Kate Lynch, the managing partner at Estate Barrels, shares her journey from a Wall Street investment banker to a successful real estate investor and, eventually, a partner in a bourbon investment venture. Faced with the challenge of balancing a demanding career and family life after having three children, Lynch transitioned into real estate to gain financial and time freedom.
She initially invested in multifamily properties in Cleveland, leveraging Airbnb for strong cash flow, and eventually diversified into vacation homes, though she found urban rentals more profitable and less hassle. Lynch's foray into bourbon investment with her brother emerged from recognizing the lucrative opportunity in the appreciation of bourbon barrels over time.
Their fund focuses on acquiring barrels from select Kentucky distilleries, betting on the increasing demand for bourbon globally without tying to specific brands. Tune in to discover how she mastered the art of real estate investing and bourbon barrel investment.
Key takeaways to listen to:
About Kate Lynch:
Kate Lynch is a seasoned finance professional with over 20 years of experience in the banking and investment industry. She has a proven track record of advising financial institutions on M&A, capital markets, and strategic planning services, both in New York and in the Midwest. She officially retired from investment banking in 2022, but continues to consult with banks and mortgage companies upon request.
Since 2022, Kate has been managing her own investment real estate portfolio, focused on small multifamily and short-term vacation rentals in the Midwest. She also joined her brother in 2023 to launch Estate Barrels, a private investment vehicle that leverages the rapid and consistent appreciation in the value of bourbon as it matures from the "new make" stage into 2- to 4-year aged barrels. Kate is passionate about creating wealth through alternative assets and exploring the unique opportunities in the bourbon market.
Connect with Kate:
To connect with Randal and learn more about passive investing, visit www.ridgelineig.com and follow our social media pages below!
Kate Lynch, the managing partner at Estate Barrels, shares her journey from a Wall Street investment banker to a successful real estate investor and, eventually, a partner in a bourbon investment venture. Faced with the challenge of balancing a demanding career and family life after having three children, Lynch transitioned into real estate to gain financial and time freedom.
She initially invested in multifamily properties in Cleveland, leveraging Airbnb for strong cash flow, and eventually diversified into vacation homes, though she found urban rentals more profitable and less hassle. Lynch's foray into bourbon investment with her brother emerged from recognizing the lucrative opportunity in the appreciation of bourbon barrels over time.
Their fund focuses on acquiring barrels from select Kentucky distilleries, betting on the increasing demand for bourbon globally without tying to specific brands. Tune in to discover how she mastered the art of real estate investing and bourbon barrel investment.
Key takeaways to listen to:
About Kate Lynch:
Kate Lynch is a seasoned finance professional with over 20 years of experience in the banking and investment industry. She has a proven track record of advising financial institutions on M&A, capital markets, and strategic planning services, both in New York and in the Midwest. She officially retired from investment banking in 2022, but continues to consult with banks and mortgage companies upon request.
Since 2022, Kate has been managing her own investment real estate portfolio, focused on small multifamily and short-term vacation rentals in the Midwest. She also joined her brother in 2023 to launch Estate Barrels, a private investment vehicle that leverages the rapid and consistent appreciation in the value of bourbon as it matures from the "new make" stage into 2- to 4-year aged barrels. Kate is passionate about creating wealth through alternative assets and exploring the unique opportunities in the bourbon market.
Connect with Kate:
To connect with Randal and learn more about passive investing, visit www.ridgelineig.com and follow our social media pages below!
[00:00:00] Randal McLeaird: On the real estate investing side, what are you working on there? Look like some small multis along with some vacation homes, that sort of thing. Yeah. So the
[00:00:07] Kate Lynch: small multis are my, I'd say my best performing asset. It's funny. I, I started with the small multis and then I thought I would branch out into the vacation homes thinking it might be better and it was actually worse.
[00:00:17] Kate Lynch: So I'm sort of exiting that path. I mean, I think all of us who do real estate, you try to find something that works. And then you try and prove on it and sometimes it doesn't and sometimes it doesn't hit right. So we ended up going back toward where we started. I guess we just got lucky on our first one.
[00:00:32] Kate Lynch: If you're a
[00:00:33] Intro: real estate agent earning 200, 000 a year and you want to grow your passive income, this show is for you. Learn secrets other agents use and hear from experts in our field who will guide you on your journey to investing in assets like apartment communities so you can take your commissions and turn them into cashflow.
[00:00:52] Intro: Here's your host. Randall, let's dive in. All
[00:00:55] Randal McLeaird: right, welcome back. I have an awesome guest for you today. Her name is Kate Lynch. She is currently the managing partner at Estate Barrels. So very interesting career. We talked about how she started in investment banking, got out and needed to buy some of her time back.
[00:01:10] Randal McLeaird: She had kids and she wanted to get out of investment banking. It wasn't conducive to her raising her three kids. And so she started investing in real estate and her, her path through investing in real estate and how it bought her time back. Now she's working at a state barrel. She again, managing partner, raising capital and deploying that capital into bourbon.
[00:01:29] Randal McLeaird: So very cool investment strategy and investment thesis, and she has a fund that they raise capital and they deploy it into these barrels. So we talk about that quite a bit. You're going to get a lot out of the episode. I know I did. If you are interested in investing in bourbon, you can definitely reach out to Kate or contact information's going to be in the show notes as well.
[00:01:47] Randal McLeaird: If you would go on rate and review, if you leave even just a one word comment in the podcast review, that helps us a ton get awesome guests just like Kate. So let's jump in and talk about some bourbon. Here we go. Hey Kate, awesome to have you on the show today. Thanks for joining me. I'm excited to dive in and talk to you about all things investing, your experience, and just kind of dive in and talk bourbon, essentially.
[00:02:08] Randal McLeaird: I think that's where we're going to get to. Yeah.
[00:02:10] Kate Lynch: Yeah. Thanks for inviting me. I love talking about investments, so I'm glad to have a conversation
[00:02:14] Randal McLeaird: with you. Fantastic. Just as a way of background real fast, if you would tell us, I know you're in investment banking. So tell us a little bit about where you got started and then how you transitioned into not only real estate investing, but also where you are now with the state barrels.
[00:02:28] Randal McLeaird: Sure. I'll try
[00:02:28] Kate Lynch: to make it quick. I think probably like a lot of other people who get into a professional job. I had a job that starting out, I absolutely loved. It was exciting as a wall street investment banker. I was working 80 to a hundred hours a week. I was advising. The CEOs of banks that were buying other banks or raising tens or hundreds of millions of dollars of capital.
[00:02:48] Kate Lynch: It was a fun job. It was intellectually stimulating and I thought I would love it forever because I was working so hard. I didn't have much of a social life and I didn't get married until I was almost 40 years old. And we had three kids in the four years after we got married. And I very quickly realized that being an investment banker is a lot harder when you have three little kids at home, I had thought I could handle it.
[00:03:11] Kate Lynch: I had, I was used to working long hours and not getting a lot of sleep, but it was a lot harder to be on the road two or three days a week when I had three babies at home who I wanted to see and they wanted to see me. So like so many other people. I started looking to real estate as an avenue to change my life and gain the financial freedom, the time freedom, to be the kind of mom that I wanted to be.
[00:03:33] Kate Lynch: I was lucky that I found a path relatively early, I think, through investing in multifamily properties in Cleveland. The market that I live in, in Cleveland is one where the houses are not that expensive and we get enough travelers, either business travelers, healthcare travelers, or families visiting their in laws or what have you.
[00:03:54] Kate Lynch: So we get enough visitors to Cleveland that I was able to make those properties, Airbnb properties, and get a really strong cashflow out of them. Now to get there, I liquidated my 401k and I was certainly very nervous about doing that. But I thought to myself, your 401k is supposed to be your retirement income.
[00:04:12] Kate Lynch: So I'm going to see if I can use it to retire at 45 instead of 65. I was watching every dollar very focused on getting as much cash flow out of the dollars that I invested in real estate. I was pretty indifferent to appreciation, not that I don't, wouldn't like to have it, but you can't pay your bills with appreciation and it doesn't help you be a stay at home mom, you know, until you sell.
[00:04:34] Kate Lynch: Right? So I was able to put pretty much everything that we had in my 401k, you know, even HELOC on our primary home. Put all of that into real estate and create enough cashflow so that I could be a stay at home mom. Literally, I quit my job about a year after I bought the first property. We did not yet have the kind of cashflow that could replace the income that I made as an investment banker.
[00:04:57] Kate Lynch: But I could see sort of the relationship between how much it cost to buy a house, how much income I was getting in order to see, okay, I'm going to get there within another year or so. And, you know, when your kids are 2, 4, and 5, one more year of being home with them is more valuable than that one more year of working on the job.
[00:05:14] Kate Lynch: So I, I quit the job thinking. All right. I'm just a stay at home mom. I'm going to manage these properties and I'm done with this finance career that I developed other than making sure that I hit the cashflow numbers on our investments. What I found is that once the properties are functioning as an Airbnb, there's not all that much time required to manage them.
[00:05:34] Kate Lynch: And my kids are in school during the day. I'm home with them in the summer, but I have sort of nine o'clock until three o'clock every day where I'm able to do something. And so. I've had a handful of people reach out to me to ask me to help them with one project or another related to my background in finance.
[00:05:50] Kate Lynch: And then along the way, my brother came to me, and he also was retired at that point. He had a much more exciting career path than I had and sold his company to Visa. So he, uh, was in a position where he was able to look for other opportunities to do something with the money he got from the Visa deal.
[00:06:09] Kate Lynch: And one of the things he did was create a bourbon distillery as a passion project. And through that process of owning the distillery over the last five years or so, he identified a niche of investing in wholesale barrels of bourbon and called me about six or eight months ago and just said, this looks really exciting to me.
[00:06:27] Kate Lynch: And he said, you're an investment professional. Tell me, is it as good as I think it is? And if so, should we pursue putting together an investment vehicle focused on bourbon? And so I sort of dove back into the work world. Um, you know, my own terms really, right? So it's not like I have a boss or an office that I have to report to.
[00:06:44] Kate Lynch: Nobody's keeping track of my hours, but I'm working with my brother, helping him raise money for this bourbon fund and I just love it. And it's so much more rewarding to be in this position where I really have the flexibility to spend my time where I want. But I realized that intellectual stimulation that I get, as well as, you know, the thrill of the deal that you get from raising capital and working on private equity fund.
[00:07:07] Kate Lynch: I still can enjoy that, but I don't have to be on the road three, four days a week to do it. Yeah,
[00:07:12] Randal McLeaird: that's fantastic. Thanks for the summary. A lot of questions. Let's start with the real estate because that's, aside from all the questions I have about investment banking in general, just to chat with you about that, but we can save that for another show.
[00:07:23] Randal McLeaird: Maybe you said that you traded your. Appreciation or your desire for appreciation for cashflow. So that tells me you were buying a certain type of asset. So can you explain what you were looking for and what you were shopping for? Yeah.
[00:07:36] Kate Lynch: So I think that the more I spend time listening to people who invest in real estate and looking at the markets that other people invest in, it seems like there is a very strong inverse relationship between appreciation and cashflow.
[00:07:50] Kate Lynch: The hottest markets, the properties that are on the beachfront, the growth markets, the places where everybody wants to be, they are priced at a level where it's hard to get cashflow. Yeah. And so. People who are investing there are doing it because either they want the property for themselves or because it's incredibly, you know, beautiful on the beach, or they want to ski there or what have you, right?
[00:08:11] Kate Lynch: These are markets that are going to continue to draw investors or buyers because they're amazing markets. And so the people who invest there are probably going to get really good appreciation because 10 years from now, it's still going to be awesome to live on the beach and there's no more beach available.
[00:08:25] Kate Lynch: So the number of people who want it will continue to push that price up. The flip side is if you invest in a market that not a lot of people want, the appreciation rate is really slow. I would say in Cleveland, possibly even negative. I say negative because I think that when you buy a property in Cleveland, you usually have to spend money to fix it up.
[00:08:44] Kate Lynch: And the after repair value is the same as what you bought it for. So it's a weird market. But, uh, what I have found is that. The price is still really low relative to the cash flow that you can get because I just don't have a lot of competition and there are people traveling here and I can rent my two bedroom, one bath place for about a hundred bucks a night.
[00:09:06] Kate Lynch: I'm renting it for less than what people spend to stay at a hotel. I set all my places up for families like ours. So I always put in a crib and a rocking chair and high chair family friendly things a family that has kids can travel here. They can put the kids to bed and mom and dad can go watch a movie while the kids are sleeping.
[00:09:23] Kate Lynch: Like, when we travel and we stay at a hotel, my husband and I are like, we're looking at each other in the dark in a hotel room. That's not much fun staying in a hotel room with babies who go to bed at 8 o'clock. And you have to be really quiet so you don't wake them up and you maybe, you know, tiptoe out to the balcony if you're lucky enough to have one.
[00:09:35] Kate Lynch: Right? It's such a different scenario. So the properties here, they're so cheap that I can rent them for 100 a night and make money. And it's cheaper for the client, the traveler than staying at the hotel and my own point of view, as we thought about, for example, the, you know, potential recession coming and slowing down travel is.
[00:09:54] Kate Lynch: My places are still cheaper than a hotel and better than a hotel. So even if there was a slowdown in the economy, I would think that since they cost less than a hotel, there's going to be some people traveling to Cleveland. They'll find those properties and it should still do well. They rent really consistently.
[00:10:08] Kate Lynch: My cash flow definitely fluctuates. We get a lot more money in the summer than we do in, you know, January and February when it's freezing cold. But even at 50 a night, that's still 1, 500 a month for a triplex, that's 4, 500 a month. And my mortgage is 800 a month. 50 a night, I make money and I probably average around 100 a night for the whole
[00:10:28] Randal McLeaird: year.
[00:10:29] Randal McLeaird: Yeah, yeah. That's fantastic. Okay. So let's talk then, because I thought you were going to say C class property or some kind of Because No. Okay. Because There is a trade off. I see what you're saying though. You're talking about markets specifically. You're not going beachfront. You're not going to some Miami or San Francisco market or something.
[00:10:47] Kate Lynch: Yeah, and I've heard other people, like for example in a Washington DC, they can buy a C property and do really well with it because it's such a ridiculously expensive market. You can still get enough money from the rent on a C property to pay for it. In Cleveland, a C property is pretty hideous. And when we were first looking at houses to buy, we went to see some of those properties that, you know, you can literally find a house for sale in Cleveland for like 40, 000.
[00:11:11] Kate Lynch: We went to see one where there was an open house schedule and my husband and I showed up to go to it. And the agent literally tried to open the front door and there was a person asleep on the floor, but he had to push the person. Like with the door, the door open. And he was like, come on. And they knew we were coming.
[00:11:29] Kate Lynch: He's like, come on and just step over this woman and her child. I was like, yeah, no, I don't. I don't think that's the kind of, I'm not going to literally step over people to pursue my investment goals. Then for people who are looking in Cleveland, I think you have to see the property yourself. Now there are also some really beautiful neighborhoods in Cleveland and I don't invest in the high end neighborhoods either.
[00:11:51] Kate Lynch: I would say, I don't know, you'd probably call it a B plus market, right? It's a, a nice house in an up and coming or a trendy ish neighborhood, but the kind of place that you'd stay if you're maybe in your first job out of college, not the kind of place that you'd buy if you're a doctor. Yeah.
[00:12:07] Randal McLeaird: So that makes sense.
[00:12:08] Randal McLeaird: Isn't NRP, I think they're headquartered up there, big apartment developer, a buddy of mine moved up there, worked their corporate headquarters. And so, yeah, I'll ask him a little bit more about that. About that, about the market, but clarified on that. I want to know, you started buying these properties. Do you mainly focus on the three plus unit?
[00:12:25] Randal McLeaird: Have you gone anywhere like 70 unit, a hundred unit, 150 unit?
[00:12:28] Kate Lynch: No. Yeah. It's funny. I have thought about doing that. I don't know. That you would get the same interest from Airbnb customers for a, you know, a big multifamily. And really, I think that the key to my cashflow is that I'm renting places for about 3, 000 a month per floor, right?
[00:12:45] Kate Lynch: So nine grand ish, probably eight, because always the third floor rents for less than the first two, because you got to walk up three, three flights of stairs to get to it. Let's say call it 8, 000 a month. That's really high for Cleveland, right? A long term rent here. It is probably around between 500 a month for an apartment.
[00:13:02] Kate Lynch: And so you wouldn't get, I think, the same return on a big building. Maybe other people can do it, but for me, I think that's sort of the sweet spot. I do own a duplex. It was next door to a triplex that we own, so we bought it just for convenience sake. But the profitability on that is about 75 percent less than the triplex next door because it has two units instead of three.
[00:13:21] Kate Lynch: So, you know, that's, I think the price relative to the income is, you know, I'm looking for cash flow. These get me there.
[00:13:28] Randal McLeaird: Yeah, yeah, for sure. Okay. All right. So, yeah, that was one question I had. And then were you putting leverage on these things?
[00:13:33] Kate Lynch: Oh, yeah. Absolutely. Yeah. I take the maximum
[00:13:35] Randal McLeaird: leverage. Got it.
[00:13:36] Randal McLeaird: Okay. So, you have focused on the short term rentals. You don't have long term rentals. And that's how you're able, you're about double of what a long term rental would for the same type building is what it sounds like. 9, 000 compared to about 4, 500. So, so that's all. So. Any particular reason you picked short term rentals over some other type of investment strategy?
[00:13:56] Kate Lynch: Yeah. When I was looking at real estate, you know, I thought about all of the things, the commercial real estate, residential, single family, vacation homes, you know, listening to all the podcasts and the books on tape, trying to figure out what works best for us. I think that single family homes are a duplex or triplex.
[00:14:10] Kate Lynch: Which is just a house that, you know, each floor is a rental. They feel familiar. They, you know, I think getting into a big multi story apartment building is, I mean, I hear about other people starting with that. It, that seems scary to me in spite of the fact that I've worked on wall street. That's a, I think that it seems like an easy asset class to understand and start with.
[00:14:27] Kate Lynch: And then, you know, the Airbnb cashflow is just phenomenal. I don't know how long the Airbnb cashflow will stay as strong as it is relative to. Long term rents, but for now, it's working for us in Cleveland and we'll stick with it as long as it does. And if it changes, we'll exit. We did try doing vacation homes.
[00:14:46] Kate Lynch: So we, we bought a house down in Hawking Hills, which is sort of a state park area in Southern Ohio. If you look at the most income for Airbnb properties, it's actually Logan, Ohio is on the list every year for some of the top performing properties. It's incredibly popular. But I found that the vacation properties, there's a couple of things that are different about it relative to the multifamilies in Cleveland.
[00:15:08] Kate Lynch: One is the guests, when they're going to those, they tend to plan six months in advance versus my short term rentals they rent a week or two in advance. Secondly, People tend to not vacation for weeks at a time. So you might get a week from some guests, but most of the time it's between 3 and 5 days for the rental timeframe.
[00:15:27] Kate Lynch: So you have just a lot more vacancy on the vacation homes relative to the urban rentals. And then the 3rd thing is. When people are going on vacation, their expectations are incredibly high around it, right? So in Hocking Hills, a one week vacation could cost somebody 5, 000. And it's three or four families together.
[00:15:43] Kate Lynch: They've been planning this for six months. If something goes wrong, it's like the end of the world. You know, something silly, like I can't think about, like one guy told me. There was a raisin underneath a dresser and I was like, yeah, no, it's there's like this much room between the bottom of the dresser and the floor.
[00:16:00] Kate Lynch: I don't know what you were doing down there. And I'm really sorry that our cleaners didn't see it, but. You know, I'm not sure how that you can throw it away, you know, or people will call you and say, yeah, I'll say, you know, the light bulbs are out in one, in one of the bedrooms, I'm like, there's a dollar general, literally one minute away.
[00:16:21] Kate Lynch: Yeah, could just get a new light bulb. I mean, yes, you know, we should have our cleaners check every light bulb, but for a seven bedroom house, they don't necessarily turn on everyone. So that sort of angst that people feel around how important this vacation is to them. I find it contributes to. Just so much more dialogue around complaints and hassles and, you know, do they get a refund if this or that happened?
[00:16:47] Kate Lynch: It's for the relatively worse cash on cash return. I decided I just like the urban rentals a lot better.
[00:16:54] Randal McLeaird: So you had one there and then you, have you exited? Did you sell that deal? It's actually for sale.
[00:16:58] Kate Lynch: Okay. Yeah, we listed it for sale and then we, actually because I want to put money into the bourbon fund.
[00:17:03] Kate Lynch: Yeah. Um. We also have a ski house in Holiday Valley that we also listen for sale. Then we have one other one, which is in Geneva, Ohio, which is, there's a bunch of wineries there. And that one is a little bit lower key. It's just, you know, people go into wineries, so there's not quite the same sort of, you know, special vacation feeling that some of our others have.
[00:17:20] Kate Lynch: Um, it has a swimming pool. So it's already the Geneva, Ohio one, we only spent about 300, I think it was, we've spent 320, 000 to buy the house and it is booked up already at this point for most of June, all of July and half of August. So that one, I think we'll have a good cash on cash return, but with a little bit less of that anxiety from the customers around making it the best vacation of the year.
[00:17:43] Randal McLeaird: Yeah, there are a bunch of wineries close to San Antonio where we are in Fredericksburg and a lot of people use those and I know they, they're killing on up there. So you said something that I guess I don't distinguish between the two and you clearly are between short term rentals and vacation rentals.
[00:17:56] Randal McLeaird: So short term rentals, are you doing like nurses or are you doing people who are staying for a month at a time or how do you, what's typically the length of stay for your
[00:18:05] Kate Lynch: guests? I would say our average is probably around seven days. We get multi month rentals in them. They're more urban rentals. So it's people who are either traveling for business, traveling for the hospitals, or traveling to visit family.
[00:18:20] Kate Lynch: And it's something where they're just going to visit grandma. It's not a vacation that they planned six months ahead. And it's typically just one family. It's not three or four families together. We're planning a trip. So it's much more last minute in terms of when the rentals come in, but it's also just the lower key kind of a thing where people will say, you know, they'll reach out and say, Oh, you know, the, um, the refrigerators acting a little funny, you know, can you have somebody check it out, you know, in the next day or two, it's, you know what I mean?
[00:18:46] Kate Lynch: It's just a. When there is something that goes wrong, and you know, right now we have 16 rental units, there's always something going wrong with something. It just seems like the people who are just visiting grandma or in town on a business trip, they're just not all that worried about it because what they're getting relative to the price feels to them like a real value versus the people when they spend 5, 000 for the vacation to them, that's, you know, just a really big thing.
[00:19:08] Kate Lynch: And they, they care so much about every aspect of it. Yeah.
[00:19:12] Randal McLeaird: No, that makes sense. That makes sense. Okay. So you answered the other question, which was how many units do you have? So you have 16 doors essentially that you guys are working on. Okay. And so that has. Effectively replaced your income that you had when you were investment banking.
[00:19:26] Randal McLeaird: So took some time off, I guess. Yeah. You're nine to three. Right. So I know how that goes. We have kids, exact same schedule. It's nine to three. So when, I guess, did you transition into how long had you been doing the real estate before you started doing the bourbon
[00:19:40] Kate Lynch: business? So I retired about a year after I bought the first property.
[00:19:45] Kate Lynch: And it was probably another year after that, when my brother reached out about the bourbon opportunity. So, like I said, he was also retired, but looking for businesses to invest in, as opposed to me, I was, you know, trying to be home with the kids. Yeah. And so he invested in a couple different businesses.
[00:20:01] Kate Lynch: That other people are starting, and he himself, uh, founded a craft bourbon distillery. We grew up in the Sandusky, Ohio area, which is where Cedar Point is, a big amusement park, touristy area. And as something, sort of as a passion project, but also as something to sort of help the community where, you know, he still lives, that we grew up in, uh, he decided to start this distillery there.
[00:20:22] Kate Lynch: And anytime a distillery starts They have about a 4 year window before the product they're making in it can be bottled, because bourbon just has to age over time. And so, you sort of have a dilemma of, well, we started this new company, and we're not going to have a product for 4 years. And what most of the craft bourbon distilleries do is they buy a wholesale bourbon from some major producers.
[00:20:44] Kate Lynch: There's a number of them around the country. that produce these barrels for others. And it's something that you probably never think about when you're buying a bottle of bourbon, that it's not necessarily all distilled by the person who bottled it. So even some of the really big companies, they might put, so they produce some amount of bourbon in house.
[00:21:02] Kate Lynch: And then they supplement the stuff they produce themselves by buying a product that's wholesale from other distilleries that have either more than they need or that produced it specifically to sell to others. And they just blend it together with their specific recipe. And you have no idea if 50 percent of it, 80 percent of it, or 0 percent of it was distilled by the person who bottled it.
[00:21:22] Kate Lynch: Really the bottling is sort of like a branding thing, right? So for my brother's distillery, he bought about 300 barrels. to start bottling over the next couple of years. And in 2021, he paid about 600 per barrel. And last year, the brokers that he was working with told him, they asked him, do you want to sell some of those?
[00:21:42] Kate Lynch: They're selling for about 3, 600. And he was like, I want these for 600 in 2021. And if I could sell for 3000, that's incredible. You know, why did they go up like that? But we talked about it and I, you know, considered, is it just an anomaly, you know, that they went up, you know, if you buy a share of stock, somebody tells you I bought X, Y, Z stock and it tripled over the last year, you'd probably not think, Oh, it's probably going to triple this year too.
[00:22:07] Kate Lynch: Right. Yeah. It's just the fact that they got lucky. Right. And so my first thought was, did he just get lucky and buying something that went up in value really rapidly? Or is there something that is sustainable in this? And we found it was a combination of both answers, right? So the reality is demand for bourbon has been growing at a double digit rate over the last 10 years or so.
[00:22:30] Kate Lynch: So the price has been going up because there's more and more demand for the product and also inflation and all the other reasons why prices go up. But the more interesting aspect of it to me is that if you buy new make bourbon when it's first distilled and you hold it for two years or four years, it's a different product.
[00:22:48] Kate Lynch: Then you start doing right. And so I like to equate it to if you buy a newborn pig, it costs a lot less than buying a fully grown hog, because the fully grown hog can be turned into bacon and newborn pig isn't where you can't make much bacon out of that. So, the difference for the pig is time as well as you have to feed it and how is it and care for it with the bourbon.
[00:23:11] Kate Lynch: You just wait. So those barrels, the liquid that goes into them is a clear liquid. It's has a very strong smell and a very harsh taste. Over the course of a couple of years, the oak barrels that they sit in flavor it in the same way that a teabag flavors hot water. And so it begins to take on a really amazing taste that people want to bottle and drink.
[00:23:31] Kate Lynch: So four year aged bourbon, by definition, is more valuable than new make bourbon. So today, the price of a new make barrel in Kentucky is about around 1, 300 per barrel. And the price of a two year barrel today is 2, 600. So that suggests that if you just buy today and prices don't move at all, you double your money in two years.
[00:23:56] Kate Lynch: And to me, that's, I mean, I've never seen an investment where you're, you can double your money in two years if prices don't change, but prices have been going up, right? So I think it will be great if prices go up, but our investment thesis is just, we will buy at today's price, hold for two years. Even if prices drop by 25 percent for the two year, you make a 20 percent return over those two years.
[00:24:22] Kate Lynch: That's incredible downside production.
[00:24:25] Randal McLeaird: Okay. So I, I'm starting to see how you guys are prices then. And I heard you talking about that on another podcast and I think you use the, the calf example, the calf isn't as much as valuable as a full grown cow. So I was like, Oh, that's good. That's a great analogy.
[00:24:38] Randal McLeaird: Okay. So a couple of questions. You're telling me that he started with 300 barrels. We're going to get to the pricing and the appreciation. I want to talk about the fund specifically and how that is structured, but I want to go back to kind of how the inception and how you guys got into this thing. So when he bought the barrels, you're saying it was 300 barrel new make, right?
[00:24:55] Randal McLeaird: Okay. So they already had the bourbon inside. It wasn't just the barrels. Oh, yeah.
[00:24:59] Kate Lynch: Yeah. It's barrels
[00:25:00] Randal McLeaird: of bourbon. Yeah. Okay. Okay. Because I know you can sell the cask, right? You can sell those and still make money on those. Is that
[00:25:06] Kate Lynch: correct? People do that. Yes. The bourbon can only be made in a brand new barrel.
[00:25:12] Kate Lynch: The scotch barrels can be used more than once. Scotch is often or is made in barrels that are used over and over again. So again, using the analogy of hot tea. If you were to use the same teabag over and over again to make your tea, you'd have to soak it longer and longer to get good flavor out of it, right?
[00:25:31] Kate Lynch: So that with bourbon, you can only use a brand new barrel to make bourbon, and that's why you only need a couple of years for it to get a strong flavor, whereas a really good scotch is typically like an 18 year or 25 year scotch. Right. That makes sense. Okay. So, yes, there is a market for the barrels later, but not for bourbon.
[00:25:49] Kate Lynch: People like, for example, make wine out of, you know, in the barrels that were previously used for bourbon. But the barrels that he bought, he was not buying them for investment. He was buying them to bottle the product in his distillery. And he did, you know, bottle most of it. But, you know, as part of his role in owning this distillery, he's constantly in touch with the brokers talking about, you know, what they have for sale and what they're buying.
[00:26:11] Kate Lynch: And so as they started saying to him, Hey, you know, the demand is just so strong. You had bought some of these barrels. You know, four years ago, they know what he owns and they'd say, you know, would you ever think about selling some of them and giving him prices? And that's what really opened his eyes to the appreciation opportunity in that space.
[00:26:26] Kate Lynch: And he did sell some of them just because he thought, why not, you know, take those big gains. And also his distilleries at a point now where they are producing their own enough of their own bourbon that they have enough to bottle, just, you know, their own product. But, um, yeah, it's, I think this opportunity was just something He sort of learned about without expecting to, and then looking back at what the stock market did over the last three or four years.
[00:26:48] Kate Lynch: And the amount of volatility, he called it the roller coaster that, you know, he had sold his company to Visa and had a big chunk of money in the stock market. And once like, Oh, it's down 20%, now it's up 20 percent and just said, you know, he, he just was unhappy with that. And so decided to pursue the fund as a way to the bourbon fund as a way to get what we believe will be.
[00:27:08] Kate Lynch: Predictable appreciation over time. If the pricing stays where it is now, then we're talking about 30 or 40 percent annual rates of return. But even if the pricing of the bourbon barrels was to drop, like I said, by 25%, it's still a 20 percent annual rate of return. And that feels a lot more interesting to us than having money in the stock market where any stock you buy, I would argue is just as likely to be down 10 percent a year from now as up 10 percent a year from now you buy it hoping it's up 10 percent or more than 10 percent a year from now.
[00:27:40] Kate Lynch: But Wall Street is so efficient that a small announcement like this, you know, CFO got a DUI, all of a sudden your stock's down 10 percent or, you know, there's some bad event that happens in the industry for these bourbon barrels to not appreciate in value. Something really crazy has to happen because they are aging over time, giving them more intrinsic value that offsets any, even if the market demand slowed down, the intrinsic appreciation should offset anything that's happening on the market
[00:28:11] Randal McLeaird: side.
[00:28:11] Randal McLeaird: Yeah, that makes sense. And I know from listening to Rick talk about it on the other podcast, he was mentioning how. The markets worldwide still aren't completely opened up. And so, yeah, there's, there's a lot of room for growth there, but I want to, I want to get into the actual fund itself. So tell me about the fund.
[00:28:28] Randal McLeaird: I mean, you just mentioned some, I kind of want to talk about downside risk and some of the risk in general associated with investing in bourbon, but I kind of want to understand for myself, is the fund tied at all to the. Let me rephrase that. The distillery? Yeah, the distillery. Is it? Okay. So you guys are literally just housing barrels.
[00:28:45] Randal McLeaird: That is the. That's right. Okay. So you're acquiring. Not even housing.
[00:28:49] Kate Lynch: Okay. So it's, it's more like a commodity investment in the sense that, so there's a wholesale distillery that produces them. And then they actually pulled the barrels in their own. It's called a rickhouse. So everything they produce goes to their rickhouse.
[00:29:04] Kate Lynch: We own it. In some cases, we will be buying barrels of bourbon that they produced and haven't found a buyer for. And in other cases, we will actually contract with them to produce them for us. So if you think about somebody with a big distillery, They don't want to start and stop operations all the time, right?
[00:29:22] Kate Lynch: So if they have a period when somebody hasn't hired them or contracted with them to produce bourbon, they're still going to produce it. They just don't have a buyer yet for it. So some of our purchases, for example, you know, Rick already, uh, purchased a million dollars worth of bourbon for the fund with his own money.
[00:29:36] Kate Lynch: And he just, you know, one of the distilleries said, you know, they have some stuff that hasn't sold yet. Here's the price. Do you want it? And it was a really good price. So, you know, he picked up, I don't know how many barrels he got for a million bucks, but. So he started putting money to work already just because the barrels were available at a good price, and he had the money to buy one.
[00:29:52] Kate Lynch: But, um, so we'll have a combination of barrels that we contracted with them to produce for us, as well as barrels that we think are attractive. They have to stay. We only are buying Kentucky bourbon because we think that that's the creme de la creme in the market, and he's only buying from Between four and seven distilleries that he thinks have the best reputation in the market.
[00:30:12] Kate Lynch: So one of the advantages, of course, to this fond, I think, is just he has incredible expertise as a distillery owner, as somebody who has been making bourbon and tasting bourbon, you know, different recipes and that. He knows what are the recipes, because there are a million different types of bourbon recipes, you know, you can play with the numbers in a variety of ways, but there are a small number of bourbon recipes that are extremely common.
[00:30:37] Kate Lynch: So, because he knows that, he knows which recipes are most likely to get the best valuation. and have the most demand two years from now. So we'll, we will own that bourbon the same way if you were investing in gold, you would own the gold, but you don't take the, in most cases, you don't take possession or if you're investing in oil or, or, or some other commodity, right?
[00:30:57] Kate Lynch: So that commodity like aspect of it is really cool because ultimately we don't touch it. We just own it and then we will sell it to another buyer. And we are planning to sell at year two. We've seen that the most rapid appreciation comes between time zero and year two. And at that point, the big distilleries, as well as the craft bourbon distilleries, they then, at that point, they have a sense for how much they want to fill their pipeline, right?
[00:31:24] Kate Lynch: Looking four years out, they don't necessarily know how much they want to bottle. But when they're within 2 to 3 years when the bourbons within 2 to 3 years of age, it starts being acquired by those folks. So we'll sell to those kind of groups. And we're not betting on any particular brand. We're just buying this wholesale product.
[00:31:38] Kate Lynch: And then we'll sell it to somebody who wants it, whether it is, as you mentioned, an international buyer, Um, There are international companies that acquire U. S. Kentucky bourbon and bottle it in their own country. Uh, some of them will buy bottled stuff here. And then as well as, you know, we could be selling to any of the craft bourbon distillers.
[00:31:54] Kate Lynch: There are hundreds of them or to one of the major bottlers that just needs to supplement.
[00:31:58] Randal McLeaird: Okay. All right. So that cleared that up. I love this. I love just chatting about this. Okay. So you guys are housing it, they're housing there. So you really kind of, you have it out there. I would liken it to on the real estate side.
[00:32:07] Randal McLeaird: There are a lot of funds that popped up, PE guys that were going out and just raising capital and deploying that capital into specific operators, right? Okay. This operator needs, you know, 5 million chunk. I'm going to select 5 million into their deal and it'll be in a tick structure and boom, like that's kind of a setup that some guys were using.
[00:32:22] Randal McLeaird: And so you guys are betting on the operator in essence, the distiller is the operator. It's a wholesaler.
[00:32:28] Kate Lynch: Yeah. I think it's more of, um, so we're betting on the demand for bourbon without picking a brand.
[00:32:35] Randal McLeaird: Yeah. So you're picking the recipes. Yes. Yes. That's what you have to know. I mean, your expertise is coming in, not only with the connection, but also with being able to pick the bourbons that you think are going to be outperforming the other bourbons.
[00:32:49] Kate Lynch: Who's trustworthy, right? Cause there are groups that there are less trustworthy or more trust as in any industry, uh, you know, producers of this stuff to have the best quality. And, uh, the producers that are, you know, have a strong reputation, not some fly by night distillery. As well as, which is the recipe that we think is likely to have the best resale value.
[00:33:07] Kate Lynch: And, uh, and then they're also insured, right? So we have insurance on the market value of the bourbon in case of a disaster scenario. I've
[00:33:15] Randal McLeaird: got a big question mark on my page, like insurance. What happens if one of these things goes up in smoke? You know, because I've read about it. So, so you're insured on
[00:33:24] Kate Lynch: top of their insurance.
[00:33:25] Kate Lynch: They get insurance. So once we own it. Yeah. If there was a tornado that wiped out the Rick house. If it wasn't insured, that's, you know, that's our loss, right? So we buy insurance for the market value of the product, right? So if a year from now, something happens. It's insured at the value that it would have had at that time, even though we, you know, it didn't ever sell it.
[00:33:44] Kate Lynch: So you still would get appreciation on your, on your insurance. Similar to, I guess, on your, like, on your house, right? In theory, you could probably insure it for market value versus, you know, resale value. Against theft, you know, acts of God, that kind of stuff. Um, yeah, you can't insure against a market value loss.
[00:34:00] Kate Lynch: Um, but you can share against it being damaged or destroyed.
[00:34:04] Randal McLeaird: All right. So then let's talk, I guess, about how the fund is structured. So again, I'm an agent, a lot of agents listening to this, I'm a real estate investor, I'm making some money. I'm like, Hey, I want to put some money into some alternative assets.
[00:34:17] Randal McLeaird: I just heard Kate talk about bourbon. What kind of returns am I getting if I'm investing some dollars into this bourbon fund?
[00:34:24] Kate Lynch: Yeah, so the, the bourbon industry overall is booming and we think that the international market creates a huge opportunity for continued growth in this space. Bourbon is much smaller than scotch in terms of the market size and a lot of people, you know, think that in particular the Chinese and Indian markets where people are drinking scotch right now, once they start being introduced more to bourbon, that they will switch, much as people in the U.
[00:34:50] Kate Lynch: S., you know, there's been a shift toward bourbon from some other products. Both because it's a good tasting product and also because it ages more quickly, is less expensive, and has a little bit of the cachet of being the American product, like, like blue jeans and baseball, right? The problem is that for somebody who wants to get in on the bourbon boom and make money from it, There are not a lot of ways to do that because there's not a big publicly traded company that only is investing in bourbon.
[00:35:17] Kate Lynch: There are a number of spirits companies, but they're in a bunch of industries. So they might have beer and wine and bourbon. So you're not necessarily making money from the bourbon boom by investing in a publicly traded company. Unfortunately, this ridiculous appreciation that has occurred over the last 10 years has created some really terrible online bourbon investment sites.
[00:35:39] Kate Lynch: That are, I'm, I'm shocked at the way they're gouging their customers. When I first started researching this as an industry, one of my first questions to Rick was, isn't somebody else already doing this? And I'm, you know, just Google, I'm going to invest in bourbon and I'll pop, you know, five or six different websites where you can invest in bourbon.
[00:35:55] Kate Lynch: And the websites will say, you know, the value of bourbon has quadrupled over the last X number of years and you should invest in it with us. And then I signed up for the websites and read there and got, you know, started getting the data. And when I got an email about a specific bourbon that they were trying to sell to investors, the price that they were quoting was like 2, 800 a barrel for new make.
[00:36:17] Kate Lynch: And I had just talked to Rick about the same product at the time costing 1, 200. And I said, what am I missing here? Why are they saying this costs 2, 800? And you're saying cost 1, 200. And he said, they're just gouging customers. They're telling these poor investors that they're helping them invest in bourbon.
[00:36:32] Kate Lynch: Can you imagine if you're buying a share of stock and your broker doubled the price? That he charged you from the market price and stock prices are transparent. You can look on Google and find out the price of any stock. Unfortunately, you can't look on Google and find the price of a barrel of bourbon.
[00:36:46] Kate Lynch: In particular, you have no idea what's the mash bill. Who's the producer. What state is it in? How many months old is it? So while Rick has every month a broker pricing sheet, much like any fixed income broker would have that lists out this barrel, this producer, this many months old, this is their match bill, et cetera.
[00:37:05] Kate Lynch: So he has developed a real, you know, knowledge about how much should a eight month barrel be valued at relative to an 18 month barrel. Your average retail investor has zero access to that information and not even investors. Anybody who's not actively buying and selling bourbon, there's no way for them to really get that information.
[00:37:22] Kate Lynch: I can't get it other than through Rick. So if you Google investing in bourbon, you'll find immediately some of those websites. And I'm surprised that it's legal for them to sell investors a product at that much of a markup. But apparently it is because they're still doing it. And they'll tell investors that you should have a five to eight year timeline.
[00:37:38] Kate Lynch: Whereas our timeline is we're saying, we think you can double your money in two years. Rick says, he thinks you can get a 20, 30 percent return for myself. I believe the prices will go up. I can't promise the prices will go up, but if prices continue on the trajectory that they've been on, then we should be able to more than double our money over the next two years.
[00:37:55] Kate Lynch: And that, you know, I think is a two year window. Is so much lower risk than a five or eight year window where you're hoping that, you know, the, the bourbon boom will still be going on. I hope it will be too, but I don't want to have to depend on that to make a profit.
[00:38:09] Randal McLeaird: Yeah, that makes sense. So,
[00:38:10] Kate Lynch: I mean, I do think that there are people literally being taken advantage of in this space.
[00:38:15] Kate Lynch: And, you know, I worked as an investment banker. It's just
[00:38:17] Randal McLeaird: wrong. It's insane to me that you can have a different strike price essentially. So they're building in a profit already at the very beginning of the deal. But
[00:38:25] Kate Lynch: they still take 20 percent of the profit.
[00:38:27] Randal McLeaird: Sure. Yeah. It's ridiculous. I get that. But that profit That they show on paper is lower than it would otherwise be.
[00:38:34] Randal McLeaird: Exactly. Because they've already taken it. They're
[00:38:37] Kate Lynch: very much taking advantage of investors. And I find that it's crazy that that happens and people get taken advantage of that way. And yet the bourbon investment is so attractive. Right. That we, you know, want to spread the word about it, but in a way that we caution people that you can't just Google investing in bourbon and believe what you see.
[00:38:55] Kate Lynch: Yeah. That
[00:38:56] Randal McLeaird: makes sense. I was going to ask you then, the information that you were talking about that Rick gets that only he sees that it's not available to the public. Is that something, if I joined the fund and I'm investing, is that something you guys push through to your investors and say, Hey, here's the pricing.
[00:39:09] Randal McLeaird: This is what it is. I don't know what transparency looks
[00:39:11] Kate Lynch: like. We will tell our investors exactly. What we bought at what price from whom, and then we also have been putting out some information where we'll do like a scatterplot where we'll show them pricing for different ages and different types, but without the names on it.
[00:39:27] Kate Lynch: Because the, as you can imagine, the brokers themselves consider that they're proprietary information. So the, for the stuff that we actually buy, we will tell them specifically all the information about those barrels, but for the stuff that's being marketed by the brokers, we can do it without the name of the producer.
[00:39:43] Kate Lynch: You know, just, just say, you know, for example, we have a chart that shows you Kentucky versus Indiana versus Tennessee by month, what the pricing is so that they have a sense for, you know, obviously, like I said, we hope that pricing will continue to go up over time and we want to be able to have our investors continue to see what's going on with pricing so that they have some confidence during that two years of what it looks like returns are going to be because there will be zero cash flow.
[00:40:07] Randal McLeaird: Yeah, that's, that's why I was asking, because if I'm in and I can see the price points and you guys are relaying that info, that makes me feel more comfortable about my investment, seeing how it's performing over time, even though I'm not getting cashflow and
[00:40:19] Kate Lynch: also, you know, I think you, you asked about the downside, right?
[00:40:22] Kate Lynch: And I think that the biggest risk is that either production just gets way ahead of demand and that pushes prices down or demand softens and that either one of those has the same result, which is the price of the two year barrels goes down. Yeah. Right now, Rick is the biggest investor in the fund, and he started this fund as a way to make more money from his own investments.
[00:40:43] Kate Lynch: So, in theory, like, say, 12 months from now, we start seeing prices drop rapidly. We're not just going to hold until year two because we said it's a two year fund. Rick would say, hey, everybody, prices are dropping fast, we're going to exit now. Right. Because that's what he wants to do with his own money. And we'll assume that, I mean, I guess in theory, somebody could say, no, I want to hold and we could, one of the great things about it is unlike for example, real estate, like say you go into a real estate property with a partner and one of you wants to sell and the other doesn't.
[00:41:12] Kate Lynch: It's pretty difficult for you to make that happen, right? Either you have to personally buy the person out, you have to go looking for another investor. It's not the case that he could just sell his 50 percent ownership without affecting you in any way. The cool thing about the bourbon barrels is that they're so commodity like that if we had a disaster scenario and 50 percent of the investors wanted to sell and the other 50 percent didn't, We could just sell half the product and we would be able to return the money to the people who needed it.
[00:41:40] Kate Lynch: Right. So it's not the plan that we're going for, but yeah, I think that that nature of the business is really, it's just, again, a downside protection that is rare in the investment world.
[00:41:51] Randal McLeaird: Yeah. That's, that's interesting. I didn't think of that. So it's a positive. And instead of having, so like in a multifamily fund, it's not possible.
[00:41:59] Randal McLeaird: You got to either replace those investors or you have to sell an asset and it may not be an opportune time to sell an asset.
[00:42:05] Kate Lynch: And you affect the people who don't want to sell. Right. Exactly. Whereas in this case, you know, say there's. Some people think there's going to be prohibition right now. Right? And if that comes up, you might say, you know, yeah, I'm pretty sure that's not going to happen.
[00:42:17] Kate Lynch: I'll just hold. And somebody else might be like, Oh, I need to get out right now. I don't want to risk it. Then we can make that happen without you hurting the other person.
[00:42:25] Randal McLeaird: Awesome. Okay. Kate, I think we wrap it there. I love talking about bourbon. It's awesome. I want to leave a link so that people can contact you and the show notes.
[00:42:32] Randal McLeaird: So if anyone is interested in investing in bourbon and you want to learn more about this, please reach out to Kate. She's wealth of knowledge. She's got a ton of experience on finance and many fronts. So it's been fun to chat with you and I appreciate sharing your information and we will catch you guys on the next
[00:42:48] Kate Lynch: episode.
[00:42:49] Kate Lynch: Excellent. It was nice to meet you. And, uh, hopefully you have a chance to talk again sometime. Sounds
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