SuccessQuest Podcast

Commercial Real Estate Investing with Paul Moore
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Commercial Real Estate Investing with Paul Moore

Show Notes

Commercial Real Estate Investing Paul Moore Wellings Capital SuccessQuest

After graduating with an engineering degree and then an MBA from Ohio State, Paul entered the management development track at Ford Motor Company in Detroit. After five years, he departed to start a staffing company with a partner. They scaled and sold the company to a publicly traded firm five years later. After a brief “retirement”, Paul began investing in real estate in 2000 to protect and grow his own wealth.

He completed over 85 real estate investments and exits, appeared on HGTV’s House Hunters, rehabbed and managed dozens of rental properties, built a number of new homes, and developed a subdivision. Three successful real estate developments, including assisting with the development of a Hyatt hotel and a very successful multifamily project in 2010, convinced him of the power of commercial real estate. Paul is married with 4 children and lives in Central Virginia.

Episode highlights:

  • The best way to succeed is to fail and learn from failure. 
  • Commercial vs residential real estate investing.
  • True wealth = assets that produce income.
  • Investing vs. speculating. Investing is math. Investing is boring. But investing is predictable.
  • Everything has a learning curve. Take time to learn. Start small.
  • Look for experienced mentors and coaches. NOT “gurus”
  • Wealth doesn’t bring happiness. 
  • Success is finding out why you are on the planet and then doing it.

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Full Transcript

(This transcript was created using software. Please be advised that it won't be 100% accurate, and it may contain formatting issues.)

Kalob: [00:00:15] All right. Welcome back questions to another episode of success quest, I'm your host, Kayla Vaya. And I'm so excited today to introduce to you someone I've been wanting to talk to for a long time. In fact, just a few weeks ago before the airing of this podcast.  I had a chance to talk with this guest., I'm excited because he is a professional investor. He has a ton of,  background in real estate. so I'm excited to introduce to you Paul Moore.

Paul: [00:00:38] Hey, Kayla, how are you?

Kalob: [00:00:39] I'm so good, man. I'm so excited that you're here. This is going to be great. It's how are you doing by the way?

Paul: [00:00:44] I'm doing great. I have a question for you.

Let's do it. I was going to interview somebody who has a podcast called how to lose money.

Kalob: [00:00:51] Yeah, that's a great, so that's another thing, Paul Moore, he has so many things. So he has a ton of courses. He's written books about real estate. He has a podcast that's titled how to lose money.  so this is a really, actually a good question.

Why would I want to talk to someone about how to lose money? I actually, for the questions out there, right? The reason I'm intrigued. With Paul Moore. Right? And I tell you guys this all the time, the only,  type of people I want to have on my podcast are people I feel like that can inspire you and motivate you on a daily basis and help you become more wholly successful.

losing money, failure, overcoming obstacles. Those all feel the same to me, how to lose money. Yeah, I like the world's going to lose money. You know, it's very, very human and I appreciate that. you seem like the guy who's had chances to lose money, but also,  I think that's taught you how to earn money as well.

Am I, am I wrong?

Paul: [00:01:44] Yeah. You know what I mean? Like lots of famous people, Warren buffet, and others have said in different ways, you know, the best way to learn to become wealthy is fail a few times, but not only to fail, to actually learn the lessons from failure. And so I think, you know, I can't prove this, but I think Kayla that a lot of people will learn a lot more from failure and a lot of people can replicate.

Non failure more than they can replicate that success. And what I mean by that is if I learned all the steps that Tony Robbins did to become a successful as he is, it'd be really hard to replicate. But if Tony, they told me the three major ways he failed early on, I could probably go, okay. I think I know how to avoid those.

Kalob: [00:02:31] That's powerful. That's very powerful.  , so Paul, why don't you go ahead and give us maybe a quick introduction of who you are. Um, something you want everybody to know about you,  just to introduce you to the Quester community.

Paul: [00:02:42] Awesome. Well, , I got a petroleum engineering degree back in the mid eighties, which was my first mistake.

Then I got an MBA and that was not a mistake. I went to Ford motor company. I really loved. Ford, but I did not want to be in corporate America, the rest of my life. So I launched out with a partner. We started a staffing firm in Detroit, and we had an office in Indianapolis as well, and we sold it five years later to a publicly traded company.

I found myself at, you know, before I was 34 years old with a couple million dollars in the bank. And absolutely no idea. How to invest. In fact, I went around, I would say, you know, I'm an investor now. No, the first thing about investing in fact, what I did know is that how to speculate and I paid a dear price for that, but like many other things we talked about earlier, , that has taught me what not to do now.

And it's really helped me and my investors a lot over the years, those things.

Kalob: [00:03:44] I love that. And you're already kind of alluding to what our topic is today. Um, quest, there's our topic today. The topic of this podcast is the difference it's between investing and speculating. And I feel like the majority of us fall into the speculating area, but all of us seemingly want to be investing.

Right? How many people I see on LinkedIn that have the title investor in there, but aren't investing. Why is that? Or are people just scared about that?

Paul: [00:04:12] Yeah. Right. I think that's true. I used to want to have investor on my business card or serial entrepreneur and, you know, like I said, this is a bunny trail, but.

I really think being a serial entrepreneur, unless you're a really rare person, I guess like Elon Musk is really, really hard road to go and I would never do it again. If I knew what I know now about commercial real estate. And if I would have known that the 400, the Forbes 400, the wealthiest people in the world,  almost all investing commercial real estate.

I never would have done anything else, but. I had to go on the path I had to go on. And, uh, you know, I didn't get into commercial real estate until I was in my forties.

Kalob: [00:04:53] That's, it's so intriguing to me because I feel like, and maybe this is done on purpose too. in Utah where I'm located. There are an incredible amount of local meetup groups that focused on helping people with real estate investing you, you pay to attend their classes and stuff, and they get large groups of people together to try and teach them about their programs that they have that obviously costs a lot more.

but they focus. All the ones that I've been to focus on  residential, real estate.   it's funny cause I've heard from a very select few people, including yourself, Paul, that, um, commercial real estate is probably the way to go.  I'm intrigued about that. Can you maybe speak a little bit more about that?

Paul: [00:05:31] Yeah, absolutely. We can get back to the speculating thing in a minute. This is my favorite topic. Actually. Now I flipped homes for years. I did a small apartments. ,  I bought some mobile homes, big mistake. Well, I love mobile home park investing. I absolutely love it, but that's another story, but I didn't know.

All those years is residential. Real estate is number one, very transaction oriented. it doesn't have to be. You can build up a single family home portfolio, which has a lot of pain and suffering in it. But,  residential real estate is based on comps. That means if I buy a house. In salt Lake city in a $300,000 neighborhood.

If I can get it for two 50 and I add 50,000 to it to fix it up, I might be able to sell it for 300, but if I had half a million to it, I probably can't sell it for seven 50 and break even. I'll probably lose a lot of money because residential real estate, based on the neighborhood on the comps, we all kind of know this, but commercial real estate, it's entirely different.

Caleb it's based on a math formula. That formula is very simple. The formula says. Value is income divided by rate of return. And here's what I mean more specifically, it's the net operating income from the property, not including debt divided by the cap rate. Now the cap rate is also called the capitalization rate, and that is the rate of return that an investor would expect for that type of property in that market, in that condition.

At that time. And so a tip cool cap rate used to be nine or 10%. That's what people wanted to get for commercial real estate. That's the return they expected now, sadly, it's down around four or five, six per cent. And so that it means people are willing to pay literally almost double. For the same piece of property that they would have before.

so yeah, that's kind of painful, but so, but here's the point of that you can use that math formula to dramatically increase your returns. And if we have more time, I'd give you more examples, but here's a very quick one. Uh, let's say we acquired a mobile home park and this is actually a real example.

I'm just changing a few of the numbers to make it really easy math. Uh, we acquired a mobile home park for $5 million. That's. 3 million in debt. And 2 million in cash. Okay. Okay. Equity now, we operator the asset manager, went out there and he said, you know, the first day he said there's three or four or five cars parked in front of some of these mobile homes.

And some of them are up on Jackson. There's a work trailers and boats and RVs. We gotta clean this place up so we can make it a more beautiful community, maybe charge a little more rent. And so what he did is he paved an acre out front. That was part of the property. And he put a beautiful fence and a gate around it and he said, okay, if you've got an extra,  you know, car  or,  RV, or a boat or whatever,  you have to park it here.

And when that place is filled up, he's charging a total. He'll be able to charge it total of $10,000 a month to rent those spaces. Now let's do the math. That's a hundred thousand. He spent, I didn't mention that to do this. It's 120,000 a year in revenue. So first of all, it's 120% ROI return on investment for that hundred thousand spent, but it's much more powerful than that.

Let's use our math formula. The value of that improvement is the net operating income. That's 120,000 a year divided by a typical cap rate. Let's say 6%, 120,000 divided by 6% 0.06 is too many brilliant. He just increased the value of that mobile home park from 5 million to 7 million by 40%. But it's better than that.

She's the only had 2 million in cash in it. Now that 2 million just grew by 2 million doubled the value of his cash investment. It's called forced appreciation and great operators. Can do this in commercial real estate all day long Caleb. That's what they do. And that's what we, that's why we love commercial real estate.

Kalob: [00:09:51] That is fantastic. I've actually been, never heard it in that way before that, that, that perspective, and that example is actually phenomenal.  I hope question is this is kind of giving you another perspective, cause I know that the majority of the places that I've gone to, this is probably exactly what it's like to in your local area.

If you've gone and you've been interested in real estate, the majority of people talk to you about residential real estate. I almost feel like it's. Because of the programs are trying to get you really intrigued, then you pay the programs. I've had friends who went and had horrible experiences and I feel so bad.

but this is,  very intriguing information, honestly, but obviously we want to kind of jump back a little bit. Maybe let's, let's talk a little bit now. Cause you just gave us a really great tidbit of advice obviously for real estate in general. Um, but what is the difference? Between for you, at least between investing and speculating.

what did speculating look like for you and why did you regret it? Like you alluded to earlier?

Paul: [00:10:41] Yeah. So let me start out by defining at least my definition of true wealth, I would say true wealth is assets that produce income. Okay. Now keep that in mind. When we dive into this discussion assets that produce income now, , Speculating.

See, start with that. Investing is when your principal is generally safe, Caleb, and you've got a chance to make a return. Speculating is when your principal is not at all safe and you've got a chance to make a return. And,  when you invest in something that. When you invest in an asset that produces income, it's got a real true, tangible value.

In other words, if I buy an apartment building for a million dollars that throws off $80,000 a year in income, that's an 8% cap rate by the way, on our earlier example. Right. But that's an 8% return on investment that has a real value. It's very unlikely that apartment building will go to zero value.

Okay. But if I speculate,  let's say I put a million dollars into an oil. Well, in North Dakota and by the way, my friends and I did exactly that in 2010 and we were expecting a massive payout. Okay. So we put a million dollars down a hole. We expected millions and millions a year to come out of the hole and nothing did.

And so that was speculating because. The value we put in, went to zero. And so that's really the difference between investing and speculating. There's a guy named Paul Samuelson and he was the first Nobel prize winner in economics from the U S and he said, investing should be boring. Investing should be like watching paint dry, or watching grass grow.

If you want excitement, take $800 and go to Las Vegas.

Kalob: [00:12:40] Wow. Wow. I like let that sink in for a second question, you're basically saying that investors should be very. Easy. It's very repetitive. You see the pattern and you know, what's going to happen. That's what investing should be. But speculating is more of assuming a risk.

You're assuming that something has potential to turn up a certain way, but there's no actual maybe evidence or facts to back that up. So you're, you're just kinda jumping into the dark. Is that what I'm understanding?

Paul: [00:13:10] It's more that way. I mean, here, here's another example. People say, well, real estate safe.

You're not speculating. Well, that's not necessarily true. Let's say I build a ground up. Apartment in Provo. Now I am, am taking risks that , my contractor's gonna finish the job, but they're not going to steal money from me that they're not going to go bankrupt. That the piece of land I buy will actually get zoned or zoned.

Right. And it will get approved for the apartment building. There's all kinds of unknowns and lots and lots of developers. Lose their shirt. In fact, developers are sometimes the richest people you'll ever meet. And sometimes they're delivering pizza for dominoes being cross lose everything. In fact, a lot of people lost money 12 years ago in the great recession.

And because they speculated now, is it wrong to speculate? Absolutely not. It's fine. Just make sure, you know, you are. And also my advice is don't speculate with all your resources. If you play double or nothing with all your money, you're going to land on nothing sometimes. And when you do, what will you have left to double?


Kalob: [00:14:20] that will be catastrophic. No one wants to be in that position. Um, so investing. How can I become a smart investor, whether it's in real estate, whether it's in stocks, , what do you prefer? Is it better to play with big money or is it okay to start off with small and then figure your way out with that?

Paul: [00:14:42] Yeah. I had a friend who borrowed, I kid you not, he was sure he knew how to trade Forex for an exchange and do margin stuff, really, really high risk in stocks. And so he was convinced he had figured out the secret cause of course told him so. Okay. I kid you not. He had a bunch of  rental houses.

He sucked all the equity out of them. He borrowed another 200,000 from a friend of mine and he launched all deeply into this and he lost pretty much all of it in good back in 2000. Five. Okay. So that's one that's extreme speculation. I would just call that just a gambling man.  he and I are still good friends, but we just thoroughly differ on our investment.

Uh, beliefs. Now, he went back years later after just licking his wounds, paying off his debts. And he went back and he literally started again with $200 and he started investing. Like he started placing these tiny, tiny traits, and then he went up to 300, then 500, then 5,000, and now he's actually doing quite well.

But I think that answers your question. Everything has a learning curve, no matter what the gurus tell you. And you honestly, if you're in a zero sum  gain situation, which is where you're basically betting against wall street. Let's be honest. They have millions, if not billions in resources, in it and professionals in Harvard, people and MIT, technical people, they're going to probably win.

In fact, I've heard they win 93% of the time. And so it's probably to me, That's just, this is just speculation. There's somebody. I have a friend named Gary cloth and Stein in Chicago who knows how to beat the market, but most people never learn

Kalob: [00:16:45] how. Yeah,

Paul: [00:16:46] it's exciting though.

Kalob: [00:16:48] It'd be really fun. And maybe, I mean, I love that analogy or the story you shared because you really can start with something small.

But  what's important is that you realize how many times you were going to fail before you learn something and that in the value. Isn't necessarily in courses that you buy, when it comes to this stuff, you need experience, you just need to just hash it out, you know? Right. And I'm sure that's how you learn the majority of your experience.

Or did you have courses or mentors that kind of helped you as well?

Paul: [00:17:16] No, I have the two most successful things I've ever done where I made the most money and had the most success were where I paid. In fact, both of them just happened to be $25,000 and they were coaching programs.

Both of them were not gurus. They were smart guys, but they weren't showy flash and tell, get you there for a weekend seminar than sell you a course. It was well thought out and, and, you know, I was very fortunate when I was younger. I was very gullible I could have easily done those courses, but I didn't, I actually signed up with two mentors and I just signed up for a third mentor.

That's a pretty much similar price for a three year program. And so I believe. You know, I mean, look, if, if the greatest athletes in the world need coaching and you know, I think we all do

Kalob: [00:18:10] that's, that's very powerful,  I love because I, okay. I tell this a lot to people and I don't mean to set over my words here, but I love the idea.

I feel like this is what makes. Entrepreneurs who they are. It makes investors who they are. It's adaptation. It's the idea that you have to constantly be learning constantly be refreshing your mind. Nothing is the same when it comes to business and the stocks and investing, you've got to constantly be out there learning new materials.

So it is important to be learning new things and to be learning new tricks.  okay. Let's talk maybe a little bit more about. How I can, let's say I have a thousand dollars. What's the best advice you could give to someone who wants to invest with a thousand

Paul: [00:18:50] bucks? Yeah. You know, I have to be honest, it's really, really hard to get into commercial real estate for a thousand dollars.

But I mean, you know, so a typical, really good deal is for accredited investors. Accredited means you either have a. $200,000 annual income consistently, or a million in net worth. And then you can get access to much better deals. And they typically have a 50,000, but sometimes $25,000 threshold to start.

However, Thank God for the crowdfunding act. The jobs act of 2012, which actually got implemented over the next five years,  allowed for crowdfunding and crowdfunding has opportunities to invest in real estate with very low. A amount of money. Some of them are 5,000. I've heard, there might be some at a thousand, I'd be full with those.

But, um, if you really want some advice on opportunities like that, I have no affiliation with this group. They're actually a third party vetting service, but it's called the real estate crowd funding review. And that website is golden to try to vet syndicators. I'm actually not allowed to look at it because I'm actually a syndicator operator.

It's a membership. I think it's free, but they actually vet people to make absolutely sure that they're not. Operators that they're truly investors. And then they exchange information on there and they talk about who's the good guys and who are the bad guys. And I've heard that they have their top 10 lists of how to get in at a low investment threshold.

Kalob: [00:20:32] That's incredible credible. I imagine

Paul: [00:20:35] crowd funding.

Kalob: [00:20:36] That's fantastic.  I'll put that in the show notes to questions. So you guys can continue to follow the things that he's been saying and also implement them. I kind of actually want to ask another question , back to what you were saying previously.

Um, how about how investing should be boring? Has it become boring for you?

Paul: [00:20:54] Oh man. You nailed me, you know? I'll tell you. So we built a Hyatt hotel in 2000. 11 or 12. And that was right on the heels of our multifamily, which killed it. We killed it with this multifamily. So my partner thought, well, I'm gonna, honestly, he didn't say this, but this is what he did.

I'm going to roll the dice and I'm going to go for it. I'm going to, this is going to be my whole retirement. So he built a $15 million Hyatt hotel. And for time sake, I won't tell you all the things that went wrong, but a bunch went wrong, including the, the contractor general contractor went bankrupt, stole money.

I mean a million plus from us and all kinds of other bad things happen. Oil prices. We were actually dependent on oil prices, which everybody knew would never go below a hundred dollars a barrel. Again, it was 110 at the time. Wow. Where it dropped to $28 a barrel. And so very foolishly, um, we're rolling the dice on all kinds of, in all kinds of ways.

So that was super exciting. We're at the Hyatt headquarters in Chicago and we're doing all this fun stuff and we're working to own a house.

Kalob: [00:22:10] Yeah.

Paul: [00:22:12] Yeah. But you know what? Investing in mobile home parks is really boring. And honestly, I mean it by  compared to investing, to building a beautiful new Hyatt hotel and having a ribbon cutting and having the gun governor of North Dakota, invited to the, you know, the opening grand opening investing in a million or two or $3 million mobile home parks seems really boring, but I can tell you making a lot of money and growing wealth is not boring at all.

Kalob: [00:22:43] That's awesome. I think that's exactly where we probably need to end. I mean, that's, that's the, the crux of it all making money. Isn't boring at all. It's actually probably really fun and enjoy, but you want to be able to find investing opportunities that do seem boring in that fashion. Right. Cause then you are, you're taking advantage of what's out there.

You're actually going to be making. You know, money without risk involved, , as much, right? ,  well, that's fantastic. I've really enjoyed our conversation, Paul. I think you have so much knowledge. You guys should message me, actually, if you think Paul would be a good fit for a Facebook live, I was talking to him about this before.

I know he would be fantastic. I want to know if you guys are interested, um, into learning more about the real estate field, because I. Personally am super fascinated. If you guys aren't interested, I'll do it by myself. Uh, with plants, I'll run out Paul's time. Uh, um, so Paul, I want to ask you one last question.

Um, it's a little cliche, but I feel like it truly helps me understand a person's character a little bit more. Um,

Paul: [00:23:45] 55. I know. I don't look it. Is that what you were going to ask?

Kalob: [00:23:54] No, I was going to be like, man. No. Were you born yesterday? No, you're fine. I love your humor. I love your energy. Um, this show is very focused on success, right. And everyone has their own personal definitions of success. So I actually guess I'm going to ask you two questions. First, what is your personal definition of success?

I mean, you've obviously dealt with millions of dollars, but I don't know if the dollars makes it into your definition of success or does it

Paul: [00:24:23] yeah. You know, I'm a little pining away on this, you know, so I was 33, like I said, and I always thought, you know, everybody says wealth doesn't make you happy, but I want to give it a try.

And when I actually got that check for my partner and I split. $3 million. And I got, you know, 60% of what I think. So, um, I honestly, the very next morning woke up no different at all. I mean, everybody says that, but I literally, I wasn't like deeply depressed or anything like that. It was this whole, but I actually didn't, I didn't feel any better.

So, and I met enough really, really wealthy people that I don't think. , that it brings, I don't think it is definition of success. I'll say success is finding your God, given talents, gifts, what you were designed to do, what you were trained to do, what you were built to do, and having all that stuff converge.

And you have this. Aha moment. And my son had it at 24 years old, oddly, but most people, Caleb say they have it in their fifties or even sixties, but not to depress your young, but it's when your failures successes, everything goes together and you have this. Amazing moment of revelation, but it's not that doesn't bring success.

That's the first step. The second success step is to walk that out. And if you want to hear more about that, there's a guy named dr. Lance wall now w a L L N a U. And he has a talks on YouTube about convergence. And that's what I think true success is when you know why you're on the planet and then you do it.


Kalob: [00:26:07] fantastic. I love that. That's a great definition of success. Thank you for sharing. Um, my, my last question then the last question of the podcast, uh, we'll wrap up right now. Um, I had a chance to speak to everyone in the world at one moment. At one, everyone was listening to you for 30 seconds. Um, what would you

Paul: [00:26:24] say.

Seriously. Wow. That is a really hard question. Um, I, if I was talking to a business group about business, I would definitely talk to them about commercial real estate. Uh, but if I was talking to everybody in the world, I would say that you probably, and I was one of them and I was, but I'm just going to be, gut-level honest here.

Um, I believe that I was designed by a creator who loves me and I had a terribly wrong view. Of him for years and years and years. And I would just tell people to find out that there is a creator who created you, who loves you passionately and wants the very, very best for you. He's not a cosmic killjoy.

Who's trying to restrict your fun and freedom, but he's actually loves you and wants that convergence for you. And he will help you get there if you just trust him.

Kalob: [00:27:27] Wow. That's fantastic. Oh, I love it. I love it. Your enthusiasm, your energy. Um, you're so down to earth, you're so authentic and genuine. Thank you so much, Paul, for being on the show here, it's been an honor having you, and, uh, I've been taking notes this whole entire time.

Like, you know, I appreciate you so much for the things you've learned and the things you've shared with us today. All

Paul: [00:27:47] right, man. It's been a great honor being here. And, uh, my, my assistant told me get on that podcast. He's got a great following. So, you know, questers out there. You've got a great leader here, Caleb, keep listening to it.

Kalob: [00:28:02] Awesome. Thank you so much. And Paul, um, I want everyone to know too. Um, how is it that we can be a part of you a little bit more? how can we make you a little bit more, a part of our lives? Do you have a social media? We can follow. Do you have a website? We can go to, what can we do?

Paul: [00:28:15] Yeah, I'm really active on bigger pockets, which is the top real estate investing website in the world.

Uh, I'm a blogger and I do live, uh, Facebook live and things like that on there. Uh, but also you can go to my, the website, which is Wellings That's w E L L I N G S. Wellings capital CA P I T a

Kalob: [00:28:39] That's fantastic. All right. Questions you've heard of here and, you know, yeah. I tell everybody this all the time.

I said it at the very beginning of the podcast that I, I, everyone I have on this show is someone I truly believe can help you become more wholly successful. Take the time out of your life to go visit their websites, make them a part of your social media day to day. Um, it's important to surround yourself with people who will motivate you and inspire you.

Um, we come up with episodes every Thursday. Don't forget to check us out, to subscribe, to like us, to visit our websites, message us, especially. Um, Paul probably feels the same exact way that I do. We want to learn how we can always be better at things if you like the show. Good. Tell us why we want to be inspired to do more things like that.

If you didn't tell us why we want to know why you didn't like the show, why you didn't like certain things and how we can improve ourselves to better, um, help you guys. Um, so thank you so much for tuning in today and we will see you guys later. Thank you so much.