Mastering Debt vs. Equity: 5 Strategies for Real Estate Investors

Mike Hubbell (00:00.386)
Let’s get going.

John Harcar (00:02.132)
All right. Hey, guys. Welcome back to our show. I’m your host, Johhn Harcar, here today with Mike Hubbell. And what we’re going to talk about besides his journey in real estate and in business, we’re going to talk about debt and some of the mistakes people make. Remember, guys, here at Investor Fuel, we help real estate investors, service providers, mean, kind of all real estate entrepreneurs, two to five extra business. We do that by providing tools and resources to grow the business they want, which in turn helps live the life they wanted to live.

So Mike, welcome back to our show.

Mike Hubbell (00:34.286)
It’s good, glad to be on John. It’s a good day today.

John Harcar (00:39.612)
Awesome. Cool. Looking forward to talking about debt. I know that’s problem with a lot of people. But before we get into all that, why don’t you just give our audience a little background on you, your experience in business, real estate, and what got you to today?

Mike Hubbell (00:54.83)
Listen, I started out in 95 swinging a hammer and loved the business, worked my way up from being a subcontractor, 2001 jumped in to being a GC, did 800 fix and flips over the next eight years up until the market crash in 2008. We quickly pivoted from being a GC to being an investor.

Owning our own properties building our own properties that kind of thing then jump in work that and you know We just it just took off for us, right? We go from being two million dollars in debt. Everybody’s going out of business to just killing it in the market And became really the largest investor group that was doing the fix and flips on a large scale so I was you know, that was a really exciting process and

John Harcar (01:44.948)
Nice.

Mike Hubbell (01:48.334)
just kind of working through that. And then we jumped into our own developments in 2013 and rode that way for the next five, six years, up until we liquidated our position. And just decided to go kind of a different way. And it brings me to where we are today with Lux Living Homes. And we kind of do things a little bit different. And we believe in the motto of taking care of people.

John Harcar (02:06.686)
Okay.

Mike Hubbell (02:17.934)
and making sure that there are always people out there struggling instead of buying distressed assets, we help distressed people. And we help them out of their stress, whether it’s, you know, a gentleman that had cancer and we bought out his portfolio and helped him out and still made him a partner or, you know, we had somebody that was, had lost his whole portfolio basically. And we came in and bought a couple of his assets and

John Harcar (02:27.272)
Mess.

Mike Hubbell (02:46.146)
you know, made them a partner in our deal and showed them a different way to do it. Listen, recently, a week ago, we had some investors that invested with somebody else on a, in a kind of a unique situation where we, instead of them losing all their money, we brought them into our company and, you know, honored some of the investments that they had made through somebody else. So there’s just ways and there’s ways to do things that are unique and creative.

If you understand all of the aspects of everything you do from the build side to the equity side to the money raising side to the debt side, know, all those things.

John Harcar (03:27.73)
Right, very cool. Well, I mean, if you listen to my podcast before, we always like to go backwards, right? And I like to get an idea of how people got their start in real estate. And actually, prior to that, was there any influence, people in your life, anybody like that, that kind of led you to real estate?

Mike Hubbell (03:45.484)
My dad was a contractor and my grandpa was a contractor. So maybe that had some definitely influence. I never thought that I would ever be in this business. But I always knew I was going to be in business. mean, didn’t really enjoy school. I thought it was boring. know, I could do well. I mean, it came easy.

John Harcar (03:54.366)
Sure, why not.

John Harcar (04:04.914)
Who enjoys school?

Mike Hubbell (04:07.246)
Right, so school wasn’t like this thing that I pursued and why everybody else is going off to college. I’m trying to figure out what I’m going to do, but I…

It was probably a year after we got married, my wife, Jill and I, and we were still married today, which is pretty awesome. Dating the same woman for five years, right? Which is a huge part of success is anybody that is highly successful. It’s, it’s typically they have a great team and that team is typically your wife. And then it just, it grounds you, but we’re about a year into being married and she gets pregnant. We get pregnant, however you want to look at it. And so.

John Harcar (04:25.736)
Congratulations. Yeah, it’s awesome.

John Harcar (04:47.869)
You

Mike Hubbell (04:49.652)
I was working in the finished carpentry field or cabinetry or things like that and I was just not happy. And about the time she gets pregnant, I decide I’m gonna go out on my own. And we picked up.

John Harcar (04:57.3)
Mmm.

John Harcar (05:02.664)
Did you just feel that you weren’t challenged enough by what you were doing and you needed more? mean, like why weren’t you happy doing the finisher and the carpentry and stuff?

Mike Hubbell (05:10.19)
This is really why. This is really why. I was at a job and I was the youngest installer, right? But I was probably the most well-rounded and I had a lot of business knowledge and I had a lot of knowledge on how to treat people and how to take care of people and how to be productive. And I had a manager that did a horrible job that would reward people in an inappropriate way in work.

going out with drinks with them, things like that. And then instead of addressing real problems, he would address the whole installer group.

John Harcar (05:52.468)
Hmm, okay.

Mike Hubbell (05:53.792)
And so, you know, we were in a meeting one day and I was just sick of getting yelled at. I don’t, I don’t take it that well. And I’m just, I’m not that type of person. If you want to yell, we’ll go outside and yell to yourself or, whatever. so I just stood up and said, you know what? We’re not going to yell today. You are, I told the manager, I said, you are inappropriate.

John Harcar (06:07.38)
You

John Harcar (06:16.756)
Nice.

Mike Hubbell (06:23.918)
and you don’t know how to manage people. And there’s four or five people in this room that you need to be taken aside in either firing or teaching them and training them to be what you want them to be. So all the things that you’re talking about are the same six people every time. And here you are yelling at all 12 of us or all 15 of us, right? And the next day I went into the owner’s office and I said, listen,

John Harcar (06:39.156)
Mm-hmm.

Mike Hubbell (06:53.376)
you can fire the manager and put me in his spot or I’m going to quit.

And so I had moved up pretty quickly through the ranks and, you know, they’d put a 22 year old, you know, person in front of me and it was fine that he was young, but he just didn’t know what the hell he was doing. And I was just like, listen, I’m not, I’m not going to do this anymore. So I said, I’m going to tell you something right now. I promise you that if you don’t put me in this spot, you’re going to be out of business in three to five years.

John Harcar (07:11.209)
Right.

John Harcar (07:29.63)
Are they out of business?

Mike Hubbell (07:31.042)
They went out of business in three to five years.

John Harcar (07:33.458)
Damn, wow.

Mike Hubbell (07:34.892)
And the reason why, the guy that started the business was dedicated and he had all these great qualities. But at some point he was getting older and he put his kids in charge.

John Harcar (07:43.636)
Mm-hmm.

John Harcar (07:49.14)
Okay, I see.

Mike Hubbell (07:50.23)
and he kept on promoting family into places of leadership without ever training them to be leaders. And it’s just a recipe for disaster. It was kind of funny because I find myself like five years later, he was working for me.

John Harcar (08:00.36)
Yeah, that’ll kill any business.

John Harcar (08:10.302)
Get outta here.

Wow, so this is in your contracting business?

Mike Hubbell (08:16.504)
This was in my contracting business.

John Harcar (08:18.802)
What was he doing for you? Cabinetry and finishes.

Mike Hubbell (08:23.574)
Basically, yeah, mean, basically he came on and took care of all of our cabin trees and all of our fix and flips. Right?

John Harcar (08:27.188)
that’s so cool. That’s such a great story right there, man. That is so awesome.

Mike Hubbell (08:35.31)
And I’ve found that all the time. I I’ve been playing my dad, I’ve been playing everybody.

John Harcar (08:40.766)
That’s awesome. So when you got into the construction side or the contracting side and started that business, like what were some of the struggles you had just kind of getting started or just building your team, those kinds of things?

Mike Hubbell (08:51.192)
You know, the biggest thing was, the biggest lesson I had to learn to the 2000s. First one was don’t ever quit. I think it’s the most important one. And even when I’m feeling stressed, even today, just stressed about things, I just have to remind myself you don’t quit. You just got to keep going. Tomorrow is going to be a better day. There’s always a blessing coming to you at some point. And what you’re feeling is a temporary at this point.

doesn’t mean tomorrow is not gonna be better. There’s so many options that can happen. We can wake up tomorrow and bring on a new fund or bring on a new investor or do whatever we wanna do. So there’s just a lot of options in life and you can’t quit. The second one is you have to lead your company by your values. And our values were hard work, dedication, honesty and integrity. Don’t hire people based on skills, hire people based on values.

And if you hire base one values, they won’t steal from you. Cause that’s a big thing in like the contracting world. 2007, was 50, 55 employees and half of them were stealing from you. And people don’t really realize how they steal. But if you go to work for somebody and you say that you worked 10 hours, but you only worked four, that’s theft.

John Harcar (10:09.086)
Yeah, 100%.

Mike Hubbell (10:11.128)
But it happens all the time. People sit by the water cooler for 45 minutes talking about what they did all week and long. That’s theft. And honest people don’t do that. People with integrity don’t do that.

John Harcar (10:25.332)
Do you use any type of like hiring tests? Like personality tests?

Mike Hubbell (10:30.614)
I have, used hiring tests, I’ve used skills tests, I mean, all those things, for sure. They all matter.

John Harcar (10:36.372)
Is it more of a gut thing for you though?

Mike Hubbell (10:40.332)
No, it’s not actually not. There’s a really great metric that I learned from the millionaire next door. And it talked about who was millionaires in America. This has been 20 years and I’ve used that formula, but they talk about like married to the same woman all their life. So I look for people that have been married and to the same person. They know how to be in relationships and they know how to be in business. So I hire based on that.

hard bass spawn.

Typically it’s a second, it’s typically a second generation immigrant. So I look, I look for people that are immigrants and came to the, you know, came to this, to the United States and want a better life for them and their family. They will typically outwork everybody else. So we just, you know, we definitely look around those things just because we think it’s really important. It’s just, does it mean everything and anything? No, but you can find out, you can find out people’s worth ethic.

by just knowing who they are and their struggles. It’s not just the immigrant thing. It’s more of like, what has been your struggle? Like I had a floor guy from…

John Harcar (11:44.862)
No

Mike Hubbell (11:55.874)
was at Vietnam. And he went through that whole mess of, you know, he was a child and having to go through that mess in Vietnam with his family and coming over on a boat. I mean, it was just, it’s just crazy to hear his story of desperation. And then he became a U.S. resident. I mean, it was just like, and when you, you know, when you, when you go through massive adversity and things like that, you just look at life differently.

John Harcar (12:26.974)
builds character.

Mike Hubbell (12:27.022)
I had a group of at one point 20 different Russian individuals from Russia or different areas like Ukraine, Russia, and Uzbekistan and all those kinds of things. Once again, their parents came here and they became US residents and they just, they stuck together too and that was loyal, loyalty. these are all things that if you look at

John Harcar (12:39.39)
Mm-hmm.

John Harcar (12:50.418)
Yeah. Yeah.

Mike Hubbell (12:55.458)
what makes people successful, those are things that make people successful. So you hire, I hire based on those. Those types.

John Harcar (12:59.764)
Yep. I love it. So talk about hiring. What does your team and your business look like today?

Mike Hubbell (13:08.95)
Our business is a lot different obviously. mean we own property in four different states right now. We kind of dabble in the multi-family, single-family. We have a new cool product out there around net zero housing. If you’re not familiar with net zero housing, it’s homes that produce as much power as they consume. think it’s the most, everything else is kind of boring. The multi-family play is great. I mean we’re properties for young people.

just a different twist. Also with the net zero play around that, energy consumption, basically the, you know, they don’t consume any, every ounce of energy that’s consumed is produced on the site. And so we do that. We do some impact investing around section eight housing. We also have some properties up in Michigan around prison housing where people get out of prison and they need help to.

John Harcar (13:51.218)
That’s awesome.

Mike Hubbell (14:07.286)
assimilate back into society and so we you know we’re working on those and everything that we do is around portfolio management and just knowing the ups and downs of the the marketplace that I’ve had to deal with which is you know I feel like I’ve been through it all and you know even though I feel like I’ve been through it all there’s things today that I’m like man I’ve never experienced that.

John Harcar (14:30.098)
Yeah, no, can I can imagine. mean, it sounds like you’ve done a lot. mean, what I mean of all the things that you’re doing, all the different verticals, it sounds like in your business, what kind of is the most for you impactful or most, know, thing you like to do the best?

Mike Hubbell (14:47.0)
You know what, the most thing that I like to do best is I like to raise money. And it’s around the debt and equity play. See, it’s like, you have to understand, like, when people come to you and they want you to, or you go to somebody or vice versa, when they give you money or they invest in money, it’s like, you’ve got a friend for life. And so, when somebody loans you money and people get confused on what debt is,

because they’ll call their debtors, their investors. They all of a have a hook into you. And they can choose to put poison on the hook or they can choose to put food on the hook. Just depends on the day, right? And you don’t have to do anything in business if you get on the wrong side of a debt player. They can ruin your business and put you out of business.

And so how do you, in a world full of debt, that we’re told that, like, this is the only way real estate can happen. That’s a full-on lie. They’re very… I set my first fund up, for example, that raises equity for us for less than 150…

And that fund allowed us to raise 20 million bucks. So don’t have, you know, it’s not like you, you have to have a PhD in what you’re doing. just, there, you know, there’s different resources out there, but there’s also just, you pay attention to how people are setting things up and you set it up about the same way.

John Harcar (16:22.812)
I was going to ask, how did you learn raising? How did you learn how to raise private?

Mike Hubbell (16:27.212)
You know, I was, I was definitely scared of getting up in front of groups and I was at an event and this young gentleman who is what is a business partner today said, Hey, you should come pitch at our events. I was like, no, you know what? I really don’t have the gift. I just, I just don’t have the right product. I don’t have this. I don’t have that. There’s all kinds of excuses. There’s they’re like, no, no, really come and do this. So I went and did it.

The first week I did it, it raised a half million dollars.

John Harcar (17:00.828)
You were natural when you didn’t know it.

Mike Hubbell (17:03.384)
So it’s definitely a gift to get up. It’s definitely a gift because of the, your pain is your gift. Whatever pain you have in life, it’s your gift. And I’ve had a pain around debt. It’s been very destructive in my field of business. it’s, at times it’s dealing with predatory lenders and dealing with just lenders that

John Harcar (17:12.148)
Mm-hmm.

Mike Hubbell (17:34.082)
You don’t have to do anything wrong. I said, you can have a debt partner with you that comes in and loans you on a property and you’re 12 months in. Let’s say that for whatever reason, the permit took six months to get and you got a 12 month loan. If your term is 12 months and that comes up, some of the times they’ll extend it, but not always. So if they don’t extend it, you’re in default.

John Harcar (17:41.556)
Mm-hmm.

Mike Hubbell (18:02.67)
And then the moment, and so, know, and then they start throwing words around, you know, it’s like, it’s like somebody calling you a liar. That’s what default, the word default is, right? It’s like you’ve lied or you’ve done something. Well, you don’t have to do anything wrong, right? And so they throw the names around just because it, it, creates a guilt and shame in us. And I just want people to know that there’s a better way. You don’t need to be in debt to somebody else. There are people that invest in, that will invest in you.

John Harcar (18:15.922)
You’ve lied, you’re not fulfilling your, yeah.

Mike Hubbell (18:33.014)
So that has been a pain point and understanding that pain point creates the gift, right? Because you go through it and you’re like, I need to tell the world about this pain. And that’s how people relate to you. I learned this early on by trial and error. And I’ve now seen the public speaking gurus and they all say the same thing.

John Harcar (18:39.132)
Right, right.

Mike Hubbell (19:01.102)
In the first 30 seconds, you always want to tell something personal about yourself.

And so what I will do is I will set a vision in whoever I’m talking to’s mind of what I was going through. Seven years ago.

I felt like I was lost and I didn’t have anybody and I had lost 28 million bucks and…

I had this kid or young man just come up and say, hey, can I help you up?

Mike Hubbell (19:44.698)
And that’s the kind of things you have to do. You have to tell us something personal. We were at a vent two weeks ago and they’re like, yeah, you got to talk about the offer and you got to talk. No, you don’t have to talk about the offer. The offer is important. Don’t get me wrong. But in the first 30 seconds, if I don’t get you in a conversation, if I don’t get a connection with you, John, then you’re not investing in me. And investing is all about connecting. 100 % connection.

John Harcar (20:09.204)
100 % 100 %

Mike Hubbell (20:14.538)
If the offer was so important, if all those things were so important, why isn’t everybody’s parents investing in

So there has to be a connection, there has to be a story there, there has to be something, that hook, you have to have the hook. And so I always use a story and I always have people come up after, whether I’m in front of 200 people or in front of five. And you end up being the center of attention because they want to hear more about your story.

John Harcar (20:34.237)
to capture them.

Mike Hubbell (20:47.95)
I was at an event once and this guy got up on the stage and he said, who in this room has lost a million dollars? 80 people raised their hand out of 200. Well, I bet you none of you guys have lost $5 million.

John Harcar (20:48.084)
It’s a great story.

John Harcar (21:14.644)
that keeps going up.

Mike Hubbell (21:14.99)
There’s like six like this I bet you nobody’s lost 20 million dollars

John Harcar (21:24.806)
And then they’re. How funny. That’s a great story,

Mike Hubbell (21:28.045)
Right?

Mike Hubbell (21:31.63)
And I bet you nobody’s lost 30 million dollars.

John Harcar (21:36.296)
How high did he have to go?

Mike Hubbell (21:38.574)
I stopped before I before the real truth was because I was just like this He used a bad analogy and he probably should have never used that because He has no idea people’s like by the way after that after that event six people came up to me and were interested in my story and at some point those people will invest and Not only that when you not only is it a connection, but listen

John Harcar (22:00.18)
Yeah, because they connected

Mike Hubbell (22:09.752)
Bridgewater, Ray Dalia. Ray Dalia had a really traumatic event when he got into investing, bringing in other people’s lost millions and millions of dollars. And that story that he would tell about it is the reason why he was well known for bringing in billionaires’ money. And at some point when he would, that’s all he did, he’s brought people that were billionaires and he would invest their money. And he had a track record of making 12 to 15%. I mean, he was just consistent.

John Harcar (22:38.642)
Right. Yeah. Yeah.

Mike Hubbell (22:39.374)
Right? And people did very well with him. But I think the reason why they did so well with him is because he’d been through the pain. was his pain. Like it was that thing that it’s like the cancer of our super. Why did everybody like Lance Armstrong? It’s the same kind of thing. It was his pain. His pain is his message. had to stick to your character and that message just took off. Just took off. I mean, it was just an amazing thing.

John Harcar (22:56.904)
Mm-hmm, this pain made him great.

Yep, that’s so awesome.

Mike Hubbell (23:09.678)
I just found that that’s how you make it work.

John Harcar (23:13.62)
Yeah, that’s so awesome. Before we run out of time here, let’s talk real quick about the mistakes people are making with debt.

Mike Hubbell (23:22.13)
The mistakes that people are making with debt is they borrow debt on speculative assets. And you can make a lot of money, don’t get me wrong. But the people that are lending to you or the people that you are buying their courses have a different proposition than you do. Robert Kaizak, what I’m trying to think is last name, yeah, Kiyosaki, he talks about debt and how it’s his friend. It is his friend, but it’s not necessarily your friend.

John Harcar (23:43.572)
T.S. Aki.

John Harcar (23:52.019)
Why is that?

Mike Hubbell (23:52.152)
Because he’s worth millions and millions of dollars. His revenue stream is coming in from his books and from his seminars and all those things. And so he has outside revenue that’s coming in. If for whatever reason his real estate doesn’t work out or something doesn’t work out, he has attorneys and lawyers and he set it up all right. And he can afford to fight the banks. Trump had a good analogy. He said, you know, when you…

When you borrow a million dollars, you have a problem. But if I borrow a billion dollars, the bank has a problem. So, somebody is big, it’s just a different perspective and they’re not honest about what’s really going on. So people will go out there and borrow and they don’t realize on speculative assets it’s gonna take them twice as long. They’re gonna go over budget by 30%.

John Harcar (24:32.064)
It’s a good quote.

John Harcar (24:38.312)
Yeah.

Mike Hubbell (24:48.334)
And so they have to build a work through those issues upfront and what systems are in place. And it’s better to go out and raise equity from your friends, your family, from associates or whatever, and do it on equity. If debt is a great product for your personal home, if you want it that way, because your personal home is also your personal asset, there’s a difference between the debt note and the property.

John Harcar (24:53.16)
Yeah.

Mike Hubbell (25:16.878)
And then it’s great for cashflow properties, which you know you have rent. If I know I have rent of $2,100 every month, I don’t think it’s a big deal to spend 1200 bucks a month. That’s a no-brainer. Like we would all do that, right? But when you have a speculative asset, you’re not sure how long it’s gonna take. You have bill costs that are going whenever or whatever.

John Harcar (25:29.64)
Yeah, yeah, right.

Mike Hubbell (25:43.234)
And then you have a federal reserve that will completely destroy your business in a snap of a finger. It’s like, why do it? And there’s another way.

John Harcar (25:50.772)
All right, cool. If folks on here want to get in touch with you and talk more about this, I mean, we could probably keep going for another 30 minutes, but unfortunately, I don’t have the time. How do they reach out? How can they get in touch with you?

Mike Hubbell (26:03.374)
Best way is by email, mikeh.luxlivinghomes.gmail.com or another great way is through our website, luxlivinghomes.net. Those are the best two ways. I’m on LinkedIn, I’m on social media. LinkedIn I’m probably on more than normal.

John Harcar (26:15.188)
Okay. Cool.

John Harcar (26:23.86)
Okay, cool. We’ll put all that stuff in the show notes. Guys, I hope you guys enjoyed the show and took some good notes. Mike, thank you for coming on and sharing some information. And we’ll see you guys all in the next one. Cheers.

Mike Hubbell (26:36.536)
Take care, John.