Podcast Summary
Long-term Perspective in Real Estate Investing: Build a solid financial foundation, start small, and have a clear end goal when investing in real estate. Understand finances, pay back investors, and consider no money down options.
Key takeaway from this episode of the Bigger Pockets Podcast is the importance of having a long-term perspective when it comes to real estate investing. Mikey Taylor, a former professional skateboarder turned real estate investor, shared his journey from quitting his job to build a budget, meeting with a financial adviser, and eventually starting his own fund. He emphasized the value of understanding finances and building a solid foundation for investing, even when faced with initial resistance. Another key takeaway is the importance of starting small and gradually building momentum. Mikey began with passive investing in real estate, then moved on to buying his first property, and eventually building a fund. He also highlighted the importance of having a clear end goal and understanding how to pay back investors when raising money. Lastly, the episode took place at the Spotify Studios in downtown Los Angeles, and the quick tip provided was to always start with the end in mind when it comes to real estate investing, especially when raising money. This means knowing how to pay back investors and considering no money down options, such as rent-to-retirement, for acquiring properties.
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Fear of uncertain future and personal discipline shaped Mikey's extreme frugality during skateboarding career: Mikey's lack of formal education and uncertainty about future led to fear and discipline, driving him to save 20% and avoid lifestyle inflation despite low income as a skater.
Fear of an uncertain future and personal discipline played significant roles in Mikey's extreme frugality during his skateboarding career. Mikey, who became a city council member after his skating career, initially struggled financially as professional skaters don't make a lot of money. He tried to maintain a 20% savings rate and control lifestyle inflation. However, when he had his first child, his wife encouraged him to buy a more practical car. Mikey's frugality was not common among his skater friends, who started making more money and spending it extravagantly during the skate industry boom in the late 2000s. Mikey's background without a college education and uncertainty about life after skateboarding contributed to his fear and discipline, leading him to prioritize savings and investments.
Following passions and unconventional financial strategies: Turning down college to pursue a passion for skateboarding led an interviewee to invest in real estate at a young age, building wealth despite making only $800 a month.
The interviewee's determination to pursue his passion for skateboarding led him to make unconventional financial decisions. At a young age, he turned down the opportunity to attend college to travel the world and build a career in skateboarding. His parents, concerned about his financial future, connected him with a financial advisor who introduced him to real estate investment. Despite making only $800 a month at the time, the interviewee was encouraged to invest in a storage portfolio due to its recession-resilient nature. He began receiving quarterly dividends and continued to invest, eventually building wealth through real estate. The fear of missing out on future financial opportunities due to his decision to not attend college drove his parents' emphasis on money management. The interviewee's experience demonstrates the importance of following one's passions and the potential benefits of unconventional financial strategies.
Financial security through dividends or business income: Achieving financial security involves various sources, including dividends and business income, each with unique challenges and requirements.
Financial security and independence can come from various sources, such as dividends from investments or income from a business. For the speaker, the idea of receiving consistent dividend payments brought a sense of security and alleviated fears of financial instability. However, starting a business, like a craft brewery, presented a new set of challenges and required raising significant capital through multiple rounds of investments. Although the processes and structures differ between real estate syndications and business investments, the goal of achieving financial security remains the same.
Raising Capital for Real Estate vs. Business: While both require clear exit strategies and ROI, real estate calls are reactive, business calls are proactive, and branding is crucial for businesses.
While raising capital for a real estate project and raising capital for a business share some similarities, such as making clear the exit strategy and return on investment to potential investors, they also have significant differences. Real estate capital calls are typically a response to unexpected expenses or issues, while business capital calls can be part of the process to reach an exit. Additionally, in real estate, the exit and return of investment are more clearly defined, while in an open-ended fund, showing a definitive exit timeline can be challenging. When building a business, it's essential to differentiate it from competitors by marketing a strong brand, as the craft beer industry lacked branding when the speaker started their brewery.
Creating a unique California lifestyle brand through skaters, surfers, and snowboarders: Successful branding involves creating a unique experience and lifestyle before consumers engage, using community building and social media to stand out from competitors
Building a successful brand involves creating a unique experience and lifestyle around it before consumers even step foot in a store. This was the strategy used by the founders of a California beer brand in 2012, who raised money from skaters, surfers, and snowboarders and marketed the brand through documentaries on their California lifestyle. This approach created a strong community of followers and set the brand apart from competitors. Social media played a key role in promoting the brand, as it was still a new and effective marketing tool at the time. The success of this brewery led to the founders' entry into other industries, including real estate, where they continue to apply the same model. However, in today's world where social media is more saturated, standing out requires being better than competitors rather than just being present on social media. The founders are currently attempting to replicate their success in a new asset class or industry.
Investing in multifamily real estate with a value-add strategy: Focus on creating apartments that cater to younger generations and follow trendsetters in up-and-coming neighborhoods for successful investments. Value-add can range from light improvements to complete development projects, depending on market cycles.
The speaker started investing in multifamily real estate with a value-add strategy, focusing on creating apartments that cater to the needs of the younger generation. He believed that following the trendsetters, or "creatives," in up-and-coming neighborhoods would lead to successful investments. Value-add in multifamily real estate can range from light improvements like painting and landscaping to more extensive renovations that significantly increase rent or even involve redevelopment and new construction. The speaker's business now primarily focuses on complete development projects, where they scrape and build new properties. Although it's not always the case, there are cycles where tearing down and rebuilding can be more cost-effective than renovating existing structures.
Understanding Yield on Cost vs Cap Rate in Real Estate: When considering between buying an existing property or building new, evaluate the yield on cost vs cap rate spread. A smaller spread may indicate it's more profitable to buy, while a larger spread can justify building. Typically, aim for a 250 basis point difference, but larger investors may require more.
In real estate investing, understanding the relationship between yield on cost and cap rate is crucial. If the yield on cost is less than the cap rate, it might be more beneficial to buy an existing property instead of building new, as you could get a higher yield by purchasing. However, in markets with undersupply and high demand, building new units can still be a profitable option, especially when you can add value through product or location. The desired spread between yield on cost and cap rate is typically around 250 basis points, or about a 2.5% increase. Larger investors may require even larger spreads to justify the additional risk, time, and expenses involved in building. By quantifying risk and understanding the potential rewards, investors can make informed decisions and mitigate fear. Currently, the market offers less risk but potentially lower returns compared to a year and a half ago, making it essential to weigh both factors carefully.
Understanding the context and potential returns of high-risk investments: Properly evaluate high-risk investments by considering context and potential returns, access reliable data, and communicate effectively with insurance companies.
While some investments come with higher risks, it's essential to understand the context and potential returns. A high-risk investment in one asset class, such as tech or real estate, doesn't equate to the same level of risk in another. It's crucial to evaluate each opportunity individually and not let the term "high risk" deter you without proper context. Moreover, having access to reliable and comprehensive information is crucial for making informed decisions. Tools like DealMachine can help streamline the lead generation process and provide valuable data points, making it easier to assess potential opportunities. Lastly, don't let slow-moving insurance companies hinder your progress on closing deals. Be proactive and communicate openly with them to ensure a smooth process. By staying informed, prepared, and adaptable, you'll be well-equipped to navigate the world of real estate investing.
Efficient Landlord Insurance Solutions from Steadily.com: Steadily.com offers fast, affordable landlord insurance online with next-day coverage and high ratings from landlords. Consider supply and demand ratio and long-term perspective for successful real estate investments.
Modern investors deserve efficient and effective solutions for their insurance needs, especially in the landlord industry where long lead times and paperwork can cause significant delays. Steadily.com offers a solution with fast, affordable landlord insurance available online 24/7 and even next-day coverage. Additionally, understanding the unique needs of the landlord industry is crucial, and Steadily's focus on this sector has resulted in high ratings from landlords nationwide. Another key takeaway is the importance of considering the supply and demand ratio when investing in real estate markets, as this can impact the long-term success of an investment. Lastly, having a long-term perspective on investments and ensuring demand for the property over an extended period can lead to successful and profitable outcomes.
Providing value in a niche industry leads to opportunities for growth: Focusing on the basics and providing value to your audience can lead to partnerships, deal flow, and new income streams in your niche industry
Building a successful business in a niche industry involves providing value to a diverse audience while remaining true to your core mission. The speaker, who started by sharing financial education on social media, grew his following by offering valuable insights on budgeting, credit building, and investing. This led to opportunities for deal flow and investors, causing his brand to grow rapidly. The speaker then formed a partnership with an experienced management company, expanding their business to include a debt fund. By leveraging their existing knowledge of the multifamily and storage asset classes, they were able to add a new income stream with minimal learning curve. The success of this venture led to further growth and expansion. Essentially, by focusing on the basics and providing value to his audience, the speaker was able to build a strong foundation for his business and attract opportunities for growth.
Investing in distressed properties through a debt fund: Scaling returns in distressed property investment through debt funds involves lending money for profit and receiving interest. However, taking over underperforming projects may require significant resources and effort, and cities may resist conversions due to economic impacts.
Investing in distressed properties through a debt fund involves both rewards and challenges. While it can be easier to scale and earn consistent returns when loans perform, taking over projects that don't meet expectations can require significant time, resources, and effort. The debt fund raises money from investors and lends it out for a profit, with interest paid back to the investors. However, if a project fails, the investor may experience a delay in receiving their capital back. The fund's team aims to identify distressed properties, such as old Kmart buildings, and convert them into storage facilities. Despite the potential benefits, cities often resist the conversion of vacant retail spaces into storage facilities due to the loss of sales tax revenue and employment opportunities.
Boosting city taxes and jobs with retail anchors, then selling to self storage developers when they leave: Retail anchors like Kmart can bring city benefits, but when they leave, self storage developers can convert vacant space into profitable businesses, offering city economic boosts and ROI for developers.
Having retail anchor tenants like Kmart in a city can significantly boost property taxes, create jobs, and generate revenue for the city. When these retail stores close, the city may choose to sell the property to self storage facility developers, who can convert the vacant space into a profitable storage business. The motivation for selling to self storage developers is often due to the difficulty of finding a new anchor tenant, especially if the property has been vacant for an extended period and has become distressed. Self storage facilities can be more cost-effective to develop than building a new storage facility from scratch, making it an attractive option for developers. Typically, a self storage facility in a former retail space would require around 100,000 square feet and could accommodate between 112-150 units, depending on the layout. The conversion process involves clearing out the old retail space, making structural modifications, and installing climate control systems, among other improvements. The end result is a vast storage facility with endless rows of units, offering a significant return on investment for developers.
Planning and financing self-storage development: Successfully developing self-storage facilities involves careful planning, strategic financing, and navigating rezoning processes to achieve returns in the 15-20% range.
Successful self-storage development requires careful planning and strategic financing. The process involves hiring engineers and contractors to convert or build out the facilities, with costs often totaling in the tens of millions of dollars. Returns on investment are typically expected to be in the 20% range, with current targets around 15%. Sources for potential deals include brokers and development partners, with occasional opportunities arising from distressed properties. Navigating the rezoning process can be challenging, but having a clear financial goal in mind from the outset is crucial for finding the path to success.
Elements for Achieving Success: Clear Goals, Consistency, Discipline, and Unique Selling Proposition: Set clear goals, maintain consistency and discipline, avoid lifestyle inflation, and find a unique selling proposition to achieve success
Setting clear goals, maintaining consistency and discipline, avoiding lifestyle inflation, and finding a way to stand out from the competition are crucial elements for achieving success. Starting with the end goal in mind helps ensure that all actions align with the desired outcome. Consistency and discipline are essential for making progress towards that goal. Lifestyle inflation, or the tendency to spend more as income increases, can hinder financial freedom. Finally, finding a unique selling proposition or separation factor can help differentiate a business or project in a saturated market, creating a "blue ocean" opportunity. These principles, as discussed by Mike, can be applied to various endeavors and industries. For more insights on consistency and discipline, listen to episode 810 featuring Greg Harden, Tom Brady's performance coach. To learn more about Mike and Commune Capital, follow him on social media under the name "Mikey Taylor" or visit the website communecapital.com.
Authenticity and Consistency in Building a Personal Brand: Stay true to oneself and prioritize authenticity and consistency in building a personal brand. Mentors can also play a significant role in shaping one's career.
Authenticity and consistency are key in building a personal brand, as discussed between Mikey and David. Mikey, known for his spicy hot takes on TikTok and Instareal, emphasizes the importance of staying true to oneself, while David reflects on the importance of a name that reflects his personality. The conversation also touches on the importance of mentors, such as Rob Dyrdek, in shaping one's career. Despite the different approaches to social media and personal branding, both Mikey and David agree on the importance of authenticity and staying true to oneself. Additionally, the conversation highlights the importance of mentors and the impact they can have on one's career.
Rob Dyrdek's constructive criticism pushes St. Archer Brewery to improve: Constructive criticism can lead to improvement and success in entrepreneurship, even if it's initially difficult to hear.
Rob Dyrdek, a successful entrepreneur and mentor, challenged the founders of St. Archer Brewery with unexpected criticism during their pitch, leading them to reconsider their approach. The mentor's harsh feedback, initially devastating, ultimately pushed the team to improve and eventually secure investment. This experience underscores the importance of resilience and continuous improvement in entrepreneurship. Despite the initial heartbreak, the founders were able to learn from the experience and eventually succeed. This story highlights the value of constructive criticism and the importance of staying focused on long-term goals, even when faced with setbacks.
Connect with Investor-Friendly Agents for Free on BiggerPockets.com/deals: Use BiggerPockets.com/deals to instantly connect with expert local agents for free, helping navigate neighborhoods, analyze numbers, and build confidence in real estate investments.
BiggerPockets.com/deals offers a free resource for connecting with investor-friendly local real estate agents. By entering a few details about what and where you want to buy, you can instantly be matched with an expert who can help navigate neighborhoods, analyze numbers, and build confidence in making a real estate investment. This service is only available on BiggerPockets.com/deals and can help bring you closer to financial freedom. Remember, the content of this podcast is for informational purposes only, and all opinions expressed are those of the hosts and participants. Real estate investment involves risk, so use your best judgment and consult with qualified advisors before investing. BiggerPockets LLC disclaims all liability for damages arising from reliance on information presented in this podcast.
