#162: Escape the Grind: Building Passive Income
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Welcome back to another episode of the Richer Geek podcast. Today, we have Spencer Hilligoss, CEO of Madison Investing - a real estate investment club with bespoke, curated real estate deals. Spencer founded Madison Investing with a singular mission — to help busy, successful professionals invest passively, secure their most valuable asset of all time.
In this episode we're discussing...
His background:
Spencer's transition from tech to real estate was fueled by a quest for autonomy.
Importance of passive investment:
Strategic planning crucial for attaining financial independence.
Building wealth and freedom:
Investing in passive income streams allows individuals to build a life they don't need a vacation from.
Time compression and goal Setting:
Long-term goals require efficient planning to accelerate wealth accumulation
Madison Investing and investment opportunities:
Madison offers multifamily investments for limited partners.
Core principles of investing:
Aligning investment goals with personal objectives is paramount.
Spencer advises revisiting core principles to define capital goals.
Connecting with Spencer Hilligoss:
To learn more about Madison Investing and explore investment opportunities, visit madisoninvesting.com and request an invitation.
Resources from Spencer
Resources from Mike and Nichole
+ Read the transcript
Mike Stohler: Hey everybody. Welcome back to another episode of the Richer Geek Podcast. Today's episode is brought to you by REI Words, your go-to SEO Agency for increasing traffic to your real estate website. Check them out at reiwords.com. Today we have Spencer Hilligoss, the CEO of Madison Investing. It's a real estate investment club. With bespoke curated real estate deals, Spencer founded Madison Investing with a singular mission to help busy, successful professionals. Anybody know any of those? I bet you do. He's going to help you invest passively and secure the most valuable asset of all time, which is time. How are you doing Spencer?
Spencer Hilligoss: Doing great, Mike. You know, I mean, starting conversation off like you and I did talking about guitars was a wonderful way to start it off.
Mike Stohler: Yeah. And those of you that are, we'll be watching on video. I've got a few pan to his side. He's got even more and I should run to the other room, grab my other four or five that are just pieces of art. I mean, they're just beautiful things. Spencer a little bit, you know, for listeners, where do you come from? How'd you get involved in this and what's the most important thing on why you decided to break from your tech career and go into this new career?
Spencer Hilligoss: Yeah. And thanks for having me on Mike. It's just great to have a conversation. So naturally I think, you know, I sit here feeling very blessed. As an example, use a quick story like this past summer, our two young kids and my wife, Jennifer, who's also the co-founder. Madison has the best thing with me, my COO and my better half. We all went and were able to go live in a different country. We lived in Portugal for 30 days. And that kind of thing is mind blowing. If I could go back in time and try to tell that quick story to myself when I was working in tech and I was leading and building operations groups 80 hours a week in the office. I would have been like, man, you're like, what are you smoking? You know, it's a pipe dream. And so here I sit just feeling very fortunate because I did work in tech companies for 13 years and ended up leaving that behind in 2019. I think the month was October about five months before COVID hit. And that was never the plan, I was grinding it out in those companies and I won't bore people too much with this, but I'll say as a kid that grew up in a real estate household with a dad, who was a broker that scared me into tech. And I never thought I'd find myself here again, somehow within the world of real estate, where I focus on investing passively and putting our capital into stuff that is long view, truly long view. Is it going to produce cash flow distributions that can replace my income? Is it going to be something that is ultimately risk adjusted to, see through whatever kind of volatility is happening in the market. And we're certainly getting some battle testing moments between coven, in 2020 and certainly in 2020, starting in 2022 through now in 2024. We've been started off by buying a local rental. Initially a modest start, I was still working full time, bought a duplex, paid 430 grand, the California prices. For 200 bucks a month in cash flow, it's not what you call a cashflow win. But we still have it and hey, it's steady, it's appreciated a lot. We then went on to buy some term key rentals in the Midwest, built up a bunch of great looking cashflow on those 60 K a pop on average, getting 250 250 bucks a month. Cash flow from each of those and then eventually realize we didn't want to own rentals because they're semi passive at best. Right. At least while our kids are young, we have a nine and six year old now, but we found our way to passive investing as LPs. And that's where the real, real journey begins now with Madison investing in our passive investments, et cetera.
Mike Stohler: Yeah. You know, it's a great deal for everyone's like there's so many of us, like, how can I get out of, the thumb of being told what to do, and you work your butt off just to get a 20 percent larger quota the next year. Congratulations. Here's the new quota. And it just drives you insane. I have over my wall hanging right in front of me and I see it every day. It's my motto and it goes right along with what you're saying. It says, build a life that I don't need a vacation from. And. Everyone asks why, you know, why do I just not sit on my 401k, my IRA, people think that they can't get out from the grind and it's just like you, do I want to run an RV for two weeks? Don't want to go to the cabin. Do I want to do anything in the world? All I need is an internet and a laptop. And I can run my business and talk about the importance of switching to that. Now, I've gone kind of the other way from an LP to a GP, and then I've built a team that has finally allowed me to kind of step back, so I kind of did it, I went from a grind to no grind, a bigger grind it's talk about people are dreaming about that, it's like, how can I build wealth. Get out from that grind, build that life that I don't need to vacation from. What's the importance of keeping your passive investment strategy passive instead of getting back into the grind?
Spencer Hilligoss: Oh man, we could spend the whole time just talking about this. That is such a killer question, Mike. I would argue one of the hardest ones, if not the hardest. I look at the key choice that I was wrestling with, this is about in 2016 making great income W-2, Jennifer, my better half, her own distinct career, so we're doing dual income thing here in the Bay area, getting great income, stocking money away in our 401ks, maxing it out. Really celebrating that for a decade plus. Nothing wrong with it, got to get that company match. But ultimately when we sat there, there was one mentor I spoke to out of many tons of networking calls that happened in meetings that happened when I was trying to find my way, buying rentals. And I was like, this is going to take forever. If we keep scaling up buying one rental at a time, it's going to take us 20 years. And I just don't know if my hand's going to function anymore after signing these loan docs that many times, this is going to hurt. And the mentor asked me a question, he was like what kind of market do you live in? Do you live in a money state? Do you live in a deal state? That sounds immediately derogatory to every person that lives in a coastal pricey market. And that is not the intention. I'm not trying to talk down or punch down on my friends. It's just the truth.
Mike Stohler: Yeah. You should not be offended by the truth. Yeah. It's true. That's why I don't buy hotels in California. There are other states and that has nothing wrong with California, it's the market. It is the business, it's the way that California is compared to other states. California's not the only one that I would not invest in, but you have business truths, it's just the way it is.
Spencer Hilligoss: A hundred percent, that question was so powerful and I won't have time to give credit to the other formative conversations that I had, because you get mentors and you're my corporate life. I look back at that and I'm not sitting here like so many folks in the real estate investing community. I'm kind of like, they rip the hard on the W-2 world. And although I'm sitting here and we're talking and I'm saying it was hard and it's a grind, we can all go find a grind in every industry. Yeah, I look back and I cherish that experience. I had great income that enabled us to go buy our home, to buy other properties, to go make investments. But I wanted something that said my number one priority. If you were to look at my calendar until I quit, it was work. It was not my family. And that's messed up, I really believe that moment, that spark of like, not, there was a time in about 20 so that 2017 or around there I didn't see my son for like two weeks, you know, I was going in early, son was not up. I was coming home late. Son was well down. And I was like, this is something's got to give here. It's not just making more money. And so ultimately when it comes to forming, like, do I want to go build a business or do I want to go invest in another business? And that's the question when it comes to real estate and folks will jump headfirst into going and building a business. The moment they see a great paid ad on Facebook, the moment that we read a book, I read 24 books and listened to over 400 podcasts in an 18 month period while working full time. No one needs to go do that either. That was procrastination. Yeah, but I will say I tried to educate myself so I didn't make a stupid decision, like one of the biggest stupid decisions, which is, let me dive headfirst into building a completely different type of grind that I don't want to lean into. And that's why we started investing as LPs, you know, we invested as LPs, as passive investors, limited partners in a multifamily deal. And we doubled our money within a two and a half year period. That has not happened every time, big disclaimer, very different market now than it was then. —---------------------------------------------------------------------------------------------------------------------------- Mike Stohler: But yeah, believe me.
Spencer Hilligoss: Yeah, my goodness. But that was an eye opener. And so we did, I did eventually get it. A bit more active, we started investing, but then we said, everyone in my network was asking me, Spencer, you're going to go hop in a plane and go look at that property sitting in the middle of Texas. You're going to go walk that storage facility sitting in the middle of Georgia, what if you did some diligence and helped educate us? And then that was the Genesis of saying, okay, let's get one click more active in addition to our passive. It's a journey and I wish I could give a quick and dirty answer to people to say, here's how you decide how active you want to be. But it's a labor of love and figuring out, are you actually curious about this stuff? Because I had done 13 years in a career where I cherished leading people and managing people. Hardest thing anyone can do. I swear. It's like brutally challenging, emotionally taxing being a therapist, but also very gratifying. And I was done on that front.
Mike Stohler: But here's the thing: You've created the grind, a different kind of grind, but it's on your terms, right? When you're a W-2 outside of your own company, you're someone else's grind. You're making someone else money. You're making some money, but you're making a corporation. You're making some entrepreneur that created that company, all the money. And what I say, people are like me, but you know, owning all this and doing syndications and doing funds is the grind. In the middle of that grind, I can play golf if I want, I choose when I want to work. That's kind of the importance and that's the differential part. And you can do that as a limited partner. If you just start, because it is possible, isn't it Spencer, that you can do enough deals as a limited partner, not have to worry about anything and you can replace your income.
Spencer Hilligoss: Yes. Yes, you can. If to me, the biggest guiding question, and there was a specific weekend, I will reference when I, but I share this, Mike time. It's about time compression. Right. And you know this, but we haven't talked about this. I don't know if the listeners think about this, it was mind blowing to me. So in 2016, Mike, I mean, Jennifer and I hired a sitter and we took this super seriously. It was the nerdiest exercise you can imagine. We sat down and said, how do we break free? Completely replaced my income, completely replaced Jennifer's income from two W2 careers. And we said, how do we remove the excuses? Because at first everyone, I'm a human being and everyone says we want instant gratification. I want it. I want to go out now. That makes for so many easily grabbable excuses why we can't do it. So we said, let's pick a very long time horizon, call it 15 years. And that sounds absurdly long. But we picked it. And the next weekend we did the whole thing again. And these were hard sessions, man. For a married couple. With kids, we were sitting there getting through cycles of argument. There were some tears. There was some laughter. There was some reconciliation. I don't want it to come across like this was some magical answer. We worked for that stuff. And we came out the other side of that saying 15 years is too damn long. We want to do it in seven. Ultimately we hit it in five. And I want to be candid with folks and say, like, If they want to do full passive work in their career, they're making great income. It is doable. But if you want to compress the time, that's the real question, right? For us, it was like, if you want to go the full path, there's people in our group too, that'll invest alongside us. They don't hate their careers. They're not burnt out. They just want to know there's an off ramp, you know? So by the time that they get to year five, year eight, maybe, and they are in, They're an engineer or a developer, or, they're a product manager and they're sitting there saying, I just want that to be ready for me.By the time that I'm ready to get more family focused, then you pull out that timetable a bit further. But for us, we said 15, too long, let's figure out how to get passive and do something active. Run our investing club. That's how we compress the time down to get to five years for full passive replacement with some active as a compliment too. Okay. . So it's an exercise that's hard, man. We still have to revisit that annually. And we are better at the exercise now. There's no tears involved. But just to illustrate that, it is absolutely possible. It just takes
Mike Stohler: It is, it is decision making . Yeah. Yeah. I had to readjust mine after Covid also, just bought Hotel 2019. Bam. Average of 86 percent occupancy down to about seven and a half. You're like, Ooh, you know, let's learn that's shocks to the system, right? Shock to the system, and it made me a better hotel. And yes, ladies and gentlemen, that hotel is still going. It never shut down. It continued operation. Even during COVID you just think outside of the box and you become. You know, half the hotel, you do whatever it takes to keep the investors happy and keep the asset open. So let's talk a little bit about your club and everybody again, Spencer Hilligoss, madisoninvesting.com. We're going to be talking about the. com right now. What's the website about? What do people do? I go to madisoninvesting.com, request the invitation. What happens?
Spencer Hilligoss: I reached out, it's not automated. I myself reach out to every person that actually takes the time out of their busy day, just to say, Hey, I want to learn more. And we have grown our club membership a bit of the old fashioned way. It's been building long term relationships. Similar to what you and I were chatting about offline before we kicked off today. Mike has served us incredibly well. We're not sitting here trying to push growth. This is not a startup much akin to the VC backed, wonderful companies that I've worked for in my career, that creates this pressure cooker need for growth. Like we're trying to build authentic relationships with real human beings that are figuring out their financial path forward. So reach out and have a human conversation with me. And we sit there and just figure out. Where we both wanted to head and in the club, we'll share a handful of the types of opportunities that we invest our own money in, throughout the year, some of it's multifamily storage, some other niche assets, short term rentals, ATMs, stuff that cash flows.
Mike Stohler: Yeah. Yeah. But no hotels yet. tHat's a whole other beast. I'll put it on there. Yeah, that's a whole other beast. Yeah, I came from, I don't know, 20 some years of multifamily hotels and they're just like, oh, nah, they're not quite the same.
Spencer Hilligoss: That's one thing that I want to mention too, Mike, is I have found it to be incredibly valuable to stick to one thing that I do have something I know, and before I jump into something taking the really taking the time and so I just wanted to mention that with my caveat of yet for hotels.
Mike Stohler: There you go. All right. So someone wants to be an LP limited partner with Madison investing some multifamily, some other assets, known assets, the cashflow. That has a history of cash flowing. What's the minimum? Do they have to be accredited? What are some of the requirements in order to invest with Madison Investing?
Spencer Hilligoss: Just requirement number one, please be a reasonable, friendly, human being, requirement to requirement to just accredited investors. Happy to chat with non-accredited. We're all human. And frankly, those rules are set up with the best of intentions, but just because one, one little number changes, it doesn't mean a change is human. So happy to build the relationships. This is the long game limited partners. There's a reason it's called Limited Partners, right? It's not just passive investors. It is an LP.
Mike Stohler: You're a partner. Yeah. Yeah. This is not something you cash out in six months. It's a, “Hey Spencer, you know, I need my car payment. Cash me out in six months.” Yeah, exactly. How about five years, five to seven, five to seven, maybe 10, depending on another COVID or something like that. What are some of the future projects that you guys are working on, or if you can talk about it, if they're under paperwork, what is Madison Investing doing currently?
Spencer Hilligoss: Happy to, and I'll try to keep it brief because I'm excited about the landscape of Ford. We're in such a unique moment in the market. Where asset prices, basically you and I have been chatting about cash flow and cash flow. Meaning if I invest a hundred thousand dollars, as an example, into something I want to start producing a meaningful distribution rate back to me, at least to be compelling for folks. Back in 2018, 2017. Let alone earlier, we were all looking at deals that were 8 percent cash flow, drop your money in that. And you'd see that in year one, not including what you get on the backend, where you get this big growth pop, those types of opportunities are slowly starting to emerge, but there are very few of them, very few. And so I'd say right now, what we're interested in is really two things. Looking for year one cash flow, and this can be from a storage facility. This can be from a family. This can be from a more niche asset class. Meaningful year one cash flow, not just with a big loan, but up against it on a variable rate loan. Yeah. Yeah. Try to reduce the risk. And then number two, make sure that it actually has a tax advantage of some sort built into that structure and what in this. If you had some tax nerds out there, I never thought I would be, but I am now trying to avoid big taxable moments on the exits, and so buying big assets with other people that we appreciate partnering with investing alongside having those things, cashflow for years, ideally, when the time comes refinancing out and getting a big distribution from a cash out refinance, that's a beautiful thing. Then you don't have to worry about a huge capital gains tax bill and bonus depreciation recapture. Those types of things. So those are the two things right now we're working on. Putting together funds and a couple other one off opportunities that we see coming down the pipe.
Mike Stohler: Perfect. Now Spencer, is there anything that I haven't hit on that you'd love to inform our audience about before we leave?
Spencer Hilligoss: I would just say that if you haven't nerded out on investing literature, which most people haven't, cause I think it kind of puts them to sleep I would say, Come back to the core principles. This is something I have to do myself, even though I've been in over 50 deals, 50 investments passively like this and actively as well. What is the goal for the capital? Right? it's such a simple sounding question, but when people start seeing fancy looking investment summaries. I do this too. Beautiful looking deck with an incredible looking return as a projection. And the question is, are you solving for cashflow? If you are a high net worth individual. A family office, you don't really need the cash flow, you know? So really just sitting there and being honest with oneself, I find that guidance to be incredibly helpful. And I just borrowed that very simple question from someone else, of course. And I just try to implement it every time I look at a new opportunity. So I would just challenge folks out there to ask themselves what's the goal for the money?
Mike Stohler: Yeah. Well, that's very true. I have investors that do self directed IRAs and things like that. They don't care about the cash flow. Right. I do it too. It's staying in the IRA. I have some high net worth so they don't need the cash flow. What they want is how long can we keep it in? That's right. They don't want the five years. Hey, Mike, you have 10 years, if you have it and can we reinvest, can we do that and just keep it going because they don't need a couple thousand dollars a month. It's not even their car payment. It's not life changing. Right. It's not life changing. They don't need it. Pounds. And that's beautiful. Absolutely.
Mike Stohler: Well, Spencer, so much. For joining us today on the Richard geek podcast, you are blessed in that sunny Bay area weather. It's probably getting a little bit warmer now.
Spencer Hilligoss: Yeah. We finally got some sun today, but Hey, we needed the water for the past couple of years. So we'll take it.
Mike Stohler: You definitely, you definitely are filling those reservoirs. I think it's true. All right. Well, have a blessed day and thank you for coming on our podcast.
Spencer Hilligoss: Yeah. Honored to come on. Thank you so much, Mike.
ABOUT SPENCER HILLIGOS
Spencer Hilligoss is the CEO of Madison Investing - a real estate investment club with bespoke, curated real estate deals. Spencer founded Madison Investing with a singular mission — to help busy, successful professionals invest passively, secure their most valuable asset of all time. Before starting Madison Investing, Spencer was what some consider a “corporate junkie” by growing operations and sales teams in 5 high growth Fintech companies over the span of 13 years. Now, as a full time investor and entrepreneur, he can spend more time with his family and honing his skills on the electric guitar. He is a registered member of FINRA and a member of the Forbes 2023 Real Estate Council.