Keep Debt Low: The Real Estate Capital Strategy That Helps Investors Survive Downturns

[email protected] (00:00)
However, there is, I would say there is one key thing that if nobody, if your audience takes away just one thing from this conversation, would be keep debt low. Debt is the killer. Don’t be seduced into thinking the more debt you can take on, the higher the relative return.

based on the investment you put in. That is true. That’s the beauty of debt. On the other hand, debt is a killer.

Cody Crabb (02:01)
Hello and welcome to the Real Estate Pros podcast. I’m Cody Crabb with Investor Fuel. Today we have Adam Gower with Gower Crowd, working in the world of real estate capital and investor connections. So today we’re gonna dig into deals and how they get funded behind the scenes. So thanks for joining us today, Adam, and we really appreciate it.

[email protected] (02:19)
Well, it’s

pleasure to be here, Cody. Thanks for asking.

Cody Crabb (02:23)
So ⁓ I’d be curious to know how did you kind of come to be here? It’s not exactly one of those jobs you see on the kindergarten board, know, fireman, doctor, like real estate, finance, you know, it’s not typically when you’re here. So I’d be curious to know what led you here.

[email protected] (02:39)
But it was actually totally accidental. Well, it wasn’t really accidental. when I started and I know before we started the podcast, you were chatting a little about prior guests, etc. I actually started my life as an apprentice electrician in Southern California. Yeah, I used to knock on doors and say, I’ll do anything for $5 an hour. It’s a very long time ago, as you can probably imagine. And there was an electrician that hired me said, well,

Cody Crabb (02:52)
Uh-huh.

really?

⁓

[email protected] (03:08)
what will you do? I said, I’ll do anything. So he had me pull wires in attics and basements and all kinds of ghastly, dusty, spider-ridden places. ⁓ But very quick.

Cody Crabb (03:19)
I can’t imagine

why you maybe wanted to pivot after that. That’s a big surprise.

[email protected] (03:22)
I’ll you something, actually

it was an exceptionally good foundation for what I’m doing today to have that hands-on experience of what’s involved on a real estate job site. There’s nothing like it. Actually, I advise my sons to do the same thing, ⁓ go and do some hard laboring on a job site because then you meet the other trades. They’re usually really human.

Cody Crabb (03:32)
Yeah.

[email protected] (03:51)
You know, there’s no pretensions. They’re just hardworking, diligent professionals that actually really enjoy what they’re doing. So there’s good banter and you really understand the ins and outs of what’s involved in real estate in any aspect when you work at that ground level. So it was a very good, it may not have been what I aspired to do originally. And I didn’t see it on a kindergarten board or anything, know, electrician.

I probably would never have done it if I had done, but it was a really good start. However, I did migrate very quickly and I started, it’s a long story, but I know we don’t have much time, but I was hired by a ground up multifamily developer to help them raise capital from investors. so then I stepped out of overalls.

Cody Crabb (04:27)
Yeah.

[email protected] (04:49)
⁓ and carrying a tool belt and started carrying a cell phone, except in those days we didn’t have cell phones, but anyway, eventually we did,

and a clipboard and a pen and started to raise capital. So the first thing I remember in understanding how all of these projects that I’ve been working on as an apprentice, how they were financed and how they were capitalized. And so I…

Vividly remember seeing the proformers, the financial analysis. A friend of mine was in the business and he would share with me the proforma over breakfast. This is what we’re doing. We buy them for this. We do all this work. This is how we lease them up and this is what they’re worth when they’re done and this is how we make money. And I thought, well, that looks like something of great interest. And so they hired me. It’s a bit longer of a story.

Basically, they hired me. And I started ⁓ presenting deals and walking through those deals with investors, as well as being involved in all other aspects of the development process. So that’s how I started my career. Since then, I spent ⁓ almost 10 years in Japan. Again, long story.

I ran a division of Universal Studios and did all of their real estate development across Asia Pacific.

Cody Crabb (07:08)
I was not expecting that I’m not gonna lie that was not a Universal Studios in Japan I would not have written that as a guess so can you surprise me congratulations

[email protected] (07:16)
That’s what I

used to do. Anyway, I did that for 10 years. I learned to fluent Japanese and I ran the car. I built it up from one employee to 150 during the time that I was there. It was very successful. Then I came back and I started doing my own developments. In 2007, I sold out right before the global financial crisis and was hired by a bank. I was brought into that bank to help them sell.

their portfolio of non-performing real estate collateralized assets or loans. And so was then that I saw all the mistakes that people make, not just in the run up to a downturn, but also in the way they handled the situation when things went bad. And then I moved on to a private equity shop and did some more of that. And in the last 10 years, I’ve been advising sponsors.

how to raise capital and building digital marketing systems for them so that they can raise capital themselves for their deals. ⁓ So my clients manage about $45 billion of assets, AUM, and have raised over a billion dollars of equity. So I’ve seen through both the distressed work that I’ve done, as well as through the work that I’ve done over the last 10 years, helping sponsors capitalize their deals, just about

every asset class that there is and I’ve seen also like said every mistake that’s been made and so I can understand how to do it properly. I actually heard a story once about watching golf, learning how to play golf. You can watch the pros play and see them doing it perfect. It’s almost impossible to mimic that. But if you watch a hacker, you know what to avoid. So if you do both,

Cody Crabb (08:53)
Yeah.

[email protected] (09:09)
you actually can, in theory, become quite good at playing golf. I’m no good at playing golf. I’m a total hacker and always have been. But it does apply to real estate anyway. So based on that, yeah.

Cody Crabb (09:19)
Well, I think

this is really cool because it’s almost, you know how in the Terminator, how he was like a perfect killing machine. Like that was what he was built for. It’s like you were designed for real estate, like from an early age. Like you had this hands-on electrician experience. You had this, and then you got into, you you got to know all these different areas that really, I mean, it seems like that expertise really paid off later on.

[email protected] (09:44)
Well, yes, mean, look, we’ve been talking about entry points to real estate and on our pre podcast chat ⁓ entry points, having decades of experience

clearly helps to understand how to enter the industry, what to do, how to avoid mistakes, what to watch for and how to do it properly. And there are some golden rules really.

that apply, you know, I’ve done some studies, I have a PhD, again, we’ve not talked very much. And what that did was it gave me an understanding for, or the discipline for drilling down to the nth degree, to actually to the extreme end of any research ⁓ avenue, to understand absolutely everything that happened. And that is in part the

Cody Crabb (10:54)
⁓ wow.

[email protected] (11:19)
the kind of the skill that I bring to real estate. I’ve worked with all these asset classes, I’ve worked with some of the top pros in the country. So I can really comment on just about any aspect of the industry. And you’d mentioned that some of your listeners probably are looking to get in. So I’ll let you ask me the next, pop the next question, whatever that might be.

Cody Crabb (11:41)
Well,

I would be curious, there’s people that are doing what you do on a smaller scale, certainly in our community. ⁓ So I’d be curious to know kind of how are you typically finding, is this based on your network for your ⁓ opportunities or is it a different way? And you said you’re into marketing as well, so I’m sure there’s something to do with that.

[email protected] (12:04)
So we build digital marketing systems. I help people raise capital. That’s what I do. So I don’t go out and look for opportunities. These days, we are assisting our clients with finding deals. And the way that we’re doing that, well, we’ve done it a few ways, actually. We’ve done it actually via USPS. We build marketing funnels to attract or to try and find off-market opportunities.

Cody Crabb (12:10)
Hmm. I see, yeah.

Really?

[email protected] (12:30)
But these days, the way that we’re doing it is by applying AI, because most of the acquisitions guys that we work with, they have ⁓ inboxes, email inboxes that are flooded with sometimes literally hundreds of opportunities every day, and they have to grind through those. So we’re building systems that allow for initial screens.

to happen automatically, to be automated so that you get rid of all of those that don’t make sense. And the only ones that you actually see are those that have passed your initial screen. So it enables acquisitions teams to look at 50 deals a week instead of five, which means that the velocity of their business accelerates. And as soon as you do that, I actually heard this recently, it’s like the old car.

manufacturing analogy. If you can make 100 wheels a day and you can make 20 ⁓ engines a day and 10 dashboards, I’m making this up, but only one chassis, how many cars can you make a day? One. You can only make one. So as soon as you make one aspect of the business super efficient, you ought to realize that it’s actually part of an engine, of an entire process.

Cody Crabb (13:42)
Yeah.

[email protected] (13:54)
Every single part of that process has to improve at the same pace. Otherwise, you’re stuck with where you were in the first place, no matter what efficiencies you bring in.

Cody Crabb (14:03)
man that is an amazing insight and I’m already thinking of things where I totally do that. Like I totally nailed this automation process and then I just ignore some other thing that takes me just as long and it might as well not have done it in the first place. So that’s so true, yeah. So you mentioned the use of AI. This is pretty interesting to me ⁓ because something that sticks out to me is not only would you be, you said you can see 50 deals instead of five, but not only are you seeing 50 deals.

[email protected] (14:16)
I’m sorry.

Cody Crabb (14:32)
you’re seeing 50 deals that have been pre-screened to be the very best ones, where those five might not even be. So not only are you able to see way more, you’re able to see super high quality ones only. So that’s a pretty neat, that’s a, I mean, you didn’t even mention that, but I feel like that’s a huge benefit of that.

[email protected] (14:50)
Well, yes, of course. The process of finding deals is laborious and time consuming. So anything you can do to expedite that process and to make it more

is particularly in a competitive world like real estate. It gives you an advantage if you can see more opportunities and be able to pick out those that truly do fit your buy box.

Cody Crabb (15:58)
Yeah, yeah, absolutely. ⁓ So you’ve watched the economy turn down. seen the, said you lived through the pre-2008 the way you did and in the situation that you did, you saw the mistakes being made. ⁓ I’d be curious to know.

You know, people say it’s a bad market. know, some of our listeners might just kind of be hesitant to start anything because they hear like that it’s a bad, bad market right now. I’d be curious to know what you would say to that.

[email protected] (16:34)
Okay, so.

Okay, the market, the real estate market is trundling along the bottom. It’s just beginning to pull out of what has been a fairly serious downturn. There are clearly headwinds. ⁓ One headwind is, the main one of course is macroeconomic and geopolitical. Nobody really knows where the economy is going, where we’re headed. It’s not unique to commercial real estate or to real estate.

It is a general malaise. However, I am a firm believer, and I’m just taking notes because I don’t want to forget to say something, that there are great opportunities now. Why? Because what was that expression? By low, high. So it’s an easy concept to understand.

But it’s very difficult to execute on, except right now. And I say that because when you look at the stock market, and so anybody that’s looking to invest in real estate, either is going to use their own money or they’re going to raise money from other people. So if you can sell at a high, like the stock market is still hitting historic highs, and buy at a low and the real estate industry is at a

a relative low, then you have a good environment to be investing in real estate.

However, there is, I would say there is one key thing that if nobody, if your audience takes away just one thing from this conversation, would be keep debt low. Debt is the killer. Don’t be seduced into thinking the more debt you can take on, the higher the relative return.

based on the investment you put in. That is true. That’s the beauty of debt. On the other hand, debt is a

And if the market turns down or if interest rates shift or if there is any kind of black swan event and you’re unable to collect the same kind of rents or income, generate the same kind of income that you had projected, what will lose you all your money and potentially put you into debt is the debt.

because the bank will, they are unforgiving. They will take your property back, you’ll be wiped out. If you’re unlucky and you signed on the debt, you will owe whatever difference there is. So the best advice that I can give to anybody thinking about starting out in this industry or being involved in this industry, and I tell this, this is what I tell my clients since my clients have huge portfolios, know, hundreds of millions if not into billions of dollars of assets.

Keep that low. That is how you will survive a downturn. And if you’re able to generate cash flow during a downturn, and hold onto your properties, you will be one of the only people still standing when the market starts to recover. And you will have the opportunity to buy assets at steep discounts. And that’s what we are seeing today. You can buy at discounts. It’s difficult to find, but

People are finding them, our clients are finding incredibly discounted ⁓ deals, but you still have to be able to finance them. So if you’ve lost all your investors’ money before because you made a bad decision, it’s going to be harder to raise capital. If you’re not returning the same amount, if you’re not returning what you projected, but you’re not losing their capital, that stands you in good stead for raising more if you’ve got a good story.

about why it is that you’re buying at a discount now why you think it’s a good opportunity to be investing. I’m kind of prattling on a bit, but anyway.

Cody Crabb (20:37)
No,

in a good way. I’m loving every minute of this. This is really interesting. I feel like, ⁓ I can’t even add to that. Yes, correct. Good, awesome, amazing. ⁓ So we’re kind of edging toward the end here. I’d be curious, do you have any, I saw you were taking notes. Do you have anything else you wanted to kind of get to before we kind of close out?

[email protected] (21:02)
No, I just want to say

keep debt low. I would say that any my experience of investing in real estate is be granular on your analysis, be extremely diligent. When you are putting together a pro forma or analyzing a deal and deciding whether or not to go ahead and buy it and to finance it, make sure that you understand and have justified.

Every single cell and every single assumption in those cells in your spreadsheet and that means like I said Taking it to the nth degree. Don’t leave any stone unturned ⁓ And you should be okay, but it requires diligence. and another expression I was gonna leave something it would be the best way to make money in real estate is to make it slowly Don’t try and make a quick buck. Just be patient over time

it will reward you.

Cody Crabb (22:01)
Yeah, I’ve heard it’s a real estate is a get rich. What was it? It is. It’s it’ll get you rich, but it’s not quick and it’s not a usually not a scheme. I think is what I heard. ⁓ So, yeah, it’s a that’s something to remember for sure. Well, OK, so tell us a little bit more about ⁓ Gower crowd and kind of what what things do you offer and who who should be looking for services like yours?

[email protected] (22:26)
Okay, so typically, so to build the systems that we build, our clients pay us around $100,000. That includes the website and all the other work. However, so typically our clients are looking to raise between 10 and 20 million at minimum over the next 12 months or so. mean, really on the low side. And then we build these systems that help them raise that kind of capital. However, on a more pragmatic level,

Cody Crabb (22:52)
Hmm.

[email protected] (22:56)
We do run AI in commercial real estate programs for executives, executive program. And that reveals not just how to apply AI effectively to all aspects of the real estate ⁓ deal lifecycle, but it also reveals best practices for investing in real estate. So if anybody was interested in that, I would be happy to.

to share more information or they can just go to gowercrowd.com and sign up to my newsletter and they’ll learn more about what we do there. Probably very beneficial I would imagine.

Cody Crabb (23:35)
Yeah, yeah, absolutely. Anyone wanting to, I always tell people, people that come on this show that give away things for free or have newsletters or just are saying, giving information, podcasts, YouTube, this is a great way to kind of get to learn more and to learn about stuff you maybe wouldn’t ever have even thought about. So thank you so much for all that you’ve shared with us today. We’ll have links to all of this in the description.

And thank you listeners for joining us as well. If you liked what you heard, go ahead, give us a like, subscribe, follow, review, comment, do all the things and make sure you make sure you’re following us so that you don’t miss another awesome conversation with someone like Adam Gower. Thank you one more time. It’s been a real pleasure to talk to you today.

[email protected] (24:16)
Pleasure was all mine. Thanks for having me, Cody.