Master Market Dynamics: Essential Tips from Real Estate Expert

Michael Stansbury (00:02.414)
Hello everybody and welcome to the Real Estate Pros Podcast. I’m Mike Stansbury, Scott Hoffman from Clearwater, Florida. How are you, sir? I’m well, how are you? Good, sir. We’re gonna get into your story and how you’re helping people in just a moment. But first, we gotta pay the bills around here. At Investor Fuel, we help real estate investors.

Scott Hoffman (00:14.852)
I’m Will, how are you?

Michael Stansbury (00:26.026)
Service providers and real estate entrepreneurs 2 to 5X their businesses to allow them to build the businesses they’ve always wanted and to allow them to live the lives they’ve always dreamed up. Scott, I want to ask you in business and real estate as an investor and an operator, tell me your origin story. How did you first get into owning operating businesses and owning real estate as an investment? Tell me about that.

Scott Hoffman (00:50.736)
Yeah, thanks for asking. I have kind of a goofy unicorn story. I spent 20 years as a senior sales guy. My last corporate job, I birthed and built out the outside sales force for Web.com in Jacksonville and left corporate America, switched over to the marketing side. And my clients were Neil Patel and Tony Robbins and some really big brands and spent about nine years there. So

that ability to translate both sides of the marketing and sales equation, that comes in handy later in life. But I grew up with a dad who’s a tax accountant. And so I was exposed to literally thousands of small and mid-sized businesses over the years. And you learn what’s common and what’s not. And that helped along the way. I got my MBA really late in life. And then I actually

My segue into starting to buy companies was that I was wholesaling houses in the Midwest to hedge funds and built out an army of either boots on the ground or virtual guys and girls who would chase down deals. we had a very specific buy box and we were good at it and we were doing 50 houses plus a year. But I could see the interest rate change coming and what that was going to do to the industry.

Michael Stansbury (02:09.39)
a year. But I could see the interest rate change coming and what that was going to do to the industry.

Scott Hoffman (02:18.034)
It was going to take a pivot. I bought my first company, a little website and hosting business. I really just got a group of people I knew together and said, hey, how about if we all throw five or $10,000 in and we’ll use it as a down payment and I’ll go buy a company. And we did. We still own it and operate it and grow it and it’s doing well. But that also showed me that I needed more money to do bigger deals.

And so that was really the genesis for Burgeon Fund where I brought together a group of people I knew to birth a private equity fund that focuses on buying profitable companies.

Michael Stansbury (02:57.452)
Okay and these private companies that you’re building, actually you know what, I’m going to save this question because you mentioned something about your dad being a tax accountant and were exposed to small and medium businesses. So it’s always, I’m always interested to hear.

you know, what you’re maybe as a young man growing up in that household, you know, what was the exposure like to his business and did he, you know, how did he teach you those things? Were you in there, you know, helping him file and just curious? Tell me about that really quickly.

Scott Hoffman (03:28.464)
Yeah, I think it was almost a birthright. It’s funny, I’ve talked to a lot of kids, know, my age ish that grew up with dads who were accountants or tax preparers or CPAs and there should be a support group for us. We didn’t see our parent from late December until late April. They just ceased to exist. The benefit was that there was an expectation that you were working in the practice. Most of that was ledgering.

I learned bookkeeping upside down and backwards. And I mean, I remember he had one client that was an auto repair business and he would drop off a paper bag, like a grocery bag with all of his receipts in them. And then we would put plastic wrap over the conference room table and dump the receipts out. And then we’d put gloves on to separate them out and do the ledger because of all the grease and brake dust that was all over everything.

What you really get is this great primer and it became easier and easier with experience to identify the businesses that were doing well and were going to continue to do well largely by the virtue of how they ran the front of their business. Now I’m a dinosaur. So front of the business was Yellow Pages, Direct Mail, TV and radio. There was no internet.

Michael Stansbury (04:33.518)
to identify the businesses.

Scott Hoffman (04:55.494)
but you could see the businesses that had really quantified their front end really well. And then obviously if you’re providing a decent service, then the backend kind of takes care of itself. That was the real value of the education.

Michael Stansbury (04:56.361)
see the business as it really qualifies.

Michael Stansbury (05:08.268)
Yeah, so it colors what you’re doing now because it’s one of those things that you don’t know you’re learning all these things until you see it later on in life where all that ledgering, all that glove work, you know, actually serves a unique purpose because you’re able to see things that other people can’t and leverage that ability. but today, yeah, tell us about today how you’re helping business owners, real estate investors in your fund and, you know,

Scott Hoffman (05:20.399)
Right.

Michael Stansbury (05:38.192)
give us a, I’ll let you choose your own adventure. Give us a deal you’ve done recently and kind of just give us the details on that. Maybe the most creative one or again like I said, you can choose your own adventure there.

Scott Hoffman (05:50.855)
Yeah, so I’m also in addition to being the managing sponsor for Virgin Fund, I’m also a coach for fund launch, Bridger Pennington’s program. I’m specifically focused on the sales and marketing of funds, but it gives me a great opportunity to work with emerging fund managers. So, you know, in my in my experience, the most successful fund managers go through a fairly simple progression. They do a deal or a few deals on their own.

frequently using their own money or some form of that. And then they learn syndications where they start to work OPM with other people’s money, but on individual projects with very simple operating agreements. And then they move on to fund, is, you know, bigger investor pool, not deal focused. And it really gives me a great seat also on just

you know, some of the innovation that’s going on in the real estate investment space. I feel like the outsiders are the ones probably winning the most right now, or just the people that are actively buying. All the hedge funds are sitting on the sidelines, or they’re off doing build to rent development type deals. So that creates a lot of opportunity. But when I say innovative, I know one fund manager and they’re specifically focused

on buying build to rent and build to hold, but in what I would call C cities like smaller than Youngstown, Ohio, Altoona, Pennsylvania, Erie, Pennsylvania, places where the hedge funds won’t tend to surf, but where the rent rolls are very stable and very proximate to the major cities around them. That’s one example. Brilliant fund manager that I’m working with who is converting

Michael Stansbury (07:19.326)
small cities like smaller than Youngstown, Ohio, Altoona, Pennsylvania, Erie, Pennsylvania, where the hedge funds won’t tend to surf, but where the rent rolls are very stable and very proximate to the major cities around them. That’s one example. Brilliant fund manager that I’m working with who is converting all of this dead office space to condos, which is a

Scott Hoffman (07:42.703)
all of this dead office space to condos, which is a very unique skill set. So those are examples that are completely different ends of kind of the tech world when I use the word innovate, but they’re both doing well. For me, when I buy companies, the first thing is all my real estate education came with me. So my fund buys companies. What I tell investors is I’m in the business of raising money for down payments. So we give the buyer, the seller of the business,

Michael Stansbury (08:01.741)
So, fund buys companies. What I tell investors is I’m in the business of raising money for down payments. So, we give the buyer, the seller of the business, a cash down payment up to 30 percent and the rest there’s an expectation that the seller will finance that in some way. We can do that because there’s so many businesses for sale and so few legitimate buyers out there buying real companies.

Scott Hoffman (08:11.684)
a cash down payment up to 30 % and the rest there’s an expectation that the seller will finance that in some way. We can do that because there’s so many businesses for sale and so few legitimate buyers out there buying real companies. The disconnect is like 11 to one right now, sellers to buyers. And so that means that not only do we have the opportunity with the business,

Michael Stansbury (08:32.014)
And so that means that not only do we have the opportunity with the business, but we also have the opportunity with the real estate that may or may not be associated with that business. Or like I bought a business for the fund about four months ago. It’s in Pittsburgh, my own town. And the business was renting, so we’re going to ride out that lease, we know we need a second location anyway, so now we’re actively looking, but.

Scott Hoffman (08:37.958)
but we also have the opportunity with the real estate that may or may not be associated with that business. Or like I bought a business for the fund about four months ago, it’s in Pittsburgh, my hometown, and the business was renting, so we’re going to ride out that lease, but we know we need a second location anyway, so now we’re actively looking, but it’s a seller finance conversation on the sales side. Make sure the agent and the broker are taken care of.

get some scratch, legitimate scratch in that seller’s pocket. And then, you for us, all of a sudden, those rent dollars convert and stay inside the fund, which is good for my investors. I would say probably less than 10 % of the companies we look at have real estate that’s owned. Some sellers want to hold on to it and do some kind of a lease back.

Michael Stansbury (09:26.424)
state that’s owned. Some sellers want to on to it, do some kind of lease back. If we’re going to buy it, it’s always going to be a separate transaction for lots of reasons. Depreciation.

Scott Hoffman (09:34.373)
If we’re going to buy it, it’s always going to be a separate transaction for lots of reasons, depreciation being one. But also we have a separate entity set up just to manage real estate within the fund. As a fund manager in my ongoing role, I have operators run the companies, but really my job is to figure out how to keep as many of the operating expense dollars inside the fund as I can.

Michael Stansbury (09:42.638)
separate entity set up just to manage real estate within the fund.

Michael Stansbury (09:55.598)
is to figure out how to try to keep as many of the operating expense dollars inside the fund as I can. So we’ll continue to acquire companies.

Scott Hoffman (10:04.326)
continue to acquire companies that will solve problems inside the fund. Right now I’m in the process of buying two car businesses. The third biggest expense my installation business has is vehicles. And so if I buy a car business that gives me access to the auctions and then instead of me renting crew cabs from Enterprise, I get to rent them from us. And that couple thousand dollars a month for every truck stays inside the fund.

Michael Stansbury (10:33.918)
Yeah, I love that integration. I was talking to a gentleman who has a pallet business and he’s like I need to buy a sawmill increase my

And he did. He like, within three weeks, he met somebody that was been in business for 30 years and bought the business. So I love, I love talking about this. You mentioned earlier about the real estate, you know, are you, when you see something comes across the desk and that has real estate, does that become a priority for you to really focus in and look at?

Scott Hoffman (11:08.998)
You know, it really depends on the business. Our first priority when we look at a business other than tenure and profitability, those are the first two legs. But we always apply what we call a third leg. So what we’re first trying to figure out is what can that business be doing that it doesn’t know it can be doing or that the whole niche doesn’t know it can be doing? Like I said, I’m a dinosaur. I remember when restaurants didn’t have drive-through. Drive-through would be a third leg.

But if I go back even further than that when I was a kid you pulled up to a gas station and an attendant ran out to your car and the gas pump was really really slow Because it was not it didn’t have the pumping ability that they have now and the guy cleaned your windshield and he checked your oil but you sat there for 20-25 minutes and at some point somebody said gosh, maybe we should

offer milk and bread and eggs to these people while they’re waiting for their car to get filled and the convenience store industry was born. So those third legs are really important because those are revenue streams that the company doesn’t have today. So we’re going to figure out a growth trajectory for the business and then also figure out a third leg trajectory. And then right behind that is if there is real estate, how do we make it win, a win for the fund, a win for my investors?

Michael Stansbury (12:05.396)
store industry was growing more. So those third legs are really important because those are revenue streams that the company doesn’t have today. So we’re going to…

Scott Hoffman (12:29.746)
But it’s interesting because it really does become a secondary conversation. Because if I try to commingle the deal conversation about the business and the real estate, things just get really choppy and it seems to work better when they’re kind of segregated out a little bit. At least that’s been my experience the last couple of years.

Michael Stansbury (12:41.998)
and the real estate, rates just get really choppy and it seems to work better when they’re kind of segregated out a little bit.

I mean that’s been my experience the last couple years. And you mentioned that the ratio 11 to 1 sellers and buyers, is that because the demographics, older generation that owns businesses is getting a little bit older and maybe the kids don’t want to take over the business? Or what are the reasons that you see such a disparity there in the ratio?

Scott Hoffman (13:11.568)
Yeah, I think there’s a couple of things that go on. That’s definitely the big driver right now. Starting about four years ago, the largest number of boomers were turning 70. I’m not there yet, but I think that’s kind of a bellwether event that like maybe your bucket list becomes a little bit more in focus. You know, maybe my wife’s a little bit more in my ear about, you know, travel promises I’ve made or whatever. I don’t think that COVID

Created the decision where the kids don’t want the business. I think it was created before that But you know what I hear from the founders a lot is the kids want more of a lifestyle business They like the way I remember my dad being gone for four or five months a year They remember all those missed practices and ballet recitals and whatever and they’re choosing to be more present and they’re gonna do that in another way

Michael Stansbury (13:59.727)
and they’re choosing to be more present and they’re gonna…

Scott Hoffman (14:08.09)
I read an article, this isn’t unique to business owners. The largest ranches in the United States have the same problem. I think the difference there is the kids headed for the hills as early as they could get off the ranch. Much harder work than most of the companies we buy. So I think that that’s one driver. I think the other thing is that very rarely does somebody start a business because they’re great at sales and marketing. They typically start them because they’re good at something else.

Michael Stansbury (14:30.382)
sales and marketing. They typically start because they’re good at something else, whether cutting hair or making pasta or whatever their skill set is. And if they could just do that full time, they’d be really happy. Obviously, businesses have a lot more moving parts than that.

Scott Hoffman (14:34.514)
cutting hair or making pasta or whatever their skill set is. And if they could just do that full time, they’d be really happy. Obviously, businesses have a lot more moving parts than that. And those moving parts start to drag on people. A lot of the founders I meet are simply exhausted. And unfortunately, didn’t really have any kind. You really should have at least a three year exit plan on a business. It’s very rare I see somebody that has one. It’s mostly

either the other big driver other than what you mentioned with the boomers is health issues, either their personal health issues, a proximate family member, their spouse, kids. Some major event is forcing change upon them even if they don’t want it. Those are the founders typically that I would offer to have stay around in some capacity. I think the big loss when these businesses shut down.

Michael Stansbury (15:14.702)
Some major event is forcing change upon the…

Scott Hoffman (15:31.505)
And even like the, you know, some of the old dog real estate portfolio owners that I’ve met over the years, they have something that I call tribal knowledge, which is they just gather information in these mental sticky notes. And they’ve got this amazing database of information and they can’t just dump it in a 30 day, I bought your company now scoot kind of transition. a lot of it is situationally dependent where it

Michael Stansbury (15:33.264)
of the old dog real estate portfolio.

Michael Stansbury (15:43.654)
mental sticky notes and they’ve got this amazing database of information and they can’t just dump it in a 30

Michael Stansbury (15:56.03)
situationally dependent where you know a situation will arise and then they’ll tell you ten times they faced that in the past and all the creative ways that they tried to solve it.

Scott Hoffman (15:58.203)
a situation will arise and then they’ll tell you 10 times they faced that in the past and all the creative ways that they tried to solve it. I think we need to try to retain that value as best we can when the seller is willing and able to continue to be available to us as buyers.

Michael Stansbury (16:15.918)
That is very interesting that you just dropped that because I have run into that, you know, as you grow into any business and you meet people that have been in the business a while, you don’t realize all the wisdom that they have until you ask them a question, have you ever run into this before? And then boom, they said, yes, and this is the, I solved this problem three different ways to Sunday and here was the best way I solved it. And you’re like, wow.

But it is it is exactly what you said it is hard to get that information from them until you ask a specific question and then they have they have the answer they’re their own yeah, we need some sort of a AI to drop in their brain and spill it out for us, but I don’t know if that’s that’s there yet

Scott Hoffman (17:01.126)
Yeah, and I think that there’s a direct parallel to real estate investing as well, because what I saw when I was wholesaling and since then is when real estate investors start accumulating properties, they’re going to play as portfolio, as they’re accumulating properties, they’re still working. And frequently it started because they are self-employed, the business is doing well, and their CPA said, well, Bob, you made a lot of money. You need to go buy a rental property. And so they did. And then they kept on buying.

Michael Stansbury (17:18.99)
started because they are self-employed, the business is doing well, and their CPA said, well,

Scott Hoffman (17:29.47)
And while they’re working, a lot of the income is being plowed into those properties being well-kept. They’re Johnny on the spot on maintenance. They’re Johnny on schedule for capital improvements. Then they retire and this becomes their primary income. And suddenly we start to see slippage. The rents aren’t being increased because they’re scared to death the tenants going to leave because now they are going to have to do a renovation. I see the exact same thing with the businesses where

Michael Stansbury (17:43.15)
This becomes their primary income. And suddenly we start to see slippage. The rents aren’t being increased because they’re scared to death of tenants.

see the exact same thing with the businesses where the house is paid off, the kids are out college, they feel like they’ve got enough of an A, they start to coast.

Scott Hoffman (17:56.477)
You know, the house is paid off, the kids are out of college, they feel like they’ve got enough of an egg. They start to coast. They have no idea how to market the business anymore. They’re just kind of riding out what they already have. And so, you know, when we’re building a plan, part of that is, you know, what rocket fuel is this business going to need to start developing trajectory just as a real estate investor is going, okay, what do I need to do to this portfolio to get up to market rent?

Michael Stansbury (18:24.182)
Yes, yeah, I’ve seen that situation play out that you articulated very, well.

Locally a plumber that owned a plumbing business for the last 30 years He was selling his business and I was consulting with the business broker, but that was his attitude his attitude was you know, I’m 75 I don’t run the business anymore the girls in the office do You know, I’m just trying to find an out here and he could never he just wasn’t motivated really to To to make it to make it work for somebody to buy it, which was very very interesting

So that’s an interesting articulation. So Scott, let me ask you this. If somebody is in those situations where you can help out, maybe needs some coaching or maybe needs access to the funds, where can they find you on the internet? Where can they learn more about what you’re doing online?

Scott Hoffman (19:16.944)
Yeah, so my FunLaunch email is easy. It’s scottatfunlaunch.com. When I started my journey with FunLaunch, it was four years ago. I call myself fun curious at that point. I wasn’t completely committed because I didn’t completely understand it. We’ve also just launched a single asset fund product, which is syndication, that’s really robust. So it’s a good starting point, I think, for somebody that’s ready to take that leap.

Beyond that, I’ll answer any email when somebody sends me a question. My personal email is warrior, the number four, smallbusinessspelledout at gmail.com. And people should reach out all the time. A few years ago, my wife said to me, when are you gonna start getting paid for all the teaching you do? And I was like, I don’t know, because I’m just serving. just out there. I wanna see people do well.

If I can help somebody from not having a Thelma and Louise event in their business life, then I’m going to do everything I can to do that.

Michael Stansbury (20:22.734)
Well Scott, that is very generous and that’s what, I think that’s how it really works is if you give, give, give, people know when there’s value, there’s value to get and attain from you. So I’m sure that’s gonna be made up in spades. Thank you Scott for being part of the Real Estate Pros podcast. Guys, all the information to reach out to Scott will be in the show notes below. So if you have a need and he can fill that need, please reach out to him just like you said and do all the things they

to us to do? Like, subscribe, comment below. Scott, again, any final thoughts,

Scott Hoffman (20:58.426)
No, you know, I think the only mistake that anybody can really make is to not do. I think do is really never a mistake because even deals that have gone sideways with me for one reason or another are still a great education and they’re better. I’m not applying anything I learned in grad school to my daily life. I’m applying the life lessons that I accumulated along the way and I have the bruises and the scars to prove it.

Michael Stansbury (21:03.352)
That’s right.

Michael Stansbury (21:24.138)
Yeah, those bruises and scars, they have tons of value if you look at it that way. Scott, you just dropped some knowledge on us. Thank you for that, folks. Again, thanks for watching. We’ll see you next time on the Real Estate Pros podcast. Goodbye, everybody.