How to get into Commercial Real Estate Investing without adding hours to your workweek – With Guest Paul Moore of Bigger Pockets

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Investing in Passive Real Estate Syndications, Value-Add Commercial Funds, and Tiny Cabin Vacation Rentals: Episode 30 of the Estate Professionals Mastermind Podcast

Paul Moore, Founder of Wellings Capital and host at Bigger Pockets podcast “Ask Me Anything Live: Real Estate Investing”, joins Chad Corbett for the Estate Professionals Mastermind Podcast Ask The Expert series.

In this episode, Paul shares why he saw better opportunities in commercial vs residential real estate sales, how he made that pivot, and why his business mindset allows him to turn down deals with 60% ROI. Paul also discusses important lessons he’s learned that apply to any business or business relationship.

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Video (YouTube)

Join the Estate Professionals Mastermind group for weekly group challenges, high-energy community support, and bite-sized real estate content.

Investing Topics In This Episode (YouTube Links):

  • 0:00 Who is Paul Moore?
  • 2:38 How to get started in commercial real estate
  • 5:07 Podcast recommendations: How to Lose Money podcast
  • 6:37 What to invest in when everything is overpriced
  • 9:45 Residential vs. commercial real estate investing: Real estate formulas
  • 11:20 Value add vs. intrinsic value extraction: Deep value asset classes
  • 15:40 The 80-20 rule of team-building and business strategy (Pareto’s principle)
  • 16:58 The pivot to value add commercial funds
  • 19:38 Why you should re-think your side hustle (and so should your clients!)
  • 24:40 Sponsor vs. the underlying asset: Due diligence for any deal
  • 26:04 How to recognize terrible deals on beautiful slide decks and avoid overpaying for assets
  • 28:50 Cash on cash return with tiny cabins for vacation rentals AirBNB, VRBO
  • 36:16 Why I would pass on a 60% ROI deal: How to stay focused in your work

Resources:

  1. Join Estate Professionals Mastermind Group (Facebook)  
  2. Take Chad’s Probate Course – Become a Certified Probate Expert and unlock Alumni Group membership
  3. Learn Probate, Real Estate Investing, Creative Finance, and more on our YouTube Channel
  4. Wellings Capital
  5. The One Thing by Jay Papasan and Gary Keller
  6. Passive Real Estate Syndication Book Recommendations: The Hands-OFF Investor – Brian Burke
  7. Vacation rental data resource: AIRDNA.co
  8. Paul’s How To Lose Money podcast
  9. Paul Moore on LinkedIn
  10. Paul Moore on BiggerPockets.com

PROBATE TRAINING SESSION TRANSCRIPTS: (Download PDF of Full Transcript)

Who is Paul Moore?

I can’t wait to introduce you to my friend and guest today. Paul Moore. Welcome to the show!
Hey, Chad, how are you doing?
Doing well. Good to see you. Sorry, we couldn’t do this in person.
I was going to fly in from London this morning, but then, you know, they were all booked up.
That’s a stupid joke. I’m right down the road from Chad.
Yeah. So we’re very close. I’m at my place in Roanoke, as you guys know, but I want to introduce you guys to Paul, because he’s a great example of someone who, you know, uh, I don’t even know how to introduce Paul. He’s a realtor, he’s an investor, he’s a fund manager. He’s a philanthropist. He’s a father. He’s a church leader.
He just Oh, an author. I forgot. You’re an author too. And a Bigger Pockets Host! And Paul has a very interesting story that we could never pack into one episode. Paul, uh,
How do you introduce yourself?
I just, I don’t know. Did you
I’m. I don’t,
I’m not mad or anything, but you didn’t mention builder. I built seven or eight houses at Smith mountain lake, and I want to tell your audience, here’s a writer-downer. This is the most important thing I might say today: If you don’t know how to change the doorknob in your own house, you probably shouldn’t be a builder.
I’m just saying that’s just important to know.
Yeah. Paul, it takes a long time to even digest the scope of his experience. So we first started meeting for two-person mini masterminds back in, I think it was 2012 and we would be like, all right, half an hour, half an hour, one cup of coffee, two hours later, we were sitting in a coffee shop, I wanted to allow you guys to see what it looks like when somebody comes out of the residential real estate, into investing and brokerage, and runs at a higher level while serving everyone around them at a higher level, not giving up on their clients, not leaving their clients to fend for themselves, but showing them how to work less, earn more and do good in their own lives. And Paul was the best example I can think of, of doing that. So, well, thank you for taking the time to do this.
We talked about Some of the risks and residential real estate and Fed, in particular, has, I would say an ultra-high net worth buyer who said, you know, find ways to spend my money, like make me spend money.
And he’s busting, you know, busting his butt, trying to find single-family homes and deals and medical centers and things like this. And I think you certainly understand exactly what it’s like to be in the trenches, competing for the few deals that deal and having your investors, you know, rely on you.
So tell these guys a little bit about your story. Like what led you from, from kind of the world of residential real estate investing in brokerage and building to where you are now and what advice you might have that.

How to get started in Commercial Real Estate

Yeah. So I sold my company to a public firm in 1997 and moved to the Blue Ridge mountains.
And I tried to start a nonprofit. I did start a nonprofit organization reaching out to international students studying the US because we found out that 80 or 90%, there’s an actual, I think it’s like 93%, even of the students who spend an average of five and a half years in the year in the United States, international students that are, never set foot in American’s home.
So we tried to give them a blue Ridge mountain weekend experience, you know, where they could milk a goat and ride a horse or ride a cow and milk up whatever. Anyway, we had a lot of fun but I got bored pretty quick. I was 34 years old, high energy entrepreneur type a, and so started flipping houses.
And went from flipping houses to flipping lots at Smith mountain lake here in Virginia, flipped, dozens of houses, dozens of lots. Uh, got my realtor’s license because I didn’t want to leave all that money on the table. Right. And then we started doing a lease to own homes and did a lease to own a brand new home thing that didn’t work.
Because I told you, but anyway, uh, but they’re a small subdivision, but over the years, Chad, I was wondering, how do I get involved in commercial real estate? Because I don’t think I realized how much this was true, but I realized at some point that the Forbes 400, the wealthiest people in America, Almost all invest in commercial real estate.
I didn’t know where the on-ramps were. I went over to towers mall, and I got the name off the sign and I called the broker on that sign. It turned out it was the syndicator and he explained syndication. Well, I had grown up in the sixties and seventies and syndication sounded like a godfather thing to me.
It scared me, but, uh, no seriously. He told me about syndication and it didn’t seem practical to me. Well, I kept thinking about how to get involved in commercial real estate. I ended up doing an oil and gas deal. I had a petroleum engineering degree in the eighties, and I did an oil and gas deal in North Dakota.
Uh, Bokken, and found out there was a massive housing shortage. So my friend Barry and I set up a beautiful quasi hotel, quasi multifamily, asset in North Dakota to house oil workers. And our goal was to be the last one standing. There were all these man camps, RV parks, and people were miserable in these things.
So we built the nicest log cabin community we could. And we did it in a matter of a few months, literally from buying the land to opening our doors was a few months. Crazy how fast we were able to do this.

Podcast Recommendation: How to Lose Money Podcast

Didn’t you develop broadband internet at the same time to serve that community?
Can we not talk about that? No, I’m just kidding. No, I had a, I have a podcast called how to lose money and, uh, that was one of our topics because, uh, we, we did wireless internet at the same time to serve the communities around us and the man camps and the RV parks. And we spent basically six or eight years losing money until we finally shut that down.
and we also did a Hyatt hotel. we did the nicest Hyatt house in America to my knowledge and Mynott North Dakota. And anyway, I was thrust into the commercial real estate sector. And I thought, huh, what? I don’t know if I want to like the building experience. Like I joked about earlier on the show, it just didn’t feel like me.
And so I wanted to get into class B value add. And I remember I was standing in my library talking to you on the phone and I said, Have you heard of 37th parallel and you had, and you even knew their first names! Anyway, I went and mentored under them for a year. And then I wrote a book after that with, I mean, cause I’d already operated the cell, the, excuse me, the multifamily quasi-hotel. We were charging, by the way, 4,000 a month for a 300 square foot room.
And that sounds horrific if it’s multi-family, like, how could you dare charge that much? But as a hotel room that was only $129. And the hotel rooms in the area we’re going for three and 400 and they were all booked. And so, it was a decent deal for oil companies, you know, who were putting people up there to drill these very high dollar Wells.

What to invest in when everything is overpriced

But at any rate, I ended up writing a book. On multi-family, it was a humble title called the perfect investment. And I thought that that’s all I’d ever do the rest of my life, but I told my wife no more shiny object chasing for me. Well, about three or four years into this new multifamily realm. we just beat our heads against the wall looking for deals.
And it looked like everything was overpriced sounds familiar, right? And it’s relative to the year, 2014 or 15 or 16 or whatever. Everything was highly overpriced. It’s worse now relative to 2021 than it was, then we can talk about that in a minute. And I think we should, but I finally said enough.
And we turned our attention to self-storage, mobile home parks, and now we’re even looking at the industrial space. And so I’ll take a breath and see what questions you have from there. And then we can launch back into that history if you want.
I have a hard time recapping.
I think the way we met as my, uh, I think we both share the same opinion on brokerages. So we chose an indie broker that trusts us to do the right thing and doesn’t micromanage or try to make us recruit. And when my broker got to know me, it was, I was brand new to town. She’s like, do you know Paul Moore?
I’m like, nope, don’t know anybody who just moved here from Hawaii. She’s like, you gotta meet this guy. because Paul had done so much like such a diverse skill set that he had collected. So thanks. Thanks for recapping that.
Um, what’s interesting to me and why I think you’re valuable in this community is the clarity that you got that led you to serve clients at a higher level.
if I’m supposed to be a fiduciary to these investors, to these buyers, what am I supposed to do in a market like this? And that’s what those conversations that Paul and I had four and five years ago in good conscience. We couldn’t tell our best investors. These are, you know, you’re, especially in this region of the country.
But like your reputation, it takes a lifetime to build one deal to completely burn. To take all of that progress, all of that momentum, and pivot to do what was right, for the buyer, for the investor, for the consumer, because his reputation is important.
So I think that’s what I want to talk about next. Like if you’re a real estate professional on this. Um, especially if you agree that asset prices are, are falsely inflated because of a lot of monopoly money in the system. And that money is some of it’s printed, some of it’s, you know, junk debt setting on the fed balance sheet.
But if you believe that these prices. Are particularly driven by like anything other than federal reserve intervention and you can’t in good conscience put buyers or investors into those deals. that’s kind of the position Paul found himself in back in like 2015, 2016, and that led his career to a different space.
So, Paul, I’m curious if you can catch them up on that part of the story and kind of, what advice would you give to someone in residential real estate that is working with both accredited and non-accredited investors. what can I do?
Yeah. So, I’m going to hit on a couple of things.

Residential Vs. Commercial Real Estate Investing: Real Estate Formulas

First of all, I wanted to talk about the difference between residential and commercial. And then I briefly want to tell you about that pivot and why. So if I bought a house in Roanoke for $115,000 And I went in and I put in, like I finished the attic, finished the basement added on, put in beautiful fencing, and just like made everything top dollar.
And I added $300,000 to that house. Now I’d have what, 400 and let’s say 50,000 and it with transaction and holding costs, but if that was in the $250,000 neighborhood. I’m probably not going to get my money out of that house because residential real estate, as we all know is based on comps, it’s based on what else is in the neighborhood for the most part.
But commercial real estate is entirely different. It’s based on math. Now, your mama always told you to do good in math. And this is the reason it’s for this one formula. And that formula is the value of the commercial real estate. Is the net operating in? Divided by the rate of return or the cap rate. And so if you can increase revenue and decrease expenses, you’re going to be able to increase the net operating income.
And if you can find a way to hold the cap rate steady or even shrink it, it’s going to massively potentially significantly increase the value of that asset. You sprinkle in a little safe leverage and it makes it even more. And so this is why I love commercial real estate. And I think this is why most of the Forbes 400 is in it.

Value Add vs. Intrinsic Value Extraction: Deep value asset classes

It’s likely, even in a situation like you talked about on Tuesday where, you know, they’re going to increase the interest rate by, you know, 20 basis points. And they’ve talked about what increasing it several times, by the way, I think that talking about the increase in the interest. What is it five or six or seven times?
I think they’re trying to scare inflation away. I don’t think there’s any chance they could do that. As you said the other day. I mean, you know, they, they, they are, I think they’re trying to scare inflation away and it makes sense that they would, it’s exactly what I would do if I was in their horrible shoes.
But at any rate, it’s possible to drive appreciation of the NOI of that formula enough to way outrun the cap rate. So if the cap rate goes down, that means the price goes up because it’s the denominator, right? If the cap rate goes up, in other words at let’s say, interest rates go up and cap rate goes up as well, then the price of the asset shrinks or it goes down.
What’s possible in certain asset types to have the NOI outrun the cap rate and here’s how: invest in mom and pop owned assets. Now, Michelangelo are we talking about sculpture now? Yes. Michelangelo said that when he looked at a piece of marble, he could see an angel inside.
All he had to do is chip away the stuff that’s in the way. So he could see that angel. That seems odd. Well, it’s the same thing we find in commercial real estate. Some assets have tremendous intrinsic value. It’s like Warren Buffett’s talked about for 60 years, finding intrinsic value, buried in an asset and extracting it.
And so rather than calling it value add real estate, let’s call it intrinsic value extraction where we pull out the latent value in an asset And so by doing that, we can increase the NOI, the numerator of our equation tremendously. And if cap rates even go up a little, the value will still go up and it’s a way of protecting your downside.
There are so many benefits to thinking this way. Buying from mom and pops is powerful because they don’t have the desire or the knowledge or the resources to increase income and maximize value. So quick example, February 20th, a week before COVID hit the, I mean, the very top of the news and the stock market, our operating partner closed on a Louisville mobile home park for 7.1 million.
He had five objectives without going into detail. He hit about three of the five objectives in about six months and he knew it would take him about three more years to hit the others. And his goal was to get it to a $14 million value. Now with only three and a half million dollars in equity and three and a half in debt when he started, getting it to 14 million from seven would be a massive grand slam if he could do that in five years.
I mean, who would have dreamed he would get a $15 million offer in six months. So he sold the property and had a 347% IRR. Now I would argue that he, might’ve made a lot more money for investors just by holding on five or 10 years. And that’s another story, but the point is he was able to drive a significant increase in net operating income because he purchased it from a lady who had not visited the park in over five years.
We’re talking about a $7 million asset. By the way, before this big run-up in cap rates and asset values, that part might’ve been worth $3 million, so for her to get a 7 million, she was pinching herself and she was thrilled. And that’s my point. She didn’t need to be a great operator. She could go on being mediocre and not visiting the park for five years because cap rates alone gave her a massive boost in value.
But by taking this mediocre park and turning it into a great par he was able to more than double the value in a year. Well, even if cap rates significantly increased, his NOI increased so very much that he was able to outrun that cap rate if you will. And that is a way to prepare for a downturn. So we love buying from mom and pop operators and mom and pop operators are very few and far between in multifamily, but there’s a lot of them in mobile home parks and self-storage and certain types of light industrial.

The 80-20 rule of team-building and business strategy (Pareto’s Principle)

You say we bought we, this, we that tell him who we are.
Yeah, that’s where I cut off on my history. Cause I thought I was being too long-winded but what happened is when we decided we wanted to go into self-storage and mobile home parks, Wellings Capital my company decided, wait a minute, we don’t have a team. We don’t have a track record. We don’t have a good acquisition strategy. We proved that in the multifamily world. And so we decided it’d be best for us to partner with the very, very best operators we could find in self-storage, mobile home parks, and now light industrial. And so what we did is we believe, you know, the 80 20 rule is fractal as Perry Marshall says. 80 20 of 80 20. So now it’s the top 20% of the top 20% of the operators is what we’re looking for.
We’re looking for operators with phenomenal track records, great downside protection. Careful leverage great acquisition teams, lots of character, lots of history. And so we partner with them. We put together a fund and we’re finishing up our fourth fund now at Wellings capital where we provide our investors with a diversified group of assets from different operators, different geographies, different strategies.
And so one investor can put a hundred thousand with us and it might be spread across like 78 different assets in 20 states. So that’s what we do.

The Pivot to Value Add Commercial Funds

You know, it’s funny that trust you so much.
I don’t even know what you have the funds I invested in, I think it was, I think it was the growth fund.
Actually. I took that money and went to, no, I’m just kidding. Yeah. We’re finishing fund three right now, which is our fourth fund.
So looking at. Prices and back end of our financial markets that decided to liquidate my residential real estate holdings and move into what I saw and safer asset classes for what I thought would be a coming financial crisis. This was back in 2016, but I started to move things off. It’s amazing to me that, that us dollar as, as.
Made it this far with this much momentum without having to pay a price. Like it’s fascinating.
Those guys are with their hands on the controls are brilliant. I mean, they may be evil or they may be good, but they’re brilliant. No matter what they are.
Yeah. So I started liquidating, uh, thinking that the other shoe has to drop soon.
And I was, so I was sitting in cash looking I’m like, what am I going to buy? So I start looking at mobile home parks, um, and I was looking for assets that. Good kind of backtests through the last recession that only gets stronger. And Paul and I had one of our weekly mastermind calls and he like, you’re never going to believe what we’re doing and that’s where they were making the pivot.
So I jumped in, I think it was, was it January of what was that 18?
I think you jumped in, on January 20, 19,
January of 19. Yeah. for me, I’ll just tell you guys, like you heard me advise on what alternative investments you can push or your really good residential guys into.
For me, I saw significantly less risk investing in a value add commercial fund where, oh, I, let me back up. I was, I was almost dumb enough to go by my mobile home parks. And I had,
I remember that!
And, uh, I turned down an opportunity to buy a deal that looked like a home run in Georgia.
It was two parks in Georgia too. Just take my money, Paul, and I’ll tell you how much, how active I’ve been to make the returns that I have. I’ve done absolutely nothing. I don’t even remember which fund I invested in. So for me, you know, gaining accredited investor status and having the ability to go down Georgia, do my due diligence, dig into a mom and pop trailer park, You know, figure out how to do the value add, the turnaround, the ops, all that stuff. While still trying to travel six and eight months a year and meet my personal goals, my lifestyle goals, it just doesn’t make any sense. What made sense for me was to give you have money to Paul and let him go and make three times more money where I do nothing.

Why you should re-think your side hustle (and so should your clients!)

The hurdle there for me was reaching accredited investor status. So I invited Paul here because he kind of did this with his career later. I started to invest in what he was doing because I trusted it more than what I can do independently on my own. Um, and then, what I want to talk about now, Paul, that we kind of got some context, they know who you are and where you’ve come from. What, what, what advice would you give to a real estate professional? Whether they’re an investor or in brokerage, if they’re working with buyers and some of those buyers are going to be better capitalized than others, what would be your advice?
And if they’re coming up on overpriced assets, multiple offers all the frustrations, looking out, out of the market, out of state in them. Everyone’s gone to the Midwest trying to find deals for their California buyers. But if they’re, if they’re coming up against those walls, like, what advice would you give for alternatives for a real estate professional, whether they’re licensed or not to take their most trusted relationships, their buyers, if they’re non-accredited investors, what do you recommend?
Versus if they’re accredited investors?
Great question. So I have an honest conversation with people about this quite often, I had, uh, as an example of I was talking to a, uh, an oral surgeon from the Pacific Northwest and he was excitedly telling me how he was building a 20 home portfolio to replace his income so he could retire and his wife is an orthodontist and she was going to keep working. And he was telling me about the homes he was acquiring and his strategy. And then he started sighing and he said, Yeah, but I’m talking to painters between surgeries and I’m screening tenants in the evening.
I don’t know how sustainable this is actually. And I’m only on house number three. I said, dude, why are you doing this? How many, how much are you making per hour doing this? And honestly, he took a hard look and he said, you know what? I, I probably shouldn’t be doing this. And. You know, here, here’s my advice to everybody.
And I know I’m being very opinionated and some people in bigger pockets don’t like me for saying this because it flies in the face of a lot of what they believe. And I spoke at their conference on Tuesday. but here’s what I believe. I think you should either be. All in 100%, all your focus.
You know, we talked to Jay Papasan who took the mic from me, uh, and spoke right after me, bigger pockets on Tuesday, either Jay, Jay Papasan, and Gary Keller. Talk about the one thing. And almost everybody knows that concept now. So you either do the one thing well. Or you go to the other extreme and outsource it well.
I don’t think it makes sense for most people to have the main gig and then a side hustle because the side hustle becomes another half-time full-time job. Typically. I know there are many exceptions and I’m going to tell one in a minute, but for most people. It’s very, very draining. And it turns out that usually most people do neither really well.
And Gary Keller hammers that point and Jay hammers that in their book, you know, you can’t do two things well. Something’s going to suffer. It might be yours. More likely it will be your marriage or your relationships or your relationships with your kids. I mean, God bless Elon Musk, but I’ve heard he doesn’t have a great relationship with his wives.
I say that with his wife or his kids and you know what I mean? I don’t want that. I want him to have a better life. And I think maybe he needs to focus on what way he’s not gonna listen to me, but I went to listen. Your audience might listen. I would just really, really focus and do well on one thing.
Or outsource well, but I would not do some half-hearted, like, yeah, I’ll flip this on the side or I’ll do this or that on the side. And that’s why Wellings Capital is in business. We’re here to do the due diligence that our investors would love to do if they have the time or the knowledge or the resources, or if they were willing to fly across the country.
Yeah. If you insist on investing with somebody, I mean, if you do want to throw yourself into my second option, which is outsourced well, get Bryan Burke’s book, and you guys, you guys should have him on your show chat. He’ll be glad to be on he’s a friend of mine, the hands-off investor, it’s like 300 media pages on how to do due diligence on sponsors.
I mean, go out, read this book. And go find a great syndicator or fund to invest in, or even start that yourself. But I wouldn’t do it on the side while you’re working 50 hours a week at your tech or medical job or your real estate job. That’s one thought I have any thoughts on that before I jump into the accredited non-accredited and all that.

Sponsor vs. the underlying asset: Due diligence for any deal

No, I’ll just underscore that. I mean, I have looked at God at this point, probably thousands of pitch decks from sponsors. I always underwrite the people first, before I, even before I even care about the asset, who is the sponsor and how distracted is he or she, what is their day job? And if it’s not their day job, I’m out, I’m gone in the very beginning because you know, all the way back 3000 years ago, Confucius can be traced to say, oh man, you know, you chase two rabbits, the man who chases two rabbits catches none.
And so to underscore your advice, like you don’t want to put your clients and investments with sponsors. If it’s there. And maybe it’s not fair to say if it’s their first deal, that’s not a good underwriter. Like he could have been part of a hundred deals and another fund.
And this is his first, that he’s sponsoring, which is kind of similar to Paul’s situation. When I first invested with you, it was your first private offering fund. It was our third or fourth private offering, but our first fund, right first
like the first syndication. And for about, I had no doubt. I’m like, yeah, I know the people.
So I would say, you know when you’re presenting opportunities, whether it’s Wellings capital or other funds or, or syndications, when you present opportunities to your clients, to your customers, to your friends, to your family, to anyone who’s looking to invest past. Make sure you underwrite the people first and then the deals.
Cause if you put the right people in, in, in the right seats that they won’t come up with that assets, they’ll come up with value, add assets and structure deals creatively and extract as much profit as possible.

Overpaying for assets: Terrible deals on beautiful slide decks

Great. A great operator can fix a mediocre deal. a mediocre operator can ruin a great deal.
And unfortunately, we’ve seen that too. We won’t mention any names. We don’t want to ruffle any feathers.
Oh. But can I tell you a story? Yeah. I can do this in seconds. This week I was with Brian Burke at BiggerPockets, and he told me that he had a mediocre apartment deal and he was not able to raise the rate, the rent on this for three.
You know what, I’m not going to finish that story. I don’t even know if that’s public yet, but let’s put it this way. Somebody buying his apartments for way, way too much money. I talked to another friend of ours, uh, AJ Osbourne, who was telling me that he had a bid of $75 million on a portfolio and somebody, and he said that was straining him right to the limits of his self-storage portfolio.
Somebody else came in much, much, many tens of millions higher. And he said, no way’s going to go well for those investors, unless inflation, just overwhelms that. And, and how are they even going to get debt, how are they even going to get, make that work? But anyway, he just could not believe and people are.
Folks, this is happening left and right now, not just in single-family, people overpaying, but especially in multifamily and even in other places do not succumb to this. You’ll be sorry. This is gonna, this is, I mean, I don’t, I don’t like to use throw the word bubble around lightly, but six of the eight guys in my multi-family mastermind, and these are high-level players, think we’re in an absolute bubble. That’s going to cry. This is going to crack.
And the people who are out there proclaiming to be, you know, the the the dealmaker of the century, that’s, that’s putting this beautiful pitch deck in front of people. I’ve seen some absolute garbage deals on beautiful pitch decks lately.
And I mean, they’re, they’re, multi-family, they’re claiming value add, but their value adds, they’re sitting back hoping like hell that rent increases will continue at the same rate they have with no other operational efficiencies plan. And that is that’s a fool’s errand if I’ve ever seen one.
Absolutely.
The investors going into those deals are going to lose their and there’ll be trapped in that deal for a decade, probably.
So it’s going to be, it’s going to be awkward and painful. The relationship is likely to break apart between the sponsors and the investors. This is where a lawsuit started. Then, when there’s blood in the. So it makes sure you’re investing with the right people. You underwrite people’s first assets next. AJ is a great example of that too.
I mean, you couldn’t meet a better guy and look at his track record. how many times has he ever gone back to an investor with an egg on his face? Probably never. No, he doesn’t have to.

Cash on cash return with tiny cabins for AirBNB, VRBO

So. Well, we’re running short on time, but, Paul, let’s go back to the question. So for someone who’s listening to this, that that’s, you know, they’re like, well, I’m not accredited.
I don’t know if my buyers are not like that residential real estate professional, whether they’re flipping houses right now. And we just scared the shit out of them because they’re like, oh my God, if they raise rates and prices are going to correct. What if I have it? Like for those people, if they’re looking how to move into investments, more like you and I invest them, what would you say to the person who is. And also to their buyers who are not accredited versus the ones who already meet accreditation standards. And let’s define that too, um, and them and their buyers.
So accredited is just a term. It’s not something that you would like, you might say I’ve never been accredited. Well, you may be accredited and not know it.
It’s 200,000 in individual income, 300,000 if you filed jointly and that’s over a couple of years, um, you know, per year for a couple of years or a million dollars in a net. Not counting your home. That’s a quick definition of accredited. If you’re accredited, you have all kinds of opportunities to make or lose money with the syndications and funds.
and the world is honestly much more opened up to you to be able to do, you know, these passive investments. If you’re not accredited. And Chad, you know, I love you, man, but we can fight here. Cause we, we could argue over this one cause I haven’t run this by you yet. I was in and I ran into a guy, really impressed me.
And he was a general motors engineer and he’s 50 years old, more or less. And his goal was to get out of general motors in about three or four years. So he started buying vacation cabins in your favorite, your former favorite place?
Gatlinburg! Gatlinburg’s interesting because they lost, I think it was 1900, right. Cabins and homes during the, in condos, during the big fire about five years ago. And that supply and demand are still out of whack. And so he was telling me how he did this. And I had dinner with him at my house, two weeks ago.
And he was showing me this makes total sense. He said you get a 90% loan. Now that scares me. But anyway, get a 90% loan as a non-resident of Gatlinburg on your vacation cabin and you put 10% down. So you put down, let’s say 70,000 cash and buy a $700,000 house, or let’s just round up, you put a hundred down and get a million-dollar cabin.
And he said that things can cashflow on Airbnb and VRBO, 60 to 90,000 a year. Now. I did the math on that. That’s like a 60 to 90% cash-on-cash return. If you believe your leverage isn’t too risky. And he said that the appreciation there. I mean, because it’s becoming known in the arena.co you know, as a great location.
It, it, it works well. And I met a guy in BiggerPockets at the bigger pockets conference in Asheville doing the same thing, building a ground-up tiny little cabin and making a fortune as far as cash on cash return. So I think that’s a place to steer people. And if you want to meet my engineer friend, by the way, he quit his job in 10 months after buying three of these Gatlinburg cabins, and now he’s, he calculates and steers people into the right cabins. He’s an expert at it.

Netting $480,000 in 12 months off 3 vacation cabin rentals

I just realized there’s a lot there’s stuff we haven’t talked about. You, you are in the middle of a capital raise that we, I ended up forming an investment club and one of the members who I still want to introduce you to he’s a friend of mine met and oh seven when I was in brokerage in the smoky mountains.
So Jay has three cabins He builds them for around 800,000 all in like how high level, large square footage they’ll appraise at 1.4, 1.5. So he gets no more, no more than an 80 LTV cash out, refi on it. And, uh, he has three cabins and his net operating and. For this for the last 12 months.
And this is just, I just asked him this two or three weeks ago. I’m like this look back through. And in the last 12 months, he has netted $480,000 off of three cabins.
What that’s even more. Wow. So does he have a? Yeah, he does. Yeah. My friends have told me that is a key to massive
he’ll do well. He’ll do us a heated swimming pool with a hot tub, a big fireplace, and like a, I don’t know, probably a 16-foot projector screen.
Um, he does foosball tables, pool tables, putting like putt-putt golf courses, like private a hundred thousand. He can furnish that for under 50 grand. With that level of FF&E, because negotiate he negotiates everything.
So we agree.
We are. I believe that they trade more like commercial assets.
The reason I ended up working in a smokey mountain market, I was selling condos at snowshoe, the ski resort. I moved to the smoky mountains because in 2007, when, when the Canary fell over in the cage, I wasn’t economically smart enough to talk about it the way I am now, or I think I am, but I knew something wasn’t right.
So I moved to the smoky mountain because I viewed that as commercial real estate. With a short-term rental facade and we built wilderness, the Smokies, the retail, pre-construction asking price. That was a 12.3. And brand new construction. All of your, your, your rental management fee covered all of your reserves, FFNE re remodeling.
Everything was built into a reserve fund. So we, we, we thought we were selling like a 12.3 cap, new construction combat who the hell has ever heard. What it ended up being at more like a 16 or 18 cap and the buyers that I brought from snowshoe Northern Virginia, you know, they were invested in, in the DC market and snowshoe the ones I sold those condos to, and the Smokies in 2007, like closed in 2008, when everyone said they were fools they.
Kept their portfolio together because their smoky mountain project or pro-property actually subsidized everything. They’ll stay up. And at least two of my client’s cases it’s saved their primary residence. Had they not made that decision? They would have lost their home. ’cause they got laid off. So anyway, I agree like it’s, it’s, there are certainly opportunities.
I think short-term rental is a great opportunity in a few locations. and I think Gatlinburg is one of those. So
I got to get the right realtor there. I’ve heard that most of them don’t analyze those deals. Well,
and in my opinion, there’s one broker, the guy that I’m referencing if anyone ever needs to buy an asset in that market. I will I’ll put him up against anybody. He’s more like a registered investment advisor of Gatlinburg real estate. So he viewed, he views his role as a financial fiduciary, and he will not let you buy something that doesn’t have a high return because why? Yeah, he’s one of his clients on Joe, who I know, he has helped him.
Probably 18 months even developed 12 cabins and he develops with cash and then does cash-out refi mean just unbelievable returns on them.

How to stay focused in your work: Why I would pass on a 60% ROI deal

So, uh, can I make one more comment about that? So, how do you, in summary, I’m asking, how do you keep that from being a distraction? I just talked about not chasing two rabbits.
I just talked about this, not being a distraction. How does somebody like, give me a one-minute overview, Chad, how does someone keep that Airbnb and VRBO from not being a distraction cause that’s really good money for accredited or non-accredited? 
Yeah, it is. I’ll tell you for me, like, and this is something you and I share like that struggle of focus because we have such an amazing network of people and, and just a constant barrage of opportunities.
For me, it was having a thesis, right? Like what kind of man do I want to be in 10 years and act accordingly today? So I don’t want to be busy. I don’t want urgency in my life. I don’t want drama. I don’t want operational tedium and all the little pieces, all the things that you have to do, what I do want.
As to this map behind me is representative. So I want to teach people. I want to, I want to help people learn from what I, I want to touch lives will improve lives and I want to travel. And for me, having short-term rentals that require you to be there once, twice, even four times a year, doesn’t fit my thesis.
My thesis says, work less, earn and invest in things that don’t threaten that. So for me, Wellings capital was a smart move because I know that I would trust you with my checking account or my, my state. And I don’t have to talk to you about it. I don’t have to bother you about it.
I don’t have to worry about it. I know that it’s coming back in multiples. I’m invested in Bitcoin mines, same thing. It’s a commercial real estate play. We just sell Bitcoin instead of residential space. Like we, we just capitalize on, on something else. It’s like an industrial commercial play.
And so the things I choose to invest in like it is attractive and it is hard. A friend of mine bought a house in Virginia Beach last week. It’s a million-dollar house he’s making 15,000 a month. What’s his debt service for maybe so he’s netting like 12 grand a month and they get to live in a dream home on the beach.
Yeah, it’s attractive. But uh, every time I get down to it, I’m like, yep. But that’s the lifestyle that I want to live or, or the other impact. So that’s what I wanted to have. So having an investment thesis is what’s kept me in my lane since 2016. And it’s kept me from investment, like doing all kinds of crazy things.
It’s pushed me mainly. I’m one of those guys. Like a dentist or a doctor, not because I work a hundred hours a week, but because I want, I don’t want to work a hundred hours a week. As for me, I’m a passive investor If you handed me an apartment building and said, you can have this operational mess, all you have to do is spend the next six months of your life.
Dealing with contractors, dealing with courts, kicking out tenants, pulling heroin needles out of the elbows of the plumbing, like dealing with rats and mold and all this infestation and all this horse that comes with it. That’s all you have to do. And for the next 30 years of your life, you can enjoy this path.
That’s a deal that I now know that Chad says no to because I know that for six months of my life, I go against my principles against everything that I want and I just won’t do the deal. And also I’m blessed with friends who enjoyed on that
 Yeah, that’s right, man. I just wrote, so I just wrote an article for BiggerPockets.
I don’t know what the title will be when it comes out. Cause they changed the title, but it was why I passed on a 60% ROI. And that was basically, I came to the same conclusion that my life looks there’s that study out there. And I don’t know what number you ended up like when you see the version of the study.
But you know, they say that if you make over 65, some people say 75, some people say 95, if you make over 95,000 a year, whether it’s a hundred thousand or a hundred million, you won’t be any happier. So if I can’t be any happier by adding that, you know, that extra bolt-on distraction, why do. Do you know what I mean if I’m already making over that threshold?
Well, to me, that, that REL that, that dawned on me when I was about to pull the trigger on one of those types of distractions. And I said you know what? I think I’ll just go rent in Gatlinburg or Virginia Beach or Asheville and let someone else have that. Even if it’s only an hour a week, that hour a week district.
Yep. So that’s for me now for you guys listening, Paul’s on it. We’ve got a hard stop that we’re coming up against. Paul tells them where they can find information on your fund, and where also they could look. We, we, we were good at finding rabbit holes, um, but. If they have clients and they want to push them to the more passive side of investing, where, where can they find you learn more about Wellings??
Yeah. 
I’m going to answer that with a two-part answer. First of all, I want to mention, if you don’t know about human trafficking, Wellings, the capital’s getting involved and I’m looking at my life, you know, and I, and I, I want to leave an impact. I want to make a mark on history.
You know, I don’t know how long I’ll be around. I’m expecting to be around 43 more years and two months. Cause I expect to live to a hundred, but you know, you never know. And so. I am trying. I don’t know Chad if you’ve heard this, but if you took the record profits, the record profits of apple, general motors, Nike, and Starbucks added those up.
Tripled that number. That’s the estimated revenue generated by human trafficking every year. Chad, since we started this conversation, a couple of hundred people, about 200 to two 50, have been trapped or ensnared into human or sold into human trafficking into slavery. And I’d like to believe if I was alive in the 18 hundreds, I would be fighting slavery.
I’d be an abolitionist. Or if I was an adult in the 1960s, that I’d be fighting for, you know, good civil rights. Well, this is civil. It is slavery and it’s happening under our noses. And so I want to be part of fighting that. And so Wellings capital is taking some steps and we’re about to make some announcements about how we’re going to continue to fight human trafficking and rescue its victims.
You can reach us at wellingscapital.com. And if you want to get a special report on mobile home park investing self-storage investing, or just a simple five-day course on how to get into commercial real estate investing in general, then you can go to Wellingscapital.com/resources, and that will get you there.
Cool. socials, can they find you on LinkedIn? Bigger pockets, 
bigger pockets, you know, uh, occasionally on places like Facebook or my space or whatever, and I’m kidding. That’s a joke. but seriously, I’m getting more involved in the social media site, but Wellingscapital.com is the best place to reach me.
That’s we consistently know that we will be answering your emails within hours. 
Well, Paul, thank you so much for letting us all borrow your experience and your wisdom. And, uh, we hope to have you back to say 
thanks for your time. Great to see you.

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