Spencer Hilligoss  0:00  

If you just read the headlines, people are sitting there thinking, oh man, good time invest or bad time invest. And that is such a dangerous headspace to stop that, like, you don’t want to stop at that level of curiosity and I certainly did at that time I’ve maxed out my 401k not a bad idea. Coming into this 20 Year 2022 I believe in the following things I believe that people should always be investing. I believe that we will always be investing I also believe is the number two principle that you know what, there’s no such thing as a time when there’s no deals. There’s just fewer of them and they’re harder to find. brilliant person recently said as a kind of a third principle that I’ve integrated into our lives. It’s like, well, there’s no such thing as bad assets. There’s just bad prices.

Announcer  0:50  

Welcome to CRE PN Radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate coast to coast whether you’re an investor, broker, lender, property manager, attorney or accountant we are here to learn from the experts.

J Darrin Gross  1:10  

Welcome the Commercial Real Estate Pro Networks, CRE PN Radio. Thanks for joining us. My name is J. Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio. 

Today’s episode is sponsored by Building Insurance and Risk.  When you invest in real estate, work with the experts at Building Insurance and Risk.  You will receive multiple coverage offers with a side by side coverage comparison. To learn more, go to Building Insurance Risk.com. 

Today, my guest is Spencer Hilligoss. Spencer is the CEO and co founder of Madison Investing a real estate investment firm specializing in real estate syndications. As a passive investor and active syndicator. He understands the unique challenges that busy professionals face when starting out in their real estate investing journey. Spencer’s mission is to arm investors with a know how they need to make confident investment decisions tailored to their individual life goals. Prior to pivoting to real estate, Spencer held several executive roles in the financial technology industry, including positions at Intuit and gusto. forging a 13 year track record of building high performing teams across five companies, three of which are valued at over a billion dollars. Throughout his career, one thing has remained consistent his ability to keenly focus on professional development, helping teams and individuals reach their full potential. Spencer is a member of the 2021 Forbes real estate Council and has been featured in publications such as Business Insider, when he’s not shifting the way people think about investing, you can find him listening to metal, adding to his tattoo collection and jogging through the Bay Area with his wife and two sons. Ask him about the time he played on stage in San Francisco at the Vans Warped Tour. 

And then just a minute, we’re going to speak with Spencer about playing financial offense versus defense. But first, a quick reminder, if you like our show, CRE PN Radio, there are a couple things you can do to help us out. You can like, share and subscribe. And as always, we encourage you to leave a comment. We’d love to hear from our listeners. Also, if you want to see how handsome Our guests are, be sure to check out our YouTube channel. You can find us on YouTube at commercial real estate pro network. And while you’re there, please subscribe. With that on a welcome I guess. Spencer Hill gace Welcome to CRE PN Radio. 

Spencer Hilligoss  1:55  

Darrin, thank you so much. This is a wonderful way to start the day with you. So really great to connect. 

J Darrin Gross  4:15  

Well, I’m glad you’re here. And I’m looking forward to our talk. Before we get started, if you could take just a minute to share with listeners a little bit about your background.

Spencer Hilligoss  4:25  

Yeah, happy to. So as you mentioned, I’m out here in little island city called Alameda, and it’s in Silicon Valley. It’s actually right across from San Francisco and kind of tucked next to Oakland for those that don’t know that name drop. I wake up every day feeling kind of blessed and pinch myself right now because I get to serve the passive investors in our passive investing groups we have at Madison investing.com And that’s something I mean 2530 years ago, you know if I could go back in time Darren and say to myself, Hey, you’re eventually going to be running A an investing group in a private equity firm that helps people invest passively in de risks at forum a bit, I’d probably look at look at myself, thinking I’m crazy. Because I grew up in a real estate business working for my dad, he was a residential real estate broker for 30 years, I used to be embarrassed to say that because and, you know, friends are working at tech companies, as they kind of got into high school and beyond and telling them I worked in my dad’s real estate business was not exactly the cool thing to be doing, let alone working at open houses, you know, instead of going and hanging out with friends, you know, clearing out fridges, for properties that had to get prepared for sale, not very glamorous. So I did that. And it really scared me in technology. So I ended up getting into the tech companies. And I was there, as you mentioned, in that really thoughtful intro. I was in that for 13 years, and I cherished it, you know, I really did, I think a lot of folks in the real estate investing community, you know, bless their hearts, they tend to dig in and critique the corporate world and the WTO world. And that just wasn’t my experience. I mean, I frankly, had a very positive experience, there was times of immense challenge. Of course, you know, specifically when you’re leading and managing large groups of people, but all that to say, I ended up realizing and having some really key moments of decision along with site, my, my wife, and he’s also my co Oh, Jennifer, we had gotten to that point with great incomes, you know, working, you know, dual income household, and investing in maxing out our 401k is at the time, couple of young kids. And there was some key moments where light bulbs went off for me, after I joined a real estate tech company eventually. And I saw how well, some of these investors on the other sides of these deals, we were lending money to a lender, I saw how well they’re doing. And it really lit the spark for me, and I realized, Oh, we can invest for this thing called cash flow, and not just park our money in something that, you know, we are not going to be able to touch for 30 years without a penalty. So what happens when we do a bunch of these investments over time. And that’s really, you know, the kind of the tip of the iceberg for what led us to actually doing this full time. And helping hundreds of people that now invest with us, basically get in and get the memo earlier than I did if I could go back in time and kind of figuratively shake myself by the shoulders and say, Hey, dude, you can go there and do this differently, there’s a better way to go and invest because you can change your life. And you know, about five years ago, we set a goal for 15 years, we wanted to be financially independent. We chopped that goal in half. And then we had to whittle it down again, because we had achieved it. And now we’re just very grateful to wake up and help other people walk that same path today.

J Darrin Gross  7:51  

Well, I love the story, that’s quite a fascinating journey, you know, from the tech and kind of resenting your hair, your dad kind of thing, or at least, you know, not being really excited about the real estate, the way you were, you know, had experienced it, but then seeing the AHA, when you were looking or working with investors, and kind of, you know, catching the bug kind of thing. So tell me something that you mentioned. So five years ago, when did you start investing? We indeed you start passively. And then you said was it five years ago, I guess, give me a little bit more definition on the timeline as to when you first invested as opposed to when you started?

Spencer Hilligoss  8:32  

Well, we might good, he’s sorry. And it means good job. Now,

J Darrin Gross  8:35  

I just wanted to just for clarity on when you started be doing your own syndications.

Spencer Hilligoss  8:40  

Yeah, you know, I appreciate you taking it there. I think there’s three phases to it. You know, I, of course, I packaged it in three phases with Jennifer now because in hindsight, everything in life tends to be quite a bit clearer. Right. And Hindsight is 2020. As they say, at the time, it felt like navigating a maze. And, you know, trying to figure tively, grab a machete and just hack through every challenge and learning and the steak. And that’s just how learning tough new things goes. So we started off in 2016. I mean, we’d already you know, bought a home, of course, but we’re, you know, so many folks, we call that an investment. But that started all the way back in 2013. Buying a home in the Bay Area is not something that is easy to do. As you know, Darren, it’s like a pretty scary, massive price tag and event around 2016. I was working for this, this tech company that actually was also working with real estate investors. And that’s where I got that bug. Exactly. I think you said it. Well. I caught the bug. And I read like no joke. I read 24 books on finance and investing in real estate in 18 months, I listened to 400 podcasts that provided a wonderful foundation of knowledge, just like yours. And I think that the I don’t need to do that much education. I think some of the became procrastination before we finally went out and bought a duplex, you know, we still own this duplex now is our first real investment property, it costs us $430,000. And you know, that’s barrier pricing. Thankfully, it’s appreciated quite a bit. But it was producing $200 a month in cash flow. And that’s already a miracle in California, from what we know No. But that said that property took over $100,000 in cash, because of course, you get a loan on it. And that’s just as much depth as I’m going to give people. But that’s an important learning because that’s what scares most people. And they stop. And it almost scared us because we realized, we can’t keep doing this, we had some capital we’d built up from our jobs, but we couldn’t necessarily go out and do that over and over, we need our dollars to go further for us. And so phase one was just buying that going through those learnings, using a whole summer just to find that one property with our infant son in the car, it was not easy. Phase two, found the courage to look outside of California outside our local market. By long distance long distance rental ownership. We got up to five single family homes in Kansas City, Missouri. And different economics, that’s for sure makes people on the West Coast. Look at these with confusion and excitement. Now, people parts of both price tags purchase price, 60k $60,000 per property, and roughly $250 a month in cash flow. And your listeners probably know this. But just to make it clear, that means after everything else, that means after, you know taxes, mortgage insurance, all the rest. And so all of that 250 bucks a month sounded great. But phase two, as we call it, in that rent long distance rental ownership phase was really about learning Well, rentals or semi passive invest, even with a property manager. And I strongly believe in property managers and hiring them for that 10% Or, you know, more or depending on how many you have, most people are going to be paying at least that. But you still have to manage the darn manager. And if you own rentals far away, oftentimes you’re buying them in neighborhoods, you know, we would probably call those C class neighborhoods. So you’ve got higher turnover. So what happens when one of those properties goes from 100% occupied to 0%? occupied, because it’s a single family home overnight. And all the costs associated with that wiped out that 250 bucks a month for the whole year from one of them, right. So that phase really was about learning. And thankfully, we got out at a profit. And we went into phase three, because we had to find something that was more passive and two young kids full careers at that time still, but that’s when we you know, we were still like in parallel owning those properties. But we had already started putting money into syndications you know, and so price tag on those, you know, your your but the minimum of 25,000 bucks or maybe 50,000 bucks. And so our first one was 25. And that’s LP investing or limited partner investing the aka being a passive investor in syndications, you know, and so that’s when our my colleagues and my co workers in my day job, they started asking, like, what are you putting your money in, I thought you guys were just building this big rental portfolio. And I shared my enthusiasm for what we had landed on, because I’m an operations guy by trade, Darren, so like building teams and forecasting, I like predictability. And I just couldn’t get away from those economics of, well, single family home that we owned, occupancy goes from 100% to zero overnight, and person has to leave 400 unit apartment building? Well, we certainly can’t buy that ourselves. But there’s these other structures that people can do, where you can own a piece of it. And as long as you get over the ego hit of that, which a lot of people get stuck on because they want to be quote unquote, the mind, right. But we got over that and realized if we just didn’t invest that, we have to do diligence on the front to trust this other team, these other humans, and that’s the biggest risk on these, of course, getting the right teams. And that’s why we built a business around because we felt like we built such a clear, strong five part framework to do that for our own money. People were asking for us to help them go and figure this out for themselves so they could start that journey. And lo and behold, here we are in 2022. And now we’ve done 37 of those deals since Madison investing so it’s in 13 full cycle exits of properties going all the way to completion and sale at the other end. So it’s really been quite a journey, but that’s probably more than you want to

J Darrin Gross  14:52  

No, actually I appreciate the kind of the the detail because you know, I was definitely curious about how you got started and kind of the three phases. but more of the syndication and how I think the thing that I appreciate the most is how you, you, you, you mentioned in reference the kind of the ego thing, and that the when you’re going alone, it’s all yours. But if it goes to zero, it’s all yours too, right? That’s right. Whereas if you, you get a teammate or you become a part of a team, you can, you know, smooth out those ups and downs and be more passive, if you if you’d like to be, and the returns are more predictable. And, you know, I’m kind of curious, as you you said, 37 syndications, you know, 37, that you’ve invested in? Or have you? Have you been the the GP on any of those, or where are you at on

Spencer Hilligoss  15:51  

The 37 was actually not some of those We also invest in, because we do invest as part of our vetting framework that we commit to 100% of our investors 100% of the time. So we always put money in with the asset management teams that I ended up joining in the GP with on our active deals. And so those 37 are purely our active deals, which the majority of which our apartments syndications self storage, we also do self storage, those are my two areas of expertise that I try to stay in my swim lane on because I feel like that’s always just a guiding helpful principle in general for right investing and just life, which is stick to the stuff that you know, when the stakes are high stick to what you know. But we also occasionally work on niche stuff, that’s non real estate, but that’s really once in a blue moon. And so other than that, we will do fund models. So sometimes you’ve got we’re like, we’re just wrapping up a fund, which is really just the same economics, honestly, for the investors and anyone participating. But there’s seven apartment buildings throughout the southeast between Georgia and Florida compared to one syndication apartment, and in the same kind of market.

J Darrin Gross  17:01  

And that’s going to add another level of opportunity. But going to the syndication. So if I understand, right, so are you a GP on on any of the properties? Or have you created more of like an investment vehicle to where you’re raising money to invest in other investor led properties? Are you the principal and many of those?

Spencer Hilligoss  17:27  

So by design, there was this moment many years ago, when we formed medicine investing Darren, where, you know, a mentor of mine was like, into, you know, we’re trying to carve out the strategy, like, what role do we want to play because this is where honestly, I think 99.9% of aspiring active people in real estate, unfortunately, make a major misstep. And they tried to fly through this, this this key moment. And we sat there looked at our experiences, asked, what are we really great at? Where can we add value? And did we want to go out and become, you know, the next big apartment owner and compete with people in the single most competitive landscape? of commercial real estate and real estate history in general? Well, no, also, I can’t swing a hammer, I’m really good at like, what am I good, I’m going to partnerships. I’m good at team building good at economics and betting on the processes of a business, repeatable business, etc. So I bring all this up, because we decided, let’s go to join instead of trying to compete with them. Let’s go join these teams, and complement them. Because, you know, real estate professionals are great at what they do. And that’s often acquisition and asset management. And I live in the Bay Area, and I wasn’t planning on moving back out of California. We had a beautiful decade in Colorado, of course, but I think beyond that, we have roots here. Our kids are happy here and school, etc. So let’s go join these teams in the markets we love and the markets we love are far away from where we’re based. These places are in, we started heavily in Dallas Fort Worth, Texas, all the way across the Sunbelt east, you know, so majority of our portfolio is in Texas, all the way over to North Carolina, South Carolina, Georgia, you know, and once once in a while, more recently, we found great opportunities closer to our neck of the woods, you know, so we’ve done stuff in Boise, Idaho, Colorado Springs, Colorado, and Phoenix, Arizona, just to give some examples of we just want high growth markets that provide cash flow for the investors and you can’t really find that as much in my neck of the woods. And so I said well, we don’t live in a money. We don’t live in a deal state we live in a money state and and then it’s not intended to offend any of the California real estate investors. It’s just a different play. And so our investors are looking for cashflow number one and then growth and then tax efficiency and tax benefits and you know the in that order typically so It is a join and don’t try to go beat him. So we picked that strategy and it served us incredibly well. So I what I will do is just join GP teams, and they exist in their own, they can’t go buy most of these buildings at their stage, you know, without help from others, both on the equity capital, the investor capital, as well, as I know, you know, things like marketing infrastructure, you know, business sec, you know, any number of layers about business building and stuff. So, we help out on those fronts. But primarily, our core competency is bringing in investors that people actually want to work with, in but we don’t do that with a fund. I just joined them in their GP team. I’m also registered with FINRA. And that’s going to make zero sense to sue a lot of people. But for the the capital nerds, the investing nerds out there, my brother, and they’ll appreciate the fact that we did that in 2020 by registered with FINRA. And that’s just a fancy way of saying, voluntarily putting ourselves in a higher level of accountability and visibility, just like a person working at a bank would? Well, I have to disclose everything, it means that I can legally raise capital on a fund without having a fund of our own all that stuff. So I’ll bore people that otherwise they’re gonna be asleep before I mentioned anything else about securities laws?

J Darrin Gross  21:16  

No, I appreciate that. Because there is a level of scrutiny by registering with FINRA that, you know, probably most people aren’t aware of. It certainly will differentiate yourself, especially for anybody that is aware of or concerned about that because I think there is a fair amount of, I don’t say, a fly by the seat of your pants, but there’s a there is. Guys that are more focused on just kind of the deal, as opposed to, you know, following all the rules and stuff may not be as, as familiar with and or, you know, compliant. California, not trying to, you know, put anybody down or up or anything, but I’ve seen that there is there’s the deal. And then there’s also the the regulations and stuff that come by it. And I appreciate you, you know, going that extra mile and doing that, and I’m sure your investors do too.

Spencer Hilligoss  22:15  

Yeah, you know, and I really appreciate you saying it there. I mean, frankly, I think that you nailed it, I think fly by the seat of your pants is the nicest way that very tactical way to say that, they’ll take it a step further and just say it’s wild west out there, you know, it’s right. So it’s very wild west out there. And I think that that tends to be the case into a very, very heavy growth part of the cycle. And so we as I’m a black and white guy, I’ve always been, I strive to operate on integrity, and I strive to be very forthright, because in the end, whether you’re hiring an employee, you’re bringing on a new investor, you’re receiving capital, ranging from 25k, up to a potential million dollar check for us from a single investor for a single deal. I don’t think they feel comfortable with that unless there was literally everything spelled out and I wouldn’t sleep well at night, unless they were feeling comfortable going in on that, too. And so I think there’s a lot of folks comfortable taking those amounts of money for an investment, who are not doing things as rigorously and I don’t know how they’re able to relax?

J Darrin Gross  23:21  

Well, I think probably the the justification, if you will, is that by definition, you’re dealing with either sophisticated or accredited investors. Right. There’s, there’s a level of, of scrutiny that’s put more on the investor, as opposed to, you know, at a federal level, which is more of like a retail designation or level of scrutiny. Kind of thing. Yeah. And so, you know, the benefit of you taking it that seriously, and doing that, you know, that that level of, of certification or, or whatever the registration is, is that the investor? Or are you You were kind of bound by by more rigorous disclosure, all right things as opposed to somebody that’s just saying, Hey, if you can pass the test, if you if you have this much in assets or net worth, and it’s up to you, then you’re sophisticated, and you know, how this work, so that’s right. And so that’s that’s kind of differentiation. But I think it’s important that I think it’s to your benefit, and I’m certain that anybody that that is looking at something you’re presenting is probably able to differentiate the level that you’re providing as opposed to one that’s not whether or not they care that’s, that’s on them. But I would guess that anybody, you know, that is really kind of trying to tiptoe into this and try and figure out what they’re used to seeing and what they’re seeing there. Maybe a, you know, a gap, versus what you’re presenting might more reflect what you’re used to seeing.

Spencer Hilligoss  25:07  

Yeah, I think you’ve nailed it. And I appreciate you taking it there, because two comments that you made there, I think are worth just replying to specifically because there’s so spot on and you just don’t hear it very often, Darren, certainly in the private placement investing world was just kind of is the official term to summarize this whole category, right. And I would just say that disclosure, you know, disclosure is everything in this in this category, it’s everything. Because when you’re putting in like, like this is all speak personally from our own personal LP investing, limited partner investing or with our own money. We’ve done at least half a dozen, I think, I think actually with the count was getting closer to a, maybe nine that we’ve made personally this year. And in this passive investments that we made, and we just made the biggest one we’ve ever made. And when that stuff happens, you’re sending out a wire to invest in these funds. They’re predominantly illiquid, you know, and so people are not going to be able to pull this out just because they started feeling like the markets giving them the heebie jeebies. It’s, I look at that as a boon like that. That’s a good thing to me. And I understand that, could my money go away completely? Absolutely. That’s why it has to be plastered on, at least like I don’t know, 12 to 15 times in writing for any one of our investors before they join is like, Could your money go away? Yes. How many of our 37 deals as they happen? Zero. So you know it, that’s why the returns can be what they are, is that it’s not an FDIC insured savings account that has very low risk, hence, a low return associated with it. But they’re illiquid. And I think that that’s part of a learning journey for any new investor, or even an experienced investor is deciding in that moment. What is their risk tolerance for the for the more sweet and rewards and disclosures huge, making sure that you understand how experienced are these people that you met on the internet, potentially. And that’s why we have this five part framework that we use at Madison investing that we just built for our own purposes, for our own money, you know, its track record, approach, the team communications that you use in their values. And that’s just one of three big buckets of the who, the where, and the business plan like this kind of a, I don’t want to go too much too fast for folks. But that’s really the framework that we use, I didn’t come up with the highest version of that, you know, brilliant people far came along before me, said, You gotta go look at these deals and assess, you know, the operator, the market and the deal. And it’s those three buckets, I just, like layman’s terms to demystify the stuff for people and myself, it’s like, it’s really the who, you know, who’s managing the deal? Who’s working the deal? Who’s executing the deal, which is the single biggest risk for this category full stop execution risk. Number two, is the market, you know, are people going there and are their jobs? That’s kind of the big question mark. And number three is, what’s the story for that deal? Like, what’s the business plan? And then the number one thing I’ll say there, if they’re going to win long winded here is it’s about repeatability, you know, repeatable business process. And so just folks going in, if they’re evaluating this, if they’ve never done it before, education is key, you don’t have to do what I did with 24 books and 80. And, you know, 400 podcasts, that’s not reasonable for any human being, I was a bit obsessed when I first got into the category. But I strongly encourage folks to just take their time and educate and and start learning, because disclosure should be there, if they’re getting into these deals, and you should make sure you’re comfortable putting that money away for a while, because it’s not going to be something you can access at once there’s hardship, and that’s got to be able to do them in hardship. So sorry for the diatribe. I just wanted to arm some folks with the content.

J Darrin Gross  28:57  

No, I appreciate that. And, you know, I think I hit all kind of helps round out the story there. So it’s, you know, make sense her. So, we’ve talked a little bit about kind of your model. You’re raising money you’re investing with others. I’m curious in you kind of alluded to the WHO and and the where and the story what are some some key things that you found when you’re when you’re or that you look for when you’re trying to determine whether or not a particular syndicator is someone that you’re going to invest with?

Spencer Hilligoss  29:45  

Yeah, you know, I think I have the benefit of looking at so many deals and syndicators aka the sponsor, aka, you know, the the operator, the terminology in the space is always confusing to me and others. So I tried to demystify that by saying that’s all the same thing. You hear me say syndicator, operator, asset manager. And I know you know this, Darren, but maybe some of the listeners are hearing those distinctions for the first time. So if you were to put I like assigning numbers to things, because in business, it’s just helpful, you know, so this is not a scientific number, I’m gonna quote here, this is my rough estimate. If I am going in assessing how much of the right decision making a good decision, whether it’s Yes, let’s go or a hell yes, let’s go invest because it shouldn’t be a hell yes, it shouldn’t be just a yes or no. And at least 80, probably 90% of the relative importance of that decision comes down to the who. And oftentimes the big mistake that you see so many first timers on this just on these investments, and I get it man, I was the same way. They go to what they know. And what they know is numbers. You know, I’ll give a specific example of a very common type of investor we work with brilliant, you know, successful Senior Software Engineers, dual income making $400,000 each in a household, you know, and they come in and they zero in on the numbers, then they zero in on, I want to review, what’s the proposed rental increase in years 123. And we’re talking about a 20 tabs spreadsheet that has a probably 600 sales for the numbers. So they’re picking one. Why is that a miss? Well, because in the end of spreadsheets, there’s a love that quote, you see floating out in memes out there on the internet of more stories I’ve been told in Excel and PowerPoint throughout history. And that’s absolutely possible within real estate. And so what I’m saying here is that people can make a story, your numbers look very rosy, they’re missing the point. The point is, focus on the who. And the way that we do that is number one, their track record, have they done this before. And the business model is generally going to be find a high growth market, like we like places like Phoenix, Arizona, closer to us, or you look at Atlanta, Georgia, Raleigh, North Carolina, these are places where jobs, there’s job diversification, there’s people moving there, population growth is forecasted to go up and cetera. So you look at all that stuff, assuming that that’s okay. Has this team? Is there at least two to three of them, not one person? So there’s a redundant redundancy that’s managing this team? Have they done it enough so that they have a process around it? Have they bought a building, let’s say, pull the two levers to have to do value add, because we primarily do value added deals. And that’s renovations. New property management? So have they done that? Or the economics and that business showing profitability? are they producing those beautiful cashflow deposits that come into direct deposit every month, and now we have dozens of these things ourselves that we’ve invested in worked really hard to get through over time, and investors that have invested with us 10 or more times now over years, seven figures and up, and they’re getting these checks every month. So by the time that all happens, and at the very end, they have to sell this property, the operators have to sell this property, I bring all that detail up to give people some meat behind that answer so that they can understand they need to have done all that. At least, the team needs to have done all that, at least one time we’d much prefer and typically do expect more than that. But you know, I would say as a starting point, we do like working with newer teams. And why. Because they’re hungry, they often find deals that aren’t that big, big, well established three cycle operators out there. I know that some folks only investment folks who have gone through one to two, multiple real estate cycles. And I respect that fact of the matter is people looked at with a $2 billion portfolio of real estate who have been through that many battles don’t need your money. So they won’t ask and you won’t get access even if you do it. So the fact of the matter is, there’s great deals right in between that are life changing. And so we really try to find and partner with those types of teams. Because it’s a win win for all parties for the investors that want to participate on a risk adjusted basis, as well as really the team that is looking to bring on great investors that might want to come back and work with them again. So that’s a lot to process. Darren, I mean that and that’s literally why I think our business exists is it’s just we help with that entire process by just curating and vetting down to the team’s first or their own money and vetting those guys and then coming back down to look at the deal by deal basis. So that means one more thing I was going to share briefly was just saying that, you know, I think if you look at

one of the interesting learnings I did not expect is that there’s this notion of failure response. It’s a term that I just started using years ago in my corporate career when hiring for frontline folks So all the way up to directors VPs and above, and that was, is this team I have a blast this team that will ask us a team’s now when we’re vetting them is like, have they been through on pundit tell me walk me through a really challenging experience like challenging to the Corps, ideally in a real estate deal that didn’t go well. And when they got to figuratively kicked in the teeth, not to be too violent there, I’ll just say that, what did they learn from it? And like, how did they employ? How did they put those learnings into the actual business processes and the mandate of their business? Because if they haven’t been through pain, and all they’ve known is comfort and winning? I certainly don’t want my capital invested with that team, because I have no idea how much Britt they have, I don’t know how they are able to make decisions when they’re holding five to six, five to six digits of my invested capital, and they’re at the steering wheel are they’re gonna have rash decision making, because they can’t take the heat. So I appreciate you indulging me on that answer. I just, I wanted to get some teeth behind a couple of insights.

J Darrin Gross  36:06  

No, I think that that, you know, given your position, and anybody that’s looking to invest with you would want to know, you know, how, you know, some of the criteria you look for, and I, you know, I concur, though, it’s really easy to make the numbers look real sexy, and, and all that, but, you know, Upon execution and over time, or, you know, what’s the likelihood of that happening? And then, I think the who probably answers that more directly than, than just the pro forma kind of thing. So I appreciate that. So let me kind of go back to the, you know, the topic that I introduced here, and just kind of make sure we’re hitting on this. You know, I introduced it as, like playing financial offense versus defense. Yeah. And we know, we’re recording this in September of 22. It’s probably not gonna air until like, November. But the the point that I think is worth mentioning and worth asking and getting your your input on is just, you know, the the economic conditions are in flux. Interest rates have risen, and the Fed is committed to pushing those even higher in an effort to break inflation. At the same time, there’s a demand for housing. Investors are looking for real estate as a as an alternative to what they’re finding elsewhere. And so there’s, you know, the market is in flux. And my my question to you, and I’m sure the listeners would would appreciate, is kind of hearing your take on, you know, offense versus defense, with real estate as we go forward.

Spencer Hilligoss  38:03  

I mean, it’s, it’s clearly a fun topic legitimately. To me, Darren, I think it’s, there’s no right answer to what is going to happen because no one knows nothing, you know, as much as I devoured you and you read like, pot, not just listen to podcasts, but read reports, look at financials look at look at forecasts from the brilliant minds, way smarter than me out there, trying to predict to understand what’s occurring. But I stick to what I know and how I interpret things and read whatever I can. And I see 8.52% inflation as of the end of July. I don’t think I was not cool enough to know the August numbers. But I think you look at that. And to get context, I think most people when are right now, in 2022, as of this recording, looking at volatility and reading the headlines and kind of filled with a sense of dread, the same way that I was in, you know, more like the 2009 2008 time period, right. I was earlier in my career, but I had, you know, a job, I had a career that was burgeoning and all that stuff. So I was paying attention as much as the average person probably. And that’s while I was working at a financial tech company. That’s one of the oldest ones that does a third of the country’s tax filings every year. I’m talking about Intuit, and they make QuickBooks and TurboTax, etc. So you think I was really getting it and I was dumping money into 401k. And so I I bring that up because if you just read the headlines, people are sitting there thinking oh, man, good time invest or bad time invest. And that is such a dangerous headspace to stop that. Like, you don’t want to stop at that level of curiosity. I certainly did. At that time. I’ve maxed out my 401k not a bad idea. Coming into this 20 Year 2022 I believe in the following things I believe that people should always be investing. I believe that we will always be investing I also believe is the number two principle You know what, there’s no such thing as a time when there’s no deals. There’s just fewer of them and they’re harder to find.

brilliant person recently said, as a kind of a third principle that I’ve integrated into our lives is like, well, there’s no such thing as bad assets. There’s just bad prices. So, you know, the, these are guiding principles that I bring up. But to make it more tactical and useful for people, I’ll just say 8.52% inflation, what does that mean? That means that our dollars I my $1 that I might have in my possession, and it’s not invested in something, it’s dying. You know, I think that, you know, if I were to use the language from Gary Keller’s, book, millionaire, really real estate investor, which is not the newest one, but I really appreciate the amount of clarity it brings in this topic. He uses this this notion of like, dead money, Safe Money, wealthy and healthy money. And the return rates associated with those things go up over time. And right now, not only is my dollar dying to inflation, if I don’t do anything with it, it is rapidly losing value in the real world to buy things that such as food, such as gasoline, I know everyone already knows that, unfortunately, all these things. And so what changed? Well, the Feds raising those rates, not the same rate as a mortgage rate. I used to think that in 2008, as well, before I went down this learning curve, of course, but mortgage rates are going up. And I encourage folks to go take a look at financial offense in this context, what it really means errand to me and our family before we apply it over to businesses and you know, deals are, are we sitting there adding income streams to our household, there’s multiple ways to do that. I’m not dogmatic about it. And someone could invest in a real estate syndication as we do with our capital and help investors do, they can also go do that in a fun, they can do it in a number of ways. But does someone have a clear second goal on investing for income streams to financial offense. So some of our investors want more swagger walking into their corporate job, because they want to make a really cool new cutting edge proposal. And they know that boss isn’t gonna like it. So another 5000 bucks in passive income coming in monthly or on time, absolutely helps with that swagger. A lot of other folks just want to pivot out of their career, start a side hustle was part of the great resignation, that’s definitely accelerated. Other folks. Maybe at the other end, you mean, they’re basically going out at the end of a 30 year business, they built themselves, trying to get out passively moving their real estate portfolio or their business into something that will support them through their retirement, golden years all the way through, you know, and so that’s the financial offense is just going out there and saying, I’m not going to sit around and wait for our money just to somehow magically take care of our lives. And we want to build passive income, and we want to do stuff that will grow and exceed the inflation rate it has to otherwise money is dying. On the defense. That’s a comment on two things. It’s really a matter of number one, can’t really escape the notion of frugality. I don’t believe in you know, in giving up coffee, I’m just not that guy. I love my coffee. I’m not giving it up. I do believe in driving used cars, we’ve had used cars for years I we lived in our first home for nine years. And well outgrew it years before that, we just don’t need to keep up with the Joneses as a principle that we don’t care about that. We’d like experiences want to be great parents want to help those around us and help and lead our business effectively. The real comment for financial defense would just be massive lightbulb learning for folks out there. And for myself, certainly in our own journey. I was making great w two income, and roughly half of that was going to the federal federal estate tax. And that’s something that I thought was fixed in life. And that is not the case. You know, I realized over time, I can go add these income streams. And we can keep more of what we actually make, as long as we’re doing it, adding income streams that are more tax efficient. And, you know, I don’t look back fondly on the number of checks that I saw where I was like, oh, there’s that fixed amount of money going over to taxes again, and again and again, every paycheck and then every tax season. We don’t celebrate rich tax refunds in this household anymore. Because it’s if that’s mind blowing for some folks, you’ll probably in the same place I was the beginning of the journey. Your tax dollars could otherwise be in the meantime, before you pay that bill invested in something that’s growing and outpacing inflation right now. And so that’s the type of stuff financial offense and financial defense that we are very focused on and trying to encourage and helping others navigate that path because it’s scary. It is scary. You know, I get it, but don’t let that stop you. I think folks will benefit from a very loving well intended to kick in the butt to go take action on that front.

J Darrin Gross  44:51  

No, I appreciate that. I think, you know, the offense in the defense. Definitely keep learning and and you an offense kind of that financial security can I mean, that’s the goal was to have some sort of, you know, cash flow that makes everything else, you know, less important, as far as like critical to your to your ability to live in a way that you’d like. am curious, the investors that you’re working with, is there an ideal or kind of like, a sweet spot that you found? For somebody that, that you work with? That and I’m talking about people that are investing in your, in your deals? Or in your fund? Can you kind of, you know, identify what would that that investor or that person look like? 

Spencer Hilligoss  45:48  

Yeah, I think, you know, it runs the gamut. Now, where folks are truly all over the country, you know, away from East Coast, West Coast. But it started out in my own network as attended to so we have a very strong representation of technology professionals, you know, on the business side, whether it’s, you know, your business leaders, like executives, maybe. And then on the tech side, you’ve got more product managers, software engineers, all the rest, I would say that that’s kind of the, if you were to call it a profile of our ideal customer profile ICP. Number one is people that are working full time, but making very strong income, and they don’t need to invest to live a great life financially, take care of those alone. So those folks are generally investing for cash flow first. The other profile we did out a second one a couple years ago, because now we have quite a few investors. And this is accelerating even just this week, we brought a new one just yesterday. We have really entrepreneurs, like multi decade, multi Generation Entrepreneurs. And so these folks have done incredibly well. I mean, whether it’s a wholesale business owner of 19 years that I got to know yesterday, we have a very seasoned repeat investor of ours is more in the metal recycling business. Third generation, you know, like, that is interesting, because the purpose is for this in every every person in between that you can imagine whether we have, we have multiple military folks, you know, a pilot technic, a jet technician who’s just smarter than I can even fathom, he fixes jets and flies and to make sure they work. So that kind of a hero in my book that said that, that other profile, they don’t need cash flow to live. They have one, you know, they they pulled it off, they fought their battles, they built an incredible business, they’re selling that thing, or they’re offloading the real estate portfolio they built over decades, they just want to have killer tax benefits and have some diversification away from their other holdings typically, because they also usually have a really sizable equities or stock portfolio. And so those are kind of the two, that we do our best to go out of our way to serve with educational content to supplement the deals that they invest in with us and those deals that we present. They’re ones that typically aligned to those, those goals.

J Darrin Gross  48:10  

And I appreciate you sharing that. And I’m curious, if you the when you meet a prospective investor? Are most of them already warmed up to the idea of real estate? Or is there a learning curve? And kind of a resistance? Or? Or is there a time to become educated that, that it doesn’t take a while for them to become educated and willing and wanting to invest with you?

Spencer Hilligoss  48:41  

Gosh, I mean, that’s a really good question. I would say that many folks in our shoes in comparable businesses, you know, because I mean, I would say that they try to create content that starts with someone all the way from basic zero, right? From No, no awareness of real estate. And, I mean, the fact of the matter is, I don’t think in 2022, it’s wise for any person, as a prospective investor, or even a consumer of a product. You know, if you’re gonna go by, like, I just caved in and finally bought a new guitar that I wondered, for a long time recently as a hobby. I researched the heck out of that thing, because the internet’s a wonderful place in that regard. It’s weird and some others, but it provides you all the information you need. So I didn’t have to talk to a human before I paid more for a guitar than I’d ever have to ever think I’d be able to or want to invest. And on an investment like this, there’s just some work people got to do. I mean, I don’t want them to jump in not understanding. Not only is that irresponsible on my part, no one’s gonna sleep well at night, if they jump in dropping $50,000 into an investment they don’t understand. So we do provide educational content that’s robust. However, it’s up to the investor if they want to actually read any of it or watch a video or throw me questions and I will feel those questions any day of the week. I mean, I have actually a backlog of emails from from last night in this morning just from folks that have been reading our newsletters. And now Now they’ve kind of got I mean, I’m using this is not their words, their mind, they said, Hey, I’d really like to kind of just ask you some more specific questions. I’ve been watching the videos and reading your newsletters and understanding stuff for a while now. But are there any additional resources, I’m just going to send the guy a quick recording and ask him if he wants to set up a call, he certainly can. That’s the level of insight that I think most folks really cherish, that they cannot find easily is sound boring with another passive investor who’s actually done a lot of these themselves. And that’s really the value that we try to provide, because you can, because anyone out there can now go Google and just say, you know, what is this indication, you know, what is a fun? What’s passive income, and there’s going to be 1000 different resources, and so that that area is well covered. But we are launching for the first time ever, in two weeks, actually. So perhaps, you know that this is in September, so by late September, we’re launching a very cool new resource, I am so fired up about it, and long awaited, and it’s a blueprint for passive investing, it’s free. People didn’t come to our website at Madison investing.com. And basically come in and just and download that and said, so that’ll be out in just a couple of weeks.

J Darrin Gross  51:17  

Awesome. Hey, Spencer, if we could, I’d like to shift gears here for a second. Yeah, as I’ve mentioned, and we’ve talked a little bit by day, I’m an insurance broker. And I work with my clients to assess risk, and determine what to do with the risk. And there’s three strategies that we typically consider the first look, see if there’s a way we can avoid the risk. When that’s not an option, then we look to see if there’s a way we can minimize the risk. And when we cannot avoid nor minimize the risk, then we look to see if we can transfer the risk. And that’s what an insurance policy is. It’s a risk transfer vehicle. And as such, I like to ask my guests, if they can look at their own situation, could be clients, investors, tenants, the market interest rates, politics, how are we you would like to frame the question, and identify what you consider to be the biggest risk. And again, while I am an insurance broker, I’m not necessarily looking for an insurance related answer. And so if you’re willing, I’d like to ask you, Spencer Hill, what is the biggest risk? 

Spencer Hilligoss  52:29  

Oh, my goodness. I love that question. And I say my goodness, because it is such a intelligent question. And I wish that someone could really couldn’t go back in time yet again, and tell myself that every decision in life is a risk decision. Without exaggeration, and you and you already know this far, far better than I do because of your experiences, which is amazing. And I respect so much Darren, walk out the front door, you’re making a risky decision, you know, drive your car and make an arrest decision. What is the biggest risk? I think the biggest risk as ethereal as this sounds. And I’m happy to drill down and make it less ethereal and make it more pragmatic or useful for people if they’d like, but this is genuinely what I believe. I think that the biggest risk posed to most people in life right now is a lack of curiosity. And what I mean by that is a lack of curiosity about their sources, like we’re talking financially, of course, I would say they’re not curious about how they make money and have what what is their money do like what they work for it. They know that they know what their income is, they know that they aren’t really curious about well, do I need to does this have to be the way that I do this? What I’m curious, can I am I a human as a professional, capable of doing a different thing? Can I go do a side hustle? If I don’t have any money? Could I be capable of generating a capital engine, fancy way of saying simply a way to build more investable capital outside my day job, which is more which is where most wealth is built. It’s not in people’s salaries. People don’t build their net worth. In their day job. They build their net worth, by going out and building a business by going out and investing by going out and doing something on nights and weekends by It runs the gamut. And there’s so many wonderful ways to go do that, that are free to start with and educate on now, like college courses. Sure. I’m talking pragmatic stuff. And so I encourage people to find a curiosity and that includes, I thought taxes were boring. I don’t think they’re always fun, but I certainly think they’re pretty fun now compared to many years ago, and most people would hear that statement and think I’m absolutely crazy. And that’s fine. But get sure is about your money and get curious about what you’re capable of, if you are not happy with your circumstances, or if you don’t have a plan B, C, D, E, F, to insulate yourself against the other many risks in the world. And so maybe I don’t know if that’s necessarily barking up the completely wrong tree in the wrong forest altogether. Darrin, but that’s, that’s what I chalk up if I had to give a single answer to what’s the biggest risk is a lack of curiosity and people just sitting there to do the same thing over and over working hard, truly, is not working smart.

J Darrin Gross  55:32  

No, I think there’s a lot a lot to that what you said, lack of curiosity. And, and, you know, I certainly fall victim to that. On occasion, it’s easy to do what you did, because you know how to do it. I kind of thing, but you also know what the results are, you’re gonna get and you know, if that’s all you want, maybe that’s, you know, maybe there’s, maybe you’re, you’re fulfilled, but I think that it’s part of the human condition to be curious. And, you know, to have a rich life, there’s gotta be some curiosity, and some effort put to learning something new, trying something new doing something different. And who knows, you might find something you you hate. But you might find something you really, really like, more than, than what you already know. So I applaud that. But he Spencer, before we wrap up here, where can listeners go? If they’d like to learn more connect with you?

Spencer Hilligoss  56:31  

Yeah, this has been a pleasure. Thank you, Darrin. really thoughtful questions too, right. So our website, best place to find us, MadisonInvesting.com. And that’s Madison investing with an ing.com at the end. On there folks can go and we got some content that’s just educational, available, blogs and cetera. But also, folks can sign up for our monthly newsletter. It ain’t fluff. It’s useful. You know, I do write those along with Jennifer and we put a lot of work into them. But we’re are launching this new resource of passive investing blueprint. That’s from our own journey, you know, and after speaking with hundreds and hundreds of very successful and new and experienced passive investors, so that’s the best way to reach out if folks are on LinkedIn. I’m also on LinkedIn. But yeah, thank you so much, parents. This has been a blast.

J Darrin Gross  57:25  

No, I’ve I’ve thoroughly enjoyed myself. And I learned a lot here and I look forward to doing it again.

Spencer Hilligoss  57:34  

Likewise, thank you. 

J Darrin Gross  57:35  

All right. For our listeners, if you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow? That’s all we’ve got this week. Until next time, thanks for listening to Commercial Real Estate Pro Networks. CRE PN Radio.

Announcer  57:56  

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