Redefining Real Estate Investing: Insights from Nick Stageberg of Black Swan Real Estate

In this episode, we sit down with Nick Stageberg, owner of Black Swan Real Estate, a thriving investment and property management firm. Nick shares his inspiring journey to financial independence in his 30s and his mission to help others achieve the same. With a portfolio of over a thousand doors and assets exceeding $300 million, Nick emphasizes the power of adding value to properties through renovations and attracting ideal tenants. Discover how Black Swan's investor-focused private equity funds have delivered exceptional returns while maintaining a commitment to social consciousness through charitable donations. Join us as Nick unveils the unique Vertical Integrated strategy, shares insights on tax advantages, and emphasizes the importance of trustworthy partnerships. 

 Learn how strategic real estate investing can pave the way to financial independence and success. Tune in now!


Links Mentioned:

meetblackswan.com

Nick Stageberg’s Bio:

 Nick Stageberg is a career technologist, father to 4 children, and Owner of Black Swan Real Estate, a real estate investment and property management company. Along with his wife Elaine, Nick owns and manages a real estate portfolio of over 1,000 doors and more than $300M in assets under management. Through real estate investing, Nick reached financial freedom in his 30s and now helps others to do the same. Black Swan has delivered exceptional returns to hundreds of passive investors through their unique investor-focused private equity funds which enjoy no sponsor fees whatsoever, 100% return of capital to investors before any splits, and long-term returns and tax advantages, all coupled with socially conscious investing and at least 5% of profits donated to charity. Connect with Nick at meetblackswan.com.

Tweetables:

“I don't know why this is a revolutionary thought, but doing the right thing is actually the profitable thing to do.” (16:06)

“If this was just about making money, this would not be interesting to us. This is about so much more than money.” (42:12)

“If you take care of homeless people, the whole neighborhood does better. If you give homeless people a home, they're not homeless anymore.” (44:37)

“If you lead with principle, if you lead with your heart, it's very easy to serve people.” (48:28)

The main sponsor of our podcast is Rx Real Estate Investment. They make everything we do possible, and our conversations and interviews would not be available without their support. If you want to diversify your retirement portfolio and get into commercial real estate investing, working with Rx Real Estate Investment may be a great match for you. Check out the website at www.rxrei.com. 

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Transcript

Jeff Stark (RxREI.com):

All right, friends and family! Welcome to another episode of the Rs Investor Podcast. Glad to have you here with us today. My name is Jeff Stark. We also have Claude Condo in the house as usual. Claude, how are you doing today?

claude condo:

Good man, feeling blessed and this weekend, it's a memorial weekend. So spend time with family and go do some great activities with kid and wife. So it's exciting.

Jeff Stark (RxREI.com):

That's awesome, man. Yeah, a quick note before we jump in here, these podcasts are available on YouTube and every podcast platform. So wherever you listen to podcasts, you can check us out. Make sure you share us with your friends, especially if you know somebody in the pharmacy or healthcare space. Make sure you're sharing the episodes with them, especially if you're taking something away or learning something new about real estate or an investing tactic or strategy, that would be great. And we appreciate it every time you do that. So our guest today is Nick Stogberg. He is a technologist by trade, a husband to Elaine, and the father of four children. He's the owner of Black Swan Real Estate, which is a real estate investment and property management firm. Nick and Elaine own and manage a portfolio of over a thousand doors and over 300 million in assets under management. So Nick achieved financial independence in his 30s through investing and now is teaching other people to do the same So their unique investor focused private equity funds at black swan. They've delivered exceptional returns Uh and hundreds of past or excuse me 200s of passive investors all while being socially conscious and donating at least five percent to profits and charities. So nick Welcome to the show. We're excited to have you here and learn more about you and your journey.

Nick Stageberg:

Thank you, it's an honor and a privilege to be here with you.

Jeff Stark (RxREI.com):

If you don't mind, can you, I know I gave a little bit of an intro already, but just kind of introduce yourself to our audience and we're, I think Claude and I are, we know a little, we both know a little bit about you, but we really want to get to know how you got your start in real estate in particular. So maybe take us up until, until that point.

Nick Stageberg:

Yeah, sure. So as you said today, we've got a real estate private equity firm with about a third of a billion assets under management and we've got like 43 full-time employees. We're kind of a big operation but we started small. We started with just a single family home. There's one single family home, my wife's former personal home and then eventually saved up enough money to buy a home that needed a ton of TLC. That was the Burr business model before there was a word for it. I'm grateful for that acronym these days, helps people understand that business model. We bought it with cash, did a sweat equity remodel. We paid $35,000 for it, had four walls and a roof and not much else. Actually, we had to redo the roof. So it had four walls. This is when my wife was in med school and I was managing teams of engineers by day and we kind of clock out of our day job so to speak at five o'clock. I go work from six o'clock until midnight, doing a sweat equity remodel. In the dead of winter, there wasn't a working furnace. Bought that house for about $35,000, did about $17,000 in renovations when we were done, interposed for about 85 or, I don't remember the exact numbers. It was close to $100,000. Placed a tenant, got a full cash out refi for the $52,000 we had in it, and then a few thousand more, and I still remember to this day. being in the parking lot of the bank after closing and having that check in my hands, like kind of in disbelief, I'm like, wait a second. Okay, so we got all our money back and we still have the house. Like I can't believe this worked because you know, back back in those days, like there wasn't, you know, bigger pockets and you know, like, like we're kind of just stumbling through figuring this out. We had sort of a few local mentors and you know, just piecing this whole thing together. I'm like, I can't believe this worked. Like the rest of our life has to be dedicated to getting as many of these checks as possible. This is the most I have a super successful IT career. My wife's in med school for crying out loud and she went on to train at the Mayo Clinic in psychiatry. But we've got this check in our hands here for I think it was like $60,000. This is the most financially successful thing we've ever done. How can we do more of this? And that's really it. We're really boring people. Gary Keller says it is the undoing of most entrepreneurs to get bored with what works. Well, we found this one thing that worked really well. And we've just done it over and over and over again. That's all we do in our private equity fund today, is we'll buy an apartment complex. So we just bought a 32 unit D class apartment building that came with two single family homes and two vacant lots. And it was technically a redevelopment play. It was a knockdown, not the first time we bought a knockdown and then renovated it. So we're doing renovations on those units as we speak. We've got construction crews working feverishly on that. It went into our most recent private equity fund where we have, you know, tens of millions of dollars of cash available. So we're able to pay cash for this apartment building that would probably not be eligible for financing because of the condition and finance and everything. Then after we make improvements and raise rents and get the right tenants in there and stuff, we'll get financing in place. And on that particular one, this one's a home run deal so this is not normal. But it's possible that as soon as like six months from now, we might be able to get a full cash out refi on that deal just because we've added so much value. And the way we structure our fund is... We don't have any fees whatsoever. Our investors get 100% of the profit from the venture until they've gotten a four return of capital and that's a 50-50 split after that, which if you ever ran a lemonade stand with your kiddo, you might say, tell you what, I'll buy some lemons, I'll buy some sugar, I need to get my money back and we can split the profit after that. We kind of joke it's the lemonade stand model so it's almost childishly simple and it works really well. And anyone who tries to make it any more complex than that, I think they're doing something wrong. They might be trying to trick you, they might be trying to, might be an ego thing, oh, we have a very sophisticated capital sack. No, no, no, we have a lot of very gracious people, mostly healthcare providers. Probably about 75% of our investors are healthcare providers. With my wife's background in healthcare, they put their money into a bucket, and then we go buy properties with the money in that bucket. We renovate those properties, we get to a cash out refi, and then we give that money back to them, and then we split the profits after that. And we could probably, I don't know, make more money. being fancier or something,

claude condo:

Yeah.

Nick Stageberg:

but it worked really well for a long time and I don't have any desire to change something if it's working well. So if you're trying to buy your first rental property, if you've got a few rental properties, you're trying to buy your next one or if you're running a private equity fund and you're trying to buy your thousandth property, I don't think it ever has to get any more complicated than that and that's a very brief story of how we went from buying our first purposeful rental property to... to what we're doing today and they're really just the identical thing the whole way through.

claude condo:

OK. Perfect. So since you're mentioning that deal, let's dive into that deal, right? Let's tell about

Nick Stageberg:

Let's do it.

claude condo:

what criteria did you, even right now, if you look at it, if you listen to the media, the sky is falling, right? So how did you find that deal?

Nick Stageberg:

Yes, that's right.

claude condo:

How did you find that deal? And what's private equity funds? Some of our investors or listeners are not familiar with, you know, They might listen to syndication understand, but private equity fund, they might not know. So just walk us through that deal, walk us through, if I'm an investor and I did invest, for example, a hundred thousand dollars, just walk me through that and tell me why it's a good. Yeah.

Nick Stageberg:

Absolutely, great question Claude. So what is a private equity fund? Again, that's another thing where people try to get too fancy in my opinion. The truth is, there's only a few ways to own real estate and none of them are terribly complicated and if someone tells you it's complex, like they might be lying to you or you know trying to be fancy or something like that for the sake of ego, so you can go buy a house by yourself. and have just ownership in its entirety. You can have joint tenancy or tenancy in commons. You have joint tenancy with your wife, or if you have a business deal with one other person you don't want to have an operating agreement involved, you might have joint tenancy, or a tenancy in commons. Tense in commons is rare. Most people own their home joint tenancy with their spouse. So hopefully all those are super simple.

claude condo:

Yeah.

Nick Stageberg:

That makes sense to people. You can do a joint venture partnership. That's where you own a property through an LLC. So XYZ LLC, First Street LLC owns the property on First Street. And then you have some members, more than one member, the multi-member LLC that owns that property. And let's say you've got up to five people or something like that, and everyone's an active member. They're all contributing capital, contributing their time, expertise. That's kind of the defining characteristic of a JV. Then you have a real estate syndication, and it's the exact same thing as a JV. Just you've got like 100 people in there. or 10 people or whatever, more than a JV and critically, some of those people are passive money partners, capital partners, and some of those people are active partners. Those people are called the GPs even though it's not actually an LLP, it's an LLC. There's some active partners, those are called the GPs and some passive partners, those are called LPs. And then a private equity fund, it's the exact same thing, just you have more than one asset. So instead of saying we're going to... get together and buy this one thing with this group of investors and we know this one thing in advance, in a private equity fund it's colloquially called a blind pool because you may not necessarily know all the assets that are going to go into the pool before you put your money in. So you make this bucket of money and you go out and you buy some assets with it and then you can go up to a real estate investment trust above that and that's more like owning a stock in the stock market. You don't get depreciation, you don't get a K-1, so it's very different going up to the REIT level. And the private equity fund is generally the sweet spot in capitalism right now. Not just in real estate, but if you were to start a restaurant back in the 80s, you might pursue a franchise model.

claude condo:

Mm.

Nick Stageberg:

But today, just with the way capital markets have worked and the way regulation works, it might make more sense today to start a private equity fund and you'd use that capital to go build a bunch of restaurants versus doing franchise licenses. It's a really incredible advantage in real estate. because let's say you're a seller and I go to you and I say, hey Mr. Seller, I'd like to buy your 32 unit apartment building. I'm an experienced syndicator. I've raised a bunch of money in the past and I promise I can raise money again for this deal. I know that it's tough out there and investors are skittish and there's doom and gloom in the media, but I promise I can raise the money. That's a totally different proposition than going to the seller and saying, Hey, Mr. Seller, I have a private equity fund. I've got $20 million in cash. you only need three million for your apartment building, would you like to take a cash offer today? Those are like, you have such a hopelessly unfair advantage with the private equity fund versus the real estate syndication, that to a limited extent, right now, you almost have to have a private equity funds to be competitive in the marketplace. You can be competitive with the syndication, just man, it's an uphill battle versus the people that already have a fully funded private equity fund. So that's why we really like that structure. Hopefully that answers your question

claude condo:

Yes.

Nick Stageberg:

before I talk about that deal. Awesome, so fun little educational PSA.

claude condo:

Great explanation for sure.

Nick Stageberg:

Yeah, I love to... So Colby Manor Apartments is the deal we just did. Anyone, they can go to meetblackswan.com, see more about us, jump on our mailing list and go to Facebook. We've got all kinds of like historical posts on Colby Manor if you wanna check that out. But it's in a really good location. It's a class D asset, D as in dog, in a class B location. So it's a property that, and you see this everywhere in the country. So this opportunity exists. everywhere in the country, and we've done this countless times, there's this phenomenon in every market where someone buys a property and they think of it in their mind as a redevelopment opportunity. I'm going to buy this thing and I'm going to knock it down one day. And it just doesn't get knocked down because the fact is to get the numbers to pencil in on a knockdown redevelopment is really challenging. You have to be very good at this. And there's just too many people out there who are like, hey, I see that high-rise building across the street, surely I can do that, not realizing just how difficult it is to really achieve a knockdown redevelopment.

Jeff Stark (RxREI.com):

Hmm.

Nick Stageberg:

So in my observation, maybe 1% to 5% of all knockdowns ever actually get redeveloped. And we buy a ton of knockdowns from people who thought they were going to knock it down. And that's exactly what happened with this asset. So someone bought it. Well, it's a little more complicated than that because ultimately the owner passed away. but this asset was operated as though it was a knockdown. So when we bought it, there's roof leaks, there's extraordinarily low rents, tons of people on month-to-month leases, an insane amount of deferred maintenance, no improvements or renovations whatsoever to the property in years, which are all sort of reasonable things to do if you think that you're about to knock this thing down, right, just it doesn't ever get knocked down. And then the nice thing about these is they tend to be in really good locations, because that's the only reason you'd buy a property and run it like a knockdown is because it's in a great spot. You're like, yeah, we can totally put a hundred million dollar building there or something like that. So instead of knocking it down, which we actually probably will eventually knock it down because we do development, we're pretty good at it, but it takes years to put together a deal like that. What we're going to do is we're going to go do light renovations. We're spending, you know, five to 10,000 per unit for us. We typically spend like 30,000 per unit. We do like deep, deep, deep renovations on most properties. This one we're going to do kind of light renovations. going to stop the roofs from leaking. Where, you know, there's tenants that are struggling with drug addiction and other things of that nature, and we're serving those people. And we just had a tenant that we had to refer to a psychiatric care facility, and just serving these people like crazy to make sure that they get all the help that we need. We're not putting people out on the street, which is, you know, oftentimes the things you struggle with when you buy a classy building, it takes an extraordinary amount of grit to buy one of these buildings, but you're able to turn them around very quickly when you have people who aren't paying rent, people who shouldn't be there, who probably should be in a psychiatric care facility or a detox facility or drug rehab facility or something like that, and you get those people the help that they need, all of a sudden you're not in this conundrum of like, oh, we have to wait on eviction courts. If you just serve people, if you just love people and care about people,

Jeff Stark (RxREI.com):

Yeah.

Nick Stageberg:

I don't know why this is a revolutionary thought, but doing the right thing is actually the profitable thing to do.

Jeff Stark (RxREI.com):

Wow.

Nick Stageberg:

When you

claude condo:

Mm.

Nick Stageberg:

just get on the phone with someone and say, hey, you know, you've been living here for like 15 years without a rent increase and the previous, you know, property owner was just counting the days until they could knock it down. I've got news for you. We're going to make this place amazing. We're not going to treat it like a knockdown. We're not going to treat you like a knockdown. The rents are going to go up because, you know, you know that the rents are very low and they're like, yep, I pay less rent than anyone I know. These tenants are not dummies. Like

claude condo:

Yeah.

Nick Stageberg:

they know

claude condo:

Yeah.

Nick Stageberg:

exactly where

claude condo:

Mm-hmm.

Nick Stageberg:

they're at in terms of the market rent. And they get it and people stay and we tell them, are you excited about this change or are you fearful about this change? So if you're excited about this change, we're going to put you in the first renovated unit and you're going to be the block captain and we're going to have an open house and we're going to look at these, you know, this place is looking amazing and there's that escalator right to go with it. And if you're fearful about this change, maybe yours is the last unit we renovate. and you can leave anytime with a full refund of your security deposit because we're going to renovate it anyway. And we're going to give you a pro-rated rent refund up until the day you vacate. And we're just going to check in with you once a month and say, hey, as you know, as we've been super transparent with ever since we bought the building, our plan is to turn over that unit, is to renovate that unit. Have you found a different place to live? Would you like to move into a renovated unit? And we're able to turn that over very quickly. So we bought the building for what we bought all four of the. There's six parcels altogether, 1.5 acres, all contiguous parcels in like a uber desirable zoning location. We can go up to 100 feet of new development. We could put

Jeff Stark (RxREI.com):

Whoa.

Nick Stageberg:

at least 100 new units on this parcel of like urban core Class A plus stuff. So

Jeff Stark (RxREI.com):

Wow.

Nick Stageberg:

if you do the math, we could easily be at 15,000 units or something like that when all of a sudden on land cost, that's a really good number for Class A space. There's a building. one block away called the Berkman that sold last year was the largest single asset real estate transaction in state history. I mean it's a ridiculously nice building and we're one block from that building so it's viable as a redevelopment effort. But I think that when we get that operating income to where I think we can we will like 5X the net operating income. Most of these properties when you buy them they're only barely not even cash flow positive, they're cash flow negative, but

claude condo:

Yeah.

Nick Stageberg:

they're barely producing that operating income at all and then the owner's like paying debt service out of pocket because again they're running it like a knockdown.

Jeff Stark (RxREI.com):

well.

Nick Stageberg:

And you don't tend to be value constrained because we're paying essentially what the dirt is worth for this thing, but the bank won't give

Jeff Stark (RxREI.com):

amazing

Nick Stageberg:

you a loan unless you have enough net operating income to support the debt service, your quote unquote debt service constraint. So we know that if we have this very easy calculation to make, I could make it live on the air if you want. Basically, if we need to get to, let's say we spend $200,000 on renovations and we bought for $2.4 million, so we're $2.6 million all in, and we need to get a loan size of $2.6 million, and the debt service on that at say like a 6% interest rate with a 25-year amortization is this amount, well the bank knows we need to have at least that much in that operating income before they'll give us a loan for that amount.

Jeff Stark (RxREI.com):

Right.

Nick Stageberg:

Sometimes I see syndicators, they have this like five year discounted cash flow analysis and rents are going to go up by 3% organically and then we exit at this reversion. I mean, there's like 10,000 cells in this spreadsheet. The math that I just walked you through of we need to buy it for a price where the purchase price plus the renovations can immediately, like in the foreseeable future in today's dollars support, you know, So if we are 2.6 all in and we have a loan for $2.6 million, can our building produce at least $3 million in net operating income to support the debt? So it's like a three-step process to do our underwriting. We take our easing agents, walk them through how much do you think you can rent it for, take our construction people, walk them through. These are all in-house W-2 employees that we have. We don't outsource this stuff.

Jeff Stark (RxREI.com):

keeping

Nick Stageberg:

So

Jeff Stark (RxREI.com):

it simple.

Nick Stageberg:

these people give us their honest opinion. like we can underwrite a building in minutes. We don't need sophisticated underwriting when you just, you're willing to do the hard work that other people aren't willing to do. It's not difficult to do this. And this project's going really fast. We tell our investors to expect a five year timeframe to return capital. Historically, it's never taken us more than three, but there are some headwinds in the market, absolutely right now. But there's tons and tons of properties where we've done it in a single year. And it's really just a function of how How long does it take for us to serve those tenants? Because sometimes, I mean, we're not going to kick someone out on the street. So maybe we could go faster and maybe we'd get a better return. But like, if it takes a year, if it takes a couple of years for someone to find a new place to live, like we're going to be persistently in communication with them. But we're not going to put them out on the street. And that's actually probably our biggest bottleneck right there. So sometimes it takes a few years to get to our kind of business target there.

Jeff Stark (RxREI.com):

Yeah.

Nick Stageberg:

but that's the extent of the underwriting you need to do. So happy to answer any other questions you might have about that deal, but it's a really simple process. Just buy something where you can add massive value to that thing and then do your underwriting so that is there a future, a clear future where you can get to a place where you get a full cash out refi? And if you can, it's a deal. And if

Jeff Stark (RxREI.com):

Yeah.

Nick Stageberg:

you can't, it's not a deal. And your math need not be, you should not need a PhD in economics or Excel. to do your underwriting and if you do, I think you might be doing something wrong. You might be trying to talk yourself into a deal or

claude condo:

Move.

Jeff Stark (RxREI.com):

Hmm

Nick Stageberg:

at best make a mathematical error in your thousand cell spreadsheet that leads you down a bad path.

claude condo:

Wow, that's so

Jeff Stark (RxREI.com):

Todd, do

claude condo:

good.

Jeff Stark (RxREI.com):

you have a follow-up question?

claude condo:

Yeah, I have a follow-up question. So let's say if I'm an investor, I invested $100,000. I need to wait between three to five years to get my money back, my capital back. So your model is so simple. You are saying that there is no sponsor fees. We give you your money. We return your capital before we take any pay out of this asset. Is it right?

Nick Stageberg:

That's correct, yep. We can collect property management fees, construction management fees, real estate brokerage commissions, if we're able to collect them. There's fees that we collect through our vertical integration pieces that would typically go to third party vendors, and that's kind of how we keep the lights on,

Jeff Stark (RxREI.com):

Mm.

Nick Stageberg:

but it's definitely, I'm not gonna call it a lost leader because we don't lose money, but it's a break even for many years for us, which we think aligns our incentives. We have a huge motivation to get the deal done. to get to a profitability place so that we can actually get money from the deal. And we're very long-term focused, so there's no five-year hold period. We've actually never sold anything. And we think that over an indefinite hold period kind of horizon, we will profit handsomely and we're happy to kind of take a haircut in the short term. We jokingly call it the marshmallow fund. I don't know if you're familiar with the marshmallow test. Would you rather have two marshmallows here in five minutes or one marshmallow now? We think that it's a structure that just makes sense. And if you run it through a calculator, an LP typically comes out ahead, in pretty much any scenario that you run with, versus the traditional structure. The biggest, I don't wanna get on a soapbox, but in a traditional structure, the biggest payday for the general partner is that you close on the purchase. Like

claude condo:

Yes. Uh-huh.

Nick Stageberg:

that's not a good thing. They have made their money before the LPs have gotten anything at all. And

Jeff Stark (RxREI.com):

Hmm.

Nick Stageberg:

it's just not a good thing at all. In terms

Jeff Stark (RxREI.com):

Nick.

Nick Stageberg:

of returns that someone might expect, anyone can go to meetblackswan.com and there's a little infographic link there that's how it works. We have three different ways of relaying the same information in three different infographics. But basically, you might put in $100K today and we don't have a fund open right now. We will at some point here later this year. Everyone's welcome to jump on the wait list. we suspect that fund will probably fill in a single day. So if you are interested in investing, go ahead and fund one filled in about four hours. So our funds do tend to fill pretty quickly, so we would recommend jumping on the wait list if you're interested, but just a little self-promotion aside there, you can check out that infographic. If you put in 100K, let's say six months from now when that next fund launches, you would get essentially nothing for the first like six quarters, and most, I'll let you in on a little secret here. So. most syndicators are in a little bit of a smoke and mirrors game. And what they'll do is they'll over raise capital on the front end of the deal so they can then start returning profit to you immediately but like intuitively like y'all are smart people like ever listen to this you're a smart person like if you're buying a deep value-add asset and like vacating units to do renovations you're like putting money into the asset how the heck is that thing delivering profit? How are you getting your 6% preferred rate of return? It's not mathematically possible. It makes no logical sense. That GP, they're literally just giving your money back to you saying, ah yeah, look at all this profit that we're making and then maybe giving you some financials that substantiate that somehow. And most people do it. And you might have emails in your inboxes right now that say, invest now and we'll give you a bonus. I have a couple of my inbox right now that say, you'll get a return like the week after you invest. Like

claude condo:

Whoa.

Nick Stageberg:

we... We're closing like next week and we

Jeff Stark (RxREI.com):

because

Nick Stageberg:

probably

Jeff Stark (RxREI.com):

he did

Nick Stageberg:

don't

Jeff Stark (RxREI.com):

all

Nick Stageberg:

have

Jeff Stark (RxREI.com):

that

Nick Stageberg:

enough

Jeff Stark (RxREI.com):

hard

Nick Stageberg:

money.

Jeff Stark (RxREI.com):

work.

Nick Stageberg:

They don't say that in their email. Yeah, right. Yeah. And we're a little short. So, you know, put in your money in May, you know, and then June 1st, you start getting that prep payout and it's like, well, that doesn't make any sense at all. But that's just a common thing. So we don't, and all that does, by the way, is it just dilutes returns because

claude condo:

Yes.

Nick Stageberg:

you're over raising capital that you don't actually need, right? And it's just kind of a marketing. So we refuse to play those games. So we don't do any kind of capital return. We don't plan to do any capital return for the first six quarters or so, at least a year. And during that time, we're raising capital, closing the fund, deploying that capital, doing our deep value add, and stabilizing the property. And it takes time. It takes a year to get a property there in most circumstances. And it can take us up to six months to deploy that capital depending on when the capital comes in, what our acquisition flow looks like, that sort of thing. Then starting we'll say, you know, year two. So let's say it's the start of year two. You've gotten nothing in year one You might get like 10% of your capital back in year two because we're starting to deliver a lot of cash flow from these properties They have relatively low debt service because

claude condo:

Okay.

Nick Stageberg:

we haven't done any cash out refis yet And then let's say you're three that you get another 10% back and then at the end of year three Let's say we start hitting some of our cash out refis and you get like 70% of your capital back. So it's Now at the end of year three, start of year four, and you've gotten like 90% of your capital back, let's say year four you get another 10% and you've gotten all your money back, and you stay in the deal forever. You don't get cashed out the way you do from

Jeff Stark (RxREI.com):

Wow.

Nick Stageberg:

pretty much every other syndication I've seen, and you stay in that deal forever. You get all the cost segregation, accelerated depreciation, bonus depreciation, tax and benefits on the front of the deal, and you don't have to recapture. that and pay capital gains when that deal exits 18 months after purchase or something.

Jeff Stark (RxREI.com):

Hmm.

Nick Stageberg:

You could do an IRR calculation on that or an average annual return calculation on that. I try really hard not to quote those figures because the SEC considers that to be a worst practice.

claude condo:

Hmm.

Nick Stageberg:

You might see a lot of those quotes floating around out there and the SEC says, no, you can't do that because you don't know what you're acquiring. You can point to your past outcomes and say, here's what we've done before. but past outcomes are not necessarily predictive of future outcomes. So, like Colby Manor, you even need to do a rate of return calculation. If you can get a full cash out refi in one year, I mean, you're getting like a 100% rate of return. I mean, it's higher than that. So, like those home run deals are just insane, amazing home run deals. And then like our

Jeff Stark (RxREI.com):

Very cool.

Nick Stageberg:

base hit deals, where maybe it takes us three or five years to get to a cash out refi, you're

Jeff Stark (RxREI.com):

Hmm.

Nick Stageberg:

still doing extraordinarily well. And it's a really, really, really low risk play. because your typical real estate syndication, they have this pressure to hit some sort of mythical return stat that's frankly just gibberish. Like, if you ever go look up the formula for IRR, it's unintelligible. There's lots of ways to kind of manipulate those stats.

Jeff Stark (RxREI.com):

It's

Nick Stageberg:

And

Jeff Stark (RxREI.com):

complex,

Nick Stageberg:

they

Jeff Stark (RxREI.com):

yeah.

Nick Stageberg:

have this crazy incentive to sell that asset as quickly as possible because your number of days, your divisor, your denominator. it lowers your rate of return very aggressively. So if I can sell that asset after one year versus after two years, then my return is doubled, so to speak, by

Jeff Stark (RxREI.com):

Right.

Nick Stageberg:

having a denominator that's half the size. And it gives the GP huge advantages because they can collect more fees, because they

claude condo:

Yeah.

Nick Stageberg:

get a fee for acquisition. They get a fee for disposition. They have a carry. They might be on a waterfall. theoretical 50% rate of return, then I get a bigger split versus if we only get like a 20 or 10% rate of return or whatever.

Jeff Stark (RxREI.com):

Yeah.

Nick Stageberg:

So they have this insane advantage to just churn that asset as quickly as possible. And yet that makes no sense at all for the LP because

Jeff Stark (RxREI.com):

Right. Be

Nick Stageberg:

when

Jeff Stark (RxREI.com):

investor.

Nick Stageberg:

that asset sells, the LP they've got huge tax penalties to go with that.

claude condo:

Yep, yep.

Nick Stageberg:

And sure, let's say you get a 25% IRR on your investment. You put in 100K and a year later you get 125K back. That's amazing. But for me personally, I would way rather be in a deal and get a 15% rate of return instead of a 25% rate of return, but stay in that deal forever. That's just an exponentially better

Jeff Stark (RxREI.com):

Exponentially,

Nick Stageberg:

risk adjusted

Jeff Stark (RxREI.com):

yep,

Nick Stageberg:

and tax

Jeff Stark (RxREI.com):

you said

Nick Stageberg:

adjusted

Jeff Stark (RxREI.com):

it.

Nick Stageberg:

outcome. And then there's huge downstream consequences of that traditional structure. So that GP who's thinking, gosh, I've got to, every day that goes by this thing's burning a hole in my pocket. I have to sell this thing as quickly as I can. To them. It makes a ton of sense to go get like a variable rate bridge loan, which about 90% of syndications that started during the pandemic

Jeff Stark (RxREI.com):

Hey, Nick, before

Nick Stageberg:

used

Jeff Stark (RxREI.com):

we jump

Nick Stageberg:

these.

Jeff Stark (RxREI.com):

into bridge

Nick Stageberg:

I'm going

Jeff Stark (RxREI.com):

loans,

Nick Stageberg:

to say some

Jeff Stark (RxREI.com):

well,

Nick Stageberg:

more. Yeah.

Jeff Stark (RxREI.com):

sorry, really quick, before we jump into bridge loans, I just wanted to ask you a question about something that you said a couple of moments ago, actually a couple of minutes ago. And I'm thinking with my investors hat on here. So you said your firm is vertically integrated and you said that's kind of how you keep the lights on, but I think there's some really great benefits for you, the operator. when you're running a company that's vertically integrated, can you, from the investor perspective, can you just explain that a little more deeply? And I don't want to spend too much time on this because I actually have a question about your values that I want to go back to as well. But can you just explain, I think there might be a couple, we breezed through that pretty quickly. Can you just spend a moment talking about what that means and the benefits for you, but then the benefits that you're passing along to an investor?

Nick Stageberg:

Absolutely. So for some reason, it's a little bit of a soapbox episode. I apologize for that. But are you all clear with the book, The Four Hour Workweek by

claude condo:

Yep.

Nick Stageberg:

Tim Ferriss?

claude condo:

Uh huh.

Nick Stageberg:

That's the idea that you can like outsource everything and somehow you end up working very little, but you're able to reap like a disproportionate share of the profits. There is this like four hour workweek virus in the like real estate syndication world. And it's the idea that you can hire third party everything and you don't have to do anything and then you get profit. And it's just not true. I don't think Elon Musk is going to get us off of earth doing a four hour work week. I don't think that

claude condo:

Sure.

Nick Stageberg:

anyone

claude condo:

For

Nick Stageberg:

whose

claude condo:

sure.

Nick Stageberg:

life I admire, none of those people are working a four hour work week. And that's just not something that we do. So it's going to sound a little crazy. But in a typical real estate syndication deal, almost everything is hired out to a third party. So you have a third party broker that has no relationship with you, really frankly very little if any loyalty to you. You have a third party loan broker that goes out and gets your loan. You have a third party due diligence firm. Lots of GPs brag to me, oh I buy assets all the time that I've never seen. They've literally never walked it and they hire a firm. Oh yeah, we've got people with tablets and the software and they score on a scale of one to five. here's the condition of the front door, here's the condition of the refrigerator, and they walk every unit, and they can look at a spreadsheet and get this quantitative number of how good the property, what kind of shape the property's in. I don't buy anything until I just sit in a parking lot, and I'll just go do my office day there in that parking lot and just do my conference calls and stuff and just see like, who's coming and going? Like, how does it feel? How does it feel in the morning? How does it feel at night? Like, these are the critical things you get from vertical integration. Typically, almost always, you hire third-party property management. in a typical syndication. Property management is the most, most, most important part of the deal. It's your day-to-day operations. You can pay too much for the asset, you can do a terrible job on the renovation, you can get an abysmal loan. If you just run the asset well, if you just take care of your tenants, if you communicate with them, if you walk the property every day and pick up trash and, hey, this person is being obnoxious, we need to send them a lease violation, you just take care of the asset, things are going to be okay. We actually have in-house lawn care, we have in-house snow removal, we have

Jeff Stark (RxREI.com):

Well.

Nick Stageberg:

in-house cleaning. So the people that are walking the property to pick up the trash, they've got a cell phone and if they see something, we say if you see something, say something and take a cell phone photo and they put it into this chat that we have, it's called a team concerns chat and it's just hey, I saw this weird suspicious car parked here, I've not seen that car parked here, here's the license plate number, can someone take a look at this? only get that with the vertical integration. Whereas with a

Jeff Stark (RxREI.com):

Hmm.

Nick Stageberg:

typical real estate syndication like you have this third party property management company that's sending you reports, you're certainly not getting hourly cell phone photos of your asset.

claude condo:

No.

Nick Stageberg:

You are so far away, you have no idea if that asset is really on track or not. And then all of these third party groups, they all charge fees. They charge crazy amounts of fees. So what we're able to do is bring all those things in house and… We don't have to charge an acquisition fee and an asset management fee and a capital event fee and a disposition fee because we own all those other businesses essentially and we generate

Jeff Stark (RxREI.com):

Hmm.

Nick Stageberg:

a little bit of profit from those businesses and we give a discount back to the fund that basically allows us to run all of our payroll is paid. Our 43 full-time employees are paid with those fees that would have gone to the lawn guy, the snow guy, the cleaning guy, the third-party maintenance vendor and that gives us a huge amount of flexibility and power to get good outcomes but also just to save money.

Jeff Stark (RxREI.com):

Yeah, that's

Nick Stageberg:

And you

Jeff Stark (RxREI.com):

great.

Nick Stageberg:

really, I'm sorry, but you really can't do what we do, have our no-fee model without

claude condo:

Mm.

Nick Stageberg:

the vertical integration.

claude condo:

Yes.

Nick Stageberg:

You can't do what we do on a four-hour work week. This is the peak of the high season. I'm working 100 hours a week. It's not my favorite thing to do, not seeing my kids as much as I want, but you know what, we're going to turn over. half our portfolio

Jeff Stark (RxREI.com):

Yeah.

Nick Stageberg:

in 90 days, you know, just at the peak of the high season here in Minnesota. So you just, you have to do the hard work. So that's what vertical integration truly looks like for the few operators that have the

Jeff Stark (RxREI.com):

That's amazing, yeah.

Nick Stageberg:

grit to do it.

claude condo:

Yeah, yeah. So if I'm an investor, you've been talking about what differentiates you with, you know, other model, right, of syndications. And so if I'm an investor, what should I look for if I'm going to invest my hard earned money? What differentiates, what criteria should I at least look at to make sure that I'm really preserving and growing my investment when I'm looking at operators and syndications.

Nick Stageberg:

Great question. The kind of things we've touched on already, I think, give everyone a little bit of a background. Most people can probably predict what my answer is to that question to a certain extent. So, honestly, vertical integration, I think, is one of the best things to look for. Is this a person, do they own their own property management company? Are they geographically near that asset or is there at least one partner? that is a boots on the ground person that can see this asset once a week or something of that nature.

Jeff Stark (RxREI.com):

Hmm.

Nick Stageberg:

I would bifurcate the industry a little bit. There's one group of syndicators out there that I would say they almost brag about how little they work and I think what they're doing is they're trying to project an image that says if you invest with us then you too can reap the rewards without working. And then there's another group out there that says we work our heart out so that you don't have to. perceptions obviously, but you want the people who are willing to work really hard because when times are good, everyone's winning. As Warren

claude condo:

Yeah.

Nick Stageberg:

Buffett said, it's not until the tide goes out that you see who's swimming naked and when times are tough, that's when it matters. When your capital is at risk, you need to ask yourself in your heart of hearts, is this a person who will refuse to give up, who will do whatever it takes to protect my hard-earned money and trust your gut. If you look at this person and you're like, This is a person with a thousand dollar haircut who's never done a day of hard work in their life and is going to flee at the first sign of danger. That's not the person you want to give your money to. It just isn't. If you're contemplating a large investment, go out and visit their assets. It's not difficult to secret shop these people. Go

Jeff Stark (RxREI.com):

great advice.

Nick Stageberg:

call the leasing line and see if they answer the phone. Go drive those assets. If that's not something that makes economic sense for you, maybe you know someone around there who could go drive by on your behalf. Get on the phone with them. If they won't get on the phone with you, their communication is going to be best when they're trying to get your money. It only goes downhill from there typically. If you can't

claude condo:

So true.

Nick Stageberg:

communicate with them out of the gate, what hope do you have of actually being able to communicate with them when times are tough? Make sure that there's a person who has an honest to God track record of success. So it's very common. Unfortunately, it's an industry kind of obsessed with image, so there might be a deal with like 15 GPs on it. and they all post on their social media about, hey, I just closed on this big deal, but did they really? Or did they just

Jeff Stark (RxREI.com):

Hmm.

Nick Stageberg:

raise a few bucks for another person who actually closed the deal and actually did the work? Is this a person who's been doing this for a long time? If they've only been in the game for a year, you should not invest with that person. I'm sorry, but you shouldn't. You should be investing with someone who's been doing this for a long time, and have they successfully executed their business plan in the past? Is this someone who you know that they can Actually do this is a person who at some point in their past life has been a property manager like for example Ken McElroy I'm not endorsing him in any way Ken's amazing guy. He started out as a property manager He knows what it takes to lease a unit He knows how hard it is how critical operations are because he's been in the business This is a person who's like a former advertising executive who has never worked a property in his life like he's gonna do a great job raising capital or she's gonna do a great job raising capital from you and messaging that and broadcasting that and telling you what you want to hear but they don't have a clue what it takes to actually make money in this business. All they know how to do is raise capital and you know

Jeff Stark (RxREI.com):

experience

Nick Stageberg:

for every

Jeff Stark (RxREI.com):

matters.

Nick Stageberg:

ten, you know people out there like there's there's nine of those people out there who are good at raising capital. I think there's one person out there who's good at actually like creating value and and protecting your capital by being able to put value to the tenants that the people who are actually paying the bills in this whole you know crazy, you know financial stack. So those would be just a few pointers out there when people are trying to underwrite, you know, should I invest with this person?

claude condo:

Yeah, yeah, for sure.

Jeff Stark (RxREI.com):

Amazing

claude condo:

One

Jeff Stark (RxREI.com):

answer.

claude condo:

thing I want to add too is, yeah, yeah, I just want to say like one thing I will add is just get to know someone, get to know their values, get to know them really in a deeper before you trust them with your money. You know,

Nick Stageberg:

Absolutely.

claude condo:

I've been so blessed to know you Nick, you know, we're in the same Gopalna, same Mastermind group, you're a man of faith,

Nick Stageberg:

Likewise.

claude condo:

so I love your values and so and thank you for being so open to that. I know Jeff you had a question.

Jeff Stark (RxREI.com):

Yeah, I actually had a question about values. So good segue, Claude. Nick, I wanna, well, I feel like today, especially, it's important to find people who you align with, who share similar values. And it seems like you and Elaine and your company, you guys are very values forward and you put that at the forefront of what you're doing. In the first

Nick Stageberg:

Amen.

Jeff Stark (RxREI.com):

couple of minutes of this podcast, we were talking about how you give back to charity. You care about your community. You don't want to put anybody on the street. You want to take care of that person. Uh, even though, you know, that it might be a D class asset and rents are way under, you're not, you're not so driven by profit or making money. You want to actually take care of that person as a human being. And I feel like this might be something that a lot of syndicators or fund operators are not very focused on. But this is something that sticks out to me about. you guys and your company and what you're building. So I wanted to ask you about where this comes from and why you think it's so important to communicate upfront to investors.

Nick Stageberg:

Absolutely. So, Elaine and I had the great fortune, we're very blessed, we had the great fortune to kind of start serving investors after we had kind of already achieved financial freedom ourselves. So,

Jeff Stark (RxREI.com):

Hmm.

Nick Stageberg:

maybe it's just a place of financial privilege that we have. I'm just so grateful for all that we've been blessed with that if this was just about making money, this would not be interesting to us. This is

Jeff Stark (RxREI.com):

Yeah

Nick Stageberg:

about so much more than money. We have the privilege to make the world a better place to live in the most tangible sense of the word. You know, Elaine and I, we do have a very kind of deep spiritual background. I have a bachelor's degree in ministry. My wife is a psychiatrist, you know, trained at the Mayo Clinic. And we see the opportunity to serve people. And the crazy thing is, if you actually do that, it's very profitable to do so. We have, so 5% of the profit from our portion of profit from the fund goes to charity. Last year we built a school. It's the coolest thing I've ever done in my entire life. We found an abandoned 40,000 square foot office building. and did an adaptive reuse and that's where our kids go to school now. There's

Jeff Stark (RxREI.com):

way.

Nick Stageberg:

hundreds of kids that go to school there. We found a startup school that was in the basement of a church building, a 70-year-old church building, and we said, hey, would you do better if you had a lot more space to work with? A million people were involved in that. I don't take any credit for that. I just was the crazy guy who wanted to build a school. That was all that I did. I pushed a carpet shampoo around 40,000 square foot of commercial carpeting. I went through an entire 100-page audio or 1,000-page audio book. doing that. But we have another 5% of our profit goes to our staff in profit share because a lot of the property management staff and most of these syndications, the ownership groups will say, oh, they're just a little bit better than the tenants and the tenants are the worst. Just repugnant things that are kind of casually

Jeff Stark (RxREI.com):

Mm.

Nick Stageberg:

spoken. And we

Jeff Stark (RxREI.com):

Hmm.

Nick Stageberg:

think it can be so much better than that. We get the privilege, when you take a Class D asset in a Class A area. We all know what that feels like to be like in the nice part of town. You walk past a building, you're like, what the heck's going on? And it pulls down the whole area. Like there's crime and people feel unsafe and just unsavory things going on. Like we can not just change a building. We can change a block. We can, I mean, we will buy entire city blocks. Literally. I mean, it sounds crazy. We'll buy entire city blocks and we'll go get this one in our contract, this one in our contract, this one in our contract. And like it goes from being the worst block to the best block.

Jeff Stark (RxREI.com):

along.

Nick Stageberg:

I go drive those blocks at night with my kids and I'm like, hey, see there's the homeless shelter there. We just retrofit a new commercial kitchen as homeless shelter and we bought all the properties around it because everyone's like, well, that's just the horrible things that are next door to the homeless shelter. Well, no, homeless people are people too. And here's the crazy thing, if you take care of homeless people, the whole neighborhood does better. If you give homeless people a home, they're not homeless anymore. Isn't that just a crazy concept?

Jeff Stark (RxREI.com):

amazing.

Nick Stageberg:

And when you do this... you can make a fantastic amount of money at it because you're able to buy these assets for next to nothing and when you get done you're able to achieve financial outcomes that frankly there's no other way to achieve those things. Here's a story and I'll just warn your listeners if you want to, so this is a challenging story to hear so feel free to just put this on pause if you're a person who may be uncomfortable easily. So we bought this 100 year old apartment building. It's this beautiful, beautiful historic building in a historic neighborhood in our community. there are the most expensive homes in our area next door to this house. You know, seven, seven figure single family homes. It's, it's that type of neighborhood, but this is one of those knockdown, you know, apartment buildings and in the basement unit, in a basement unit in this building, which it's always the basement unit. So those are always the problem unit. We couldn't get into it when we bought it and we knew it was bad. Um, and the property manager just said, oh yeah, it's not good. We can't go in there. You know how it is. First of all, I don't know how it is,

Jeff Stark (RxREI.com):

Yeah.

Nick Stageberg:

but I understand what they're saying. And, oh, it's COVID, it's a pandemic, we can't evict them. So, you know, hear no evil, see no evil. I'm like, okay, yeah, I'm wondering what we're gonna get into there. So we close, and the day after closing, we give them notice, we're gonna do a safety inspection on the unit, because we still haven't seen inside the unit. Who knows, there could be pet alligators in there. Who knows what, you know, we like to be playful about these things. And we walk in, and we've got our team there, we've got a bunch of people there, and we have to step out. We have to go get some PPE. and we have to go get a Home Depot bucket. And we fill up that bucket with drug paraphernalia. I mean, there's

Jeff Stark (RxREI.com):

Oh

Nick Stageberg:

pipes

Jeff Stark (RxREI.com):

no.

Nick Stageberg:

and foils and torches and I don't know what powders and substances and there's clearly prostitution and drugs and every manner of just human sorrow happening in this unit. And there's this woman here and we say. We're here to serve you. We love you. There is zero judgment in our heart. My wife's father passed away of a drug overdose. Half of my wife's family has died of drug overdoses. She's from Westmoreland County, the highest per capita drug overdose county in the entire country. Like

Jeff Stark (RxREI.com):

Hmm.

Nick Stageberg:

there is zero judgment in our heart. We know how hard this is. We know that like you don't want us to be here. We don't wanna be here. This is a lose-lose deal right here. And we are sorry that the Last Property Management Company allowed this to happen. And that does not happen. happen on our watch.

Jeff Stark (RxREI.com):

Hmm.

Nick Stageberg:

So we're going to be back tomorrow and the next day and the next day to do safety checks on this unit. And if you want your personal property back, we are legally obligated to return it to you. We'll make sure the law enforcement's here when we return your bucket of drugs back to you. So let us know if you'd like that back. We're happy to dial the phone for you. We're happy to give you a ride, but clearly you need to get into a treatment facility. And we had to go back three times. Three times. to go back three times. It's not that difficult. And she got into rehab and she's doing much better today.

Jeff Stark (RxREI.com):

Wow.

Nick Stageberg:

When you buy a building where you have a unit like that, that hasn't been paying for years, where all manner of awful things are happening and you have numerous vacancies in the building just because that unit exists, you can buy these buildings for a very low purchase price. And we're going to double the value of that building. We're not going

Jeff Stark (RxREI.com):

Thank

Nick Stageberg:

to just

Jeff Stark (RxREI.com):

you.

Nick Stageberg:

increase it 10% or something like that. the right thing to do can be the profitable thing to do.

Jeff Stark (RxREI.com):

Hmm.

Nick Stageberg:

And

claude condo:

and

Nick Stageberg:

if you lead with principle, if you lead with your heart, it's very easy to serve people. If we walk in like, oh, you know, this is pretty weird. So would you like to lead? Like that doesn't serve people. Like this is how it's gonna be. We love you. There's no judgment in our hearts. We wanna serve you. And that is just an incredible building today that lifts up this beautiful historic neighborhood and our staff, like they know what we're about. Do you think our staff struggle? to do a rent collections call. Do you think our staff struggle when someone's parked in the wrong parking spot? The people walking this unit in PPE with a bucket of drugs, they know how to take care of our people, they know how to set and enforce boundaries, and they do it for the best possible reasons because they serve from their heart. And I think we all can lead with values, and if we do that, we're gonna lead a much more fulfilled life, we're gonna know where we stand and why we're waking up in the morning. And if you do that, everything else just kind of takes care of itself.

Jeff Stark (RxREI.com):

Yeah, amazing.

Nick Stageberg:

That's why we are all about principles, that's why we're all about values, because I don't know any other way to live. And it sure makes a rewarding existence to have the privilege to experience.

claude condo:

Wow, man, seems like this is your mission. I want to say ministry, but it seems like it's a mission for you

Jeff Stark (RxREI.com):

Hmm.

claude condo:

to give back

Nick Stageberg:

That's

claude condo:

and...

Nick Stageberg:

a loaded word in housing, by the way. So I can't say it's my ministry, but talking on this podcast is certainly my ministry. Like if I got up on Sunday and talked to the same hundred people every week, I would have far less influence and impact on the world than if I went out on a podcast every day and talked about how we can make the world a better place to live. So

claude condo:

Yeah.

Nick Stageberg:

that's,

Jeff Stark (RxREI.com):

totally.

Nick Stageberg:

that's certainly how I got it.

claude condo:

I love it. I love it how you're giving. And then, you know, you're getting back 10 times what you're given. So just that being purposeful on your mission is so good. So good. So I know we have a few minutes left. I want to just ask you a couple of quick questions because I wish... We're going to invite you to the next time because we feel like you have so much value to give. But let's go back to the business. You started with... you and Elaine, your wife, with one single house, and now you have 43 full-time employees, you have 300 million under management. How did you scale up? What lessons did you learn just in a...

Nick Stageberg:

Yeah, absolutely. So I had the great privilege to have a whole tech career before doing real estate. So the first tech startup I got in the ground floor of, we went from 13 million in venture capital to 100 million in private equity sale over the course of nine years. And the second startup, I did a startup for the Mayo Clinic, the intrapreneurship movement, like how Google and Amazon sponsor startups underneath their umbrella. And we went from a handful of engineers to 13 teams of engineers I was leading over the course of three years. So this is kind of our third startup, just like how, my wife, Elaine, when she's doing the med school thing, like that's something you do together. It's a team sport. Doing a startup is a team sport as well. It's very intense, it's very demanding, but very rewarding. So this is the third time we've done it. And again, don't get bored with what works. So just taking all the things that I learned in my first two very successful tech startups and applying those things to real estate. It kind of lets us, I'm just going to say run circles around the competition because we use the same really progressive management techniques and processes. So like from medicine, we apply safety culture. You know, like the only thing you can get in trouble for is failing to report a problem. If you're in the OR and you don't report a problem, like that's the one thing you can get fired for, right? Same thing with our property management staff, same thing with our cleaning staff. If you don't report a problem, you get in trouble to pull a concept from tech. So a bajillion years ago, like... like 30 years ago there was a silo staffing model in tech where you'd put like one engineer on a project and they go work on that project and they go spit out their code and then they go work on another project and they go spit out that code and you do that until that programmer gets hit by a bus or quits or retires or whatever and then you have to go find another programmer to take over their stuff who doesn't really understand what's going on and you end up rewriting half that code and they, oh, well this person's an idiot and then God help you if you're really successful. and you need to make a whole bunch of code really quickly, you don't really have the scalability because you only have one person who knows anything about that project, that software. That was the old silo staffing model and the software industry switched to a team-based model. So you get a team of say four engineers, that's a pretty optimal number, and they have a portfolio of products that they maintain. And it's illegal, it's not allowed for one person to own one piece of code because if that person were to leave or whatever, you're in trouble, if you need to grow and scale, like you're in trouble. So... It's just, it's a terrible staffing model. And yet that is the ubiquitous staffing model in property management. So you have a hundred units, you've got a site manager, they're chained to that site. It's like they're jail cell. They live on site. You give them a free or discounted unit as a perk, but really they've got tenants knocking on their door 24 hours a day. They're the only person that has leasing. They're the only person who does collection. They're the only person who does renewal. They might be turning over units and cleaning and doing maintenance tickets while they're at it. You kind of squeeze them to get as much out of them as you can. They have no help. They have no one to talk to. Of course they have crazy high burnout and when they leave, you're hosed. You don't know what's going on. Mary Lou had this special arrangement and this guy shows up at 8 in the morning every day to do something but you're not sure what. So what we do is we actually de-staff our site offices and we run it just like a tech office and there's teams of people that manage groups of properties so it's a team-based model. So those are just a few examples of how we've been able to grow so explosively.

Jeff Stark (RxREI.com):

Really

Nick Stageberg:

And

Jeff Stark (RxREI.com):

cool.

Nick Stageberg:

then this is going to sound crazy, but if you just take care of your tenants and you take care of your investors, you can grow really fast. So other GPs will reach out and be like, you guys are naive, you know, not collecting fees, you're leaving so much money on the table. But then they'll call back the next month and say, how are you guys raising so much money so easily? Like, well, we don't take all these fees. And when you just offer a better deal, like you don't even have to be twice as good as the competition. Like if you're just like 10% better. you get all of the business, right? That's how it works in any product category. You know,

Jeff Stark (RxREI.com):

Yeah.

Nick Stageberg:

if your Tesla is just 10% better than your Toyota, like everybody buys the Tesla. And then on the leasing side, this is gonna sound brutal, but if you call the main number for an apartment building or a property management company, four out of five times they don't answer the phone. 80% of the time they don't answer the phone. So guess what we do? We answer the phone. And when we pick up the phone, we win. Like that's all it takes. So maybe the other place they call them back an hour later, but guess what? By the time that they call back, we've already leased a unit to that tenant prospect. Like

Jeff Stark (RxREI.com):

Hmm.

Nick Stageberg:

again, you don't have to be 10 times better. You don't have to be twice as better. You just have to be 10% better. You just have to be two millimeters better than the competition.

Jeff Stark (RxREI.com):

Yeah.

Nick Stageberg:

And if you do that, you're gonna be extraordinarily successful. And this is the mantra that we kind of preach to our team. And... and the culture that we espouse. And so that's allowed us to grow really fast. And anybody out there, if you're getting your second unit or your first unit, like that's all you have to do. You just have to pick up the phone. If you're thinking about becoming a syndicator or whatever, all you have to do is just take really good care of your LPs and give them a little bit better return than they could get anywhere else. Like all of the capital is gonna come to you. Just like lead with values, lead with principles, and serve the people that you need to serve, which the tenants are really the people you need to serve here, right? There's this belief in the industry that all tenants are liars and all tenants steal and like well people tend to behave the way you expect them to behave. So when we do a tenant interview, which we don't call it like a leasing show, it's a tenant interview, we say yes we have a premium product, we offer a premium service that tends to attract a premium tenant. And merely just by projecting that brand identity, tenants are going to self-screen. They're going to say well I'm not a premium person, like I'm used to people treating me like garbage. I guess I don't fit here. Like that's literally what people say in their head and they go rent somewhere else and the people who are like, yeah, I pay my rent on time, I take good care of the place, these are my people. You know, like Chick-fil-A has a premium customer in their lobby because they project a premium brand and they deliver an unrivaled level of customer service.

Jeff Stark (RxREI.com):

Mm-hmm.

Nick Stageberg:

Like I have studied Chick-fil-A as a case study, like how the heck are they getting these people – Chick-fil-A, they say they're in the business. of teaching a generation of young people, civility and courteousness.

Jeff Stark (RxREI.com):

Wow.

claude condo:

Mmm.

Nick Stageberg:

How deep is that? That's next level stuff.

Jeff Stark (RxREI.com):

Powerful.

Nick Stageberg:

The chicken sandwich,

Jeff Stark (RxREI.com):

Ha

Nick Stageberg:

that's the sideshow.

Jeff Stark (RxREI.com):

ha.

Nick Stageberg:

So we're in the business of creating a really high quality customer service experience, living experience for our tenants. And if you serve your tenant, do amazing things for your tenant, like all good things are going to flow down from that. And the same thing on the investor side, just take care of your investors. So those are just a few notes I would throw out for anyone out there who's thinking about you know growing in a big way wants to grow incrementally wants to take the next step that's all you need to do is just double down on the fundamentals. Pick up the phone when people call, just take care of your customer and your customer will take care of you.

Jeff Stark (RxREI.com):

Amazing.

claude condo:

Amen to that.

Jeff Stark (RxREI.com):

Nick, thanks for that incredible answer. So as we move towards the wrap up here, we ask every guest on the podcast, the same question towards the end. And it's basically like, where is your attention? So when you're going to learn something new, or you want to be opened up to a new idea, or maybe there's a certain topic that you're interested in, is there a podcast, a YouTube channel or a book recommendation that you have for for our listeners?

Nick Stageberg:

Yeah, so I guess I'll just try to add as much value as I can. I'll go a slightly different direction. So anyone here, I would recommend that you go on a news diet. Just stop listening to media. Right, left, that's not a political statement. Just media, all news media, it's in the business not to inform you but to startle you and then hold your attention. All social media, all old media, new media, it's all the same. And don't judge them for that. It's not hateful, that's their business. Their business is to sell ads and your eyeballs, your attention is that. So that's not a valuable source for information and it just isn't. It's a valuable source of adrenaline and cortisol and stress. Go to social media and traditional media for that. If you actually want to learn about something, this isn't rocket science. If you turn back the clock a thousand years, let's say you wanted to learn how to make shoes. You might go to the best shoemaker in town and say, I'd like to make shoes. You're the best person in town at this. Can I just like help you out? Can I be your apprentice? And if I just follow you around for a while, I bet I too will know how to make shoes and not just make shoes but make the best shoes. I'm going to pick up all the little nonverbal things, all the unconscious competence that you have and eventually I too will be a master shoemaker. And this is something I've done through my whole life. I don't know how. I grew up extraordinarily poor. I grew up in section 8 housing in... on government benefits. I had to move out on my own when I was 14. I struggled with bouts of homelessness and stuff as a young person. My mom loved me but had a brain injury, never met my father. I am here by the grace of God and by the grace of some really powerful mentors that I had in my life, people

Jeff Stark (RxREI.com):

Hmm.

Nick Stageberg:

who were like, who's this homeless kid? I'm going to take care of him and make sure he gets on the right track. I'm just so grateful to all those people in my life that served me. put me into this pattern where when I needed to learn something, all I had to do was just find a mentor. It's not difficult. Just ask your personal circle, like who's the best – let's say you wanted to learn how to ride a bike. I'd probably shoot some of the top bicyclists and maybe not the top – you want someone who will return your call but maybe go to a biker meetup in your area. Who's the fastest cyclist? And I'd say, I want to follow you around. And I'd say, well I cycle 20 miles a day. And you're like, I don't know if I can make it 20 miles, but I'll get as many miles as I can. I'm gonna follow you, and I promise you, without doing anything other than that. You'll be like the second fastest cyclist in town in no time at all. So if I wanna, you know, like, we're doing new development on a scale we've not done before. And so I'm very conscious about this. I'm very shameless about this. There's this extraordinarily successful developer, and I've just said, man, what can I do to provide you with value? Like, you're so good at this, and... would it offend you, that's kind of a bold ask, you know, that's why I'm framing it this way, would it offend you if I like flew out and just like hung out with you for a day? I bet there's things I could help you with, like I could notice things that you can improve about your business, I'm very good at this because I do a lot of this, I go visit lots of entrepreneurs and so I've got lots of tips and tricks and shortcuts and then if I just follow you around for a day, I know I'm gonna become a better developer myself. That's exactly what I've done. He's offered to fly out here and well, he has flown out here, but he's offered to fly out again like coach my team because I've

Jeff Stark (RxREI.com):

So

Nick Stageberg:

been able

Jeff Stark (RxREI.com):

cool.

Nick Stageberg:

to provide him with so much value. Like if I went and listened to a million podcasts, if I read a million books, if I looked at the news, if I looked at like none of that. A year of analysis would be less value than just finding the category leader, the rockstar in the thing you want to do and just following them around for the day. And you will be like, okay, so. They had in-house people that did the finishes, so I need to go hire someone to be my in-house guy to do the last 5% you have to finish in-house. You can't read that in a book. And he didn't even tell me that I had to do that. I just picked that up, that he had an in-house construction manager and an in-house development persona, and then he had in-house hammer swinging people who could do the paint touch-ups, who could do the trim touch-ups. So if I just follow that cyclist around, I'm gonna be faster than I could ever be

claude condo:

Hmm.

Nick Stageberg:

reading a book or listening to a podcast, This is a great podcast. I listen to this podcast too. More than anything though, just to identify mentors I can reach out to to learn from.

Jeff Stark (RxREI.com):

Amazing. Claude, I want to kick it to you right before we close out here. Do you have anything you want to say at the end or any last questions?

claude condo:

Man, this was such a valuable podcast to me, and to our audience as well. I can't wait for them to listen to this. Just even the last advice you gave, just look for a mentor and just follow them, ask them and try to bring value to them first, versus asking. Give them value, give and then you shall receive more. So that's, I love it. For sure, I would love to have you in a second. you know, second interview so we can go even deeper.

Nick Stageberg:

Be happy. Have my wife on too.

claude condo:

for sure. That would be great,

Jeff Stark (RxREI.com):

Yea we mentioned that right before we hit record today, but we're having her on the next episode. So if you're listening, stay tuned for that one. That one will probably drop the week after we publish this episode with Nick. So that is in the works. Nick, I guess until we talk again on the second episode with you, have a great one. Thanks for coming on the show. This was awesome. And like Claude said, I think you're... your last comments and thoughts on just mentorship, apprenticeship. Thank you for bringing the value today. Appreciate it very much.

Nick Stageberg:

My pleasure and my calendar is open. Anyone here can go to meetblackswan.com. If there's anything I can do to mentor you, provide you with value, anyone's welcome to schedule a 15 minute call. There's no cost to that. If you're interested in investing with us, we've got a course on there that's a pay what you can model and 100% of the revenue goes to charity. If you wanna learn more about investing in real estate on your own, just lots of ways to connect with us. We just try to offer value any way we can, but it's been an absolute privilege to be here. Thank you so much.

Jeff Stark (RxREI.com):

Yeah, amazing. We'll make sure we add those links in the show notes as well. So if you want to go check out Nick's website and connect with him, that's where you can go. All right, guys. Thanks much. Have a great one. Much love!