Stop Chasing Shiny Objects:Paul Moore on Real Estate Risk,Multifamily Mistakes, & Smarter Investing

Paul Moore (00:00)
used to think I should get the same excitement out of investing that I did out of being an entrepreneur. And that was a huge mistake because that investing should not be exciting. It should be boring.

Paul Samuelson is the first US economist to win the Nobel Prize and he said investing should be boring It should be like watching paint dry or watching grass grow

Michelle Kesil (01:57)
Hey, everybody. Welcome to the Real Estate Pros Podcast. I’m your host, Michelle Kesil, and today I’m joined by someone I’m looking forward to chatting with, Paul Moore, who is a founder of Wellings Capital. So excited to have you here today, Paul.

Paul Moore (02:14)
Great to be here, Michelle.

Michelle Kesil (02:17)
Awesome. So let’s dive in. First off, for those not familiar with you and your work yet, can you share what your main focus is?

Paul Moore (02:26)
Yeah, so we started off, I’ve been investing in real estate for about 26 years since the turn of the century. And I was, I flipped a whole bunch of houses, did some rental properties, got into commercial in 2011, became a multifamily syndicator in 2015. And after beating our head against the wall for about three, four years, we decided to launch a fund.

And that was the first of our eight funds. And now we have seven side cars. So 15 total investment vehicles were currently we, you know, we had a wellings real estate growth and income fund. And you know, the problem with that Michelle is that, we did this for three years, we raised $80 million, three and a half years. the bet we wanted to get growth and income.

And the problem with that is we turned down the very best growth deals because they had no income. We turned down the very best income deals because they had no growth. And so to fix that now we have a growth fund and an income fund. They’re separate. And anybody, any of investors who want just growth or just income, or at least mainly income, I should say.

⁓ can invest in either one of those funds. And if they want both, they can invest in both.

Michelle Kesil (03:55)
Awesome. Can you expand a little bit about how these funds would be supportive for these investors?

Paul Moore (04:04)
How they’ll be what?

Michelle Kesil (04:06)
how they would be supportive for these investors that are looking for the growth and the income.

Paul Moore (04:11)
Yeah, so we don’t believe in getting the best returns. Sounds funny. We believe in the best risk adjusted returns as every investor should because you can get 100 % return by doing a risky development and you could also lose all your money. And we really agree with Warren Buffett that the first rule of investing is don’t lose money.

And so we are very focused on structuring deals with our investors because we’re usually the largest investor in a deal. We focus on structuring them so we’re not in first risk position. Common equity investors get in the first risk position and they get the highest potential return, also the highest potential, you know, the highest risk.

And we like to be in the middle of the capital stack where we have lower risk. Sometimes we’re willing to live with a capped return and that would be called preferred equity. And other times where we want JV, we use JV equity, which means we get this lower risk position because of our check size and a lot of other issues. But we also get ⁓

unlimited return just like the common equity investors. So if they get 7 % total, we’ll get 7. If they get 30, we get 30. And so that’s the way we structure deals. We typically invest these days in multifamily. A lot of those deals are multifamily. Some are mobile home parks. Some are industrial. And then a few are commercial retail strip centers. So that’s where we’re ⁓

That’s where we’re doing our deals to support these investments. I will say that the big focus for us is not the deal itself, it’s the operator. We spend months getting to know operators before we start looking at deals. When we look at their deal, we tear it apart, we underwrite it very conservatively. We look at what could go right, but what could go wrong.

and that’s more important to us and what would happen if it does. We want to see multiple exit opportunities. ⁓ We want to see ⁓ operators with significant skin in the game, significant experience, ⁓ people who have been on staff for years, sometimes decades. We recently invested with an operator, multi-family operator who has 53 years experience, and we really like that.

and their team is their coherent, well-run machine. And ⁓ we love investing with great operators with high integrity that have a culture fit for Wellings Capital’s culture.

Michelle Kesil (08:05)
Yeah, amazing. And what type of investors do you partner with?

Paul Moore (08:13)
All of our investors right now are accredited investors and some of them put in as little as $50,000 when we love those folks. And some people on the other end of the spectrum have put in two to four, even $5 million over a whole bunch of different deals with us. These accredited investors are typically people who have dabbled in real estate or they’ve even been in real estate full time and they want to slow down now. They want to.

⁓ You know, they they realize how hard it is to be a landlord I talked to a lady the other day who her and her husband owned like 80 units and They don’t want to do anymore. She said I am NOT gonna grow and expand anymore We’ve got money to invest but we’re not gonna buy anymore. I’m tired. I want to enjoy my life and That’s very common other folks are for example in medical or dental or IT

They make a lot of money and they’re smart enough to know and sometimes through a few hard knocks that for them to do real estate on the side does not make sense for them. And so their ⁓ goal is to, you know, invest passively with a group like ours, get the tax benefits, get somebody else to do all the heavy lifting and then just get wires to their bank account every month. ⁓

that to do that, they have to really, really trust us. And that’s where we’ve really put a lot of our focus over this last decade is gaining our investors trust.

Michelle Kesil (09:54)
Yeah, absolutely, that makes sense. And what has that looked like to gain people’s trust? Like what? Yeah, what did that process entail?

Paul Moore (10:38)
Yeah, it meant admitting mistakes quickly. ⁓ bought a, in 2017, we bought a multifamily project and ⁓ we made some big mistakes in the underwriting and it ended up costing investors money, not, you know, I mean, I think it was like 19%. It wasn’t a total washout.

But I called every investor. got on Zoom with every investor I could. I met some in person and I said, I just want you to know, I’m sorry. Will you please forgive me? I hate that this happened. I’ll make it right. you want to, if you want to invest with us again, I don’t have cash to pay you right now, but if you invest with us again, I will make sure you got all the original returns that you expected to get or more, or I’ll write you a check out of my pocket.

So doing things like that gains trust. I had a podcast for years called how to lose money. And on the how to lose money show, we talked to people about their mistakes, their pain, their losses on the way to success in the end. And people heard that and they is like, they’re like, well, here’s somebody who can admit their mistakes. Somebody who can admit when they were wrong.

could admit they lost money. And I certainly did. And, you know, over earlier years, especially as a speculator, I talk often about the difference between speculating and investing and how I speculated early on. And as a result, I think people really have gained a lot of trust for us because they realize, hey, here’s somebody who’s willing to talk about their mistakes, their faults, and even what could go wrong.

And so I think that’s really helped a lot.

Michelle Kesil (12:36)
Absolutely. And what do you feel are some common mistakes that investors often make?

Paul Moore (12:45)
How much time do we have? No, seriously. ⁓ I think the most common mistake for investors is chasing shiny objects. I did that for years.

Michelle Kesil (12:47)
Hehehehe

Paul Moore (12:56)
used to think I should get the same excitement out of investing that I did out of being an entrepreneur. And that was a huge mistake because that investing should not be exciting. It should be boring.

Paul Samuelson is the first US economist to win the Nobel Prize and he said investing should be boring It should be like watching paint dry or watching grass grow

He said if you want real excitement take $800 and go to Las Vegas and It’s I think people chase shiny objects. They chase better returns. They chase big promises and ⁓ They they don’t realize

you know boring investing slow investing the Bible talks about getting rich slowly and building wealth ⁓ quickly will actually fly away and that’s actually really true and ⁓ You know ⁓ Everybody who tries to get rich quickly is risking I’m not saying that there’s no way they will because some people do but usually they end up having to

start over from zero. And I’ve known countless people who have started over from zero because they were in too much of a rush. Jeff Bezos of Amazon asked Warren Buffett, said, ⁓ know, Warren, your strategy is not that hard. Why doesn’t everybody imitate you? And Warren said, no, nobody wants to get rich slowly. ⁓

You know, if you took Warren Buffett’s Berkshire Hathaway share price and slashed it by 99%, cut 99 cents out of every dollar, it would still beat the S &P 500 by a lot over the last 60 or 61 years. And so there’s something to be said for Buffett’s ⁓ not making the mistakes that Buffett warns against. Another mistake is not having a big margin of safety.

⁓ not having building in a lot of risk, you know, for something that could go wrong. Another mistake is staying, not staying inside their circle of competence. The smartest investors know what they know and they don’t, they also know that they don’t know a whole, whole lot. And so of all that stuff they don’t know, they don’t invest.

Or if they do invest, they’ll have someone who’s a true expert who really is aligned with them evaluate it and let them help make the decision. those are some of the biggest risks I see as far as multifamily operators themselves over the last five years. We found out that a lot of them took big risks. They were over leveraged.

They used risky floating rate debt. They assumed that trees grow to the sky, meaning that rents would continue to go up at five or 10 % forever. They assumed costs would go down. They assumed they’d be at almost 100 % occupied. They made a lot of assumptions that obviously when interest rates shot up 11 times over 16 months, those were clearly shown.

to be huge, huge mistakes. ⁓ a lot of billions of dollars have been lost as a result.

Michelle Kesil (17:16)
Yeah, absolutely. think that is powerful advice. And so what are you most focused on solving or scaling to next?

Paul Moore (17:30)
⁓ I think there’s a real unique opportunity to be an evergreen, to have an evergreen fund that ⁓ provides, you know, most of the investments in our space are closed end. They go five, seven, 10 years. All of ours have.

Having an evergreen fund allows investors to stay on board for a long time. allows them to continue to get depreciation from new projects that are brought in every year. It allows them to roll their profits forward and not have to pay tax and allows them to accumulate. It gives them liquidity if they really need to get out, say in four or five years, they can get out if they want to. They don’t have to wait till the project’s sold. ⁓

We really think that scaling that makes a lot of sense.

Michelle Kesil (18:29)
Yeah, absolutely. And what are like the types of projects that you’re investing in?

Paul Moore (18:37)
Yeah, we really, you if I had to pick one type of project right now, it would be manufactured housing. Mobile home parks are the only asset type that I know of that have a decreasing supply and an increasing demand every year. There really is an affordable housing crisis, Michelle, and it’s getting worse every year. There are 10,000 people turned 65 today, but…

and that’s in America alone, of course, but ⁓ 6,000 of those 10,000 don’t have $10,000 in cash saved for retirement. A lot of them though have equity in a home. A lot of them can sell their home, get that equity, buy a mobile home, put it in a mobile home park or a manufactured housing community, empty lot.

and they can pay a very small lot rent for potentially for decades and really enjoy their life. I know a wealthy doctor who did this. He didn’t have to, but he chose to do that so he could travel, enjoy his life. He’d still have a front yard and a backyard. He’d still have two or three parking spaces. He still had a deck. ⁓ Didn’t have to share a wall with a tenant, with, you know, a neighbor.

but he also didn’t have to have a million dollar home in California that he had to pay a mortgage on or pay for. And so I really like manufactured housing communities. I also like multifamily. Did you know there’s a 5.9 million unit housing shortage in America right now according to the Brookings Institute? And they say it’ll be above 9 million in nine years. That’s a serious…

serious supply and demand shortfall and it’s going to be very very painful for tenants in the next decade. So if you’re a renter it’d be better, you know, you would think it’d be better to buy but there’s a problem. It’s 97 percent, it’s anywhere from 35 to 40 depending on the study you read and up to 97 percent in some markets more expensive.

to own, to buy right now and own than it is to rent. So it’s tough to buy, it’s tough to rent. Many, renters, 53 % right now, say they don’t think they’ll ever be able to afford a home. So this is creating a tough situation for Americans in general, but a pretty positive outlook for housing suppliers. That’s multifamily.

single family, home builders, et cetera. ⁓ So it’s pretty good time structurally, fundamentally to get into that business. And it’s something that AI is not going to crush. I don’t know how it’ll affect it, but it’s not going to crush it. Those are two of the asset types we really like right now.

Michelle Kesil (21:48)
Yeah, absolutely. That makes sense. And especially with those reasonings that you shared, that’s super fascinating.

So before we begin to wrap up here, if someone wants to reach out, connect and learn more about what you’re up to, where can people find you and connect with you?

Paul Moore (22:11)
Yeah, they can go to our website. It’s wellingscapital.com. That’s W-E-L-L-I-N-G-S, capital.com. And we’ll give them some free resources if they’d like to get an introductory course on commercial real estate investing ⁓ or a course on self storage or mobile home park investing. They can go to wellingscapital.com slash resources.

Michelle Kesil (22:39)
Perfect. Well, I appreciate your time and your story. Thank you so much for being here.

Paul Moore (22:45)
Thanks, Michelle. It’s great to be here.

Michelle Kesil (22:48)
And for the listeners that are tuning into our show, if you got value, make sure you’ve subscribed. We’ve got more conversations with operators like Paul who are building real businesses and we’ll see you on our next episode.