107. From Downsizing to Big Gains with Justin Dixon

Connect with the host:
LinkedIn: https://www.linkedin.com/in/brandon-e-jenkins/
Website: https://www.birchprosper.com/

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Connect with Justin Dixon:
Website: https://greatventurecapital.com/

Episode Highlights:
✔️ Importance of Education and Networking
✔️ Resilience in Business
✔️ Investing in Short-Term Rentals
✔️ Future of Office Spaces
✔️ Opportunities in the Current Market
✔️ Investing in Less Risky Assets

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Transcript

SPEAKER_01 0:00

Once I started digging into these bigger deals, one, they're a lot more difficult to analyze than a two-to-four unit. Uh, and two, you need a lot more uh people on your team to take down these big deals.

SPEAKER_00 0:14

How successful would you be if you had the blueprint for building wealth as a real estate investor or as someone who acquires small businesses? If you want to move the needle financially in your life, then you need to understand one thing the capital stack. I'm your host, Brandon Jenkins, and this is where your journey to financial freedom begins. Hello, what's up, and welcome back to the Capital Stack. I'm your host, Brandon Jenkins, and um we have a special show for you today. We're going to dig into something that um I've been very interested in. I'll admit I do not have a ton of actual practice and um um investing experience in, but it's been um of interest for some time, and that is angel investing. Okay, so we'll dig into that. We'll dig into um how to kind of uh uh power parade sort of the analysis there with uh real estate investing, because our our guest for today does both. And he does uh that and a number of things that we'll dig into in just a moment. But before we do, Justin, how are you doing today?

SPEAKER_01 1:11

I'm good, man.

SPEAKER_00 1:12

Happy to be here.

SPEAKER_01 1:13

Thanks for having me on.

SPEAKER_00 1:14

Absolutely, man. Thank you so much for being here. So Justin Dixon is a real estate investor, he's an angel investor, and he's the host of Work Hard Invest Harder, which is a podcast where he interviews industry experts and professionals who share remarkable stories on how they create passive income and how they reach financial freedom in their lives. And I think one of the things that he also touches on is how uh his listeners, his audience, how they can tap into retirement funds and tap into different things that um they might not be thinking of and use the funds there to um, again, create time freedom, financial freedom, and even location freedom. So I think that's an outstanding topic. Justin is also the founder and CEO of Hire Tomorrow. It's a firm created to bridge the gap between great companies and great talent, focusing on helping their clients fill critical roles within the company. So, Justin, a lot to discuss. Man, why don't you kind of share just a little bit about your background and uh your journey with us?

SPEAKER_01 2:08

Yeah, no, uh that intro kind of made me exhausted, kind of just hearing kind of all the things that I've kind of plugged in. You're busy. Uh um, but uh no, yeah, no, I'm happy to dig into any and all of that stuff. But yeah, my my kind of world started in recruiting. I kind of fell into it right out of college um 16 plus years ago, almost 17 years ago. So um started working in and then I did corporate America, uh, you know, did recruited for startups. Um, all of this was in Philadelphia. Um, I grew up in Pennsylvania in a very small rural part of PA. And, you know, growing up in in that part of the world, um, the investing advice was kind of your normal get a good job with a good company and you know, put money into your 401k and maybe invest in the stock market. And hopefully you've got enough, you know, retirement funds when you hit that magic 6570 number to live the rest of your life. And that was the path I was on until mid-2018, um, until I read a book, Rich Dad, Poor Dad, which I'm sure a lot of people that listen to this are very familiar with. And, you know, it was a very light bulb moment for myself. Um, you know, I was living in Philly, I was married uh or am married and was married at the time. And um, you know, we just bought a condo a few years earlier in the city. And, you know, we were kind of on that path to, you know, what everybody thinks is the American dream, and read this book and was like, holy cow, there's like a different way to do it. And I don't have to really work uh necessarily for the next you know 40 years for somebody else to, you know, help them build a business and I can kind of do it myself. So um, so that book was literally the the kind of like launching pad. Um, because I I'd thought about real estate investing. Like I'd thought about it, I'd heard some people doing it. Um, I'd kind of dug uh, you know, dipped my toe into the water in the sense of looking at some investment properties. I connected with a um mortgage lender um and broker in in Philly. I talked to the agent that sold us our condo. So I kind of like started the process, but I didn't have the confidence to take it to the next step and actually investing and actually acquiring a property. So this book really kind of was like, okay, you need to just figure it out and take action and do it. Um and you know, like I said, I was married. And so, you know, there are two people that uh, you know, need to be in agreement when it comes to financial matters of the family, right? And so I was a little nervous, um, you know, to kind of, you know, tell my wife that, hey, I want to, you know, start really, really focusing on this real estate stuff. Um, but I kind of said, hey, just read this book and let me know what you think. Um, and she had the same reaction. She was like, well, what the heck are we doing? We need to be thinking about where we're investing our money, where we are investing our time. Um, and you know, both of us are very risk-averse people in general. And so that doesn't really necessarily make a great combination when you're trying to do some things differently and invest in real estate and and all this other fun stuff. So um at that point, we were both W-2 workers. We weren't making, you know, massive amounts of money. Uh, we were comfortable living in Philadelphia with the for the two of us, but you know, we didn't have a ton of money to invest. Um, so and I didn't want to go down the single family route. So we started our investing journey uh in the two to four unit um multifamily, if you will, size. I was always nervous with single family in the sense that if you've got one tenant and one unit, so if that tenant moves out, you're on the hook for the full mortgage, right? And so we weren't in the financial position to really float, you know, two mortgages um for any length of time. So that's when we found uh a two to four unit actually in Pittsburgh, Pennsylvania, um, kind of randomly kind of just stumbled upon that market. And uh we still own that today. Um, and it's been good and bad in certain circumstances, obviously through COVID and all of that stuff was a little bit interesting. But luckily we had a good property management company on the ground, kind of making uh, you know, taking care of all the things that need to be taken care of um locally. So we didn't have to really do any. I only saw the property once. I've actually only seen the property once, I think, to date. So uh, and that was during the inspection when we uh when we acquired it. So that kind of brings us up to to kind of early mid-2019. So I can kind of pause there and then the rest of our my journey kind of starts uh in in 2020. Um, but I'll pause there and see if there's any anything to dig into.

SPEAKER_00 6:33

No, there's lots, but I'll tell you what, let's let's let's get through it because I'm I'm over here, I'm taking notes and everything and we'll we'll we'll catch up with everything. But uh yeah, let's let's let's keep keep going. This is good stuff.

SPEAKER_01 6:42

Cool. So kind of after we bought that first property, we kind of used up a lot of our disposable funds, right? Like we had, I think we put 50 or 60 grand into that that deal. So um, so we're like, okay, well, we can't just we can't acquire a lot of properties because we don't have a lot of money. And we weren't, again, we weren't knowledgeable enough or confident enough to go out and do what a lot of people do, and that's use other people's money, take risks in the standpoint of taking on like hard money loans and things like that just to get the properties acquired and then refi. So we weren't really confident. And then I kept coming back to this multifamily syndication space where you can kind of get into bigger deals. Um, you don't have to necessarily bring a ton of capital if you're the one finding the deal, or maybe you're bringing uh passive investors into deals so you can get kind of participate on the GP side in that respect. Um, but we kept also coming back to like, what are we doing with our time? And going back to Allison and I being very risk averse, um, we didn't want to both kind of jump into the entrepreneurial pool together or at the same time. So Allison was very happy to kind of be the steady eddy, the W-2, the paycheck. Um, and so we did the exact opposite of what most of our friends were doing at that time in our lives. We were there buying bigger houses, moving to the burbs, having kids. We were essentially very consciously kind of downgrading our lifestyle, condensing our expenses as much as possible. We moved out of our condo in the city, rented it, and moved into an apartment in the suburbs, um, which was not as nice as our condo, um, for the simple fact that we wanted to shrink our expenses as much as we possibly could so that Allison's salary would cover our lifestyle. So, with the intent of me, um, and this was all kind of happening kind of kind of mid to late 2019, um, where we kind of started this process of kind of condensing and really kind of shrinking our expenses as much as we possibly could, uh, with the intent of me quitting my job in January of 2020 to start my recruiting business, because I I figured I could replace my salary fairly easily in recruiting. I had a bit big enough network in Philadelphia to do that. Um in January of 2020, uh, I went to my boss's office and I said, Hey, I'm gonna be, you know, leaving and start my own firm. And little did I know that COVID was gonna rear its ugly head and completely shut down the world for you know the better part of a year. Um, and 2020 was not a not a fun time for me starting a business, two businesses, frankly, because I started a real estate investing business at that point. Two, uh, I joined a mentorship kind of program for multifamily because I knew once the once I started digging into these bigger deals, one, they're a lot more difficult to analyze than a two to four unit. Uh, and two, you need a lot more uh people on your team to take down these big deals. Even if I had, you know, unlimited funds. Um, if I wanted to go get a mortgage, I really couldn't because I didn't have the track record, maybe I didn't have the liquidity or experience or whatever. So you need to kind of build a team to take down these bigger deals. And I figured uh it would take me a long time to build that team. So I joined a mentorship group that kind of already had a built-in ecosystem of people that were very experienced, uh, people that were like myself that were trying to just get into the game. Um, and that was kind of the, and I'm still part of that group now. Uh, and that's where I've done a lot of my um kind of investing and raising money for these syndication deals was was through this uh this mentorship group. So um, so yeah, 2020 was not great recruiting. Uh I made about half of half as much as I did as a W-2 employee. So uh I got through that year. Um, luckily Allison kept her job and and uh there's a lot of bourbon drank that year for sure to you know get me through some of the rougher patches. But um, you know, if anybody's been paying attention to the world the last two and a half, three years, everybody was hiring in 21. So I really was shifted my focus from um trying to find multifamily deals because that's essentially what I did in 2020. Um, there was not a lot of opportunity to uh place people in in recruiting positions. Um, so I spent that year underwriting deals. I probably underwrote over 200 deals in 2020, did a bunch of uh offers and you know, got to best and final on a couple deals, but never never found one that actually we were able to land. Um, but that flexed and and was able to build that muscle of underwriting deals. So now that when I look at uh or work with operators that are finding deals and I'm more or less they're bringing me in to help kind of build the capital stack and find bring in additional investors, I'm able to pretty quickly look at their underwriting and be like, ooh, this is a little bit more aggressive than I would expect, or maybe that I'm comfortable with, even if I don't know the market. Um, the benefit of being part of that larger group is we all use the same tools. Um and so I can quickly look at their analyzer and be like, yeah, that's that's that's something I would have done. And let's move forward and I can bring this to my investors, or no, this is a bit too aggressive. Um, and don't really want to go down that path. But something you mentioned earlier around uh getting access to retirement funds, that was our first two investments. Uh, I had no idea that you could tap into an old 401 that is sitting at uh a Fidelity or a Vanguard, um, move that into a self-directed account, a self-directed IRA, and then use that to passively invest in multifamily deals. So that was, you know, how we uh went into two deals, um, one of which uh has already kind of gone full cycle and was a really good exit for us in two and a half years. Um, so that's one of the things you really kind of get you know exposed to when you start to go out and meet people that are doing bigger and different things than you ever thought possible is you you kind of realize that there's there's other ways to do it. There's people that are, you know, way smarter than I am that are doing this um and figuring things out when it comes to you know investing with IRAs and you know all these other other vehicles that you can get access to. So now flash forward to kind of where we are today. Um, we're general partners in over 650 units. Um, we we've been limited partners in and well over a thousand uh across a number of different states. And uh the angel investing thing really kind of came uh recently. So we joined an angel investing network uh called CTAN, which is Central Texas Angel Network. Uh I live in Austin, Texas now. We moved here actually in October of 2020, um, kind of during COVID. Um, because we wanted to get out of the Northeast, which is uh hot and humid. Uh you're in DC, I think. So uh you know, you know the humidity in the Northeast. Uh um and uh and so we wanted to kind of diversify our portfolio of investments, right? We had done a decent amount of investing in in multifamily. Um and with my recruiting business, I've been starting to work with a lot of startups. And I'm like, oh, this is so cool to like work with these businesses. I can see them in their infancy when it really is an idea, not necessarily on the back of a napkin, but you know, maybe they don't have a product developed or they're kind of in this ideation phase and they just need some seed capital or angel investment to kind of get things off the ground. Um and we can dig into this a little bit more, but the the kind of underwriting of these deals is not as straightforward as a multifamily space because they typically are either pre-revenue or they don't know what they don't know. Um, and so it's a little bit more, I don't want to say gut, but it's a little bit more, you've got to look at the numbers, but you also have to do your own diligence on the market, on the opportunity, validate kind of what the uh founders are saying is the, you know, the addressable market. Um, you know, you think about if you ever watch Shark Tank, all the invest all the people go in there say, you know, it's a$20 billion industry. And if we only get 1% of that, it's you know, X amount of dollars. And it's like, well, the odds of you doing that are slim to none, right? You've got to define what is your actual addressable market and and all that stuff. So I'll pause there. I kind of went through a lot and and probably glossed over a few things, but um it's been a busy three or four years uh to say.

SPEAKER_00 15:07

Yeah, yeah, for sure, for sure, man. Look, I definitely appreciate you know the detail um uh there, you know, and and kind of going through your journey. And there's definitely some things that um I've been over here, like I said, typing and just um uh get getting my notes here together. So uh there's definitely a lot to talk about. And um one of which is I'm gonna take it back to Rich Dad Poor Dad, which uh, you know, I think I was actually at a conference uh this this past weekend, we were talking about briefly before we uh started here. Um and he spoke at that conference. And so um, yeah, so it was kind of interesting to uh you know to see that because my first um I don't know, I I forgot when I read the book, but but really that sparked um something in me as well, to where I saw that and said, Oh my goodness, you know, this this whole world, um, which completely ran counter to everything that I was taught and that I was uh had been shown. Um, and it just opened my eyes. And and one thing that I like to to highlight about the book is the uh that schematic that he has in there where it has like the why the rich get richer, right? And it shows that the poor and the middle class focus on income and the wealthy, uh wealthy people focus more on assets, right? And it kind of goes from there. And and it's I I feel that it seems like we all get something different from that book, and that for me is what really stood out was like just that that schematic in itself is worth the price of the book. Yeah, 100%. And it's really life-changing, yeah. So so it's and it's cool. Yeah. So so you both and you both read that. I like that strategy too, where you say, well, you you know, you you kind of go in and say, Here, read this, and then let's talk. So it sounds like that.

SPEAKER_01 16:41

One of the things where I I've met a bunch of people where um you know finances is uh you know typically the biggest uh cause for divorce and in you know marriages, right? And so, you know, if if I'm super passionate about taking our disposable income and you know, also we we like I said, we shifted our lifestyle away from um things and experiences to let's let's reduce our expenses, let's make sure that we have enough um kind of I've always been a budgeted person. So, you know, I wanted to make sure that when I knew, okay, I'm gonna jump out and start my own business, um, that we had enough runway financially um that if I didn't make a dollar in the first year, that we wouldn't have to, and if Allison lost her job, uh we wouldn't really have to dig in too much into you know our emergency funds. We had savings kind of saved up to kind of float us for that year. Luckily, like I said, Allison kept her job and um we ended up moving to Austin and she got a raise and all that fun stuff, which made life a little bit easier. But um, you know, like I said, we purposely kind of downgraded our lifestyle to allow us to kind of live the I I forget with how the saying goes, but it's like live the way other people won't so you can, you know, futurally live the way that other people can't, kind of a thing. Um we were, you know, doing the opposite of what most of our friends were doing. Um, but yeah, it was important that her and I were marching to the same uh same drum. And, you know, while she didn't want to take the risk and be an entrepreneur at that point, um, you know, she was fully behind me kind of being that risky person and you know, going out and you know, kind of making sure that I can make enough money so that we can invest and all that. So it's it was definitely important for us to kind of be in lockstep for that for sure. So um, yeah, I wanted to make sure that uh she read it and had the same feeling that I did, or at least wasn't like uh, you know, advertly opposed to, you know, investing in in in real estate and just investing in general, right? Because we weren't even really um doing a lot of like stock investing or you know, we were just kind of setting and forgetting our our 401k, which is what a lot of people do. They assume that, you know, well, I'm I'm maxing out my 401k, so theoretically I should be fine. Well, that's all fine and dandy unless you are planning to retire and then the market takes a dip the year before, right? And then was like, well, now I need to stay working for another three, four, five years to build up my coffers. So um, so yeah, it was it was important for us to kind of be in in moving in the same direction.

SPEAKER_00 19:11

Yeah, you know, it's it's um what's was vital about what you just said there um briefly is yeah, it's for every year that it takes a substantial dip, it's not as if it's a one-to-one, right? It's like if you if the if the market takes a take a takes a serious enough hit, that's going to add a couple of years, three, four, five years. Um, you know, and because most people will want it to at least get back up to where it was. And so right, yeah, it's that that traditional, that conventional advice, um, you know, I think I think we know for sure it's like that unfortunately doesn't work. And maybe once upon a time it did, but uh it doesn't work like that anymore.

SPEAKER_01 19:44

Um, you know, so yeah, and it's it's one of those things where um, you know, I've been in recruiting for 16 years. I've worked for small businesses, I've worked for large Fortune 30 companies. And, you know, while a lot of people feel like, oh, I'm I'm in a safe, secure job, right? I'm I'm safe. Like I have a paycheck. And yes, that is something that as long as you show up and they they agree to pay you, you get paid every week uh or every other week how we get paid. But at the end of the day, if the company is struggling, uh, the company is gonna survive uh for itself or fend for itself, and you are just a line item on a financial person's you know spreadsheet, right? And so, you know, especially if you're working for a publicly traded company or something that's backed by private equity or venture capital, um, unfortunately, you may be the best employee, but you're just expensive and you're gonna be cut. And I've seen a ton of people uh without notice just be kind of say, hey, here's your two weeks kind of thanks but no thanks kind of a thing. And and so um, yes, for the vast majority of people, a job is safe and secure, but it's it's not as secure as maybe they used to be, you know, years ago when you had pensions and things like that. But um, that's why kind of as long as uh, you know, I have a I can wake up and I can put in effort, I know that I can make money, um, you know, and and you know, grind uh, you know, sometimes harder than than other times, but you know, at least I kind of control my own destiny at some point.

SPEAKER_00 21:05

Yeah, yeah, that's right. And I I think you're correct. I mean, if I'm not mistaken, uh personnel is the I'm pretty sure it's kind of the largest um uh part of the of a company's uh budget, right?

SPEAKER_01 21:16

And so yeah, for the most part. I mean, I I don't know like if you're in a manufacturing environment where you have a lot of bunch of like equipment and inventory and things like that. But yeah, most of the time people are your biggest expense. Um and that's always, you know, uh, you know, if you're coming up to the quarter close and you need to make sure that you your expenses are in line with revenues because you maybe didn't have a great quarter, what's the easiest lever to pull? Expenses. And your big if your biggest expenses people just lay some people off and there, there's uh there's some savings. So um it's unfortunate, but that's that is the reality. And I you know had the unfortunate pleasure of hiring a lot of good people in my career. And unfortunately, that some of them um, you know, have have had their jobs cut for no other reason than they needed to restructure to save money.

SPEAKER_00 22:00

Yeah, that that's right. And then one thing that's interesting too, to kind of come in full circle, right, is that one of the uh the reasons why your your podcast and your the information that you share with your guests and your audience is is you know me is so meaningful is because those people will need to understand, okay, how can I still have a strong uh road ahead financially speaking? Um, how can I make use of, you know, to get laid off, what can I do with those funds? And there's a lot that you can do with them, you know. And so um, you know, so having that message, I think, readily available for people, it's essential because it when you're going through it, I've been I've been through getting fired and getting laid off. And when you're going through it, it's not fun. And usually, unless you, unless you're you know prepared, um, you know, that kind of falls by the wayside, even though it should not, because that's really the most important piece in all of it anyway, right? So you that's the reason you're working in the first place, is so that you can kind of uh widen and deepen your financial moat, so to speak. So uh very, very important stuff that that you that you share there.

SPEAKER_01 22:58

Yeah, and part of it is like I I didn't have access to that knowledge or that information as uh as I was growing up, right? No, no fault of like my parents. Typically, you're you're taught you know, learn from your parents, right? And they learn from their parents and their parents. And so, you know, the the real estate investing gene just never kind of fell into my family's uh you know lifestyle. And so, you know, I want to be able to, with what little uh, you know, exposure I can give people, is like, hey, um, here are other options. Like if instead of you know only just looking at the stock market in 401k, like, you know, there are other asset classes, whether you like multifamily or short-term rentals or fix and flips, like there's other things that you can do and still be passive, right? And still not have to lift a hammer or deal with tenants. Like you can just, I have a lot of people that I I talk to that are they love their job or they're self-employed and they make a lot of money. And they're just like, I don't have the time or interest, frankly, to uh learn a new industry because that's what you're doing. Like you have to learn how to underwrite these deals if you want to be active and and all that. Uh, they just want to give it, give, you know, give their money, invest their money with people that they can, you know, build a relationship with and eventually know, like, and trust them enough to say, hey, here's 50, 100, 250, a million dollars, or whatever that number is. I want you to invest it wisely so that it comes back with friends, right? And so um, you know, I'm not saying that you should take all of your money and put it into a one real estate deal or real estate in general. I think you should definitely have a diversified portfolio um of a lot of different things just in case there's a dip in the stock market, you your real estate's better, or there is a dip in the real estate market, like we're going through right now, and maybe the stock market was a a good is a good investment. So um I talked with some people that are fully like the stock market's evil, only put your money in in hard assets, and that may have worked for for people, but I I'm I'm still uh a diversified uh is is most important. Um, whether you may have a higher uh a percentage of your investments in real estate, that's one thing. But uh I'm always a fan of having a little bit of your money spread around, and that's why we started doing this uh angel stuff, um, which has been new and interesting uh to say the least.

SPEAKER_00 25:13

But yeah, yeah, I I would agree with that. I think it's it's more about having having some some balance and then maybe just allocating it um, you know, according to what you think is uh maybe the best performer, you know, or the one that has the highest, the highest uh chance for upside with hopefully as little downside as you can possibly uh kind of bake into it, you know. It's it's just about balance.

SPEAKER_01 25:35

Uh yeah. And one thing that I I try to at least kind of talk about in my podcast and I talk about with people is, you know, to your point about being laid off and having that be like a jolt to somebody's system uh in life, and it is, um, if you have a what I call instead of the financial freedom, which a lot of people talk about, which is kind of this arbitrary number of like, yeah, you can live on a beach for the rest of your life, which you know, if I had enough money, I wouldn't live on a beach for the rest of my life. I would still do some of the things I'm doing. I just may not do them, you know, as as often as I'm doing them, but um You wouldn't live on a beach. I talk, I thought, yeah, I talk a little a lot about like having a financial foundation. And that is a a kind of floor that is solid that if things you know happen in your life, whether it's a medical expense, a car expense, you get laid off, like whatever it is, you have some, you know, whether it's uh, you know, I always recommend, you know, uh in my life, I have the the six months of just money, cash that's just in an account that if if shit really hit the fan, um, you know, I was I can live, you know, comfortably, you know, not changing my lifestyle for six months and probably could stretch that for a year, right? Um, so that's kind of one. But then two is like, okay, how can I take some of this other cash that I'm generating in my job or my business and invest it so that it can bring in some passive income and that will help me to offset if I do lose my job. Let's say you're making 10 grand a month, right? Net. And then you, if you even if you only have three grand coming in from your passive investments, well, yes, it's not gonna fully cover your salary, but at least it doesn't go from 10 to zero, right? Like you still have some found a kind of foundation to keep you keep you afloat. And so that shock to the system of waking up one day and not having a paycheck come in, you know, will not be as drastic. So um, so I talk a lot about like financial foundation and kind of making sure that you're thinking about, okay, if something happens, what what can I be doing now to set myself up uh and then ultimately be able to live off of that, you know, passive income, assuming it gets up to a certain level, um, which is kind of the ultimate goal to, you know, kind of having that passive income uh uh kind of outweigh your your salary or your your W-2 or your business income.

SPEAKER_00 27:44

So yeah, I think I think that's powerful. I like the I like the terminology there as well, like the kind of financial foundation or financial flora, you know, because you're right, it's it's um a lot of people who focus much more on financial freedom, but haven't really taken the time to establish kind of a path to give themselves that buffer and that protection against things going wrong. It's like that's usually the first stop. And so um it it definitely pays to focus on that and then say, okay, where can I go from here? Um, there's something that there's something that I also wanted to ask you about too. And I think that it's really worth noting, you know, um it's so you you started off on the kind of the multifamily side, like in terms of your investing journey. And that's something I think is very powerful because I share that with people that you know, so I start off as a single family investor, and I can tell you that uh you're definitely correct in saying that that vacancy risk um is huge, you know, and so and so but but I try to share that with with with people who um usually it's because it's like, well, I just want to kind of do single family, I want to test it out. I want to, and it's like, you know, I I understand where it comes from. Usually, though, at its core, it actually is a little bit of fear and maybe lack of knowledge that usually says, I want to start off with this one property right here because I'm scared of this and that. So it's usually uh one of those two things. Uh, but I share that with people because listen, that vacancy risk is huge. You know, if if that uh uh property is is vacant, then you're covering the whole note and everything else that comes along with it, you know. And it just um there are there are more efficient uses of your capital uh than that. And I, you know, seek out the information and then determine where you want to go because most people don't want to get into that into the the the real estate game for one property, so it's usually to grow beyond that. So right, it's kind of just I like that you did that. So maybe share kind of what you know uh you know what what what would have kind of put you in the mindset to say, yeah, I don't want to start with one, I want to I want to uh uh de-risk my portfolio.

SPEAKER_01 29:44

Yeah, it really come came down to thinking about the math of okay, I know my mortgage for my cut for my condo that we're living in is is X. I know that Allison and I's salary is Y. Okay, well, we couldn't float another full mortgage. So I didn't want to go down the single family route. And that's that's typically how if I, you know, of all the people I've interviewed and people I talk to, um, most people don't start in in multifamily, even in two to four units. They start in single family, because most people at that point have a house, right? So they can mentally be like, okay, I know how to buy a house. I bought my own house. I know how to, I know what the mortgage costs and all that fun stuff. Um, and then they're like, okay, well, I'll buy one or two, and then they'll go to the multi, then they'll go two to four. Maybe they get introduced to another a five unit or a 10 unit or something. And then I'm like, oh, well, I can do 10 units. And it's like, well, okay, well, then I can just invest passively in these syndication deals that are hundreds of units. Um, but for for us, um, it is a mental exercise to get confident enough to go from one step to the next step to the next step. Um, and I wanted to leapfrog over single family from a financial risk standpoint. And so we looked at, uh, I don't even know, like probably two dozen properties in the Philadelphia area that were kind of in that two to four unit property. We put offers in on two or three, one of them got accepted, and we back backed away because the inspection came back really terrible and it would have been a money pit. Um, and so I was like, well, I wanted to, you know, you always are taught, you know, your first deal should be within your backyard, you know, within a 90-minute drive so that you can go there and see it and check in on it and all that stuff. And and then I kept reading about people that just initially invest out of state and they're just like, you know, I trust a property management company. I'm paying them, that's what they're there for. Um, and so I kind of met myself in the middle in the sense that I I invested in Pittsburgh, which is, you know, not necessarily out of state, but it's not in my backyard. It's it's you know, four or five hours away. Um, but I I found uh just literally Googled um uh real estate agents in Pittsburgh, found this literally the first guy I called. Um, I said, hey, I'm a new investor, I have some money. Uh I live in state, but I'm in Philly. I need your help to find a two to four unit. And and these are my parameters and my my financial ability. So here's kind of the budget that I'm looking at. Um, and he's like, Cool. Um, I'll go view these properties. I will um take videos of the properties and send them to you, and I'll give you some commentary on what I think about the market and the neighborhood. Um, and then it's up to you to obviously pull the trigger. And he introduced me to a property management company that he knew. And so luckily, the the one of the, I think it was probably the seventh property that he saw was the one that we bought. And it was a two-unit side-by-side duplex um just outside of Pittsburgh. And the, I think at that time the units were renting out for like a thousand bucks a unit. Uh, my mortgage was, I think, eleven hundred dollars. So, you know, simple math is assuming that I have it 50% occupied, one of the units is occupied uh at all times, it's at least covering most of the mortgage. Um, so I didn't have to, it kind of de-risked the property. Yes, if the whole thing was vacant, then yes, that is an issue. Um, but I like my odds that at least if I had one tenant, um, I wasn't necessarily losing a ton of money or or spending a ton of money, I at least, you know, was able to kind of make uh most of my you know mortgage payment and obviously had to come out of pocket for the other. But um, but yeah, and rents have gone up. And so now that number is a little bit higher. So now uh if one unit is occupied uh only, it will cover all of the mortgage uh and a little bit more. So um, so yeah, that's kind of how we we stumbled on the two units. It was a um a financial reason from a we didn't want to be able to be on the hook for for all of the mortgage if one unit was not occupied. But also it was uh I wanted to make sure that you know we had a set amount of money and and yes, we could have purchased a multi a single family for that, but I was like, let's do two units, let's see if we can get into that space. I either did one at a three or four, but uh, you know, we started with two, and you know, the rest is history, as I say. But um, yeah, it wasn't uh wasn't the easiest or or the most uh straight process in in the whole uh world. It definitely took a couple of uh twists and turns along the way for sure.

SPEAKER_00 34:03

Yeah, but you know, I think that that that exercise um really is something that you know anyone who's considering uh investing in, you know, two to four or one or what have you or even more, um, go through that exercise because it needs to be about the the numbers and it needs to be about the analysis that that goes into it. Because um, you know, just just it it if I guess if you have to choose between kind of like fear and I I do understand as well that hey, familiarity plays a factor in this because that's what you're really saying, right? If you have a if you have a property, it's like, okay, well, I'm at least familiar with the process of uh purchasing a home. And so that there's there's this calmness that's like, okay, this is not so so big a deal. I've done it before, I just need to find out how to put a tenant in it. So I so I do understand that that piece as well. But I would say that, you know, for the listeners, go through that exercise. Um, if that's the the kind of the deal size you're you're looking at, go through that exercise because you want to make sure that you're comfortable with it based on the numbers. It has to be a factual basis um in it. And and one thing I'll point out too that's it that is interesting is uh could because you mentioned for people who uh start out of state and they have this level of trust that they've that they've established. Um, I find it interesting that the things that are kind of the rules of thumb on the single family side, like make sure it's you know in your neighborhood, or make sure that you can manage it. I mean, yeah, there are things that can often be a barrier to you scaling your portfolio. Right. Because if if you tell yourself, well, it's got to be right across the street, I have to be the one to swing the hammer, I have to be the one to manage it, you know, I have to all the it you'll never scale your portfolio. You have to those are the things that it's like these things have to be in place.

SPEAKER_01 35:41

Well, you'll scale your portfolio at the risk of burning yourself out because if you're trying to work a job and then you know deal with tenants and deal with toilets and trash, um that was that's in my mind, that's a recipe for disaster. Uh I I went into this whole thing knowing that a deal had to make sense, assuming that I had uh, you know, a nine or 10% property management fee um of the of the rents. So, you know, when I underwrite these deals and for the excuse me, for the two to four units, uh, and probably you can do it for even more, um, I didn't rely on my own ability to build a you know a simple analyzer. I used um Bigger Pockets as an awesome tool uh on their website for you to plug in all the parameters around a deal from the purchase price to rehab budget to rents and you know expenses and all of that. Um, and I relied on that tool because it was, I literally would plug in the numbers and I was I made sure uh I didn't have an emotional reaction to a property. And I think that was the benefit of investing out of an area was I was relying on um people that live there that know better than I do, uh, in the agent and the property manager to know, okay, this is in a good area or a good enough area. It has a good school district, et cetera, et cetera. Um, and I had no, I looked at the numbers and the numbers made sense. We moved forward. And when I found this deal, I was like, oh, the numbers make sense, let's move forward. Um, because there was a few properties, one in particular that I that haunts me a little bit in Philly is it was in an area that you know I wouldn't want to necessarily live, but the property was was rent rehabbed and and kind of renovated. So it was kind of ready to go. Um, it just was a barrier for me to be like, oh, I don't want to have to come here uh to deal with tenants or anything like that, even though I was going to use a property manager. And so you kind of get into this emotional um you know wheel of death that you're just like, okay, well, I wouldn't want to live there. So why would anybody else want to live there? Or I'd I wouldn't be comfortable walking around here. But, you know, people live where people live, right? And so um the benefit of living or investing out of state or out of your immediate area is you're relying on people that are like, yep, no, this is good. Uh, you know, you're you know, you're gonna get good tenants, you're gonna get traffic, like this is an area that's growing. Um, and so you know, that that is a benefit that you don't have um, or that is removed if you kind of look in your backyard because you will have a oh, that street's not good. I don't like that street or I don't like that area or whatever. Yeah. Um, so you get a little bit more emotional. And this game is high emotion, but you need to keep that as low as possible because um it it has to make sense for the numbers. And, you know, if you start to bring emotion into the mix, you're gonna probably overpay or miss out on some good deals potentially.

SPEAKER_00 38:35

Yeah, yeah, that that that's a good point, right? Is if once you start to look at um investing at a distance, you remove a little bit of your yourself from it, um, at least the things that could kind of get in the way. Like, and I see myself sleeping in that particular if it's like, you know, it's the old uh give the market what it wants kind of thing. It's like if you if you are looking at a market where everything else meets your criteria, it's got you know net migration, it's got you know strong jobs and and landlord from landlord-friendly, business friendly, whatever it is, um, you know, but but you don't want to throw those last two pieces of it where, well, I don't like the exterior of that, or I don't like this and that. It's like, well, now you're kind of you know, you're not looking at it from sort of a mathematical, you know, a stance and in a way that, hey, this is this is about supply and demand. You know, does that market prefer that product? If they do, okay, well, then you know, give given what they're looking for. Um, so yeah, I love that. I think that I think that's all those things are very, very essential to consider when you're um when you're investing. Absolutely. And so yeah, you you um, so I wanted to ask you, let's let's let's shift gears for just a moment here um to the uh angel investing um piece, right? And so for uh an investor, a real estate investor, and you're kind of used to uh especially for syndication deals, you're really more or less used to um three general liquid uh events, capital events, liquidity. So you'll you'll get your um you know, your quarterly distributions or monthly distributions, you get if there's a refi, then you'll get some of your return of uh capital from a refi, and then you sell. Okay. And so for people who are hardwired, you know, to say, okay, well, those are my events, I must have those in all times in all investments, you know, if they're looking at a uh at a potential investment um um as an a as an angel investor, um that changes. So how how do you how do you kind of help square that with people who are used to a different type of investment? Or do you or or do you say maybe this isn't for you if that's what you're looking for?

SPEAKER_01 40:31

Yeah, I mean, I think I I go back to the diversification piece, right? So um, I mean, if you look at a stock that you invest in a stock, how do you grow value? The stuff price goes up, but that's all the value is on paper. You don't get actually the benefit of that unless you sell that that stock, right? Um, similar to a um an angel investment, where I am betting on the fact that my investment dollars are going to appreciate in value because the entrepreneurs, the founders are going to uh build a business that can then be bought by another business, whether that's another private equity firm or another strategic, a bigger company coming in and swooping in. Um, and so the the goal or the kind of the mindset I go into if I look at an angel investment is you know, if I put this money in and let's say their focus uh or their kind of, and because everybody has like a here's our exit strategy, or here are multiple exit strategies of in three years, if we go from zero to 10 billion, which that's always the the goal is right to you know, rocket ship, everything's gonna be perfect, uh, everything's up and to the right, um, which always never never happens. But the the goal is okay, if I can invest that money and in five years, instead of being like a real estate deal, is typically you're looking at like a 2x return, right? So if you put in 100 grand um through those three kind of events that you talked about, uh cash flow, refi, and the exit, the the goal would be to give you back your principal, your investment of 100 grand plus combined added all those three kind of events, if you will, together would be another hundred grand. So you're walking away in five years, let's say with 200 grand. My goal with these angel investments would be to say, okay, uh, if I can take that hundred grand and put it into a multifamily deal and get two X in five years, I want to make sure that I can I have a potential uh to get maybe five to 10x in that same time period, right? So it's a it's much more of an appreciation play. Um, you know, some of the angel investments and full transparency, I've only actually executed on one deal. I've looked at a lot, but um I've only executed on one angel investment uh in the last, I think we've only been part of that group for like six, eight months at this point. But um, but the goal is to, you know, diversify my investment portfolio. So now um, you know, I'm in stocks, I'm in bonds, I've got T bills, I've got real estate, I've got uh, and now I've got an angel investment. And so um each one of those vehicles, you know, has a different um return profile, right? And so the goal for real estate is to build up enough real estate portfolios so that I'm getting some cash flow. That's what I would, you know, potentially be able to live off of. Whereas these other investments, the stocks, the angel investments would be more of a wealth play to say, okay, I put in, you know, 25, 100 grand, whatever that is, but I'm gonna get a lot more back. And then I can take that, you know, four or five, 10x, whatever that you know, multiple is, and then diversify that even more and put that into other different investment options, whether it's putting that all that money back into angel investments or putting it into, you know, if I get a 10x return, taking that and saying, okay, I'm gonna take, you know, 25% and put it in real estate, 25% of that and put it in, you know, XYZ. And so um, it's just a different mindset of what the return profile is for these different investments. Um, and you know, angel investments are of the of the lot. That we talked about are the riskiest because most of them are pre-revenue. Most of them are, we have a brilliant idea and we think we can achieve it. And we need money to get from A to B. And B is typically another capital raise. And then that's where bigger private equity firms will come in and you know invest in their seed round. And then, you know, they've got series A, B, C, D, and on and on. So it is um just a different mindset of what you're gonna get out of that. Um, because and you also have to be much more willing to lose it in an angel investment. So the what one thing I like about multifamily or real estate in general is there's a physical asset that you can ultimately sell, right? And so let's say you buy a 100-unit apartment complex and your business plan goes to ultimate crap. You can't raise rents, you can't renovate, something happens. And the, you know, not the worst case, but a scenario is you'd have to just fire sell that asset and you can still sell the the building, the land, all that stuff, and generate some type of um capital back. Now, that doesn't always mean that that investors are going to be made whole. Obviously, you've got a mortgage to pay off, right? A loan. Um, but at least you've got something that you can sell. And, you know, let's say you you have investors in a deal and they've each individually given 100 grand, and you say, Hey, uh we we didn't do well in this deal. And unfortunately, we had to sell it at a at a you know lower than what we anticipated. And I can only give you back 50 grand at the hundred grand. At least they're getting something versus zero. Whereas a lot of angel investments, um, that money goes to zero, um, you know, more often than not. Um, and so that's where um, and one thing I've learned in the short amount of time that I've been looking at angel investments is you really need to invest in a lot of different investments, uh, angel investments, because um, just like a diversified portfolio, some are gonna work out, some are not. Uh, and so sometimes the, you know, if you look at 10 angel investments, probably seven are gonna go to zero, two are gonna do okay, and one's gonna be awesome, and that's gonna balance your portfolio. That's just kind of how how the game works. So if you're, you know, we've done one. Now it is tied into the real estate world of short-term rental. So it has not that they own real estate, but it has a something that I have a little bit of familiarity with. Um, so that's why I felt more comfortable kind of putting my my investment dollars into that. Um, but also one thing that was really cool that we realized is that you can use self-directed IRA funds to invest in a uh in an angel investment. So um, so you can't, you you there's all these cool things that you just hit exposure to. The more you dig into any type of investing, uh, frankly, and just talk to more people. Um so yes, would it suck to lose that that you know amount of money that we invested? 100%. But at least it's not, you know, cash. At least it's it was retirement funds, and you know, it's it's a little bit out of sight, out of mind for me at the moment. But um, but obviously we didn't invest to uh assume it was going to zero. We're hoping that it does well. But uh, but we will we will see. But um, but yeah, angel investing is just a different mindset when you think about what's my return going to be. And and you know, you can't invest in angel investment deals because thinking you're gonna live off the the cash because there's no cash. The only time you get any type of return of capital is at an exit.

SPEAKER_00 47:34

Yeah, yeah. And I definitely appreciate kind of giving that that overview there. And um, and I've heard some some similar things as well. It's I find it interesting that you know it it very much depends on um uh the the sponsor, the founders, right? Like you like you mentioned there, and that that level of trust and and experience and you do your due diligence, but but much like you know, syndication deals, it's it that that sponsor or the founders, it's like, well, you know, the deal usually depends on on them or the success or failure of the deal. And so um, and also regarding kind of I've I've also heard the same similar things that hey, if you know, if you you kind of put your capital if you can in a basket almost of uh of startups uh and opportunities, knowing that there's going to be this mix of uh of performances. And so you yeah, so it's just I think it's a fascinating, uh, fascinating world. I definitely, you know, uh it there's a nugget for uh kind of the listeners is that you can use your your self-directed um funds, if you have self-directed IRA, you can use it in in that. I mean, I just think that the flexibility and the versatility of um of of that is a is an option is just huge. So so I I hope more people uh take heed and do that, you know, because yeah, yeah.

SPEAKER_01 48:44

You don't have to always just have like cash in your savings account to go invest in deals. And and you know, real estate is the same thing as long as you're passive, right? You can, you know, a lot of people that invest in the deals that I'm in, um, that I bring in, you know, they use retirement funds, they use other things. Um, they don't always just use cash. Now, if you're looking to build a portfolio that you can live off of the cash, because if you do use self-directed IRA funds, you you don't get and you do get distributions, all that goes into the retirement fund because you can't touch it. There is there's still penalties just like a 401k. Um, so you can't live off of that cash flow. Um, so if you do want to build a portfolio to live off of cash flow, then obviously you need to use cash. Um, but yeah, it's super powerful. There's a ton of money locked up into real estate or retirement accounts, uh yeah, retirement accounts that you know is just sitting burning fees because that's you know, these uh these uh custodians, uh Vanguards and Fidelities, while they're great at kind of you know cool dashboards and everything, they're they're charging you fees to kind of manage and and put that money to work. So um, you know, when you pull it out and put it in a self-directed, you have a little bit more control uh over where you invest it and also um what fees are taken out of your account. So um something to think about.

SPEAKER_00 49:56

Yeah, absolutely, absolutely. Well, um, Justin, we're getting close to close. And so I wanted to um ask you the question here. So for the listeners who have tuned in and they really like kind of what they're hearing, you know, what's um an actionable, let's say if they're on the fences, they kind of are hesitant to get in. Uh, what's an actionable tip that they can take to start today? And I'll say as a passive investor.

SPEAKER_01 50:16

Yeah, I mean, I think especially now, um, I guess this is kind of consistent for any market, but uh, if you're gonna start passively investing, you've got to know who the operator is of the deal you're gonna invest in. Um, so if you come to, you know, I would say go meet people as much as you possibly can in person. Um, so if you're talking to somebody that is a a co-GP, meaning they are not the person that found the deal. They are, you know, somebody like myself, maybe that is helping to bring passive investors to a deal. You need to know who I who that person is. You need to know like and trust them, but also you need to know who that actual sponsor is and talk to that person. Um, because to your point, the uh the person that brings the deal to you may be a capital raiser or somebody that's just raising funds. Um, and they may have looked at the deal, they may trust the person that's that's operating the deal. Um, but you as a passive investor need to do your due diligence on all parties involved in that deal because um it all comes down to the operations of the deal. The deal can look great on paper because it is an Excel document that can be manipulated and all that stuff. Every deal can be made to look great by pulling different levers and and making things aggressive or less aggressive. But um make sure that you're you're knowing who you're investing with um and that you you trust that they uh you know have balanced the risk and the uh conservativeness of their underwriting, because every underwriting has risk in it uh and assumptions. And so you just have to be as comfortable as possible um before you use wire that those funds. So now more than ever, uh, because you know there's a lot of deals that are going south uh in the multifamily and just commercial real estate in general, um, with the crazy increases in in interest rates and insurance rates and all that fun stuff. So operations is key right now. And so yeah, make sure that if you're gonna be jumping into this this game, which is an awesome game and can be life-changing, um, make sure you do the due diligence up front so that you uh are as comfortable as possible putting that that money to work um for you and and you know who that's going to.

SPEAKER_00 52:24

Excellent, excellent advice. And I and I kind of I would add, you know, I mean, we're in a time right now where transactional volume is um lower than it has been in recent years. And so this is a great time to spend the time to get to know sponsors and and uh things like that. So yeah, excellent advice. So, Justin, for uh the listeners who want to hear more about you and um kind of see more of your content information, how can they do so?

SPEAKER_01 52:46

Yeah, so you can check out my podcast, Work Hard Invest Harder Podcast. Um, that's uh a good way to kind of, if you want to hear my voice, talk to and interview cool people for 45 minutes. That's a good thing to do. Um, you want to check out any of our kind of real estate websites, uh, it's just greatventurecapital.com. Uh, I'm on LinkedIn a lot, uh, just given my recruiting business and all of that. So that's probably the best way to connect with me and the easiest way to find me is uh just through LinkedIn.

SPEAKER_00 53:12

All right, all right. Well, I will include all that information in the show notes. And Justin, awesome conversation, man. Really appreciate your time and just thank you for adding so much value to myself and for uh the listeners as well.

SPEAKER_01 53:23

No, it was a lot of fun. Thanks for having me on.

SPEAKER_00 53:26

As always, thank you so much for tuning in to the show today, brought to you by Bridge Prosper. If you enjoyed today's episode and you'd like to learn more about commercial real estate investing, please like, subscribe, and share. And we'll see you again next week. I'm Brandon Jenkins, and this is the Capital Stack, where we help you learn, apply, and prosper.