WS 1692 Managing a portfolio of $330M+ in assets | Elaine Stageberg

Discover the secrets to financial freedom through real estate investing as Elaine Stageberg, co-founder of Black Swan Real Estate, joins me to discuss her journey from being a psychiatrist to managing a private equity firm with $300 million in assets under management. Elaine and her husband, Nick, achieved financial independence in their 30s and are now dedicated to helping other families experience the same success. Get ready to learn how they transitioned from managing properties themselves to raising capital, providing top-notch customer service, and making values-driven investments.

Elaine reveals the metrics behind Black Swan's success in Rochester, Minnesota, and Tacoma, Washington, and shares their unique approach to raising capital, managing properties, and harvesting equity. She also dives into the tax advantages of their investment model and the importance of building genuine, long-lasting relationships with investors. Prepare for an in-depth discussion on navigating market trends, predicting economic cycles using data, and staying optimistic even in the face of uncertainty.

Don't miss this opportunity to learn from Elaine Stageberg's experiences and insights on real estate investing, daily habits, and resources available at meetblackswan.com. Hear how she and her husband have built a values-driven organization that goes beyond just real estate investments, and find out how you can book a call with Elaine herself. If you want to excel in the world of real estate investing, this episode is a must-listen!

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Transcript

 WS1692 Managing a portfolio of $330M+ in assets | Elaine Stageberg 

Elaine Stageberg: [00:00:00] Nick was still working full-time in tech. I was still working full-time in medicine. We had several children by then and there was something every single day. And so we had to make a decision, do we hire a third party management company? And that's our path to growth. Or do we become a fully fledged property management company And we made the tough decision of becoming a fully fledged property management company.

And so today with, all one third billion of our assets, we manage all of them ourselves. 

Whitney Sewell: This is your daily real estate syndication show. I'm your host. Whitney Sewell  our guest today, she's gonna bring a lot of information to you in a very short period of time. I feel like they have a very different business model, which I, I'm loving learning more about. I had her husband on just a, a couple of months ago.

His name is Nick, but her name is Elaine and it's Elaine Stageberg . And, and they are and a couple that's doing some big stuff. But her background is she was a psychiatrist. She, she's a owner of. The Black Swan Real Estate, they own a managed portfolio of just over 300 million in assets under management.

And her and her husband through real estate, they reached financial freedom. In their thirties. They founded the Black Swan. And Black Swan is delivered exceptional returns, hundreds of investors, but they have a very, I'm not, I don't wanna give it away, but they have a very different model than, for operating these deals than we've typically maybe ever heard on the show even after, 1700 or so interviews.

It is, it's a very different model, but I'm  enjoying learning more about their model and, and their focus on the investors, their focus on their tenants and employees. They have a, they're very, values driven. And of course, , I love that about them. But but she is , just action packed in this show, in this episode, and just laying out their model and how they do it, how they've been successful raising money , and what that looks like for them.

So, I know you're gonna learn a lot from Elaine today. I keep hearing in our industry right now that people are struggling to raise money. Well, our guest today has had a lot of success raising lots of capital, and they actually have a different [00:02:00] business model or unique model I'll say. That I'm looking forward to hearing more about. We heard her husband just probably two or three months ago and, and I enjoyed the conversation and just their heart to give back as well as a part of their business.

And so I, I'm excited about this interview. Elaine, welcome to the show. 

Elaine Stageberg: Thank you so much for having me. I'm excited to 

Whitney Sewell: be here. Elaine, let's jump right in. Give the listeners a little bit about your background. We heard from Nick, a number not too long ago. , and so who are you?

 Let's jump in to this business model and how y'all have been successful raising money and what was tied into today's climate of trying to raise money as well. 

Elaine Stageberg: Yeah, absolutely. So I'm Dr. Elaine Berg. I'm a psychiatrist by training, and I'm married to Nick, who as you mentioned, recorded a show a little while ago.

He's a technologist by training. We've been married for about 12 years. We have four kiddos, and along the way, we were real estate investors. Started doing single family homes. We've always had a burr business model. We've been able to take one bucket of money, buy something, do a renovation, put a renter into it, do a cash out refi, take that same bucket of money.

Rinse and repeat. Over and over and over along the way, we grew and grew and grew, and now we both run Black Swan Real Estate, which is real estate private equity firm based in Rochester, Minnesota, and Tacoma, Washington. We've got a third of a billion in assets under management, all long-term residential real estate, ranging from single-family homes to large apartment buildings, and just get the good fortune to, share the benefits of real estate investing and the financial prosperity that it's brought to our family with other families 

Whitney Sewell: Now, Yeah.

That's awesome. I, you all have grown, you said a third of a billion in really just a few years. Mm-hmm. Give us a couple, I don't know, a couple steps that you all took that were crucial to making that happen. 

Elaine Stageberg: Yeah, absolutely. Because it doesn't just, materialize out of thin air. Right.

And not typically. Right. And the thing that comes to mind is like, Don't compare someone else's end to your middle. Right? So if you're listening and you're growing your business or something and thinking, how, how can I get there? Or, that's so far, that's so impossibly far away. Like [00:04:00] it takes a lot of time, right?

It takes a lot of effort. In the early years it was Nick and I doing renovations ourselves, um, painting things, laying flooring. Just, being very hands on with our assets and, allowing us to do, and then along the way, Nick became a real estate agent and that allowed us to create a third party property management company.

That was a big, pivotal moment in our growth. I. And then Nick stepped back from his career in technology to run our company full-time. And then I stepped back from my career in medicine to run our company full-time. And all along the way, we were doing projects with our own capital and then managing properties for others.

And then we started doing some joint ventures, and then we created a private equity fund. And today we only manage what we own. And so we're very deeply vertically integrated. There was never a grand plan like 10 years ago to have the company that we have today. The plan was always to get ourselves to financial freedom.

Nick and I both struggled with poverty as children and knew that we wanted something very different in our own marriage and with our own children. And then we were very fortunate that we got there rather quickly. We got there in about five or six years, and that was really the inflection point where we had to ask ourselves, we really like investing in real estate and we could continue to invest in real estate, simply to grow our own wealth to kind of run up the score.

But that's kind of not very fun. Hmm. We could take this skillset that we have and help other families get to financial freedom through real estate investing. And so that was really the big pivot when we moved into our joint ventures and then eventually our private equity firm. 

Whitney Sewell: Yeah. Wow. So, and maybe let's talk about that for just a moment.

As far as the, y'all started with the third party or with third party management, right? Or y'all started in third? No. 

Elaine Stageberg: We always 

Whitney Sewell: managed our own. Oh, you always managed your own, okay. Mm-hmm. Okay. I misunderstood there. Uh, so, looking back are, are you glad you all started with manage or managing your own properties?

Elaine Stageberg: I am. Yeah, so our very [00:06:00] first property was the home that I lived in before we got married, and so it was, it was kind of like a property on training wheels, right? We never acquired it specifically to turn it into an investment property. The opportunity just presented itself because Nick also owned a home, so we moved in to his home when we got married, and because I had lived there, it was literally like a mile away from our home we thought.

We can just manage this ourselves, and I'm so grateful for that because that then led to the company that we have today where we saw how important operations are. We saw how critical, even like the minor things, like really good lighting on your marketing photos so that you can get the most amount of phone calls so that you can get the most amount of leads.

So that you have the least amount of vacancy so that you can place a high quality resident that's gonna take good care of the property. Like all of these pieces all go together and. And because we were always right in the thick of it, we knew how important that was. And when we got to probably about 15 or 20 properties, that was what, like as I mentioned, one of the major inflection points where we no longer could manage those properties completely by ourselves.

Nick was still working full-time in tech. I was still working full-time in medicine. We had several children by then and there was something every single day. And so we had to make a decision, do we hire a third party management company? And that's our path to growth. Or do we become a fully fledged property management company And we made the tough decision of becoming a fully fledged property management company.

And so today with, all one third billion of our assets, we manage all of them ourselves. We're deep in the operations. We do lawn and snow and maintenance and cleaning and leasing and everything that goes into managing those buildings. And it all goes back to that very first one that showed us, up close how important operations is to the success of an investment.

Whitney Sewell: Yeah, no doubt about it. The operations piece like the asset management piece, right? I mean, it's just crucial for all your investors and just the, your property thriving. But I, I, I just recently, it's an interesting [00:08:00] conversation just recently, I've heard like both sides of this coin, right?

Really a mentor friend of mine who has many, many, many, many thousands and thousands and thousands of units have recently got out of the management. They had their own management arm too, and they just said, Hey, you know what for the amount of revenue that this generates is such a small percentage of their overall income.

And, and really the distraction of it, is said, we can, we can't do it as efficient as, say some of these groups that are third party management that have hundreds of thousands of units across the country. And so they went that route. I mean, they closed it down to go a third party, and then I know other guys who.

Or just like you, all right we're managing in-house as well. But it's just interesting thoughts. I mean, even at a really large scale where they decided, you know what? We think it's best to go back to third party, and so just wondering, have you all felt that, hey, it really sets you all apart.

It's really, uh, a driver behind you all to, to bring, to keep all that in-house, even long term. 

Elaine Stageberg: Absolutely. So I mean, I can look at very clear metrics in the communities where we are in Rochester, Minnesota, and Tacoma, Washington. Like I can just do a quick search on say Zillow or apartments.com. And see that our rents are far above the norms, and that's because of excellent customer service, because of excellent marketing, because of things like drone tours and Matterport tours and other things that other property management companies aren't doing because of how we train our leasing staff.

Um, our average renewal rate is about 79% because we provide excellent customer service during the year that family is living there. Timely response to our maintenance tickets, snow clearance lawn, all of those things. So I can see the metrics that our property management company performs better than other property management companies in our communities.

The thing that caught my ear there is that the group that you know, and I, and I have no idea who you're talking about, but just a little bit of data that I heard there, the group with a large number of units that decided that property management isn't profitable, and so they stopped it. Well, that's 100% true.

Property management unto itself is [00:10:00] not very profitable. We strive to run our property management company as essentially a break even every year. We need to make sure that we can offer amazing salaries, benefits, have all of the computers and tools and everything that we need for our people, but we really keep the, the money in our buildings.

And so if we can bring down the cost of, say, lawn care or snow removal while increasing quality, while increasing control, while increasing resident satisfaction. Well, because of the way multi-family real estate is valued based on N O I, right? So I could make a dollar of profit in my property management company.

Great. I have a dollar in my pocket. I could leave a dollar in my asset by basically just charging, say breakeven for say, snow clearance. In this, in this example. Well, a dollar of increased n o i, our market's about a five cap market, so you multiply that by 20. So now I have 20 additional dollars in the asset.

And so property management has never been a major profit center for us. As I said, we, we strive to run it basically break even. But because of that, and because of the quality and the control and the consistency and the higher level of customer service, we're able to radically increase the N O I of our buildings by decreasing costs and you know, increasing the rental rate that we're able to charge the renewal rates that we're able to get, and that drastically increases the value of our assets, which is the real driver of wealth.

Whitney Sewell: Yeah. No, I appreciate you going into detail into that. Completely agree. And so, I wanna transition just a little bit though while we have a few minutes here, cuz I wanna dive into, how you all have raised so much capital, right? And, what's led to that success to being able to raise capital and consistently successfully.

And then let's tie it to, just the current. Climate, uh, of being able to raise money. So, but let's, I'll dive in a little bit on your all's, path to being able to raise money and how you feel you've been successful doing that. 

Elaine Stageberg: Yeah, excellent question. We, we have had the good [00:12:00] fortune of being able to raise, pretty much as much money as we want, despite the challenges that have come in the industry in the last year or so.

And really, you know, it all comes down to we put our LPs so far ahead of our own needs. Like it we have a model that's completely different than the norm in the industry. And it just came from our own sense of intuition, right? So we entered private equity first as real estate investors. Many people come into private equity, kind of straight from Wall Street or something like that, which is fine.

It's just a different path. So we came as investors saying, we're really good at real estate investing. There's probably some other people out there that want to benefit from real estate investing, but don't necessarily, want to build this skillset or spend their spare time. This way we could work together.

And so we didn't create our private equity model off of like the traditional recipe with prefs and splits and waterfalls and fees and all of those things. We just asked ourselves like, what intuitively makes sense to us, and it intuitively made sense to us that we would charge no fees whatsoever. We give 100% of all profits back to our partners until they're completely repaid.

That just made good sense to us that if our partners had money in the deal, we shouldn't have any access to any profits or splits until they're completely made whole. And then after that, we keep the property because we have a Burr business model, so we all have $0 left in that deal. And then it's a 50 50 split indefinitely in that infinite rate of return period.

And again, that just like made very intuitive sense to us that as we were growing our own real estate portfolio, we never sold anything. We always did a bur business model to harvest that equity, keep that cash flowing property, and the debt pay down and the appreciation that's coming from that property.

Buy the next one and the next one and the next one. And then all of a sudden you have, you know, dozens of income streams coming in and dozens of mortgages being paid down and dozens of properties growing in value and all of the tax advantages that come from that. So our model's just, it's just very different and it's very, very pro LP because there's no fees.

So we're not [00:14:00] taking any profits, you know, right off the table, right at time of acquisition or capital event or disposition. All of the profits go back to our partners until they're completely repaid. So it's an incredibly safe model. And then it's an indefinite hold period that allows people to have decades of passive income and all of the benefits that come from that.

Which is really different. And at first, I will say it was a little bit harder at first when we first started working with passive investors because it was hard to compare it to the norm. And there were a lot of conversations of, well, well, what's your waterfall? Well, there is no waterfall. You, you don't have a capital event fee?

Nope. Not that one either. You don't have an acquisition fee. Nope. Not that one either. Like, so it took a while, but then once investors started to understand it, and particularly through, you know, all this talk of recession, and investors are maybe a little more cautious right now, they see how safe it is because it prioritizes their needs so far ahead of our own.

Then it just makes capital, very easy to raise and a question that that commonly comes up. So I'll just, address it cuz people are just like, well how do you do that? How do you, work for free all of those years until you get to a cash out refi, return all of the capital to your partners and then you're able to participate in the split.

And the answer's very simple. We're financially independent through our own real estate investing, so that's what pays our mortgage and, takes care of our kids and puts food on the table. That allows us to put our LPs first so that when we get to where our LPs are, completely repaid, then we're in that 50 50 split and definitely, and everyone's wealth will, will grow extraordinarily during that time.

Whitney Sewell: Yeah. So it's because I was gonna say, the, the babies need shoes, right? You gotta, they gotta too baby hot. Yep. Yeah. So, cause I know, like you said, a lot of people are gonna wonder, oh, wait a minute, how are you all affording to, to eat? Right. For, until that happens, right? Until some of those properties, uh, reach that level.

Is there a, a timeframe that you all have experienced now, or, or, as maybe you're getting some properties, to that stage. How long does that, has that typically taken. We 

Elaine Stageberg: advise our investors to plan for five [00:16:00] years. Historically, it has never taken that long. Historically, it's never taken more than three years.

The average is probably somewhere around two and a half years. But I'm just a big, big believer in, hopelessly conservative underwriting, hopelessly conservative projections. What I would never want is an investor to think, oh, I have a sophomore in college and I'm gonna put some. Any investment, get all of it back in, say two or three years and then put that kid through college.

I wouldn't want that to happen. So we tell for people to plan for five years, but historically it's never taken that long. And we're laser focused on that day because we don't see any profit whatsoever until our investors are completely repaid. So our incentives are completely aligned. Our investors want their money back so that they can invest in the next thing or, you know, do whatever it is that they want to do with that capital.

And we want to hit that day because that's the day that we start to get profit. 

Whitney Sewell: Could you elaborate on how you do distributions a little bit or the frequency of them, but then how do you know how much to pay out then to investors? And then I was thinking about anything you paid out then It sounds like in this model would be a return of capital, right?

Uh, versus a return on capital. 

Elaine Stageberg: Yep, exactly. So in the first phase during that, that period where we're acquiring properties, doing the renovations, and then targeting our cash out refi, during that phase, we make no promises whatsoever about distributions. My goal in my head is to get distributions out starting about 18 months after any given fund opens.

And the thought process behind that is it takes about a year to acquire the building. Have units open that are available for renovations. Do the renovations, do any, you know, landscaping, common area improvements, those sorts of things move people in at that, those new rents. That takes about a year for that process to unfold.

So at about 18 months, it's likely that we would be able to start distributions. But really in that first period, I encourage people to think of it as our target is the cash out re refi, and I don't wanna do anything that will jeopardize that cash out refi. So I don't wanna do a distribution that slows down our.

Renovation velocity or do do a distribution that gets the liquidity in the bank account low, that the bank is [00:18:00] then maybe skittish about that cash out refi. But my plan in my head is about 18 months into any given fund, we'll be able to start distributions and it would be probably pretty small, like 10% of say the original invested amount at about 18 months, 10% that following year.

And then in that following year is when we're targeting that cash out refi. And so it would be like 10, 10 80. And of course every fund performs very differently. You know, past performance doesn't guarantee future outcomes, but that's what I've seen in the 12 or 13 years that we've been doing this. And then once we get to the cash out refi and investors are completely repaid and they're at $0.

That's phase two. And during that time it's very predictable. So there will be regularly, Quarterly distributions every single quarter. Sometimes they'll be larger if the properties are doing well. If there's, a big maintenance item or a new roof for those sorts of things that need to go in, then distributions might be a little lower in those quarters.

And then the real magic happens when there's subsequent cash out refis, when we're in year. 10, 15, 20 when we're able to do future cash out refis and those distributions will be rather large. And that's like the real magic in, in our wealth journey when we were able to have a property, get all of our cash out of it, and then years later, despite the fact that we've had no money in that property for many years, do another cash out refi.

Get a big bolus of return and then, we always reinvested. But of course, our investors can do whatever they want with their returns. And then that will happen about four or five times in a 20 to 25 year period. At the very end, we'll sell everything, liquidate it all, share out the equity with our partners, and then that fund will be completely closed.

Whitney Sewell: Yeah. Okay. So, so the plan would be to hold up for those properties for 20 plus years Exactly. To sell. Uh, and then what about the tax bill at that point? 

Elaine Stageberg: So the, the tax advantages of our model are very good. So of course in the beginning we're doing everything we can to do, bonus accelerated appreciation with costing studies, there's big tax, lo tax losses that go out from the renovation costs.

So we're pushing out as [00:20:00] many paper losses as we can, and then cash flow that comes in subsequent years will of course, chip away at those paper losses. One thing that's really nice about a cash out refi, Is that, that's tax neutral to the I R S because it's not really considered to be income in the eyes of the I R S because it's backed by debt, it's backed by that new mortgage.

So those are very tax efficient distributions. And then of course, there's no depreciation recapture until all the way at the very end. So unlike, say, a traditional model where there might be a sale every, 2, 3, 4, 5, 6 years, and people kind of get on this like depreciation treadmill where they're, recapturing and then needing to get new depreciation and recapturing kind of.

On and on. Ours just kind of holds all the way until the end, and then there will be depreciation recapture at the end. But every year that you hold, there's less and less depreciation recapture, because in the eyes of the i r s, those items are fully depreciated. So I anticipate our depreciation recapture at the time of final sale will be quite small.

And of course there will be a, you know, a large equity distribution that goes out. At the time of sale that would, more than offset the, that, that tax bill that's due. But it's incredibly tax efficient. Nick and I have not paid, federal personal income tax in probably at least eight or 10 years.

And just, thinking from that tax lens of. Setting up where you're not selling properties, so you're not getting into depreciation recapture, you're harvesting your equity through a cash out refi, which isn't considered to be income in the eyes of the I R S doing all of these things to push paper losses out in the beginning.

It's incredibly tax efficient model. 

Whitney Sewell: How has the current interest rate climate affected your model? 

Elaine Stageberg: The thing I say is it has required us to put our thinking caps on a little bit more because it's, it's no mystery that, 3, 4, 5 years ago, a cash out refi strategy was easier. Interest rates were so low, money was basically free.

It was much easier to do a cash out refi. Through 2022 and 2023, we've been successful with getting our cash [00:22:00] out refis of all of the assets that we anticipated. We would get cash out, refis in in those years. But we've had to change our strategy. So what we've done is instead of going to the bank and saying, I want a whole new mortgage on a, B, C apartments, we go to the bank and we say, You know, we have this really lovely primary mortgage on a, B, c apartments at 80% L T V, 3% interest rate, 25 year amortization.

We've got four years left on the term. There's no way we wanna give that up because the prevailing interest rates now are five or 6%, but let's put a second mortgage on that. We've renovated, we can get a new appraisal. Let's harvest our equity by putting a second mortgage on that. And to date, all of our banks have been happy to do that.

The bank knows the value in the building. They, they see the renovation, obviously, they see the higher appraisal. The loan officer, of course, wants to, do a loan so that they can collect income. And so it's been a win-win deal that. Five years ago, we had never done that strategy because there was no need for that strategy, but we had to come up with a way of how do we harvest our equity without giving up these beautiful interest rates that we've gotten over the last several years.

And so that's what we've done there. And then the, the real thing to note is that all of our debt is with local, regional banks. It's all fixed rate debt. It's all at least five year term with bankers that we have real relationships with, their friendships. Even I say after, so many years of doing business together.

So we're able to have real conversations with our bankers and say, John, we've always had a cash out refi model. That doesn't change in 2022 just because interest rates have gone up. What strategy do we have to have so that we can exercise this business plan despite the fact that the environment has changed?

Let's put our thinking caps on. Let's come up with something creative together. And I can't remember which banker came up with that second mortgage idea, but then once one of them did, we went to all the other bankers and we said, well, this bank's gonna do a second mortgage. Will you do a second mortgage?

And they were all happy to do so. 

Whitney Sewell: And what's the average size property you all are pursuing? 

Elaine Stageberg: You know, it really runs the gamut. We have single [00:24:00] family homes, and then our largest apartment community is 129 units, right at about 28 million in value. Okay. All the 

Whitney Sewell: between there, you all are syndicating those I assume.

Absolutely. Yep. Yeah, yeah. No, that's awesome. Well give us a maybe a couple tips too on, how you all have continued to raise more money. I, I know it's the model as you all have grown, just the really, the education piece, I feel like on your model, it's probably helping you to raise more money, right?

Uh, but w what would you say, how are you all communicating? Well, a little more I guess a tactical or, things you all are doing as far as how you're communicating with investors or things you're doing every day with them. 

Elaine Stageberg: Yeah, absolutely. So I think, investors want to have education.

They want to feel secure. They want to have whatever amount of information that particular person wants. And I think because I'm a psychiatrist, I have a little bit of a good idea of kind of human behavior. And you know what humans want, some humans want to read three bullet points. And, you know, have come from a referral and they're good and anything more is just noise and bothers them to them.

Others want detailed spreadsheets and as many q and a as they can possibly come to and, full newsletters. And so we try to provide something for people all across that spectrum. And we we're very reachable. So our calendar is freely available on our website, meet black swan.com. Anyone can block a time on Nick or I's Calendar.

We respond to every single one. Emails. We send out a weekly newsletter. We do a live teaching call once a month. It's called our Community Power Hour, where we just get together with our group and sometimes we teach on something very timely, like when the Silicone Valley Bank collapse happened. We did something that night about that because I knew people were really scared and worried.

And what does all of this mean? Other times we teach about mindset or communication. State of the market, how to do renovations, just anything that we think our community would be interested in. Um, and then we have a live in-person event here in Rochester once a year. And people love that. We kind of, [00:26:00] in our minds, we think of it as like the Berkshire Hathaway annual meeting.

So people come to Rochester, they do mingling and networking with fellow investors, with our team on Saturday. We do real estate education all day Saturday night. We have a really nice legacy and goal setting time together, really asking ourselves like, What is the point of all of this passive income, right?

Like most people don't want passive income just so they can log into a bank account and see a big number. They have a reason for that and really eliciting that reason of taking care of parents, taking care of kids, vacations, cutting back at work, whatever it is. It's different for every person, but really eliciting that can be a very powerful experience for someone.

And then on Sunday we go tour the properties. And that is really fun to see something pre-renovation, mid renovation, post renovation. What is it like to go through like a leasing encounter? What is it like to go through like a maintenance encounter? A lot of people really describe that as the time when kind of everything clicks for them of.

Not just what Black Swan is all about, but like, how is value really created in real estate investing? So just being very open with our people. Really having relationships with our investors. Like I'm a very relationship driven person. I think that comes, from being a psychiatrist and just all of these things, like if, if in my mind our investors were just names and numbers on a spreadsheet, this would not be interesting.

But when I see names and I think, oh, Joan, she's taking care of aging parents with these distributions. Like, I wonder how she's doing. I wonder how mom and dad are doing. Like, that's just, I get goosebumps even just thinking about that of that's just, that's what makes it so enjoyable for me. And so the thing I would encourage people to think about if you're considering raising capital is follow what's in your own heart.

And just because maybe other firms out there are. Ultra professional and coat and tie and all of these things, like if that's you, like by all means, do it. But we've always had more of a conversational sort of peer-to-peer, friend to [00:28:00] friend. Like, we're all in this life together. Let's help each other out along the way.

And it's not kind of your typical private equity feel, but it attracts the people that want us. And so if, if you're thinking about raising capital or you're thinking about investing with someone like. Find the group that resonates with you, or just be your authentic self, and the investors will come and they'll be, they'll be attracted to your energy because it's authentic.

Whitney Sewell: Yeah. No, I think it's great advice and, uh, but appreciate that, just the tactical things too. Even you all meeting all in person and mm-hmm. One-on-one relationships. And even the, the calls you, and you just said a, a weekly update, I think as well for your investors weekly newsletter. Your weekly newsletter.

Yeah, that's And what about profits pro a property specific updates? How often are you all doing this? We do those 

Elaine Stageberg: once a quarter. Okay. And we also do those live. And so that's a little bit different in our industry that um, some groups will say they do live q and a, but they actually have their questions submitted and then they formulate their response and then they go live, which is fine, right?

Like I, everyone does things kind of the way they want to. We are very extemporaneous like, We just get on calls with our investors and it's just an open zoom time and we have a presentation of this is how all the buildings are doing, these are the plans we have coming up, these are the challenges we're experiencing.

Teaching about say as interest rates are changing, here's our strategy and how it's changing around cash out, refis, just anything that like people have the same set of questions, right? And then we just open the floor for questions all the way until the time ends. And I'm not gonna lie, at times, that is a little anxiety provoking of like, who's gonna ask what?

But we're an open book. We're an open book, and we attract investors who are good, loving, caring people. So we don't have jerks in our group that, say rude things or ask mean questions or whatever. And I think people see that they can ask us questions and just right in the moment we're like, we're running this company day in and day out, like we have the answer.

Or if we don't. We'll go figure it out. And people see that transparency and that authenticity, and so that makes any of the, jitters that comes [00:30:00] from a real live q and a. Very 

Whitney Sewell: worth it. Yeah. No, that's awesome. Another quick question before we move to a few final that I want to get to and , you all, I know you run, what you call values driven organization.

Mm-hmm. Right? And, and I can relate to that in a big way. And, and, but tell us how you implement that and, and how, How you all benefited from that, right? From being a values driven organization. I know we have and it's affected everything, that we do. But I'd love to hear from you, how you all implement that across the organization.

Elaine Stageberg: Yeah, absolutely. , I think it kinda goes back to our roots, right? Like, we came into running a private equity firm as real estate investors, as a family that had reached financial independence through real estate investing. And we were building our company and, and working with other families.

And so for us it was always about something bigger than just the real estate. Like if it was just the real estate, this would have long been boring because the actual real estate is pretty repetitive, right? Like you buy something, you renovate it. You do a cash out refi, you take good care of your residents.

You do it over and over and over. So thinking about, well, how can we really make the world a better place to live? What are our real core values? Show up for people. Create infinite opportunity, radicalize transparency. We have seven core values. Those are just, there's three of them. And thinking about how can we live that day in and day out.

So like our private equity model is completely different than what's in, the typical private equity model because it radicalizes transparency. There aren't all these fees and calculators and prefs and waterfalls and ketchup prefs that really are just. Quite frankly, very prog with all sorts of obfuscation over them.

Like I wish our industry would just say we're prog and that's okay. If you wanna participate. There's still a lot of benefits to it, but we're prog p. And instead we just radicalize transparency and we have a business plan that like a fifth grader could understand, um, and leading our people and creating jobs.

That's more than just about, you know, showing up to work, punching clock, collecting a paycheck, getting our people to see, like we have the privilege of [00:32:00] creating housing for people in our community. Housing where people feel safe, they enjoy living. They're excited to bring their friends or their parents or their pets home to it's just such a privilege to, to get, to be kind of at the epicenter of all of this.

And then one of the things that we decided several years ago is that there had to be a big giving component. So we created the Berg Family Foundation. And kind of had this big aha moment that for years people had asked Nick and I to do real estate coaching and it just was never like really on our hearts, like to, to do real estate coaching well is a full-time job like to, to do it really well as a full-time job.

And we are much more, we enjoy doing the deal and running the deal and doing the property management, but there's this need kept coming up and phone calls and emails and things. So one day. I decided, you know what? We will create this coaching division as part of our family foundation and we'll basically give it away for free.

It's called Single Family at Scale, single family@scale.com, and it's a give what you can model and 100% of revenue goes to our charity and you get access to our, we call it our cookbook, our entire playbook of exactly how we built the business. It's like 100 modules, all of our calculators. Everything you could possibly need.

And we do once monthly private coaching calls with that group where we just do deal troubleshooting. We don't have any specific teaching topic or anything. We just show up and we say, what's on your minds? What deals are you doing? How can we help you? And then all of a sudden it was this like win-win thing where people wanted coaching from us.

I was excited to give it because it raised money for charity. We've built a playground with that money. We've built a commercial kitchen in the homeless shelter here in Rochester. We've donated to a homeless shelter in New York City. We're working with a group here in Rochester to build an indoor adaptive use playground for children of all abilities.

We sponsor the children's business fair here in Rochester to get [00:34:00] young people interested in entrepreneurship. Like all of that stuff would not have been possible if I hadn't created our course. But our course wouldn't have been interesting to me if it was just a for-profit endeavor. So instead, we have this opportunity to serve people and teach them real estate investing, which, taps into the people that either don't want to or can't do passive investing.

They want to be active investors. So we're able to serve that group and serve our community, and just that we get to be like a part of that is just. Like, I can't believe this is my life. Yeah. It, it's just so, it's just so neat, yeah. 

Whitney Sewell: No, that's neat. Just your heart to give back in that way and, and to do it through that platform, like, like that you're giving back a couple different avenues.

Right. By doing it like that, offering the coaching allowing other people to change their financial future forever, while. Man, their, their donations go towards all those causes. So, that's incredible. I wanna jump to a few final questions before we run out of time.

Cause I know we're getting really close, but but, you know, I always say, none of us have a crystal ball. We, none of us know exactly what's gonna happen right next 6, 12, 18 months. However, what we do believe affects what we do. Absolutely. And so, so, how, what do you predict, what do you all think about the next 6, 12, 18 months?

And how's that changing what you're doing or your business plan or buying or selling, or maybe you're not selling, but you know, how is that changing what y'all are doing? 

Elaine Stageberg: Excellent question. So some of the things that come to mind are data driven. So when we look at the average time between when the Fed starts raising interest rates and when they start decreasing interest rates, it's about 18 months.

So we're about 15 months into that cycle. Again, that's just the average, but past data, Predicts that soon we will come to a time of decreasing interest rates. And Jerome Powell said so himself, he had like a very elegant phrase. It was, don't quote me exactly, but it was like, I believe that the time of fiscal policy via interest rate increases is coming to a close.

So he didn't say, I'm lowering interest rates next time, but he had this very beautiful [00:36:00] sentence that basically said, I'm not gonna continue to lower interest or to, to raise interest rates. Um, interest rates typically go down during election years. Again, that's just data driven. Doesn't always happen, but it typically does happen.

We're gonna enter into an election year here in about six, six months. We're in a housing crisis in the United States that came from the 2008 crisis when builders left the industry and. Went and started other businesses, or became other professions and never entered the building trades again.

And so we're in this massive housing crisis where millions and millions of units behind. So it's very likely that US residential real estate is going to continue to grow in value as we continue to have a supply and demand problem. And then we're long-term investors. So, could it happen that real estate that we acquire in 2023 is somehow worth less in 2048?

Yeah, things happen. Is that likely? Probably not. And so because we have such a deep value add plan and then such a long-term hold, the, the things that happen in any given market have never changed our core business plan, which is to acquire as much real estate as we can. Do deep value add, do a cash out refi, manage it very, very well, and just keep repeating and repeating and repeating.

So I feel very optimistic. If I was doing things like flipping or other things like that, I maybe wouldn't feel as optimistic, but I feel really good. And then the psychiatrist in me says, I. All of economics is just a study of human behavior. And if we just, everyone's like, I don't know, maybe there's a recession, maybe there's not, maybe there is.

Like if we all just stopped talking about the recession, there probably wouldn't be a recession. And I don't, I don't have enough like influence in the world yet to just like tap everyone on the shoulder and say like, let's just stop talking about this because none of us are Sure. So in the absence of certainty, let's just choose optimism, but.

Maybe like next economic cycle, I'll be there. I I will have arrived at that stage. I'm not there yet, but I can plant a little seed in everyone's head that's listening right now. Like, just choose abundance and make wise [00:38:00] business decisions, but practice as though housing is in short supply. And if you own some of it, you'd probably come out ahead.

Yeah, no. 

Whitney Sewell: What are, what are some of the most important metrics that you track? 

Elaine Stageberg: Our chief metric is payback period. Can we acquire something, do a value add plan and get all of our capital back in about two and a half to three years? If we can get it in that five year buy box, we're likely to strike on it, but you know, we want it to be as quickly as possible.

So that's the chief metric for acquisitions. For property management, we have what's called our key performance indicator. I recommend anyone that's running a business have a very simple spreadsheet that you and all of your team members can understand. We run it in Google Sheets. It is nothing fancy.

There's probably about 50 metrics on there, so it's, it's enough that you can look at it and really understand it in about half an hour. You can't just kinda like look at it and instantly know, you can look at any individual number and instantly know, but you can get a really good sense of the whole business in about half an hour.

And it's things like, how many units do we have? How many residents do we have? What's our occupancy? How many units do we have in renovation? How many units are coming out of renovation in the next 60 days? Because that's gonna go into vacancy. Um, how many leads have we had in the past week? How many investor dollars do we have committed on our wait list?

Which is on and on, basically like different sections of how many maintenance tickets do we have. And we track all of those things so that at any given time, Nick or I can look at that spreadsheet and know exactly how the business is doing. Love that, that come straight outta s straight outta traction.

Whitney Sewell: Yeah. I, I love the, the detail that you're Yeah. That you all can go into and just the knowledge into the business. What about, uh, any daily habits or that have produced the highest return for you? 

Elaine Stageberg: It's crazy for me to say the me that was listening, two or three years ago would've been like, huh, I feel like he may be edited in a different woman there at the end.

But for the past year, I have made the commitment of being in the gym five days a week. And the first three months it was, it [00:40:00] was pulling teeth. I mean, every day I made up some excuse of, I can't, the business is busy, the kids need me. I'm tired. I didn't eat right, like just whatever. But I just committed.

And the thing I would say to someone who's trying to start a habit is the kind of the joke I would play with myself is for the first three months, all I had to do was go to the gym. I didn't actually have to work out, I just had to go to the gym. And like once you're at the gym, like you're probably not just gonna walk out, right?

You're like, well, I drove here like, I'm in my gym clothes, like, I guess I'll just go do something. So if there's something, maybe, maybe it's physical activity. Like say to yourself, I'm gonna do one minute of it every day for the next month. And then your brain will start to say, you know what? Let's do 10 minutes, let's find 20.

Hey, I bet we could do 30. I really enjoy it when I do weightlifting. I can do 45 minutes. So in the last three months, Compared to the first three months, in the last three months of this year. Now my brain is like, if I can't get to the gym, like what has to change so that I can be in the gym every single day.

I do weightlifting. That's something I've never done before. I'd always try. I've always tried to do cardio and I just could not like it, just no matter what I try, I just could not enjoy it, and I love weightlifting, and so I found something that that brings me joy and the amount of productivity I get out of maintaining.

My body and my blood sugar and my energy levels is just staggering. And it, it's a, I just share this because for 10 years I just believed that it was not possible. And it is, you just have to, you just have to commit to it. And like I said, those first three months were hard. I had to like, beat myself to get my own self into the gym, but then it became a habit

Whitney Sewell: I like how you just, just minimize the burden of it right at first to at least get in the high. But it's like, just get there. You don't even have to do anything. Yep. That's, I would 

Elaine Stageberg: tell myself as I was driving, I'm like, Elaine, you just have to walk in the door and then you have full permission to walk out of, be, talking to my own self.

And then when you're in the lobby, you're like, The, the lady [00:42:00] at the front desk is gonna think I'm pretty weird if I just walk away, I guess I'll walk to the locker room and then when you're in the locker room, you're like, I guess I'll put my shoes on. Right? Yeah. Like, just have fun with yourself, like give yourself humor and grace.

Whitney Sewell: I always like to ask, you already talked about this a little bit, but very last question is how you like to give back. 

Elaine Stageberg: We have our charity, the Saga, Berg Family Foundation. The three causes that are really on my heart are public places for people to play and children to run around safe green spaces, entrepreneurial education for young people.

Um, The way entrepreneurship has changed my family has, has just been, staggering very much like a rich dad, poor dad, mentality in our family and getting those ideas into the hands of young people as as much as possible. And then housing for women and children. Um, we're in a housing crisis.

There, there are not enough units, there are not enough safe, habitable units for everyone in the country. So how do we solve that? So those are the three, the three causes. That are on my heart and is thinking about, how can I chip away at those, right? Like, I, I can't do everything, but I built one playground and I can't do everything.

But we built one kitchen in a homeless shelter. It was a. Residential home. They just had a 50 year old residential kitchen and now they have a full scale commercial kitchen. So they're able to feed dozens of people every day. Like just think about what are the causes that are like deeply on your heart, and then how can you contribute, you know, even just a little bit.

Cuz if we all just contribute a little bit, then big things happen. 

Whitney Sewell: Elaine, it is been a pleasure to meet you and have you on the show just like it was your husband. Enjoy learning more about your old's business model and just your dedication to transparency and how you're caring for your investors and, and your tenants and your, your employees and all these things.

And just, you know how you all have implemented that. Values driven, thought, just into your organization, right? And just how you've, you've just been so dedicated to that, so grateful for that, your desire to give back as well. Thank you for sharing just many details, uh, about how you all operate your business.

I think we can all learn so much from you [00:44:00] all. How can the listeners get in touch with you and learn more about you? 

Elaine Stageberg: Our website is meet black swan.com. Meet black swan.com. It has our calendars, our newsletter, our Facebook community, our track record, our portfolio. Basically everything you'd wanna know is right there@meetblackswan.com.

And then if you just wanna book a call on my calendar and discuss something or talk about investing, I always make myself available for that as well.