Episode 136 | Neil Wahlgren | Military Millionaire Podcast

00:00 - 05:00

David:

What's up military millionaires. I'm your host, David Pere. And I'm here with my co host, Alexander Felice. And our guest today is Neil Wahlgren, who was an Air Force and Navy C 130 pilot who has logged over 2500 flight hours, Iraq, Afghanistan, and a whole bunch other stuff, as well as having been to the Air Force Academy. And he now works with mag Capital Partners. And he essentially has raised over $200 million for projects. And he was a capital raiser and then ended up jumping into one of the companies that they used to help raise money for.

And so this is just to be a lot of fun, because I know, raising money is kind of a scary topic for a lot of people. And it was a lot harder for me when I first got into it than I thought it would be. And I don't know that. I heard people talk about it. And I was like, Yeah, okay, yeah, it'll be fine. And it was not as easy as I thought. So I think this will be a good conversation for me, a good conversation for you and a good conversation for everyone else.

So Neil, welcome to the show, brother.

Neil:

Cool. Thanks so much for having me, man.

David:

Yeah, absolutely. Why don't you give a little bit of your background for how you got into real estate?

Intro:

Welcome to the military millionaire podcast where we teach service members, veterans and their families how to build wealth through personal finance, entrepreneurship and real estate investing. I'm your host, David Pere and together with my co host, Alex Felice. We're here to be your no BS guides along the most important mission you'll ever embark on your finances. Vehicle one you're clear to depart friendly lines. Roger Vick one Oscar Mike.

Neil:

Like you said, you know had a little stint in the Air Force and the Navy reserves flying harks same plane both services just they're looking uniforms on the Navy side but but that in the fact that all the Navy bases are right on coasts, that's it right choices were either stay in Abilene, Texas or little rock or you know, go out and end up flying outside of Malibu, right on the coast of SoCal there. So.

But yeah, ultimately did that for a while. And, you know, I really enjoyed it. But someone had introduced me early on to Rich Dad, Poor Dad, I know a lot of either yourselves or your listeners have probably heard it, before I read it, I highly recommend it if you haven't, and really just kind of, to me, it sparks something that said, Hey, you know, if I if I continue on the pilot track, which most of my peers and colleagues who I used to fly with did, you know, most of them went on to, you know, fly for delta united, or one of the commercial carriers, you're still ultimately tied to your time and you're paid hourly. And there's really no great way to kind of scale that in terms of a profession, if you want to make your money starts to work for you in a way that you are not required to be there day in and day out for it.

So that was kind of my, you know, my catalytic moment, I guess you could say, and, you know, I started looking at some different options, worked a little bit for a startup down county and that was fun. It was the first time I'd really, especially from you know, in contrast with the whole, you know, military life and structure to go, Hey, you know, I was the head of business development for this carbon byproduct. And, you know, the company didn't even know if they could sell it if they'd have to pay to dump it. I mean, really, it was it was kind of the Wild West and they're like, here's some money, hire a team, you know, find some, some potential trial customers, see if you can sell it, see what you can sell it for. And ultimately, I did this for about three or four years and really enjoyed it, you know, and kind of the, you know, the entrepreneurial side of it, and, you know, just the the bit of the uncertainty that went with it, but potentially huge rewards if you ended up landing, you know, a good contract or, you know, a good sales pipeline there.

So, you know, I think, yeah, that was the initial, you know, trigger coming out of the Air Force to, you know, more of the entrepreneurial track that ultimately went into real estate.

Alex:

First taste of meritocracy.

Neil:

Yeah. Absolutely.

Yeah. And once you get a taste, it's hard to turn around, you know?

Alex:

Yeah. Because once you the safety net feels good when you have it, and then when you get rid of it, you're like, you know what, it's not as good as you think and living this other way. You know, it's like people go, but it's so you're worried about your paycheck. It's so stressful. I'm like, bro, W two people got stressed too. Yeah, you know, on your terms, and like you said unlimited upside.

Neil:

Unlimited yeah..

Alex:

But you didn't need only different fears, did the company is still around, they still sell?

Neil:

No, they ended up running out of funding. So, it was you know, they had a bio fuels, renewable energy front side and then this basically form of carbon that I was working with as a byproduct. And ultimately, the front end element turned out not to be as cost efficient as they had hoped.

And ultimately, the technology wasn't sustainable but a cool field, you know, got to learn a lot about different, you know, renewable energy. tracks and pathways. And, you know, I firmly believe at some point in the future, we'll, we'll start to see more of a commercial adoption of it.

05:00 - 10:00

Alex:

So you got the, you got the bug for capitalism? And then how do you transition from there to real estate?

Neil:

So I moved up to the Bay, and just, you know, kind of by happenstance, you know, how to a personal and family friend who had started a, really an equity focused company, you know, they capital raised for other operators, or developers, and was able to, you know, take that on, that owner had some some family issues early on. And so I was able to really kind of take a very high level of responsibility somewhat quickly, and, you know, really got to work with a bunch of different operators at different types for commercial real estate, you know, we had, you know, multifamily guys, we had multi tenant retail, some, you know, land development, entitlement, and was neat, you know, it's a really got to see, you know, down to the, you know, numbers, I've always been a numbers guy since the academy as operations research major.

So I liked having the fundamentals and understanding that and then being able to build kind of a business case, and ultimately a sales case for how our network of investors, you know, we could pitch this deal really outline, hey, this is why we think this is good. And ultimately, you know, bring in typically 100% of the equity on each one of these projects.

Alex:

I find it fascinating that you would go from a, an ultimately failed startup, you know, a flyer, call it high risk, high reward, and then you go to real estate, especially commercial real estate, which I find to be one of the lowest risk endeavors, that one person that that you can possibly invest in, not to say there's no risk. That's not what I'm saying. But in terms of those are kind of opposites in my, the way I the way that I analyze them, they're kind of opposites in terms of risk. So was that? Is there anything to that? Or?

Neil:

Yeah, that's a great question.

You know, it's all very, it's relative, right? You know, ultimately compared to, you know, the bond market, in real real estate's the Wild West, right. But compared to, you know, crypto and stocks, you know, it looks much more stabilized, you know, for me, especially, you know, kind of from the operational background in the military, you guys know, you guys were in when, you know, every day you got you take risks, right, but you're identifying them, or at least as many as you can, you're kind of encapsulating the the risk and how you might, you know, react to those, and then ultimately, what's left is a fairly narrow margin of the unknown that might actually come in.

And I think, you know, that was sort of what attracted me to the real estate side was that, you know, that there are a lot of ways that this can tank you know, mostly it's things that are not in your business plan, it's usually things like COVID things like, you know, unknown, you know, tax assessor coming in tripling your tax load every year, you know, it could be, you know, a hailstorm that you know, even that deductible on your insurance policy, just you know, craters, your cash flow projections, I mean, there's just a number of things that are hard to plan for, and the more you're able to kind of wrap your head around those and sort of, you know, compartmentalize what you do know to me that was you know, kind of the draw toward the real estate risk side.

Alex:

So my background is in bank underwriting so I 100% that's what I did everything that could possibly go wrong and then some.

I have to argue with you about the bond market. The only reason why the bond market you say is low risk is because it's backed by the US government if you go to another country without such a stable currency the bond market ain't that safe the place that goes real estate then.

Neil:

That's true.

That's very true.

Alex:

That's why the Chinese buy real estate in America.

David:

Very, very true.

David:

Funny I'm living in one of those houses right now. All I know is that the guy who owns this house owns 20 or 30 houses cash and my property managers name it. She said he's foreign her name is Sarah but Sarah is spelt XIAOH A and G so you know, Xiaohag!

Neil:

100%.

Alex:

Well buying, yeah, buying that house and buying the house here in US dollars is better than owning in RMB.

Neil:

Yeah.

So I live in San Francisco and I mean, literally within eyeshot, I can probably see you know 5,6,7 top floor penthouse apartments condos that have never been occupied in years and they you know, a lot of them are just you know, cash by overseas buyers who come put the money here because it's safe and that they don't even want to deal with the hassle of a tenant such that it just makes sense to just hold an empty building it'll appreciate you know they're they're happy just having something that they know won't crater. And I mean, it's, it's wild when you know how much they could be making, just leasing it out and that you know, the highest rate In a country here, but they choose not to.

10:00 - 15:00

Alex:

Some people's problem is they have too much cash, if you can believe that is like, I gotta stick this all somewhere.

David:

Yeah. It's the same logic that goes into like, crap. I gotta buy a 6000 pound car to write it off, like, new car, you know, whatever. Like, do you really? Like was that really the best place to park that was better than paying it in taxes. All right, okay, fine.

Neil:

Good summer, right?
David:

Yeah. Oh, man, what an interesting place to be.

Alright, so you move into the equity world of raising capital. And before we kind of go into where you're now more on the operation side, I'm curious. I have some friends who've been dabbling, or some syndicator buddies who are trying to get into the world of potentially raising from a family office or from a fund. And I'm curious, what would? Like what makes an attractive operator from the funds perspective? Right. Like, obviously, you've got to have a track record. But I guess I'm just curious, like, what like, what level of deal it? I mean, I'm sure it varies, but if you could give some perspective from the fund side, like what you're looking for in a guy who's running multifamily apartments?

Neil:

Yeah, absolutely.

And, you know, just a quick caveat. So when we raise money internally, and man capital, we're doing project by project. So we basically created a special purpose LLC, to raise money, that LLC buys one property, or a known portfolio tentatively by a single tenant. And then, you know, basically stays all together until we sell.

So we don't, we don't pull funds in a true classic fund structure there. But know that to answer your question, you know, how do you effectively escalate to the point where you can start approaching high net worth individuals, family offices, you know, really larger check writers into deals?

You know, for a long time, early on, I remember, I think I approached some of these groups too early, I was ambitious. And I just said, let's go. And my feedback kind of varied from these guys. It was never a yes, right. It was always Hey, you know, you're, you haven't been doing this a long time, you know, come see us when, when you're further along. And I didn't really understand what that meant. And now fast forward about five, six years, I have several, several, you know, clients that are, you know, represent small family offices. And interesting enough, quite a few Indian groups actually, with, you know, both Native American, and, you know, some some of the casino, effectively, the casino business managers take some of that revenue, and invest it on behalf of the tribes, which is, you know, more or less a family office, if you think about it.

And, ultimately, you know, not only do they look for, you know, track record, but they're also looking for scale, you know, they want to see you to be a size commensurate that their stakeholders expect. And what I mean by that is, you know, if you only have, say $30 million under management, and they're looking to place, I don't know, you know, five $6 million equity checks, that that particular investment would make up a huge percentage of your AUM as an operator. And so, if that deal went south, they have to be able to say, hey, they can look at their stakeholders and go, you know, I took a big risk on this deal. And, you know, maybe they wouldn't look so great, maybe they have the egg on their face.

So a lot of them will want you to have not only a track record, but have you done deals at the size of what you're raising for, for a substantial amount of time. So they're looking for AUM, and they're also looking for, kind of maturity and marketing. And I, I wish it wasn't the case, because not everyone likes to do marketing, you know, you're like, Hey, I'm just I'm a deal Hunter, right? You know, I just, I just want that the art of the deal. I can put together the numbers and just kick ass at this. But I mean, to be honest, if you don't have the outside presence, if you don't have the website, if you don't have the you know, the company deck, those things are, you know, more or less kind of check the box due diligence that these guys are looking for. And if you don't have them, they're probably just going to go pass because hey, now there's a perceived level of risk with your operation that they're not comfortable with.

Alex:

This is really, really insightful, actually. And I'm glad that you said that, because I've raised, I've done two capital raises now for increasing large deals, by your standards. They're incredibly small deals. One was 1,000,000, one was 3.2 million. I raised 280. And then 1.4 million. And I, so my question to you, I guess is I wanted to discuss momentum.

So again, for like people who are new, and they go, Well, how come I can't go with this big money and now I've run into big money now, and people are like, yeah, I have deals for you. But you have they told me the same thing as you. It's like, yeah, I'm not gonna do it. I'm not giving you money in your first and now I did my second and they're like, yeah, don't do mind that I didn't want to in a second, and I'm starting the feeling I, I didn't I wasn't able to articulate but the way you articulate it is actually really good. It's like, if you want to go take a million, you better don't have a portfolio of 2 million because now they make up 90% of your fund.

15:00 - 20:00

Neil:

Exactly.

Alex:

Without giving out a number, let's just say, you know, 5%, it's like, you have to kind of there's an uphill momentum battle in this business, you know, the first time you close that $30 million building, it's like the next 30 million, it'll be easier. And then each side, so once you have, yeah, once you have 100 million in assets, raising 2 million should be it's gonna just be far easier because you are on the other side of the scale.

Neil:

Absolutely.

And another way you can kind of, I would say accelerate that process is set yourself up for success when it comes to scarcity. And again, this is part of the psychology to it. But if you have deals that are filling up immediately, and people want to get in who can't. It's hard and right, it sucks, you know, you're calling up your investors, and I really wanted to get you in this. I put you on a waitlist. You know, I'll give you an early look on the next one here. It's an uncomfortable conversation to have. But as a firm as an operation. It adds just this inherent amount of credibility and substantiation of I'm really it's FOMO, right? I mean, guys, they want to get in, if they can't, now, suddenly, hey, am I missing out on something, you know, now, hey, this is not an opportunity that I can graze on and look at and pick, pick out a little bit, you know, decide down the road, if I get in.

Now suddenly, you've created scarcity. And you can do that artificially, right? I mean, you can create, you know, maybe maybe you think you can raise 2 million on a deal. But you know, every once in a while, just choose a smaller, make a great, you know, set up your underwriting that's really investor favorite, and just make it so you know, it's going to sell out immediately, and then send out another email 12 hours later and go full. And I swear it I swear to God, for the next five days in a row, you will have people clamoring over themselves because they're like, I missed out on the last one. And it's this self perpetuating machine that you've created. It's fantastic.

David:

I love it.

Alex:

I love that advice.

David:

Yeah, I mean, oh, man, I mean FOMO is so real and scarcities that.. So obviously scarcity is great and sales tactics, they always tell you, you know, this deal closes at this time, there's only so many there's, you know, timer on whenever you're doing funnels or stuff like time around the funnel, like all this stuff. I've never heard anyone describe it with big capital raises like this. And I never even thought about the fact that you can very easily. Because I mean, a lot of times people send out that email, they just say, you know, thanks. You know, thanks to the investors, you know, whatever. But just intentionally sending out an email, it's like, hey, look, we're fully subscribed, I'm sorry, for the like, 15 of you that wanted to get in and couldn't, you know, we'll have another opportunity, whatever. And then you use that as, I guess, effectively ammo on the next one, like just make sure you're quick. We can have up in 12 hours last time.

That's cool.

Neil:

On my last deal offer and I sent out just a couple weeks ago, you know, I was able to honestly put, hey, our last deal filled up in less than 24 hours, we filled 4 million in less than 24 hours. And that was in the offering that went out. And this new one, we filled four and a half million and about 75 minutes.

I mean, it was wild. I mean, literally, I couldn't even like read through the emails at the rate they were coming in, you know, with commitments coming in, and boom, boom, boom.

Alex:

I'm still learning my system in the backend? You take a last time, look, okay, let me let me let me parcel this out. Let's parcel out the thing. So you got the.. Is the fund already set up? Or do you set it up for it? You said you set up for the deals.

Neil:

So each each month set up. So we will have the operating account already created? And the legal entities are already done. I mean, everything's under contract, the debt, you know, we usually have term sheets on the debt. You know, it's not final yet, but it's near final. And then ultimately, you know, I'm to a point now where I can delay an equity raise till you know, in 10 days before I need to hard close, because I know I can get, you know, commitments and money in the door very quickly.

Alex:

I have the opposite problem.

Neil:

Sure. No, I and it wasn't always this way. Trust me.

Alex:

So I needed a lot of time. Some of the mistakes I made this last one was we close, we got the deal on the contract. And it felt like it took me a long time before we got the legal entity set up. So I was in a weird Limbo where I was like, I really don't wanna be asking people for money because God forbid, they say yes, I'm like, I can't take it from you right now.

So how do I solve that problem?

20:00 - 25:00

Neil:

So there's different stages, right you have, you know, effectively gates between an initial offering and money in the bank. And this is from somewhat systematic and somewhat psychological of what an investor goes through.

So they, they're going to first be exposed to your opportunity, and they're going to process it. And then ultimately, they're going to go, Hmm, this looks interesting, right? And what you want to do is, is as quickly as possible, get them from that point, to a verbal commit. And so you know, the way we do it, we say, Hey, give me a verbal commitment early, and I use scarcity. And I say, look, these deals fill up quick, right? And they do. And I say, hey, if you give me a verbal commit early, at least, that allows me to set those funds aside to make sure we don't oversell them. And, you know, I'm like, at the end of the day, if you look through, change your mind, not a big deal, you know, we always have a waitlist, just let me know, you know, and, you know, no harm, no foul there.

But that way if you want and you can get in, right, so now I've effectively incentivized an early verbal commitment, right. And then once that happens, you really before you even solicit that verbal commit, you want to have forms ready, document, you know, basically, your ppms, your subscription agreements, your legal Doc, you know, they operate in agreements that they're signing, you want all those pieces, either done, or, you know, ready to be finished within a few days, because you have this kind of withering window of excitement, you know, of commitment, or really of just internal commitment toward this decision, right. And it's super high when they tell you, and it's just slowly gonna erode away, and the faster you can get them forms, the easier that the less friction you can or the the more friction you removed from the process. Now they're going to go and sign those forms, but they haven't been funded yet, right.

But what I found is you lose a lot more investors between verbal commitments and signed forms than you do between sign forms and actual funding. And technically that form is illegal. You know, really illegal commitment to fun, let's be honest, you know, selling signs and says add change my mind or, you know, life happened. It's not like you're gonna hold him to it and say, you have to put money in this deal.

But you know, from a, you know, from an intentional standpoint, you know, that is the goal to get them signed quick. And then honestly, you probably want to wait to receive funds until very close to when you close because otherwise, you run the risk of, you know, acting like you're not a good steward of your investors cash, if it's just sitting there in an operating account, not working, because you haven't closed on the deal yet.

Sponsor:

What's up military millionaires, I have not done a good enough job talking about syndication opportunities. So for those of you who don't know, I have been investing in some apartment complexes over the years as well as a bunch of other stuff. But I just have never really mentioned it on the podcast, so I apologize for making that hard to find.

Look, if you are an accredited or sophisticated investor or unsure and would just like to talk, go ahead and go over to the investor, Frommilitarytomillionaire.com/investor/, and just fill out the little form, let's jump on a call and talk, I'd love to hear how we can help each other out.

So some of the opportunities that we provide can be anything from really big cash flow advant opportunities to big equity plays we do, I even do some private lending type stuff, but lots of different opportunities out there to invest. And I just want to make sure that you guys understand those are out there.

So if you're interested in syndications or private money, you know, I'd love to jump on a call with you, there are ways that we can help you out, you can help me out, we can help everybody out win win win win win situation.

Our most recent deal was 146 units, 7% preferred return, and projected 18% plus return on investment. But we've done better, we've done not quite as good with more equity play, like lots of different opportunities, right. And if you want to be the separate email list that I have, which I send those deals to, and if you want to be on that list, then let's schedule a call and jump on it. Because we need to know each other if I'm going to be sending you information on these opportunities. I would hate for you to miss out on it just because of my ugly mug not telling you. So if that sounds interesting, let me know if that does not sound interesting. Enjoy the show right now.

Alex:

Yeah, so okay, that helps.

I think what I need to do next time is as soon as I get the date on the contract, I need to be as soon as you get a contract, you should have legal and the bank account set up.

Neil:

Immediately.

Alex:

Yep, immediately. So we had a long delay in our last one and I'm, you know, I'm learning that's something I went through, but I did have that problem. And so I was curious. Yeah, I mean, so what you said what I did is right, I'm just bad at it still.

Neil:

The more you do, I build a checklist and I mark it out each time. You know, I'm like, how do I improve this in a very methodical about it and I mean, really, it's just from the communication piece to invest from introducing them do a deal to having money in the bank and closing and that that process is super repeatable, no matter what deal you're doing.

25:00 - 30:00

Alex:

Okay, let me switch gears a little bit here. We are experiencing a time of perhaps unprecedented liquidity.

What I realized in this last basically deal was if I poke around, I don't really have an I don't really have an access to money problem, I have an access to good deals problem is that, how does that work for a guy like you who raised a lot of money? Do you find what you're getting oversubscribed on deals? Are you running into a deal scarcity problem?

Neil:

We are yeah, I mean, I, I wouldn't say deal scarcity. But we've, you know, established a certain profile and what our return structures should look like and what our deal structure should look like. And it's really tempting to keep chasing deals the same way you did six months ago. But if you do, so, you're going to overpay for him, right.

And, you know, that's great if trends continue, but what happens when they don't? You know, then you don't want to be sitting on, you know, a piece of property that you bought at high basis, instead of what should have been, you know, 20 or 30% lower, you know, and ultimately, that's the question, right? Do I chase deals for the sake of chasing deals? Or do I genuinely feel like we have a good basis on this opportunity to weather you know, whatever recessionary craziness is going to happen in the next few years, and, you know, have a decent chance of at least preserving capital, you know, four or five years down the road.

Alex

You said earlier that you were raising, you're doing 100% equities? I wasn't sure if that was common, or that was one deal. Are you guys using debt?

Neil:

We are, yeah, I should have specified that a little better.

So I raise all the equity for the deals that we put together and man capital, you know, all that's through our organic investor group, the most of our deals, their capital stack is structured roughly about 70% leverage on most of our industrial projects that we do.

I mean, debt is so cheap right now. I can't. That's why you shouldn't be doing that. So.

Alex:

Yeah.

And then I just did my first with Fannie Mae. Non recourse 10 year, and it's assumable. Do you do? Is this something you guys use? Where it makes it kind of lucrative, right? I look at it like, if rates stayed where they're at, then valuations, cap rates should continue to compress a little bit, and valuations should go up. And if the inflation keeps going, then rent prices hopefully will go up.

And now if cap rates decompress, because rates go up, then my assumable loan starts to really have a lot of value at three and a half percent. Um, do you think that this Fannie Mae debt situation that I, the way I look at it right now is it's kind of like, it's kind of a really good equalizer not to overpay for deals, but it's kind of it does create a lot of it becomes very forgiving.

Neil:

Absolutely.

And if you were faced with the decision of, you know, the lowest rate, but it's not assumable, versus, you know, a slightly higher one that is 10 times out of 10, I would choose, I would choose the ladder. And, and just having having options, so you're not pinned against a wall, in a unknown set of circumstances, four or five years down the road is worth dividends, and my point and, and really, I mean, you can sell that to your investor group and go, Hey, this is part of our, really our contingency plan, you know, analysis here to go. I don't know what the future is gonna look like.

You know, really, when we set up our deals, we can control a lot of variables, because the leases are full triple net leases for single tenants, right.

So I know with a high degree of certainty what cash flow down to the penny will look like, even three, four years down the road, you know, anything that comes up, I've effectively removed that risk of expense by structuring my lease. So the tenants are responsible for everything, but at the end of the day, when it comes time to sell, I don't know exactly what the world's gonna look like. And I don't pretend too right and so but what I do tell people is, hey, I've signed a 20 year lease we're planning on this thing for five I got 15 years left on this right.

It's fairly attractive within 10 or more years. So that gives me an additional five years of buffer and then in addition debt will usually try to get a 10 year term on the debt. So that means Hey, you know, what, if I don't sell at five if the if the world sucks, industrials, and the tanks, you know, I can at least afford to sit on here comfortably another 2,3,4 years without, you know, worrying about forced into a refi or forced forced to sell because of some outside factor because I've built in flexibility on that side.

David:

That's awesome.

Alex:

Yeah, my strategy right now, sorry, David, I know you want to get in here.

My strategy right now, I think that the value I think the money right now is in debt. I think the debt is like the one the rates are cheap and if you can get government back debts for either single family. For our listeners, a lot of our listeners are just doing single family properties like that 30 year fixed rate mortgages like the dream. And then if you go big, I think the Fannie Mae debt is good.

I think the five year balloon from commercial mortgages is the scariest thing around right now. Our five year with a call, I think that's a risky place to be right now. But the government backs loans. That's, that's good business. That's good money.

30:00 - 35:00

Neil:

Yeah. And I would say as operator sponsors, you know, it's tempting, it's tempting to follow investor inclinations of chasing returns, right? You know, they're always like, hey, I want that extra extra percentage point on the projections. You know, I'll put money in at 16 IRR projection deals over a 15 one, you know, more and more, especially after I've been in this space.

You know, it really is, it's our responsibility as operators and sponsors to kind of train and condition our investor groups to say, Hey, we're not always going to chase the highest return projections, because having options down the road, especially in today's world, where, you know, it's very good right now, but it could be very not good, you know, five years, five years down that, you know, hey, well, we'll take a, you know, 200 basis point haircut on projections in favor of having options down the road. And that I mean, that's, that's a sleepeezee decision right there that that helps you sleep well. And, you know, not afraid over that investment for years to come.

Alex:

Yeah, I think that I went through this twice now where it's like, I am a habitual, under promise over deliver. And that's very difficult in this market, because everybody's like, you know, IRR porn.

Neil:

Yeah.

Alex:

And I’m like, I don’t want to lie to you. And the messed up thing is if, you know, Federal Reserve Chairman, our rates are gonna stay low until 2024. I mean, the chances that this thing gets even better, is high. And so next thing I know, it's like, dude, I could be losing by losing investors, because I'm not making my projections outlandish enough. And then God forbid, though, I actually hit them. Because the market continues.

So it's a very weird time because I am of the opinions like, let me under promise and over deliver but then I'm losing buyers, because they're like, well, that guy over there is hitting a 20% IRR. And I'm like, well, he's projecting that the cap rates are going to decrease another point and a half.

Yeah, so it's a sorry, yeah, it's a weird time.

Neil:

No, I think you're doing the course on it. And trust me, as long as you build your track record, hitting or exceeding projections, and, you know, having the numbers to show when you start exiting deals, that that is when it all comes full circle. And and, you know, you can chase projections early on, but you're making it very hard to hit those marks.

I mean, we, you know, we, as a company, have really, I mean, like, very much done the same thing. And we've been fortunate, I mean, really 100% of our exits, we've exited 13 deals, every single one has hit or exceeded our projected IRR.

I mean, that's, that's a great story to tell. And if you build yourself some buffer in there, where you're able to even, here's a little bit of advice, especially early on, you know, I think operators are highly, it is very beneficial to your overall like future business growth, to set up a few easy wins short term investments, such that you feel comfortable, you can exit and 18 months, 24 months, you know, you don't need to make a lot of money, but just hit your marks, right. And if you can deliver, say, if you promise a 15% IRR and you can deliver a 16% and he held up for 12 months, it doesn't matter.

Now you have your substantiating that track record, you're showing, hey, I projected this I delivered better. And getting to three of those on your belt will substantially help you raise even for longer term projects. beyond that.

David:

That's awesome.

Alex:

And you learn what you're doing. That's the biggest thing for me.

This is the part that none of that we haven't really talked about. And again, I don't know how deep into the deals into the asset management you get if at all, or see the deals. I know you were in ops and capital.

I do a little bit of both capital and I go in, I'm on I'm on boots on the ground a little bit. And you know, having that just the experience, like you know, I'm under I'm doing low I'm doing conservative projections. I'm pretty sure that I'm gonna beat them, right. But I built myself in a little bit of like, hey, the world might fall apart. Don't Don't over don't get but more than anything. It's like I'm learning how to do this for a career's worth of future not just, you know, here's a deal or two. It's like no, and that I'm going to get better at this. And then the one of the things I haven't thinking about like, like you mentioned is I want to keep those Like, what's my track record for hitting projections? Not just Can you make money? But can you make the money you say, cuz, you know, the end of the day, you don't want to be the guy who's like I told you is gonna hit 15 you know, but we only hit 12. It's like, Yeah, but 12 is pretty good. It's like, that's not the point.

35:00 - 40:00

Neil:

I talked to a real kind of seasoned investor in my group and this guy, he's, he's just, I mean, he's probably got 50, LP positions across different syndicators is a big fan of our group just and really, I value that feedback more from him because he has the comparative, you know, alternatives to look at, you know, how other sponsors have delivered, how they've communicated really all those pieces, and it comes to us and you really kind of reinforces what we're doing right? which I love.

But he's funny, he's like, you know, honestly, he's like, he's like, I don't even look at projections anymore. Like, what he's like, Yeah, he's like, nobody knows what the fuck is gonna happen in five years, right? Honestly, and, and he's like, they are, you know, they're, they're spinning gold out of their ass. That was literally his quote. And I was like, Huh, and he's like, you know, honestly, what I care about is protecting capital. He's like, you know, at the end of the day, if you can return my capital, I counted as a win. I'm like, interesting.

Alex:

Yeah.

Neil:

Like, anything beyond that's gravy, you know, I appreciate it. And he's like, you know, most operators will, but he's like, if they communicate well, and protect my capital, do not lose capital. He's like, the rest of the returns, you know, I'm happy anywhere in there. And he's like, you know, that, that the year to year cash flow, he's like, I value that so much higher than any, you know, projected profit piece upon sale five years from now, because he's like, there's just so much uncertainty on that piece. And really, what's funny is that back end, you know, profit split piece is so influential on where your projected IRR lands, that, you know, the more seasoned guys really just stopped caring about it. Because they know, you know, nobody knows.

Alex:

We are in the highest period of volatility that I've, I've certainly done I've lived through and I read a lot of history, a lot of economic history, and it's like, kind of kind of some of the highest, some of the highest part of the future is more unknown, then, than many times in the past.

So when I was doing projections, you know, I have a history of underwriting, like I said, So, um, but even the banks are, you know, it's like, the bank borrower will come to the bank and say, here's my projections, and then the bank will make projections, and then neither right? Or wrong, you know.

So when I saw this last deal, it was, hey, look, number one is preservation of capital. Number one is preservation of capital. So I'm definitely not gonna lose your money. I might even make some.

Neil:

Honestly, like, and and the more you know, the more I've been in this game, that that is a premise of a sales pitch that I would be interested in, you know, like, tell me more. Tell me how you're not gonna lose my money. And you might make me some money.

Like, it's better than what a bank account does, right?

Alex:

Yeah, I think there's, um, David, I'm totally hijacking your podcast right now.

David:

This has been an Alexander Felice show.

Alex:

So um, do you?

Let's talk about different investor segments. So there's definitely the newer like, call it new money, investors who are chasing returns, and maybe they 've been an economic, you know, monster for the last 12 years. So a lot of people have money to toss around and liquidity is really high. I mean, it sucks to be in cash right now. So every time I get that money working, and so they're chasing what we said IRR porn, but then there's definitely a, I'm using the term old money, but I think it just means people who are say older that have a nest egg. And they're like, Look, I don't care about fancy returns, what I care about is what you said preservation of capital and like, hey, look, you know, s&p habitually earns 8%, if you can make me eight and a half, I'm a happy camper.

So do you, um, are those are those noticeable demographics for you? Or is it more complicated than that?

Neil:

You know, I would say on the spectrum of, you know, private placement, commercial real estate investments, you know, large largely office industrial, you know, throwing some self storage, multifamily, etc, I would say industrial, especially single tenant net leased industrials, probably on the lower end of the risk spectrum. And, and initially, I expected to have, you know, largely an older demographic that was, you know, really didn't necessarily chase that big value add bump that you might potentially get on riskier deals, but you know, instead really just valued that you know, kind of tax tax mitigated high cash flow from day one, you know, no expenses and really value that consistency.

40:00 - 45:00

Neil:

But really, you know, what I found is, it's not the case. And you know, we have young people, we have old people, I would say that there really is no demographic push toward an older, you know, quote unquote, less, less or more risk averse segment there.

You know, ultimately, I think a lot of folks even younger say, having consistent cash flow to maybe augment some of the riskier bets we're making kind of helps my whole portfolio feel good. And, and, honestly, I mean, during COVID I think a lot of guys you know, saw deals that maybe didn't crater, but certainly took a huge step back or three steps back 10 steps back in terms of where they hoped it would be and what it's actually delivering.

And so having having some of these kind of sleepeezee steady investments that they, you know, they keep paying whether COVID happens or not, I mean, these, these tenants are big credit tenants, most of them are, you know, do 70-$80 million a year in sales, they have good cash reserves, they pay their rent on time, and, you know, we distribute out that.

So having a little element of that I was surprised to see how attractive that was, or appealing that was to younger people in a very similar way to older people.

Alex:

Yeah, when things are going really well, and everyone's winning, I want my 16 or 20% IRR. When shit hits the fan, I want my 8%, please give me my eight percent.

Neil:

Well, and we've been fortunate, you know, on these because we're not dealing with credit tenants. So you know, if you're, if you're putting in tenants like like Walgreens, like, you know, Home Depot, McDonald's, even, you have a very low risk tenant, but your returns are gonna you know, cash flow, you might be looking at about 4% IRR is might be, you know, 8,9,10, maybe 11%. But when you deal with what are called sub investment grade tenants, where they don't have an outside Moody's or s&p giving you a credit score, now that you play in kind of more of the equivalent of a Class B multifamily, right, where there's, there's a bit more, you know, I would say perceived risk, at least. And that's really where we play in that space. I mean, we've been able to deliver high teens, maybe not high teens, but you know, 16-17% IRR is fairly consistently full cycle on the deals we've exited. And that's because, in my opinion, these are growth oriented companies, and especially a lot of them will do sale leasebacks effectively sell us the real estate shortly after they've been acquired by private equity groups.

And so now you know, the PE groups like to pull the equity out of the real estate and reinvest it into their operational companies. And when that happens, if they're successful, a lot of times they grow these, these tenant companies, you know, sometimes 2-3x the size over the timeframe that we own the real estate. And now when we go to sell, we have a much stronger tenant in place than when we bought it. And that you can actually see some pretty decent cap compression, because you've lowered the risk of the investment, because now it's just simply a stronger tenant.

David:

Anything else Alex.

Neil:

We can talk all day long.

Alex:

I'd like to introduce you to my co host, David Pere. He has, he has a microphone too.

David:

Oh man, unfortunately, we're coming close to time on this. I was gonna ask. I wanted to kind of dig into the industrial master leases and net leases. But we may just have to have you back on the show a second time. And we can get more into the logistics of actually what you guys are operating in. Because that's also an asset class that we have as a style of investing that we haven't had a chance to discuss on the show before. And I find it very interesting that a lot of people don't tap into the right like apartments are sexy. Right now, mobile homes are sexy, house flipping, and HGTV before and after photos on Instagram with your champagne is sexy.

Industrial is not what people think of when they think of sexy real estate. But obviously there's a lot to it. And I think it's really cool. So yeah, I definitely want to get you back and talk and dig through that a little bit as well. But Holy smokes, I learned a lot. I mean, if you notice I just sit back like staring at the ceiling trying to like keep up on some of this. Like, this was really really insightful. As far as especially the different gates in raising money, right where you can get the verbal commitment to like get somebody's pot committed even before you have the ability to take funds like that's huge.

I mean, I did the same thing the first time I ever raised money. I should have done it recently. I wait. I was waiting to figure out exactly my play with the deal before I raised the 50k to close this little tiny private loan house when I could have had them and so I ended up like raising it in the last three days of the deal. Instead of just feeling like Oh, hey, hey, dude, you want to give me 50 grand for this house? Cool. I'll let you know if I need it for sure. A lot of really good insight, Neil. Very, very didn't let us down.

45:00 - 46:50

Neil:

Cool!

I really enjoyed the talk here.

Yeah, I'd love to come on another episode if you guys want to unpack the industrial space a little more too.

David:

Oh, Alex is taking a photo.

Wave.

Alright, so before we go, where can people get a hold of you if they would like to follow up with you, ask questions or get on even just getting on your investor list?

Neil:

Yeah, you know, some general info is our website www.magcp.com, it's magcp.com. Or you just shoot me a note directly. I mean, literally, I do this full time. Love to take, you know, questions, comments, you know, hear what you thought of the show here. Or if you're interested in getting on our investor list, you can reach out. It's Neil, [email protected]

David:

Can I just say how much I appreciate your domain name.

There are people who come on this podcast. I'm like, Where can you get a hold of them? And it's like, alphabet soup dot Gen z Backspace, dash dash.com and you're like, Oh, cool. Great. Yeah, I'm listening to this while I'm driving down the road. I got that.

So yeah, magcp.com is simple and easy. And I think that's honestly a really smart marketing move, myself included. My domain name is too long. And I've owned that for a very long time. So well done.

Neil:

Short is sweet, right?

David:

That's it. Man.

Neil, this has been awesome. Thank you so much for joining us today. I've gotten a ton out of this. And we'll definitely have to have you back on the show to talk about industrial net leases and all that good stuff as well.

Neil:

Cool. Looking forward to it.

Thanks, guys.

End:

Thank you for listening to another episode about my journey From military to millionaire. If you liked it, be sure to visit Frommilitarytomillionaire.com/podcast to subscribe to future podcasts. While you're there, we'd love for you to rate the show. Give us a review on iTunes. Now get out there and take action.