In this episode, we are joined by Justin Spaulding, a successful real estate investor with a passion for scaling up in the industry. We’ll dive deep into the challenges and fears of expanding real estate investments, from single residential properties to hundred-unit deals. Justin shares his experience of hiring employees and contractors as he scaled his property management company and the importance of implementing systems to handle increasing responsibilities. The conversation also delves into the impact of proper systems and processes on property management businesses, the current market situation, fears about debt and interest rates, and the potential consequences of the substantial amount of debt in the economy.
- 00:00 College sports led to passion for real estate.
- 03:26 Bought 4 unit, faced challenges, regretted initially.
- 06:39 Real estate offers fragmented, but lucrative potential.
- 12:41 Busy schedule, seeking increased success rate.
- 14:11 Experienced in operational excellence and property management.
- 18:26 Willing to pay tenant to relocate. Obstacles identified.
- 21:25 Fear of other people's money in investments.
- 24:47 Numbers up but still early to judge.
- 29:36 We watched her latest movie and documentaries.
- 32:41 Business growth, adapting roles, and delegating tasks.
- 34:13 Elevate for CEO role, strategy-focused amid overhaul.
- 39:54 Economists predict challenges for 2029-2033.
- 40:47 Interest rates will decrease then increase again.
- 46:17 Investing for 5 years, results and advice.
Episode Table of Contents
- Maximizing Real Estate Opportunities
- Maximizing Real Estate Opportunities Amid Economic Theories and Debt Concerns
- Operational Challenges and Acquisitions
- Capitalizing on Real Estate Opportunities
- From Passion to Real Estate Opportunities
Maximizing Real Estate Opportunities
Navigating Real Estate Opportunities and Overcoming Investment Fears
Justin describes the initial trepidation associated with moving from smaller residential investments to substantial multi-unit properties, a common journey for many in real estate. He reassures that such fears can be mitigated by reinforcing one's business with the right personnel and systems. As investors scale up, their day-to-day involvement evolves from direct management, like handling unit turnovers or repairs, to steering company growth and strategy. Justin's own trajectory saw him transition from hands-on tasks to overseeing a larger operation. He suggests that success in real estate scaling is as much about building a competent team as it is about property acquisition.
Systems and Team Building
Throughout the growth phase of his company, Justin elucidates the critical junctures that required him to delegate responsibilities by making key hires. This includes a chief operating officer and later, a director of facilities. His approach underscores the importance of identifying one's own skill gaps and bringing in professionals who can improve business operations. Entrusting roles to experts not only streamlines processes. This also frees up the investor's time to focus on higher-level strategies and new opportunities. This pivot in role from the doer to the strategist is where Justin finds himself making the most impact on his company's success.
Scaling a Business: "As we grew, I knew the processes and systems, but they changed over time because we hired better and better people who knew more than I did." — Justin Spaulding
Enhancing Property Management Operations
Darin and Justin delve into the practicality of their operation strategies, focusing on increasing efficiency in property management. Justin shares how he adopted the strategy of altering lease end dates to stagger turnover periods, aiming for fewer days on the market for vacant units. This tactical adjustment stands as a testimony to his thorough understanding of property operations. On a similar note, by refining the responsibilities of maintenance technicians, his company aims to resolve service requests swiftly, emphasizing customer satisfaction. These nuanced operational optimizations are pivotal in Justin's playbook. It is also instrumental for investors aiming to scale up their portfolios while maintaining high tenancy rates and tenant satisfaction.
The Importance of Delegating Responsibilities: "There's too many people that try to hold on to all those tasks because they think that's the only way to do it. You're gonna drive yourself nuts or you're just not gonna actually achieve what your ultimate goal might be because you you're not gonna have the bandwidth." — Justin Spaulding
Maximizing Real Estate Opportunities Amid Economic Theories and Debt Concerns
Economic Theories and Debt Concerns
Justin delves into discussions on economic theories put forth by individuals like Ray Dalio, focusing on the challenges posed by the escalating levels of national debt. The dialogue covers the anticipation of economic cycles and the potential for a future "reckoning" due to unchecked monetary policies and massive debt accumulation. Justin alludes to economists' predictions that point towards long-term higher interest rates which could lead to a burdensome debt service for the government. This scenario could trigger significant economic shifts, impacting investment strategies and the overall health of the real estate market.
Interest Rates and Real Estate Operations
Throughout their conversation, Justin emphasizes that despite the uncertainties of the economic climate, there is an exigent need to focus on the operational strength of real estate investments. Enhancing the net operating income and value of properties is crucial. Especially when navigating a period of high-interest rates that can affect monthly loan payments and property affordability. By concentrating efforts on optimizing the performance and stability of investments during these economically volatile times, investors can safeguard their portfolios against potential downturns.
Seizing Real Estate Opportunities Amidst Economic Unpredictability
Amid economic unpredictability, Darin and Justin highlight a silver lining for emerging investors. With a current stance that offers a landscape with less competition due to sidelined institutional and seasoned investors grappling with recent high-interest acquisitions, new entrants have a window of opportunity. They prompt those considering real estate investment to educate themselves and act swiftly. They should exploit the present conditions where there may be advantageous deals available. Such proactive engagement could open avenues for building substantial wealth and a solid foundation in real estate before the market dynamics shift again.
Real Estate Investment Opportunities: "I think a lot of people getting into the real estate space think that buying a single family home or duplex is as far as they can believe they could actually do it." — Darin
Strategizing for Resilient Real Estate Opportunities
Darin and Justin also touch upon insights from ITR Economics, indicating a future with potential economic difficulties around 2029 to 2033 linked to demographic shifts and rising care costs for the aging baby boomer generation. This could further exert pressure on interest rates, highlighting the need for investors to be cognizant of these forecasts. Staying well-informed of economic predictions is portrayed as being instrumental for real estate investors to strategize and prepare for potential adverse conditions. This level of foresight is portrayed as key in ensuring that one's investments remain resilient and capable of weathering economic tribulations.
Operational Challenges and Acquisitions
Importance of Accountability in Operations
Justin Spaulding lays out a compelling narrative about the trials that come once a real estate deal is closed. He underlines that the journey only truly begins post-acquisition when the effectiveness of operational strategies comes into play. Justin pushes against the temptation to revel in the success of sealing a deal, focusing instead on the hard work that follows. Drawing from his own experiences, he stresses the need to ramp up rental revenue and improve tenant experiences right off the bat. This ultimately stabilizes the investment and drives success. He positions himself as a stickler for operational discipline. Ensuring everyone involved understands that the accolade is reserved for when the real outcomes—the projected rental hikes—are achieved.
Property Management Strategy: "When I first bought my first 4 unit, all the way up till we had, like 120 units, I was on-site doing stuff. So I've done every role in that company and I'm really passionate about the operational end because a lot of people don't talk about that end enough. Because if you're really good and really understand the operation that's how you can really put the pedal to metal and it can be a complete game changer." — Justin Spaulding
Maximizing Real Estate Opportunities: Navigating First-Time Investments with Strategic Guidance
Justin is keenly aware of the trepidation that grips first-time investors aiming to land their initial deals. He advocates for a balanced approach that values proper due diligence over haste. Ensuring the newly minted investors don't just chase deals but close on opportunities promising genuine value. He reflects on personal anecdotes and user successes from his program. Suggesting that with the right guidance and commitment, securing the first deal within the first year—6 to 12 months—is a feasible target. This initial leap is portrayed as a blend of educational ramp-up and hands-on action in the market. Encouraged and facilitated by participation in events like the VIP dinner or the 6-month accelerator program. Both of which are designed to increase participants' chances of succeeding in their inaugural real estate investments.
Real Estate Opportunities Through Rapid Property Overhaul
In an ambitious proclamation, Justin Spaulding looks ahead to a time when his company will be able to completely overhaul a significant 300-unit property within a 6-month window. To achieve this, the conversation touches upon the strategic use of month-to-month leases. These leases allow for swifter transitions between tenants and renovations. Thus providing a dynamic advantage in increasing the property's value. Justin shares insights into the process, revealing a meticulous approach where every detail counts—from the delivery of materials to on-site timings. This strategy, although untested to its full extent, is a testament to his forward-thinking in property management. Hinting at the potential for industry-wide improvements in efficiency and tenant satisfaction.
Capitalizing on Real Estate Opportunities
Importance of Reducing Vacancy
Justin focuses on the impact of vacancy rates on the profitability of real estate investments. He identifies that minimizing the time a unit remains unoccupied, commonly referred to as 'days vacant', is critical for enhancing cash flow and property value. By swiftly turning over units and executing strategic renovations, Justin highlights that investors can boost rental income. Thus increasing the property's net operating income. This operational efficiency in property management directly correlates to the long-term success of an investment. Particularly in the value-add space where renovations trigger rent growth.
Seizing Real Estate Opportunities Amidst Economic Uncertainty
With current market conditions characterized by heightened interest and insurance rates, Justin's investment thesis centers on seizing opportunities that align with these challenging cost factors. He posits that if a real estate deal shows positive cash flow and can withstand today's economic pressures, then it holds potential as a viable investment. Such prudence is crucial. As he suggests now may offer a window where competition is less fierce, particularly from larger institutional investors pausing amid economic uncertainty. This period could be favorable for new investors, who might find less competition for deals. Provided they are ready to act swiftly and decisively.
The Power of Ripple Effects: "When you learn something and you help somebody else, it's an amazing industry from that perspective." — Darin
Market Predictions from ITR Economics
In the discussion of longer-term economic outlooks, Justin references predictions from ITR Economics. Specifically the anticipation of increased interest rates in the future due to demographic pressures and the national debt. He conveys that there may be a looming economic downturn with significant repercussions for interest rates. Far from being a cause for panic, however, Justin views this as a call to action for real investors to focus on the immediate operational improvements and value creation within properties. By optimizing return on investment in the short term, investors can better prepare and fortify their portfolios against future macroeconomic shifts.
Real Estate Opportunities Amidst the Affordability Gap
Justin and Darin address the affordability gap in housing, which poses a challenge for many potential homeowners and renters alike. They deliberate on the possibility of home prices adjusting to become more affordable or the alternate scenario where rents might continue to escalate. Suggested strategies include novel financing structures. Such as extending mortgage amortization periods to lower monthly payments. However, Justin argues that such initiatives may only provide temporary relief. Advocating instead for focusing on operational efficiency to maintain lower vacancy rates and improve overall property performance amidst market fluctuations.
From Passion to Real Estate Opportunities
Justin's Journey: From Sports to Real Estate
Justin Spaulding's story begins in college, where his love for sports was soon overshadowed by an attraction to real estate, sparked by witnessing the construction of Trump Tower. This pivotal moment led him to consume real estate knowledge voraciously. A passion that prompted him to skip traditional classes in favor of reading investment books. Although he acquired considerable knowledge, he realized that theory without action wasn't enough. It took time and a developing sense of courage and self-belief for Justin to make his first real investment in a quadruplex, setting him on a path of progressive real estate undertakings. His commitment to promoting his activities and seeking investor partnerships facilitated his move from smaller properties to significantly larger, multi-unit deals.
Unlocking Real Estate Opportunities: A Strategy for Fragmented Markets
Justin Spaulding draws a compelling comparison between real estate and the convenience store industry to highlight the unique fragmentation and scalability of real estate investments. While industries like convenience stores are dominated by a few major players, making it difficult to enter and achieve significant market share, real estate presents a different story. The industry's fragmented nature means there is a plethora of opportunities, with top players only owning a fraction of the market. Justin's strategy pivots around seizing the arbitrage opportunities this fragmentation creates focusing on cash flow rather than unit count. An approach contrary to traditional methods where accumulating a sizable net worth for retirement is the goal. He encourages investors to establish cash flow objectives tailored to their living expenses. Emphasizing the potential for real estate to rapidly meet these goals within a few years.
Mastermind Events: Sharing Knowledge and Experience
To spread his hard-won knowledge, Justin Spaulding conducts intimate mastermind events that serve as a platform for aspiring investors to learn from his experiences. The events go beyond covering deal acquisition. They promote discussion on all facets of real estate investment, punctuated by networking sessions, VIP dinners, and close collaborations. Initially, the success rate for attendees making deals after these events hovered around 55-60%, a figure Justin aimed to elevate. He introduced a 6-month accelerator to the program, offering weekly engagements to help troubleshoot the inevitable issues that arise during a real estate transaction. This addition seeks to enhance the effectiveness of the mastermind by providing continuous support. Underscoring Justin's recognition that the acquisition is just the beginning, while successful operations determine long-term victory in real estate.