Clint Murphy on Mastering Real Estate Investment and Personal Growth: Strategies and Lessons for Success

Unlock the potential to elevate your life through real estate investing and personal development with my latest guest, Clint Murphy. As a former CFO turned real estate entrepreneur, Clint brings a wealth of knowledge and candid tales from his own transformation. In our animated conversation, we dissect the nuanced strategies behind successful property investments and the importance of fostering growth, not just in your portfolio, but within yourself and your team. Prepare to have your perspective on real estate reshaped, as Clint imparts his philosophy on investing, growth, and the unexpected lessons learned along the way.

Ever wonder how salesmanship weaves its way into every fiber of a business? Together, Clint and I venture into the critical role of engagement, retention, and the art of making bold financial decisions. We explore the mantra of "hire slow, fire fast" and its impact on creating resilient teams. This episode will guide you through the labyrinth of capital raising and deal execution, providing insights that could make or break your next big venture. So, if you're looking to master the art of deal-making or just want to understand the audacity behind high-stakes entrepreneurship, you won't want to miss these revelations.

As we wrap up our insightful exchange, we scrutinize current real estate market trends and strategies for maintaining cash flow amidst economic uncertainties. We examine the adaptability of companies like Shape in the post-pandemic landscape and debunk the myth of a perfect work-life balance in the pursuit of wealth. I share narratives on the value of hard work, persistence through failure, and unwavering conviction – the unsung heroes of success. Tune in for a dose of reality and inspiration that could be the catalyst for your next bold move in the world of investing and beyond.

The content in this program is for informational purposes only. You should not construe any information or other material as investment, financial, tax, or other advice. The views expressed by the participants are solely their own. A participant may have taken or recommended any investment position discussed, but may close such position or alter its recommendation at any time without notice. Nothing contained in this program constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in any jurisdiction. Please consult your own investment or financial advisor for advice related to all investment decisions.

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Transcript

Speaker 1: 0:08

My name is Michael Guyatt, publisher of the Lead Lag Report. Joining me for the rough hour is Mr Clint Murphy. Clint, introduce yourself. Who are you, what's your background, what have you done throughout your career and what are you doing currently?

Speaker 2: 0:20

You bet, for the last 10 years 13 years I've been in real estate, the last 10 with one company, most of that as their chief financial officer and that is real estate development.

Speaker 2: 0:32

So, ground up, multifamily real estate townhomes, wood frame apartment buildings now concrete towers also have a real estate lending arm, mortgage investment corporation, also have a real estate lending arm, mortgage Investment Corporation and a real estate income portfolio in that group that we manage. When I was not doing that, I'm a father to two boys and I've been with my wife for the last 29 years. About four years ago, michael, I started creating content publishing online, and that included a podcast, social media, now writing a newsletter that goes out weekly to about 25,000 people, and I say up until a few months ago, I resigned from my job with the goal of starting my own businesses. So in the next month or two I'll be talking more about what that looks like. Most likely that will also be in the real estate space. I will say that and in our conversation we're probably going to talk about real estate because, from an investment perspective, that's where 90% of my investments have been, and I'll share why that is.

Speaker 1: 1:40

All right. So on the content side again, I'm given the focus on real estate. I look at your content and I see a lot of discussion around things which are not related to real estate. I want you to talk about that for a bit because I think when you're creating content, you always want to have a better way of saying it. A shtick. I've got a certain shtick when it comes to X as far as the persona and the way that I communicate things obviously not the real me. I focus on intermarket analysis, risk on, risk off. That's sort of my thing. But it seems like your thing is not just real estate, it's much more than that.

Speaker 2: 2:13

That's right, and the interesting part for me is because I was working for someone as their CFO. I didn't feel like it was right to share all my knowledge about real estate, about building a business, about entrepreneurship, about building teams, about being a leader, because that felt like it was sharing what I do at work and I was working for someone else and that was hard, because that's a major part of what I do in my life as a CFO. That was 60, 70-hour weeks for years and years on end, gaining a lot of knowledge, working on over $3 billion of real estate transactions, raising capital from external parties, raising capital from banks, working on the cash flow, understanding the risk analysis of real estate, understanding how to analyze deals. You look at accounts that talk about real estate. That's what they talk about, so there's a lot of value to doing it. I didn't feel like it was right to do while I was working for someone else. Maybe there would have been a play, michael, to do, like a real estate Trent, the strip mall guy where you're writing anonymously about it. I didn't do that.

Speaker 2: 3:26

So what I focused on because I always tell people on my team that I want to help them grow in three ways and it's what I say on my profile I want to help them grow personally, professionally, financially. If you can do those three things with people that work for you and you can continue to do them over time, those people will stay on your team for years on end. So people jump ship to job, hop to make more money. So if I'm continuing to help you grow financially, you're not going to leave for that. People leave for titles. If I'm continuing to help you grow professionally, you're not going to leave for that. And if I'm continuing to help you grow personally, then you're seeing value because I'm believing in you more than as a cog in the wheel. I'm believing in you as a person. So that's the majority of what I've done, and that's what I write about is how someone can grow personally, how they can grow financially outside of real estate.

Speaker 2: 4:25

I write about real estate periodically, but to me, the number one way any of our listeners can make money investing. Because if we take a step back, everything you share with me about where to put my money or where not to, it's irrelevant. Unless I have significant capital Right Capital, courage, conviction. I need to have an investment thesis first, and then I need to have enough capital to make it matter. If I believe hands down in Bitcoin but I only have $10,000 to put in it, even if it doubles, I made $10,000. But if I've grown my career enough that my earnings have spit off the ability to invest a million dollars in it and it doubles now I've made a million dollars. So that investment in yourself to get you to the point where you have significant cash to make significant investments that can change your life, that's what I want for people.

Speaker 1: 5:36

So there's a couple of directions I want to take. So one is you talk about that team building, the focus on the personal growth less likely for somebody to job. Hop about that team building, the focus on the personal growth less likely for somebody to job hop. You and I have both seen these studies that are disconcerting around how people ghost nonstop, how people have this almost apathy around the companies they're currently working for. And I don't know if that's a generational thing, I don't know if it's an attention span thing, but I'm curious if you've seen it's actually harder to try to find people that want to take that personal growth as opposed to just sort of say well, you know what, this is all nonsense.

Speaker 2: 6:10

let me do my own thing if they don't believe that you actually mean it absolutely. I mean, if you go to a shop and picture the movie Office Space, which you probably recall, if your boss is like Bob and he's coming by with his coffee cup and telling you he's going to need you to be in on Sunday, but he's a total dick and he doesn't care about you, yeah, you're going to ghost that job for sure. You're going to ghost that job for sure. If you can demonstrate to a person that you care about them and that they see that you care about their colleagues, they're going to be invested. And then the other important piece of that is who you bring onto that team. So you can't bring on people that don't tick the boxes that you're looking for. And that means you have to hire slow.

Speaker 2: 7:08

You've heard the slogan hire slow, fire fast. So what you're doing on that hiring is you ought to already have a certain number of those key people on your team. So the first few hires that you're making are your bedrock. Those are your leaders, who you're going to invest in, who you're going to make sure are with you for seven, eight, 10 plus years.

Speaker 2: 7:31

When you have them, every other person that you add to that team has to meet you, has to meet them. Has to go through five or six people on the team. Has to meet the accounts payable colleagues that they're going to be working with. Has to meet the lead of AP. Has to meet your corporate controller, your development controller and I'm using finance team people because that's the team I managed so the more people that can meet that person and then come back together and say, yeah, that person gets what we're about because you're creating a culture and that culture is going to trump anything else you do so you mentioned, uh, capital, courage, conviction, and I think you could be wrong that the commonality across all that is salesmanship.

Speaker 1: 8:22

I say that because if you want to get capital, you got to get people to convince right to give the capital. And if you want to do that, convincing, you've got to have courage, because it's not easy to put yourself out there. And if you want to be the salesman, you have a lot of conviction in what you're selling. Talk about that, because I think that's an underappreciated thing. I often see on social media people throw that term grifter out there, which is just a derogatory way of saying a salesman. But everybody has to be a salesman 100%.

Speaker 2: 8:56

You're always selling. In everything you do you are selling, and whether you're selling a product, whether you're selling a service or whether you're selling yourself, so learning how to present yourself in a way that a person on the other side of the table, a person on the other side of this screen right now, wants to listen to you, michael. They want to listen to me and they're saying, hey, can this person actually add value to my life? And if they believe you can, then you've made a sale. And when I think of that courage and conviction, what I'm looking at there is generally, when you want to make significant amounts of money, you are making financial let's call them bets. You are making financial let's call them bets. You are making financial bets that are not conventional. So you are creating your investment thesis and you are making a bet that you believe in strongly and generally you're going to earn above average returns when that bet you make is not a bet that the average person is making and you have to turn out to be right. So you have to do the work to believe in the thesis that you're going to invest in and if you're right, you're going to succeed. But you're only going to succeed if you put in significant capital. When it comes to the capital of raising with external, when I'm saying courage, capital conviction, I'm just talking about you as an individual. So that's your capital, that's you. When I look at what you're saying, I love rules of three, so you'll often see me use rule of three, michael.

Speaker 2: 10:36

I've heard it said that if you want to succeed in business one, you have to be able to do the analysis, so you have to be able to analyze a deal. Two, you have to be able to raise capital to achieve the deal. Three, you have to be able to execute on the vision, and so that is where the salesmanship comes in on that. Number two is raising capital. So, for example, if I'm in real estate and if that's what my new business is going to be, when you're starting in real estate, you generally don't have enough money to do deals on your own. The amount of capital that's required, especially where you live in New York, where I live in Vancouver, if I want to build simple example to give you, michael I want to build a 15-unit townhouse complex, 15 townhomes I need about $3.5 million of capital. It's a lot when you're starting a business. So here's some things that go into that One.

Speaker 2: 11:28

When I sign a deal with a bank, I'm signing personal guarantees. So what I'm signing is that if this deal goes wrong, I don't just lose my share of the money that goes into the deal as a general partner, I may lose my house, I may lose my investment properties, because I'm signing personally that all cover the bank's loans. So that's where the courage comes in as a business owner in that situation. And then what you have to do is you're the general partner. You have to go out and find limited partners. You have to be able to sell them on the vision of what the business is going to do, on the project itself, on the area, everything to do with that real estate project. You're selling them on that.

Speaker 2: 12:11

More importantly, what people don't realize is the number one thing that a lot of the limited partners are looking for is you're selling them on you. Do they believe in you? Do they believe in your story? Do they trust you? Do you have a track record of experience? Why should they give you the person on the other side of the table their money? Yes, of course they're going to analyze the deal. If you're working with significant or sophisticated family offices. They're going to analyze the deal, but the number one thing they're going to analyze is you. So when you said salesmanship, you always have to be selling yourself and the project that you're going to be working on. And then you have to go out to a bank. You have to go out to a bank and say, hey, bank, I want to build this project 15 townhomes. It's going to cost me $12 million. Can you give me $8 million? The bank's going to look at the deal and they're going to look at you and say can I give you $8 million? So there's salesmanship throughout that entire process.

Speaker 1: 13:52

Is that more challenging to do now because of higher rates? Or because there are not as many non-conventional investment ideas out there? Because, let's face it, most things are saturated. A lot of the low hanging fruit you can argue has largely been picked, so it becomes a lot easier to conform, because it's just hard to find something that's non-conventional.

Speaker 2: 14:17

It's just hard to find something that's non-conventional In the real estate space. It's an interesting challenge because absolutely it's harder because of the rates partially the rates, partially the fear of the banks. So, generally, what you see and this would be contrasting if I'm starting up my own real estate development shop or if I'm at the shop I was at as an example, because there's an interesting challenge that you see for the one group and opportunity for the other. So, being at, for example, in our city, the shop that I've been at for the last decade, we're probably top six to 12 in the city, probably top three in terms of execution, and when you operate at that level, when you're in a situation where the markets are a little bit scary it's a lot of what you write about, michael everyone's getting a little bit nervous, there's a flight to quality.

Speaker 2: 15:18

So the banks want to put out money, they want to make money but they don't want to risk it and they know that with high rates there are going to be groups who are going under and we are starting to see it. We're starting to get emails from receivers at Deloitte, pwc, kpmg, saying, hey, we've got a deal that we're being inserted on as a receiver. Do you guys want to take it over? So it's happening. Not a good sign. So the banks know that's coming, but they have to make money. So they go to groups, like the group I was at, and they say, hey, do you have deals, do you have projects you want us to lend money on? Our taps are unlimited for you. Now you contrast that with the group that's trying to start a real estate development company when we're in this situation and it's very hard to find that money, because they want to lend it to the quality institutions who they know will execute and pay them back.

Speaker 1: 16:24

Yeah, it is interesting and that, I think, gets into the conversation around wealth generation through real estate, because there's always this idea out there that that's how the really wealthy get wealthy. It's primarily through real estate, first and foremost, but I got to assume it's like everything else. It's a function of your starting point, right? So it's a lot harder to get wealthier in real estate when real estate is broadly overvalued, right which we can argue may be happening now and when things at margin, like you're saying, are starting to happen. As far as the seerish side, let's talk about wealth generation through real estate. What do people get right, what do people get wrong, and is it going to be harder to generate real wealth through real estate?

Speaker 2: 17:05

going forward, You're not going to be surprised that I say it depends. It depends because it matters where we are geographically, it matters what asset classes we're talking about and it matters the positions that you're taking. So every geography is different. Some geographies it is easy to overbuild, and where I say that, let's look in Canada, you'd say Calgary, easy to overbuild.

Speaker 2: 17:39

In the US, states that immediately come to mind Phoenix, texas. In states where I would say it's hard to overbuild Seattle, california, new York why are we choosing these areas? I'd also say Florida is easy to overbuild. So why are we choosing these areas? If we look at Florida, phoenix and Texas, generally the governments are pretty permissive, so it's easy to build. Two, the way the land is laid out, it's that ability for the ring to just keep getting further out. The suburbs just keep growing. All right, we're done this suburb, do another one, do another one. There's a reason almost every large institutional homeowner or home, single family home builder and then multifamily, eventually company comes out of Texas. The amount of land and the ability to just keep going further out is massive and so there's that ability to overbuild.

Speaker 2: 18:47

You'll also see in those states, similar up here in Canada with Alberta or some areas of the prairies that the real estate market is more boom bust. So it's on everybody's making money, everybody's happy Boom. Prices drop significantly for long periods of time. And then you contrast that with areas like New York where let's talk specifically Manhattan you don't really have the ability to go out further. You're more going up. Where you contrast that with Seattle, where you have the Canadian-US border as a limiter on where you can go, you have the ocean as a limiter on where you can go and you also have less permissive permitting, similar to California. You contrast that with where I live in Vancouver. We're surrounded on one side by the ocean, on one side by the mountains and on another side by the US border. So our ability to continue to go out pretty darn low.

Speaker 2: 19:49

And so when you're looking at those areas you're saying where do I want to invest it? And real estate like equities. I like to explain to people you have different types of real estate, similar to different types of equity. So you look at your blue chip stocks, your IBMs, et cetera. They're pretty stable, they pay a good dividend or cashflow and you can expect okay capital appreciation over time. That's generally your first or second ring of suburbs, your first or second ring of suburbs. If you want the FANG stocks, those are in the cities. High growth, low cash flow, those are in the cities, in the areas we're talking about, that generally don't go down but have high appreciation because they have a limited ability to build in the areas New York, san Francisco, I'd say Seattle, Vancouver. So areas where you expect high appreciation over time because there aren't significant abilities to oversupply.

Speaker 2: 21:04

And then when you want cash flowing real estate, you tend to be going pretty far out into the burbs, into the provinces and states that have high cap rates. And they have high cap rates because they have high vacancy. And I have a friend who has investments in Toledo. He gets great cash flow, michael. The value of the homes that he owns are basically the exact same value as when he bought them 15 years ago. There's no capital appreciation, it's all cash flow.

Speaker 2: 21:37

So when you're looking at real estate, you're saying to yourself do I want real estate that's going to cash flow? Do I want real estate that's going to offer me decent cash with decent capital appreciation, cash with decent capital appreciation? Or do I want very high capital appreciation over time, recognizing that I'm going to have less cash flow in the early years? And so you're looking at what type of real estate do I want to build my portfolio around? And you may say I want to build it on a mix of those. I unfortunately live in a city where it's almost impossible to buy residential real estate that cash flows in the short term, and because I'm in Canada, it's hard for me to say, hey, I'm going to go buy. If you live in New York you can still do out-of-state investing, which a lot of people do, and buy some apartment buildings in Phoenix and say, hey, I'm going to hold those, I'll have some on property management. A lot harder to do as a Canadian.

Speaker 1: 22:40

I'm curious to hear your thoughts on the office side of things when it comes to at least the commercial real estate. And I get the sense that real estate, just by the nature of it being local, is a lot more inefficient than equities, which is where the opportunity, you can argue, comes in. Efficiency has to do with has the asset class or the thing you're looking at factored in all available information? That's right. So if we look at the office side of commercial real estate, it's been devastated because of everything post-COVID. But is there an opportunity?

Speaker 2: 23:51

Is it maybe overly discounted? I'm curious to hear your thoughts on that. I won't say I'm an expert in that space. I don't spend much time playing in it. What I will say is I think it's worse than what we're seeing, and why I believe that is the banks are in a situation where, if they were to start to call the loans on properties that are in trouble, then they would be creating a cycle that would harm all of them, and so what they do in that situation is what we commonly refer to as blend and pretend, or extend and pretend, or having the owner of that mall or that office building pay their loan when it comes due. They extend the loan for another five years and pretend that everything's okay. It's not a good situation.

Speaker 2: 24:54

There are some accounts we see on Twitter who highlight these office spaces that, hey, this building sold four years ago for $200 million. It just sold for $25 or even less. And you look at these numbers. It's pretty absurd. I would think there has to be some place there, Michael, and I'll give you a simple example.

Speaker 2: 25:16

Up here in Vancouver there's a company called Shape, and their play about 10, 15 years ago was malls. So they made the decision that they were going to start buying malls and they would turn them into large master plan communities in the fullness of time, Like we're talking 10, 15 towers, restaurants, shops. So now it's a destination mall and it has a massive amount of residential built into it and they were also tying it into transit-oriented density. So we're targeting a mall that is near a SkyTrain our version of rapid transit and we're going to turn that into a master plan community. When they first looked at it, those properties were trading, let's say, in a seven cap. Today, residential real estate in Vancouver, prior to the downturn, prior to rates spiking up, a lot of residential real estate was trading at three and a half to 4%. They were buying these properties at seven caps. And it's very easy now to look back at what they were doing and say, wow, that was such a no brainer. Why didn't more people do that? Well, more people didn't do that because when they were trading at a seven cap, everything was trading at a six or seven cap or eight cap, because the market was in a shitty spot. So what they did was exactly what we talked about. They had a thesis that would bear fruit over the next 10 to 20 years in their mind in the analysis that they did and they were willing, they were convicted in that thesis. Enough to take a big bet and buy multiple malls and we're talking the surface parked malls, right. So massive service parking and we're going to turn that into towers. And so they created a thesis that said we think there's an opportunity here and they took advantage of it.

Speaker 2: 27:09

Is there an opportunity in the office space? I would think that long-term there has to be. Otherwise what we're betting on is the hollowing out of our cities. We're betting that in the fullness of time people don't come back to the city. And when you look at history, during any great pandemic, great fire, et cetera, et cetera, people eventually came back to the city. You're already seeing it, with companies saying, hey, the whole work from home thing doesn't work. Maybe some sort of hybrid model does. Eventually people come back to the city. If it's the right city, people come back. So is there an opportunity? I would think so. I don't have enough time in that area, nor anywhere near enough capital to take advantage of those opportunities. I would think people with enough capital will start to take advantage when there is enough distress sales Enough distress sales.

Speaker 1: 28:19

Now, of course, the key to being successful in real estate and in your personal life is managing your cash flow, and you happen to put a thread out a few days ago If cash is king, then cash flow is queen. The queen can be fickle when it comes to cash flow management, because I would think the biggest challenge for dealing with how to manage cash flow personally or in real estate or other endeavors is having visibility on inflation and taxes. I think, if you're going to approach things from a planning perspective, it's hard to plan when you don't really know what the terminal rate is for interest rates. You don't really know what taxes are going to be, especially as the government's not just in Canada but the US keep on spending. How do you possibly plan cash flow and deal with cash flow properly with those three?

Speaker 2: 29:19

Yeah, it always depends on what industry you're in. Some are going to be harder to do this than others. What I've historically done in the real estate world is it's one of the better industries for forecasting, partially because as you approach approvals on a project and you generally have rough knowledge of how long it takes to get to the approval stage both development permit and construction permit and once you hit your development permit here in Vancouver I believe New York is similar we pre-sell our projects, so we lock in the revenue now with a certain amount of deposits for a future closing, and so the benefit of that world is I know what my revenue coming in is in the future. In terms of tax, I can only lock in what I know the rate to be today. I can't forecast a change in the rate. What I do, michael, is I look out three years ahead and say what are my inflows, outflows, by month for the next three years, and I'll update that on a monthly basis.

Speaker 2: 30:26

And when you're looking at cash flow for a company, I want to do a few other things. One, I want to make sure I have sufficient cash reserves, and how do I test the sufficiency of those cash reserves? A few times per year, I'll run a downside analysis. What if revenues get cut by this percent? What if absorptions of homes get cut in half? What if this happens to construction costs? Bit of a sensitivity analysis how much cash do I need on hand to make sure I never hit the death line, to make sure I never go to zero? So that's one thing I would do. The other thing I want to do is I would want to run an analysis going back to stats class. I'd want to run some regression analysis to say, give me a confidence interval on the amount of working capital that I need to hold in order to never go into my cash reserve. So give me a 90% confidence interval so that I can know hey, my cash reserve is $50 million. It's just going to sit on my balance sheet for a rainy day when shit hits the fan, but I want it to be there when shit hits the fan. So what working capital do I need to have so that that's always there? That might be $15 million. And I run the confidence interval by looking back at five years of cashflow.

Speaker 2: 31:42

What is my month to month change in cash In every cashflow that I've issued? I've issued 11 a year for the last five years. So I've got 55 cashflows. They look out 36 months and I have 55 month to month changes times 36 forward looking months. So that's500 data points, I believe. And then what is my shift in the cash flow for each month? When I issue a January cash flow, I said cash in February was going to be this. When I issued the February cash flow, I said cash was going to be this. So now I have another 1,500 data points. So I have have another 1500 data points. So I have 3000 data points of shifts to say how does my cash flow shift month to month? And I can use that to create a working capital balance. So now there are going to be fluctuations, costs are going to go up, but so are revenues.

Speaker 2: 32:31

I can only deal with today's data. We can do some sensitivity analysis around other things. With interest rates I can be conservative. I can say interest rates are X today, I believe they're going to be Y. As a CFO, it's always my job to be conservative.

Speaker 2: 32:49

So what I would give as an example during COVID we had the benefit of a real estate development company to be able to talk to some of the chief economists for some of our big five banks.

Speaker 2: 33:01

So they'd come in when they were in town and give us a presentation and we, of course, would inevitably talk rates when we were down in the 1% 2% territory and we as a company and me and my role we were always recording higher, faster, for longer than the banks were. We were pretty darn accurate with where we thought the rates were going and at the speed that they would go there. And so that's not because we had a crystal ball, that's just. It didn't make sense. And it didn't make sense with how hot the market was. It didn't make sense with how fast our costs were moving to build these homes. So it was clear that we needed to make an adjustment and it was going to be bigger than people thought. So we went higher for longer, and then what you do where we are today, is we go low, we stay higher for longer, we drop slower than expected. We weren't forecasting drops in May. We weren't forecasting drops in June. We were saying, hey, we're going to have our first drop in September drop in September lower than today's cap.

Speaker 1: 34:36

Let's actually have an execution strategy, hands-on, value-add approach. First of all, I want you to respond to that before you do. Just for those that are not familiar with even the term cap rate and why that matters, explain that.

Speaker 2: 34:47

So cap rate is the equivalent. For people that are listening, let's call it a bond rate. So what it is is what is my cash flow and how does that cash flow tie to the value of a building? So the cap rate is if you multiply it by the value of the building, it gives you the amount of cash flow that building is spitting off In real estate. We work in reverse. So you take the cash flow net operating income and you divide it by the cap rate to get the value of the building. So effectively it's turning that building into a bond.

Speaker 2: 35:27

People are more experienced with bond rates, michael. So they'll say, oh, a bond's paying 5%. That must mean if I invested a million, I'm getting X in cash In real estate. It works in reverse what's my cash flow? Divide that by a cap rate. Another way to look at it for people who are thinking of operating businesses and they're thinking of EBITDA EBITDA being somewhat the operating business version of an NOI. They say, hey, I take my EBITDA and I apply a multiple to it. The multiple is I multiply by 20. Well, in a cap rate situation you would divide by 5%. So it's a similar parameter to get from what is my cash flow to what is the value that I'm willing to pay for an asset. So what a lot of people happen over time is they. And what Eddie's talking about is the rehab space. So the buy, rehab, hold or sell space and people come into an asset with a five cap. So in other words, it was a multiple of 20 on the cash flow. They do some repairs to it, some rehab, re-tenant it, but then the biggest thing that happens is the cap rate went from 5% to 4%. So instead of a multiple of 20, the multiple is 25%.

Speaker 2: 36:51

Now what you have to do when you're evaluating the performance of a general partner to determine whether you want to make investments with them is you have to isolate the performance of the institution against the performance of the market. And, michael, I think it would be fair to say the same in equities. I can't just look at the returns of a portfolio manager and say, man, that's the best portfolio manager. He. What return was generated by performance? What return was generated by actually buying well, renovating in a good way and then re-tenanting in a way where you were making more money, versus simple cap rate compression? And if you can isolate those two, because you have enough information in the market and you should, because in their investment decks you should be saying to them hey, on your past deal, what was the entry cap rate, what was the exit cap rate? And when you know what the entry cap rate was versus the exit cap rate, you should have an idea of what was market-based performance versus individual performance.

Speaker 1: 38:12

Thanks, eddie, for that. That was a good um or a good uh comment. I am curious um, you have a post out there. Obviously you're very intelligent, obviously you've had a great career and generate quite a bit of well. Um, there's this notion out there that it's possible to have a work-life balance. Uh, I am skeptical of that. I think that's a nonsense concept. But I want to hear your thoughts on that, because there is something to the idea that you have to make a choice. Time is the ultimate finite resource. You want to be successful. You have to take a chance. That chance could fail, but you also want to live and be happy, right? So how do you walk that line properly?

Speaker 2: 38:56

Well, you make choices and I mean it's bullshit, like it's work-life integration. And where it's bullshit in a great account on Twitter in the real estate space is Sean Sweeney, and I really appreciate what he does and he was calling bullshit on Alex Hermosi for saying that and he was saying at some point in your career you can't have it. And he was calling bullshit on Alex Hermosi for saying that and he was saying at some point in your career you can't have it. And I was like, well, what he's saying isn't bullshit. Neither of us is saying I don't think you and I don't think I am saying that you can't have balance. What we're saying is you can't have balance while you're building.

Speaker 2: 39:29

You know, young people come to me and they tell me they want this Michael More money, better title. Come to me and they tell me they want this Michael More money, better title, more interesting and engaging work, more variety in their work and the ability to work on special projects and work-life balance. Are you effing kidding me? Am I going to hire someone else to do what you do on a daily basis so I can give you the more interesting work? Am I going to hire someone else to do what you do on a daily basis so I can give you the more interesting work? Am I going to hire someone else to do what you do on a daily basis so that I can put you on special projects? Am I going to promote you before you've worked for it? Your career and growing your wealth is the effort you're willing to put in, and I would always draw a graph for people on my teams and say this could be you over time. And we've got hours and effort and we've got time and money and the more you're willing to put in, the more you're willing to get out. Do I have a very balanced life? I mean, people are like well, how are you creating on social media? How are you building Twitter? How are you building a newsletter, a podcast, while you're working? Because I put in 20 years of 50, 60, 70-hour weeks to the point where I had a team and I'd been at a company for six years, and now I had a team that I'd hand built, that had been with me for five years, that had been with me for six years, who I'd trained to think like I do and that freed up enough time to say I'm going to do this stuff on the side.

Speaker 2: 41:09

What it also meant, though, because, remember, when we first start this, michael, when you first start creating, when you first start going on social media, no one believes you Not your friends, not your family, nobody. And so what that meant was the first two years on social media. The first two years with podcast, I was doing everything myself. I was waking up at five o'clock in the morning, I was starting to post content, I was going in and doing a job as a CFO in my city a large multifamily developer, very high responsibility, a team of 33 people, I think, six functional areas and then I was coming home and I was writing content. I was being a dad, and I was going to bed at midnight, and so I was sleeping five hours a night. Five and a half hours a night for a year. That's completely unbalanced. That's insane.

Speaker 2: 42:09

People are like well, no, for health, you have to sleep eight hours a night. Well, maybe that's not actually true. True, you have to sleep enough to be able to operate, and you have to be able to operate enough to achieve what you want to achieve, and if you want to achieve significant things, you have to work your ass off. You have to be the hardest worker in the room a. You've got to be in the right room, you've got to be surrounded by the right people and then, when you're in that room, you have to work harder than everyone else in that room. Anyone who's great at anything they do works their ass off Full stop Michael Jordan, kobe Bryant, dwayne the Rock Johnson. One of the number one thing guys like that are known for is their work ethic, and it's the same in business. Everyone I know who's achieved at a very high level is super committed to the work.

Speaker 1: 43:04

To be great you also have to be terrible, and the reason I'm asking that is you constantly hear these stories about these very wealthy people that have periods where they were on the verge of bankruptcy, or actually filed for bankruptcy, only to then bounce back. Talk about the failure side, because I think that's equally as important but you have to be willing to.

Speaker 2: 43:37

This, I think, goes back to what you and I talked about earlier with you have to have conviction and the courage to take big bets in areas where you believe you'll be successful. And generally, if they're going to be successful, big bets, they're going to be unconventional, and unconventional doesn't always work, so you have to be willing to ride the pain curve. I'll give you a simple example with my situation. Michael, I believe in the fullness of time in Bitcoin and, consequently, if Bitcoin is going to be successful, I believe Bitcoin miners will be very successful. So I have significant investments in those and those investments. The downside is, as you're well aware of, they fluctuate massively. So you can be up $200,000 one day. You can be down $300,000 the next day when you're down, and you're down a week, every day, for a week, $100,000, and you're like at the end of the week you're like, oh, I've lost half a million dollars. I mean you have to have the ability to zoom out and say have I lost that? Or am I playing this for a five-year horizon and I'm actually up 500, but I was up this and now I'm down. That Where's the timeline? Where are you slicing and dicing the measurement and are you still convicted and you're going to go through painful moments? And if you still have the conviction, you're going to stay in that investment? And you know more than this and can speak more to this from your side that if you believe in the position you're going to hold through the up, through the down? I think the difference with people who succeed and I shared the other day a Michael Jordan video where Michael it's showing him playing basketball and Michael's talking about the number of shots he missed, the number of games he lost, the number of game winning shots. His team trusted him with that. He missed. And he goes through all these failures and then at the end he says and then at the end he says that's why I'm a champion, right Is the average person is afraid to fail, so they won't try. They're afraid to fail so they won't take a bet on themselves. Successful people will take bets on themselves over and over and if they fail, what they'll do is they don't necessarily look at it as failure. They look at it as feedback. What did I learn from that situation so that next time I face it I'll make the right choice? I won't make that same mistake If you think about it as an investor. Okay, what investment did I make? Where did it go wrong? How can I be aware of it next time I make that trade? And I'll give you a simple example.

Speaker 2: 46:42

For real estate, we always talk as the shareholders and leadership team. Hey, we can't predict when the market's at the top. It's always nice to say, stop buying at the top, buy at the bottom. Hey, we can't predict when the market's at the top. It's always nice to say, stop buying at the top, buy at the bottom, but we can't say when the market's at the top. And what I said to my boss one day was well, I mean, maybe we can't, but if we underwrite pro formas to 15% and a year later, based on what's happening in the market from a revenue perspective, that pro forma is now in the 40% territory, based on history.

Speaker 2: 47:33

Anytime our pro forma has a forehandle, things are about to go sideways. Is that fair? You look at it and you say, yeah, that's pretty accurate. Okay, well, we might not be able to predict a tom, but if we ever look at a pro forma and we see a forehandle in it, let's maybe stop buying dirt for a few months. Let's just see what the other developers in town are doing and take a step back so that we don't fail, because we've done it before multiple times, and so have other people in the city. So there are sides.

Speaker 1: 48:10

I'm reminded of that Thomas Edison quote on the light bulb. Yes, I didn't fail a thousand times. I'm reminded of that Thomas Edison quote on the light bulb right, yes, I didn't fail a thousand times. Right, the light bulb was an investment with a thousand steps. Or, you know, I found a thousand ways not to do it right. That kind of thing I think that's missed on a lot of people. Yeah.

Speaker 2: 48:28

It's one of my favorites.

Speaker 1: 48:33

Clint for those who want to track more of your thoughts, more of your work.

Speaker 2: 48:35

where would you point them to? On Twitter, probably the number one spot. I am Clint Murphy, and then our website is thegrowthguide, and that has everything we do.

Speaker 1: 48:46

That has all our social media, our podcast and our newsletter. Make sure you support Clint Murphy. I enjoy this conversation very much. Appreciate those who support the show, like, repost, comment all that stuff and let us know what you think. Appreciate you, Clint, thank you. Thank you, that was fun cheers.