding more than 500 deals per month.
We dive into how you can find what your goals are, before you start investing, and how to move forward with a plan to achieve said goals. It's absolutely vital that you have a clear game plan from day 1 and this episode sets out to help you along that route. Don't miss this episode that is truly packed full of FREE information from an investing pro!
KEY TAKEAWAYS
1. Passive is not always completely void of work... you still need to maintain a business model.
2. The most important rule to start with is: Look at the track record and values of your potential investors and managers.
3. Find someone to manage the deal that has been through a brutally challenging entrepreneurship challenge. This means they will respect your capital more.
4. Look for a partner that can help understand and find deals.
5. Before you invest you want to research: 1. Population growth in the city 2. Migration trends 3. Job supply and growth 4. Crime rate trend
6. Look at the year on cash flow. Is the deal going to be able to produce operational profitability in the first year?
7. You don't have to start as an active investor... you can start by investing with an operator, learning from them, and then moving into actually being active yourself.
8. LIMFACTS - there's 3 limiting factors for every potential investor: Time. Capital. Expertise. Once you identify these limiting factors, you can decide which investing strategy is right for you.
LINKS
https://www.madisoninvesting.co/
https://www.instagram.com/spencer_hilligoss
https://www.facebook.com/MadisonInvesting
https://twitter.com/spencehilligoss
https://www.linkedin.com/in/shilligoss/
Title: E140: Producing Year One Profits - Spencer Hilligoss
Host: Steven Pesavento
Interviewee: Spencer Hilligoss
Duration: 43:17
Narrator (00:06):
This is the Investor Mindset podcast and I'm Stephen PesaVento. For as long as I can remember, I've been obsessed with understanding how we can think better, how we can be better, and how we can do better. And each episode, we explore lessons on motivation and mindset for the most successful real estate investors and entrepreneurs in the nation.
Before we jump into the episode today? I wanted to remind you guys to go grab your copy of the passive investor playbook, The Ultimate Guide to Passive Real Estate Investing at theinvestormindset.com/passive, you can find that right here in the show notes. The passive investor playbook is full of all the foundational information you're going to need to start learning, how do you go and make those smart decisions as a passive investor? How do you go about vetting sponsors? How do you go about deciding what your investment goals are, whether you want to be active or passive, and of course, what type of investment opportunities that you're looking for? We dive really deep into some great topics. We've covered a lot of these in some short podcasts episodes, but you can grab the full guide full of graphs, pictures, and plenty of information, right over at theinvestormindset.com/passive. Look forward to having you enjoy that and let's get right back to it.
Steven (01:35):
Alright guys, welcome back to the investor mindset podcast. I'm Steven Pesavento and I have Spencer Hilligoss in the studio today. How are you doing Spencer?
Spencer (01:43):
Doing great, Steven, thank you so much for the invite. Excited to be here. I am excited to talk with you.
Steven (01:46):
And as you guys probably know, Spencer is an active syndicator leading business development, operations, and investor relations for his company, Madison investing. And he spent over 13 years in tech building high performance teams and most recently he was leading up originations at lending home, which for all of these single family folks out there, they've done over 4 billion transactions on the hard money loan side, over 500 deals per month. It's absolutely insane. He's now left that role and is focused on syndication full time and he's got extensive experience, both on the passive and active side. And today we're going to really dive deep into understanding how do you become an effective passive investor? How do you figure out what is it that you actually want so that you can figure out the right goals to be able to put that together? So it's going to be really, really great. You ready to jump into things, Spencer? .
Spencer (02:43)
Let's rock.
Steven (02:44):
Alright. So why don't we start out by taking a look back at earlier in your life, what events or influences specifically from your childhood shaped, who you are today?
Spencer (02:56):
Yeah. Well, thanks again for the invite, Steven, I'm really happy to share that story by the way. So I got into tech because I live in Silicon Valley, you know, that, that is the local “business”. So I have right after college which was actually in the University of Colorado so, go Denver, go, go Colorado. In general, I went into tech, it was the first of five software companies. And the story, I don't really bring up that often, but I've been encouraged now from our investors as well as just my friends and colleagues that I should actually tell them about this. So I actually grew up in a real estate household. My dad was one of the top performing residential real estate brokers in the United States back in the nineties. And I, you know, reaped the benefits of a really comfortable lifestyle for a good number of years, but he also made me work inside that business. So, you know, I got to go to work open houses as a teenager, I didn't really want to be there. Like I, I kinda hated it, frankly, it pushed me into tech. And so in hindsight I'm like, well, I guess I did learn a lot. You know, I guess I learned a lot about the real estate business, I didn't invest in anything earlier on, but I'm so deeply grateful. But I will say this, I watched, unfortunately the other side of that and my dad's business ended up crumbling along with our financial footing as a family. But now many years after that, and then it was because we hit some really challenging headwinds, so my younger brother got diagnosed with pediatric cancer and he, you know, he lived a brief and beautiful life but he did pass away. And then, you know, that triggered a divorce and so my parents split up and a bunch of other really challenging stuff happened. So we call that our family's kind of dark decade, you know, and, and I look back at that experience now that I have my own kids, now that I am a full time real estate investor on both the passive and the active side and I will say that the ethos I take away from all that was, you gotta play financial offense, you gotta play financial defense.
So for my own family, that's one of the most attractive reasons why we got into investing passively, in particular, in larger types of deals. You know, we started off buying locally because we were scared of doing the turnkey, you know, in Midwest, we were scared of doing site unseen investing in multifamily in another state so, we bought a duplex, we overpaid for it. We moved on to single family turnkeys and we still weren't necessarily getting the full passive style of investing that we wanted because we had to pick up the phone and manage a property manager. So on the story goes, I will just wrap up by saying, man, I'm so grateful to have found an actually truly passive type of investment so much so that like I decided to quit and retire my W2 tech career 13 years that I worked so hard to build and now do it full time to help other people kind of get there faster than we did along the way.
Steven (05:37):
Well, what I think is amazing here, Spencer is, I'm glad that you're sharing it with listeners is because you grew up in this real estate household. But I know that you, maybe didn't share is that, you really didn't want to go down this real estate path. You saw that lifestyle and I imagine, was your family working on the brokerage side? Is that right?
Spencer (05:56):
That's right. Yeah, my dad was a full time broker, residential. Did very well, but I also saw, you know, what happens when you stop working because you can't or something happens, you know? And so I took that away as a key learning, which was, wait a second, if I stop working in my W2 tech career, like the income is going to stop flowing, just like a broker, just like a flipper, just like a wholesaler. And these are respectable trades, you know, I'm not gonna knock a comment on them being good or bad, it's just the way the income floats. And so he was a broker to answer your question, Steven.
Steven (06:26):
Yeah, no, absolutely. And I, you know, I've been flipping houses for a long time and there's a reason that I made a decision to switch my focus and really upgrade and up level to focus on multifamily. Because when you are flipping, even if you've got a company and I had 15 people working with us partners, and at the end of the day, if you stop working as the owner, yes, it's possible to put people in place that'll manage and oversee these things. But in a hustle type business, like brokerage, like flipping, like wholesaling, it requires owner operators being in there seeing what's going on. And it's rare though, very possible, it is rare to see companies that are running with those folks in place. So I think that it's amazing because you wanted to avoid getting into real estate for a long time because you saw it from one angle and then you were able to see it from a totally different direction and thank goodness you were able to because you know, obviously it's afforded you some really good opportunities, especially to go out and do something that you love right now.
Spencer (07:32):
Nailed it. Oh man, I really appreciate the way you framed that because that is what I hear every day. I mean, I'm sure you do as well as Steven. Like we hear from investors that are finding us for the very first time. And just last week I was talking to a former colleague of mine, we had never talked real estate ever, I knew them from the back of my tech career. They reached out because they wanted to learn about what's all this real estate stuff you guys do. All that they knew was from buying their home, right? And that's just a tiny sliver of how the real estate world works. I mean, brokerage seeing that with my family, I thought brokerage meant real estate. You know, and there's just such a big world. And frankly, depending on the strategy and depending on the type of property you look at, you can have a vastly different experience.
Steven (08:17):
There's such a misnomer too as well. So if you're just joining the investor mindset podcast, we talk about everything real estate to mindset, everything in between. But if you're just jumping into real estate and you think about investing, what typically people think about is going and buying a rental property, being the manager and owning that property directly. And there's so many different flavors. So, let's dive deep into it. Talk to me a little bit about your view, because when you started out, you were working in tech, you had this adverse experience in real estate, early on in life, and you thought, hey, I don't want to go down this path, but then you decided to into it. And so how does somebody go about deciding to get into passive investing? And then most importantly, how do they learn to become an effective passive investor?
Spencer (09:06):
Yeah, those are the meaty questions, right? So first one I'll call out and I'm sure some folks based in tech and I'm not just in the Bay area, because now there's multiple different tech hubs, whether you're in Austin, whether you're in Boston. So in tech, there's like this unwritten playbook for financial wealth, which is not necessarily a good one, but I followed it, I followed it for too long. You know, it wasn't something I sat around and talked about with my wife and cofounder, Jennifer that necessarily, but it was something we were trying to do, which is you go out as a relatively early journey professional. You try to find the next up and coming Facebook, you try to find the next up and coming, Google. A startup that's going to give you meaningful equity because they are the next big thing. Hopefully they're going to solve some big, beautiful societal problem but on top of that, you don't want that equity to become your ticket to go buy a yacht, right? I personally don't want to generate a yacht, I just want to be a great dad, but maybe you want the option so that's what people do. They join these companies and they grind it out for long periods of time to try to get that, that big outcome, that big exit, right? That IPO, that acquisition, those are the things people are chasing. So I chased that for a while and then eventually you realize, you know, and this is a real story from my fourth startup company, I was working at the one that I considered to be probably the most “hot”. You know it’s a unicorn, I’ve worked at three unicorns. That means they're valued at over a billion dollars and that in itself doesn't mean that much, but you start to pay more attention to them once you realize, if you're in there early, you can get some meaningful equity to turn into a huge capital event. And when someone asked me, Spence, you could make a seven figure number if this were to go public, if that actually were to happen. And by the way, they haven't and I don't expect that they, I mean, I hope that they will, maybe they will, I don't know. I don't need them to, for us to do well, but I'll just say I had no idea how to answer that question. I had no idea. And I was like, what if a million dollars landed in your lap? What happens with a million dollars cash when it landed in someone else's lap? what would you do with it to not end up completely, you know, like spending on consumer goods, like buying a flashy new car that ultimately loses value, the moment you drive it off a lot? So that was the kind of stuff that was lighting the fuse for me, Steven. It was like, okay, how am I going to do? Like, what can I do to convert this lump sum that could happen into something that is livable lifestyle cash, so I could be a more available dad and a really kick ass husband? So that was it.
Steven (11:31):
Well, it's, it's a huge problem because you get to that successful moment of having this big exit and, you know, so many people never get there. So let's just be frank that a lot of people chase that, you know, chase that dragon and they never end up getting there. So let's say you do finally get that win., all of your net worth is tied up in one and if they happen to go public, then you're lucky enough to be able to diversify, but where do you start? So where did you start?
Spencer (12:01):
Yeah, so I'm a big fan of frameworks, you know, I'm heavy on operations experience within my tech career. So I always like to put down a good looking spreadsheet, a playbook, if you will. And I started studying voraciously, I read 24 books, I listened to 400 podcasts, just like this one, right? And you got to start with that education and layer. So that's what I did first. You don't have to do quite as many as I did. You know, if you want to be a passive investor, most people do what we did first and we just stumbled through these stages, Steven.
We went locally with an infant and in the car, and this is a few years ago now, but we drove around all summer to try to find a local rental property and it was because we weren't ready to take that leap and go buy something sight unseen. It was too scary for us. And we dropped way too much capital on something, and we spent, it was a $430,000 duplex in Vallejo, California. We still own it, it's cash flowing, but we did that. And we in hindsight probably wouldn't do it again because a dollar could go a lot further if we had spent it elsewhere. I'm happy that we can get any cash flow from it in California, right? That said, we then must start up the courage to go and invest a turnkey. So we bought, you know, pack based typically over time on single family homes in Kansas city and we still want them now. And so they are as opposed to $430,000 on a property for 250 bucks a month in cash flow, in Vallejo, California. We ended up going out of state and we got $50,000, $60,000 per property, turnkey properties in the Midwest and those cash flows with 250 bucks a month. So there's a much more compelling case to look elsewhere, to get further with your dollar but even then we're busy. I mean, Jennifer is still working a full time job as an executive at a company and thriving there, I run Madison investing full time and help passive investors get involved with these things. But I will say you still have to manage rentals part time, I mean and that's not derogatory, like we're not going to be selling our rentals, I'm just saying that people go in hearing this phrase, that rentals are fully passive. It is not true and I'm happy to debate if everyone wants to do that. I'm just saying, you have to manage the manager, you have to do things like property taxes, you have to do all these other things and so, we still want it more passive, we still want it more predictability. I didn't appreciate the fact that when we got an occupant, our occupancy went from a hundred percent to zero overnight when a tenant leaves. So, all these things led us to go and realize we need a vetting criteria, we need a framework. And so here's our framework, we didn't come up with the highest level, you have the operator, the market and the deal. You can say it another way, the team, the market, and the deal. You can even say the team, the market, the business plan, both like three pillars. I didn't come up with those much smarter people than I came up with those. The way we do it though, is literally in a spreadsheet that I have sitting right in front of me right now, which is, we look at the track record for the who, you know, that is the most important thing you're going to be doing.
If you're a passive investor and you're trying to go find a sponsor, you're trying to go find a GP, these all mean the same thing, by the way, GP, sponsor, operator, team, the person managing that project who makes it so that you can put money in and not lift a finger. They're doing all the work. So you gotta make sure that person doing the work actually knows what they're doing. So if we look at, have they done it before? We look at what's their approach? We look at, do they have a stated philosophy for how they want to manage things like tenant relations? If they are in multifamily, we care about their values. I know some people think that squishy, I think of that as completely foundational and when I don't hear a sponsor who has an established philosophy on how they want to, you know, work with their investors or how they want to work with their tenants I run screaming. Because I sit there and I go, man, if you don't realize the value of values, then you're going to find out the hard way at some point in the future. So that's the kind of stuff we look at, Steven, on the sponsor level.
The last thing I want to mention there is that failure response is something that matters to me greatly. And it's something I learned from tech. Which is, failure response is very corporate, branded way of basically saying, I want to make sure the person running this deal has been through one brutally challenging, like kick in the teeth style, entrepreneurship challenge hopefully that's in multifamily. And I say, hopefully, because that means they will not disrespect my capital under duress, right? They're not going to make a bad judgment call that will jeopardize my capital if it's in their deal, when they're stressed, when they're worried about making that distribution. And so that's the kind of stuff that we tend to look at. And I went way long winded on that one, because I got to get excited about it.
Steven (16:38):
Super good value for the audience there. I highly recommend you guys rewind and relisten to that section again, but in summary, what we're really talking about is understanding who is going to manage and operate the deal at the foundational level. Because they are the ones who are going to be making decisions, they're the ones who are going to successfully execute the business plan. And you want, it sounds like you want to see that they have a track record, that the team has a track record, and they can show that this is something that they've done before. And I love that mentioned a failure response because when you go through a really big failure, whether that's, you know, shutting a company down, whether that's a deal, not working, whether that is a, you know, a client or investor being upset, it completely can change the way that you operate your business going forward.
But what's really important about that is understanding how that person is going to respond in that situation so that when they're in a difficult time themselves, in a deal that you're a part of, you know, that they're going to be able to be cool under pressure. And I know that I used to think that I had a very aggressive investment philosophy. I thought that, you know, taking big risks was not a big deal, but you know, after doing 200 flips, you've, you've taken some risks and we've definitely taken some losses. Of course, our investors never did any of these deals because of the way that we had structured them and, you know, obviously they got paid out even when we weren't getting. But, you know, there was a few times where I had to strike a check for 50, 70, a hundred thousand dollars to be able to solve a problem and it completely changes the way that you look at things and makes you think, hey I'm actually more conservative than I thought I was when it comes to, you know, the kind of risk that I'm interested in but that's really helpful to have gone through because then as an operator, I'm able to say, hey, well, I've been through these situations before, and I know exactly what I'm looking for and if that is exactly what you're looking for, great, if it's not, no big deal. There's other people you can take swings and try to double your money in a year, but you also might lose all your money. So these are good things to definitely find out.
So when it comes to the next section, you're talking about understanding the market and understanding the deal, what are some of the steps that go into understanding those pieces of your framework?
Spencer (18:59):
Yeah. So, and thank you for the added color there. I think it's so personalized for people too, you know, so when you encourage folks to go back and relisten to that section. When we first started investing passively as LPs or limited partners, that's just the same in a syndication deal, that's the term that you're going to use. We didn't necessarily have this all baked out with such clarity, but you have to go back and do it for your own criteria. And so I appreciate you saying that, you know, I think looking at the market, a couple of things that we look for and, and this is at a high level and you should, you can and should get familiar with how to go and look at this stuff yourself. But if you're still feeling a little overwhelmed with how to do that, that is when you should go work with another partner, right?
Spencer (19:42):
Like go work with a partner who can help you look at these deals. So population growth, you know, these are the fundamental things, and I didn't come up with this stuff, Steve. Again,I've honed it and I've curated it and I've done the same thing I've done at five different software companies in tech for high growth teams, which is you make it simple and you make it consistent and you make it pressure testable. Because you're making a risk decision, that's what you're doing, you're making a risk decision. So you're looking at population growth in a city, you're looking at migration trends very relevant right now, we're still very much in COVID 19, unfortunately, and it's impacting people's lives and work across the board, but we're going to use the term postcovid world. Migrations are really, really ramping up and almost, I would say accelerating because of the COVID-19 pandemic. So we're looking at things such as jobs supply, you know, like is job growth. Are there certain types of jobs that are growing in and around a property? You're looking for alignment between people who are getting jobs, employers who are offering those jobs, the types of income that people are getting as employees, those jobs and are they in alignment with the types of, you know, if it's a multifamily deal as an example, or the apartment units that you're putting out there in line for the employees that are going to live and work nearby, right? So that's the kind of stuff being really high level and really quick about that, either that you want to look at including crime, right? Is this a neighborhood that you would feel comfortable going into? You can even pull up stats that show is the crime rate trending well? If it is trending poorly then that might not be a good long term hold for you, or even like a short term hold. So that's the kind of stuff you can look at it, you can actually pull that up on a number of different websites. You know, you can go to like city data.com and I'm not, again, I didn't, I take no credit for creating this stuff. I'm just curating it.
Steven (21:29):
Of course, you're just sharing the information that's out there. So let's stay focused on that. I mean, so before we even invest, we're able to do our due diligence on the operator. That's awesome. We can kind of get ahead, we get to build this relationship, we find out if they're a fit and then we go and do this due diligence on the market, we understand if that's a good fit. There's a lot of resources, you guys can dive deeper into this and we'll talk more about that in a minute. But then once we get to the actual deal, we know we like the operator and we know we like the market that this particular deal is going to be in. How do we go about vetting the deal or once we've vetted those first two, does the last piece just come together?
Spence (22:07):
Yeah. I mean, certainly not, not last, right? I mean, I think that the relative weight that people tend to place, I have found, I mean, even talking to an investor about this, literally this morning, before we hopped on here, Steven people play so much emphasis on the deal and they should, of course, but just don't bypass the sponsor question just because it's awkward to ask another human being awkward questions. Don't just breeze by because you happen to be a deep quant and you love doing a spreadsheet that's a recipe for pain and capital loss. So on the deal itself, we personally look for year one cash flow. And that's just a way of saying, is this deal truly capable in already showing the ability to produce operational profitability in that first year? And so not everyone is going to be looking for that, right? Because some folks out there are going to be looking at things such as let's say, like development deals, right? Like if you want to go invest in a development deal, that's a very different thing than if you're going to be looking at a cash flowing, you know, the terms you're all out there making. If I heard before mailbox money, passive income, all of these things that tend to come from cash flow and the cash flow is coming from an operating facility, right? Like, or apartment community. So that's the kind of stuff that we look for. We do also want to make sure that things such as rent and rental income is the biggest lever that is typically coming in from these things is the biggest lever you can pull, you want to actually increase them responsibly, you know, and, and you gotta be realistic about how much you're going to do it. So that's a really specific example of one of the many things that we've looked at and a list of like 70 plus points of criteria in our vetting framework that we use and we want to make sure that this thing can withstand scrutiny. So, you know, from, from my own business and for our own purposes, now we have taken this diligence process so seriously that we started doing some things that apparently, you know, they're not that common for, for folks that are, co-sponsors such as ourselves. Where we find that, you know, we find the relationship, we vet the deal. Now we even, we go pay 600 bucks to go pull a background report just on the sponsor themselves with their permission ahead of time, don't want to creep them out. And then we also, we hire a third party analyst and who's been helping us now in a many different deals and we're willing to pay 800 a thousand bucks just for her to go use her 30 years of experience and rip up the proforma to see if it's going to be something that's viable, you know, and that's in addition to my own personal review.
So it's all of these things together and we're just barely scratching the surface, but that's the kind of stuff you've got to look at. Is occupancy going to be possible to maintain? Is it a full facility? Is it going to stay full? And last but not least we're in the middle of a recession, cash reserves are very important and I think that, you don't know what the future will bring. And now more than ever, I think it's important for people to make sure they do have some buffer victim to their projects and they have ample cash reserves.
Steven (24:58):
Yeah, I think that is some really smart stuff. I want to underline a couple of things here. What you really kind of mentioned as you're doing all this due diligence, and then once it gets to the deal you're diving even deeper. This is something that as a passive investor, if you're just investing 25,000 or $50,000, it's not going to make sense for you to spend a thousand dollars on, you know, an analysis to, to dive even deeper, that's why you want to align yourself with an operator that you absolutely know like and trust. And when you start being on the operating side, when you're partnering with folks, when you're doing this due diligence, you know, you can go a little bit deeper. It's much more difficult to ask for a thousand different reference points to an operator. If you're only going to invest 25,000. Now, if you're gonna invest a million you've got a lot more power in that relationship and you're putting a lot more money into it so it's gonna make more sense for you to dive deeper. So you just have to understand what is your framework going to be for you to go look for an investment and how much time are you going to be able to invest doing that due diligence based on the investment that you're actually making. Is that kind of what you're getting to Spencer?
Spencer (26:15):
Yeah, very well said, Steven. you know, I think, and to be clear for us and for all the listeners out there, like we've built to this point and we tend to go above and beyond now because we look at our investors that are investing alongside us, right? They join our investing program, It's not for everybody but for those who want to play capital and they're ready to talk about learning and about doing that stuff. Like it's a great fit because folks don't have six to eight hours per deal to exactly your point. Folks don't have the time to go and do that for a 25 to $50,000 investment. I mean, some investors play much bigger than that, of course, but like I get it, you know, I mean, I worked in tech and I was doing 60 to 80 and occasionally 100 hours per week of work. And you want to get this asset class into your portfolio and you want to get things like awesome cashflow, but you don't have that much time. You know, particularly if you have kids and a full life, so, I think you nailed it.
Steven (27:04):
I think it's such a good point because you know, over here at the investor mindset and my company, we focus on the exact same steps where it's so important to really get to know that operator, you know? I've been a big believer in partnerships and so we're partnering both on the active side, I'm also investing on the passive side. But whenever I'm going into a partnership, I want to know all the details about this person, what is their background? Have they gone through bankruptcy? What does that look like? It's none of those things necessarily disqualifies them, however, it's good to know the story, if they're upfront with it, if there's anything that's kind of hidden or they're holding back then, if it’s, maybe, something to pause about. But what I think is good for you guys to know is that when you're getting started, the first thing to do is to make sure you get clear on what your goals are. Are you trying to achieve cash flow passively? Are you looking to replace some kind of income and having a stream of income? Or are you investing for appreciation? Are you looking for big chunks of money that are going to come in potentially, but may have higher risk? Or you're looking for a blended approach? And then when you actually go out, when you're clear on what it is that you actually want and why you want it, when you go out and you're connecting with these sponsors, great people like you know, like Spencer here and myself, and many others who are putting together these deals, you can easily find out if their investment philosophy and criteria fit, because it is rare to find phenomenal deals in this market. That's the reason why working with these expert operators is so important because finding a great deal is one thing, but then being able to execute the business plan is another.
So if you're working full time, it can be very difficult for you to be able to jump in and take on all this responsibility. So it's one of the upsides, however, you are going to be giving up control, and that's something that you have to decide. So, Spencer, what would you share with folks if they aren't really sure if they feel comfortable giving up control to an operator to make decisions on the day to day basis for that investment and what direction might they want to go down if that's the case for them?
Spencer (29:12):
Gosh, that is such a relevant question. So literally Steven, right before we got on today, I just wrapped up a new investor onboarding call, a really great one. And I bring it up here because this person has done extraordinarily well, you know, they got into crypto very early, so they've got more capital than they know what to do with, but he wants to go deep into eventually becoming active in real estate. But he admits up front, very sharp dude, that he can't necessarily jump in and become all active right now. So he owns a rental, you know, somewhat locally in the expanded Bay area and he decides, well, do you think it makes sense, Spence, to just invest in one of these things or two of them, and I can learn by watching him and just see how it goes. Then eventually, he starts to talk about maybe getting active over time and that's actually a relatively common strategy now.
I'd say that at least a couple dozen people in our investing program, our passive investing program aspire to be active or already are to some degree. And so I think a lot of times, man, people, myself included, Steven, like we tend to really put ourselves through the ringer, trying to find this perfect binary decision. Meaning I'm in real estate and I do this asset class and that is all that I do. I don't think that's necessarily the right decision because sometimes, success comes with an end instead of an or. Maybe it is the smartest move for someone to build a passive investing portfolio that has rentals and syndication and crypto and all this other stuff. So I just want to bring that up because you don't have to make that decision in a master plan for your 10 years of financial freedom for right now, if that's your number, right. You can just go out and try, just try. If you have the capital and the end to end the appetite to try, then go do that. And you know, other investors working with us, they actually invest across, I think, six or seven different sponsors and we're thankful they're working with us on a deal right now. But like all that said, you don't need to have the answer for the super long game. You should be clear to your point, Steven, on your goals and if your goals have nothing to do with cash flow, then don't necessarily go stare at cash flowing deals. I mean, you're gonna be happy with a number of other asset classes if you want it to, or strategies with the asset. So there's options.
Steven (31:26):
Yeah, so you don't have to have it all figured out. And if you want to go down that active route, that's definitely a route you can go down, but you got to know what it's going to take, what it's going to require for you to go down that path versus what it's going to require for you to go down the passive path. And by going down one path that doesn't stop you from ever going down the other. I think the most important thing is just getting in the game as they say, but make sure that you're investing in the right team, the right deal in whatever format that you're going about. So, one last thing before we get to the final section of the show here, we talked a little bit offline about this philosophy that you have, or this strategy called Limfacts and it's talking about the limited factors. The limiting factors that end up going into making decisions on how you're going to go about investing. Would you mind sharing a little bit about that with us?
Spencer (32:17):
Yeah, I really appreciate the tee up on this. You know, this is very nerdy but I have actually applied this in our own life and I've actually coached some other people with it too and they've told me they find it useful. So I really appreciate the chance to share it, Steven, which is a limiting factor. So limfacts, I learned this from a mentor of mine in the corporate world. There's three limiting factors for every human being on earth, and this will help determine, and then help you, hopefully, if you're listening to this podcast in determining which investing strategy in real estate, or in general, make sense for you. Number one, time, number two capital, you know, and I'm just gonna start first with, you know, let's just talk for a moment.
I think people don't realize how much, how much time that they have available, right? And I think if you decide to start limiting the amount of time you spend on things, like I gave up my Xbox when I first got into this stuff and I miss it duly, you know, but if you decide that you really want to go learn about this stuff, looking up the passive investing opportunity is going to require some of your time. And that is maybe more reasonable than going and becoming a Burr strategy, real estate investor. If you want to become a lead sponsor or a GP of an ideal yourself, you're strapped for time and you probably don't want to go down that path. So time, capital and expertise. Expertise is the third one, I forgot to mention. So take your time, take an audit, just look how much of it you have. You shouldn't necessarily go for a super active path on nights and weekends. If you have kids, two kids fulfill a demanding career, you can try but then you'll join the long list of other people who eventually come back around to realize you pass at the right move. And you will have saved lots of heartburn as well as capital along the way.
The capital constraint. This is not just financial, this doesn't mean you just have money. This also means you have relationships. You have access to those relationships, human capital, right? You got to know who to invest with, you got to know who's out there finding the access to the very finite number of deals that are out there. So capital matters and it, yes, it is financial capital, it’s investable capital. If you don't have a regular source of 50K increments, which, not that many people do in the big picture, then you probably shouldn't go out, regularly investing. I mean, I don't want to scare anybody here, but like regularly investing in syndications if you only have 50K and you have that earmarked for like your big investing plan, that will not be a great fit for big investing in these deals. You have to go find an engine to get more capital and then invest them too and there's ways to do that.
So last but not least expertise, man, in residential, getting into that space, there's a unique knowledge ramp. Like before you became a very successful flipper, Steven, when you probably had to ramp up on things like rehab, you had to go look at how to get British loans, you got to go get investable capital and stuff. Multifamily? Pretty different ramp and it's a big ramp up on knowledge. So if you aren't prepared to go nerd out, as crazy as I or Steven did, as other many others did, reading 24 books and 400 podcasts, you don't have to go that hardcore. And then learning all this stuff by doing in your free time, while you're working a full time job, then you should really be thinking about the strategy that matches your needs. So time, capital and expertise, that's the limfact framework that I just butchered. But that is the one that I help coach people on typically, when they're asking about, should I do single family rental? Should I go flip? Should I get into multifamily or should I do it myself? Or should I syndicate? And it's like, just slow down, go audit, go look at your calendar first, go look at your bank account, go look at your relationships, look at your expertise.
Steven (35:56):
I think it's such a good point because sometimes people want to try to do way too many things, they don't really have the time in order to be able to do those things and so being able to figure out well, what is going to be the best fit for you? What's going to be the best fit for your goals and then getting into the game by getting started there. So that's awesome. As a reminder, guys, if you are just joining us, I really strongly encourage you to hit that subscribe button so you don't ever miss another episode of the investor mindset. And if you have been listening, if you've already listened to over three episodes, it's time to pay the Piper. This is a free show so give us a little bit of support by going and dropping a five star review and a written review on your favorite podcasting app. If you don't love the show, drop us a review that matches whatever your feelings are, but reviews are really helpful for us to reach many, many more people. So we've made it to the growth, rapid fire round, where the questions are quick, but the answers don't need to be. Tell me, Spencer, how do you find success? And what is success to you?
Spencer (36:53):
Success to me, Stephen is being an epic dad and you know, husband. It's very different from some people out there who want to go buy a jet and I have plenty of respect for people that want to go do that. That is what success looks like to me, is to be a great dad, a husband, and a high control of our time so we can go travel with our kids when they grow up a little bit more and still leave some time to go play in a punk band or a metal band every once in a while, which is what I haven't done in many years.
Steven (37:17):
Oh, that's so cool. I love that. What are some of the Keystone habits, the ones that you do on a daily or weekly basis that have led to some of the success?
Spencer (37:25):
Yeah running is like my meditation. I don't run fast, but I run far. So what I'll do, the way I can get to 400 podcasts listened to within a condensed period of time is because, I'll pop in a podcast or an audio book, I will then run for an hour. You know, a little, I just go over from where I live here in Alameda, California, over to the Island or across the way and run around that Island for an hour and listen to a book. Now that's the only type of multitasking I can endorse. So that's gotta be mine is, running into print and personal education.
Steve (37:57):
So huge. That's one of my favorites as well, every single morning, a little mindset, a little audio and a little run. Good way to do it. So what's a book that's impacted your life, the most or one you're excited about right now?
Spencer (38:10):
Disingenuous to say anything other than the purple book, Rich Dad, Poor Dad. You know, I think I succumb to its influence like everybody else there that reads it. And so when I first read that book, I was like, oh my gosh, I've been doing it all wrong, huh? So that's still, to this day, it's going to be a hard one to knock off the top of the list.
Steven (38:30):
Yeah. It's a book that changes so many real estate investors' lives. So from an inspiration standpoint, what impact have mentors made on your life and how do you look at going out and finding great mentors?
Steven (38:42):
Wow. Mentors have been completely essential to finding this current position in life, for me. You know, I think at a high level, they break into two categories, which is you know, corporate, so I had a 13 year corporate leadership run. There's a couple of mentors that were involved in the three big, you know, we don't have time to go into this here today, but I'll say the three big kinds of crossroads decisions in my life. And I think I look back to the things that they did such as calling me out on my, I would say, aggressive style in my early twenties when I was first ramping up and learning how to communicate effectively in the world. So I cherish those relationships.
I think on the real estate side, I have gone out and also paid to hire coaches. I'm a huge believer in paying for coaching and I think that people should pay for coaching if they're preferred to work their butt off. You know, it's not going to do the work for you, but it will help you accelerate whatever you're already working on. So I really believe in that. And I think you know, mentors are an interesting question because people tend to think it comes down to me going over to you, Steven, and saying, will you mentor me? And I've never experienced that in my life. As a person, I look back at five to ten years later and I say that is one of the most meaningful mentors in my life. I never had a moment, they never had a moment where we sat there and said, please be my mentor.
It was organic and it came from a place of genuinely wanting to spend time, talk to this person about things that are totally unrelated to my own growth journey. But then in hindsight, you're like, wow, I got to know this person. Wow, I actually think that they do care about my wellbeing, but they're also willing to tell me when I've got something stuck in my teeth and that's the thing that I'm looking for. I'm looking for a person who's willing to be a true accountability partner and still occasionally, you know, help build me back up when I need it.
Steven (40:32):
That's some good stuff. And finally finishing on this purpose, what drives you to live your best life every day?
Spencer (40:37):
Yeah. You know, I think in younger life, we tend to be more takers, not everybody, but I'll speak for myself only. And I think right now I would like to be, you know, I want my gravestone to read that I gave, right? Like I want it to read that I was actually willing to give more than I took. And that starts with being a great dad, a good husband, but also starts with being impactful to those around me. So I want to ensure that I'm focusing on giving back to others and we do that in a variety of ways, not just financial donation, but also in terms of helping others along their journey and doing that without having to accept things like coaching fees. So yeah, that's gotta be my big why.
Steven (41:16):
That's huge. Well, so many good nuggets here, guys. If you're thinking about going down the passive investing route, I think you'll take a lot away from relistening and reengaging with this content. So thank you so much, Spencer, for being here, where can people find out more about you or get in touch?
Spencer (41:32)
Yeah, the best place to find us is on madisoninvesting.com, that's our website. Folks are welcome to sign up for our passive investing program, I follow up and you will have to talk to me, a live human being before you can actually join that. So I won't bite, is that most people have said they're pretty fun conversations. On LinkedIn, I'm very active. So on LinkedIn, that's like our social network of choice and I'm on there every day, starting discussions with folks and just trying to help uplevel people's knowledge around this stuff and occasionally getting silly and trying to crack a joke. So come on and connect.
Steven (42:05):
Wonderful. Well, Hey, take advantage of the opportunity you guys. It was so great talking with you and I'll leave you guys. As I always leave you with a reminder to live a life worth inspiring others, and you can do so today by applying some of what you learned here from Spencer, about how to go out and put together the right goals and how to go out and find the right folks to invest with and actually take action. Putting this into application, putting it into action so that other people can see your success and see the way that you're living your life and go decide to live it that way for themselves as well. So thank you so much, Spencer and I look forward to the next time we get to hang out.
Spencer (42:42):
Thank you, Stephen. It's been a blast.
Steven (42:48):
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