Jun 16, 2022
Mark McGuire is a Chief Investment Officer, Hearthfire Holdings. in 2017 he started to build a real estate business. He hired and fired agents, learned from his mistakes, and then re-hired all over again with a new perspective. Since 2013, Mark and his team have brokered more than 300 homes with a total sales volume exceeding $83M. They have also raised over 15 million in capital for Hearthfire. Mark’s biggest passion is wealth building and investing. He is a limited partner in 12 syndications, ranging from multifamily to industrial, hospitality to self-storage. He has invested in multiple private companies in the biotech, finance, and AI spaces. In addition, he currently owns 20 residential units in various real estate partnerships and oversees the management of 130 residential units his family owns. Mark has also executed multiple 1031 exchanges. He’s seen up-markets and down-markets and discovered opportunities in both.
In this episode we talked about:
* Mark’s Bio & Background
* Building his Career in Real Estate
* Limited Partnership Role
* Real Estate Deals Outlook: the best Takeaways from Investors
* Red Flags while looking for LP & GP
* Multifamily Investments
* Mark’s Focus in Real Estate Right Now
* Economic Outlook 2022-2023
* Mentorship, Resources and Lessons Learned
Useful links:
Slicing Pie: Funding Your Company Without Funds
https://hfirecapital.com
https://www.linkedin.com/in/investingwithmark/
Transcription:
Jesse (0s): Welcome to the working capital real estate podcast. My name is Jesper galley. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time
Jesse (23s): This is Jessica forgotten and you're listening to working capital the real estate podcast. My guest today is Mark McGuire. He's the C I O of Herth capital. He's a full-time real estate investor and operator that's when mark at the time plunge into real estate sales, after running hard on his own for three years, working 80 to 100 hours a week, mark realized he needed help. He transitioned his real estate practice to Keller Williams in 2017 to learn how to build a real estate business. He hired and fired agents learn from his mistakes and then rehired them all over again.
Since 2013, mark and his team have brokered more than 300 homes with a total sales volume exceeding 83 million. They've also raised over 50 million capital for her fire, mark, you and I were just talking before we want to get into a lot of what you're doing now, which sounds like general partner and sponsoring deals. First of all, welcome aboard.
Mark (1m 13s): Thanks for having me Jesse excited.
Jesse (1m 15s): Yeah, I really appreciate it. So lots to talk about here. You've had a pretty, a pretty interesting background in terms of where you started out in your career and what you're doing today. And I want to get into for listeners the different asset classes that you're working with, but before we do that, why don't you take us back to kind of where you got into real estate? How that your story unfolded at the beginning?
Mark (1m 39s): Yeah, so real estate was something that was in my family. You know, I tried to go the college route net that really didn't align with my way of being a really I learned hands-on and I could, I could do the school thing, but I just hated it. And my mom's a teacher, so that went over really well. And then, you know, transition to my first entrepreneurial venture was playing in a band and we played, I was in a band professionally for seven years. We ended up getting a record contract with RCA records and I had had my I'm sorry,
Jesse (2m 15s): Small outfit.
Mark (2m 16s): Yeah, yeah, just a little bit. And I had had my real estate license at the time. And when we got the record contract, I remember, you know, this real moment of clarity of looking at how much money I was going to get as part of the contract that was guaranteed. And then how much money I had commissions pending with my residential real estate sales business. And I just was like, well, why would I sign this 14 to 20 year contract? Like that makes no sense. I'm, I'm going to be a slave. So went into real estate sales full time and had the opportunity to, to really start to understand business and learned about this whole thing called like a profit and loss.
I never went to school for any of it. So it was kind of just a giant trial by fire and I'm kind of became obsessed. And then after that, it was just like, how much more could I could I build? It was just a constant pursuit of growth.
Jesse (3m 8s): Fair enough. So you kind of run through the process, you're in music, which is awesome. What a, what instrument or where you vocals? What did you play?
Mark (3m 16s): No, I was actually, I was, I played drums. I did sing background vocals, but drums was really my main contribution.
Jesse (3m 22s): Nice, nice. I'm a big, big guitar guy. Just, just, just bought a, a PRS recently. And so I'm pretty, I'm having fun with that somewhere in the background there. So that's really cool. So RCA, I, like I said, it's not exactly a, a small outfit, so congrats on that. But even with that, you kind of look back and you start real estate as a path. So bring us up to speed today. I know that you're continuing to build wealth through real estate and you are LP on a few deals in various asset classes and running point or general partner on others.
Maybe you could tell listeners a little bit about what that looks like and how that process kind of evolved.
Mark (4m 3s): Yeah. So when I was in residential real estate sales, I spent a lot of time, you know, getting to run numbers on just single families. One thing that I was really fortunate to have was a family that was in real estate. So my, my grandfather was the main driving force and he owned a bunch of properties and I got the opportunity to work and be the, the, the assistant to the maintenance man. So I was like the guy that just said, Hey, there's a pile of trash, go over there, go take it and load it in the truck and throw it out.
So I did that for a couple of years and, you know, that's what it took to be in the band and have the flexibility to be able to get up and go whenever I needed to, they either had to go for on the site or they didn't. So there, it was just a matter of, you know, as I made money and, and, and generated income from residential real estate sales, my grandfather always told me, you know, real estate sales, you know, will make you money, but it will make you rich. And I don't know if you've ever heard of the saying brokers died, broke because so many people in sales, they make good money in commission, but then they, you know, spend it all and they don't get into assets that help you defer some of those taxes
Jesse (5m 19s): And build wealth.
Mark (5m 20s): Yeah. So it really came down to saying, Hey, I want to, I want to be able to get paid while I sleep. And so I've started buying condos and single families. And because this was 2013, 14 when the market was, you know, really, really low and then just kind of wanted to grow it from there and got interested in the commercial loan space. And, you know, I lived on as little as I could without feeling like I was, you know, I'm going to say punishing myself.
I wasn't like sitting there and eating ramen. No, I was never the ramen noodles guy. There's a lot of those people that, you know, they, I mean, I like pain, but I don't like it that much.
Jesse (6m 0s): You know? And I don't understand that maybe we said Italian upbringing. I'm like, you know, pasta is just this chief.
Mark (6m 5s): It is. But Robin noodles is pasta. It's just possible of sodium
Jesse (6m 10s): A hundred percent, exactly. Dumping, just dumping a bag of salt in there.
Mark (6m 16s): So I basically took it from, you know, just doing small single family and getting introduced to the concept of syndication I was trying to buy up. And it was just, I didn't have enough income. I didn't really know the way that the game was played. So syndication was my way to be a part of bigger deals. And I got, it was a, it was a question of bandwidth because you only had so much time to operate so many deals the right way to execute on them. And syndications for me were a way to keep my money moving at a good velocity without having to actually be the one driving the ship forward.
Jesse (6m 50s): So in those syndications where you limited partner in like the first one,
Mark (6m 55s): Yeah, I was an LP in probably seven or eight before I started on the GP side.
Jesse (7m 3s): Yeah. Which is that's fascinating to me because some, some would argue that it's, it's easier to get into being the LPN and definitely in a sense it is right. You're just, you're just providing capital. But I think the analysis is for somebody that's breaking into the industry, it's pretty, you know, ballsy to just jump into LPs with, without doing your proper due diligence. And I'm not saying that you didn't, I'm saying a lot of people, they see an investment and then they go in and that's why we had Brian Burke on.
He wrote the passive, I think it's passive real estate investor.
Mark (7m 36s): It's a hands-off hands-on that's
Jesse (7m 39s): Right. So we were both talking at the last BiggerPockets conference and what I found fascinating about this book, not just to plug it, it's just from the LPs point of view, which you never really read in a lot of these books. A lot of it is you're the GP you're running the deals. So that's pretty awesome. And then the other thing I, I feel in tell me if this is what you experience, I've told partners of mine before that we should be an LPN, this deal. And it's not necessarily because I think the deal is great. Is I really like the sponsor. I really want to see what, what he or she does with the investment.
And you learn so much about, okay, they're using this software, oh, they're G they're doing updates this way. I, you know, the last person I invested in did, did them this way. So I feel like there's a lot to learn from somebody who has already established themselves as an LP. Was that kind of your experience in those first, you know, six or seven, whatever they were.
Mark (8m 27s): So it's funny. I never went into syndication, investing, thinking I was going to be the guy syndicating. So I always went, I went into it because, you know, I could do my own deals. I knew how to run them. I knew how I knew how to pull the levers. I mean, it started as single family, right. Which is buy it at the right price, fix it and understand what the rental value is going to be at the end. Now, syndications do that same thing on a scale times, 100, 200 times. Right? So that's, it's the same concept, but it's kind of like if someone just gave you a graphing calculator and said, Hey, tell me what the graph looks like for this, you know, inequality, if you don't know how the basic calculus or algebra works behind it, then, you know, giving it, given that calculator is great, but like, you need to know how the, the math, how, what the long form version is.
And that's what single family was for me was the long form version. Now that I'm in a syndication, it's like, okay, what are the levers that we're going to pull here? How are we going to pull them? How much do we need to pull in totality in order to get up to what we can project? And at that point, like, I can pretty quickly go like, all right, this, this will work. Or it won't.
Jesse (9m 38s): Yeah. And I find that the one thing with single family and I I've had a very similar kind of history or, or path that you took. I mean, it can, it's very binary. It could go that you have a terrible experience or that you have a great experience in that is really predicated on the fact that you don't have a hundred tenants. You have one or two in a certain investment. So if it goes poorly, you feel like the whole thing is going poorly, where that the nice thing with apartments is you do scale it up and you're able to have economies and, you know, the losses, the winds help with the losses and things kind of even note.
But I feel like a lot of it is, is that mental barrier, you know, when, when you're starting out buying that first condo, the idea of you owning 80 units is, you know, so far away from, from your reality. So tell us how you moved from. So you moved from kind of what you're doing originally in real estate, into being an LP on these deals of whatever it was, six, six to 10 or whatever you invested, what was the, your experience or what was your outlook after seeing different investors? Do these deals differently?
Mark (10m 43s): I mean, you know, Brian Burke covered a ton of it in his book. So if you haven't read that, read that, I mean, it's, it's, it really sums up pretty much everything you need to know in more detail than you need to know it. So if I were to boil it down to brass tacks and make it really simple, I learned who communicates well, cause I value communication. If you don't communicate well, I don't wanna, I don't want my money with you. I like quarterly communication, monthly communications, just too much for me, because at that point, like I don't, if I wanted to have monthly communication, I'd be, I'd run the deal.
I, I want to know that my money is okay, but I
Jesse (11m 20s): Don't from the contractor.
Mark (11m 22s): Yeah. I, yeah, not interested. I wanna, I wanna know, you know, who does what they say they're going to do. And by that, that can be with respect to distributions that can be with respect to execution of the business plan. There's different ways that that shows up, but I'm paying a lot of attention to do they execute and do what they say, do they deliver? Because so many people and anyone can put something on a spreadsheet, say here's what this is going to do.
And this is gonna be worth X by this time. But if you don't go and see you, those, you know, quarterly execution updates, demonstrating that they're tracking performer, tracking their execution timeline. Even if the NOI doesn't track because the market's not, you know, didn't pan out the way you thought, but you're executing to the business plan. I'm not going to fall to sponsor for that. I just, wouldn't
Jesse (12m 18s): Sorry. Go ahead.
Mark (12m 19s): Those were the two, those were the two big things for me. And then I would say the, the third thing is you get to see who actually underwrites, conservatively, everyone, underwrites, conservatively. It's like, everyone leads with that. And when you
Jesse (12m 35s): Conservative figures here, we're just going to change this exit cap rate here. And there's your 30% IRR.
Mark (12m 40s): Yeah, exactly, exactly. It all. It all comes down to that. You get to see, you know, as the tide is going out here, I think we're starting to see the high water mark. You're going out. You're about to see who's swimming naked. It is going to it's it's gonna, it's going to come.
Jesse (12m 58s): Yeah. Well, it it's to your point of, you know, I don't necessarily see that you're going to track exactly like your, you know, your memorandum or your deck. You showed everybody, but it is this idea of like communicating on a regular basis, tracking the progress. It sounds like when I hear guys like you talk, you can almost hear a sales background because if you're a good sales person and in this case, like real estate sales, the first, the, one of the most valuable a number of them, but one of the mentors I had, one of the most valuable lessons I ever got was listened, deliver bad news, quickly, deliver it fast.
And you know, you, a lot of people try to run away from it, but listen, like, I'm going to give you a quarterly report. This is what's going on. I'm going to give it to you every quarter. I'm not going to try to run away from, with what's happening. We're obviously gonna make sure that, you know, things go as smoothly as possible. But I think communication is huge. And in the long run, even though it hurts those days where you're delivering bad, you know, bad information, it's important that you do that for your credibility.
Mark (13m 58s): I don't, I would say not don't just deliver bad news, but deliver the solution, delivery, deliver your solution to the problem, along with the problem. Because, you know, coming from the days of residential real estate, if I went and delivered a home inspection report with a bunch of bad news and didn't provide avenues to solve it, then like there's full on panic. And everyone's like, wow, man, this is terrible. And people just go, you know, off the cliff into the deep end.
Jesse (14m 28s): Yeah, no, I couldn't, I couldn't agree more. So let's get into a little bit about the LPGP relationship. So for those that don't know, I think most of the listeners are familiar with the general partner and limited partners. Basically try to give me your, your perspective of what you're looking for. Let's start on the LP side when you're looking at a general partner. So you talked about somebody who's a communicator, somebody who's going to be, you know, tells you what the, what they're going to do is, is in communication with you.
But what are, what are a couple of red flags? You know, we can pull them from, you know, from Brian, but we've got you here and I'd like to get your thoughts on it.
Mark (15m 8s): Yeah, here's what I would say. I always want to know what are the assumptions in the model? I always ask, you know, what are your rent bumps? That's a big one because you can go and make revenue look a lot higher than it really can and, and will be if you're over aggressive, I want to know. And that kind of goes along with how are you to creating the value? So is it through, you know, rent?
Is it through adding additional square footage in self storage game? Or is it adding, you know, like converting units that, and, you know, chopping them up and making them a little smaller, but I also want to know, you know, what's your exit cap rate assumption. That's such a big lever. That's so just not understood it. The general person does not understand how exit cap rates are such a powerful lever in the value gaming
Jesse (16m 8s): Return.
Mark (16m 9s): Oh yeah. So that's a really, really, really big one. And if you don't know, the re the relationship net operating income divided by cap rate equals your asset value. So understand if you're going in buying, you know, a cap rate and it's, and it's hard to set it because just cause you're going in at a five cap on actual is there could be a ton of runway in the, in the, in the gross revenues because it's not being managed well. So, you know, sometimes people think that they're getting a steal, you're paying a high cap rate on something like that. But if, you know, as the operators, a ton of runway on the rent roll and fine, give them a five cap and just know that you're going to double the revenue and then you're going to sell it at a six, but the double revenue still generates the value.
Jesse (16m 50s): Yeah. I think one thing I'd tell a younger investors or people that are trying to understand the, the usefulness and sometimes the work you should throw cap rates out of perfect illustration is you can have a building with a 1% cap rate. And it's an absolutely amazing investment because you, you have vacant possession of a building in a great market. So, you know, this idea of, of cap rate being the be all and end all, you know, you have to really factor it into our, are we a stabilized asset? Are we fully tenanted the other piece too, of, you know, just so listeners are following along with exit cap rate, or sometimes you'll hear it called the reversion if you're in, in college and finance right now.
So this idea that you have to apply a cap rate to that last year, or say a five-year investment that last year net operating income, just like mark was saying here, that is an assumption in the deal. And the common wisdom is that that cap rate should be technically higher than your entry cap because the building has degraded over time or, or kind of, it has gotten older, the actual structure, not the land and that cap rate, you know, you can just do the math right now. If you have a million dollars NOI divide that by 4.5 or divided by 5.5, you're going to see a drastic difference in the valuation.
And that's going to really affect the levered return on investment. So that's a great point. Are there any, w you know, when you look at an investor or an investment, and you're seeing the, the debt side of the equation, the mortgage, what do you like to see there? Is there anything that you're looking out for that you're keeping your eye on specifically?
Mark (18m 22s): I mean, I'd like to understand recourse, is there recourse on it or is there not because if there's recourse on it, you know, the person who's running the deal has more skin in the game because when you're an LP, generally, I'm not going to say always, but pretty much always you're at risk. Capital is only the capital, the equity you contributed to the, your LP position. Whereas the sponsor who's on the GP side, they're the ones taking the risk, signing on the debt.
So most, you know, most, most people in, in multi-family, and, and in like industrial, they're going to go for CMBS or life insurance company, life code debt, and they're going to go for non-recourse, which is smart. It's very smart. But if someone like self storage, a lot of times we're going for like regional banks and regional banks don't want to give non-recourse, they'll give partial recourse. Yeah. So I still have skin in this game if I don't do this thing. Right.
And versus someone on a multifamily, if the project totally goes sideways, they hand the keys back and go, Hey, sorry, this is your problem. Like, I tried my best. And you as the investor who put up the check, you're out the money and the guy who ran the deal just lost the reputation. I mean, that's, that's what you're really losing, but they didn't lose cash. So to speak.
Jesse (19m 41s): Yeah. That's a great point. I, the last investment that we were running GP on, I remembered speaking with an investor and he said, and it's not a dumb question. It's a, it's a logical question. They said, well, you know, how much are you investing personally? You know, I thought it would be more. And I said, my answer to him was, listen, it's, it's the wrong question. I'll answer it. But it's the wrong question. And I'll tell you why. So I tell him how much we're investing in the deal. But then secondly, I'm saying that we're signing on this debt and it's, this is, this is not debt.
This is basically my unborn kids. If everything goes wrong here, that's what gets affected because we're personally guaranteeing the debt. I th that's a question I think is important because at the end of the day, if I know that the GP is really, like you said, has complete skin in the game, that changes the dynamic for me, for sure.
Mark (20m 30s): Yep. Yeah. I mean, and, and honestly, like I, especially right now, I will want to see lower leverage. Multifamily investments have been going 80% with a 24 month IO interest only period. And on a 30 year amortization schedule. So talking high leverage with very little principal pay down with, so your 30 year, the higher your amortization period, the, the slower you pay down your principal loan balance. And then when you go and you add a 24 month interest only period on the front of that, you're paying no principal for two years, and then you're paying small principal for the three years.
So if you're holding it for five years, you're really banking on the market to go up. So at the time of disposition, you're not in disposition to sale, you're not in a place where you're going to get, you know, you're gonna be under underwater. And then at that point, you're you got a deficiency. So you're paying to sell the property, or you're having to refi at that. Five-year mark. So I, I hate high leverage right now, like 80% leverage scares the shit out of me and interest only periods on loans.
Also equally terrifying right now for me, unless you're at a super low leverage point.
Jesse (21m 46s): Well, it's like when you describe it that way, you're like the big short 2.0 there where you have like this balloon, or, you know, you have an IO period. And then all of a sudden it kicks into to have whatever you're looking for, stabilize that after that. But I think, I think what we've learned over the last six months, or even shorter than that with interest rates is that LTV is important to a certain extent. But what most banks that we're dealing with, what they're looking at is that service coverage right now, how much more do you have to pay then than your actual servicing of the, of the mortgage or debt.
And I think that is a, probably a prudent way to look at it, but yeah, I think, I think you're right. I think most of the going forward this next year, I think these high, these individuals or companies that are doing very high loan to value are kind of setting themselves up to potentially be in a little bit of trouble if you know, the economy goes the wrong way.
Mark (22m 39s): Well, and so then the question becomes, okay, so let's say you got a five-year term with a 24 month IO at 30 year am. Well, do you have extensions beyond that? That will allow you to go and buy some time if the market doesn't, you know, the market's not cooperating with your exit timeframe that you originally intended. So that's understanding, you know, the ability to have extensions on the backend. Can you buy an extension or does the rate reset? Meaning like now you have to go and go to, you know, whatever prime is or prime plus, whatever the agreed upon amount is in the loan docs.
And this is the thing until you operate, actually, you don't even know how to answer these questions. You don't even know what this shit means. Let alone have the ability to ask the question to be able to actually ascertain that answer.
Jesse (23m 29s): Well, I, like you said earlier, just go on a podcast, here's your credibility. So I want to kind of jump to what you're kind of looking at right now. What are deals? You know, what, what's your target and are you doing more self storage? You're looking at apartments,
Mark (23m 46s): We're all self storage. I mean, you know, with hearth fire, all we do is self storage. That's, you know, singular focus. I mean, we just want to go and be fantastic in that space and just crush that space and know it inside and out that said the challenge right now is with rates ticking up, the more money you borrow, the bigger the deal, the rate hikes are because it's compounding a problem. So on a mortgage, as a residential, and you're borrowing 250 or 300,000 bucks, that's such a big deal.
It does impact, but not a huge deal. If you're going to borrow 5 million bucks that little, you know, half, half a point and rate can really impact your, your, your monthly debt service. And at that point, it impacts what you can pay and your debt service coverage ratio and what you can pay for, for the property. And right now, sellers, haven't adjusted to
Jesse (24m 45s): A hundred percent
Mark (24m 46s): New debt terms like seller sale price expectations are still at, you know, all time low rates. And there's a gap right now. And the thing is, is there's a lot of stupid that hasn't burned off yet. There's a lot of people still paying way too much. Yeah. I don't know when that stops. So it's like, we're just in a mode of sticking to our guns, putting in LOI, but being patient.
Jesse (25m 9s): Yeah. It's very, yeah. The price that pricing is so sticky because people, once they anchor to it, like, you know, just for on the kind of the sales side with real estate, once you stick to a price, you do not want to come off it. We have clients right now that we're actively, you know, we've marked down some prices depending on the asset class, but people are starting to say, well, here's my offers here because cost of capital is going up. And our clients are just like, no, like the prices that shouldn't affect price at all. It's like, no, it does. And it should. But the fact that there's that disconnect.
It'll be interesting to see how long this lasts. If we, if we stay in this kind of environment, even if the interest rates kind of stay stagnant, I feel like the prices have to reflect, have to adjust to it. But I think it's definitely the, there is a time period where people do not want to mark down because they're just used to what we've been living through for the last 10 years, to be honest.
Mark (26m 1s): Yeah. It'll be real interesting. I mean, we've been up until the right fence 2012. And so there's a lot of sponsors, syndicators, whatever you want to call it that have operated like crap that have gotten away with poor execution and poor operations and poor, poor deal management. And now that pricing is reverting and you're going to start. And I mean, I don't know. I think we're right now, we're kind of at the crest and now people are questioning like where value sits, right?
This instant, which whenever there's uncertainty in pricing, that usually means a price. The pricing is going to start to come down and how much it comes down, who knows that depends on rates and how much move, but prices are going to come down. And it really boils down to like, if you don't execute well on your business plan and you leave money in the table as a respect to your NOI, when it comes time to exit, it's going to cost you and that's going to be, that's going to cost investors that returns.
Jesse (27m 1s): Yeah. Yeah. I couldn't agree more. It's it's so hard to kind of do the analysis on, from an economic standpoint where we had Peter Lindemann, who's a professor at warden. He kind of wrote the book on like real estate finance. And we're talking about the economy and we have these kind of artificial, not artificial, but I think most people would agree. COVID-19 was not exactly a typical recession. It was a technical recession, but it was something that was more akin to like a, a natural disaster. So we're recovering off of that. And the question is, if the economy is going to go into recession where it naturally would have gone, or if it's going to continue along the way it is, that's really going to be the, you know, which way do we go on these things because interest rates where they're at right now, I think if the economy continues to be healthy, we can, we needed a little bit higher interest rates.
The question is if it starts running off from an inflation standpoint, but who knows? We, I, I don't, I don't crystal ball it. I just asked my guests to. So
Mark (28m 1s): W I'll be happy to tell you that we're in a recession and no one's actually said it yet. But as more business owners I talk to and, you know, cash is getting tight and all that excess liquidity that COVID created, or should I say the government created as a result of COVID, that's starting to burn off, except for like the craziest part is the people who got the most amount of money. Well, it's not that crazy. The wealthiest people who got the most amount of money are the ones who still have the money. And that's like the last bit of liquidity that's kind of hanging out and about, but all this stock market sell off and all this crap that's going on.
This, this, all this stuff in crypto it's, it's, it's all in response to people are starting to feel tight with respect to liquidity, and you wait, give it another 45 days and it'll come out officially.
Jesse (28m 44s): You know, I think this is the thing where you being a prudent investor really starts to pay dividends. And like you said, you can hide a lot with prices, just continually going up, like, Hey, I'm a great operator. Prices have gone up in my market 12% every year. So it hides a lot of poor management and poor operating. So TBD we'll, you know, we'll see what happens over the next little while. I want to get to kind of where people on listening can reach out to you and see what you're up to before we do. We typically, before we end the show, we ask our guests for questions, kind of a rapid fire, so to speak.
So if you're good with that, I'll lay them on. You
Mark (29m 22s): Let's do it.
Jesse (29m 23s): All right, mark. What's something that, you know, now in your investing career that you wish you knew when you first started out and you know, it could be something operational can be something on the investing side,
Mark (29m 35s): Any commercial asset, you control the value of your building based upon your net operating income. So the better you can a building, the more you can control the value of it when it's commercially based. So I would go commercial sooner.
Jesse (29m 49s): Yeah. That's great. What would you tell somebody that's looking to get into our industry, whether building a real estate business or going into, as an investor, whether it's LP or GP, you know, what would you tell that young, younger individual
Mark (30m 5s): Go find someone who's really good at it and work for free and learn everything you can and, you know, find a way to add value to their operation. And, you know, don't put your capital on the line, put your time on the line. Cause you got time to give you don't have money to give at that point.
Jesse (30m 21s): Yeah. Fair enough. Any resources or books you're reading right now that you think the listeners would get some value out of?
Mark (30m 30s): You know, it's interesting. I'm reading a book right now called slicing pie. It's by a guy by the name of Mike Moyer. It's interesting. Cause it talks about equity and what's fair and how to determine an equitable equity share. So I'm reading that right now.
Jesse (30m 47s): Sure. For some reason I thought PI like the math thing, once you brought up calculus.
Mark (30m 52s): No, it's I believe it or not. I'm not a math guy. I like addition, subtraction, multiplication, division, but stick letters in my math. And it all goes downhill for me.
Jesse (31m 0s): There you go. Well, luckily your PNL doesn't have a ton. It doesn't have any of the letters that don't form words. First car make and model
Mark (31m 12s): Man. The first one that I drove that was like kind of handed down, but like wasn't mine. The first one that I bought
Jesse (31m 20s): Was when you bought,
Mark (31m 22s): I bought a Mazda three
Jesse (31m 25s): Rotary engine.
Mark (31m 27s): Yeah. Mazda3 stick shift. There you go. Because I was cool like that
Jesse (31m 33s): Starting my buddy about this. I was just like stick shift. I had a million people have said this, but I watched this, I listen to his podcast, econ talk. He's like, it is a millennial security device. And it was just like, nobody drives stick. I, my first car was a, was a stick as well. And it's just like, yeah,
Mark (31m 50s): Well it's funny. I've, I've gotten in driven stick shift cards since I got rid of that car and then got another car. But it's now it's like, it's a little more herky jerky. Cause you know, not driving in every day. And plus every clutch is a little different,
Jesse (32m 4s): But yeah, you gotta, you gotta work. Awesome. So for listeners, aside from, as I always say an easy Google search, any specific places that you'd have people reach out, we'll put links in the, in the description for the show.
Mark (32m 19s): Yeah. Easiest way to find me is investing with mark.com, M a R K and then Instagram back slash investing with mark Facebook, LinkedIn. It's all there.
Jesse (32m 32s): My guest today has been Mark McGuire, mark. Thank you for being part of working capital.
Mark (32m 38s): Thanks.
Jesse (32m 45s): Thank you so much for listening to working capital the real estate podcast. I'm your host, Jesse for galley. If you liked the episode, head on to iTunes and leave us a five star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R a G a L E, have a good one. Take care.Jesse (0s): Welcome to the working capital real estate podcast. My name is Jesper galley. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time
Speaker 0 (22s): E
Jesse (23s): This is Jessica forgotten and you're listening to working capital the real estate podcast. My guest today is Mark McGuire. He's the C I O of Herth capital. He's a full-time real estate investor and operator that's when mark at the time plunge into real estate sales, after running hard on his own for three years, working 80 to 100 hours a week, mark realized he needed help. He transitioned his real estate practice to Keller Williams in 2017 to learn how to build a real estate business. He hired and fired agents learn from his mistakes and then rehired them all over again.
Since 2013, mark and his team have brokered more than 300 homes with a total sales volume exceeding 83 million. They've also raised over 50 million capital for her fire, mark, you and I were just talking before we want to get into a lot of what you're doing now, which sounds like general partner and sponsoring deals. First of all, welcome aboard.
Mark (1m 13s): Thanks for having me Jesse excited.
Jesse (1m 15s): Yeah, I really appreciate it. So lots to talk about here. You've had a pretty, a pretty interesting background in terms of where you started out in your career and what you're doing today. And I want to get into for listeners the different asset classes that you're working with, but before we do that, why don't you take us back to kind of where you got into real estate? How that your story unfolded at the beginning?
Mark (1m 39s): Yeah, so real estate was something that was in my family. You know, I tried to go the college route net that really didn't align with my way of being a really I learned hands-on and I could, I could do the school thing, but I just hated it. And my mom's a teacher, so that went over really well. And then, you know, transition to my first entrepreneurial venture was playing in a band and we played, I was in a band professionally for seven years. We ended up getting a record contract with RCA records and I had had my I'm sorry,
Jesse (2m 15s): Small outfit.
Mark (2m 16s): Yeah, yeah, just a little bit. And I had had my real estate license at the time. And when we got the record contract, I remember, you know, this real moment of clarity of looking at how much money I was going to get as part of the contract that was guaranteed. And then how much money I had commissions pending with my residential real estate sales business. And I just was like, well, why would I sign this 14 to 20 year contract? Like that makes no sense. I'm, I'm going to be a slave. So went into real estate sales full time and had the opportunity to, to really start to understand business and learned about this whole thing called like a profit and loss.
I never went to school for any of it. So it was kind of just a giant trial by fire and I'm kind of became obsessed. And then after that, it was just like, how much more could I could I build? It was just a constant pursuit of growth.
Jesse (3m 8s): Fair enough. So you kind of run through the process, you're in music, which is awesome. What a, what instrument or where you vocals? What did you play?
Mark (3m 16s): No, I was actually, I was, I played drums. I did sing background vocals, but drums was really my main contribution.
Jesse (3m 22s): Nice, nice. I'm a big, big guitar guy. Just, just, just bought a, a PRS recently. And so I'm pretty, I'm having fun with that somewhere in the background there. So that's really cool. So RCA, I, like I said, it's not exactly a, a small outfit, so congrats on that. But even with that, you kind of look back and you start real estate as a path. So bring us up to speed today. I know that you're continuing to build wealth through real estate and you are LP on a few deals in various asset classes and running point or general partner on others.
Maybe you could tell listeners a little bit about what that looks like and how that process kind of evolved.
Mark (4m 3s): Yeah. So when I was in residential real estate sales, I spent a lot of time, you know, getting to run numbers on just single families. One thing that I was really fortunate to have was a family that was in real estate. So my, my grandfather was the main driving force and he owned a bunch of properties and I got the opportunity to work and be the, the, the assistant to the maintenance man. So I was like the guy that just said, Hey, there's a pile of trash, go over there, go take it and load it in the truck and throw it out.
So I did that for a couple of years and, you know, that's what it took to be in the band and have the flexibility to be able to get up and go whenever I needed to, they either had to go for on the site or they didn't. So there, it was just a matter of, you know, as I made money and, and, and generated income from residential real estate sales, my grandfather always told me, you know, real estate sales, you know, will make you money, but it will make you rich. And I don't know if you've ever heard of the saying brokers died, broke because so many people in sales, they make good money in commission, but then they, you know, spend it all and they don't get into assets that help you defer some of those taxes
Jesse (5m 19s): And build wealth.
Mark (5m 20s): Yeah. So it really came down to saying, Hey, I want to, I want to be able to get paid while I sleep. And so I've started buying condos and single families. And because this was 2013, 14 when the market was, you know, really, really low and then just kind of wanted to grow it from there and got interested in the commercial loan space. And, you know, I lived on as little as I could without feeling like I was, you know, I'm going to say punishing myself.
I wasn't like sitting there and eating ramen. No, I was never the ramen noodles guy. There's a lot of those people that, you know, they, I mean, I like pain, but I don't like it that much.
Jesse (6m 0s): You know? And I don't understand that maybe we said Italian upbringing. I'm like, you know, pasta is just this chief.
Mark (6m 5s): It is. But Robin noodles is pasta. It's just possible of sodium
Jesse (6m 10s): A hundred percent, exactly. Dumping, just dumping a bag of salt in there.
Mark (6m 16s): So I basically took it from, you know, just doing small single family and getting introduced to the concept of syndication I was trying to buy up. And it was just, I didn't have enough income. I didn't really know the way that the game was played. So syndication was my way to be a part of bigger deals. And I got, it was a, it was a question of bandwidth because you only had so much time to operate so many deals the right way to execute on them. And syndications for me were a way to keep my money moving at a good velocity without having to actually be the one driving the ship forward.
Jesse (6m 50s): So in those syndications where you limited partner in like the first one,
Mark (6m 55s): Yeah, I was an LP in probably seven or eight before I started on the GP side.
Jesse (7m 3s): Yeah. Which is that's fascinating to me because some, some would argue that it's, it's easier to get into being the LPN and definitely in a sense it is right. You're just, you're just providing capital. But I think the analysis is for somebody that's breaking into the industry, it's pretty, you know, ballsy to just jump into LPs with, without doing your proper due diligence. And I'm not saying that you didn't, I'm saying a lot of people, they see an investment and then they go in and that's why we had Brian Burke on.
He wrote the passive, I think it's passive real estate investor.
Mark (7m 36s): It's a hands-off hands-on that's
Jesse (7m 39s): Right. So we were both talking at the last BiggerPockets conference and what I found fascinating about this book, not just to plug it, it's just from the LPs point of view, which you never really read in a lot of these books. A lot of it is you're the GP you're running the deals. So that's pretty awesome. And then the other thing I, I feel in tell me if this is what you experience, I've told partners of mine before that we should be an LPN, this deal. And it's not necessarily because I think the deal is great. Is I really like the sponsor. I really want to see what, what he or she does with the investment.
And you learn so much about, okay, they're using this software, oh, they're G they're doing updates this way. I, you know, the last person I invested in did, did them this way. So I feel like there's a lot to learn from somebody who has already established themselves as an LP. Was that kind of your experience in those first, you know, six or seven, whatever they were.
Mark (8m 27s): So it's funny. I never went into syndication, investing, thinking I was going to be the guy syndicating. So I always went, I went into it because, you know, I could do my own deals. I knew how to run them. I knew how I knew how to pull the levers. I mean, it started as single family, right. Which is buy it at the right price, fix it and understand what the rental value is going to be at the end. Now, syndications do that same thing on a scale times, 100, 200 times. Right? So that's, it's the same concept, but it's kind of like if someone just gave you a graphing calculator and said, Hey, tell me what the graph looks like for this, you know, inequality, if you don't know how the basic calculus or algebra works behind it, then, you know, giving it, given that calculator is great, but like, you need to know how the, the math, how, what the long form version is.
And that's what single family was for me was the long form version. Now that I'm in a syndication, it's like, okay, what are the levers that we're going to pull here? How are we going to pull them? How much do we need to pull in totality in order to get up to what we can project? And at that point, like, I can pretty quickly go like, all right, this, this will work. Or it won't.
Jesse (9m 38s): Yeah. And I find that the one thing with single family and I I've had a very similar kind of history or, or path that you took. I mean, it can, it's very binary. It could go that you have a terrible experience or that you have a great experience in that is really predicated on the fact that you don't have a hundred tenants. You have one or two in a certain investment. So if it goes poorly, you feel like the whole thing is going poorly, where that the nice thing with apartments is you do scale it up and you're able to have economies and, you know, the losses, the winds help with the losses and things kind of even note.
But I feel like a lot of it is, is that mental barrier, you know, when, when you're starting out buying that first condo, the idea of you owning 80 units is, you know, so far away from, from your reality. So tell us how you moved from. So you moved from kind of what you're doing originally in real estate, into being an LP on these deals of whatever it was, six, six to 10 or whatever you invested, what was the, your experience or what was your outlook after seeing different investors? Do these deals differently?
Mark (10m 43s): I mean, you know, Brian Burke covered a ton of it in his book. So if you haven't read that, read that, I mean, it's, it's, it really sums up pretty much everything you need to know in more detail than you need to know it. So if I were to boil it down to brass tacks and make it really simple, I learned who communicates well, cause I value communication. If you don't communicate well, I don't wanna, I don't want my money with you. I like quarterly communication, monthly communications, just too much for me, because at that point, like I don't, if I wanted to have monthly communication, I'd be, I'd run the deal.
I, I want to know that my money is okay, but I
Jesse (11m 20s): Don't from the contractor.
Mark (11m 22s): Yeah. I, yeah, not interested. I wanna, I wanna know, you know, who does what they say they're going to do. And by that, that can be with respect to distributions that can be with respect to execution of the business plan. There's different ways that that shows up, but I'm paying a lot of attention to do they execute and do what they say, do they deliver? Because so many people and anyone can put something on a spreadsheet, say here's what this is going to do.
And this is gonna be worth X by this time. But if you don't go and see you, those, you know, quarterly execution updates, demonstrating that they're tracking performer, tracking their execution timeline. Even if the NOI doesn't track because the market's not, you know, didn't pan out the way you thought, but you're executing to the business plan. I'm not going to fall to sponsor for that. I just, wouldn't
Jesse (12m 18s): Sorry. Go ahead.
Mark (12m 19s): Those were the two, those were the two big things for me. And then I would say the, the third thing is you get to see who actually underwrites, conservatively, everyone, underwrites, conservatively. It's like, everyone leads with that. And when you
Jesse (12m 35s): Conservative figures here, we're just going to change this exit cap rate here. And there's your 30% IRR.
Mark (12m 40s): Yeah, exactly, exactly. It all. It all comes down to that. You get to see, you know, as the tide is going out here, I think we're starting to see the high water mark. You're going out. You're about to see who's swimming naked. It is going to it's it's gonna, it's going to come.
Jesse (12m 58s): Yeah. Well, it it's to your point of, you know, I don't necessarily see that you're going to track exactly like your, you know, your memorandum or your deck. You showed everybody, but it is this idea of like communicating on a regular basis, tracking the progress. It sounds like when I hear guys like you talk, you can almost hear a sales background because if you're a good sales person and in this case, like real estate sales, the first, the, one of the most valuable a number of them, but one of the mentors I had, one of the most valuable lessons I ever got was listened, deliver bad news, quickly, deliver it fast.
And you know, you, a lot of people try to run away from it, but listen, like, I'm going to give you a quarterly report. This is what's going on. I'm going to give it to you every quarter. I'm not going to try to run away from, with what's happening. We're obviously gonna make sure that, you know, things go as smoothly as possible. But I think communication is huge. And in the long run, even though it hurts those days where you're delivering bad, you know, bad information, it's important that you do that for your credibility.
Mark (13m 58s): I don't, I would say not don't just deliver bad news, but deliver the solution, delivery, deliver your solution to the problem, along with the problem. Because, you know, coming from the days of residential real estate, if I went and delivered a home inspection report with a bunch of bad news and didn't provide avenues to solve it, then like there's full on panic. And everyone's like, wow, man, this is terrible. And people just go, you know, off the cliff into the deep end.
Jesse (14m 28s): Yeah, no, I couldn't, I couldn't agree more. So let's get into a little bit about the LPGP relationship. So for those that don't know, I think most of the listeners are familiar with the general partner and limited partners. Basically try to give me your, your perspective of what you're looking for. Let's start on the LP side when you're looking at a general partner. So you talked about somebody who's a communicator, somebody who's going to be, you know, tells you what the, what they're going to do is, is in communication with you.
But what are, what are a couple of red flags? You know, we can pull them from, you know, from Brian, but we've got you here and I'd like to get your thoughts on it.
Mark (15m 8s): Yeah, here's what I would say. I always want to know what are the assumptions in the model? I always ask, you know, what are your rent bumps? That's a big one because you can go and make revenue look a lot higher than it really can and, and will be if you're over aggressive, I want to know. And that kind of goes along with how are you to creating the value? So is it through, you know, rent?
Is it through adding additional square footage in self storage game? Or is it adding, you know, like converting units that, and, you know, chopping them up and making them a little smaller, but I also want to know, you know, what's your exit cap rate assumption. That's such a big lever. That's so just not understood it. The general person does not understand how exit cap rates are such a powerful lever in the value gaming
Jesse (16m 8s): Return.
Mark (16m 9s): Oh yeah. So that's a really, really, really big one. And if you don't know, the re the relationship net operating income divided by cap rate equals your asset value. So understand if you're going in buying, you know, a cap rate and it's, and it's hard to set it because just cause you're going in at a five cap on actual is there could be a ton of runway in the, in the, in the gross revenues because it's not being managed well. So, you know, sometimes people think that they're getting a steal, you're paying a high cap rate on something like that. But if, you know, as the operators, a ton of runway on the rent roll and fine, give them a five cap and just know that you're going to double the revenue and then you're going to sell it at a six, but the double revenue still generates the value.
Jesse (16m 50s): Yeah. I think one thing I'd tell a younger investors or people that are trying to understand the, the usefulness and sometimes the work you should throw cap rates out of perfect illustration is you can have a building with a 1% cap rate. And it's an absolutely amazing investment because you, you have vacant possession of a building in a great market. So, you know, this idea of, of cap rate being the be all and end all, you know, you have to really factor it into our, are we a stabilized asset? Are we fully tenanted the other piece too, of, you know, just so listeners are following along with exit cap rate, or sometimes you'll hear it called the reversion if you're in, in college and finance right now.
So this idea that you have to apply a cap rate to that last year, or say a five-year investment that last year net operating income, just like mark was saying here, that is an assumption in the deal. And the common wisdom is that that cap rate should be technically higher than your entry cap because the building has degraded over time or, or kind of, it has gotten older, the actual structure, not the land and that cap rate, you know, you can just do the math right now. If you have a million dollars NOI divide that by 4.5 or divided by 5.5, you're going to see a drastic difference in the valuation.
And that's going to really affect the levered return on investment. So that's a great point. Are there any, w you know, when you look at an investor or an investment, and you're seeing the, the debt side of the equation, the mortgage, what do you like to see there? Is there anything that you're looking out for that you're keeping your eye on specifically?
Mark (18m 22s): I mean, I'd like to understand recourse, is there recourse on it or is there not because if there's recourse on it, you know, the person who's running the deal has more skin in the game because when you're an LP, generally, I'm not going to say always, but pretty much always you're at risk. Capital is only the capital, the equity you contributed to the, your LP position. Whereas the sponsor who's on the GP side, they're the ones taking the risk, signing on the debt.
So most, you know, most, most people in, in multi-family, and, and in like industrial, they're going to go for CMBS or life insurance company, life code debt, and they're going to go for non-recourse, which is smart. It's very smart. But if someone like self storage, a lot of times we're going for like regional banks and regional banks don't want to give non-recourse, they'll give partial recourse. Yeah. So I still have skin in this game if I don't do this thing. Right.
And versus someone on a multifamily, if the project totally goes sideways, they hand the keys back and go, Hey, sorry, this is your problem. Like, I tried my best. And you as the investor who put up the check, you're out the money and the guy who ran the deal just lost the reputation. I mean, that's, that's what you're really losing, but they didn't lose cash. So to speak.
Jesse (19m 41s): Yeah. That's a great point. I, the last investment that we were running GP on, I remembered speaking with an investor and he said, and it's not a dumb question. It's a, it's a logical question. They said, well, you know, how much are you investing personally? You know, I thought it would be more. And I said, my answer to him was, listen, it's, it's the wrong question. I'll answer it. But it's the wrong question. And I'll tell you why. So I tell him how much we're investing in the deal. But then secondly, I'm saying that we're signing on this debt and it's, this is, this is not debt.
This is basically my unborn kids. If everything goes wrong here, that's what gets affected because we're personally guaranteeing the debt. I th that's a question I think is important because at the end of the day, if I know that the GP is really, like you said, has complete skin in the game, that changes the dynamic for me, for sure.
Mark (20m 30s): Yep. Yeah. I mean, and, and honestly, like I, especially right now, I will want to see lower leverage. Multifamily investments have been going 80% with a 24 month IO interest only period. And on a 30 year amortization schedule. So talking high leverage with very little principal pay down with, so your 30 year, the higher your amortization period, the, the slower you pay down your principal loan balance. And then when you go and you add a 24 month interest only period on the front of that, you're paying no principal for two years, and then you're paying small principal for the three years.
So if you're holding it for five years, you're really banking on the market to go up. So at the time of disposition, you're not in disposition to sale, you're not in a place where you're going to get, you know, you're gonna be under underwater. And then at that point, you're you got a deficiency. So you're paying to sell the property, or you're having to refi at that. Five-year mark. So I, I hate high leverage right now, like 80% leverage scares the shit out of me and interest only periods on loans.
Also equally terrifying right now for me, unless you're at a super low leverage point.
Jesse (21m 46s): Well, it's like when you describe it that way, you're like the big short 2.0 there where you have like this balloon, or, you know, you have an IO period. And then all of a sudden it kicks into to have whatever you're looking for, stabilize that after that. But I think, I think what we've learned over the last six months, or even shorter than that with interest rates is that LTV is important to a certain extent. But what most banks that we're dealing with, what they're looking at is that service coverage right now, how much more do you have to pay then than your actual servicing of the, of the mortgage or debt.
And I think that is a, probably a prudent way to look at it, but yeah, I think, I think you're right. I think most of the going forward this next year, I think these high, these individuals or companies that are doing very high loan to value are kind of setting themselves up to potentially be in a little bit of trouble if you know, the economy goes the wrong way.
Mark (22m 39s): Well, and so then the question becomes, okay, so let's say you got a five-year term with a 24 month IO at 30 year am. Well, do you have extensions beyond that? That will allow you to go and buy some time if the market doesn't, you know, the market's not cooperating with your exit timeframe that you originally intended. So that's understanding, you know, the ability to have extensions on the backend. Can you buy an extension or does the rate reset? Meaning like now you have to go and go to, you know, whatever prime is or prime plus, whatever the agreed upon amount is in the loan docs.
And this is the thing until you operate, actually, you don't even know how to answer these questions. You don't even know what this shit means. Let alone have the ability to ask the question to be able to actually ascertain that answer.
Jesse (23m 29s): Well, I, like you said earlier, just go on a podcast, here's your credibility. So I want to kind of jump to what you're kind of looking at right now. What are deals? You know, what, what's your target and are you doing more self storage? You're looking at apartments,
Mark (23m 46s): We're all self storage. I mean, you know, with hearth fire, all we do is self storage. That's, you know, singular focus. I mean, we just want to go and be fantastic in that space and just crush that space and know it inside and out that said the challenge right now is with rates ticking up, the more money you borrow, the bigger the deal, the rate hikes are because it's compounding a problem. So on a mortgage, as a residential, and you're borrowing 250 or 300,000 bucks, that's such a big deal.
It does impact, but not a huge deal. If you're going to borrow 5 million bucks that little, you know, half, half a point and rate can really impact your, your, your monthly debt service. And at that point, it impacts what you can pay and your debt service coverage ratio and what you can pay for, for the property. And right now, sellers, haven't adjusted to
Jesse (24m 45s): A hundred percent
Mark (24m 46s): New debt terms like seller sale price expectations are still at, you know, all time low rates. And there's a gap right now. And the thing is, is there's a lot of stupid that hasn't burned off yet. There's a lot of people still paying way too much. Yeah. I don't know when that stops. So it's like, we're just in a mode of sticking to our guns, putting in LOI, but being patient.
Jesse (25m 9s): Yeah. It's very, yeah. The price that pricing is so sticky because people, once they anchor to it, like, you know, just for on the kind of the sales side with real estate, once you stick to a price, you do not want to come off it. We have clients right now that we're actively, you know, we've marked down some prices depending on the asset class, but people are starting to say, well, here's my offers here because cost of capital is going up. And our clients are just like, no, like the prices that shouldn't affect price at all. It's like, no, it does. And it should. But the fact that there's that disconnect.
It'll be interesting to see how long this lasts. If we, if we stay in this kind of environment, even if the interest rates kind of stay stagnant, I feel like the prices have to reflect, have to adjust to it. But I think it's definitely the, there is a time period where people do not want to mark down because they're just used to what we've been living through for the last 10 years, to be honest.
Mark (26m 1s): Yeah. It'll be real interesting. I mean, we've been up until the right fence 2012. And so there's a lot of sponsors, syndicators, whatever you want to call it that have operated like crap that have gotten away with poor execution and poor operations and poor, poor deal management. And now that pricing is reverting and you're going to start. And I mean, I don't know. I think we're right now, we're kind of at the crest and now people are questioning like where value sits, right?
This instant, which whenever there's uncertainty in pricing, that usually means a price. The pricing is going to start to come down and how much it comes down, who knows that depends on rates and how much move, but prices are going to come down. And it really boils down to like, if you don't execute well on your business plan and you leave money in the table as a respect to your NOI, when it comes time to exit, it's going to cost you and that's going to be, that's going to cost investors that returns.
Jesse (27m 1s): Yeah. Yeah. I couldn't agree more. It's it's so hard to kind of do the analysis on, from an economic standpoint where we had Peter Lindemann, who's a professor at warden. He kind of wrote the book on like real estate finance. And we're talking about the economy and we have these kind of artificial, not artificial, but I think most people would agree. COVID-19 was not exactly a typical recession. It was a technical recession, but it was something that was more akin to like a, a natural disaster. So we're recovering off of that. And the question is, if the economy is going to go into recession where it naturally would have gone, or if it's going to continue along the way it is, that's really going to be the, you know, which way do we go on these things because interest rates where they're at right now, I think if the economy continues to be healthy, we can, we needed a little bit higher interest rates.
The question is if it starts running off from an inflation standpoint, but who knows? We, I, I don't, I don't crystal ball it. I just asked my guests to. So
Mark (28m 1s): W I'll be happy to tell you that we're in a recession and no one's actually said it yet. But as more business owners I talk to and, you know, cash is getting tight and all that excess liquidity that COVID created, or should I say the government created as a result of COVID, that's starting to burn off, except for like the craziest part is the people who got the most amount of money. Well, it's not that crazy. The wealthiest people who got the most amount of money are the ones who still have the money. And that's like the last bit of liquidity that's kind of hanging out and about, but all this stock market sell off and all this crap that's going on.
This, this, all this stuff in crypto it's, it's, it's all in response to people are starting to feel tight with respect to liquidity, and you wait, give it another 45 days and it'll come out officially.
Jesse (28m 44s): You know, I think this is the thing where you being a prudent investor really starts to pay dividends. And like you said, you can hide a lot with prices, just continually going up, like, Hey, I'm a great operator. Prices have gone up in my market 12% every year. So it hides a lot of poor management and poor operating. So TBD we'll, you know, we'll see what happens over the next little while. I want to get to kind of where people on listening can reach out to you and see what you're up to before we do. We typically, before we end the show, we ask our guests for questions, kind of a rapid fire, so to speak.
So if you're good with that, I'll lay them on. You
Mark (29m 22s): Let's do it.
Jesse (29m 23s): All right, mark. What's something that, you know, now in your investing career that you wish you knew when you first started out and you know, it could be something operational can be something on the investing side,
Mark (29m 35s): Any commercial asset, you control the value of your building based upon your net operating income. So the better you can a building, the more you can control the value of it when it's commercially based. So I would go commercial sooner.
Jesse (29m 49s): Yeah. That's great. What would you tell somebody that's looking to get into our industry, whether building a real estate business or going into, as an investor, whether it's LP or GP, you know, what would you tell that young, younger individual
Mark (30m 5s): Go find someone who's really good at it and work for free and learn everything you can and, you know, find a way to add value to their operation. And, you know, don't put your capital on the line, put your time on the line. Cause you got time to give you don't have money to give at that point.
Jesse (30m 21s): Yeah. Fair enough. Any resources or books you're reading right now that you think the listeners would get some value out of?
Mark (30m 30s): You know, it's interesting. I'm reading a book right now called slicing pie. It's by a guy by the name of Mike Moyer. It's interesting. Cause it talks about equity and what's fair and how to determine an equitable equity share. So I'm reading that right now.
Jesse (30m 47s): Sure. For some reason I thought PI like the math thing, once you brought up calculus.
Mark (30m 52s): No, it's I believe it or not. I'm not a math guy. I like addition, subtraction, multiplication, division, but stick letters in my math. And it all goes downhill for me.
Jesse (31m 0s): There you go. Well, luckily your PNL doesn't have a ton. It doesn't have any of the letters that don't form words. First car make and model
Mark (31m 12s): Man. The first one that I drove that was like kind of handed down, but like wasn't mine. The first one that I bought
Jesse (31m 20s): Was when you bought,
Mark (31m 22s): I bought a Mazda three
Jesse (31m 25s): Rotary engine.
Mark (31m 27s): Yeah. Mazda3 stick shift. There you go. Because I was cool like that
Jesse (31m 33s): Starting my buddy about this. I was just like stick shift. I had a million people have said this, but I watched this, I listen to his podcast, econ talk. He's like, it is a millennial security device. And it was just like, nobody drives stick. I, my first car was a, was a stick as well. And it's just like, yeah,
Mark (31m 50s): Well it's funny. I've, I've gotten in driven stick shift cards since I got rid of that car and then got another car. But it's now it's like, it's a little more herky jerky. Cause you know, not driving in every day. And plus every clutch is a little different,
Jesse (32m 4s): But yeah, you gotta, you gotta work. Awesome. So for listeners, aside from, as I always say an easy Google search, any specific places that you'd have people reach out, we'll put links in the, in the description for the show.
Mark (32m 19s): Yeah. Easiest way to find me is investing with mark.com, M a R K and then Instagram back slash investing with mark Facebook, LinkedIn. It's all there.
Jesse (32m 32s): My guest today has been Mark McGuire, mark. Thank you for being part of working capital.
Mark (32m 38s): Thanks.
Jesse (32m 45s): Thank you so much for listening to working capital the real estate podcast. I'm your host, Jesse for galley. If you liked the episode, head on to iTunes and leave us a five star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R a G a L E, have a good one. Take care.