Podcast

How to Evaluate Real Estate Opportunities in 2021

1Q21

How an experienced investor evaluates real estate projects, and how we can maximize the resources available to us to pursue our passions.

Read The Transcript

In the inaugural episode of Real Wealth, Real Health for 2021, we are excited to welcome Hunter Thompson, founder of Asym Capital and Managing Principal at Cash Flow Connections. Hunter has long been focused on living an entrepreneurial lifestyle where he could be his own boss, set his own hours, and most importantly, pursue the opportunities that he finds interesting. Hunter’s early career started with him pursuing education and coaching online to learn to play Professional Poker, where he found enough success to start investing in people, businesses, and eventually Real Estate. Hunter quickly learned that the risk assessment skills he learned in poker translated very well to evaluating investment opportunities, and shares with us some simple, yet brilliant insights into how these seemingly disparate disciplines have worked to help advance his career as an entrepreneur.

In our thought-provoking discussion surrounding the current and future state of Commercial Real Estate, Hunter talks to us about the way he thinks about investing today, particularly in a post-Covid environment. We discuss the changes to various commercial real estate sectors that are likely to arrive, and the impact they might have on operations. We also talk about the diligence, underwriting, and monitoring it takes to stay on top of investments, and why it is important to know what you are getting into when establishing a source of Passive Income. Finally, we spend some time highlighting the Intelligent Investor Real Estate Conference, a 3-day, newly virtual, investor conference, presented by Asym Capital & For Investors By Investors. The conference provides exciting educational content and will foster an environment where meaningful, lifelong professional relationships can be made.

Key Insights

  • How the risk-assessment skills acquired in a Professional Poker career can apply in evaluating investment fundamentals
  • Hypothesizing on the many ways Covid-19 and the resulting economic shutdowns will affect the economy, and how that information can inform future investment decisions
  • Assessing the future of various Commercial Real Estate sectors, and how well they might perform in a post-Covid environment
  • Dispelling the myths about Passive Investing, especially in Real Estate, and understanding the amount of detailed work it takes to be successful

 

Guest Bio:

Hunter is a full-time real estate investor and founder of Asym Capital, a private equity firm based out of Los Angeles, CA. Since founding Asym Capital, he has raised more than $35 million and directed the purchase of more than $90 million of commercial real estate across a variety of asset classes.

He is the author of Raising Capital for Real Estate: How to Attract Investors, Establish Credibility, and Fund Deals.

Hunter is also the host of the Cash Flow Connections Real Estate Podcast which is frequently listed in the top 200 Investing podcasts in iTunes.

Hunter has been featured in Forbes, Globe St., Inside Self-Storage, as well as a variety of other media news outlets, podcasts, and radio shows.

Resources:

Real Wealth Real Health

Alpha Investing

[email protected]

https://cashflowconnections.com/

https://asymcapital.com/

https://iirec2021.splashthat.com/

Podcast Transcript

Narrator:

Welcome to Real Wealth Real Health. The show that empowers you with insights, information, and inspiration, to achieve your version of financial wellness. Learn how to balance living a full life today, with planning for the future. This podcast is brought to you by Alpha Investing. A real estate centric private capital network, that provides exclusive investment opportunities to its members. Now, here are your hosts, AdaPia d’Errico, and Daniel Cocca.

AdaPia d’Errico:

Hello everyone. Welcome back to Real Wealth Real Health, and the first episode of 2021. I hope everyone is looking forward to a new year, new opportunities, and some new energy behind us. On our episode today, we are speaking with Hunter Thompson. Hunter is a full time real estate investor, and founder of Asym Capital. A private equity firm based out of Los Angeles, California.

AdaPia d’Errico:

Since founding Asym Capital, Hunter has raised over $35 million, and directed the purchase of more than $90 million of commercial real estate, across a variety of asset classes. He is also the author of Raising Capital For Real Estate: How To Attract Investors, Establish Credibility, and Fund Deals. Hunter is the host of the top 200 investing podcast on iTunes, Cashflow Connections Real Estate Podcast.

AdaPia d’Errico:

In our conversation with Hunter, we talk about the way he thinks about investing today. Particularly in this post COVID environment. We discuss the changes to various commercial real estate sectors, that are likely to arrive, and the impact that this might have on operations. We also talk about diligence, underwriting, and monitoring, and what it takes to stay on top of investments. Why it’s important to know what you’re getting into when establishing a source of passive income.

AdaPia d’Errico:

Finally, we spend some time highlighting the Intelligent Investor Real Estate Conference. A three day, newly virtual investor conference, presented by Asym Capital. For investors, and by investors. This conference provides exciting educational content, and will foster an environment where meaningful, lifelong professional relationships can be made.

AdaPia d’Errico:

It’s great to have you. A few weeks ago, we know you had Daniel on your podcast. Which was a great episode. We had a lot of really good feedback. It’s going to be really fun to have you on ours. I first met you, well January of 2020, when you were doing your IREC conference. Which is an annual event. Which is something that we’re going to talk more about, because it’s a great resource for investors, and people who are interested in real estate. I guess these days, it’s all virtual. You don’t have to be in LA to come to the conference this January, right?

Hunter Thompson:

Yeah, 100 percent. Yeah, we’re looking forward to it. We’ll talk more about it later. But great to get connected again, and always enjoy working with you guys.

AdaPia d’Errico:

Yeah, yeah. Well great. Let’s jump in. We always like to start with people’s stories. Your stories are rich with all the meaning, and all the moments, and this thread and this narrative, that really creates the person that you are today. You are a preeminent, you’re very well known, you’re very well respected, real estate investor. You syndicate great deals. It’s going to be really fun to talk to another syndicator on the show.

AdaPia d’Errico:

But what’s your story? How did you know you wanted to be in real estate, to this degree? Doing what you’re doing?

Hunter Thompson:

For one thing, I was just very drawn to the world of entrepreneurship, from a very young age. Did everything I could to avoid having a formal, corporate type of job. Which wasn’t hard, by the way. I didn’t build a resume that would attract corporate attention, and so because of that, didn’t have to work very hard to avoid that type of situation.

Hunter Thompson:

But I started a couple companies in high school and college. Had a summer, where I was a professional poker player. As I did these interesting, unique ways of making money, which by the way, the stint as a professional poker player is one of the most important and influential moments in my life. Because it taught me that, if you focused enough energy, and took significant time blocks, and got a coach, you can learn really challenging, complicated things on the internet.

Hunter Thompson:

Back then, as a college student, trying to avoid getting a typical Summer job, I did all those things. During the poker boom. Which is a multi-billion dollar boom in the industry of poker. I got a coach. I took it very, very seriously. Back then, if you did those things, you could make $10,000, $20,000, $30,000 a month, on a consistent basis. That’s what I did, leading up to 2007.

Hunter Thompson:

For anyone that’s familiar with the online poker world, right around that time, something really important happened in the industry. Which is known as Black Monday. What happened was that the United States government basically banned online poker. I had gotten my money out of online poker, right before this happened. It created a situation, where I had some capital to invest. I had a lot of connections in the poker world, that got their accounts frozen, and they didn’t have an end in sight.

Hunter Thompson:

Some of the first investments passively that I made, were the concept of backing professional poker players. I think now, the word of poker has a very different meaning. But back then, poker was typically done in casinos and such. But the wave of online poker was basically filled with a lot of MBA students, a lot of people who were tech savvy, and also geared towards learning, it’s basically a very complicated algorithm, and assessing things on a risk adjusted basis.

Hunter Thompson:

I was able to back a few poker players. Then once that opportunity dried up, because they made their money and moved on, I was able to transition to my career as a real estate entrepreneur. Which we’ll talk about. But it coincided very favorably with the market dynamics. Because –

AdaPia d’Errico:

That is so interesting. But –

Hunter Thompson:

Yeah. 2008 happened shortly after that.

AdaPia d’Errico:

Right. 2008, for the financial markets. But first you have Black Monday, in the online poker world. Which is obviously going to be completely different from, I would imagine, because you talked about algorithms. It’s got to be different from sitting down across from somebody. Or is it the same, are you still working an algorithm of sorts? It’s all numbers and people, right?

Hunter Thompson:

I’d say that the thing that poker taught me, that’s just really, really important, and poker player Annie Duke wrote a book about this. Which is that, people typically think in binary terms. People typically think in pros and cons list. As opposed to weighing things from a probabilistic outcome perspective.

Hunter Thompson:

If you use a pro and con list, for example, it’s hard to give a weight to each of these potential cons and pros, and so you’re just left with a list. Making an assessment on risk adjusted basis, it’s very hard to find which is more favorable. But there’s a concept in poker called pot odds, which allows you to calculate the prospective likelihood of you winning, with the prospective likelihood of how much you will win. That concept is very, very powerful, in terms of investments.

Hunter Thompson:

I’ll give you a shorthand thing. Typically, we do not invest in development. It’s very hard, if you don’t have those skills regarding pot odds, to comprehend why we would not. But basically, to make it as simple as possible, I would say that a development typically incurs about twice the risk of a typical investment. Let’s say a value add type of investment. But it’s likely not going to provide twice the return. Now, that’s a very simple, straightforward version of the pot odds concept. But that’s why it applies so well to real estate.

AdaPia d’Errico:

I was actually going to ask how it applies. That’s such a perfect example. We also don’t do development. For us too, we don’t have the expertise in house. With the returns we’re able to see with existing projects, with cashflow, you weigh those two together, and it doesn’t really make a lot of sense.

AdaPia d’Errico:

But can you tell us, when was that moment? You went from poker, and you got started. But that would have been right as things were crashing. 2008, 2009. What was that transition like, during that time? As the world was seemingly falling apart? But it could have also been a really great time, to be getting started. Because if you were there then, you were able to pick up on opportunities, as things started to get better.

Hunter Thompson:

I was very insulated from the 2008 crash. Because that’s not where my money was. I just exited from the poker world, and as a college student, wasn’t really investing in the stock market. But when 2008 happened, I was really turned onto the potential blood in the streets type of mentality. I took that energy that was originally focused on poker, to learn about the financial sector.

Hunter Thompson:

Like I mentioned, today this is common practice. But 10 or 15 years ago, learning complicated things on the internet was just starting to come into fruition. Having a coach that would teach you over the internet, for example, in 2005, or 2006, or 2007. That was a relatively new thing. Especially with something complicated.

Hunter Thompson:

I dedicated that energy, and just started doing what most people do. Reading Warren Buffett, Charlie Munger, the most well known people, and investing in the stock market. Because that’s what I knew. When I say that’s what I knew, it was a rudimentary understanding. But basically, looking at things from an historical basis, based on valuations and income. Recognizing that it was a favorable time to invest in high quality assets, from an historical standard.

Hunter Thompson:

Blue chip stocks. Just trying to pick companies that I thought were going to succeed out of the Great Recession. Had some success, as anyone would back in 2008, doing that kind of strategy. But hit a big wall in 2010.

Hunter Thompson:

The 2010 thing was the European debt crisis. This is something I’ve talked about before. But I don’t think this gets enough attention. I was so confident that I had some sort of advantage, just because I had read a couple of books by some really good thinkers. Then out of nowhere, something wildly unpredictable, un-mitigable, just obscure. Where everyone on CNBC is all of a sudden talking about nothing but the Greece bond yields.

Hunter Thompson:

It was this moment, where I thought, “I can’t build an infrastructure large enough to predict or mitigate these types of risks. I have to find something that’s scalable and replicable, and can be lucrative, but I can identify risks and mitigate them”. That opportunity was not in the stock market. At least not in the broad market.

Hunter Thompson:

I was open to anything. Cashflow focused, potentially recession resistant, was my intuition. But real estate, for all the reasons I’m sure you’re familiar with, just again and again presented itself as a great opportunity.

AdaPia d’Errico:

Yeah, it makes a lot of sense. I remember, I was living in Europe at the time. I very much remember what was going on in Greece. It took everybody out. It’s interesting though, because you work so hard to be informed, and do your best. You’re clearly very diligent, you’re very thorough in your approach. You try to get to the bottom of things, so that you can build them up. It’s hard to get sideswiped by all these kinds of things.

AdaPia d’Errico:

Let me ask you. Did COVID sideswipe you? In a way, it sideswiped everybody. That’s not what I mean. But it was also potentially unpredictable. Even though it comes in hundred year cycles, with viruses, over the last few hundred years. But how did that, having gone through 2010, with the debt crisis, and then COVID 10 years later, what was the difference in your approach, and how you felt? In the level of confidence or expertise, then versus now?

Hunter Thompson:

Yeah, so I’ll explain our big picture thesis, and then how it’s played out with COVID. Pretty early on, I was very drawn to what’s now referred to as the recession resistant asset classes. Mobile home parks, self storage, etc. Initially it was mostly because the opportunities in single family, which were very popular back then, in the wake of the foreclosure crisis, I just didn’t see, there’s two things that weren’t there. The scalability, and the very savvy, sophisticated operating partners, that I would need to rely on.

Hunter Thompson:

That’s not to say that that doesn’t exist in single family, so please don’t send me a zillion emails. By the way, if you are operating successfully in the single family business, and you’re scalable, and you’re a savvy operator, you have a tremendous advantage over your competitors. I’m very sympathetic to that. But generally speaking, I want to rely on people that stand to make millions, or tens of millions of dollars, if they execute.

Hunter Thompson:

That lends itself to much larger purchase prices, and larger business models. $15 million self storage properties. Or a fund of $100 million of mobile home parks, etc. The thesis is simple. I’m willing to give up plenty of the upside, that may be associated with more cyclical assets, in exchange for the predictability of outcome.

Hunter Thompson:

That was the thesis. If you look at, let’s say same store or same property in a wide growth, the chart, Green Street Partners did a report on this. Where it shows retail, office, multi family, self storage, and mobile home parks. Self storage and mobile home parks are just the slow and steady wins the race type of structure. But the NOI growth is just tremendous.

Hunter Thompson:

Now the argument though, is that NOI growth doesn’t paint the whole picture. Valuations are also quite important, for determining ROI. But I don’t care so much about the IRR. I want the predictability of outcome. That was the big picture thesis.

Hunter Thompson:

When COVID happened, to be honest with you, we sent out communications to our investors, that were very bearish. Even with that structure, where the concept is, if everyone starts making 20 percent less than they’re currently making, there’s plenty of demand for the mobile home park business in particular. But that’s not the whole picture. Just like NOI growth is not the whole picture.

Hunter Thompson:

Lenders can go under. People can have their properties foreclosed on. People can move out of a mobile home park, and be homeless. We didn’t know what was going to happen. We sent out communications saying, “Buckle up. There may be some serious distress in the opportunity. I’ve been through this before, in the wake of 2008”.

Hunter Thompson:

Personally, it was frightening. How could it not be? It’s completely ahistoric. It’s difficult to underwrite a government lockdown. That’s not in our sensitivity analysis. I can finish the story out. But my initial reaction was, “Holy crap. Hopefully our investors are capitally sound, so that they’re going to be able to take the advantages of the valuation change that’s about to happen”. Now, we haven’t seen that. But that was my initial inclination.

Daniel Cocca:

As someone who has a podcast, does a ton of content, is a thought leader in the space, how do you balance all of the things that investors are looking to hear? Listening to hear? The larger narratives around investing. With your own strategies? Because we do hear a lot about storage and mobile home. We have since 2015, because of how they performed through the Great Recession. COVID is a very different animal than the great recession. But you still see a lot of that narrative.

Daniel Cocca:

How do you piece through that, as you think about reaching investors, and getting them to understand your thesis?

Hunter Thompson:

Man, that’s such an important question. It’s why I really like working with you guys. Because I know that you built your business around your own investment theses. It’s not a show. It’s not for marketing. You actually believe what you say, and you invest align with what you say. I see so frequently, you can get a lot of clicks, for example, going on the internet and talking about how bad Bitcoin is. But if that’s going to be your career, but you’re not shorting Bitcoin, what are you doing? You’re just trying to get clicks.

Hunter Thompson:

Similarly, I can go and do all my speaking engagements about self storage. But if it’s 10 percent of my portfolio, that doesn’t align with what’s going on. I try to be very transparent about what I’m actually investing in. I’d say that 90 percent of my investments are done through Asym, or our deals. I know you guys are sympathetic to that, which I really like.

Hunter Thompson:

From a big picture perspective, I’d say that about 60 percent of my investment portfolio is in mobile home parks, and self storage. Probably 10 percent is in retail. 10 percent is in a startup, Thrive Market. I was an investor in that company, and still am. Oh, actually Madre Mezcal, which by the way, go. If you’re into mezcal, which I know not everyone is, go get a bottle of that. That’s the best mezcal. That’s why I invested, is the product is incredible, and the team is awesome. That’ll probably give you a good understanding.

Hunter Thompson:

I am very much interested in, and we just put out a deal in the ATM business. Which I’m sure, as soon as I say that, people, probably 30 percent, will click off of this podcast. Just because it’s like, “Do you not know what PayPal is?”. But it’s a very interesting play. Because the ATM business caters to un-banked and under-banked population.

Hunter Thompson:

What happens during recessions, is that there is an influx of that population. Not that it’s needed. But it’s an interesting dynamic. Where if you have a low credit score, and you have a $600 net worth, with the way the tides are blowing, it’s very important as investors to weigh headwinds versus tailwinds. Yes, the technology risk is legitimate. But those technologies require bank accounts. Credit cards, Venmo, PayPal, etc, they link to your bank account.

Hunter Thompson:

When I look at the banking regulations that are causing business models to be changed, from making money by lending, which is what banks used to do. With the interest rates the way they are, Bank of America for example, less than half of their income is now derived by lending money. It’s all derived by fees. Those fees are really crushing and crippling for low balance clients, who have to pay $10 to have a bank account every single month. Again, if you have a $600 net worth, you can’t pay that. It creates all this demand for the ATM business.

Hunter Thompson:

Anyway, those are my concepts, and how the portfolio works. That’s always going to be the thesis. It’s very difficult for me to debunk the recession resistant thesis. But the percentages will change.

Hunter Thompson:

As an example, grocer anchored retail is a narrative that I’ve always talked about. I think it’s really interesting. It’s very hard to even get a loan for a retail center, regardless of who the tenant base is. That percentage will change over time.

Daniel Cocca:

Yeah, I mean the world is changing, right? You can’t be right 100 percent of the time. You and I have talked about this, ad nauseum. We were looking at build to suit, basically gyms, fitness centers, that seemed interesting at the time. Thank goodness, no, we ended up passing on those, given COVID. You’ve got to apply your strategy. But timing’s also important as well.

Daniel Cocca:

One of the things that I think is particularly important, for the busy, working professional. Which we all were, before we moved into these roles. Is just this idea, that there is stuff happening. If you are forward thinking, and thoughtful, and you read a lot, and you talk to smart people, you’re able to come up with investment strategies that just make sense.

Daniel Cocca:

The ATM investment on its surface never really made a ton of sense to me, for all the reasons you just mentioned. But as you take this deeper dive, you peel back the onion layer by layer, you realize, “Well, maybe now’s a perfect time. Because no one else is thinking about this, or the magnitude of people that are thinking about this is much smaller, that’s where my opportunity is created in”.

Daniel Cocca:

COVID, I think has caused people to ask the question more frequently, “Where is the opportunity, going forward?”. We’d love to hear what you think, over the next one, two, three years, where are the opportunities going to pop up?

Hunter Thompson:

Yeah, so I don’t want to be a broken record. But like I mentioned, the thesis really is not subject to the changes of the market. Even in wildly ahistoric manners. It’s just about the percentages of allocation.

Hunter Thompson:

One thing that I will say, that I think COVID is going to create though, is an opportunity for a pricing arbitrage in the distressed debt space. Because that’s something that really hasn’t been in play. Not that distressed debt isn’t always interesting. It’s just that, the amount of question marks surrounding foreclosure moratoriums, for example, those question marks create an opportunity for a pricing arbitrage. There’s fear in the marketplace.

Hunter Thompson:

For the most part, there’s not a lot of fear in multi family apartments right now. Doesn’t mean there’s not great deals to be had. But if you’re looking for those unique, COVID type of plays, we are very interested in distressed debt space. Both in commercial, and in residential.

AdaPia d’Errico:

Yeah, it’s really interesting that you say that about the distressed debt. I think I just read that somebody’s raising a $650 million fund, to buy hotel debt. To buy hotel assets. In preparation for what they expect to be a big jump in travel again. Which, I know we all, I know the three of us, we love to travel. Everyone to various degrees is itching to travel. It’s in our nature to do.

AdaPia d’Errico:

People are already lining up, and preparing for this. As most very savvy investors do. They’re preparing ahead of time, where they see the opportunities going. Yeah, I’m not surprised to hear you say that at all, about the distressed debt as well.

Hunter Thompson:

Can I add one more?

AdaPia d’Errico:

Yeah, for sure.

Hunter Thompson:

Which is that, something that people are talking about. Senior living is just a really fascinating space generally. I’m sure, again, looking at the tailwinds versus the headwinds. It’s very compelling. The demographics create a big margin of error, so that if you make a mistake, there’s a significant tailwind to that investment. Regardless of the operating efficiencies.

Hunter Thompson:

Now of course, it just so happens, that’s one of the most complicated assets in the world. You have to really know what you’re doing, and identify quality operating partners. But with COVID now, there’s an additional question mark there. Because in the world of senior living, the assets are typically smaller than what we may be interested in, in let’s say multi family apartments. I really start to feel comfortable at 150 units. Where if 10 tenants move out, you’re not really worried about it, and likely the investors would not experience a change in cashflow if that happened.

Hunter Thompson:

With senior living, because the operating expense ratios are typically somewhere in the range of 70 percent, which is 50 percent higher than multi family apartments, and you have smaller assets. Let’s say 50 to 100 units. If 10 tenants pass away, because they typically are not moving out, that can create some challenges from a cashflow standpoint.

Hunter Thompson:

But again, it’s not just me and you two that know that. Right? It’s really common to understand that dynamic. Which means again, there’s an opportunity for pricing arbitrage. I really like that industry. I’m just super, super cautious about who we’re willing to work with in that asset class.

Daniel Cocca:

Yeah, senior housing is actually where Alpha got its start. Informally, before we technically started the company. Part of the really interesting components of the space, is that the ownership is very fragmented. You see a ton of mom and pop, or single asset owners. For a group like us, that wants to work on acquisitions, it presents this really compelling buying opportunity.

Daniel Cocca:

I always tell the story, I was at a conference. An IMN conference on senior housing, a couple years ago. When people still met in person at these things. I was on a panel, and I said, “Out of all the senior housing sponsors in this room, how many of you work on acquisitions, as opposed to new construction?”. Three out of about 200 people raised their hand.

Daniel Cocca:

Two of them were on their first deals, and the third was someone who we had been working with, for 15, 16 deals already. It just goes to show, the operational intensity eliminates a lot of folks from that space. That’s where opportunities get created. It’s an asset class we absolutely love. It’s encouraging to hear you feel similarly.

Hunter Thompson:

Yeah, I completely agree. But it’s immature, for lack of a better term. In 2012, when I would get in a room of 30 accredited investors, and give the pitch of a lifetime, the results would be less than stellar. If you’ve read my book about raising capital, you can know what I’m talking about. You can’t do much worse than raising $0, okay? That’s what I would do on a regular basis.

Hunter Thompson:

Now the issue with senior living though, is that the industry hasn’t yet given you those institutional players to rely on. Like Dan mentioned, if you want to participate in the space, and you want to focus on acquisitions, if you’re going to IMN conferences to try to identify those partners, that’s what’s going to happen. It’s going to be a room full of people, that would likely not be a good fit. You have to really, really try to create those relationships.

Hunter Thompson:

We’ve spent a lot of time. Doing everything from cold calling, to accepting inbound requests. Which is two things we would never do in any other asset class. Still, we’ve only done one deal that we thought was a great fit, with the right partner. It’s quite challenging. By the way, it was a real word of mouth kind of referral that ended up happening. After all that hard work, it didn’t really prove anything.

AdaPia d’Errico:

Yeah, so Hunter, speaking of conferences and networking. You host your own conference about real estate investing. Since we want to share more resources and education, with our network, with our listeners, let’s spend some time talking about your conference. Because it is coming up, January 28th, 2021.

AdaPia d’Errico:

What got you started in doing a conference? Why has it been such an important vehicle for growth? I know every time I go to conferences, especially, I’ll say it this way. It’s a smaller conference, yours. Which I loved. I get so much more out of a smaller conference, than these big giant ones. So I really appreciated them.

AdaPia d’Errico:

I don’t say it as, it’s derogatory, because it’s small. I actually think it’s fantastic because it’s smaller. I love the opportunity to meet people in person, and learn from them. Because we learn so much, just in having these different conversations. Tell us about your conference. Tell us what people would learn, and why they would benefit from joining you, this January.

Hunter Thompson:

Yeah, I appreciate that. Thanks for giving me the opportunity. This is something that, three years ago, was really borderline. In terms of, would it be even economically viable? That’s to create an event that was focused on passive investors. The question was, would a passive investor pay $500 to come to LA, and get a hotel room, and learn about passive investing? The whole point is that they don’t want to be active.

Hunter Thompson:

But what we’ve seen is just an incredible tsunami of interest in this world. Even in the last three years. But particularly over the last eight or so, with the change of the JOBS Act. I think that is only going to continue. Sometimes we can get in our echo chambers, and think that everyone’s a multi family operator and works in Texas, or something like that. Nothing could be further from the truth.

Hunter Thompson:

You look at the macroeconomic picture, where the bond market is $14 trillion of negative interest rate bonds. That’s a more realistic approach to which way the tides are blowing. There’s a glut of capital searching for yield. Not great multi family value add deals in Austin.

Hunter Thompson:

Having said all that, to answer a lot of those questions, we want to create a situation where we’re putting a lot of the sponsors we work with together. Some very savvy passive investors, and create panels about things like economics, and regulatory hurdles, and tailwinds versus headwinds on various asset classes. Deep dives into various niches.

Hunter Thompson:

It’s the Intelligent Investor’s Real Estate Conference. We’re doing it online this year. It’s available at iirec2021.com. You’ll probably recognize some names, that have popularized in the speaking world of real estate. But there’s also probably a lot of names that you’ve never heard of, that are very influential people in the space. Jason Post is a guy that comes to mind. They’ve got about $1.5 billion of multi family assets. But unless you’re in the world of real estate, you probably aren’t familiar with who they are. But they’re movers and shakers in the industry.

Hunter Thompson:

We want people that are super polished, that have their narrative and their predetermined points to really communicate effectively. But you also want people that aren’t professional speakers, that are really giving you inside industry secrets, that you may not be able to get otherwise.

AdaPia d’Errico:

Yeah. You know, it’s interesting. You said the passive investor that doesn’t want to spend money to make his money. But passive investing is also not that simple. It’s not just sit back and make your money. There’s so much more to it, like you were saying before too. You can oversimplify something to get clicks. Also, there’s just the way our attention span works. Just the way we’re conditioned to surface read. There’s a lot of things that are going on, that have really messed with the way that we operate and behave, and perceive. Which is a whole other topic.

AdaPia d’Errico:

But I think it’s important to talk about, passive investing isn’t just, “I’m going to make an investment, and sit back, and never have to spend money on something, and never have to spend time on something”. To understand what you’re investing in, before giving over your money, requires a lot of upfront work.

Hunter Thompson:

Definitely. We wanted to be in a position, where we could have our investors defer to our due diligence process. Our firm is positioned similar to Alpha, in the sense that we pull our investor base together, and invest in institutional partners. Or joint venture with those institutional partners, or quasi-institutional partners in some cases.

Hunter Thompson:

But at the same time, the reason that I created the company, is that there’s a level of due diligence that is prudent to do. But it’s almost economically un-viable. If I’m a passive investor, and I’m investing $100,000, I think intuitively, you would want to go see the properties, visit the headquarters of the asset managers. Go to multiple states, and see what the teams look like across state lines and such. But it’s just not viable. You can’t spend 100 hours on due diligence, and $3000 flying around the country, before you invest.

Hunter Thompson:

We want to create a streamlined environment, so that you can come to LA, or in this case do it virtually, and learn in two or three days, a big high level overview that you can then use for the rest of the year. It’s funny that you mentioned it’s not a large conference. That’s correct. We’ll probably have 300 attendees this year, as opposed to those that have 3000. But it’s probably the number one or number two passive investor conference in the country. Maybe the number two would be Best Ever, number one would be Best Ever. Which has a focus on both.

Hunter Thompson:

I love those guys. They do great stuff over there. But the point is, there’s so much room in the space to create quality content. Because the investors we’re catering to may be more advanced or sophisticated, than those who are just simply looking to place $100,000, and not worry about the rest. That’s what we decided to focus on.

AdaPia d’Errico:

Yeah, that’s excellent. That’s excellent, yeah. With it being virtual too, with a smaller group, there’s just so much more time for networking, and getting to know people. Which is really important. Like you said, even with your sponsors, and this is the same for us. We’ll evaluate inbound, of course. But all the sponsors that we work with have all been referred, recommended, or met by one of us in person. Then we proceeded with our diligence, and everything like that.

AdaPia d’Errico:

It’s being able to build those connections. Because that’s also a really important part of all of this, is getting to know somebody that you might want to invest with. Being able to see them, meet them, understand them, trust them. Get a gut feeling about them. Because that’s a really important piece of it too, for the passive investor. You’re not just looking at a bottom line number. You still have to feel comfortable in the deal, and in who’s operating that deal. Or who’s syndicating that deal.

AdaPia d’Errico:

Because that person, you’re going to have at least a five year relationship. Sometimes more, depending. Getting to know them, understanding them. Understanding the strategy, the philosophy, the background. It’s all really important. Again, I think that’s another really great reason to attend conferences. To also be able to build these relationships.

Hunter Thompson:

Totally agree. Yeah, it’s really hard to accept inbound leads. It’s hard to imagine a scenario where that would come up. For listeners that are thinking about the way it works, we’re always looking for new sponsors. But I’m always looking for a new best friend as well. In the sense of, I’ve got a couple best friends, and it would have to be a wild coincidence.

Hunter Thompson:

But it’s funny. One of my favorite people that I’ve met over the last 10 years, I met at a real estate conference. He had been a listener of the podcast for a long time. We actually had some mutual friends. He walked right up to me and said, “Here are three things I know about you, and three people that I know. Are we going to be best friends?”. We ended up, we are. He was just over here for dinner recently.

Hunter Thompson:

The same kind of thing has actually happened with one of our sponsors. Where they reached out, and they had listened to our show for quite some time. They checked all the boxes. They ended up being a sponsor of our conference. Through that experience, I got to know them quite well. Like I said, we haven’t done a deal with them yet. But I think it’s really a potential, that we may do a deal with them in the next six or 12 months. That would be totally cool, and speaks to the caliber of the type of people that attend some of these events.

Hunter Thompson:

Which, by the way, let me make a comment about that. This event is $500 online. Some people go, “Why would it be $500, when it’s super scalable? You can have 1000 people attend, and it’s not going to cost you any different”. The real difference is the networking. You want people to come that are curated, so that that experience is super quality.

Hunter Thompson:

I have another conference, or a summit, that’s coming up, that’s free. The networking component is not a big value add. It’s just that we’re getting a ton of people in the room that want to learn the same stuff. But with IREC, the networking is huge.

Daniel Cocca:

In real estate, relationships are so important. Everyone knows that. But I think with the fintech, crowd funding movement, 2012 onward, it’s gotten lost a little bit. That at some level, you really need to trust the people that you’re investing with. Because real estate deals are unique. They’re marketed based on forward looking projections, that can very easily be manipulated. If you’re an unsophisticated investor, you’re a perfect target for someone who says, “I want to raise capital. I’m going to do it by showing you a great return”.

Daniel Cocca:

The ability to actually get in front of someone. You meet them in person. Create a relationship with them. That’s always meant the world to us, in terms of our vision for long term sustainable growth.

Hunter Thompson:

Yeah, I couldn’t agree more. Actually, for the listeners, Dan was a guest on our show recently. I hope you can link to that in the show notes page. Because I think he did an excellent job, of discussing this topic. So much so, that the person that I mentioned previously, about one of my favorite people I’ve met. He texted me afterwards, and was like, “Is Dan your older, smarter brother?”. Because this is a really important topic, that we’ve talked about before.

Hunter Thompson:

Which is that, we founded this company because I saw what was taking place in the crowd funding model, and realized that this may destroy this industry that I love so much. You’re taking all the great things about incentive alignment, relationship building, and you’re basically creating a VC funded version of Craigslist for real estate. That’s a story that, we all know how that ends. Where all the compensation is based on up front fees. There’s no performance incentive, and there’s no co-invest.

Hunter Thompson:

I’m usually one of the largest co-investors, or largest investors, of each of our deals. Not only is my compensation overwhelmingly weighted to the performance of the assets. I usually have more to stand, especially on a proportional basis, than most of our investors.

Hunter Thompson:

All of a sudden, all of my intricacies of my personality, and what mood I’m in, and what I’m going through in my personal life, that’s inconsequential. All you’ve got to do is do what I think is the best thing to do. Based on the incentive alignment structure. Then all of a sudden, we don’t do a lot of deals. We do deals that we’re really confident can perform.

Hunter Thompson:

I know you guys are sympathetic to that as well. But I’ve seen what some of these larger firms have done. It can be really impressive and incredible. But at the same time, it’s likely not necessary. I don’t need to go too far down this rabbit hole. But this is a really exciting business, that works 100 percent of the time if you don’t blow it once.

Hunter Thompson:

To incur a bunch of VC funding, to incur a bunch of debt, to try to scale to the moon quickly, is not necessary to really provide incredible returns to your investor base. Which is what this is supposed to be all about. So that’s the way we’re structured.

AdaPia d’Errico:

Yeah, we’re structured the same way, and very much aligned on that as well. Thanks for elucidating on that, because we do touch on it here and there. Sometimes people ask, “Are you crowd funding?”. I’m like, “No, we’re not crowd funding. Here’s why”. This venture backed concept is the number one reason why. Because there’s a very dangerous element there, that can compromise your underwriting.

AdaPia d’Errico:

Because where’s your alignment, if you have to do deals, and you have to put them out there, and you have to scale? Well, that by its very nature means that you might be putting out deals, that aren’t the best risk adjusted deals. They don’t have everybody’s best interests at heart. Because you’re being pushed to scale in this way. It’s a really important topic. I’m really glad that you brought it up.

AdaPia d’Errico:

Last question, and this is something that we ask everybody who comes on the podcast. As you know, it’s called Real Wealth Real Health. We always like to ask you, what does real wealth mean to you? How do you define and live the concept of wealth?

Hunter Thompson:

If this was a computer game, where you have characters, you get to pick your characters. Each one has little strengths and weaknesses, and you can see the bar going up, with the flexibility, and agility, and speed. My freedom one is just smashed all the way forward, and maybe other things aren’t as high. My whole thing is, I want to live a self directed life. Everything is subject to that.

Hunter Thompson:

Now, sometimes that can be, financial wealth is paramount to my view of being able to live a self directed life. But you could see a situation, I mean the VC funding example, where I would be unwilling to incur VC funded. Just because I think that self directed life would probably be limited. Maybe that does limit the potential for how lucrative something could be. That’s the one thing.

Hunter Thompson:

I would also say that a lot of entrepreneurs get into this business, because you can create this sense of passive income. Which is true. I’m an investor in 35 deals, syndications, that my taxes are quite challenging to do. But I get distributions all the time, from things that don’t require my day to day interaction. It’s like an infomercial. If you aren’t familiar with this kind of model, it’s pretty incredible.

Hunter Thompson:

But at the same time, the concept is, you can get all this passive income so you can go to Mexico for a month, and nobody cares. But nobody I know that’s successful is in Mexico ever. We’re all working 40, 50, 60, 70 hours a week, trying to do great things for our investors, and put ourselves in a great position. The same kind of thing with me. I launched the summit recently. We have this conference coming up. We just launched our first deal of 2020 recently. I overworked myself.

Hunter Thompson:

But, and I actually haven’t talked about this publicly. But my wife’s number one goal in life just got granted to her last night, as cumulatively as a family. Because we booked a three night stay in a hotel called Aman, in Jackson Hole. This is our dream vision. Can we get to stay one night in an Aman hotel? All the hard work that I put in results in us being able to stay in this hotel. That’s the dynamic, with what that means. It’s very necessary for me to go to Jackson Hole, and sit and look at a fire, so that I can come back and focus on the grind. Both are important.

AdaPia d’Errico:

I love that. I love that you shared that. Thank-you for sharing that. That’s what it is, right? You granted her a lifelong wish. That just makes, I’m sure. I can see, because of looking at you, how happy that makes you. That that’s something that you can do.

Hunter Thompson:

To provide some extra context, the way this was communicated was, last night I said, “We have an important family meeting”. I made her stand up, and then I proposed it to her. Got on one knee, and said, “Will you come with me to Aman, in Jackson Hole?”. She said yes, and so now we’re going.

AdaPia d’Errico:

I love it. That’s amazing. Well, and what a better way to just close out 2020, and get ready for 2021. I’m sure you, like a lot of us in the real estate space, are really looking at it from a perspective of new opportunities. There’s going to be so much innovation that’s going to come forward, because of the way that we’re adapting.

AdaPia d’Errico:

As investors, we are also adapting to the way we as consumers are adapting to life, as it changes. To me, real estate is one of the most interesting industries this way. Because we see it firsthand. There’s a lot of creativity in the real estate industry, I find. You’ll see a lot of things being repositioned. A lot of innovation around a building that is not really considered necessarily innovative. But it’s the people behind the buildings that are coming in, and saying, “Okay. How are we living these days?”.

AdaPia d’Errico:

That’s a really important place to be. Because we see so many things happening, from the ground. Literally from the ground. I don’t know, do you want to just touch on what you think 2021 … This is beyond investment opportunities. But we’ve been granted this amazing time, because of the crisis. Our last guest, Al Osborne, said, “Never waste a good crisis”. What do you think, in 2021, how is real estate going to change? How are we, as investors, needing to stay really awake, and open, and aware of these new opportunities?

Hunter Thompson:

Well, I mean I have two answers for that. Number one, I didn’t suffer some of the challenges that were associated with 2008. But I know that that was the moment that people will be talking about for the rest of their career, for a lot of people. In the sense of, how did you act when things are actually challenging? What took place back then?

Hunter Thompson:

When you’re underwriting a sponsor, for example. I’m sure one of the questions you ask is, “Were you around in 2008? What happened? Did you deal with any foreclosures? Did anyone sue you? Blah blah blah”. This is the moment right now. This is the moment, for the next decade or several, that we’ll be talking about how we acted. Both from a professional standpoint, and from a personal standpoint.

Hunter Thompson:

Especially given the title of this podcast, and the challenges surrounding COVID, with the lockdowns. Working out is so important. Figuring out how to either, A, build a home gym. Or B, get something going in your community, where you have a place to work out, either outside, or otherwise, is just absolutely critical.

Hunter Thompson:

We’ve talked a lot about real estate, so I’ll talk just briefly about this. The combination of cardio and weights is just such a magical combination. If it’s been a while since you’ve been in a workout, and you’ve thought, “Am I going to survive this?”, it’s a really powerful thing. To gas your central nervous system. To get under heavy squats. To pick something really heavy off the ground, with dead lifts or otherwise. Put yourself in a flight or fight scenario.

Hunter Thompson:

But also, especially training heavy, everything else all of a sudden starts working. You have a mood boost. You have, your diet is required. You feel like you’re looking at food like it’s nutrition, as opposed to just snacking for whatever reason. All of a sudden, you start sleeping more. Then all of a sudden, your productivity shoots through the roof.

Hunter Thompson:

We have to be razor sharp. It’s really unfortunate that gyms have been closed down, with the combination of the depression, and the stuff around addiction. But with the COVID stuff, man. It’s just really unfortunate. But you can red line yourself for free. Just go run. That is just, there’s a reason people are so obsessed with this, and the cardio high, and the runner’s high, and all this stuff. Get out there, and red line yourself once a week, and see if it doesn’t help.

AdaPia d’Errico:

That’s great advice. Yeah, the staying … It’s also a mental thing, right? It stays, our physical fitness is so much tied to our mental wellbeing as well. Yeah, that’s some great advice.

AdaPia d’Errico:

Well Hunter, we’re at the end of our time together. It’s been such a great conversation. Really, really appreciated having you on, and hearing your story. All the great advice and insights that you’ve given us. Thanks so much for taking the time to be with us today.

Hunter Thompson:

Yeah, I really appreciate it, guys.

Daniel Cocca:

Cool. Hunter, that was awesome. Thanks, man.

AdaPia d’Errico:

Thanks for tuning in to Real Wealth Real Health. We hope that you’ve enjoyed today’s episode, and found it both informative and insightful. We welcome all your questions and your feedback about today’s episode. Especially, we welcome your questions about specific topics that you would like us to cover. Shoot us an email at [email protected]

AdaPia d’Errico:

If you have a moment, we really appreciate ratings and reviews, as it helps us grow our online community, and our interactions with you. We’ll also be linking to a number of relevant articles on topics that we might have touched on during our conversations. Some of them are broad. Some of them are technical. But we’re always aiming to provide information, that helps you better understand the mechanics of building this healthy financial foundation. Especially if you’re looking to do this with real estate.

Speaker 4:

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