Ep. 105 – Paul Moore – Secrets of The Super Wealthy
Have you considered real estate as one of the ways to build wealth as part of your retirement plan?
Real estate can be a huge return on investment when you take the time to understand the market and learn from other investors’ mistakes. Research is showing that the current unique state of the economy is proving to be a very conducive time to invest in real estate due to low-interest rates.
In this episode of the Secure Your Retirement podcast, we have Paul Moore. He’s a founder at Wellings Capital, a real estate private equity firm that manages investment funds.
Listen in to understand why it is much easier to avoid replicating someone else’s mistakes than it is to replicate their success. You will also learn how to approach investing in mobile home parks as a beginner in the market.
In this episode, find out:
- Paul on his career background and his journey as a real estate investor.
- Why the current unique state of the economy is conducive to create wealth using real estate.
- Why Paul named his podcast “How to Lose Your Money” to encourage beginner investors.
- Tap into your gut feeling and don’t ignore what it’s telling you.
- How Paul is fighting human trafficking by setting aside a portion of his profit for that purpose.
- The importance of having a why and finding joy in the journey towards your goals.
- The value of investing in storage and mobile home parks real estate.
- How to approach mobile home parks investing as a beginner.
- The strategy that makes it possible to not pay any taxes on your investments.
Tweetable Quotes:
- “If your gut feeling and the head are out of alignment, there may be something wrong.”– Paul Moore
- “Sometimes, it’s easier to avoid replicating someone else’s mistakes than it is to replicate their success.”– Paul Moore
- “Have a big why that’s other than money.”– Paul Moore
Get In Touch with Paul:
Free resources: https://www.wellingscapital.com/resources
Resources:
If you are in or nearing retirement and you want to gain clarity on what questions you should be asking, learn what the biggest retirement myths are, and identify what you can do to achieve peace of mind for your retirement, get started today by requesting our complimentary video course, Four Steps to Secure Your Retirement!
To access the course, simply visit POMWealth.net/podcast.
To receive our free book, Get Off the Retirement Rollercoaster, leave a 5-star rating review on Apple Podcasts and send a screenshot to morgan@pomwealth.net.
Here’s the Full Transcript:
Radon Stancil:
Welcome everyone to our Monday podcast. As you know, all of our podcasts that we have on Monday is where we’re trying to bring people that can add value, experts, people that can tell us about how to live a better life. And today I think we’ve done a very good job by who we’ve got as a guest. His name is Paul Moore, and we’re going to probably talk about something that I think is going to be intriguing right off the bat here because we’re going to talk about this idea, because people look, I think sometimes, and they see people that they, “Oh man, those people are in a different place.” And usually that’s talking about wealth sometimes, super wealthy people. How do they maintain that wealth and then get it to the next generation? And I think everyone’s worried about that or at least they think about it.
Radon Stancil:
So we’re going to ask him a bunch of questions. So let me just say this first and foremost, Paul, thank you so much for coming on and talking with us today.
Paul Moore:
Hey, it’s great to be here guys. I’m really honored.
Radon Stancil:
Great. So hey, if you don’t mind Paul, just so everybody gets a little bit of your background, can you tell us a little bit about you and how you got to where you are today and a little bit about what it is that you actually are doing today?
Paul Moore:
Yeah, absolutely. I got a petroleum engineering degree in the mid 80s, which was my first mistake. And then I went to Ohio State, got an MBA, went to Ford Motor Company. Within a few weeks at Ford I realized, I was looking ahead at different people and I thought, “Gosh, it seems a little boring and like it might be a lot of travel and stuff.” And I really wanted to be my own captain of my own destiny. Well, one of my friends who went to Ford also felt the same way. So we quit Ford after a couple of years and started our own staffing firm.
Paul Moore:
We sold it to a publicly traded firm five years later. I had been finalist for Michigan Entrepreneur of the Year a few times. Then I got into real estate and I thought, “Hey, I’m a full-time investor now,” but the truth was, I wasn’t. I was a full-time speculator and I didn’t know the difference. And I think that was pretty important to figure out. So I lost a lot of money along the way. I made a lot of money as well, got into flipping lots, then flipping houses, and did a small subdivision, built some homes, bad idea for me. And I wondered how to get into commercial real estate and I didn’t know where the on-ramp was, like a lot of us. I eventually ended up partnering with that same guy to build a couple multifamily developments and a Hyatt hotel, and I jumped back into full-time commercial real estate syndication after that. I’ve written a couple of books on commercial real estate since then.
Murs Tariq:
Very good, Paul. Thanks again for joining us. And for everyone listening, obviously he’s got quite a bit of knowledge and experience behind him. And so we feel very comfortable asking him some tough questions that everyone’s thinking of. And the first one I’ve got for you, Paul, is, in the environment that we’re in today, bank rates are low, interest rates are low, it used to be, 20, 30 years ago, you could go and get a CD for 9%, 10%, you could go stick your money in a money market for 5%, 6%, something like that, always keeping up with inflation or better. And now that’s just not the case in the bank environment. And so, everything is going to have its pros and cons. If you go invest in the market, you can make great returns, you can also lose some money. If you go to the banks, your money is protected, FDIC but you’re not really going to get anything. So, what are some of the other strategies out there that you’re seeing that could be something to think about outside of just sticking your money in the bank?
Paul Moore:
Absolutely. Sam Zell is perhaps the most successful real estate investor in US history. And Sam Zell got extremely wealthy in a time that’s a little similar to this, and I would argue that maybe the time we’re in could even be better. He locked into 6% or 7% interest rates, which were really low at the time, while inflation was running 8%, 9%, 10%, 15%. And we’re at a historic time where interest rates are at a 5,000 year low, and I’m not just saying that. They’ve actually studied these back to ancient Egypt. So we’ve got these great interest rates. I mean, we just invested yesterday in a mobile home park with a 3% fixed interest rate that’s going to go 10 or 12 years, but we’ve got this thing called inflation, looming inflation. It was 0.9% last month alone, and so we’ve got this potential to create significant wealth with the strategy of locking in a low interest rate and then letting inflation do its work.
Paul Moore:
Because in commercial real estate, we all understand how to make money in residential real estate, but in commercial, it’s very different. It’s based on a formula, the math formula goes quite simply, it’s sort of like PE ratios and stock, the value is the income divided by the rate of return or the net operating income divided by the cap rate. And we’re in a time when cap rates have shrunk a lot, but if net operating income goes up, you have an opportunity to force appreciation. Then you sprinkle in some safe leverage and you’ve got a chance to really, really make significant gains. And that’s the time we’re looking at right now.
Paul Moore:
I mean, I don’t think there’s ever been a time that I have ever heard of in history where interest rates are still staying low, but inflation is heating up like it is now. I actually spent five days with Doug Duncan and about 200 other people in Belize recently at a conference. Doug Duncan as the Chief Economist for Fannie Mae, and he really believes this is a unique time and an opportunity to really create a lot of wealth using that type of strategy, using real estate specifically.
Radon Stancil:
Yeah. Well, I know that you have a podcast, we call our podcast Secure Your Retirement, and it’s all about this idea of folks that a large amount of the folks who listen to us are people that are within about 10 years of retirement or already in retirement. So they’ve built up their wealth or they’re trying to close that out, and so they’re real concerned about keeping that secure and you actually called your podcast How To Lose Money. So I’m trying to figure that out. Why’d you do that? And why would somebody want to listen about how to lose our money?
Paul Moore:
Yeah, exactly, right? Well like I said in 1999 or so, I thought I was a full-time investor, but I was a speculator. Investing is when your principal is generally safe and you’ve got a chance to make a return. Speculating is when your principal is not at all safe and you’ve got a chance to make a return. And I was doing the second. Well, when I realized what I was doing and I started investing, I was zealous that a lot of other people get that message. That was one issue.
Paul Moore:
The second issue is, honestly, I’d go to conferences and I’d see these speakers on stage, and I’m sure they were all telling the truth, but they would tell these amazing stories how they got to billionaire status or whatever. And I thought, “Wouldn’t it be nice if some of them told the pain and losses along the way?” Because I would get in these little breakout groups and the guys would just be hanging their head, “Oh, I’ll never have the breaks that guy had. I’ll never have the education. I’ll never have this advantage.” And they thought they couldn’t make it. And I said, “Wouldn’t it be amazing if they shared how painful it was on the way to the top?” And I thought, if I ever get on that stage, I’m going to share how painful and hard it is.
Paul Moore:
Well, we started the podcast to interview some of these great investors and well-known people who have made it to the top about their pain, loss, struggles, relational tension, bankruptcies, et cetera, on the way. And our goal was to encourage everybody and give them hope because all these people like Gino Wickman, Mike Michalowicz, all these great people, they’ve had the same pain and loss and struggles that we all have on the way to the top. And so we think it’s been quite encouraging and given people a lot of hope. And we also think, sometimes it’s easier to avoid replicating someone else’s mistakes than it is to replicate their success. We know what not to do now.
Murs Tariq:
Yeah. That makes a lot of sense. While you were describing your podcast, I just looked it up on my phone, and I see one of your more recent episodes is this one called How To Lose Money by Ignoring Your Gut Feelings. And Radon and I, for what we do and we talk to our clients, we try to educate our clients on not getting emotional when it comes to market investing because a lot of times emotions get in the way, you think the market’s going to go one way, you make a decision, and ultimately you end up getting burned or you have regrets or whatever it is.
Murs Tariq:
So, what is the thought process there in that episode? Just a quick high level, just because I think the title is so intriguing about ignoring your gut feelings because some other others would say, when you’re taking a test or when you’re doing stuff, they say, “Hey, go with your gut.” So why ignore the gut feeling?
Paul Moore:
It seems like we were designed, I guess our brains can do, what is it? Four quadrillion calculations a second. And it seems like we’re designed to be able to pick up on all kinds of cues that our conscious mind doesn’t recognize. I mean, if someone’s standing a certain way with their eyebrows a certain way, saying certain words with a certain pause, our subconscious mind seems to be able to pick up these cues and say that person’s not telling the truth, but our conscious mind likes to override it, especially if we’re males.
Paul Moore:
And I find for me that if I’m trying to make a big investment that makes total sense to my logical mind, my gut feel is often the voice of my wife. I hope she doesn’t hear this, but anyway, she is so intuitive. It’s amazing. And she says, “Don’t trust that person.” And I give her all the reasons she’s wrong, but five years later I find out she’s almost always right. And I had the gut feel, but I just didn’t follow it. And I think that’s why I recommend that people really tap into that and not ignore that because if the gut feel and the head, both, if they’re out of alignment, there may be something wrong.
Radon Stancil:
Yeah. Well, hey, just a side point here, we read that you had set your company up, this is almost seems like it’s off topic a little bit, but you set your company up to somehow generate funding for human trafficking, and then also how to rescue people out of that. How did you do that? I would almost ask also, why? What was the driver for that?
Paul Moore:
Yeah, about six years ago, I saw a movie called Nefarious and I recommend everybody get it on YouTube or watch it. It’s from a group called Exodus Cry. Guys, did you know if you took the record profits, not the average, the record profits from Apple, General Motors, Nike, and Starbucks, added those record profits together, tripled that number, that’s the estimated revenues generated by human trafficking every year? And I’d like to believe if I was alive in the 1800s, I’d be an abolitionist fighting against slavery and I’d like to believe if I was an adult in the 1960s, I would have been fighting for good civil rights.
Paul Moore:
Well, this is a civil right. This is slavery and it’s happening right under our noses. So we wanted to set up Wellings Capital with the thought that when investors invest with us, they know that a portion of our profits connected to their investment is going to free slaves. And we’re about to announce a major initiative in that sense that every new investor that comes in, we’re going to be freeing a slave with our profits from that within the first three to four months. And so that’s why we do this and we want to raise public awareness on this issue as well.
Murs Tariq:
Yeah, I think that sounds very admirable, so kudos to you and the entire Wellings Capital team for coming up with the program, but also following through with it. I think that’s fantastic.
Paul Moore:
Thank you.
Murs Tariq:
So, you talk about this thing called a big why, as to you got to find what your big why is. We like that word too, the why. Why would you ever do something when it comes to the investment decisions you’re making or the retirement planning decisions that you’re making? It always comes back to the why. So, I’m interested to see what you’re going to say when it comes to, well, what is the big why? And why is it so important that everyone knows what that is for them?
Paul Moore:
Yeah, I was 33 and we sold our company to a publicly traded firm and I woke up on October 8th, 1997, I didn’t feel that much different than I did the day before, no worse, but not that much better with a couple million dollars in the bank. And I also heard a story about the CEO of Auntie Anne’s Pretzels and shortening the story, he woke up with $151 million in his bank account and he realized he was miserable. He had worked really, really hard, but he had sacrificed, as we all do, some relationships and time and things along the way. And he realized something. He said, “You know what? I should have found my joy in the journey because the joy is not just at the end when we reach our goals.” We need to find our joy in the journey.
Paul Moore:
And one of the ways of doing that is have a big why that’s other than money. And so for us, like I said as a company, it’s fighting human trafficking and rescuing its victims. There are other issues as well, like having great relationships, role modeling what it means to be a good husband. All these types of things are things I want to do, yet I get distracted every day and I’m tempted to believe it’s about making money or being a success at work and that’s important, but I think it all needs to be integrated into our big why.
Radon Stancil:
Yeah, I agree. Like Murs said, we talk about that all the time. And one of the things that we find is that sometimes people, even when they retire from, let’s say a long-time career, they still got to figure out, what are they going to do now and what is it they want to do? And that is their big why. And so that makes a lot of sense.
Radon Stancil:
Now, let’s talk a little bit about some ideas around real estate. I know you mentioned just a little bit ago that you had invested just recently in a mobile home park. I think, in reading your stuff to you, you mentioned about also storage facilities, which I am always amazed by that. I drive around and I see storage after storage and I’m going, “Man, goodness man. They’re everywhere.” And I’m thinking, why do we have so much stuff is probably one of the things I think about, but, why do you think it is that people are shifting, these real estate investors are shifting their money over into those worlds of mobile homes and mobile home parks, as well as a storage facilities?
Paul Moore:
There’s a lot of reasons, and I’ll try to boil it down as succinctly as I can. I wrote a book on apartment investing called The Perfect Investment in 2016, and by 2017, I was so frustrated, 2018 especially, trying to find apartment deals because they’d become so overheated. There’s so much money coming into the space. Apartments are mostly fixed up. 93% of large apartments are owned by companies that have multiple assets. They’ve already done the value adds. There’s just not a lot of runway. And if you read Howard Mark’s Mastering the Market Cycle, you’ll realize perhaps, I mean we’re definitely at record pricing on all these types of assets, the problem is there’s no margin of safety.
Paul Moore:
When you think about Buffett’s margin of safety, apartments don’t have much, but apartments are the big in thing to invest in in commercial real estate, at least in the segments that I see, and we could go over why office and retail and malls and others are really failing in a lot of ways. But what we found out was there’s a lot of fragmentation in mom and pop, and mom and pop owners in self storage and mobile home parks, and there’s other asset types as well. But we like these because, let me just give you an example. There’s about 44,000 mobile home parks in the US, about 85% are owned by mom and pop operators. They don’t have the desire or the resources or the knowledge to improve the income and maximize value.
Paul Moore:
Hey, why should they? Cap rates have gone from about 10% or 11% down to five or six. So they’ve already doubled the value of their facilities just by staying mediocre. And so, acquiring these types of assets and paying them a fair price, in fact more than they ever dreamed, allows us to improve them to, let’s say, institutional standards and then sell them at a reduced cap rate with significantly increased net operating income. And again, going back to our math formula, this is how we were able to get, I mean just as an example, 347% IRR on a deal that went full cycle in the mobile home park space last year. That’s including the leverage, of course. We had three and a half million equity, 3.6 million debt, 7.1 million in it, sold it for 15 million in less than a year. And that’s the kind of numbers we got.
Paul Moore:
Now, that’s a exception to the norm in the number, in the IRR number, but we’re regularly seeing IRRs north of 50% on these type of deals. And the reason is, a lot of the reason, is that these are mom and pop operators who leave massive amount of meat on the bone when they sell the asset.
Radon Stancil:
So how does a person listening to you, if the person thinking, “Oh, I don’t know anything about mobile home parks. I don’t know anything about storage places. I don’t have any idea about how to invest in something like that.” I mean, what would you say? “Hey, here’s some things you might want to think about. Here’s some guidance on what you might do to get more information about that.” Because I mean, I hear that and I go, “Well, that sounds really cool.” I mean, who wouldn’t want to have a good return in something like that? But I have no idea how I would even go about investing in something like that.
Paul Moore:
Years ago, like 20 years ago, I looked at storage and looked at mobile home parks and I was confused. I mean, how would I get into this? Would I need millions of dollars? How would I get the debt? All that, it seemed overwhelming. Well, syndication has been around for hundreds of years. It’s been codified since 1933 in the securities laws, but it’s become really popular since 2012. I’d recommend somebody go out and go online or go check around and look for a syndicator or a fund that offers these type of investments, do a whole lot of due diligence, and if you need to, get this book, it’s called The Hands-Off Investor by Brian Burke. This is how to evaluate a syndicator and figure out if they’re a good apple or not. And once you’re sure that they’re somebody you really trust, invest with them and let them do the heavy lifting while you enjoy your job, your family, or your retirement.
Murs Tariq:
Right, yeah, because I guess with real estate and you kind of alluded to it at the beginning, at the very beginning of the podcast, is that you got into the world of trying to build houses yourself. I’m very familiar with that because I grew up in that world, and so in real estate, you can either do it all yourself or find someone that can help you do it or farm it out. And so ultimately, someone just needs to make that decision.
Murs Tariq:
So for my dad, he loves doing all that, dealing with the subcontractors and building the houses from start to finish, and that really worked out for him. You have others that say, “I’m really good at managing rental property.” And then you have the others that are just saying, “Hey, I’ve got some extra money, but I want to be completely hands-off and I want to just be able to get some type of rate of return in a different bucket outside of my normal 401k investments and everything like that.” So I think it’s good to know, and what you’re saying is that there’s options out there. You just got to do the research obviously and you got to pay attention to what’s going on.
Paul Moore:
Right.
Murs Tariq:
Is there anything else that we haven’t talked about? Anything, secrets out there as far as, or what you would consider secrets that help attain and maintain wealth as we close out here?
Paul Moore:
Yeah. Murs, it’s not always possible to do this, but I had a friend who had been in commercial real estate for decades, show me, he spent hours doing it, how you could take $20 million, invest it, not touch the returns for 10 years, and then in the second 10 years, take nice returns along the way. And at the end of 20 years, your 20 million in equity would be worth 210 million in the total asset value, including leverage, and it would’ve thrown off 131 million in income, I shouldn’t say income, cashflow along the way. That was amazing, but it was all in the numbers and it was all provable.
Paul Moore:
What really amazed me though was he said, “It’s possible, if maneuvered perfectly at every step, that this investor might not have paid any taxes at all along the way.” Now they would have had to do a qualify, they’d have had to be a qualified real estate professional, they would have had to use 1031 exchanges, which are still available for real estate investors, but it really is possible. This is why we have these famous people who have come out and they have $750 on their tax return because of things like this. The government has set it up to make it really possible and feasible to not pay any taxes and kick the can down the road and even let your heirs inherit it with no taxes at all, even back taxes from the profits in the past. Now that could change, but that’s how it is right now. We love it.
Radon Stancil:
Fantastic. Well, you’ve obviously shared some really good, we call them gold nuggets, right? And it’s been helpful. If somebody was listening to this and they wanted to get more information about you and maybe about what you’ve been able to accomplish and just to do their research about what you do, could you tell us how to do that?
Paul Moore:
Yeah, like I said, it’s really hard to figure out where the on-ramp is to get into commercial real estate, so we’ve created a nice five-day course people can get if they want free. It’s at our website. It’s wellingscapital.com, W-E-L-L-I-N-G-S, wellingscapital.com. And then to get the course, it’s /resources.
Radon Stancil:
Very good. Well for every show, we always put together a podcast page on our website, so we’ll have all that information there, easy for them to go click on that and get over there to that website page. But we just would like to say, Paul, thank you so much for taking time out of your schedule and coming on and talking with us today and sharing what you’ve shared with us.
Paul Moore:
You bet. Guys, it was a real honor, and I really appreciate your show. Thank you.