0:00

This show, of course, is a real estate

0:02

podcast. We spend pretty much all of our

0:04

time breaking down the ins and outs of

0:06

how to buy real estate and talking about

0:09

why it's such a powerful asset class. But

0:11

the truth is, it's not always the

0:14

time to buy. There are times when

0:16

other asset classes or other types of

0:18

investments may make as much or even

0:21

more sense than real estate. For example,

0:23

say, small businesses. Our

0:25

guest today is going to share why he

0:27

has pivoted away from buying real estate for

0:29

the time being and what he's doing to

0:31

build up capital until the market shifts and

0:33

he's ready to buy again. Hey,

0:40

everyone, and welcome to the Bigger Pockets

0:42

Real Estate Podcast. I'm your host today,

0:44

Dave Meyer. And as we always do,

0:46

we're kicking off your week with an

0:48

investor story. We're sharing a conversation with

0:50

an investor who's trying to get ahead

0:52

just like you. We're going to unpack

0:55

how our guest today is making deals

0:57

work. And that guest

0:59

today is a multifamily investor and

1:01

former U.S. Marine, Matt DeBoth. And

1:04

Matt has been investing over 13 years. He's

1:06

seen a lot of different market cycles. He's

1:09

done a lot of different things in

1:11

real estate. But today we're going to

1:13

hear from him about why he's shifted

1:15

to investing in small businesses instead of

1:17

real estate. When and why

1:19

he made that shift, what he looks

1:21

for in these businesses, and when he

1:24

plans to buy real estate again. And

1:26

of course, at the end, we're going to get

1:28

into what you could do if you're interested in

1:30

some of the strategies and things Matt talks about,

1:32

what you could do to get into it as

1:35

well. Matt DeBoth, welcome to the show. Thanks for

1:37

having me. To help set the stage and give

1:39

us a little bit of background, can you just

1:41

tell us when you got started investing in

1:43

real estate? I got started in 2011. I

1:47

was just getting out of the Marine Corps

1:49

and I had absolutely no idea

1:51

on what I was going to do. No plans. I

1:54

didn't plan on going to college. So I figured the

1:56

next best thing was start getting invested in real estate

1:58

and go from there. Well, 2011, everyone

2:01

now, I think, looks back on that time

2:03

and they're like, oh, what a great time

2:05

to start. And in retrospect, it was. But

2:07

I got started at a similar time, and

2:10

it was not as obvious then

2:12

that it was a great time to

2:15

buy. So why was investing

2:17

in real estate the decision you

2:19

ultimately made? Well, I just saw the

2:21

market as an easy way to make

2:23

money. I figured, hey, I could buy a

2:25

house in my market for 20, 25 grand, put

2:29

five, $10,000 into it, and I could go around and rent

2:31

it for seven, $800 a month. So

2:34

I really started doing that and

2:36

just kind of snowballed from there. And

2:39

people just kept saying, oh, don't buy real estate. It's

2:41

not worth it. This is a terrible time to buy.

2:44

But on paper and on a spreadsheet, it

2:46

was the best way to

2:48

make money at the time. The money came so easily.

2:50

There was no other option for me. I didn't want

2:52

to go back to school. I

2:54

was done military. I didn't want to go

2:56

get a W-2 and make somebody

2:59

else's passive income off my 40 hours

3:01

a week. So I figured I'm going to stick with

3:03

real estate. I'm going to go from there and see

3:05

where this journey takes me. I like it. It's like

3:07

the process of elimination. You're like, no more military, no

3:09

school, no W-2. What does that leave me

3:11

with? Real estate investing. Now,

3:13

Bigger Pockets was around back then.

3:16

It was before I knew about it.

3:18

But is that where you learned how to invest

3:20

or what gave you the confidence that you could

3:22

do this? I think it's just the Purple Bible,

3:24

the Rich Dad, Poor Dad book. I picked that

3:26

up. I was bored on a

3:28

deployment. Purple Bible. I've never heard that.

3:31

I didn't know anything about investing. I didn't understand

3:34

really money. I just thought, hey, I got to

3:36

work to make money. I

3:38

was in Iraq and I started reading this book

3:40

that someone had left around. Everything

3:42

just clicked. I think it's the same story that

3:45

millions of people have ever talked about. They picked

3:47

up this book and they realized, holy cow, this

3:49

is the best way to make money. I'm going

3:51

to work for myself, be independent. From

3:53

there, I just picked up more and more books.

3:55

I was reading, I don't know, 50 to 70

3:57

books a year on real estate, investing, personal finance.

4:00

everything I could pick up I was consuming.

4:03

All right, so what kind of strategy did

4:05

you go into first, Matt? So my very

4:07

first purchase was a 20 unit

4:09

apartment complex. I bought the owner seller

4:11

financed it to me. I

4:14

paid him $50,000 down, which

4:17

at that time was the most money I'd ever had. I

4:19

had been on a deployment. I saved all the money I

4:21

had. I contacted

4:23

this realtor that had this listing and I knew

4:25

it was way out of my price range because

4:27

I was expecting to buy a small house. And

4:30

she put me in contact with the owner. He

4:33

ironically lived 40 minutes from me where I

4:35

was stationed down in North Carolina. So we

4:37

met right when I came back from my

4:39

deployment. From there, he

4:41

just kind of held my hand to show me, hey, this is

4:44

what I've done in the past. This is what you should do.

4:47

I got out of the Marine Corps, moved

4:49

back home, moved into that 20 unit and I

4:51

house hacked it for the next, I

4:54

think 18 months. And I was the

4:56

property manager. I was the maintenance guy, the

4:58

leasing agent. I did everything. At

5:01

that 18 month mark, I turned around, I got

5:03

a bank note, paid off the seller. He

5:05

was happy, I was happy. And then from

5:07

there, just snowballed. And I went all

5:10

in on buying single family homes

5:13

and apartment buildings. I've never heard someone call it

5:15

20 unit a house hack.

5:17

That's quite an impressive first deal at

5:19

house hack. And was

5:21

that, did you analyze the market and

5:24

spend a lot of time thinking about

5:26

it? It was kind of just like the

5:28

deal was so good, you were willing to do it, or

5:30

is it convenience based on where you're stationed?

5:32

It was back home, it wasn't where I

5:35

was stationed, it was back home in Iowa.

5:37

And the numbers were just so great on it.

5:40

I figured, hey, what's the worst thing that's gonna happen

5:42

to me? They're gonna say no, I'm

5:44

not gonna get offended, I'm not gonna get my feelings

5:46

hurt. So I'm just gonna try and get the numbers

5:48

from the realtor. I'm gonna try and get the steel

5:51

working. Even though I knew 100% that that was

5:53

out of my price range. But

5:55

after the negotiations and the numbers and everything, it came

5:58

back and we worked. out.

6:01

I did pay a lot of money and interest to

6:03

the seller, but that was my

6:06

poker fee to get into the game. Yeah,

6:08

sounds like it was definitely worth it. So

6:11

I'd love to hear about your entire journey.

6:13

This is fascinating. I haven't heard a lot

6:15

of people who start with a 20-unit house

6:17

hack, but I do want

6:19

to sort of get to where you are

6:21

today because you're doing some really interesting stuff.

6:24

But give us a quick synopsis of your

6:26

scaling path. You went from 20 units,

6:28

you went all in. What did that look

6:31

like? What kind of strategies and what was

6:33

your general approach to building out your business?

6:35

So after the 20-unit, I started buying single-family

6:38

homes because you could just throw a dart

6:40

at the MLS and you were making money.

6:42

These houses were $15,000 to $30,000, five

6:46

to 10 grand in to fix them up. I

6:48

was basically doing the burr method before

6:50

I think it was coined the burr method. Take

6:52

in cash advance out on my credit card. I'd

6:54

buy the house, fix the house up myself, went

6:57

to the bank, refinance out,

6:59

cash out, paid off my credit card, put more

7:01

money in the bank. From

7:03

there, I started doing single-family house

7:06

flips. I started buying smaller multifamily.

7:08

Then I got into about 2017, 2018. I started

7:10

getting into

7:13

larger multifamily, 17 units, 20 units.

7:15

Then I went up to 48 units. And about

7:17

2021, 2022, I

7:25

started seeing a lot of shady things happening

7:27

in the industry. Numbers weren't making sense. I

7:29

was sitting at about a little

7:31

over 250 units just myself. And I

7:34

realized, hey, there's something's coming down the

7:36

pipeline. So I figured, hey, I'm going

7:38

to sell off a chunk of my

7:40

portfolio, but I didn't want the cash because

7:42

I didn't know what to do with it. I wasn't finding deals.

7:45

So I seller financed the

7:47

majority of my portfolio. So

7:51

I'm still catching, or I'm sorry, I'm still

7:53

cashing a check every month. It's

7:56

a lot more passive than it was when I was running

7:58

it, or I had third party running. it and I

8:00

stacked them where I'm going to have a balloon payment

8:03

in two years, then in three years, then in four

8:05

years. So these large apartment complexes, I'm giving them a

8:07

great interest rate. And

8:10

in turn, they're paying me 30 grand

8:12

a month and I'm not doing anything. I'm just

8:14

sitting back collecting a check. I want to ask

8:17

you more about that in a second. But Matt,

8:19

when you said in 2021, you started to get

8:21

a sense that something negative was

8:23

coming, was that just in multifamily

8:25

or residential as well? Because you

8:27

said you own a bunch of

8:29

single families. I saw it mostly

8:31

in the multifamily space. I

8:33

was seeing these Instagram

8:35

syndicators who had never done a

8:38

deal. And they had all

8:40

this money somehow that they had raised and they

8:42

had promised the universe to these

8:45

investors, 15, 20% returns in the first

8:47

year, because

8:49

they were going to double rents or they were going

8:51

to do this. And I just kept seeing like, hey,

8:53

I know in my market, you're not going to be

8:55

able to get double what you're promising, because it's

8:58

my backyard. I know it very well. So

9:01

when I started seeing interest rates low, cap rates

9:03

low, I started saying, hey, this wave isn't going

9:05

to last forever. It's going to crash in the

9:07

beach sooner or later. So that's when I kind

9:09

of decided like, all right, I need to get

9:11

off this wave, pass it to

9:13

someone else. I need to go find new opportunities.

9:15

All right. So now we know how Matt got

9:17

into real estate and when he stopped buying properties.

9:20

But the question is, how is he choosing

9:22

businesses to invest in now? And how

9:24

do the profits compare to real estate?

9:27

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11:49

Welcome back to the Bigger Pockets Real Estate

11:51

Podcast. I'm here with Matt Domboth. Let's get

11:53

back into our conversation. You did mention one

11:55

of the challenges that I think get overlooked.

11:57

A lot of people are like, oh, I'll

12:00

sell at the top. But, you know, obviously

12:02

that's easier said than done. But

12:04

even if you do time the market correctly, it

12:06

brings up this whole other question, what

12:08

do you do with the money? Because you're

12:10

selling these large apartment complexes, sound like a

12:13

nice profit, but if there's no deals to

12:15

go buy, it brings up this challenge of

12:17

what you're gonna do. I sold

12:19

a little bit in 2022 and sort of

12:21

had the same question myself. It made me wonder,

12:23

should I just like weather what's coming? But you

12:26

just came up with a cool strategy. So you

12:28

seller finance them. Does that mean

12:31

you owned these properties outright? No,

12:33

I had a mortgage on them

12:36

through a bank. So I had to get the bank's

12:38

permission prior to selling them. But the

12:40

sellers, I'm sorry, the buyers were

12:42

well qualified. They put

12:44

down anywhere between 10 to 20%. So

12:47

I got a large down payment on them. And I mean,

12:50

I gave them a good opportunity, a good deal.

12:52

But on the end of the day, I still got

12:54

a great deal because I got a passive income check. And

12:56

now what I'm doing is just taking that money and

12:58

stacking it, putting it on the sidelines

13:01

for more real estate deals, more business

13:03

deals, other things that I can see

13:05

that are good opportunities. And how does

13:07

the passive income check compare cashflow wise

13:09

to what you were earning as an

13:12

operator? Is it same size, same type

13:14

of returns? Yeah, it's about the same

13:16

returns. It's just a lot less headache.

13:18

I don't miss being in the day-to-day

13:20

operations of 250 units, but

13:23

I also see the opportunities coming down

13:25

the road for businesses. So I want

13:27

to start putting my attention and effort

13:29

into that instead of worrying

13:31

about, hey, what's the market going to do with this real estate?

13:33

Do I need to have all these vacancies?

13:35

I need to get rented, rents are dropping. I don't

13:37

have to worry about anything. I just sit back and

13:39

collect the check now. That sounds amazing. I've heard very

13:41

few people be like, oh, I really miss running the

13:43

operations of a 250 unit portfolio. It

13:47

sounds like you've gotten yourself in a good spot.

13:50

And I do want to get to what you're

13:52

doing today. But you said one other thing I

13:54

want to make sure everyone understands. You said that

13:56

you sort of staggered the balloon payments on the

13:58

multifamily exits and on the side. seller financing. Can

14:00

you explain that to everyone, what that means

14:03

first of all, and why you did it?

14:05

So your balloon payment is when

14:07

it's due. So that's when the bank's going to

14:09

tell me, hey, you got five years at 3%

14:11

interest. At that five-year,

14:14

one-month mark, we're going to change it to whatever

14:16

interest rate is that, or you need to

14:18

go refinance. So what I did was

14:20

I kept my balloon payments. I timed them when I

14:22

owed the bank, and I gave myself

14:24

about a six-month buffer. So the buyers

14:26

buying my apartment complexes, I gave

14:28

them a balloon payment to make sure they could pay

14:30

me off before my balloon was due. And

14:33

I did that every year. I'll

14:35

get a balloon payment because I didn't want all

14:37

that money at once. I didn't want to have to sit

14:40

on the sidelines with a huge pile of cash and

14:42

wonder, hey, what am I going to do with it?

14:44

Do I just pay taxes? I want to stagger it

14:47

out so I can put it in

14:49

different avenues. Yeah, that makes sense. It's sort of

14:51

like this idea of dollar cost averaging, which I

14:53

talk about a lot on the show, which

14:55

if you're not familiar with, it's basically the idea that

14:58

you want to invest over regular

15:00

intervals over time and similar amounts of money.

15:03

And it's a good way to hedge against

15:05

market volatility. Because if you're just regularly investing,

15:07

then sometimes you're going to invest when it's

15:09

up a little bit. Sometimes it can be

15:11

down a little bit. But over the long

15:13

run, you're going to peg yourself to the

15:15

average, which is something that you generally want

15:18

to do. So that

15:20

sounds like a great strategy, Matt. Just wanted

15:22

to make sure everyone understood the wisdom in

15:24

that. So let's turn

15:26

the conversation here from real estate to what

15:28

you're doing now. You've talked a lot about

15:30

stacking cash. So what does that actually mean?

15:32

Are you just sitting on cash in a

15:34

savings account right now? So I keep a

15:36

little bit in the savings, but I also

15:39

like to deploy it. I don't like my

15:41

money just sitting around losing money.

15:44

So I've been concentrating heavily on small

15:46

businesses, franchises specifically, just because right now

15:48

is the time to buy with all

15:51

the baby boomers retiring, people

15:53

wanting to sell their businesses. Real

15:56

estate's a great opportunity. I just don't feel like

15:58

it's the right opportunity for me right now,

16:01

because I don't want to invest out of state. I

16:03

want to stay in my local market. Interest rates are

16:06

high. Prices are high. I don't want to spend the

16:08

time looking for a house or an

16:10

apartment building that's going to make me

16:12

single-digit returns when I can go find

16:14

a small business to buy that'll make

16:16

me 20% to 30% ROI just the

16:20

first year. So I'm spending my

16:22

time finding those businesses that nobody

16:24

else wants to put

16:26

them in my portfolio. What type of businesses are

16:29

we talking about here? Right now,

16:31

I'm concentrating on the food sector, restaurants, franchises.

16:33

I know a lot of people are against

16:35

franchises. They don't want to pay the 5%

16:37

royalty, 10% royalty, whatever

16:40

they are. I just feel like it's

16:42

a playbook that you just follow to

16:44

generate cash. I'm not going to go out and

16:46

start my own pizza shop and

16:48

find the location. I'm not going to do it. I don't

16:51

know what equipment I need, the recipes, how to market it.

16:53

I just have to go find whatever franchise I want to

16:55

invest in, follow their playbook,

16:57

and go from there. I mean, I want

17:00

to say, I think the last time I

17:02

read it was like 91% of franchises are

17:04

still in business after the first two years,

17:06

and 85% are still in business after the

17:08

first five. So it just proves

17:10

that franchises are the better way

17:12

to go in small business. I know a

17:14

lot of people will give you flack saying, hey, franchises isn't the

17:17

way to go. You got someone to listen to.

17:19

You have a boss. But at the end of the day, I

17:21

want that boss. I want someone to lean on that if I

17:23

need help. They got an

17:25

HR department legal. They're doing national

17:27

advertising. It's everything that you

17:29

need in one pot. All you have to

17:31

do is just turn the heat on them

17:33

and make it. Yeah, right? It's a little

17:35

bit different when your boss's whole job is

17:37

to make you money. You still

17:39

have that element of entrepreneurship. There

17:42

is good financial alignment in that

17:44

sort of situation, because they win

17:46

when you win. And they clearly

17:48

have your best interests at heart.

17:50

So tell me how you did

17:53

the first one here, Matt, because

17:55

I hear a lot of the

17:57

macro news about small business. It

17:59

makes a ton of sense to

18:01

me, but I'm

18:03

also just wary of learning a new business. It

18:06

seems like a lot of work. So

18:08

how did you make the jump and

18:10

what was your first small business investment?

18:12

So I spent about a year, year

18:14

and a half actually looking into businesses,

18:17

just learning the ins and outs of them, just like you would when

18:19

you wanted to buy your first house. So

18:21

I learned everything that I could. I started

18:24

talking to brokers, signing hundreds of NDAs, trying

18:26

to get numbers on businesses, looking

18:28

at the market I want to get into. And

18:30

then I happened to find two franchise pizza restaurants

18:32

in the Des Moines area. I

18:34

looked into their brand. I looked into the

18:37

operations, the scalability, and I realized,

18:39

hey, this is a business model

18:41

that I can take, I can

18:43

grow, and I can expand all

18:45

across the country. And so you

18:47

were starting a new franchise. You

18:49

were buying a franchise from an

18:51

existing operator. Correct. My first

18:53

two purchases were already in two existing stores

18:56

because I didn't want to go in from

18:58

the ground up and build something out that

19:00

I didn't know how to do. I

19:02

wanted to come in, see the operations. I knew

19:04

what I had to do in order to tweak

19:06

the operations to make them better stores. And

19:09

then from there now, I'm going into the development phase.

19:11

And when you bought it, did you

19:13

have any sort of earn out or agreement

19:15

with the existing owner that they were gonna

19:17

show you the ropes a little bit? So

19:19

with this franchise that I bought into, I

19:21

actually went to their school for two weeks.

19:23

I got the training I needed. And then

19:26

from there, I went to another store and

19:28

I worked three weeks in there

19:30

to figure out, this is the day-to-day operations.

19:32

This is how we do opening. This

19:35

is how we do close. That way, if

19:38

I ever had to go into the store

19:40

and work, I know what I'm doing. Okay,

19:42

that makes total sense. I think it's very

19:44

smart to go in and actually understand the

19:46

operations, not just on an academic level, but

19:48

on a physically, what is actually happening in

19:50

that business. It's the

19:53

same thing in real estate. So I always recommend

19:55

to people self-managing for a while because you really

19:57

get to understand and then when you go and

19:59

hire out, you have the... experience to know what

20:01

to look for and what good looks like in

20:03

your business. Tell me

20:05

a little bit about the financials here, Matt.

20:07

Talk to me about what these franchises

20:10

produce in terms of revenue, in terms

20:12

of profit and their margin, and then

20:14

what did you buy it for in

20:17

terms of a multiple of revenue or

20:19

multiple of EBITDA? So price range kind

20:21

of depends on which franchise sector you

20:24

go into. It depends on who's

20:26

operating it, what market it's in,

20:29

what their SD is, what their

20:31

EBITDA is. To

20:33

me, it's more of... I

20:36

relate it back to real estate. I'm finding a crappiest

20:38

house in the best neighborhood. I'm fixing it up. I'm

20:41

doing the same principles I would do in real estate

20:43

as I'm doing in business. I'm finding a great franchise

20:45

and a great location that's just rained in the ground.

20:48

And then I come in and I buy it. I

20:51

know what I need to do as far as advertising, for

20:53

operations. And I'm wanting to grow this business from $10,000 a

20:55

week to $20,000 a week in

20:58

sales, because I want all these to

21:01

be million dollar stores. I try to stick with,

21:03

hey, what can I scale these

21:05

to? As in how many numbers stores can I get

21:07

into a market? I don't want to buy one store

21:09

in the middle of Kansas City. I want to buy

21:11

one store in the middle of Kansas City and be

21:13

able to expand to five, 10, 15

21:16

stores, and then just kind of

21:18

go from there. Do you think your experience

21:20

in real estate and picking real estate deals

21:23

has helped you with this model? Because so

21:25

much of franchises I imagine is location. Absolutely.

21:27

It's all location. You don't want to

21:29

be in the back corner of a strip mall that

21:31

nobody sees. You want to be in the front. You're

21:33

going to pay premium rent to get a premium location.

21:36

Yeah. Okay. So yeah. I mean,

21:38

and you've done that obviously with multifamily

21:40

or small single family houses, same sort

21:42

of thing. Obviously, there are different specific

21:44

things you want to look for, but

21:46

location obviously drives demand in both of

21:48

these businesses. So let's talk

21:50

a little bit about what problems you're solving

21:53

because I think our audience understands like what

21:55

a house that's not really up to its

21:57

highest and best use looks like. And at

22:00

some of the steps you need to take to improving

22:02

it. But what does that mean for a small business?

22:04

What are the challenges or

22:06

the inefficiencies that exist that you as the

22:08

investor can go in and improve? Really, these

22:11

businesses are just a lot of them are

22:13

just ran by single unit operators. They're exhausted.

22:15

They've been doing this for five, 10 years.

22:18

They're working in the store. They're not putting

22:20

any money towards advertising. They're not putting any

22:22

money into fixing up the curb

22:25

appeal or the equipment. They're

22:28

just worn out operators. So

22:31

the best thing to do when looking at these, as I

22:33

like to identify, hey, are these or do they want to

22:35

sell? I don't want to go to somebody who

22:38

has 50 stores and say, hey, I just want

22:40

to buy your portfolio. I want to find somebody

22:42

who's tired. They don't want the business anymore. They

22:45

want to hand it off. Maybe they want to

22:47

still get a residual income from the business. Seller

22:49

financing is huge in small businesses right now. I

22:51

would say probably 80% of the businesses

22:53

I buy have some sort of seller

22:55

carry, whether it's a down payment, whether it's

22:58

the entire thing. But finding

23:00

those businesses that the seller or that the

23:02

owner wants to sell is key. Then

23:05

once I find those, I just

23:08

run the numbers just like I would in a

23:10

house or apartment building. Hey, this is your income.

23:12

This is your expenses. This is your net profit.

23:14

Yeah, it's still just a math equation, right? The

23:16

inputs, the assumptions are a little bit different. But

23:18

at the end of the day, investments are mostly

23:20

just an equation that you can figure out. There's

23:23

obviously nuance to it, but it

23:25

sounds relatively similar. Obviously, the seller

23:27

finance of things is very appealing.

23:29

But how cash intensive

23:31

are these deals? Would you

23:34

give us a price point that you've bought a

23:36

deal at? Yeah. For instance, the last

23:39

deal I bought paid $500,000 for

23:41

it. SBA loan 10%

23:43

down, the interest is higher. They're usually at

23:45

this market right now. We're looking at 9%

23:47

to 11% interest, but it's on a 10

23:49

year term. So with a

23:53

$500,000 purchase, you're looking at anywhere between $80,000 to $100,000

23:55

net profit per

23:59

year off of these. businesses, which is just

24:01

insane compared to real estate. But

24:03

you're also not getting the principal pay

24:05

down that you would in real estate or

24:07

the appreciation because the businesses are usually sold

24:10

on a multiple of the net income. So

24:12

I also have to take an effect, hey, down the road in

24:14

10 years when this loan's paid off, am I going to sell

24:16

it for what I paid for, a little bit more? Am I

24:18

going to lose some money? That's why right

24:21

now I'm just stacking cash from these businesses and

24:23

putting it on the sidelines and waiting for the

24:26

real estate deals to come. We're trying to purchase as

24:28

much real estate we can with the business. Unfortunately,

24:30

a lot of these small businesses, they don't own

24:33

the real estate that they're in, they lease it.

24:36

So I think that's the biggest problem

24:38

right now is trying for me is to

24:40

acquire the real estate that the businesses are

24:42

in. Interesting. That's a good idea. It

24:44

sounds like generally, though, your portfolio approach is

24:46

like invest in these small

24:48

businesses for the cash flow. Like you

24:51

said, you don't get the loan paid

24:53

down, the amortization, and they

24:55

may not appreciate. They could actually even

24:57

depreciate in terms of the multiple of

24:59

revenue that you sell them at. So

25:02

it does sound like eventually you're trying to take

25:04

this money, put it back into real estate, and

25:07

that way, I assume you wouldn't sell the small

25:09

businesses right away because then you would have maybe

25:12

the best of both worlds. Yeah, so the

25:14

overall goal is to hold as many profitable

25:16

businesses in a portfolio as possible.

25:20

Just like single family home portfolio or

25:22

apartment building, build each little

25:24

business to produce its own

25:26

amount of cash to put on the sidelines

25:28

to buy more businesses. Because each

25:31

one could potentially be a small ATM machine

25:33

for you. They're not as

25:35

passive as people think. They're very, very much active.

25:37

I think a lot of people get into this

25:39

mindset where, hey, I'm going to buy a single family home.

25:42

I'm not going to have to work because it's going to be all this passive

25:44

income. Well, that's a great

25:46

theory, and it will work to scale. But when you

25:48

buy that first home, that second home, that third home,

25:50

you're going to have to work, be boots on the

25:53

ground. That's the same thing with businesses. You're going to

25:55

buy one small business, two small businesses. You're going to

25:57

be in the day-to-day operations until you get to a

25:59

firm. five, six stores, and you can hire

26:01

an above store leader to look over everything,

26:03

and now you have one person to manage.

26:06

That's the biggest benefit of going into these

26:08

bigger markets to try to expand and develop,

26:10

is that if you can get to five,

26:12

10 locations in one market, you can hire

26:14

somebody to overlook everything for you, and then

26:16

you're just managing the managers from there. It's

26:18

such a great point. We talk about it

26:20

a lot on the show all the time,

26:22

that this idea that you're going to magically

26:24

start a business and you're not going to

26:26

have to be involved in it just

26:29

doesn't really exist, and nor should it be your

26:31

goal, in my opinion at least. I think you

26:33

should learn to operate your

26:35

business successfully, because even if you do then

26:38

become more passive over time, you're going to

26:40

be better at managing the business passively. All

26:42

right, we've got to take one more quick

26:44

break, but I just want to share a

26:47

quick reminder with you. Part of

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eBay motors.com. Hey,

30:11

investors. Welcome back to the show. Let's

30:14

jump back in. Let's talk about managing

30:16

the business. Let's start at a store

30:18

level here, Matt. What is your involvement?

30:20

What are these pizza chains? How many

30:22

hours a week did it take

30:25

you to stabilize the asset? So once you

30:27

bought it, you're in it, I assume, pretty

30:31

intensely in the first few months. What does that look

30:33

like? Yeah, the first few months, you're going to walk

30:35

in. Odds are a lot

30:37

of the employees are going to give you pushback. You're

30:39

going to realize, hey, the operations aren't what they are

30:41

supposed to be. A lot of people don't like change.

30:43

They're set in their ways. They'd

30:45

rather just move on, go somewhere else. That's

30:48

fine. That's my open door

30:50

to let everybody who doesn't want to be there get out.

30:52

And I tell them from day one, hey, change is coming

30:54

down. This is what we're going to be doing. It's going

30:56

to be better for not only the customer, but it's going

30:58

to be better for the employees, the business, the

31:01

local area, and everything. So I would say when

31:03

you're first taking over business, you can go anywhere

31:05

from 40 to 60 hours a week. It depends

31:07

how intense you want to be in there. If

31:10

you want to micromanage everything, I mean, you could work

31:12

open to close every day, seven days a week. But

31:15

once you do those two, three

31:18

months of working hard, getting everything

31:20

tweaked out, right now, I'm

31:22

looking at probably two

31:24

to three hours per week per store. And

31:27

that's because I do a lot of the bookkeeping.

31:29

I'm tracking a lot of the financials. And

31:32

this is my full-time job is

31:34

basically sitting in front of a

31:36

computer analyzing things, putting them in

31:38

spreadsheets, sending out reports. And how

31:40

important is that store-level

31:42

manager to you? I imagine that person

31:44

is invaluable. Oh, they're worth their weight

31:47

in gold. It's just like

31:49

finding a good property manager. You want to

31:51

find someone who they take their passion

31:53

and they put it into your project. They

31:56

want to see the store succeed. They want to succeed. On

31:58

the other hand, you want to you want to pay them what they're

32:01

worth. If they're doing 40 hours

32:03

a week and you're paying them for 40 hours a week,

32:06

that's great. But if they're working 60 hours a week

32:08

and you're only paying them for 40 hours a week,

32:10

that's going to eventually catch up to them and they're

32:12

going to get exhausted. That's why every one of my

32:14

businesses, we have a bonus structure, whether

32:17

they're following food costs, they're following labor

32:19

costs, they're following sales, if they hit

32:21

certain metrics, they're going to get bonus

32:23

out. And that's a way to

32:25

keep your good employees staying with you and

32:28

turn them from a good employee to a

32:30

great employee. And eventually move them up to

32:32

hopefully a partnership deal. I love that. It's

32:34

true with everything. If you align your incentives,

32:36

sort of like we were talking about between

32:38

the franchise and the franchisees, as long as

32:40

your incentives are aligned, you can get people

32:42

motivated and working together and creating mutual

32:45

benefit. That's the beautiful thing about business.

32:48

So you have these store level managers and

32:50

then what does the rest of your operation

32:52

look like? Do you have like regional managers

32:55

or does that even work because you're

32:57

buying different franchises within the same market?

32:59

Do you need managers for each type

33:01

of business? Yeah. So we're trying to

33:03

keep one above store leader

33:07

on each franchise. So if we have a hamburger

33:09

franchise, we're trying to keep that one person managing

33:11

five of those in one market. We have a

33:14

pizza franchise, we're trying to keep one person who's

33:16

been in pizza 15, 20, 30 years to stay

33:18

with those. So

33:20

we're trying to keep the managers managing the

33:22

sector that they've proven they're worth

33:24

in. The higher we go up on the

33:27

chain of management, the more versatile

33:29

the people become. So we could have one

33:31

person that can manage five managers on the

33:33

West Coast. We could have one person manage

33:35

the five managers on the East Coast. And

33:37

then from there, we just kind

33:39

of pyramid up where at the top of the

33:42

chain, that person's looking at two people below them.

33:44

Those two people have three people below them. Got

33:46

it. Okay. Well, this is

33:48

fascinating, Matt. You're definitely giving me some

33:50

itchy fingers thinking about this kind of

33:52

deal. Tell me what kind of investor

33:54

at what stage of your investor journey does

33:57

this sort of make sense for people? I

33:59

mean, I I think it really comes

34:01

down to what your goals are. If you

34:03

want to look for a super passive investment, this

34:05

is not for you. If you want to

34:07

find something where you

34:09

can work on your own project on your own

34:11

time, you can build it to scale, you can

34:14

expand across the country, across the world, then maybe

34:16

this is the investment for you. But at the

34:18

end of the day, I think you just need

34:20

to figure out what your goals are and

34:23

go from there, whether you want to go

34:25

into pizza, whether you want to go into tree trimming,

34:27

whether you want to go into nursing consultant. It

34:30

really depends on what your end goal is at

34:32

the end of the day. And do you mean

34:34

by goal, are you sort of like the return

34:36

profile is different for each one, or the operations

34:39

are different? I would say both. I

34:41

think at the end of the day, when you figure out what your goal

34:43

is going to be, whether do you want to retire off these? Do you

34:45

want to be active every day? That's what you really need to figure out

34:48

by which business you want to pick. Don't pick a

34:50

business that you're not passionate in, that you don't want

34:52

to be in, and you're just looking at the numbers.

34:55

Pick something that you can see growing, that's something you'll

34:57

enjoy going to, that you're excited to wake up for

34:59

every day, and go from there. Yeah,

35:01

that makes total sense. I think the same thing is

35:03

true in real estate, right? Some people wind

35:06

up finding themselves in flipping, doesn't

35:08

suit their personality, doesn't suit their goals. They

35:10

either burn out or figure this out quickly

35:12

enough and switch. So Matt, do you

35:15

have any plans to spend some of this cash

35:17

that you have stacked up on the side in

35:19

real estate any time soon? I'm

35:22

just curious how you're reading

35:24

the market right now. I

35:26

would say for right now,

35:28

I'd like to just stay still on the real estate

35:30

portion. I'm always looking for deals, but I'm not looking

35:32

as hard as I was five, 10 years ago. I'm

35:35

kind of concentrating more on these small

35:37

businesses to build up a large portfolio

35:40

and looking more to go into the

35:42

private equity portion of business instead of,

35:45

hey, I'm just going to buy a whole bunch of

35:47

apartments and sit on them. And by private equity, you

35:49

mean like you might raise a fund and capital to

35:51

go buy more of these? I want to be the

35:53

private equity that buys people out. So right now, we're

35:55

looking at a 40-unit portfolio

35:57

of franchise restaurants.

36:00

that we'd like to acquire and put that

36:02

in our portfolio and eventually build this up

36:04

to a large holding company

36:06

where it's just like real

36:08

estate. We have people do every angle of

36:10

the operations, and then I can

36:12

concentrate, move from there and go back into real

36:14

estate and concentrate on that sector. Got it. That

36:17

makes a lot of sense. Very

36:19

smart idea. So Matt, for

36:21

people who are interested in this strategy, and

36:23

I think you've shared some really fascinating numbers,

36:26

and it seems like the cashflow opportunity is

36:28

just huge here. What are some

36:30

steps that people could take to learn more about

36:33

this strategy? I mean, there's

36:36

podcast books. Just start talking to brokers just

36:38

like you would with real estate. Find the

36:40

business brokers. They're all over the place, all

36:42

over the internet. Just Google

36:44

businesses for sale. You'll find a ton of brokers. Get

36:46

up with them. Start figuring out, hey,

36:48

how are these brokers and sellers

36:50

valuing their business? Are they valuing off a

36:52

multiple? Do they have a lot of emotion

36:54

into it? Is it cash flowing? Is

36:56

it not cash flowing? What can I do to make

36:58

it cash flow? I just look at every business as

37:01

it is a rental house. They're all in different markets.

37:03

They're all different shapes and sizes. They're all worth different

37:05

amounts. They all cost different amounts to run. But at

37:07

the end of the day, I like

37:10

the business aspect because I can

37:12

sell a thousand people a thousand

37:14

things. Whereas real estate, you're only

37:16

going to raise somebody's rent, X

37:19

amount of dollars every year. So

37:22

you're capped on what your income level can be.

37:24

That's the beauty with small businesses is you can

37:27

expand as much as you want

37:29

to by advertising, by selling different

37:31

objects. Instead of looking at it where you can say,

37:33

hey, I'm only going to make a hundred dollars per

37:35

month per door with a

37:38

business, hey, I'm going to make a hundred dollars per day

37:40

because I'm going to go out there and I'm going to

37:42

sell this, or I'm going to pay people to sell this

37:44

product. And the scalability of sales is

37:46

unlimited. So you can sell a

37:49

thousand pizzas to one

37:51

business and make all that money

37:53

on one week. Whereas real estate, hey, I'm kind of capped at

37:55

what I can do because your tenants probably not going to want

37:58

you to raise the rent 100%. every

38:00

other month. That's not true. I never really thought about

38:02

that. Rents, obviously, you

38:05

have some control over in terms of the

38:07

quality of the offering that you have,

38:09

but you're limited a lot by

38:11

macroeconomics, things that are just outside

38:14

of your control, but there's

38:16

no limit. There's obviously

38:18

some limit, but the ceiling for how much

38:20

you can sell at a franchise is

38:23

much higher and I

38:26

guess much more scalable. I never really thought about that.

38:28

That's so true. I guess in that way, it's

38:30

really good for people who really have

38:32

that hustle or have that sales mentality

38:34

and who are going to get into

38:36

the business and really optimize

38:39

every little piece of it so that you

38:41

can keep cranking out more and more profit.

38:44

I was at a conference years ago and

38:46

I met a gentleman who owned a tree trimming company.

38:49

He was telling me, he said, if you want to

38:51

make money, sales is the way to go because your

38:53

real estate is great. It could be passive. You're building

38:56

all this equity, but at the end of the day,

38:58

you can only raise people's rent so much, whereas

39:01

trimming trees, you can always expand into different

39:03

markets. There's always trees to be cut down.

39:05

You have reoccurring business. Just as

39:07

hard as you want to work, that's how much money you're

39:10

going to make as much money as you can by this

39:12

output you put into your work. That's great advice, Matt. Thank

39:14

you so much for sharing this with us. It's

39:16

got me excited. I'm imagining that a lot

39:18

of people listening to this are also really

39:21

interested in this strategy. If you want to

39:23

learn more from Matt, check out what he's

39:25

up to. We'll make sure to put all

39:27

of his contact information in the show notes

39:29

or in the description if you're watching on

39:31

YouTube. Matt, thanks so much for being here.

39:34

Thanks for having me.

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