How Smart LPs Avoid Bad Real Estate Deals in Any Market Cycle

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In this episode of the Real Estate Pros podcast, host Micah Johnson interviews Spencer Hilligoss, who shares his journey from a tech career to becoming a successful real estate investor. Spencer discusses the importance of intentionality in real estate, the significance of understanding market cycles, and the necessity of vetting sponsors through a structured framework. He emphasizes the role of communication and values in real estate partnerships and highlights the importance of long-term thinking and problem-solving in navigating challenges in the industry.

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Investor Fuel Show Transcript:

Spencer Hilligoss (00:00)
you know, the five part framework Micah is very simple. It’s like number one, we look at their track record. Number two, we’re looking at their approach. Number three, we’re looking at their team. Number four, we’re looking at their communication. And number five, we’re looking at their values. like, happy to give some examples within that, but I just think that, you know, a lot of the same themes span every version of this as we’ve iterated it, you know, and I have to call out,

Micah Johnson (01:55)
Hey everyone, welcome to the Real Estate Pros podcast. I’m your host, Micah Johnson. And today I’m joined by Spencer, who’s been making some serious moves in the commercial real estate space. Spencer, welcome in man. Glad to have you.

Spencer Hilligoss (02:07)
Micah, honor to be here. Really appreciate it.

Micah Johnson (02:10)
Absolutely, absolutely. I’m excited for our talk today. I think our listeners are really gonna take something away from your journey through real estate, honestly. That’s what’s really hit me in our pre-call talk is you do it very intentionally and you found a specific place in the industry that lets you create the life you want for yourself, your family, the business you want. And I think that’s some of the most important things when it comes to this industry and participating in it. So let’s dive in on that for folks who may not know you yet.

What’s your main focus right now and what markets do you operate in?

Spencer Hilligoss (02:42)
Yeah, you know, so right now I lead Madison investing. So it’s an investing club for passive investors or LPs, limited partners. And this has been a labor of love for now coming up on nine years, Micah. And, you know, never did I think in a million years that this would be the plan growing up. You know, my dad was a broker in real estate. You know, he was selling single family in the Bay area, California, where I sit here right now. And he had me work in open houses as a teenager.

You know, and cleaning out fridges to prepare the property. And that’s what honestly scared me out of real estate at that age and in tech companies, because it is not fun to tell your friends that you are working in a real estate business and doing open houses on the weekend. ⁓ So I found myself thrust into a tech career and I’ve been now in tech for about 15 years. And I, as a kid who grew up kind of, it’s kind of a punk rock metal band kid. ⁓

Micah Johnson (03:16)
Yeah.

Spencer Hilligoss (03:39)
You know, hence all the tattoos and stuff. Like I, I really thought business was kind of boring, but then I found like a mentor who, who just led me down this wonderful path of leadership and management and finding just a passion and a love for that. now, now I was with five different fine, ⁓ FinTech or financial tech companies like Intuit, Zero, Gusto, Kiavi and Stripe. and, and around the time I was with Kiavi, which is like the biggest fix and flip lender in the country.

You know, we can get further into this at some point, perhaps. ⁓ I just got the bug. You know, I got the bug truly to like look more into this investing stuff because we had 401k is maxed out. had all that. had great, great dual income, you know, fortunate enough to buy our own house in the Bay area before the market got so expensive. We couldn’t buy it all. growing a family and just asking like, where’s the off ramp from this? You know, cause it’s, cause we were sitting there grinding out those startup tech hours, you know, working 80 hours a week in an office.

Micah Johnson (04:19)
Right?

Hmm.

Right?

Spencer Hilligoss (05:25)
tired because the kids are so young and asking ourselves like, something’s got to give like, how are we going to change this trajectory? So I saw the guts inside of that, that, that, that tech company, which was also a real estate lender. And I was like, people are doing the extraordinarily well in this business model, but these are like fixing flippers that we were lending to. And I’m sitting there going, I can’t swing a hammer. I need YouTube to fix basic things around my house. Jennifer’s more handy than I am.

But in the end, like I do know the economic side of it, I the finance side of it, I know the partnership side of this world. So I found myself like leaning into this, into the world of rentals, you know, and we went through a journey of buying local, got a property for 430,000 bucks in the Bay areas, our first duplex that we bought. And it was like, in hindsight, way more money to lay out a hundred thousand bucks for $200 a month in cashflow. But, condom and value, sure.

Micah Johnson (06:18)
Yeah.

Spencer Hilligoss (06:22)
for folks based in other markets such as yourself, where you can go find truly great cash flowing properties, our recipe wasn’t gonna get us there. So we jumped into finally doing some rentals we bought in the Midwest. We got like five single family rental portfolio we got up to in Kansas City, way better economics. It was like $60,000 purchase price average, which is yeah, just mind blowingly cheap for folks out here. That’s like less than a down payment. ⁓

Micah Johnson (06:44)
Right.

Thank

Right? That’s crazy, it?

Spencer Hilligoss (06:52)
It’s still crazy to me. It’s hard to find those now. Well, you know, this is back in like the 2016 timeline. We were looking at those properties, but we got about 250 bucks a month cashflow at the time for those. And that was like the second phase of the journey and three phases. ⁓ but we also learned that, ⁓ that’s all semi-passive at best. You rentals are great. I’m actually very pro rental. Like, ⁓ there’s a time and a place for those in anyone’s portfolio in my opinion, but young kids, busy jobs, busy life.

Micah Johnson (07:20)
Right?

Spencer Hilligoss (07:21)
couldn’t add more overhead to that. And in the end, we found ourselves kind of finally stumbling into ⁓ passive investing as an LP. And so like we found like multifamily and self storage and we started wiring off our first 25K investment into one of those a couple of years into that. And it it went really well. And so in the end, it’s just been a remarkable journey from then until now. And it’s just like the learnings.

are incredible. We’ve exited a bunch of deals. I’d say many have gone well past few years. We’ve also got some tough learnings as well, but we aren’t, we’re not stepping away from this space just because the market isn’t as amazingly easy to win in as it was up until about 2021, right? Now is the time when deals are happening and there’s, there’s a better basis that you can buy these good properties at. So we’re leaning in.

Micah Johnson (08:11)
And everybody that’s done real estate for a long time has lived through their market cycles. I think about ⁓ Warren Buffett, man. What’s he on? Like 50, number 50 now cycle wise? I don’t know. He’s seen so many and what that was for me, it was like, okay, the key is sticking power. How do you stick? you know, because

Spencer Hilligoss (08:21)
Yeah.

Micah Johnson (08:29)
we get whenever you get into real estate, you don’t know if you really don’t know what kind of market you’re into, you’re just getting into it. And I know a lot of guys that got in and that 20 to 20, know, 2021 range and we’re just making it rain thinking, man, I’m so smart, real estate, so easy, all this stuff. then boom, 2023 and 2024 show up. And it’s like, Oh, now your holes start to get exposed.

Spencer Hilligoss (08:35)
you

Thank

Micah Johnson (08:52)
Are you really a business

owner starts to show up like all these things that were getting covered up by because it was just so easy to get a deal start to show up. And there’s a couple of good things that happens when it gets the riffraff out of the market. It’s folks that were just in there for the quick buck. And then two, if you’ll stick through it and get a cycle under your belt, you’re you are now different. You are a different investor entirely. You start to see things differently. You realize, OK.

Especially once you got to that LP world and now you got out of your backyard now or even that second phase getting out of your backyard. Once the nation opens up to you, now you can chase deals. You’re not just sitting there on your hands waiting for your local market to do it. You’re now in a place where, okay, where can I go and plug into a good deal? Cause there’s a, there’s a deal somewhere in every market. There’s always work. How do you find that deal? Now maybe less.

Spencer Hilligoss (09:44)
That’s right.

Micah Johnson (09:48)
less deals around and that’s okay. We always go through that. There’s less buyers around too. There’s less folks mucking up the water because they’re not in there just slinging offers that make everything not pencil anymore.

Spencer Hilligoss (10:35)
And that the truth. Yeah. It’s definitely a leaner field. Right. And I think especially in some of the markets that we’ve found a lot of success in, you know, they’ve also taken a breath and it’s temp, like I look at the Sunbelt, you know, like DFW in Texas was one of the first markets we leaned into. And I’m so grateful that we did at the time. You know, this is back in like 2017, 2018 around then.

Micah Johnson (10:39)
Right.

Spencer Hilligoss (10:59)
But I would say that every one of those hot markets has had its moments of saying, Okay let’s proceed like rent growth deceleration, or in some cases, you know we’re seeing rents shrinking in some markets, but we’re still leaning into there along with looking into the Midwest and a few places, and that’s treating us well so far. So we’re continuing to look. The thing that emboldens me further,

as we look at the year and we were saying, okay, 2026 is it going to be more of the same from 2025, 24 where financing is still expensive and the banks are not lending as much. One thing that is consistent is that we’ve used this like five part vetting framework for sponsors and operators that we work with. And at a high level, yeah, at a high level, it’s the same five buckets, the sub bullets, you know, the meat behind them.

Micah Johnson (11:43)
Dive into that.

Spencer Hilligoss (11:51)
you better believe that has evolved as we’ve gotten through the market in the last few years and seeing some of the cracks in the armor for some of the operators and some of the deals that were in. I’m grateful for the ones that win, but in hindsight, also grateful for the ones that don’t because they help you sharpen your pencil. you know, it’s tuition payments, as we say, I mean, granted, of course, I’d rather not have to pay them, but if we’re paying them, let’s at least reflect and learn on how to improve from them. And so

Micah Johnson (12:05)
Right? Right.

Bye.

Spencer Hilligoss (12:18)
you know, the five part framework Micah is very simple. It’s like number one, we look at their track record. Number two, we’re looking at their approach. Number three, we’re looking at their team. Number four, we’re looking at their communication. And number five, we’re looking at their values. like, happy to give some examples within that, but I just think that, you know, a lot of the same themes span every version of this as we’ve iterated it, you know, and I have to call out,

I mean, let’s talk about track record. Like everyone knows.

You got to look at what a team has done. You got to think about like, okay, are they brand new to this space? Have they done one deal? Have they done 10 deals? Have they been around for three cycles? Like the Warren Buffett example that you brought up, like 50 cycles. And I used to be more open to ⁓ emerging sponsors who were like rather new. And I would say that there’s a time and a place for that, you the hardworking sponsor, but we have learned, I’d say in some cases the hard way, like, you know,

they at least got to have a few full cycle exits. They at least got to get these deals under their belt. And one other point here is like great IRRs, great exit multiples have been produced in those magical years that you and I were chatting about a moment ago before we started recording today, which is like look at 2021 or even the first half of 2022. You had these incredible exits from some teams.

You know, they bought a property about an apartment building, a self storage facility, sold it in those years when the market was at peak. You better believe their track record looks excellent. Now in the end, you have to couple that with number two on our vetting process, which is their approach. Cause the approach, what that really means is they are going to have a playbook. If they really did it and they did it and they didn’t just get lucky on the market timing, if it’s a value add deal, they knew what they were doing.

where they sourced from, from their materials, from the wood and the metal and its various forms they had to put in for construction. Maybe they had a property management company they stood up on their own. Maybe they had, you know, all these different elements. And if they did it themselves and they know what they’re doing, they can show you a great plan to go do it again with the same type of asset in the same type of market that they’re already familiar with. It’s just like, you know, if I’m learning a guitar solo or something and it’s really hard, I can walk you through step by step.

every one of those little moments for hours and hours of practice that it took for me to hack my way through learning that okay solo. ⁓ And so I just want to bring that up because you got to know how the sausage is made ultimately behind what produced those track record numbers. And I think ⁓ that’s a tough learning and a key learning for some of the track record review that we now do on sponsors.

Micah Johnson (14:45)
All right.

Well, those first two points are super powerful because they’re 100 % true. And I love your guitar analogy because I play guitar as well. And so I’m a sucker for it. And it’s true. You nailed it.

If you’re good at it and you’re doing it, you can explain how it’s done because you’ve done it. You’ve walked through it. I ⁓ used to really be into golf. And one thing I always appreciated about golf is you can’t talk trash through golf. Eventually you got to put the ball down and you got to hit it and you got to play the game. So anything in the parking lot, that’s one part of your story. And then the other part is, okay, now do it. And no one is good at golf by accident. You didn’t just accidentally get good at it. You spend a lot of time, dedication,

Spencer Hilligoss (15:59)
right.

Micah Johnson (16:23)
energy to understand how it all works so that you can then go out there and play the game at a high level. And if you’re listening out there, man, take notes on what Spencer’s talking about right now, because these are golden when it comes to.

Spencer Hilligoss (16:27)
Thanks

Micah Johnson (16:38)
Eliminate mitigating risks. can’t eliminate it completely, but you can mitigate it and understand who it is that you’re working with because your next three really line up after those. If you know, if they have a, if they have a good track record and then they have a good approach, now the meat and potatoes of it where you’re getting into, what is it? Team communication values. Take us through those three. What, what in those three are you really looking for?

Spencer Hilligoss (17:02)
Yeah, you know, on team, ⁓ gosh, every one of these we could pick apart and just nerd out on, but I’ll highlight one that is interesting, right? ⁓ The makeup of a team, right? Like who’s, because you could work with a sponsor that might have a very small staff, nothing wrong with that. Like they’re lean. They have, you know, CEO, maybe they got some, contractors, or maybe they got a couple full-time people. ⁓ Two key things on this one that are non-negotiable for me now. ⁓ Number one, they need to have a full-time

person who owns the financials. And by financials, what I mean is they have to be able to produce professionally packaged financial reporting. And it sounds really simple. It ain’t that simple in real estate. And you see stuff that is real napkin math and more power to the hustlers that are out there. They’re just trying to close on that deal. But as soon as you go out and you’re starting to consider like, ⁓ you you’re, I’m, you’re going to

communicate if you’re sponsor, you’re to communicate out to potential LPs and investors, they should and they can expect to review a detailed P &L profit and loss statement, you know, an income statement, you know, they need to be able to understand the sources and the uses of that money and where it’s going to it because in the end, that’s the part that is the truth serum for ultimately how that deal is going. And in the end, whatever excuses might come out or qualifiers might be provided.

Micah Johnson (18:22)
Right.

Spencer Hilligoss (18:29)
You just want to make sure you got a person who’s full time in there and they can call them, you know, a controller. They could be the CFO. They could be, whatever, but even, even knowing they have a fractional person, like just doesn’t quite cut it for me these days. Like they, they gotta have a person that owns that stuff. And so, one other call out. And this is one I’d say that, unfortunately we’ve had to kind of learn the tough way, which is you can have an inspirational, amazing CEO at the helm. ⁓ but if they don’t have at least two.

people who are in that senior leadership role and they both have, you know, kind of call it, you know, I don’t know, veto power is the right phrase for this, but we’ll say, we got some checks and balances in there because life happens, man. Life comes at people. The hold periods on these deals can range anywhere from three to five to seven to 10 years. And so we’re talking about big time windows, like longer than college, longer than high school. Like these are

Micah Johnson (19:11)
Mm. Nice.

All right.

Spencer Hilligoss (19:24)
many chapters of life pass in that era. do you need some redundancy? Like you need people in there who will be there. And you know, God forbid something happened to the lead sponsor, but you just need someone else in there as a counterbalance and a counter as a check and balance to that. that had to be one for the team.

Micah Johnson (19:42)
That’s a great point because you’re right, especially in the LP world, you’re playing with different timeframes. You’re living in a world where like you’re it’s more like the stock market in a way because it’s just you’re putting it away and letting it sit there. It’s in my it’s like this is not supposed to be an active thing. You don’t have to log in and check it every day. It’s this is going to be this. It’s going to last a long time. But making sure the people that are taking care of it.

Spencer Hilligoss (19:56)
That’s right.

Micah Johnson (20:11)
are doing it the right way, because it is. Time’s passing by, you’re switching decades sometimes. And I just turned 40 and I’ve been reflecting on life and how just different decades are. And it’s like, wow, holy cow, it gets me wondering like 10 year plans, how much changes in a decade? I don’t know if I can plan out 10 years anymore. Like five years is about as far as I can get to just thinking about how fast life has changed so much already on, it does, it just pivots. So I love that point.

Spencer Hilligoss (20:12)
Totally.

Micah Johnson (20:41)
So I was talking to someone else earlier that was a syndicator and they were big on this next one as well. Communication. What’s the big point about communication for you in that process?

Spencer Hilligoss (20:54)
Biggest point is just treat people like adults. You know, and I think ultimately ⁓ we can all handle it when something bad happens. It just means don’t delay, the word out there quickly. So if something’s good happening, great. It’s easy to talk about. If it’s not good, just let folks know, you know, in brass tacks, like here’s the facts, here’s what’s happening. Even if the news isn’t good.

⁓ and people can handle it, you know, it doesn’t mean I’m going to like it. If I hear that someone is a sponsor is saying, Hey, I have to pause your distributions, right? Or if it’s like, we only have a partial return to capital or like the less fun things about some once in a while in a portfolio in a tough market that has happened, but that’s gotta be a big one is timeliness. ⁓ another piece of it is also, and this sounds like the same comment about financials, but this really is quite important and still on the financials topic. It’s like,

⁓ at least quarterly, you know, just sending out ⁓ a clean, understandable, legible, ⁓ professionally packaged financial statements, you know, so that, you know, is this property on track for their original pro forma? You know, are they, are they actually delivering on above or below the NOI, the net operating income that they forecasted when they first set out and bought this property and started the business plan. And so that’s real basic stuff, but, just being available.

You know, like if they’re not available, meaning like they’re not willing to get on a call, that’s, that’s a pretty darn big red flag. So I would say that on communications front, that’s gotta be it. ⁓ On values, one thing I’ll share, and this is one that sounds squishy, but it’s really quite, it’s not squishy to me, is I think about hiring in the corporate world and the same principle on this one applies for talking to sponsors and operators, which is

Micah Johnson (22:26)
Yeah.

Spencer Hilligoss (22:48)
And you know, behavioral interviewing, it’s not a new concept. Like anyone who’s been inside in a corporate world and they’ve interviewed people over a period of time has probably heard that term. It just means like, Hey, tell me about a time when blank, right? And if someone is going to say, okay, well, for example, here’s a question I’ll ask on values. like, Hey, can you walk me through your philosophy on tenant experience for an apartment deal, right? For an apartment syndicator.

And, you know, tell me about a time that you’ve actually like seen this play out in one of your communities or your apartment buildings that you’ve actually bought before. And it’s interesting, you know, we’ve actually walked away from, I remember one in particular, like one sponsor who looked great on every other possible pillar, right? Like, you know, they were great on track record, great on approach, great on comms. And, but, you know, unfortunately, he just kind of dodged the question multiple times over, you know, and it wasn’t looking for something perfectly

packaged, I wasn’t looking for anything. I just want to know when we’re investing into these things that yes, of course, we’re all capitalists. Like, like, we want the deal to do well. But if unlike in a storage facility, you know, in an apartment building, people live there, like, like real, like real humans, like, and they’re paying the rent, we at least want to know that that is a consideration. And just giving one very specific example without getting too preachy at people, because in the end, of course, we are still investing and we want to make sure that

Micah Johnson (24:02)
Right.

Spencer Hilligoss (24:16)
well financially and you know the capital is there and all that stuff but ⁓ I digress.

Micah Johnson (24:21)
Ha

ha ha ha.

Well, it’s, it’s, don’t, I don’t think it sounds pre G at all, man. It’s especially when you’re dealing with asset classes that involve a human being on the other side. Like if there’s a human being living in it, you have now introduced a whole new set of roles. Their whole life is their life has taken place there, just like yours has taken place at your house. That is, that is a human that in there. And when that happens, there is a mindset that you have to take that has to be activated. That accounts for their experience where in the end,

Spencer Hilligoss (24:42)
That’s right.

Micah Johnson (24:54)
on my side, I appreciate people like yourself. If you’re willing to walk away from a project because it’s not going to check that box, that’s actually good for humanity, in my opinion. That is good to happen because that means you’re going to go participate in a project that will do it. And I’m big on that value side as well because in the end, real estate is relationship business, whether it’s with your tenant, whether it’s with your more LPs. If you can’t keep relationships together,

You’re just not going to last in this industry. And yep, there’s the pencil part, there’s the numbers and they have to absolutely work. And then there’s this switch side to where it involves a person and that, little gray area where they meet that has to flow well. Cause if it doesn’t, it’s not good for anybody. Really. It’s not good for anybody. You’re not going to have a good experience, right? Like, especially when you’re someone that actually cares.

Spencer Hilligoss (25:35)
Yeah, well said.

Yeah.

Micah Johnson (25:49)
Fine, you get a lot of money, but if you can go to sleep at night knowing you did that to people, now we got a different issue. Now there’s a whole different thing that we’re talking about that leans into the values part where I got a 10 and a 12 year old. I’m trying to teach them how to be good people. They watch dad way more often than they listen to that. So that’s the thing that’s going to stick. That’s what’s going to stick down the road is what am I actually doing each day? Do I actually do what I say I believe in? It’s easy to talk. It’s easy to talk good.

Spencer Hilligoss (26:08)
Ain’t that the truth?

Micah Johnson (26:20)
but to actually show up in those hard moments and be like, nope, that’s not the right thing. Those are the things that even myself, I think about. That’s what my kids will pay attention to. That’s what it’ll keep. That’s a good legacy to leave behind if you’re after legacy, something repeatable that stays where, yes, learn how to take care of yourself. You’re in the land of opportunity. Don’t think small. Create the life that you actually want. You do not have to crush people to do it.

that is there’s an opposite side to it where in my life when I’ve acted that way, I’ve had the best experience. I’m very big on getting my emotional paycheck paid. I’m also very big on getting my financial paycheck paid.

Spencer Hilligoss (26:47)
man, yeah.

Micah Johnson (27:00)
but I don’t want to sacrifice one for the other. And the times in life where I did, I was miserable. And I don’t want to be miserable. don’t, awesome. You got money in the bank, but you feel terrible. No thanks. Nope. I’m okay. I would rather switch that off. Not too much, but I’d rather have that other side taken care of. And now realizing you don’t need either. And then we were talking about this a little bit pre-recording.

Spencer Hilligoss (27:19)
Right.

Micah Johnson (27:22)
is that’s what I love about real estate is there is so many ways to participate. Find that way that allows you to participate without a good quote for it is, trade in your truth for membership is how I’ve heard it. Like it doesn’t require you to go against yourself to do it. There’s plenty of ways to do it. Whether that is the more less passive way like y’all discovered, like single family res, that ain’t passive.

Spencer Hilligoss (27:34)
you

Micah Johnson (27:47)
There’s a lot of work involved. So if you’re doing that, you’re getting another full-time job. You might want to think about going into real estate full-time then. But if that doesn’t work for you, what are these other ways? Discovering these other little avenues that let you still participate in the largest wealth generator the world’s ever seen, like the American real estate market. Nobody’s ever seen it. It’s one of the most unique things. didn’t come, I come from, I have a weird backstory, man. I didn’t come from anything.

and was able to get into real estate and have access to a platform that was life-changing, just absolutely life-changing. And it’s like, okay, this is great. And so when I meet other people that are in it, especially like yourself, that have that secret sauce, you actually care. That’s all it takes. You just actually care. And for me, when I can’t care anymore, I stop doing it.

And I’ve come to that point in real estate where I just couldn’t care about what I was doing anymore. So I’m not going to do this to anybody. I’m violating my own ethos. What do I pivot to? Where’s the switch? And I found that next little niche in real estate that helped me light up, kept me in the game, how I like to play. And, you know, real estate’s a get rich, slow scheme. It is all about the long game, long view. This is a…

Spencer Hilligoss (28:40)
That’s right.

That’s right.

Micah Johnson (29:07)
We’re not here just to start it today and leave. Like if you’re in it for a quick buck, fine, have fun, but that is not how you play this game, especially over the long haul.

Spencer Hilligoss (29:17)
Man, there’s so many nuggets you’ve had in there, Micah. It’s just I think that in terms of the belief, as one has an entrepreneur, I think you’re heading on a topic that I of bucket into belief, which is like, this might be a Cardone quote. I think it was like, where focus goes, energy flows. I’m not like a big subscriber of Cardone or anything. I just really agree with that though. I think it’s, if you’re focused and bought in, you will find the way.

And I think in this case, ⁓ you gotta have that focus and that enthusiasm. if someone, like in coming back to the topic of sponsors, you know, you know, when you’re investing with a sponsor, you wanna make sure they’re in it for the long haul. And that is vital, especially if they hit any headwinds, which they do 100 % of the time. There is no such thing as a perfect real estate deal ever. And so hopefully the road bumps that they hit,

are minor ones. Hopefully, you know, I remember the first one I invested in, which ended up having an excellent outcome. It was in a good time in the market, but a tree fell on the building in the first like quarter. And it was a large darn tree. And they didn’t have the capital reserves to account for that in the first quarter. And so they just came out and told everybody they had to pause their distributions. And ultimately, they ended up exiting that thing.

very favorably, you this is not going to happen every time. Of course, big disclaimer, this is not some kind of, you know, return projection here. I’m just saying that like, yeah, more than doubled our money within a period of three years because the market was also very helpful at that time. But I would just say that headwinds come and you know, that sponsor along with every other has a choice to say, we’re going to lean in, figure out what we’ve got to figure out, give this project, this deal, whatever asset class it might be in.

Micah Johnson (30:53)
Mm-hmm.

Spencer Hilligoss (31:07)
the best chance of success. so whether it applies to their business or our business as entrepreneurs, that focus and that belief is everything. It really is.

Micah Johnson (31:16)
Always. My favorite one. So what now? That’s when something happens. All right. So what now? What’s next? What do do now? It’s not a, God, it’s over. It’s okay. No. So what now? What do we got to solve? Because I’m a quote guy. I was watching, one of my favorite movies is The Martian with Matt Damon. And one of the very last things he says in the movies, but he’s back on earth and he’s teaching this class. And he said, he’s talking about how easy it is to die in

Spencer Hilligoss (31:23)
Yeah, exactly right.

⁓ love that movie.

Micah Johnson (31:45)
But if you want to make it home you solve one problem and then you solve the next problem and then you solve the next problem and if you solve enough problems you get to come back home and I was like man that is literally the entrepreneur ethos is Just it’s just keep solving problems. Don’t be surprised when they show up They’re always surprising in the way they show up, but just don’t be surprised that they show up. You mentioned a mentor earlier I have one in my life that is so important to me. I am where I am today because of him

Spencer Hilligoss (31:49)
Yeah.

Micah Johnson (32:14)
And one of the things he talks about, we know exactly what’s going to happen in life, Micah. We just don’t know when it’s going to happen. Put your head in the sand on the idea that it’s not going to be hard that, and we talk about all of life when him and I are together, because he’s in his late sixties and that’s where I want to know, tell me what’s around the corner, man. I’m 48. What’s my next 25, 26 years look like? What do I need to pay attention to? Because when they’ll just open that door and show you, you start to see, okay.

Spencer Hilligoss (32:21)
Mmm ⁓

Micah Johnson (32:44)
Here’s how I avoid that. Here’s how I can go over here. Here’s how I can plan for when that happens. And just having that mindset again, that long-term and being just sober about life in general of these things are gonna come. It doesn’t make it bad at all. You had a one in 400 trillion chance of being human. Be really excited just about that fact. And then that life’s happening for you. It’s not happening to you.

Spencer Hilligoss (32:59)
That’s right.

Yeah.

Micah Johnson (33:08)
And that shift for me was huge when, especially looking at problems and things that arise, because in the heat of the moment, it’s always easy to take it personal. And so we start surprising by how hard hard can be. But as soon as that initial shock is over, it’s all right. So what now? What are we going to do? What’s that next move? Whether that’s calling my mentor, whether that’s the GP reaching out and saying, hey, guys, a tree fell on the building and here’s what’s going to happen. And here’s where we’re going to go. And

Spencer Hilligoss (33:18)
That’s right.

That’s right.

Micah Johnson (33:38)
you’ve been in leadership and business, you just have to say bad news sometimes. You have to tell people, hey, this is what’s happening. And like you said, when you treat them like an adult, when you actually explain, hey, this is it, most folks are okay. And the ones that freak out, you probably don’t want them investing next time. They’re not really your ideal fit because the ones that are okay and say, okay, appreciate that. That makes sense. What do we do next? Those are your folks that’ll come into the next project and the next project.

Spencer Hilligoss (34:01)
That’s right.

Micah Johnson (34:04)
and okay, find one was tough, but you keep doing it with those kind of people, you will get the home run one day, right? When you focus on singles and doubles, that’s how you hit home runs. When you focus on home runs, you just strike out all the time.

Spencer Hilligoss (34:17)
Yeah, well, I did want to mention briefly, like you kind of made me think of this topic as well, Micah, about like, ⁓ how do people know if they’re going for the home runs or the singles and the doubles? Because in the end, it is about stacking the singles and the doubles. And I think that’s one of those most profound learnings in the market for myself and so many other folks in the past, particularly three or four years, is that ⁓ if I look at things that have exited, deals that have exited in the last, let’s just take 2024, for example.

the number one performance of a deal on an exit that we’ve had in 2024, for example, was on a project with the lowest projected returns of any deal we’ve ever done. And that was like in, where was that? It Idaho deal. And it was just like.

in hindsight, we’re doing like a post mortem on it. And it’s like, there’s there’s a lesson there, you know, there’s a profound lesson to be learned of like, not chasing the home run deal, not chasing sky high IRRs, focusing less on the projected return, focusing more on just the operations of the team. Because then it can surprise you positively, what you don’t want is to surprise you negatively. And that is, you know, in terms like goal setting,

Micah Johnson (35:28)
Right.

Spencer Hilligoss (35:31)
I still even now come back to basics. If I see like a beautiful looking investment summary, which they all are, you know, like, it’s like, wow, look at this beautiful pictures, high res pictures of the property, look, business plan sounds great. ⁓ you know, the returns are projected on there, all that stuff. And you look at it and your lizard brain kicks on and you’re like, wow, I like the way that looks. And it’s like, well, take a breath. Like I asked myself, is this for cashflow? Is this for growth?

Like what is the primary, true, simple, like make a choice. Like, are you investing for a targeted goal for cashflow Spencer, or are you investing for, for growth? And of course I try not to say anything to the third person because that’s just weird. But in the, in the end it’s I, I, when a, when another member of an art group comes in or I talked to a fellow LP and they’re like, ⁓ like how do you get started or how do you just even get clear and, and get past that analysis paralysis? I always come back to that.

And, you know, coming up on nine years in this space, it’s still really helpful to just get down to that. Am I investing for cashflow? I’m investing for growth and then expand on your goal setting from there to help hit those singles, man, help hit those doubles and stop staring at the prettiest looking investment summary deck and just going for a sky high IRRs. Cause it’s less likely to get you where you want to go.

Micah Johnson (36:52)
I love that man. That’s great advice. I appreciate you sharing it. Spencer, I could go on and on with you, man. I really enjoyed our conversation. For those that are listening and watching in that would like to learn more from you and learn more about you, what’s the best way for them to find you?

Spencer Hilligoss (36:58)
Likewise.

Yeah, they can find us at our club website. It’s madisoninvesting.com and there’s a button on there they can request an invite to the club and you know they will have to talk to me because I meet every single member of our group. There’s no fee to join this we’ll have to talk to another human being.

Micah Johnson (37:21)
Right,

right. I love that man. Well, if you’re listening and watching in, please check the show notes. We’ll make sure that Spencer’s website is there. When I meet folks like Spencer, I always recommend this, reach out to people like this, touch base with them, folks that are thinking about it well. They’ve got experience behind them. They’ve seen things already. That is how you learn in real estate. Learn from people that are doing it. There’s nothing like experience to teach you in this industry. So.

Reach out to him, touch base, you never know, could change your life. ⁓ Again, Spencer, thanks for being with us, man. Thanks for everybody watching along. If you got value out of today’s episode, please like this episode, share it with someone else you think you get value out of it. As always, don’t forget to subscribe. We appreciate every single one of you that follow along with us. We have more episodes coming up with operators just like Spencer who are out there doing it the right way and building a real business. So thanks again, Spencer.

Thanks everybody, we’ll see you on the next episode.

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How Smart LPs Avoid Bad Real Estate Deals in Any Market Cycle

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