Agents Building Cashflow

EP 182: The Key to Successful Passive Real Estate Investing with Spencer Hilligoss

Spencer Hilligoss

In this episode of Agents Building Cashflow, Randal has a chat with Spencer Hilligoss, CEO and Co-founder of Madison Investing, who has transitioned from a successful tech career to becoming a seasoned passive real estate investor. Spencer shares his journey of overcoming challenges, building financial resilience, and creating a family-focused lifestyle through strategic investments.

You will gain invaluable insights into creating multiple income streams, prioritizing financial literacy, and navigating the complexities of real estate markets. Don’t miss this inspiring conversation filled with actionable advice for achieving financial freedom and living life on your own terms!

Key takeaways to listen to:

  • Building financial security by creating diversified income streams.
  • Leveraging passive investing to achieve financial freedom and family balance.
  • Understanding the critical role of vetting sponsors and markets in syndication deals.
  • Learning the power of structured goal-setting for long-term success.
  • The importance of financial literacy and generational wealth building.

Resources Mentioned:

About Spencer Hilligoss

Spencer Hilligoss is a passive investor who has deployed 7-figures of his capital into passive investments in the past 6 years. In 2019, Spencer retired from a 13-year career in Silicon Valley tech companies to give full focus to serving fellow investors in Madison Investing - a club where passive investors gain access to the same types of niche investment opportunities where Spencer deploys his own money - including cash flowing assets like self-storage, multifamily, ATMs and private credit. 

Connect with Spencer Hilligoss:

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To connect with Randal and learn more about passive investing, visit www.ridgelineig.com and follow our social media pages below!

Spencer Hilligoss: [00:00:00] The real challenge once you get to the point where you're like staring at actual financial freedom is the question of well, What is enough? 

Intro: If you're a 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 cash flow.

Here's your host, Randall. Let's dive in. 

Randal McLeaird: Hey there. Welcome back. It's great to have you on today. I am having a conversation with Spencer Hillegoss. He's the CEO and co founder of Madison Investing. They live out in the Bay area. And I say they, cause it's he and his wife that run this company, but he has a background in tech.

And so we talk about him running businesses and that sort of thing, but we really start the conversation talking about family. And it's a really good conversation. He has some great advice about. Setting goals and how to set those goals and how to go from [00:01:00] point A to point B. And so we just dive into that a little bit.

The end of the show, we talk about his investing and how they have structured their investing with sponsors that they invest with, how he got into it with as a limited partner. And all of that. So it's a great conversation. I really enjoy the candy conversation at the front. So let's jump into the conversation with Spencer.

Here we go. Hey, Spencer, welcome to the show. It's great to have you on. I am excited for this conversation. Like I said, a second ago, I was digging into what you and your wife are working on and the business that you guys have grown. So again, it's always great to have somebody on the show that who's. Got the experience walking the walk.

They're talking, you know, so thanks for coming on. I want to start with what you had just mentioned, right? You said you grew up in a household. Your dad was a real estate professional. And so kind of walk me through that process and how that impacted your, your thought process on wealth generation and anything else that you can cover on that front.

Spencer Hilligoss: Yeah. And I appreciate you going there, Randall. I know we were talking offline about it, but this [00:02:00] is the growing up in a real estate household to then become a guy who was a 13 year tech company, you know, leader, you know, formerly as a reluctant punk rock metal playing band kid. All right. I was going to get into business in the first place.

You know, it's a fun journey that life takes you on. Right. Um, and now after the tech career these days, you know, I run a private investing group, you know, we invested in big boring stuff that I love a lot. Um, but, uh, It started off growing up, my dad being a broker, you know, and I was put to task to clear up fridges and properties that he was going to sell.

I was doing open houses before I really knew how to put a tie on and I, uh, didn't want to be there that's for sure, but those experiences taught me so much. And so I watched my dad build this business to great heights. This is in the nineties. You know, which feels like a long time ago cause it is now getting more gray hair.

But I think, uh, I look back at that experience and watched, wow, as a young teen and then into my twenties, like the lifestyle of our family with this one source of income, right? Transactional income, broker income created an incredible lifestyle. [00:03:00] They live out here in the Bay area and that's not easy. The price points are crazy.

I, the lifestyles are crazy. I, the cost of living is brutal and all that to say, there's this crazy You don't have to get too heavy, too early in discussion, Randall. But like there was a, uh, kind of a dark decade, as we call it in the family that transpired when, um, younger brother, this is 20 years ago, uh, younger brother got diagnosed with cancer.

He passed away many years ago. Uh, and then, you know, lost three grandparents shortly after that. There was just a bunch of dominoes that fell. And as a result of all that around that time. That one income, that one broker income that my dad was, was building from his business significantly reduced for all the reasons that that happens around personal tragedy in life and going through that for our family, with, you know, family downsized.

And I look back at that experience now. I'm a dad, you know, I have two young kids of my own, you know, I run our business with my wife and co founder, Jennifer Morimoto, she's the COO. It's a separate podcast for those that want to build a business with your spouse. I [00:04:00] love it, not for everyone. But all that to say, like, the clear lesson is this, you know, anyone that's read the purple book, Rich Dad Poor Dad, they've heard the analogy of You got to go figure out a way to change from carrying those figurative buckets, those one, one dump at a time of cashflow coming in from a big transaction.

You worked your butt off on, you know, same thing could be said for working a W 2 job, which I lived and breathed for 13 years, making great W 2 income. You got to change from that somehow to go over to building a pipeline, you know, and, and that, that book has its impact in so many people. It was the first one I picked up when I got nerding out into real estate investing, of course.

Profound lessons there, but watching it happen that way, now looking back through that lens. And my family and that challenging time. I'm like, how could that have gone differently? Right. Like, how could that have gone differently? If there was a financial mode, if there was more than one income stream, if there was a way to go and say, let's build out five, let's build out 10.

So I've taken those lessons. You know, I didn't, I'm a slow learner. I applied that, you know, [00:05:00] Leaving my 13 year career after working at five companies, making great W 2 income, maxing out 401ks and sitting there in around 2016, while working full time, Jennifer's making great income, W 2 in her own career, and we didn't really feel like we were getting ahead.

And I was sitting there going, well, what, like, where does this stop? You know, like I, I was grinding it out 80 hours a week. In a tech company, early stage tech company, hadn't seen one of my sons in over two weeks because I was going in too early and coming home too late, 401ks wasn't going to change our lives.

So something had to give, and I was fortunate enough to get into a lender that was also a tech company, biggest fix and flip lender in the country, not knowing what the heck loan origination even meant, you know, kid you not. And I was tasked with turning around and growing a team there for loan originators.

So. Without going deeper into that, I'll just say it was during that period of time where the, all the light bulbs hit all this, you know, all the sparks to ignite fuse, you know, whatever analogy you want to bring. That's really, really where it clicked is when I was working in the guts of this fix and flip lender that was doing 600 [00:06:00] loans per month.

And I saw so many of the mechanics that made it be like, okay, there's more to real estate than just brokerage. It's the most well known. It's a vital part of everything that happens out in the world. Um, but All that to say, there's a lot more to investing and there's a lot more to real estate than just the transactional income and sure as hell, more than one income in a household is what we're going for now.

And that's what we've built over time. 

Randal McLeaird: Yeah, that's fantastic backstory. I appreciate you sharing that. It's one of the things like when you read that book and you become aware of like, let's buy some assets, let's buy some streams of income essentially and build those things over time. I mean, it's just like a light bulb went off for me when I first read that you mentioned something and you said build five or 10 build five or 10.

What are you talking about income streams? 

Spencer Hilligoss: Yeah, income streams, you know from various sources, you know, just different ways of getting cash flow. 

Randal McLeaird: Yeah, I just wanted to clarify that and before we move off of the topic of family and that sort of thing. You have two kids. I have two kids and he's seven and my daughter's four.

And I often [00:07:00] in thinking, even just the other day, you know, he wants something, you know, he wants to go buy something. He wants to go do whatever he, you know, get a game or something, whatever it is. And yeah, we can buy it for him and give it to him. And we have probably too much, but he's at the age now where I'm like, okay, I've got to start teaching him about money and showing him, you know, how to earn.

I've looked at alternative education styles as well of going out and actually having kids in these other types of programs, not just traditional school where they will, you Teach them business. And like, they have to go, like one of their main projects is, you know, create a company, go get a table at a fair.

You got to sell this thing and, you know, it's like intense sort of stuff that the young kids are doing fully capable of doing it. So anyway, I say all of that to take it back. The lessons that you have from your family growing up, the things that you, you saw. Happen or not happen. How are you now teaching your kids or are they at the age yet where you're teaching them financial literacy, you know, investing and that sort of thing?

Are they out, you [00:08:00] know, painting a unit in one of your projects? You know, it's like I got the labor force guys. Don't worry about that line item is going to go away because I got two kids are going to go out and paint it. But are you doing anything like that to start that education process for them? 

Spencer Hilligoss: My goodness.

I didn't know you were going to go there and I'm so glad you did. Like it is the most, one of the most. Inspiring things to think about for me and Jennifer. So our guys, we had two boys, uh, 10 and six, you know, and so I would simply say that, yes, in our own version, we've started, and I'll give a couple of things just for context.

You know, financial literacy is a passion point for our household and to, to the degree that Jennifer, my co founder CLO and wife, she is like, for example, on the board of a Bay area nonprofit to focus specifically on youth financial literacy. Right. And so like, From that to something as simple as at the dinner table, like having conversations on a regular basis and intentionally lacing in these, these conversations, because that's really where simple as [00:09:00] it sounds, that's where a lot of the magic happens.

You know, and all the screens are put away and you can talk about these small moments and these small moments include, Hey, can I go buy this, this digital item when I'm playing Fortnite dad? And that's the catalyst for getting into, okay, well, how do you want to pay for that? Yeah. And it's those little moments.

And then occasional, the big ones. I mean, another one I'll share. So this is, we just got back about a week and a half ago from living in the Balkans for five weeks. You know, that means like Croatia and Montenegro, whole family. And it's not, not a vacation. I mean, like we're living there. So that means the kids are going to an immersion school.

We're also managing our business and we're doing some investing stuff while we're there. And last year we did our first one of those, didn't know how it was going to go, you know, last year. So I bring that up because exposing our boys and even ourselves to more scenarios that are outside our comfort zone.

And I know that maybe that sounds like really lofty and lavish because folks are sitting there thinking it's sitting on the beach with a Mai Tai. It's like, no, we live frugally as best we can, right? Like, like whether it's [00:10:00] the cars we drive that are used or it's traveling internationally, we're not going to stay in a five star hotels.

But that is a, that is a hundred different conversations. Day to day with the kids, you know, and you're out there in a different country, looking at different currencies, you know, like I could go on and on, but it's fun to bring them because never could I have imagined having the opportunity and the presence of mind even to get into these types of discussions in our household with our boys.

And so I think that, uh, it really comes down to the small day to day moments as, as the strong foundation. And occasionally exposing them to bigger conversations. Like, Oh, you know, why are we flying in coach and not doing in business class? You know, like, well, gee, I never flew business class ever. You know, 

Randal McLeaird: I said, so I'm like, guys, I didn't even fly until I was 18 or something.

You know, that's the conversation we have. 

Spencer Hilligoss: Yeah. Yeah, man. And something as simple as like, Hey, how come we haven't gotten a new car in so long? Yeah. Right. And that's it. Like that is where the rubber meets the road. And in my humble opinion, you know, every family is different, every household, every conversation with a child and a parent, but [00:11:00] yeah, sorry for the diatribe.

Randal McLeaird: No, I mean, honestly, I had this conversation, it only comes up once in a while when I'm talking with people and chatting with people, but I mean, it's relevant. Your kids are a little older than mine. And so I'm always kind of curious cause I, I'm constantly, I heard it was, I think my first million or something the other day they were talking about is on, on that podcast.

They were talking about their kids and. How one of the dads, or no, maybe it was Brandon Turner's podcast. That's what it was. One of the dads had, he was teaching his kid about Lego, about business in general. Right. And the kid wanted to do Legos and he's like, okay. And so we bought Lego set and he lent him the money.

This is how we structured it. He lent him the money for the Legos. The kid had to build them. And pay back the loan, right? Pay back the loan meant he had to basically refinance or sell it 

Spencer Hilligoss: with his 

Randal McLeaird: dad. 

Spencer Hilligoss: He 

Randal McLeaird: built this Lego set and since it was complete, it was more valuable. And now he could sell it back to his dad for one and a half times what he built it or borrowed for.

And I was like, Oh, that's genius. That is amazing. But you know, just finding little things like [00:12:00] that and little hearing little stories where it's like, okay, I can teach money. I can teach them this process. So. Anyway, I love that. It's a great one. Yeah. I mean, the guy is Indar. Um, I forget his name, but he's big investor that, you know, you might see some of his stuff.

But anyway, going down a rabbit hole there. So. The other thing I want to talk about, because you just, you just mentioned it is living overseas for five weeks, right? So my brother has, he went and did that in Costa Rica last year. They spent four or five weeks and did the same thing. Kid was in, in, um, immersion school while they were there and they were working, doing the thing.

But you obviously get to visit and see some things. Friend of mine just got back from Montenegro. She loved it, had a great time. She was showing me pictures, beautiful there. So yeah, that's, it seems like a beautiful place to be. How, again, you have these lessons and one, why did you guys decide to go and spend five weeks overseas?

And then how did you structure everything on your business side in order to be able to do that? Maybe that might be a long winded answer, but you know, if there's a. [00:13:00] 

Spencer Hilligoss: Yeah, this is the fun stuff. Frankly, like I really appreciate this discussion and I'll try to buck it into the two categories. So it's easy to digest and I don't just ramble.

So how did we do it first and foremost? Like, I think, well, why did we do it? The why We were sitting there three years ago now, before we did our first trip last summer, going to Portugal for six weeks. And we got to a point where we were sitting there going, okay, our business had taken off faster than we expected.

Our investing had gone extraordinarily well, courtesy of, you know, 2021 in particular, I think we got into a lot of. A lot of deals in 2016, 2017, 2018, and, uh, 2021 was one heck of a year when it comes to valuation spikes. So we had, uh, we had, you know, 13 exits, I think between those years on larger deals we'd invested in between apartments, self storage, et cetera.

So it was a good run. And so we were sitting there going, you know, on the other side of those moments. You know, I never could have understood this stuff back in the day when I was working full time, but like the real challenge, once you get to the point where you're like staring at actual financial freedom is the question of, [00:14:00] well, what is enough?

Right. Talk about like the unanswerable human condition problem, right? Like, I don't have an answer to that. It's such a personal answer. I'll be chasing that answer for the rest of my life and everyone else will. And so to that end. We were sitting there three years ago going, how do we ensure that we continue, like we've worked our butts off to get to this stage from the wealth perspective, from the passive income perspective, et cetera.

What are we going to do about it? Like, what are we going to do with it? And the commitment to ourselves was like, well, we did this. The number one reason we did this. And walked away from high paying jobs and careers was because we want to shift our priority order, you know, if you just looked at my calendar, like I would, if someone asked me 10 years ago, what's your priority?

Well, you know, it's making sure I have a great marriage, you know, and eventually when he had kids, I'd be a great dad. My calendar activity did not, did not reflect that the hours spent where my time was going, what I worked on first in the day, it didn't reflect family enough, it didn't reflect health enough.

And very comfortable saying that because I think a lot of people can relate. [00:15:00] And we sat there and just said. How do we materially make, push ourselves outside our comfort zone, despite as scary as it might seem? Because I know some people are, you know, globetrotters. They're happy to get on the plane.

They're happy to go to another country. They're very comfortable, multilingual. You know, we've been around the U. S. a lot. We've been to Hawaii. I've been to Mexico a bunch of times. And I've been to Europe, but I've never been traveling with kids like that. And, uh, so we just sat there and committed to ourselves and say, book it, you know, book it and, uh, get it on the calendar.

It'll hold us accountable to two things. It'll hold us accountable to a path. That we know to be true in the right one, putting family as a priority, health as the priority. It'll also ensure that anything that we build for the future work wise. It must be built around that sounds so simple, right? It's so much harder in practice, but I think to your second question, if that was the, why, you know, I think the how on the business stuff is making some decisions early on that are really hard, simple sounding, but hard when I first got and kind of got into, you know, this is brief, but [00:16:00] I look in hindsight, like, like, this is a clear cut thing.

It wasn't, but there's like three phases. If I were to describe our journey through passive investing, right. Or buying property phase one, we were looking full time. I was too scared to buy long distance. So we, we drove around all summer, bought one duplex in the Bay Area, paid 430 grand for it, put a hundred K down for $200 a month in cashflow, which is a total whiff, right?

It's like 

Randal McLeaird: crushed it. Crushed it. Maybe, 

Spencer Hilligoss: maybe on the appreciation side, but yeah. And to be fair, it has crushed on the appreciation side. Yeah. However, that wasn't the goal for the money . Yeah. Which is, which is expensive tuition, you know, so. We had, you know, a good car seat in the car with one parent staying in the car, the other one swapped in to walk, go do the open houses to go take a look at these properties for that casual all summer for one property for 200 bucks, you know, phase two, we got comfortable long distance, we've got a portfolio, we built up to five single family rentals in the midwest.

60 K a pop and on average, which is mind [00:17:00] blowing to me, right? So to West coasters, people in those pricing markets, that's mind blowing for 250 bucks on average a month in cashflow, which is killer. But then we, we realized I would like rentals are semi passive at best. And it's not a condemnation. Like rentals are still great.

If you know how you want them to fit, like in your, in your life, in your portfolio, but all those experiences led us to go passive. And I think that this is all leading to phase three, which is, you know, How we put together a business, we could run more remotely and that's. Investing as an LP, a limited partner in private funds and a syndication, large deals, and, uh, that's how it started, man.

We, you know, put 25 K into our first one, like a big apartment building in Alabama. And then we did a lot more actually, you know, in your home state, that's been like our primary focus has been particularly in like Dallas, you know, Dallas, Fort worth, you know, And in other markets as well, but we started investing chunks of our wealth, you know, and we got some of that wealth from our, our strong income.

Uh, we got other wealth [00:18:00] from, Hey man, we bought a Bay area property in 2013. And that was just luck. And then for refis later, we had some capital, right? And so like, that's, I'm grateful for that or I'm rotten, but we're able to start putting some chunks of capital into different deals. And then it went extraordinarily well.

As it went well, we built an investing club around that. And there was a moment where I was about to get really active. And I asked the mentor, you know, I was wrestling, do I want to go be the lead sponsor on buying a 10 unit, a 20 unit, a hundred unit apartment building? Do I want to be a Jeep, the lead GP?

And he asked me the question of like, What kind of state do you live in? I'm like, what, what do you mean? He's like, do you live in a money state or a deal state? And I was like, Oh, well, that's pretty clear cut. You know, and the real question was, as a guy who used to live in Colorado for 10 years, as an example, I'm not tied to California for some pride reason, I would, I would say we have roots here now with our kids in schools, et cetera, but I wasn't moving, you know, and so we built a business around where I would plug in and [00:19:00] partner with people who are the boots on the ground based in these other markets, based And we would look for the best, we would look for the excellent teams and take our time, get to know them, vet the heck out of them, put our money in with them.

And if it went well, then we would start taking a look at their deals and we would partner up with them and share those deals with our investing club. And the club started as something small, it became something much bigger. And uh, now it's our primary, my primary focus professionally. So it is possible to do it mostly remotely unless I'm doing due diligence, which means I fly to the properties and walk them and meet me with the team, et cetera.

But yeah, I'm not that literally every day. 

Randal McLeaird: I want to jump into that in a second, uh, you said something else just a second ago and last question kind of on the family, on the, on the why, on the, you know, just personal more so than business, but you said something like you wanted to reprioritize your focus with the family, right?

And in, you were in a position financially to be able to shift things around, to focus on family first thing in the morning to, so my only question would be. You've got somebody who's not as [00:20:00] financially fit as you were in the moment where you're able to make those decisions. What advice would you give to them?

They have a family, they still want to spend time with them. Like how, it's a philosophical question. So it's very, I don't know. I don't know if you have advice around it. But like, what is the, what would you tell them? Like, I don't have enough money to take the time to not be working at X, Y, Z a time when my kids are needed or so that I can spend time with them.

Like, what would your 

Spencer Hilligoss: suggestion be? They do. Happy to speak to this. It's going to be much simpler than I think most folks imagine. And this was my journey. This was like literally what I did to be experienced. Is that going to work for everyone? Each person out there knows themselves best. Right. Here's what I had to do.

I was working when I started to build our business while working full time. I was leading teams of people. Like I had a very demanding day job. So step one, and everyone wants to skip this step. I wanted to skip this step. You cannot skip this step. Otherwise, if you skip this [00:21:00] step, it ain't going to work in my opinion.

Which is you need to set a goal if you're, if you're married or would have a partner, you got to set that goal with them, you know, so Jennifer and I got a sitter, we sat down, took a whole weekend and said, let's put down on paper, how much we have now, how much we make now. Let's also then set a from to what is the passive amount of income we want to get from investing on a monthly basis, simple cashflow number and by when.

There was tears. There was reconciliation. There was laughter. There was every, every range of emotion you can imagine. And that's not to scare people from doing it, Randall. It's, um, in hindsight, it felt like what was needed, uh, for an honest answer that we both believed in. And the irony is like, we walked away from that first weekend of two with like, our goal was let's hit this dollar amount of thousands of dollars per month in 15 years.

And it sounds like a long time. It's way, way longer than people want to be able to say that they're going to be patient to go and grind. Right. The next weekend we chopped that thing in half and it came down to seven, [00:22:00] but we hit it in five and we hit it in five by doing this as a starting point. I audited my calendar.

And that means like literally going through every day of the week, including the weekends. And I said, where is my time going? Okay. Working hours covered here. Can't carve that out to build another business while doing my day job. Where can I borrow time? And I put away the Xbox. I love playing guitar. I put away the guitar for two years.

It was about sacrifice to make more time to free up what equated to 10 hours. 10, 10 hours per week is what I found. And I also am not a night working. My brain turns off after five. I'm also not an early guy that I don't naturally wake up at 4 AM. Like a lot of folks talk about cold plunging on social media.

I'm just not that guy, but for the right reason, you know, like, like when the goal was set, which I, and this is why that goal, that goal step could not have been skipped for me. It was, it's too hard to do it without the goal. I woke up at four, I'm from four to six. So four to six was my work on the work before the work, [00:23:00] you know, five days a week.

And I read 24 books in an 18 month period. Don't need, no one needs to go do that. That was procrastination after the third book. But you know, listen to 400 podcasts like yours, like good education. And then I started networking like a madman. And, uh, You know, people who just want to invest passively don't have to go do all this stuff.

I was trying to figure out how to go and compress the timetable in which we could hit it. And, uh, and thankfully we, you know, ended up working with it, but it was, that was it. It's like clarify the why, make it time bound and specific. Audit the calendar, get down to a number of available hours so you can remove the excuses, start doing the work.

And, uh, you know, make it sound like it just happened, but like it, there was so many disappointments and moments of excitement and things are along the way, but at a high level that those are the steps. 

Randal McLeaird: That's incredible. Again, take notes on that and go execute if you are in that position. And candidly, my wife and I have this conversation.

A lot. I've had this conversation on this show a lot where I'm like, [00:24:00] you know, I ask her, you know, the big question of how do you want our lives to look in five years, 10 years, and it's a hard conversation. It's a difficult thing to think about, but yeah, having that offsite as you, you and your wife did in order to, you know, take the two days that you need to sort that out, clearly it's paid dividends.

So thanks again for sharing that. So, all right, let's talk some business. That's all the stuff that, that makes life worth living though. So. I'm glad we went down that road and talked about that a little bit just to, to kind of understand a little bit more, you know, how you got to where you are. So 

Spencer Hilligoss: yeah, it's most important stuff, man.

Randal McLeaird: Yeah. It's funny. You mentioned them and I saw that on your deal. So you worked with lending home and shout out to Ray. I forget his last name, but he was out. Yeah, he was my, he was my guy. Oh, Ray's a good buddy. Yeah. So I may still have a line of credit or something floating out there with you guys. I have no idea.

It was running for a while. I liked the setup. You guys had a great setup. Are they still going? Is it [00:25:00] still. Yeah, I think they're 

Spencer Hilligoss: doing better than ever. 

Randal McLeaird: Yeah. Okay. Okay. That's, I was like, Yeah, yeah, yeah. But then I think 

Spencer Hilligoss: that a lot of edge inflows and now they're called Kiavi. But yeah, uh, Kiavi, that's 

Randal McLeaird: what it is.

Yeah, yeah, yeah. No, I have a loan. I refinanced one of my properties with them and then I had a line of credit for all our, all our flips that we were doing. So I had to reach out to him. Yeah. Like, I know he 

Spencer Hilligoss: said, we closed the chapter on the whole, like, build your business and purposing thing. But one thing I have to mention is we're on the topic of, of lending home, et cetera.

And I mean, a point of inspiration that folks are not quite there in their heads. Like I left out a key point, a key point for me as a guy who, you know, you do a job long enough, you do a career long enough, you tie your self worth to it. You also tie your identity to it. That happens to 100 percent of people.

And for folks that are deep into it, I was like a leader, right? I was a leader and manager of teams and I grew teams and that's what I did. But it changed a bit when I was at that particular, when I was at Lending Home, uh, because. I was working my butt off, but then I had these kick ass, amazing people that were reporting to me, and multiple groups of [00:26:00] them, you know, they were doing flips on the weekend, they're, it's fine with everybody there, I'm fine with me.

There's a couple groups that would work after hours, and they were building something, you know, and they were building something after crushing it that day, like working excellently. And I'm sitting there going, okay, the lights are off. Like, why is that one room lit up? And those guys are working so hard.

And I watched them build something of true value, leave the job in a very respectful way with my excitement for them intact. And I was like, man, why can't I do this? You know, and sometimes it does require that extra umph. You know, if the goals don't get you there, seeing other people, you know, firsthand who they are, what they could bring to the table.

And then looking at yourself and saying, what's my excuse. 

Randal McLeaird: Yeah, it's one of those things where, I don't know, I talked to a guy locally here and it is the seeing is believing. Like you see these guys, they're working, they did it and then they exited and they went and did their own thing and you're like, okay, why not me type of thing, you know?

Absolutely. Yeah. Right. You got to give yourself the permission. I think [00:27:00] that's a great way to say that. Yeah. And be able to go do it and have the confidence working with my wife works for me. We could certainly have a whole podcast on that and the support needed, I guess. And they, you know, the Struggles and the, and the, the wins.

But having her around, I'm sure that was, uh, beneficial and helpful having the support to make that jump as well. Oh, critically helpful. And, and, 

Spencer Hilligoss: and she's, I mean, Jennifer, to be clear, she is the operational, strategic, uh, badass of the household and, and, you know, a thousand other things that I can only, you know, hope to hold a candle too, so.

Randal McLeaird: Yeah. Yeah. Same, same for the wife. Okay. Well, let's talk then. Okay. So you're outta lending home. You guys are getting in into syndication and. I mean, it wasn't a terrible time to get started in that business, I would say. So you're riding this wave of, you know, multifamily storage cap rates are compressing, you know, values are going up.

And so, yeah, having 13 exits in two years, is that what you said? 

Spencer Hilligoss: Yeah. I mean, grand total 

Randal McLeaird: within a range of about four years at three and a half, four years. Okay. [00:28:00] But so you're running through and, and again, you strategically set up in order to say that you wanted to be passive in these investments, you were looking at operators, you were going in across the country, was it, or were, were you focused in one specific area?

How did you guys start it to syndication? 

Spencer Hilligoss: Yeah, it started out in focus on Dallas, you know, frankly, like, like really, I still love multiple Texas markets now, but I think for all the reasons that you and I both understand at this point, which is, you know, looking for Sunbelt, largely some of the Rockies, but the fundamentals of just saying, Hey, you know, business friendly population growth, all those fundamentals, you know, industries that are diversified, you know, et cetera.

So anywhere in those kinds of places. And I was, and I have been more active here and there on deals, you know, like, like part of GP team, more active stuff, but, uh, You know, I think that largely, to your point, yes, I think over time we've wanted to, you know, add more passive and, you know, not as much active.

Yeah. 

Randal McLeaird: So were you, did you start as? That's [00:29:00] an LP, or did you start straight into like a co GP, I'm going to come raise capital, help you guys with, with asset management and that sort of thing, or where did you start into the business? 

Spencer Hilligoss: Uh, it started as LP, uh, just straight up LP. And I still think that that is an excellent place for people to begin, you know, just because you get to kind of try the products, you know, and, and see if it's going to work for you.

And so we started there and eventually it became something where like, you're out there networking with folks and I'm just interested in finding great deal flow. And it's fun, you know, like. When you could truly get into this stuff and it becomes, no matter what the topic is in business, what industry you're in.

But for me, this became like the hobby in addition to the passion, in addition to something I wanted to be excellent at. And so that was me networking like crazy. And eventually, you know, we were investing in deals. I had a big network within the tech network, but also I think just the Bay Area. And so folks would say, Oh, Oh, it sounds like you did really well in that deal.

How do we get in on that? And then, um, to take a step further, like I had the expertise at that point from my tech career, like in leadership and, you know, [00:30:00] I knew how to do spreadsheets. I knew, I knew how to do business partnerships. I knew how to vet people. Cause I'd hired hundreds of people, right? I mean, like I was leading teams of 200 people at the age of 26, not knowing what the hell I was doing, but learning the hard way.

And eventually over a decade, you learn how to vet people far better. You know, you don't hit it a hundred percent of the time, cause there's no one that can do that, but finding great sponsors and vetting deals and vetting markets and flying out there. People don't want to do that, but they do want to be passive investors.

So that was really the need that was very clear. And we built a business around that. 

Randal McLeaird: So, okay. So you transitioned into building. Are you fund to funds? Are you like, how do you structure your deals? Are you raising on a, on a per syndication per asset basis? Or what are you guys? Take it back one sec. I just still want a clarification.

Did you guys start in multifamily storage? What was the first asset class that you guys invested in? 

Spencer Hilligoss: Exclusively multifamily. Okay. Yeah, we were doing exclusively multifamily for at least the first, you know, seven to eight deals. Yeah. And then, uh, [00:31:00] I think it was around 2019, late 2019, cashflow is getting thinner on a lot of the multifamily, you know, prices were going up and, and also at that point, people don't remember by comparison.

I certainly don't, but rates were actually going up then too. Um, they were cut down to zero. Very rapidly because of COVID, but for all those reasons, cashflow is thinner on multifamily. So we started looking at storage and I'm so glad we did. Like it is such a boring, wonderful asset class in the best way.

So we, from there it became half, half. We really started looking at storage in addition to multifamily at that point. And I had been co GPing. We have now evolved through a phase where a bunch of co GP deals. But now, um, you know, focused very much so on doing like occasional, you know, pooling funds together of our own money in an SPV like a feeder fund to get better terms for a fund, you know, and like, that's what we're doing right now.

In addition to still looking at single asset deals with partners, we really take our time to get to know and embed myself in their team, but [00:32:00] it's just harder to find deals that pencil in the year 2024. So, uh, you know, I think it's, You know, scraping for, for that diamond in the rough. 

Randal McLeaird: All right. Let's talk feeder funds then, because I'm curious how you've structured it.

And I haven't talked a lot about it on the show. We definitely have talked about funds, indications, the difference and benefits of, of those sorts of things. So just explain what a feeder fund is and why you would use it and how it works for an investor or an LP coming into your, into your world. 

Spencer Hilligoss: Yeah.

Happy to. So I would just think of it like. You know, if I go and I want to invest 50 K a hundred K something like that, I, and I found a great team. I found, maybe they have a single asset deal, just a one property deal, or maybe they have a fund of their own with a bunch of deals. Either way, a feeder fund simply means that instead of going and just investing to get terms that are the retail terms, what if, you know, the power of numbers, you know, of pooling our capital along with, you know, millions of dollars in other capital of fellow investors that are investing They all [00:33:00] like this deal.

If we go pool that funds together, we can go actually secure better terms than you would get if I just brought my 50 k, my 100 k to that deal or to that, that fund. And so at a high level that that's really all there is to it. And so we all pool together and folks invest in long with us in our feeder fund, which then goes and invests in a deal.

Okay. So 

Randal McLeaird: is yours, uh, evergreen? Is it open-ended? How do you guys have it structured and or is it on a per deal basis? Like you found, you know, a hundred, a 200 unit, you know, class A building you're trying to buy. Then you stand up a fund specific for that operator and that deal. How do you guys have that structured?

Spencer Hilligoss: Yeah. Currently, um, given the, where the market's at, like the primary focus that we have right now is actually on private credit, you know, so, so we're, we put one together, that's an open ended, but it's not a mixed fund is. basis. In this case, a per fund basis. So we're investing with a great team that's out there giving like preferred equity, you know, and, and mezzanine loans to a very, very much needed problem, which is all the back, you know, so, [00:34:00] so there's great deals to be bought.

So we're like, well, the current strategy makes sense to go become the bank more. That's where we're focused right now. You know, It really depends. I hate to be unclear, but I'd say it depends. I may join a GP team, right? If it deals good enough and on an SPV basis, though, uh, we're not necessarily putting together a blended big fund ourselves that we're going to allocate from anytime soon, perhaps in the future.

Um, but right now it's a deal by deal basis, you know, we want the great, we want the team to be great. And we frankly, we want to be as transparent as possible with our investing club to be like, this is what we're investing in. Yeah. Yeah. That makes sense. The right time for that. Yeah, for sure. 

Randal McLeaird: I agree with that.

So, all right. So then let's walk through some of, again, just for educational purposes, how this might come about. You, you know, a sponsor, they have a great deal and you guys are ready to put some money into that deal. What does that look like from an investor standpoint and what kind of. Not just due diligence.

Again, I was just telling you, I talked to Paul Moore just a second ago. We had this whole thing where we're [00:35:00] talking about due diligence and how, how they vet their people, because they have a, it's kind of similar where they, they have a fund of funds that goes out and invest in, in deals. So how do you guys go, I guess, what is that process like as an LP coming into your deal where we're all going to pull our capital and go invest in this one project, what kind of better terms could we possibly expect, you know, doesn't have to be specific, but.

What do you guys. 

Spencer Hilligoss: Yeah. And happy to speak to it. I think, um, so two comments on the due diligence front, you know, I think we have a five part vetting framework, which really at a starting point, it's all about the who, right. And if you're passive and this was a big shift, you know, I know your audience is probably pretty sophisticated because you're talking primarily to folks who are already in the business, but just to say it bluntly, everyone likes to go focus on passive investments.

As looking at the numbers first, and that's just incorrect. You got to look at the team first and the, and the team, we have a five part vetting framework for, so we look at literally the team structure and there's a bunch of spreadsheets, rows to back up each of these, of course, which I won't go into, but [00:36:00] team approach, which includes track record.

You've also got communications, legal and values. According to that sounds, you know, you could test for that stuff, behaviorally interviewing wise, and a few other ways and track record, but we look at all that stuff, you know, and background, of course, all the basic stuff that everyone would expect, I would hope, which is like criminal civil background checks, looking at their financial records, et cetera, like that's all table stakes stuff for the who.

So I just wanted to make that abundantly clear. Yeah. And it takes time. It's boring, but vitally important. And so in terms of terms. You know, more favorable terms is, is actually pretty simple. I mean, it manifests in different ways, of course, on paper, but number one would be a lot of times some of these like really good deals or a fund might have a higher investment minimum.

You know, it could be 200 K. Like we've worked on, on deals before that had like a, 200 K minimum at the lowest end and we negotiated like a 100, right. And in the current one we have now, it's like, you know, most folks, particularly now in 2024, I think they're more interested in a 50 K minimum, you know? So, so as opposed to 100 or [00:37:00] 150, 200, so lower minimum, that can be one of the things.

Another thing would be most commonly what people are looking for. And I'm looking for is a better split, a better waterfall and profit share. All those three things mean the same thing for all intents and purposes here. You know, if you see a LPGP, meaning limited partner, general partner, passive investor, or manager interchangeably, as opposed to like a 70, 30 for LPGP might be like a 90, 10, right.

It might be an 80, 20. Um, those are the types of things that are, are interesting. Uh, as soon as you can invest larger amounts together and with the power of pooling and so, um, Yeah, I would say that those are kind of the biggest, biggest levers. 

Randal McLeaird: Okay. Are you guys in a position where you require some sort of governance when you go into some of these deals, if you're a big enough check writer, or are you staying below where that becomes a thing where you, okay, let me back up.

We're not, we're not that big of a 

Spencer Hilligoss: deal. 

Randal McLeaird: Let, let me, let me, let me back it up and ask when you are going into these deals, my understanding, and [00:38:00] so this is an education for me, is that if are, are you setting up again as a fund, so everybody's pulling capital with you and then you take that one check and go, right?

Is that, is that correct? So can you, yeah. So 

Spencer Hilligoss: check, so it's usually gonna be, uh, I think I, I hear where you're going. Like, for example, right now, it's a regulation D 506 C, uh, offering, um, so open to accredited investors, but we do have to ensure that they are meeting accreditation standards with a third party verification, you know, and then you file a form D again, we get real dry, real fast for people who don't want to talk about compliance, put a bunch of, you know, very strong income agents to sleep here, but, uh, you know, the, you basically registered with the SEC, you know, you got to file your form D, et cetera.

So it's a offering that is, uh, 

Randal McLeaird: Yeah. No, no. Okay. So let me clarify then. I'm saying, are you structuring that 506C and then that your fund is then investing in that deal as a single check? Yes. Okay. So you said something again, this is just for my clarification. You said something that you can negotiate lower minimums.

My understanding is [00:39:00] your fund, you could say whatever you want. You personally, if you're creating the fund. You could have a 10, 000 minimum that is then investing into this other deal that may have like 200, 000. Okay. Okay. But you, okay, so you don't have to match the terms is what I'm getting at for whatever the lead sponsor has.

Okay. Correct. Okay. The way you said it, I just wanted to make sure that I was not misunderstanding where you had to go negotiate a side letter with him in order to get that lower minimum for your fund to be able to. I totally appreciate 

Spencer Hilligoss: it. You kind of guided me through that with the follow ups because there's, this is a nuanced space.

Okay. 

Randal McLeaird: Okay. I just, again. That's for me. I just want to clarify and make sure that I knew what I, what was happening there. Okay. So you, you guys are putting in. And again, so you're, you have these deals that are going through, is there one thing again, I love about the approach is that you get to look at a bunch of different sponsors.

You get to look at a bunch of different deals and then you pick and choose. And so in this market right now, what are you seeing that is like one type of asset [00:40:00] class that you are, you know, Geared up for really excited about, or that is the best option, you know, 

Spencer Hilligoss: yeah, you know, uh, I mentioned it earlier, but I think that it's a unique moment in so many ways.

Everyone who's following in any way interest rates will understand this clearly, but rates are high. They're still high. I believe they're going to still be high, although trickling down, you know, I'm not gonna I gave up forecasting interest rates, by the way, like to 18 to 24 months ago, I'm not going to try to declare what I think is going to happen.

There's my disclaimer, but I think we're going to start seeing a tapering of interest rates by the end of this year. However, the banking industry and lending industry changes very slowly. And yes, especially after the whiplash, the experience on the front end of this cycle. And so long story short, I think banks will continue lending less than is really helpful to close transactions.

And I'm talking specifically within like multifamily, the asset classes, we still enjoy, you know, like, you know, the commercial excluding office, which is [00:41:00] its own 10 podcast interviews worth. Um, you know, the nature of work has changed, but in terms of multifamily, industrial self storage stuff that has great fundamentals.

It's hard to get loans, right? It's hard to get loans. And so we're invested in private credit, you know, looking at that many different funds and players in that space over the course of nine months of due diligence to find the current one we're working on now and partnering on now. And I think that that is a space which is only going to continue thriving because it's hard to get, because it's hard to borrow money.

It's hard to borrow check a billion dollars, 5 million within a capital stack to buy an apartment building. So. Yeah. I would rather be on the banker side of that when investing my capital. So that's the first one still looking at equity deals, acquisitions as an equity investor, it's just really hard to find it.

And I do think that de risking those is different. Now it's different because. You have to put more down, you know, like, like, what does it mean to find a great deal? If you buy an apartment building that is truly at a discount, this is the [00:42:00] positive side of high rates. It's like, you're seeing kick ass discounts when a property has a comes on the market somehow.

Right. And. There's way fewer available when you buy them. If you have to put like 40 percent down, 50 percent down, it's not exactly easy to cash flow. So you have to find a deal with some kind of characteristics and in a, in a market that's doing well now that is not looking, that is not staring rent decreases in the face.

Yeah. And that's a tough needle to thread. So we're looking for partners and, uh, and deals that meet that criteria. In addition to ones that are very friendly for long term holds and they like fixed rates and they want to do, you know, tax advantage structures without getting too nerdy here, I'll just say.

Always a fan of trying to invest in something that will have a 1031 on the exit as an option because then you can avoid a, you can defer a tax event, you know, all that stuff. So yeah, it was a very nerdy answer to your well rounded question. 

Randal McLeaird: I kind of want to get nerdy on that. We only have a couple minutes left, but so how, again, on a fund to funds where you're, you're coming into that deal and.

Are [00:43:00] you allowing your investors to 1031 out of that at the end and how, because that's like, you know, 10 ticks within a tick. I jumped 

Spencer Hilligoss: over too quickly on that one. I mean, those types of deals we would probably be still looking at is like, I would be a GP. You 

Randal McLeaird: got it. Yeah. Yeah. Okay. Okay. Okay. Got it. So that you On the one off deals.

Yeah. Yeah. Yeah. Okay. It's not part of what your fund is doing. No, I wish I could get that, but I cannot do that. So on the personal credit side, are you guys a. Are you talking about like pref equity type of investments that you guys are doing? Yeah, pref equity mezzanine. What kind of returns are you seeing on those?

Are we still 12? Is it gone to 16? Is it, is it? I mean, I would say 

Spencer Hilligoss: you're in the ballpark though. Yeah. Like you're right in the ballpark. I'm not looking for the investment thesis. I think is, you know, The wisest that I am putting my capital behind at the moment is one that we're not going for the 22 to 25 percent IRR necessarily across the board.

Like all of us could stare at on every PDF investment summary back in 2017 and 18, this is a different [00:44:00] context. And also. This is a pretty damn unpredictable market that we're staring at, like geopolitically election year, et cetera, and oversupply of a lot of these assets in some markets that no one really saw coming at the severity that they expected.

So all that to say, I am very happy to take a 12 to 15 percent return targeted return. And it's a more favorable position in the capital stack right now, as opposed to going for common equity investment, as an example, in a property that's assuming you can raise the rents three to 5 percent every year for a five year pro forma and banks on a refi in a tough lending environment.

Randal McLeaird: Yeah. And banking on cap rate compression instead of, yeah, um, yeah. Okay. Well, I mean, we could go longer, Spencer, I could talk to you about a lot of things. At the front end of this, I really enjoyed that conversation. Just talking to you about, you know, structuring the, the family, the investments, the why, like how you structure your investment strategy.

So again, I appreciate jumping on and talking about that. If you're looking for investments and you want to reach out to Spencer, you can go straight through the [00:45:00] links in the show notes and you guys can reach out to him and his team and look at what opportunities they have, so. Man, again, I appreciate jumping on, chatting through, but I think we should leave it there.

Spencer Hilligoss: Yeah. What a pleasure. I mean, it's such a fun conversation, Randall. Thank you. And thanks for stopping and learning on the, uh, the childhood and parenting stuff. That's a blast. Yeah. Folks can find us at madisoninvesting. com. And you know, I have a conversation with every person that wants to reach out. So happy to do so.

Randal McLeaird: All right. Right on. Well, guys, we'll catch you on the next episode. Did you know that 80 percent of the agents we speak with got into real estate in order to gain passive income so they could obtain financial freedom and become work optional. If you want to stay up to date, the best way is to make sure you're subscribed.

So if you haven't done that, go ahead and do it now. We'll catch you on the next episode. 

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