Todays #RitterOnRealEstate guest is Paul Moore. After a stint at Ford Motor Company, Paul Moore co-founded a staffing firm where he was finalist for Michigan Entrepreneur of the Year two years straight.
After selling the staffing firm to a publicly traded company, Paul Moore began investing in real estate, founded multiple investment and development companies, appeared on HGTV, and eventually completed 85+ real estate Investments and exits, including a large multifamily development. He has contributed to Fox Business and is a regular contributor to Bigger-Pockets, producing live video and blog content regularly.
Paul also co-hosted a wealth-building podcast called How to Lose Money and he’s been a featured guest on 200+ podcasts. Paul is the author of The Perfect Investment – Create Enduring Wealth from the Historic Shift to Multifamily Housing and Storing Up Profits – Capitalize on America’s Obsession with Stuff by Investing in Self-Storage. Paul is the Founder and Managing Partner of Wellings Capital, a real estate private equity firm.
Key Points From This Episode:
- Stumbling into real estate in 2000 after working for Ford Motor Company and selling a staffing company.
- Early interests in real estate syndication.
- The importance of good margins when buying and selling deals.
- Acquiring assets from Mom & Pop sellers.
- The value-add opportunities that come with buying from Mom & Pop sellers.
- Undercapitalized and mismanaged deals.
- Why mobile home parks are underrated investments.
- Forced appreciation and why it’s important when investing in real estate.
- The importance of time management.
- Mastering the Market Cycle by Howard Marks
- The One Thing by Gary Keller
But if you can be a professional operator that pays a fair price, a more than fair price even to a mom-and-pop seller, and if you can add these valuable things, you can massively increase the value, the net operating income and the wealth of your investors.
[00:00:21] KR: Intro
Welcome to Ritter on Real Estate, the show about how to passively invest like a pro. On each episode, I interview real estate experts who give their top investing advice, strategies, and tools that break down the insights into practical steps to avoid the pitfalls and make better investments. I want to help you passively invest like a pro. This is Ritter on Real Estate, and I’m your host, Kent Ritter.
Hello fellow investors. Welcome to another episode of Ritter on real estate. where we teach you how to passively invest like a pro. Today, my guest is Paul Moore, Paul was he had a stint at Ford Motor Company and then went off and co-founded a staffing firm, where he’s a finalist for Michigan Entrepreneur of the Year for two years straight and after exiting that company, he went on and started investing in real estate. Now he’s contributed to Fox Business. He’s a regular contributor on bigger pockets and he’s co-host of a wealth building podcast called How to lose money. He’s also been featured himself in over 200 other podcasts, and is the author of a couple books. One is the perfect investment creating enduring wealth from the historic shift to multifamily housing and the other is storing up profits capitalizing on America’s obsession with stuff by investing in self-storage and finally, Paul is the Founder and Managing Partner of welling’s capital. So, Paul, thank you so much for being here today.
It’s great to be here. Kent, I’m really honored to be on your show.
Yeah, thanks and so obviously extensive experience and thought leadership that you’re putting out there and a ton of value you’re creating in the market, but give people a sense of where you started and how you got to where you are today?
Yeah, so I got an engineering degree. That was my first mistake. Then I got an MBA went to Ford Motor Company, like you said, and then after selling our company to a private to a publicly traded firm in 97, I sort of stumbled into real estate just because I was born in 2000. started flipping houses, then waterfront lots, then did a small subdivision, then did an online real estate business, which I still have running in the background and I you know, through all that, I was wondering how do I get involved in commercial real estate and I could never see where the onramps where I interviewed a guy once who had syndications. But that was kind of like a foreign thing to me. I don’t think that was really famous Kent, before 2012 or so just seemed like it was kind of in the background and now of course, lots of people, you and I and others are talking about it. But finally stumbled into commercial grade multifamily in 2011, when we built two apartment complexes, ran them as Kwazil hotel, Kwazil apartments in North Dakota during the big oil boom and went from there. So that’s how I got started.
Very good. So yeah, you jumped right in with both feet on just doing a development. Right off the bat.
Yeah, we didn’t know any better. I got funny story. I hate to tell it, but we were going to sell our facilities there. years after we were, you know, owning and operating these, the one of the buyers said, Where’s your rent roll? I said rent What? I didn’t know what it was, so that’s how much we were living in this vacuum of running this property. You know, we didn’t have any training or experience. But honestly, when you know, I mean, let’s, let’s say average rents around the country are $, maybe dollar [20sq] square foot per month, and we were doing $13 a month and getting it. So, you know, when you’re doing that, it can like you can be really sloppy and do well. Yeah. At any rate, I went from there to a mentoring program and actually learned what around well, rock rock roll and a lot of other stuff.
Awesome. Well, hey, man, congrats on that early success and yeah, sometimes it’s just about being in the right market. Right.
Right and it could have been the wrong market. Because if we got in and built that when oil was 110 a barrel, and then we had to operate it when oil was $28 a barrel, which happened after that briefly. I mean, it was in the 30s. After that. I mean, we would have been in the wrong place at the wrong time. But it just turned out the right place at the right time.
Timing is everything. Well, great, Paul in I mean, you see you’ve got this long breadth of experience. You’re putting out a ton of thought leadership and I know you just Have a really good perspective on the market and where things are at not only in multifamily, but in multiple asset classes. So just I want to start with just what’s your perspective on kind of where we are now with multifamily, and you can talk about others as well and, you know, where do we go from here? And then, and then let’s bring that back to what does that mean for our investors?
You know, I wrote a book called the perfect investment, as you mentioned, and we could circle back in a minute here and discuss why I believe multifamily is the perfect investment. I mean, based on demographics, based on math, based on all kinds of reasons. But for the last several years, I’ve been concerned that maybe it wasn’t perfect if we had to overpay to get there and so, I’ve concluded two things.
Number one, is not the perfect investment. If you have to pay such an outrageous price that you have no buffer for downside and your razor, your razor thin margins are, depending on inflation, to even ever get to profitability. That’s one thing.
The second thing I’ve concluded, I’ll say three things that first second, I’ve concluded that inflation might cover over a multitude of sins, as they say, meaning the news is full and the internet searches right now are just going crazy on inflation. Well, if inflation really does kick in the way it seems to be, it’s possible that those razor thin margins will be fixed and that makes a lot of people breathe a sigh of relief, I would imagine.
The third thing I would say, and this is the most important of the three is you can fix this problem if you know how to acquire assets from mom-and-pop sellers and for those you listening, if you don’t know how to acquire assets from mom-and-pop sellers, I highly recommend that you hit your wagon to somebody who does and invest with them. Because it’s a massive difference in at least potential outcomes. If you can do that one thing really well and Kent, I hear that that’s something you’re pretty good at.
Yeah, no, I appreciate you saying that and, and before this, I actually I didn’t know that that was your strategy as well. But mom-and-pop absolutely. I mean, that’s what I think that’s what’s differentiated us. That’s what’s made us successful and still able to provide returns that folks like expect, because they were getting three, four years ago. In the market. Right now. We’re not chasing the fancy shiny objects. We’re finding those that’s got diamond in the rough properties, and oftentimes, they’re smaller properties and more tertiary markets. But I agree. So, I totally agree with you. If you know how to do that you can still create a ton of value even in the market with where prices are today.
Right. Yeah, it is amazing. I mean, there’s I’ve written probably five or six or seven recent articles on this in bigger pockets. I think it’s so critical and if we have time, you know, I love to talk to you, your audience about why I think that’s so smart.
Yeah, I think it’d be great to go there. Because I mean, it’s critically probably not something that folks hear about is really the here what I’m doing, but not really the why behind this. I’d love your perspective.
Well think about this. Mom and Pop sellers, I should say operators, they’ve already benefited from a massive change in cap rates. Now, they may not even know what a cap rate is and that’s better if they don’t like the guy, I told you about who didn’t know what a rent roll was slim, easy pipkins. But anyway, seriously, I don’t I’m kidding about the easy pipkins totally. But what I’m saying is a mom-and-pop operator doesn’t have the desire, or the knowledge or the resources maybe or guy, maybe end all those three things to significantly increase income and to maximize value. Let’s face it can’t they don’t need to cap rates have done this forum already. If a cap rate was running, let’s say back in the day 10%. You know, they were making $100,000 profit in the form of net operating income from their property, they had a million-dollar property. Well, if the cap rates have compressed to, let’s say 5%. Now, their property just doubled in value to 2 million without them lifting a finger. They don’t have to go through the hard work of raising rents. They don’t have to go through the hard work of sub metering every unit to pass the water and sewer bills and trash and termites back to the clients back to the tenants. They don’t have to do all the stuff that you and I know to do to make an incredible profitable sale, all they have to do is keep being mediocre and I don’t mean in their mind, they’re mediocre, they’re doing what they’ve always done. But if you can be a professional operator that pays a fair price, a more than fair price, even to a mom-and-pop seller, and if you can add these valuable things, you can massively increase the value, the net operating income and the wealth of your investors. I mean, if you can take that same $2 million apartment I just mentioned, and you can add value to where that, you know, net operating income is no longer 100,000.
But 150, you might think, oh, wow, 50% increase in income, that’s amazing. But that can be three times increase in equity for your investors if you have 67% debt and that’s the power of using leverage. But it’s even better than that. Because in an inflationary environment, you can lock in your debt, the banker doesn’t get an inflation coefficient. So, if you can borrow money for 10 or 12 years, you can lock in your interest rate while your income goes up. It’s a massive win. It’s basically aligning yourself with the world powers behind inflation, behind global banking and behind all that stuff. It might not feel like you’re doing that. But you can do that and if you, do it by buying from mom and pop, it’s even better and I’ve got stories to back that up. But that’s kind of a quick summary of why I love this.
Well, yeah, and I think I’m seeing those you; things play out right now. I mean, day to day as we’re operating or looking at properties is, is the common situation is, you know, I kind of call them undercapitalized and mismanaged, right, where just didn’t have the capital to keep the property up and keep improving or keep innovating and in many cases, just keep up with deferred maintenance, right. So, things have just kind of fallen to the side and then the mismanagement often and I see the home runs, or when where we see these properties, which is more common than probably people think where the properties are 100% occupied, because the owner is managing for occupancy, they’re not managing for income and so, you come in there 100% occupied, but that’s really easy if you’re $200 below the market and so, we’re, we find those situations in different cities again, and again, and like those, that’s just it’s such an easy lift as we bring in professional management and just change the mindset of how it’s managed and those are the wins.
That’s absolutely right and sometimes they’re 70% occupied, but again, they don’t care they paid off their debt years ago, sitting on a cash deal and they don’t even care that it’s 70% occupied they’re living in Myrtle Beach or maybe they’re living right in the property but either way, they don’t want to fight the battle to maximize income but you and I do
yeah, that’s right. You got to you got to love what you do here if you’re gonna if you’re gonna be in the apartment space. So obviously, you know, we talk about in general, so multifamily so we start you start out by saying multifamily may not be the perfect investment that you obviously thought it obviously may be right you may be seeing some cracks and then you kind of get down into but this specific niche if as long as you can buy them right from this mom and pop still it still has room to run. But obviously take us back like back out globally. What is it about that you’ve you’re seeing about multifamily that that gives you pause or starts to starts to show the cracks for from what you originally saying of the perfect investment; Can you talk about that a little more and like what investors need to be looking out for?
Yeah, so I think if you read my book, especially chapter four and eight I give this powerful argument of my mentor taught me all this so I can’t take credit but a powerful obviously argument for why multifamily is the perfect investment and I think it is unless you have to overpay to get there and it’s just that simple. I was in Miami, Florida. At a conference it wasn’t even about multifamily, but this extremely famous multifamily syndicator that has a jet or two came up on stage and I was like whoa, what’s he doing here? I’m so excited to hear him speak. This was like three years ago and he got up there and he said a lot of stuff but the one memorable thing he said was multifamily is so hot, you can pay whatever you need to just get in Don’t worry about overpaying. Just get in and I literally thought he was joking and I was waiting. punch line like where he would say that’s not true, but he did. He was serious and I went home. I’m writing a book on Warren Buffett’s principles as applied to real estate investing and I thought man, Buffett would never say that Charlie Munger would never say that. Ray Dalio and Howard Marks wouldn’t say that. I thought these guys have got like combined centuries of experience compared to this guy. I think that this is going to be a really bad situation. That’s when I started rethinking and wondering, man, if there’s a lot of people and I saw one of his deals that had a 1.5% cap rate and I thought, Man, if people are really thinking that that’s okay, then we got a potential Carnage on our hands, you know?
Yeah. So obviously just like anything it can get, it can get a little, it can get too good, right. If you get to the point where, I mean, it sounds like, you know, it. It’s I guess it’s interesting for us to say this, because we’re in the space but the, you know, there there’s, it’s obviously frothy, right, and makings of a bubble situated where you have. I mean, just that comment in general kind of framing it you can pay whatever you want. I mean, that’s just, that’s not the truth. I think what we really know is, you make your money on multifamily when you buy it, and you have to buy it at the right price and if you’re if you’re not, then you’re constantly chasing, like you said earlier, inflation and you visit you’ve taken, like the thing that I love about multifamily and just commercial real estate in general, I just choose multifamily is that you can you can force appreciation, right, you can improve the income and as you improve the income, it creates value in the property, right. But if you if you buy it at too high of a price, then you’re basically taking all the control out of your hands, and putting all the control in the market’s hands, because like you said, you’re hoping for inflation, which you can’t control. Right and so that to me, that totally negates the reasons that I like commercial real estate and the fact that you can control the ability to create appreciation.
Right. I’ve talked to people who multifamily syndicators, who said, I was like, wait a minute, you’re buying this at a what cap, and you’re paying people out like 7%, a year from day one. How are you doing that? And they said, oh, we just over race, said what? I literally said that I remember where I was sitting at breakfast with a guy who have more experience than me years ago. Yeah. He said, yeah, we just raised too much and we just we just use that to pay investors for the first couple years and we know rents will catch up. I’m like, Dude, that doesn’t even like totally sound legal. But if it is legal, it’s not something I’d want to do.
Yeah, I hear you. I hear you. You hear those stories all the time? Yeah, absolutely. So. Okay, so we know that I guess where we’re at is it’s a market you have to be careful in. You have to you have to buy in the right way. There are still opportunities in mom and pops, but you’ve got to be much more selective, is oh is the general rule and so, as you are just switch gears a little bit as you’re you know, as you’re looking at this and as you’re looking at other opportunities, I noticed something that you mentioned previously was your like mobile home parks and mobile home parks or something that I you know, I also like as well haven’t made any investments yet. But so, looking all the time and so, talk a little bit about how mobile home parks fit into the equation.
Yeah, you know, there was a AD campaign I don’t know if you remember back in the probably the 90s and they were saying buy pork it’s the other white meat and I thought that was a little funny. Like Wait, is it really white anyway? mobile home parks are the other multifamily anyway. So, I actually love mobile home parks because it’s similar to multifamily. The math is similar the ability to force appreciation similar. Some of the things I like about it are number one, you have a joint partnership with your tenants, so an apartment building if somebody trashes it and leaves while they’ve trashed your property, if somebody trashes a mobile home in a mobile home park, if it’s Run well, hopefully that’s going to be their own mobile home, because they have the ownership of that home and they’re renting a lot from you. They’re basically doing a land lease with you. So that’s one thing I love about mobile home park investing.
A second thing is it’s the only asset class that I know of, that has a shrinking supply and increasing demand every year. There’s always demand for affordable housing and it’s getting worse. You know that $10,000; People turn 65 every day Kent; but six in 10 don’t even have $10,000 saved for retirement and so, a lot of them do have a lot of Home Equity though and they can train that home equity and they can buy a mobile home; they can put it on an in a nice park and they can live with low maintenance, their own little yard, their own parking space, and they can enjoy their life and so, there’s a massive demand for this and there’s also massive demand from people whose wages are not keeping up with inflation, which is going to be even worse here in the near future. There is no cheaper place to live other than your parents’ basement, then I mobile home park and so, the cost of mobile home lot rent is sometimes half or sometimes a third of what a single-family home and some apartments rent for. So, it’s really a powerful asset class. One more thing, I like it, very hard to move. If you it, very know, if you raise rents at a mobile home park, let’s say that the rents are 300 bucks, but the market is running 400. Let’s say you raise rents from 300, to 350, or even 400, or even 425. Not that you’d ever raise it that much at once. But they’re not going to like spend $5,000, to move their mobile home down the street to a different park, just to save 20 or 30 bucks a month, especially when they could raise their rents there soon as well. So, it’s very, very costly to move and this is actually a powerful aspect of this asset class. I want to be clear; I’m not saying we should use that as operators to take advantage of the tenants. I’m saying it’s just a fact that they just don’t move very often.
Yeah, it’s just if you’re gonna buy a home for what 30, 35000 it’s gonna cost four or 5000 a move. The math just clear; doesn’t work out there. Right
doesn’t make much sense. If you’re barely making payments on your $300 lot rent, you’re probably not going to spend 5000 to move.
That’s right. That’s right. Well, I mean, and compelling and I think I mean, the reason I bring that up, I wanted to talk a little bit about mobile homes just because, and this podcast is first about the investors, I want people to be aware of these alternatives and especially I mean, I agree with you, I think that there are dangerous multifamily investments out there right now, you’re not going to get the returns that you’re promised and so, it’s good to know about alternatives and other things to be looking into and like anything else, you got to educate yourself, but they are closely aligned. You know, they do share a lot of similarities. Yeah. So yeah. So, Paul, you know, before I let you go today, I want to hit on one other thing that that I know, you’ve written about and spoken about is this, you know, because, you know, again, back to the investors, I want to I want to educate people and I thought this is a really interesting topic of the secrets used by the So, super wealthy, to maintain and attain their So, wealth over generations, that kind of how, so one, what are those? I want to know one, but two, and how does real estate fit into that?
Yeah, so one of the secrets of the super wealthy is the commercial real estate value formula that you’ve probably talked about on this show before and that is just simply that the value is not dependent on the neighborhood, if I buy a $200,000 flip house, I put 500,000 in it, and now I got 700 in it, but it’s a $400,000 neighborhood, you probably won’t get that $700,000 plus a profit out of it. But in commercial real estate, it’s all based on math. We love the math; the value is the net operating income divided by the cap rate and though while you’re not completely in control of the cap rate, it’s based on several internal and other external factors. You can massively drive and force appreciation by using math to drive the NOI and there is actually a way to work with the cap rate as well by buying from mom and pops and selling to institutional investors. But that’s another story. So that’s one of the secrets of the super wealthy, the Forbes 400 wealthiest Americans almost all investing commercial real estate.
The other major reason is tax benefits. There are massive tax benefits of investing in real estate and so, you know, your listeners have heard of 10 to 31 exchanges, but there’s also doing it you know, bonus depreciation from cost segregation studies. There’s also swap to you drop, there’s the possibility of becoming a qualified real estate professional to actually use your losses against your normal income or your spouse’s normal w two income. There are all kinds of tricks of the trade. A friend of mine who had been in commercial real estate a couple decades said, I can show you how to take $20 million invested and reinvest it for 10 years and then at the end of 10 years start throwing off income to that investor, that $20 million investor at the end of 10 more years, 20 total years, that $20 million cash has been leveraged into a portfolio of $210 million and $131 million in income has been thrown off along the way. Now that amazement, what amazement more was that he said, it’s possible if perfectly maneuvered along the way that this investor might have paid zero in tax that whole time?
Hmm. Yeah, it’s powerful and that’s why I wanted you to go there and so, I think those reasons, I think we build a strong case today for, you know, whether it’s commercial real estate, multifamily, buying from the mom and pops, right. I love the idea of selling by for the mom and pops and selling to the institutions. Because, exactly, I mean, you like, you know, my strategy is to stop giving my secrets away. But yeah, that’s the right way to go and then and then mobile homes, which, which I love and the cash flow is great. You know, and so if that’s if that’s your focus, we mobile homes can be a great part of your portfolio. Absolutely. Well, Paul, before I, before I let you go, I want to put you through our keys to success. We have four questions; I want to ask you.
All right, let’s do it.
The first one is, so you’ve made a lot of investments to put your investor hat on and if questions; you could only ask one question to the deal sponsor, what is that one question that that an investor should be asking before they make an investment?
There are so many important questions and one I would ask of course; I’d ask about skin in the game and other things. But what I would ask is, tell me the disadvantages of investing with you and then listen hard for the way they answer that question. Disadvantages of potential downsides?
Yeah, that’s a good one. I don’t know that. We’ve heard that one on the show yet. So, appreciate you bringing that up.
And man, a guy who has a podcast called How to lose money talks about this crap.
That’s right, right. You’ve heard all of them. So, what are you most proud of in your career?
Yeah, um, I think the way I bounced back a number of times, I was a millionaire at 33 and I lost it. I can’t say I lost it all. But I was two and a half million dollars in debt exactly 10 years later and I was debt free, 13 months after that by applying some crazy principles that I’ve talked about here and there on other shows.
That’s awesome. Now, that’s a fantastic story of resilience right there and what’s a book everybody should read?
I really think a good one is mastering the market cycle by Howard Marks and he talks a lot about investor psychology. I’ve read it twice and really enjoyed it. Warren Buffett says he reads every word Howard Marks ever puts out. So, I thought that was kind of important.
Yeah, absolutely. That’s a great one and lastly, what is your number one key to success?
You know, there are several and when you told me, you were gonna ask me that, I don’t really know. I can tell you what I struggled with. Like I told my wife this morning, I told one of my best friends. I was like, I am always struggling with my time and so, my runner up book would have been the one thing by Gary Keller, because it’s talking about how to absolutely focus your time, energy and attention on one thing and I think that would be my key to success. It’s also been the place I’ve failed the most and that is learning how to harness and manage my time and focus on one thing at a time.
Yeah, I mean, that that is a struggle, I think for probably almost everybody, especially entrepreneurs, especially people that have their own businesses, there’s so many directions you’re pulled in and it’s sometimes it’s hard to know which things is going to provide the most value, you know, and be able to prioritize, yeah, so I definitely get that. Awesome. Paul, thank you so much for coming on the show today. If people want to learn more about you and what you’re doing, how should folks get ahold of you?
And I struggled for years trying to figure out how to get into commercial real estate. So, I’ve created an E course that people can get for free and they can go to my website, it’s wellingscapital.com, w e l so, i n g s capital.com/resources and when I say commercial real estate, I’m talking about large scale multifamily self-storage. mobile home parks, cell towers, etc.
Excellent and we’ll make sure all that’s linked so folks can reach out to you and get access to your amazing course. So once again, Paul Moore, thank you so much for being on the show and hope you have a great rest of the day.
Thanks, you too, man.
Thanks for listening to another great episode of Ritter on Real Estate. Hit the subscribe button to make sure you don’t miss out on the content that will make you a better investor. Also visit kentritter.com for articles, videos and tools curated just for passive investors from next time. This is Kent Ritter with Ritter on Real Estate and go out and invest like a pro.