January 31, 2025 • 40 mins
Escape the rat race and design a life you love with the power of passive investing.
Derek Dombeck explores how exactly you can do this as he sits down with Spencer Hilligoss, a former tech executive turned passive investing expert. Sharing his unconventional journey to financial freedom, Spencer talks about his transition from the high-pressure world of Silicon Valley to building the investing business Madison Investing.
He also reveals his key strategies for vetting deals and creating a portfolio that provides both financial security and a life of purpose. Tune in and discover how passive investing can be more than just building wealth – it is about building a life you love.
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Episode Transcript
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Do you want a financially secure future, notjust for yourself, but for your loved ones
as well? This is Generations of Wealth, thepodcast that breaks down the most effective
wealth building strategies you can easily applyto your own life. Join investor and international
bestselling author Derek Dombeck in exploringpractical tips and sound advice on building
(00:23):
a profitable business, creating a powerful brand,or getting into the thriving world of real
estate investing. This is your chance to createyour very own financial roadmap to live your
vision. Love your life. Let's begin this discussionwith your host, Derek Dombeck.
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Welcome to the Generations of Wealth podcast.I am your host, Derek Dombak. And today we
are talking about what is it like to be a passiveinvestor, which ultimately should be everybody's
goal. And most people don't necessarily believethey can get there. So I'm going to bring on
Spencer Hillegos and he's going to talk to youabout his journey from Silicon Valley executive
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big job to walking away from all that. Justbeing a passive investor. It's Really an incredible
story. Great guy. Before I bring Spencer onthough, again, I do this every show. I really
wanna thank all of you that are listening. Appreciateeverybody that follows us. Anything you can
do to help grow the generations of wealth. Family,spread the word. Help us with all the shares
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and the likes and everything like that. Anythingyou need from us, don't hesitate to reach out.
you can send me a personal email to my emailaddress, derrick at global, G-O-W dot com,
or go to theg and there's contact informationthere. You can see everything we have going
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on all the time. So with that, let's bring onour guest, Spencer Hillegos. And here he is,
the one, the only Spencer Hillegos. Spencer,thank you for being on the Generations of Wealth
show. Welcome. Derrick, honored to be here.Thanks so much for having me on. Absolutely.
Uh, you know, you are in California. We, uh,as we're recording this today, there are still
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some challenges coming or hitting Californiawith the fires, things like that. So first
of all, uh, it sounds like you're not in anarea that's affected by that. Correct. Yeah.
I'm based up in Alameda, which is up in theBay area in North Cal. Uh, but, uh, Jennifer
Morimoto is my better half and COO of our investingclub. She born and raised in Southern California.
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So she's from South Pasadena. So thankfullyat the time being, her family is okay, brothers,
sisters, parents, et cetera, but they're notthat far. And we know so many folks that are
directly impacted right now. So our hearts goout to those folks right now. It's a tough
time. Yeah, absolutely. And I will say the heartwarmingpart about any time that there's something
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tragic that happens in the United States, youknow, even yesterday watching NFL playoff football
games and things of that nature, you know, atleast it's recognized. People are out there
praying for you and doing what they can. Thatsaid, tell us a little bit about yourself and
we'll kind of dive into how you became justreally a, a passive investor and, and learned
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from your experiences. Yeah. You know, as akid who grew up feeling, I was pretty punk
rock and reluctant to get into anything businessrelated altogether. I just feel very blessed
to be sitting here spending my primary professionalfocus on leading Madison investing. It's a
passive investing club grew up very organically.You know, we, Jennifer and I were both in careers,
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W2 careers for 13 years. I walked away fromthat career in 2019, about five months before
COVID. Uh, that was not part of the plan, youknow, but we were investing for years buying
rentals, uh, eventually realizing that's a bitmore hands on. then we could really fit into
a busy life with a couple of young kids duringthat time. But then we discovered, oh, you
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could put 25K, 50K, 100K passively into biggerpieces of some other types of deals on this
wonderful private market of investing that'sout there. I just had no idea about any of
this stuff, Derek. I was building big teamsfor financial tech companies in Silicon Valley
for 13 years and thinking, okay, cool. I'm gonnaget that big, you know. that big exit, that
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big IPO moment everyone dreams about, kind oflike a Silicon Valley lottery as it were. And
that never really panned out, but we did makegreat income and fortunate to do well in dual
income household here in the Bay Area, but stillhad to work hard for it, man. And I think now
we live a life that I really couldn't have dreamedof back in the day. We still work hard, of
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course. We don't just sit on a beach and sipin Mai Tais, but what we do is, give you an
example, like this past summer, you know, wehave two young boys, 10 and seven, I know you
and I were chatting about kids right beforethis, but like, uh, we took the kids and lived
in another country. We lived in Croatia andMontenegro for about six weeks. This last summer,
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kids were in like an immersion school and itwas really, really spectacular. It wasn't a
vacation. I mean, we were working during theday. and still finding time for adventures
and new experiences. So that is the second summerin a row we've been able to do something like
that. And it's just a little slice of like thislifestyle that we have built the hard way,
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over the course of years. It started as a sidehustle, investing on our own, and then became
an investing business called Madison Investing.And that's the primary focus for us these days.
Well, I have to tell you, I don't get to talkto a whole lot of people that take. a month
to six weeks with their families. And that'sactually something that my wife, Tracy and
I have done. Let's see, 2001, two, three, andfour. Nice. Cause I was challenged by a mentor
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of mine. Again, this is all about vision, right?He was taking a month long RV trip with his
family and I just told him how envious I wasof him and he said, well, why don't you do
it? And we had no, no idea how. We were goingto actually pull it off, but we put it on the
calendar. We did it that first year. And thenI think the first year was four and a half
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weeks. Second year was five, um, 2023. We actuallywere in Europe for, uh, 15 days and then we
came back and still took two or three weeksin the RV. Uh, so yeah, it's, it gives you
some very, very clarifying moments. If you canactually get away, not to mention the time
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with your family, it's irreplaceable. Oh, that'sso cool. And that was in 2023, you said? Yeah.
Well, like I said, we 21 was the first summerwe did it the month of July, and then we've
done it every summer since. So, oh, good foryou guys. That's amazing. And we want to do
the RV thing too. We've only done kind of ashorter stretch, uh, renting RVs, but we've
never done like the long epic road trip. Oh,you haven't lived until you have your children
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in the backseat of your vehicle, pulling a longRV, uh, like. Yeah. I don't want to talk you
out of it. It is, it is fantastic. Um, but yeah,it, it shows you, uh, it tests your patience
a little bit, but, but not in a bad way. I mean,that's all growing pains, but the part that's
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awesome is when you are, you know, somewheretogether as your family and like for us personally,
I don't necessarily like planning anything.If we're We did one trip from Wisconsin to
Idaho and back, uh, throughout the summer. Andjust you're driving along and you see a sign
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for the world's, you know, largest rubber bandball and you feel like spending the night there.
You spend the night there. Like, like the, that'spart that we enjoy is the spontaneity of it.
And, uh, that doesn't work for everybody, butI think if I had to plan every spot we were
going to stop and every place we were goingto spend two, three days or a week, the travel
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there would be more stressful, right? You'relike on a schedule all the time. Oh yeah. At
least for us. But the only way that that's possiblefor us or yourself, right? We have to have
our businesses designed and built to where wecan have the time as well as the resources
and finances to do that. So going right backto, you know, passively investing in real estate.
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That's. giving you at least some freedom andtime right now, and hopefully much, much more
in the future. But you said something earlyon, you said you had your own rentals before,
which tells me that you experienced the joysof management of tenants and toilets. And because
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you have to know what to invest in, right? Right.So talk about that. Like where'd you first
learn about real estate to start with, but thenas you started looking at passive investments,
how do you vet those? How do you know they'recredible somewhere that you feel comfortable
putting your money? Yeah, happy to go into it.You know, so, you know, full disclosure, I
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grew up, you know, your real estate household.My dad was a broker for 30 years and I have
to share this because, you know, before I kindof get into the investing as an adult myself
in a career, my dad had me work in open houses.You know, he had me cleaning out fridges for
properties that were going to go on market.And this is when I was like a preteen and then
a teenager. And that's a big reason Derek, whylike I went into tech. So, I mean, it was a
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looking back, everything hindsight is always2020, right? And I look back and I'm like,
wow, at the time, I mean, I got to shake handswith some pretty cool celebrity figures at
open houses. He was doing, you know, this islike, Like the Niners, 49ers, I got to like
meet Jerry Rice and Joe Montana and this isstuff at the time I'm like, oh cool, didn't
really get it, you know. But in hindsight, thatwas a very narrow slice of what real estate
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is. But that is the lens that most people see,right? They see brokerage, they see being an
agent. And like my dad and I never really talkedabout investing in properties growing up, but
I just gotta share this because it was reallya catalyst. It was like a spark that lit. our
journey as an adult, my dad and our family,when I was growing up, went through this time
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we can, we now call it kind of like a dark decade,you know, lost my younger brother to cancer
when he was a teenager, lost three other, youknow, family members, like set of grandparents
in a car crash. All this stuff hit really fastand really hard. Uh, years ago, we just passed
the 20 year anniversary of my brother's passing.And at that time I look back and like, my dad
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was crushing it in his business. but that wasthe one type of income coming into our household.
It was very active, right? The broker's a hundredpercent based on commission. So that's like
as active as active gets. And so when that,all the tried tragedy hit, uh, it had so many
ramifications like our lifestyle scaled downdramatically. And so I'm not going to act like
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we weren't, you know, we weren't put out onthe street or anything. Uh, but that was an
extraordinarily challenging time. And And nowas a dad myself, a couple of young kids and
having carved out a career in tech, and thenalso moved over to lead and build this private
equity investing club, a huge catalyst for meto sit there and think like, how do I ensure
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that there's more than one active income streamcoming into this household? You know, not just
to go have amazing trips that enrich our lives,but also because, you know, God forbid I get
hit by a bus, you know, not to be too grim,but like life comes at you. You know, and,
and I think that is a really, a critically importantcatalyst for me, cause now, you know, when
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I remember our first son was born, I'm like,something's got to give, man. I mean, I was
working 80 hours a week in tech companies, uh,in office, not including when you open up the
laptop at night, you know, after the kids godown. And, uh, that was, you know, just to
give people a sense of time that was aroundlike, you know, 20, uh, around 2015, 2014,
I was feeling extraordinarily burnt out, notseeing light at the end of the tunnel, even
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though we were making great income in our livesand maxing out our 401ks and all those, all
that. How old were you at that time? Uh, youknow, mid thirties. Okay. Yeah. Like early,
early mid thirties when it first started toreally kick in and, you know, but I'm about
to be a 42, uh, now. And so I think, uh, I lookback at that time and I'm like, I'm glad it
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got that hard. I'm glad that it was real touchand go there for dinner for my relationship
at that moment too because I never would havestarted to look and I never would have started
to explore other ways that wealth building occurs.And you can earn your way there with W2 income.
We were making great income, but all that 401kmoney wasn't going to be serving us anytime
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for the next 30 years. And we hadn't boughtany real estate. So eventually we got to this
first of three phases where we went around andbought a rental locally. Um, and that was because
we thought it was too scary to buy somethingsight unseen. Now we dropped $430,000 on a
duplex, uh, just about 45 minutes north of mefrom here. And that generated 200 bucks a month
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in cashflow, which is like a total, not a win.To be clear, this is California real estate.
So you actually cash flowing was amazing. Thankyou for saying that, Derek. Absolutely. That
is 100% accurate. And so I think that I wantto catch up with the, you know, friends and
acquaintances in the real estate investing businesswith, you know, far more zeros behind their
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name than I have, and they crack a joke like,oh, 200 bucks for putting down over a hundred
grand. And I'm like, yeah, but you should talkto the number of people who pay to keep a condo
every month, you know? And so that was phaseone. We, we, spent all summer with our kid
in the car, just trying to find that one darnrental. And so that we had to stretch our dollars
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further. We ended up looking outside California.We narrowed in on a Kansas city, eventually
built up to a portfolio. We got to about five,uh, single family rentals economics, way better.
That was 60 grand a pop on average, $250 a monthcashflow on average. And that was great on
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paper. but you, I think you kind of spoke tothis earlier and then you and I have a very
similar style of humor and I'm a, I'm a sarcasticdude to my own fault. Sometimes I do not know
what you're talking about. Yep. And, uh, youknow, once we started getting, you know, notices
from the city that there's a couch on one ofthe properties, uh, front lawns and we were
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getting, you know, property manager on this,on these assets, you know, we've paid pay our
10% per month. of the revenue coming in towardsthese property managers. And it was still just
like issue after issue after issue. And it wassemi passive at best. And that is very much
how I view rentals now. It's like, I'm not anti.And I really am supportive of building portfolios
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of rentals, but it's just about being eyes wideopen. When the kids are grown, I'm all about
it. But for that stage of life and for us now,we just didn't really wanna add more overhead
to our lives, more. more responsibilities forthings that we're supposed to be generating
income and growing our wealth. You know, sothat brought us to stage three and that's still
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where we are now from my perspective, whichis we cut a check for our first, uh, it was
like a multifamily syndication. This is backin about, I think 2018 and it went extraordinarily
well. And then we did another and we did another,we invested in self storage and, and those
were the two asset classes within a kind of.bigger commercial real estate that we really
leaned into was multifamily and self-storagefacilities. And that's treated us well. I mean,
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I'm not going to sit here and act like it'sperfect. The last couple of years have been
real educational, I think, for a lot of investors,you know, because most of our deals have gone
well. A couple of them stopped paying distributions,you know, I mean, it definitely had a capital
call before, you know, all that stuff, but,but we have not had to do any of that work
ourselves when it comes to our passive investments.And so, um, yeah, it's been a journey. Yeah.
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Well, I guess I'll go back to how do you vetthe deals that you want to put your money into?
You know, I think a mentor, you know, I've usedmultiple coaching programs and devoured education.
When I first got into this stuff, I also hadan advantage in that, uh, the last of five
tech companies before I moved on from tech in2019, they were a real estate lender and a
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tech company. Okay. So I was brought in, youknow, bright-eyed and bushy-tailed as a guy
who knows how to scale big operations teams.And I had to lead a team of loan originators
and, you know, build their training and leadthem and hire a bunch of folks. And I didn't
know what it meant to originate a loan. I didn'tknow what it meant to analyze the lifetime
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or I mean, the loan to value on a property LTV,you know. So I had to go in there. figure that
out. And eventually we were doing over 600 loansper month for fixing clips on single family
homes. And I learned how to underwrite. I learned,and that was all very much, you know, foundational
stuff. I saw folks going off on the weekends,doing side hustles and realizing, Oh, there's
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wealthy bill here, but I can't swing a hammer,man. So, um, I had to figure out what's my,
what's the best lens and approach I could taketo this. What do I know? Well, I know how to
vet people. I know how to hire, I've hired hundredsof people literally. So we built a five-part
framework for our own vetting of sponsors. AndI learned from someone way smarter than me
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from a former coach, you know, there's threeways to look at a passive deal. And you look
at the team, you look at the market, you lookat the business plan, but the team, the who
is 90 plus percent of the risk profile, right?Of the whole picture, regardless of what great
market they pick, regardless of what type ofproperty they buy, it comes down to, you know,
betting on the jockey as it were, not the horse.And so that's where we leaned in and we look
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at five different things in our vetting framework.We built this out over time, but like it's
got 70 or so rows in an Excel spreadsheet Iwon't bore you with, but the big buckets are.
You're looking at track record, approach, team,communications, and values. And each of those
have a bunch of really robust kind of qualifyingcriteria beneath them, but a couple samples
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would be. Have they done it before? Has it gonewell on approach? It doesn't just mean something
generic. It means something really specific.It means like, okay, you know, I'll use a nerdy
analogy. Like if I have done something beforeand I know it really well, I can articulate
it in great detail. So I play a lot of guitar.I like to think I'm okay at it. Yeah. If I
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have to learn something complex, like a newsolo, you better believe I can walk through
the exact steps that I took to learn that darnthing because I'm not some savant, I really
had to work at that. I had to practice it dayto day. I had to break it down into component
parts. Same thing goes for a business plan.You know, if a sponsor who does self storage
is going to buy that, that facility, exceptmy 50 K or my a hundred K investment to do
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so, I want to know when did they buy that facilitylike that before, how did they decide to go
and implement these strategies and how, youknow, yada all the way through to the point
where they sell that property at a profit andhopefully return my capital and intact. and
also a good-looking profit on top of it. Andso those are some of the things that we look
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for. But I think in the end, I have to justshare that the point of debate I often get
into in a friendly way with other folks at thespace of investing is that looking at values,
it's not as squishy to me. I think that that'sactually quite firm because you can test for
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behavioral interviewing. You can do all kindsof stuff. to just understand are these capable
humans that we're about to trust our money with,which is big dollar amounts. I don't care how
big someone's net worth is. If they're investing50K, that's a lot of money. But are the humans
at the steering wheel for these deals, are theycapable of making decisions in service of investors
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and in service even more so if people are livingin these things? If it's an apartment community,
I care that they care about the people livingthere. You know, and, um, those are just kind
of the most important stakeholders in all ofthis is the people living in those units, you
know? So I don't want to soapbox too much atfolks, but, but those are some of the things
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that matter a lot to me. Well, and I had a meetinga couple of days ago with a gentleman who's
trying to get his startup to, you know, he'soff the ground, but he's at this point now
where he needs operating capital. He can getlarger contracts, but he needs to be able to
cover materials and all the normal stuff withgrowing a business, except he's never been
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there before. So I took a two-hour meeting withhim that ended up being five hours, which was
great. It was a good conversation. And it'snot my wheelhouse because it's not a real estate
business. It's more of a
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What was interesting to me was all of thesethings are so similar, right? Like his business,
your business, my business, they all have 95%of the components are the same. That's right.
We have little nuances and the first questionI asked him was about his marketing budget
and he said, well, this is, you know, they'reon a shoestring budget, but they don't need
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to increase their marketing budget because theycan't take on any more contracts today. Because
they don't have the capital to front those contracts.Right. Like it's the apple or, or chicken or
the egg situation. Right. And I just playedthis all back in my head over the weekend as
I was thinking it through, because we were ina very similar scenario when we were growing
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our, our lending business. I used to co-owna hard money lending company for 10 years.
Nice. And it was the same thing. We, we startedvery small. It was like a side project. We
would do. one or two loans a month that grewto three to four loans a month. And you know,
when I exited a little over a year ago, we wereaveraging 25 loans a month. And I looked at
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just the 10 year growth curve of what we did.It was very, very slow for the first six years.
And then our catalyst actually was COVID. Nokidding. A lot of the hard money lending companies
that were national, they were sold on Wall Street,Wall Street stopped buying their notes. And
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overnight, our, our applications went up 400%.You were there for the moment. Yeah. But we
couldn't fund most of the transactions, evenif they were good, but we got the cherry pick
the best deals. Yeah. And which made our defaultrate extremely low. And that was great. That
was great. Right. So I look at what you're doingnow, kind of the same thing as this guy with
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his startup. that's trying to get over the hump.You invested certain amounts of capital in
certain deals. You said some had, you know,stopped distributions, had some capital calls.
Do you feel like you're over the hump now withMadison investing? Do you feel like you're
on, you know, the curve is going up now prettysteeply or where do you see it coming? No,
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I appreciate you sharing that. And kudos toyou for being there and having built that business
for that right moment within COVID. That's awesome,Derek. You know, for us, I mean, It was pure
luck. Well, I mean, in all fairness on our end,like our journey, we happen to, to build our
investing club and also just invest passivelyleading up to the most banner year evaluations
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that any of us may see for the next 20, whichwas 2021. And so we've already exited 20 deals
as of this year. Uh, you know, it's. So I'dsay by most definitions that that's, that's
highly experienced and it's gone extraordinarilywell. Uh, you know, to date. we have not lost
a single dollar of capital in a real estatedeal. You know, I don't expect that to always
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be the case. Not delusional. Right. But I thinkjust feeling very grateful. And I think, you
know, what do they say about luck? It's whenpreparation, you know, meets opportunity. Absolutely.
You know, and I think that that's really whathappened for us is now it's very, very much
more. prominent out there, right? Like all thecapital formation strategies, people putting
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together funds and, you know, raising capitaland stuff. And we just got into it. I was told
the other day by someone in the, in, you know,the investing network, he was like, yeah, but
you were doing this before it was cool. AndI was like, I never really thought of it that
way. Um, but we were there a little bit earlyon it, you know? And, um, so that certainly
helps. But, but these days I would say, unlikesome firms that are trying to scale to the
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moon, I look back to my tech career, havingworked inside the guts of multiple VC funded
companies where the pressure that comes in forthese companies, despite their growth, amazing
revenue growth, amazing headcount growth onthese companies I've been part of. It is sometimes
so much pressure to grow at all costs that itnot only impacts the people that are working
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their butts off, it also impacts how well theycan serve their clients.
Our goal is to work with amazing partners. It'sabout marriage, not dating, right? The whole
periods alone for deals that we invest in arelike five years plus oftentimes. So that's
longer than college, you know? Stuff changes.So we wanna make sure we stick with folks that
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we've worked with. We don't just jump into randomdeals with folks that we met on the internet.
What we do is we take our time. And so the goalnow is... continue doing it the way we have
been doing it. We're the number one source ofnew folks that invest alongside us in our investing
club are referrals. And that is truly, it'sa bit old school, but it just works like a
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charm because we know that at least there'ssome kind of filtering for mutual fits. Well,
I would say this with specifically our realestate deals and our lending company that I
used to have, it was all privately funded. Imean, we didn't use any capital or institutional
money, I should say, institutional capital.And there, I can't tell you how many times
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we turned away sizable investors, but we justknew they were going to be such a mess. Right.
And it wasn't worth it. Like we want to do businesswith people that were fun to do business with
that. When, not if, when a challenge comes up,you can have a civil conversation. You can
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come up with. uh, you know, reasonable expectationsfor how we're going to solve for whatever the
challenge is. And, and that's really what wedid for so long. And as I said, the growth
curve went up because people saw what we weredoing. We weren't approaching people for, you
know, to raise money. They were approachingus. Hey, how can we get involved in what you're
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doing? Right. And, um, that changes the wholedynamic when you're not. out there desperately
trying to figure out how am I going to fundthis deal or how am I going to fund this loan?
Now it's a new problem. I need to find anotherdeal. I need to find another loan to keep this
investor's money going because they're a greatperson and I want to make them money. And in
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doing so, I want to make a return to feed myfamily. Right. That's a great problem to have.
It is a, it is a great problem. However, itis still a problem. I mean, it can, and you
could run into this too. with Madison investing,it's a problem if you let it overwhelm you
and, and overtake your decision-making. Sure.Your morals and your ethics have to be extremely
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strong when you're dealing with anybody's privatemoney. It should be strong when you're dealing
with anybody's money, whether it's institutionalor private, but we all know about Ponzi schemes
and things of that nature, but yeah, you canget caught up in it and caught up in the excitement
or the, the profit, whatever you want to whateverdrives you. So yeah, I'm kind of on my soap
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box now, I'll get off. But, so what are youfocusing on right now? These, you know, today
you're looking at growth, you're looking atjust sustaining, you're looking into new markets.
What's 2025 look like for you guys? Yeah, youknow, and gosh, do I agree with everything
you just said. 2025, man, it is a remarkableyear in terms of looking at I still break it
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down into we got before COVID and after COVIDwhen it comes to the real estate landscape.
And, you know, of course you have to go intointerest rates, et cetera. But I look at right
now, massive opportunity and this is where I'vealready invested, you know, quite a bit of
my own money along with our investors in thepast 12 months. Same thing will happen this
year is banks have pulled back a lot from lendingto investors. So as a, as a former lender yourself,
(30:18):
you'll probably appreciate this within biggerassets. you know, apartment buildings, self-storage
facilities, still love those, those have beenthe focus of what we invest in. Great apartment
communities and self-storage facilities in theSouth, in Midwest, some of the Rockies. And
the problem is the operators, they might begreat, the banks won't lend them the same amount
(30:40):
that they used to be able to. And as a result,we're getting more on the lender side of the
balance sheet, you know, so we're focused onprivate credit and private debt. Now, the way
that we have done that, It took a lot of R andD man, just so you know, we're still looking
at individual deals. So, you know, we just didclosed on a great apartment building, 54 unit
(31:00):
back in, um, in Kansas city about three monthsago with some partners of ours. So we're still
looking at one deal at a time, but much moreinterested in actually investing on the private
credit side for the time being, because interestrates are not coming down anytime soon. Everyone
thought when the fed started cutting mortgagerates, we're going to follow, follow suit and
(31:21):
it's the opposite. So, you know, a lot of thesedeals, people want to go and buy a new apartment
community. People want to go buy a self storagefacility. They still need loans, gap closed
loans, right? And so that's where we're leaninginto right now. So we opened up like a feeder
fund last year and it's just thriving, you know,because I think folks are realizing, oh, I
(31:43):
can get a great risk adjusted return at a definitivelylower risk profile. Still get cashflow, still
get upside, all that good stuff, but you don'thave to go necessarily be common equity and
then the investment. I don't know how nerdypeople wanted to get about it, but yeah, that's,
that's nerdy that I'm excited right now. Itdoesn't come with the tax benefits, but, um,
(32:04):
I do like those, those passive losses and paperlosses that we can get when we find a great
deal on the real estate side, but, uh, but thisis where I'm fired up right now. From your
own perspective for your goals versus peoplethat you talk to, are you looking for a flat?
certain percentage of, you know, return on investment?Are you looking at ROR and IRR? What does it
(32:28):
look like? Yeah, gosh, the ever evolving question,right? So the way I get myself centered and
I'm sharing this also because it's not onlyhelpful for me on every deal I look at and
every year we set annual goals. That's justpassive investors, but I'm told regularly by
our members and our passive investors that investalongside us, that this is just super helpful.
(32:50):
like fundamental principle stuff. I sit thereand I say, okay, are we investing for cashflow?
Are we investing for growth? That's questionnumber one. Like what's the goal for the money?
You know, and if it comes down to equity growth,then it has to be like, we're not worrying
about cashflow on this example, but then I wantit to be something that's going to be meaningful
in terms of actual, you know, growth multiple.It's gotta be at least like 2.5 to 3X, you
(33:17):
know, and then using more just kind of broadstrokes terms here. But it's kind of what I'm
looking for is, you know, 2.5 to 3X have beenabout a five-year period. Um, on, on the cashflow
side, uh, you know, private credit stuff thatwe're investing in right now is around 12%
to 15%, you know, annualized. And so, so that,that's interesting enough for me, you know,
(33:38):
as a guy who comes from tech that would putmost angel investors to sleep, right? They
want a 25X multiple on their. on their money,you know, but that's also going to be one out
of a hundred companies they invest in. So yeah,I was going to say they're gambling. Yeah,
it's just a different model. I like the bestkind of boring. That is what I'm interested
in at this stage. And I think, uh, that's, that'smore in line with what we're seeing right now.
(34:01):
I'm kind of that credit side. Yeah. Well thatfor me being a Midwest guy and I've, I've bought
and sold in other States, but primarily I staylocal in, in my region that is, and, um, we
don't have the peaks and valleys. in the Midwest,right? It's, it's much more flowing ups and
downs. Uh, we don't get a lot of big surprisesand, and I can still walk out the door and
(34:25):
buy cashflow. And it's not everywhere, but Ican still do it. And, um, and I also get involved
in a lot of creative deal structures, whichis hits all my hot buttons. Um, but I can go
and buy properties. you know, put terms in place,whether that's seller financing or, you know,
(34:46):
buying property subject to existing financingor a combination of multiple strategies. But
I don't have to worry about 30% dips in valueor, and I'm not going to get 30% appreciation
in value either in a, in a year, in most cases.But it's, as you said, it's boring. I got my
ass kicked when the markets crashed in 07. andlost everything. And, and, uh, I don't ever
(35:11):
really want that feeling again. So I, I meetplenty of people that hit home runs and they
think they're God's gift to real estate investing.And I pat them on the back cause that's what
they want. Congratulations. You're amazing.You, you get that one out of a hundred deal.
I'll take the base hits all day long. Yes, sir.And at the end of the game, uh, I'll probably
(35:35):
be winning. So for sure. Aligned on that. Well,Spencer, um, man, we've been going for a while
here. What is a question that I should haveasked you that I didn't, and it can be about
anything. Ooh. You know, I think, um, maybejust like what, you know, what are the biggest
learnings about this whole financial freedomjourney, you know, say just there's something
(35:58):
along those lines, you know, and I think, uh,when I connect with folks, you know, Two kind
of general profiles of folks that I usuallyend up chatting with who are in the investing
ranks, you know, and I'm sure you know, plentyof them as well. Yeah. They've got folks that
I know from my tech career. They're making anincredible fang company money, you know, W2
income, 300, $400,000 a year. Then you've gotthe folks who are more entrepreneurial, you
(36:20):
know, they might be second, third generationowners of a company, you know, old school business.
In, in both those cases, they hit a point. wherethey say, well, I have enough. So like really
the question is like, what is enough? You know,and it's getting a little philosophical here,
Derek, but I think this is still one of themost fascinating, if not the most fascinating
(36:41):
question for anyone who's investing and doingso actively passively, both, you know, what
have you, is like, what is, you know, challengingoneself to say like, what is enough? Because
if you can circle that question and kind ofget closer and closer to it every year with
your annual goals, I find You start to realizeyou may not need as much as you think. And
(37:03):
I'm talking on the financial side because yourcup is filling up with these other wonderful
aspects of life, you know? And that means whetheryou're, you know, as a father, as a person
who has certainly spent a ton more focus onmy health, um, in the past years than I ever
did and when I was in the depths of my W2 career,so I think that like, you know, big learnings
across the board, it's a wonderful privilegeto be in a position to, to have this, the brain
(37:26):
space. you ask that question. I'm not delusionalabout that. I think that, you know, it's a
loppy thing, but people can't stop and thinkabout that when they're worried about putting
food on the table. But for those that actuallyget there and they're sitting there wondering
like, well, what was the point of all this?Why am I still investing? I have plenty of
zeros in the bank. It really comes down to,well, what is enough for you? You know, so
(37:48):
I guess I'll leave it there. And that's verymuch leads into, you know, our mantra, live
your vision, love your life. And you and I were...talking a little bit before we started recording,
just comparing notes on property values. AndI explained, you know, in the Midwest, I don't
have to make Silicon Valley incomes to livea certain lifestyle. And it's all relative.
(38:14):
And I would much rather have more time withmy kids and my family and my friends and do
stuff like this than to go make. X number ofdollars more. I'm not opposed to making that
money as long as I'm a good steward of thatmoney and I can live my vision. Great. But,
(38:36):
and that's the part with having the vision thatis so important. It is when you see these shiny
objects coming at you, it's what you filterthem with. Does this get me closer to my vision
or take me further away? Man, there's so manybusiness owners and entrepreneurs that just
get caught up in the shiny objects and they.I don't think they ever actually see the real
(38:58):
big picture until it's too late in most cases.So, gosh, do I agree with that? I completely
agree with that. Darrell. Well, Spencer, it'struly been a pleasure having you on the show.
I appreciate it so much. If, if, uh, anybodywants to get a hold of you at all, we can have
a link at theg forward slash Madison investing.And that will. redirect you and take you directly
(39:26):
to Spencer's contact information. If you wantto talk to him about what he does and anything
that he can help you with Spencer really hopethat, uh, everything goes well for you. Who
knows someday you might be intrigued in theMidwest and we can, uh, we can talk about other
transactions. So, yeah, looking forward to it,Derek. No, thank you for having me on. This
(39:49):
has been awesome. Perfect. Well, we'll wrapit up there. Thanks for joining us at the Generations
of Wealth podcast. Again, until next time, goout, live your vision and love your life. See
ya.
Thank you for joining us on another insightfulepisode of Generations of Wealth. May your
newfound knowledge help you in leveling up yourown strategies to get through the many obstacles
(40:13):
to your money-making processes and bring youmuch closer to the financially secure life
you truly deserve. Continue filling up youraccounts and further polish your financial
tactics by listening to more episodes of thepodcast at TheG Because in your wealth building
journey, there is no other way to go but up,giving you the chance to finally live your
(40:36):
vision, love your life. That's all for now,see you on the next one.
Do you want a financially secure future, notjust for yourself, but for your loved ones
as well? This is Generations of Wealth, thepodcast that breaks down the most effective
wealth building strategies you can easily applyto your own life. Join investor and international
bestselling author Derek Dombeck in exploringpractical tips and sound advice on building
(00:23):
a profitable business, creating a powerful brand,or getting into the thriving world of real
estate investing. This is your chance to createyour very own financial roadmap to live your
vision. Love your life. Let's begin this discussionwith your host, Derek Dombeck.
(00:47):
Welcome to the Generations of Wealth podcast.I am your host, Derek Dombak. And today we
are talking about what is it like to be a passiveinvestor, which ultimately should be everybody's
goal. And most people don't necessarily believethey can get there. So I'm going to bring on
Spencer Hillegos and he's going to talk to youabout his journey from Silicon Valley executive
(01:12):
big job to walking away from all that. Justbeing a passive investor. It's Really an incredible
story. Great guy. Before I bring Spencer onthough, again, I do this every show. I really
wanna thank all of you that are listening. Appreciateeverybody that follows us. Anything you can
do to help grow the generations of wealth. Family,spread the word. Help us with all the shares
(01:37):
and the likes and everything like that. Anythingyou need from us, don't hesitate to reach out.
you can send me a personal email to my emailaddress, derrick at global, G-O-W dot com,
or go to theg and there's contact informationthere. You can see everything we have going
(01:57):
on all the time. So with that, let's bring onour guest, Spencer Hillegos. And here he is,
the one, the only Spencer Hillegos. Spencer,thank you for being on the Generations of Wealth
show. Welcome. Derrick, honored to be here.Thanks so much for having me on. Absolutely.
Uh, you know, you are in California. We, uh,as we're recording this today, there are still
(02:21):
some challenges coming or hitting Californiawith the fires, things like that. So first
of all, uh, it sounds like you're not in anarea that's affected by that. Correct. Yeah.
I'm based up in Alameda, which is up in theBay area in North Cal. Uh, but, uh, Jennifer
Morimoto is my better half and COO of our investingclub. She born and raised in Southern California.
(02:43):
So she's from South Pasadena. So thankfullyat the time being, her family is okay, brothers,
sisters, parents, et cetera, but they're notthat far. And we know so many folks that are
directly impacted right now. So our hearts goout to those folks right now. It's a tough
time. Yeah, absolutely. And I will say the heartwarmingpart about any time that there's something
(03:05):
tragic that happens in the United States, youknow, even yesterday watching NFL playoff football
games and things of that nature, you know, atleast it's recognized. People are out there
praying for you and doing what they can. Thatsaid, tell us a little bit about yourself and
we'll kind of dive into how you became justreally a, a passive investor and, and learned
(03:29):
from your experiences. Yeah. You know, as akid who grew up feeling, I was pretty punk
rock and reluctant to get into anything businessrelated altogether. I just feel very blessed
to be sitting here spending my primary professionalfocus on leading Madison investing. It's a
passive investing club grew up very organically.You know, we, Jennifer and I were both in careers,
(03:52):
W2 careers for 13 years. I walked away fromthat career in 2019, about five months before
COVID. Uh, that was not part of the plan, youknow, but we were investing for years buying
rentals, uh, eventually realizing that's a bitmore hands on. then we could really fit into
a busy life with a couple of young kids duringthat time. But then we discovered, oh, you
(04:13):
could put 25K, 50K, 100K passively into biggerpieces of some other types of deals on this
wonderful private market of investing that'sout there. I just had no idea about any of
this stuff, Derek. I was building big teamsfor financial tech companies in Silicon Valley
for 13 years and thinking, okay, cool. I'm gonnaget that big, you know. that big exit, that
(04:38):
big IPO moment everyone dreams about, kind oflike a Silicon Valley lottery as it were. And
that never really panned out, but we did makegreat income and fortunate to do well in dual
income household here in the Bay Area, but stillhad to work hard for it, man. And I think now
we live a life that I really couldn't have dreamedof back in the day. We still work hard, of
(05:02):
course. We don't just sit on a beach and sipin Mai Tais, but what we do is, give you an
example, like this past summer, you know, wehave two young boys, 10 and seven, I know you
and I were chatting about kids right beforethis, but like, uh, we took the kids and lived
in another country. We lived in Croatia andMontenegro for about six weeks. This last summer,
(05:24):
kids were in like an immersion school and itwas really, really spectacular. It wasn't a
vacation. I mean, we were working during theday. and still finding time for adventures
and new experiences. So that is the second summerin a row we've been able to do something like
that. And it's just a little slice of like thislifestyle that we have built the hard way,
(05:45):
over the course of years. It started as a sidehustle, investing on our own, and then became
an investing business called Madison Investing.And that's the primary focus for us these days.
Well, I have to tell you, I don't get to talkto a whole lot of people that take. a month
to six weeks with their families. And that'sactually something that my wife, Tracy and
I have done. Let's see, 2001, two, three, andfour. Nice. Cause I was challenged by a mentor
(06:14):
of mine. Again, this is all about vision, right?He was taking a month long RV trip with his
family and I just told him how envious I wasof him and he said, well, why don't you do
it? And we had no, no idea how. We were goingto actually pull it off, but we put it on the
calendar. We did it that first year. And thenI think the first year was four and a half
(06:36):
weeks. Second year was five, um, 2023. We actuallywere in Europe for, uh, 15 days and then we
came back and still took two or three weeksin the RV. Uh, so yeah, it's, it gives you
some very, very clarifying moments. If you canactually get away, not to mention the time
(06:56):
with your family, it's irreplaceable. Oh, that'sso cool. And that was in 2023, you said? Yeah.
Well, like I said, we 21 was the first summerwe did it the month of July, and then we've
done it every summer since. So, oh, good foryou guys. That's amazing. And we want to do
the RV thing too. We've only done kind of ashorter stretch, uh, renting RVs, but we've
never done like the long epic road trip. Oh,you haven't lived until you have your children
(07:22):
in the backseat of your vehicle, pulling a longRV, uh, like. Yeah. I don't want to talk you
out of it. It is, it is fantastic. Um, but yeah,it, it shows you, uh, it tests your patience
a little bit, but, but not in a bad way. I mean,that's all growing pains, but the part that's
(07:44):
awesome is when you are, you know, somewheretogether as your family and like for us personally,
I don't necessarily like planning anything.If we're We did one trip from Wisconsin to
Idaho and back, uh, throughout the summer. Andjust you're driving along and you see a sign
(08:06):
for the world's, you know, largest rubber bandball and you feel like spending the night there.
You spend the night there. Like, like the, that'spart that we enjoy is the spontaneity of it.
And, uh, that doesn't work for everybody, butI think if I had to plan every spot we were
going to stop and every place we were goingto spend two, three days or a week, the travel
(08:29):
there would be more stressful, right? You'relike on a schedule all the time. Oh yeah. At
least for us. But the only way that that's possiblefor us or yourself, right? We have to have
our businesses designed and built to where wecan have the time as well as the resources
and finances to do that. So going right backto, you know, passively investing in real estate.
(08:53):
That's. giving you at least some freedom andtime right now, and hopefully much, much more
in the future. But you said something earlyon, you said you had your own rentals before,
which tells me that you experienced the joysof management of tenants and toilets. And because
(09:13):
you have to know what to invest in, right? Right.So talk about that. Like where'd you first
learn about real estate to start with, but thenas you started looking at passive investments,
how do you vet those? How do you know they'recredible somewhere that you feel comfortable
putting your money? Yeah, happy to go into it.You know, so, you know, full disclosure, I
(09:36):
grew up, you know, your real estate household.My dad was a broker for 30 years and I have
to share this because, you know, before I kindof get into the investing as an adult myself
in a career, my dad had me work in open houses.You know, he had me cleaning out fridges for
properties that were going to go on market.And this is when I was like a preteen and then
a teenager. And that's a big reason Derek, whylike I went into tech. So, I mean, it was a
(10:03):
looking back, everything hindsight is always2020, right? And I look back and I'm like,
wow, at the time, I mean, I got to shake handswith some pretty cool celebrity figures at
open houses. He was doing, you know, this islike, Like the Niners, 49ers, I got to like
meet Jerry Rice and Joe Montana and this isstuff at the time I'm like, oh cool, didn't
really get it, you know. But in hindsight, thatwas a very narrow slice of what real estate
(10:29):
is. But that is the lens that most people see,right? They see brokerage, they see being an
agent. And like my dad and I never really talkedabout investing in properties growing up, but
I just gotta share this because it was reallya catalyst. It was like a spark that lit. our
journey as an adult, my dad and our family,when I was growing up, went through this time
(10:51):
we can, we now call it kind of like a dark decade,you know, lost my younger brother to cancer
when he was a teenager, lost three other, youknow, family members, like set of grandparents
in a car crash. All this stuff hit really fastand really hard. Uh, years ago, we just passed
the 20 year anniversary of my brother's passing.And at that time I look back and like, my dad
(11:13):
was crushing it in his business. but that wasthe one type of income coming into our household.
It was very active, right? The broker's a hundredpercent based on commission. So that's like
as active as active gets. And so when that,all the tried tragedy hit, uh, it had so many
ramifications like our lifestyle scaled downdramatically. And so I'm not going to act like
(11:33):
we weren't, you know, we weren't put out onthe street or anything. Uh, but that was an
extraordinarily challenging time. And And nowas a dad myself, a couple of young kids and
having carved out a career in tech, and thenalso moved over to lead and build this private
equity investing club, a huge catalyst for meto sit there and think like, how do I ensure
(11:55):
that there's more than one active income streamcoming into this household? You know, not just
to go have amazing trips that enrich our lives,but also because, you know, God forbid I get
hit by a bus, you know, not to be too grim,but like life comes at you. You know, and,
and I think that is a really, a critically importantcatalyst for me, cause now, you know, when
(12:17):
I remember our first son was born, I'm like,something's got to give, man. I mean, I was
working 80 hours a week in tech companies, uh,in office, not including when you open up the
laptop at night, you know, after the kids godown. And, uh, that was, you know, just to
give people a sense of time that was aroundlike, you know, 20, uh, around 2015, 2014,
I was feeling extraordinarily burnt out, notseeing light at the end of the tunnel, even
(12:40):
though we were making great income in our livesand maxing out our 401ks and all those, all
that. How old were you at that time? Uh, youknow, mid thirties. Okay. Yeah. Like early,
early mid thirties when it first started toreally kick in and, you know, but I'm about
to be a 42, uh, now. And so I think, uh, I lookback at that time and I'm like, I'm glad it
(13:05):
got that hard. I'm glad that it was real touchand go there for dinner for my relationship
at that moment too because I never would havestarted to look and I never would have started
to explore other ways that wealth building occurs.And you can earn your way there with W2 income.
We were making great income, but all that 401kmoney wasn't going to be serving us anytime
(13:28):
for the next 30 years. And we hadn't boughtany real estate. So eventually we got to this
first of three phases where we went around andbought a rental locally. Um, and that was because
we thought it was too scary to buy somethingsight unseen. Now we dropped $430,000 on a
duplex, uh, just about 45 minutes north of mefrom here. And that generated 200 bucks a month
(13:53):
in cashflow, which is like a total, not a win.To be clear, this is California real estate.
So you actually cash flowing was amazing. Thankyou for saying that, Derek. Absolutely. That
is 100% accurate. And so I think that I wantto catch up with the, you know, friends and
acquaintances in the real estate investing businesswith, you know, far more zeros behind their
(14:17):
name than I have, and they crack a joke like,oh, 200 bucks for putting down over a hundred
grand. And I'm like, yeah, but you should talkto the number of people who pay to keep a condo
every month, you know? And so that was phaseone. We, we, spent all summer with our kid
in the car, just trying to find that one darnrental. And so that we had to stretch our dollars
(14:40):
further. We ended up looking outside California.We narrowed in on a Kansas city, eventually
built up to a portfolio. We got to about five,uh, single family rentals economics, way better.
That was 60 grand a pop on average, $250 a monthcashflow on average. And that was great on
(15:02):
paper. but you, I think you kind of spoke tothis earlier and then you and I have a very
similar style of humor and I'm a, I'm a sarcasticdude to my own fault. Sometimes I do not know
what you're talking about. Yep. And, uh, youknow, once we started getting, you know, notices
from the city that there's a couch on one ofthe properties, uh, front lawns and we were
(15:24):
getting, you know, property manager on this,on these assets, you know, we've paid pay our
10% per month. of the revenue coming in towardsthese property managers. And it was still just
like issue after issue after issue. And it wassemi passive at best. And that is very much
how I view rentals now. It's like, I'm not anti.And I really am supportive of building portfolios
(15:46):
of rentals, but it's just about being eyes wideopen. When the kids are grown, I'm all about
it. But for that stage of life and for us now,we just didn't really wanna add more overhead
to our lives, more. more responsibilities forthings that we're supposed to be generating
income and growing our wealth. You know, sothat brought us to stage three and that's still
(16:07):
where we are now from my perspective, whichis we cut a check for our first, uh, it was
like a multifamily syndication. This is backin about, I think 2018 and it went extraordinarily
well. And then we did another and we did another,we invested in self storage and, and those
were the two asset classes within a kind of.bigger commercial real estate that we really
leaned into was multifamily and self-storagefacilities. And that's treated us well. I mean,
(16:32):
I'm not going to sit here and act like it'sperfect. The last couple of years have been
real educational, I think, for a lot of investors,you know, because most of our deals have gone
well. A couple of them stopped paying distributions,you know, I mean, it definitely had a capital
call before, you know, all that stuff, but,but we have not had to do any of that work
ourselves when it comes to our passive investments.And so, um, yeah, it's been a journey. Yeah.
(16:56):
Well, I guess I'll go back to how do you vetthe deals that you want to put your money into?
You know, I think a mentor, you know, I've usedmultiple coaching programs and devoured education.
When I first got into this stuff, I also hadan advantage in that, uh, the last of five
tech companies before I moved on from tech in2019, they were a real estate lender and a
(17:19):
tech company. Okay. So I was brought in, youknow, bright-eyed and bushy-tailed as a guy
who knows how to scale big operations teams.And I had to lead a team of loan originators
and, you know, build their training and leadthem and hire a bunch of folks. And I didn't
know what it meant to originate a loan. I didn'tknow what it meant to analyze the lifetime
(17:39):
or I mean, the loan to value on a property LTV,you know. So I had to go in there. figure that
out. And eventually we were doing over 600 loansper month for fixing clips on single family
homes. And I learned how to underwrite. I learned,and that was all very much, you know, foundational
stuff. I saw folks going off on the weekends,doing side hustles and realizing, Oh, there's
(18:02):
wealthy bill here, but I can't swing a hammer,man. So, um, I had to figure out what's my,
what's the best lens and approach I could taketo this. What do I know? Well, I know how to
vet people. I know how to hire, I've hired hundredsof people literally. So we built a five-part
framework for our own vetting of sponsors. AndI learned from someone way smarter than me
(18:22):
from a former coach, you know, there's threeways to look at a passive deal. And you look
at the team, you look at the market, you lookat the business plan, but the team, the who
is 90 plus percent of the risk profile, right?Of the whole picture, regardless of what great
market they pick, regardless of what type ofproperty they buy, it comes down to, you know,
betting on the jockey as it were, not the horse.And so that's where we leaned in and we look
(18:47):
at five different things in our vetting framework.We built this out over time, but like it's
got 70 or so rows in an Excel spreadsheet Iwon't bore you with, but the big buckets are.
You're looking at track record, approach, team,communications, and values. And each of those
have a bunch of really robust kind of qualifyingcriteria beneath them, but a couple samples
(19:10):
would be. Have they done it before? Has it gonewell on approach? It doesn't just mean something
generic. It means something really specific.It means like, okay, you know, I'll use a nerdy
analogy. Like if I have done something beforeand I know it really well, I can articulate
it in great detail. So I play a lot of guitar.I like to think I'm okay at it. Yeah. If I
(19:32):
have to learn something complex, like a newsolo, you better believe I can walk through
the exact steps that I took to learn that darnthing because I'm not some savant, I really
had to work at that. I had to practice it dayto day. I had to break it down into component
parts. Same thing goes for a business plan.You know, if a sponsor who does self storage
is going to buy that, that facility, exceptmy 50 K or my a hundred K investment to do
(19:53):
so, I want to know when did they buy that facilitylike that before, how did they decide to go
and implement these strategies and how, youknow, yada all the way through to the point
where they sell that property at a profit andhopefully return my capital and intact. and
also a good-looking profit on top of it. Andso those are some of the things that we look
(20:15):
for. But I think in the end, I have to justshare that the point of debate I often get
into in a friendly way with other folks at thespace of investing is that looking at values,
it's not as squishy to me. I think that that'sactually quite firm because you can test for
(20:37):
behavioral interviewing. You can do all kindsof stuff. to just understand are these capable
humans that we're about to trust our money with,which is big dollar amounts. I don't care how
big someone's net worth is. If they're investing50K, that's a lot of money. But are the humans
at the steering wheel for these deals, are theycapable of making decisions in service of investors
(21:01):
and in service even more so if people are livingin these things? If it's an apartment community,
I care that they care about the people livingthere. You know, and, um, those are just kind
of the most important stakeholders in all ofthis is the people living in those units, you
know? So I don't want to soapbox too much atfolks, but, but those are some of the things
(21:21):
that matter a lot to me. Well, and I had a meetinga couple of days ago with a gentleman who's
trying to get his startup to, you know, he'soff the ground, but he's at this point now
where he needs operating capital. He can getlarger contracts, but he needs to be able to
cover materials and all the normal stuff withgrowing a business, except he's never been
(21:45):
there before. So I took a two-hour meeting withhim that ended up being five hours, which was
great. It was a good conversation. And it'snot my wheelhouse because it's not a real estate
business. It's more of a
(22:06):
What was interesting to me was all of thesethings are so similar, right? Like his business,
your business, my business, they all have 95%of the components are the same. That's right.
We have little nuances and the first questionI asked him was about his marketing budget
and he said, well, this is, you know, they'reon a shoestring budget, but they don't need
(22:29):
to increase their marketing budget because theycan't take on any more contracts today. Because
they don't have the capital to front those contracts.Right. Like it's the apple or, or chicken or
the egg situation. Right. And I just playedthis all back in my head over the weekend as
I was thinking it through, because we were ina very similar scenario when we were growing
(22:52):
our, our lending business. I used to co-owna hard money lending company for 10 years.
Nice. And it was the same thing. We, we startedvery small. It was like a side project. We
would do. one or two loans a month that grewto three to four loans a month. And you know,
when I exited a little over a year ago, we wereaveraging 25 loans a month. And I looked at
(23:15):
just the 10 year growth curve of what we did.It was very, very slow for the first six years.
And then our catalyst actually was COVID. Nokidding. A lot of the hard money lending companies
that were national, they were sold on Wall Street,Wall Street stopped buying their notes. And
(23:37):
overnight, our, our applications went up 400%.You were there for the moment. Yeah. But we
couldn't fund most of the transactions, evenif they were good, but we got the cherry pick
the best deals. Yeah. And which made our defaultrate extremely low. And that was great. That
was great. Right. So I look at what you're doingnow, kind of the same thing as this guy with
(24:04):
his startup. that's trying to get over the hump.You invested certain amounts of capital in
certain deals. You said some had, you know,stopped distributions, had some capital calls.
Do you feel like you're over the hump now withMadison investing? Do you feel like you're
on, you know, the curve is going up now prettysteeply or where do you see it coming? No,
(24:27):
I appreciate you sharing that. And kudos toyou for being there and having built that business
for that right moment within COVID. That's awesome,Derek. You know, for us, I mean, It was pure
luck. Well, I mean, in all fairness on our end,like our journey, we happen to, to build our
investing club and also just invest passivelyleading up to the most banner year evaluations
(24:49):
that any of us may see for the next 20, whichwas 2021. And so we've already exited 20 deals
as of this year. Uh, you know, it's. So I'dsay by most definitions that that's, that's
highly experienced and it's gone extraordinarilywell. Uh, you know, to date. we have not lost
a single dollar of capital in a real estatedeal. You know, I don't expect that to always
(25:11):
be the case. Not delusional. Right. But I thinkjust feeling very grateful. And I think, you
know, what do they say about luck? It's whenpreparation, you know, meets opportunity. Absolutely.
You know, and I think that that's really whathappened for us is now it's very, very much
more. prominent out there, right? Like all thecapital formation strategies, people putting
(25:36):
together funds and, you know, raising capitaland stuff. And we just got into it. I was told
the other day by someone in the, in, you know,the investing network, he was like, yeah, but
you were doing this before it was cool. AndI was like, I never really thought of it that
way. Um, but we were there a little bit earlyon it, you know? And, um, so that certainly
helps. But, but these days I would say, unlikesome firms that are trying to scale to the
(26:00):
moon, I look back to my tech career, havingworked inside the guts of multiple VC funded
companies where the pressure that comes in forthese companies, despite their growth, amazing
revenue growth, amazing headcount growth onthese companies I've been part of. It is sometimes
so much pressure to grow at all costs that itnot only impacts the people that are working
(26:24):
their butts off, it also impacts how well theycan serve their clients.
Our goal is to work with amazing partners. It'sabout marriage, not dating, right? The whole
periods alone for deals that we invest in arelike five years plus oftentimes. So that's
longer than college, you know? Stuff changes.So we wanna make sure we stick with folks that
(26:48):
we've worked with. We don't just jump into randomdeals with folks that we met on the internet.
What we do is we take our time. And so the goalnow is... continue doing it the way we have
been doing it. We're the number one source ofnew folks that invest alongside us in our investing
club are referrals. And that is truly, it'sa bit old school, but it just works like a
(27:09):
charm because we know that at least there'ssome kind of filtering for mutual fits. Well,
I would say this with specifically our realestate deals and our lending company that I
used to have, it was all privately funded. Imean, we didn't use any capital or institutional
money, I should say, institutional capital.And there, I can't tell you how many times
(27:32):
we turned away sizable investors, but we justknew they were going to be such a mess. Right.
And it wasn't worth it. Like we want to do businesswith people that were fun to do business with
that. When, not if, when a challenge comes up,you can have a civil conversation. You can
(27:54):
come up with. uh, you know, reasonable expectationsfor how we're going to solve for whatever the
challenge is. And, and that's really what wedid for so long. And as I said, the growth
curve went up because people saw what we weredoing. We weren't approaching people for, you
know, to raise money. They were approachingus. Hey, how can we get involved in what you're
(28:17):
doing? Right. And, um, that changes the wholedynamic when you're not. out there desperately
trying to figure out how am I going to fundthis deal or how am I going to fund this loan?
Now it's a new problem. I need to find anotherdeal. I need to find another loan to keep this
investor's money going because they're a greatperson and I want to make them money. And in
(28:43):
doing so, I want to make a return to feed myfamily. Right. That's a great problem to have.
It is a, it is a great problem. However, itis still a problem. I mean, it can, and you
could run into this too. with Madison investing,it's a problem if you let it overwhelm you
and, and overtake your decision-making. Sure.Your morals and your ethics have to be extremely
(29:04):
strong when you're dealing with anybody's privatemoney. It should be strong when you're dealing
with anybody's money, whether it's institutionalor private, but we all know about Ponzi schemes
and things of that nature, but yeah, you canget caught up in it and caught up in the excitement
or the, the profit, whatever you want to whateverdrives you. So yeah, I'm kind of on my soap
(29:28):
box now, I'll get off. But, so what are youfocusing on right now? These, you know, today
you're looking at growth, you're looking atjust sustaining, you're looking into new markets.
What's 2025 look like for you guys? Yeah, youknow, and gosh, do I agree with everything
you just said. 2025, man, it is a remarkableyear in terms of looking at I still break it
(29:53):
down into we got before COVID and after COVIDwhen it comes to the real estate landscape.
And, you know, of course you have to go intointerest rates, et cetera. But I look at right
now, massive opportunity and this is where I'vealready invested, you know, quite a bit of
my own money along with our investors in thepast 12 months. Same thing will happen this
year is banks have pulled back a lot from lendingto investors. So as a, as a former lender yourself,
(30:18):
you'll probably appreciate this within biggerassets. you know, apartment buildings, self-storage
facilities, still love those, those have beenthe focus of what we invest in. Great apartment
communities and self-storage facilities in theSouth, in Midwest, some of the Rockies. And
the problem is the operators, they might begreat, the banks won't lend them the same amount
(30:40):
that they used to be able to. And as a result,we're getting more on the lender side of the
balance sheet, you know, so we're focused onprivate credit and private debt. Now, the way
that we have done that, It took a lot of R andD man, just so you know, we're still looking
at individual deals. So, you know, we just didclosed on a great apartment building, 54 unit
(31:00):
back in, um, in Kansas city about three monthsago with some partners of ours. So we're still
looking at one deal at a time, but much moreinterested in actually investing on the private
credit side for the time being, because interestrates are not coming down anytime soon. Everyone
thought when the fed started cutting mortgagerates, we're going to follow, follow suit and
(31:21):
it's the opposite. So, you know, a lot of thesedeals, people want to go and buy a new apartment
community. People want to go buy a self storagefacility. They still need loans, gap closed
loans, right? And so that's where we're leaninginto right now. So we opened up like a feeder
fund last year and it's just thriving, you know,because I think folks are realizing, oh, I
(31:43):
can get a great risk adjusted return at a definitivelylower risk profile. Still get cashflow, still
get upside, all that good stuff, but you don'thave to go necessarily be common equity and
then the investment. I don't know how nerdypeople wanted to get about it, but yeah, that's,
that's nerdy that I'm excited right now. Itdoesn't come with the tax benefits, but, um,
(32:04):
I do like those, those passive losses and paperlosses that we can get when we find a great
deal on the real estate side, but, uh, but thisis where I'm fired up right now. From your
own perspective for your goals versus peoplethat you talk to, are you looking for a flat?
certain percentage of, you know, return on investment?Are you looking at ROR and IRR? What does it
(32:28):
look like? Yeah, gosh, the ever evolving question,right? So the way I get myself centered and
I'm sharing this also because it's not onlyhelpful for me on every deal I look at and
every year we set annual goals. That's justpassive investors, but I'm told regularly by
our members and our passive investors that investalongside us, that this is just super helpful.
(32:50):
like fundamental principle stuff. I sit thereand I say, okay, are we investing for cashflow?
Are we investing for growth? That's questionnumber one. Like what's the goal for the money?
You know, and if it comes down to equity growth,then it has to be like, we're not worrying
about cashflow on this example, but then I wantit to be something that's going to be meaningful
in terms of actual, you know, growth multiple.It's gotta be at least like 2.5 to 3X, you
(33:17):
know, and then using more just kind of broadstrokes terms here. But it's kind of what I'm
looking for is, you know, 2.5 to 3X have beenabout a five-year period. Um, on, on the cashflow
side, uh, you know, private credit stuff thatwe're investing in right now is around 12%
to 15%, you know, annualized. And so, so that,that's interesting enough for me, you know,
(33:38):
as a guy who comes from tech that would putmost angel investors to sleep, right? They
want a 25X multiple on their. on their money,you know, but that's also going to be one out
of a hundred companies they invest in. So yeah,I was going to say they're gambling. Yeah,
it's just a different model. I like the bestkind of boring. That is what I'm interested
in at this stage. And I think, uh, that's, that'smore in line with what we're seeing right now.
(34:01):
I'm kind of that credit side. Yeah. Well thatfor me being a Midwest guy and I've, I've bought
and sold in other States, but primarily I staylocal in, in my region that is, and, um, we
don't have the peaks and valleys. in the Midwest,right? It's, it's much more flowing ups and
downs. Uh, we don't get a lot of big surprisesand, and I can still walk out the door and
(34:25):
buy cashflow. And it's not everywhere, but Ican still do it. And, um, and I also get involved
in a lot of creative deal structures, whichis hits all my hot buttons. Um, but I can go
and buy properties. you know, put terms in place,whether that's seller financing or, you know,
(34:46):
buying property subject to existing financingor a combination of multiple strategies. But
I don't have to worry about 30% dips in valueor, and I'm not going to get 30% appreciation
in value either in a, in a year, in most cases.But it's, as you said, it's boring. I got my
ass kicked when the markets crashed in 07. andlost everything. And, and, uh, I don't ever
(35:11):
really want that feeling again. So I, I meetplenty of people that hit home runs and they
think they're God's gift to real estate investing.And I pat them on the back cause that's what
they want. Congratulations. You're amazing.You, you get that one out of a hundred deal.
I'll take the base hits all day long. Yes, sir.And at the end of the game, uh, I'll probably
(35:35):
be winning. So for sure. Aligned on that. Well,Spencer, um, man, we've been going for a while
here. What is a question that I should haveasked you that I didn't, and it can be about
anything. Ooh. You know, I think, um, maybejust like what, you know, what are the biggest
learnings about this whole financial freedomjourney, you know, say just there's something
(35:58):
along those lines, you know, and I think, uh,when I connect with folks, you know, Two kind
of general profiles of folks that I usuallyend up chatting with who are in the investing
ranks, you know, and I'm sure you know, plentyof them as well. Yeah. They've got folks that
I know from my tech career. They're making anincredible fang company money, you know, W2
income, 300, $400,000 a year. Then you've gotthe folks who are more entrepreneurial, you
(36:20):
know, they might be second, third generationowners of a company, you know, old school business.
In, in both those cases, they hit a point. wherethey say, well, I have enough. So like really
the question is like, what is enough? You know,and it's getting a little philosophical here,
Derek, but I think this is still one of themost fascinating, if not the most fascinating
(36:41):
question for anyone who's investing and doingso actively passively, both, you know, what
have you, is like, what is, you know, challengingoneself to say like, what is enough? Because
if you can circle that question and kind ofget closer and closer to it every year with
your annual goals, I find You start to realizeyou may not need as much as you think. And
(37:03):
I'm talking on the financial side because yourcup is filling up with these other wonderful
aspects of life, you know? And that means whetheryou're, you know, as a father, as a person
who has certainly spent a ton more focus onmy health, um, in the past years than I ever
did and when I was in the depths of my W2 career,so I think that like, you know, big learnings
across the board, it's a wonderful privilegeto be in a position to, to have this, the brain
(37:26):
space. you ask that question. I'm not delusionalabout that. I think that, you know, it's a
loppy thing, but people can't stop and thinkabout that when they're worried about putting
food on the table. But for those that actuallyget there and they're sitting there wondering
like, well, what was the point of all this?Why am I still investing? I have plenty of
zeros in the bank. It really comes down to,well, what is enough for you? You know, so
(37:48):
I guess I'll leave it there. And that's verymuch leads into, you know, our mantra, live
your vision, love your life. And you and I were...talking a little bit before we started recording,
just comparing notes on property values. AndI explained, you know, in the Midwest, I don't
have to make Silicon Valley incomes to livea certain lifestyle. And it's all relative.
(38:14):
And I would much rather have more time withmy kids and my family and my friends and do
stuff like this than to go make. X number ofdollars more. I'm not opposed to making that
money as long as I'm a good steward of thatmoney and I can live my vision. Great. But,
(38:36):
and that's the part with having the vision thatis so important. It is when you see these shiny
objects coming at you, it's what you filterthem with. Does this get me closer to my vision
or take me further away? Man, there's so manybusiness owners and entrepreneurs that just
get caught up in the shiny objects and they.I don't think they ever actually see the real
(38:58):
big picture until it's too late in most cases.So, gosh, do I agree with that? I completely
agree with that. Darrell. Well, Spencer, it'struly been a pleasure having you on the show.
I appreciate it so much. If, if, uh, anybodywants to get a hold of you at all, we can have
a link at theg forward slash Madison investing.And that will. redirect you and take you directly
(39:26):
to Spencer's contact information. If you wantto talk to him about what he does and anything
that he can help you with Spencer really hopethat, uh, everything goes well for you. Who
knows someday you might be intrigued in theMidwest and we can, uh, we can talk about other
transactions. So, yeah, looking forward to it,Derek. No, thank you for having me on. This
(39:49):
has been awesome. Perfect. Well, we'll wrapit up there. Thanks for joining us at the Generations
of Wealth podcast. Again, until next time, goout, live your vision and love your life. See
ya.
Thank you for joining us on another insightfulepisode of Generations of Wealth. May your
newfound knowledge help you in leveling up yourown strategies to get through the many obstacles
(40:13):
to your money-making processes and bring youmuch closer to the financially secure life
you truly deserve. Continue filling up youraccounts and further polish your financial
tactics by listening to more episodes of thepodcast at TheG Because in your wealth building
journey, there is no other way to go but up,giving you the chance to finally live your
(40:36):
vision, love your life. That's all for now,see you on the next one.
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