Does Buying a Business Beat Real Estate Investing in 2024?

Dave:
This show of course, is a real estate podcast. We spend pretty much all of our time breaking down the ins and outs of how to buy real estate and talking about why it’s such a powerful asset class. But the truth is it’s not always the time to buy. There are times when other asset classes or other types of investments may make as much or even more sense than real estate. For example, say small businesses. Our guest today is going to share why he has pivoted away from buying real estate for the time being and what he’s doing to build up capital until the market shifts and he’s ready to buy again.
Hey everyone, and welcome to the BiggerPockets Real Estate podcast. I’m your host today, Dave Meyer, and as we always do, we’re kicking off your week with an investor story. We’re sharing a conversation with an investor who’s trying to get ahead just like you. And we’re going to unpack how our guest today is making deals work, and that guest today is a multifamily investor and former US Marine Matt Deba. And Matt has been investing over 13 years. He’s seen a lot of different market cycles. He’s done a lot of different things in real estate, but today we’re going to hear from him about why he’s shifted to investing in small businesses instead of real estate, when and why he made that shift, what he looks for in these businesses and when he plans to buy real estate again. And of course at the end we’re going to get into what you could do if you’re interested in some of the strategies and things Matt talks about what you could do to get into it as well. Matt Deba, welcome to the show.

Matt :
Thanks for having me

Dave:
To help set the stage and give us a little bit of background. Could you just tell us when you got started investing in real estate?

Matt :
I got started in 2011. I was just getting out of the Marine Corps and I had absolutely no idea on what I was going to do. No plans. I didn’t plan on going to college, so I figured the next best thing was start getting invested in real estate and go from there.

Dave:
Well, 2011, everyone now I think looks back on that time and they’re like, oh, what a great time to start. And in retrospect it was, but I got started sort of at a similar time and it was not as obvious then that it was a great time to buy. So why was investing in real estate the decision you ultimately made?

Matt :
Well, I just saw the market as an easy way to make money. I figured, hey, I could buy a house in my market for 2025 grand, put five, $10,000 into it and I could go around and rent it for seven, $800 a month. So I really started doing that and just kind of snowballed from there and people just kept saying, oh, don’t buy real estate. It’s not worth it. This is a terrible time to buy. But on paper and on a spreadsheet, it was the best way to make money at the time. The money came so easily, there was no other option for me. I didn’t want to go back to school. I was done in the military. I didn’t want to go get a W2 and make somebody else’s passive income off my 40 hours a week. So I figured I’m going to stick with real estate. I’m going to go from there and see where this journey takes me.

Dave:
I like it. It’s like the process of elimination. You’re like, no more military, no school, no W2. What does that leave me with Real estate investing. Now BiggerPockets was around back then, it was before I knew about it, but is that where you learned how to invest or what gave you the confidence that you could do this?

Matt :
I think it’s just the Purple Bible, the Rich Dad Poor Dad book. I picked that up. I was bored on a deployment

Dave:
Purple Bible. I’ve never heard that.

Matt :
I didn’t know anything about investing. I didn’t understand really money. I just thought, Hey, I got to work to make money. I was in Iraq and I started reading this book that someone had left around and everything just clicked. I think it’s the same story that millions of people have ever talked about as they picked up this book and they realized, holy cow, this is the best way to make money. I’m going to work for myself, be independent. And from there I just picked up more and more books. I was reading, I don’t know, 50 to 70 books a year on real estate investing, personal finances, everything I could pick up I was consuming.

Dave:
Alright, so what kind of strategy did you go into first, Matt?

Matt :
So my very first purchased was a 20 unit apartment complex. I bought the owner seller finance it to me. I paid him $50,000 down, which at that time was the most money I’d ever had. I had been on a deployment, I saved all the money I had. I contacted this realtor that had this listing and I knew it was way out of my price range. I was expecting to buy a small house and she put me in contact with the owner. He ironically lived 40 minutes from me where I was stationed down in North Carolina. So we met right when I came back from my deployment. From there he just kind of held my hand to show me, Hey, this is what I’ve done in the past, this is what you should do. I got out of the Marine Corps, moved back home, moved into that 20 unit and I house hacked it for the next I think 18 months. And I was the property manager, I was the maintenance guy, the leasing agent. I did everything at that 18 month mark. I turned around, I got a bank note, paid off the seller. He was happy, I was happy. And then from there it just snowballed and I went all in on buying single family homes and apartment buildings.

Dave:
I’ve never heard someone call a 20 unit a house hack. That’s quite an impressive first deal at house hack. And did you analyze the market and spend a lot of time thinking about it or was kind of just like the deal was so good you were willing to do it or was it convenience based on where you’re stationed?

Matt :
It was back home. It wasn’t where I was stationed. It was back home in Iowa and the numbers were just so great on it. I figured, hey, what’s the worst thing that’s going to happen to me? They’re going to say, no, I’m not going to get offended. I’m not going to get my feelings hurt. So I’m just going to try and get the numbers from the realtor. I’m going to try and get the steel working. Even though I knew a hundred percent that was out of my price range. But after the negotiations, the numbers and everything, it came back and we worked it out. I did pay a lot of money and interest to the seller, but that was my poker fee to get into the game. So

Dave:
Yeah, sounds like it was definitely worth it. So I would love to hear about your entire journey. This is fascinating. I haven’t heard a lot of people who start with a 20 unit house hack, but I do want to sort of get to where you are today because doing some really interesting stuff. But give us a quick synopsis of your scaling path. You went from 20 units, you went all in. What did that look like? What kind of strategies and what was your general approach to building out your business?

Matt :
So after the 20 unit, I started buying single family homes. You could just throw a dart at the MLS and you were making money. These houses were 15 to $30,000, five to 10 grand in to fix ’em up. I was basically doing the bur method before, I think it was coined the bur method, taking cash advance out on my credit card, I’d buy the house, fix the house up myself, went to the bank, refinanced out, cashed out, paid off my credit card, put more money in the bank. From there, I started doing single family house flips. I started buying smaller multifamily. Then I got into about 20 17, 20 18, I started getting into larger multifamily, 17 units, 20 units. Then I went up to 48 units and about 20 21, 20 22, I started seeing a lot of shady things happening in the industry. Numbers weren’t making sense. I was sitting at about a little over 250 units just myself and I realized, hey, something’s coming down the pipeline.
So I figured, hey, I’m going to sell off a chunk of my portfolio, but I didn’t want the cash because I didn’t know what to do with it. I wasn’t finding deals. So I seller finance the majority of my portfolio. So I’m still cashing a check every month. It’s a lot more passive than it was when I was running it or I had third party running it and I stacked them where I’m going to have a balloon payment in two years, then in three years, then in four years. So these large apartment complexes, I’m giving them a great interest rate and in turn they’re paying me 30 grand a month and I’m not doing anything. I’m just sitting back collecting a check. I

Dave:
Want to ask you more about that in a second, but Matt, when you said in 2021 you started to get a sense that something negative was coming, was that just in multifamily or residential as well? You said you own a bunch of single families.

Matt :
I saw it mostly in the multifamily space. I was seeing these Instagram syndicators who had never done a deal and they had all this money somehow that they had raised and they had promised the universe to these investors, 15, 20% returns in the first year they were going to double rent or they were going to do this. And I just kept saying like, Hey, I know in my market you’re not going to be able to double what you’re promising because it’s my backyard. I know it very well. So when I started seeing interest rates, low cap rates low, I started saying, Hey, this wave isn’t going to last forever. It’s going to crash in the beach sooner or later. So that’s when I kind of decided like, alright, I need to get off this wave, pass it to someone else. I need to go find new opportunities.

Dave:
Alright, so now we know how Matt got into real estate and when he stopped buying properties, but the question is how is he choosing businesses to invest in now and how do the profits compare to real estate? We’ll dig into those questions right after the break. Welcome back to the BiggerPockets Real Estate podcast. I’m here with Matt Deba. Let’s get back into our conversation. You did mention one of the challenges that I think get overlooked. A lot of people are like, oh, I’ll sell at the top. But obviously that’s easier said than done, but even if you do time the market correctly, it brings up this whole other question, what do you do with the money? Because you’re selling these large apartment complexes sound like a nice profit, but if there’s no deals to go buy, it brings up this challenge of what you’re going to do. I sold a little bit in 2022 and sort of had the same question myself and maybe wonder, should I just weather what’s coming? But you came up with a cool strategy. So you seller finance them. Does that mean you owned these properties outright?

Matt :
No, I had a mortgage on ’em through a bank, so I’d had to get the bank’s permission prior to selling ’em. But the sellers, I’m sorry, the buyers were well-qualified. They put down anywhere between 10 to 20%. So I got a large down payment on ’em and I mean I gave them a good opportunity, a good deal, but on the end of the day I still got a great deal. I got a passive income check and now what I’m doing is just taking that money and stacking it, putting it on the sidelines for more real estate deals, more business deals, other things that I can see that are good opportunities.

Dave:
And how does the passive income check compare cashflow wise to what you were earning as an operator? Is it same size, same type of returns? Yeah,

Matt :
It’s about the same returns. It’s just a lot less headache. I don’t miss being in the day-to-day operations of 250 units, but I also see the opportunities coming down the road for businesses. So I want to start putting my attention and effort into that instead of worrying about, Hey, what’s the market going to do with this real estate? Do I have all these vacancies I need to get rented? Rents are dropping. I don’t have to worry about any of that. I just sit back and collect the check. Now

Dave:
That sounds amazing. I’ve heard very few people be like, oh, I really miss running the operations of a 250 unit portfolio. It sounds like you’ve gotten yourself in a good spot and I do want to get to what you’re doing today, but you said one other thing I want to make sure everyone understands is you said that you sort of staggered the balloon payments on the multifamily exits and on the seller financing. Can you explain that to everyone what that means first of all, and why you did it?

Matt :
So your balloon payment is when it’s due, so that’s when the bank’s going to tell me, Hey, you got five years at 3% interest at that five year, one month mark. We’re going to change it to whatever interest rate is that, or you need to go refinance. So what I did was I kept my balloon payments, I timed them when I owed the bank and I gave myself about a six month buffer. So the buyers buying my apartment complex is I gave them a balloon payment to make sure they could pay me off before my balloon was due, and I did that every year. I’ll get a balloon payment because I didn’t want all that money at once. I didn’t want to have to sit on the sidelines with a huge pile of cash and wonder, Hey, what am I going to do with it? Do I just pay taxes? I want to stagger it out so I can put it in different avenues.

Dave:
Yeah, that makes sense. It’s sort of like this idea of dollar cost averaging, which I talk about a lot on the shows, which if you’re not familiar with, it’s basically the idea that you want to invest over regular intervals over time and similar amounts of money, and it’s a good way to hedge against market volatility because if you’re just regularly investing, then sometimes you’re going to invest when it’s up a little bit, sometimes it’s going to be down a little bit, but over the long run, you’re going to peg yourself to the average, which is something that you generally want to do. So that sounds like a great strategy, Matt. I just wanted to make sure everyone understood the wisdom in that. Okay, so let’s turn the conversation here from real estate to what you’re doing now. You’ve talked a lot about stacking cash, so what does that actually mean? Are you just sitting on cash in a savings account right now?

Matt :
So I keep a little bit in the savings, but I also like to deploy it. I don’t like my money just sitting around losing money. So I’ve been concentrating heavily on small businesses, franchises specifically, just because right now is the time to buy with all the baby boomers retiring, people wanting to sell their businesses. Real estate’s a great opportunity. I just don’t feel like it’s the right opportunity for me right now because I don’t want to vest out of state. I want to stay in my local market. Interest rates are high, prices are high. I don’t want to spend the time looking for a house or an apartment building that’s going to make me single digit returns when I can go find a small business to buy, that’ll make me 20 to 30% ROI just the first year. So I’m spending my time finding those businesses that nobody else wants to put them in my portfolio.

Dave:
And what type of businesses are we talking about here?

Matt :
Right now I’m concentrating on the food sector, restaurants, franchises. I know a lot of people are against franchises. They don’t want to pay the 5% royalty, 10% royalty, whatever they are. I just feel like it’s a playbook that you just follow to generate cash. I’m not going to go out and start my own pizza shop and find the location. I don’t know what equipment I need, the recipes, how to market it. I just have to go find whatever franchise I want to invest in, follow their playbook and go from there. I mean, I want to say I think the last time I read it was like 91% of franchises are still in business after the first two years and 85% are still in business after the five. So it just proves that franchises are the better way to go in small business. I know a lot of people will give you flax saying, Hey, franchisees isn’t the way to go. You got someone to listen to. You have a boss, but at the end of the day, I want that boss. I want someone to lean on that I need if I need help. They got an HR department, legal, they’re doing national advertising. It’s everything that you need in one pot. All you have to do is just turn the heat on ’em and make it. Yeah,

Dave:
Right. It’s a little bit different when your boss’s whole job is to make you money. You still have that element of entrepreneurship. There is good financial alignment in that sort of situation, right? They win when you win and they clearly have your best interest at heart. So tell me how you did the first one here, Matt, because I hear a lot of the macro news about small businesses. It makes a ton of sense to me, but I’m also just wary of learning a new business. It seems like a lot of work. So how did you make the jump and what was your first small business investment?

Matt :
So I spent about a year, year and a half actually looking into businesses, just learning the ins and outs of ’em just like you would when you wanted to buy your first house. So I learned everything that I could. I started talking to brokers, signing hundreds of NDAs, trying to get numbers on businesses, looking at the market I wanted to get into, and then I happened to find two franchise pizza restaurants in the Des Moines area. I looked into their brand, I looked into the operations, the scalability, and I realized, hey, this is a business model that I can take. I can grow and I can expand all across the country.

Dave:
And so weren’t starting a new franchise, you were buying a franchise from an existing operator?

Matt :
Correct. My first two purchases were already two existing stores because I didn’t want to go in from the ground up and build something out that I didn’t know how to do. I wanted to come in, see the operations, I knew what I had to do in order to tweak the operations to make them better stores. And then from there, now I’m going into the development phase.

Dave:
And when you bought it, did you have any sort of earn out or agreement with the existing owner that they were going to show you the ropes? A little bit.

Matt :
So with this franchise that I bought into, I actually went to their school for two weeks. I got the training I needed and then from there I went to another store and I worked three weeks in there to figure out this is the day-to-day operations. This is how we do opening, this is how we do close. That way if I ever had to go into the store and work, I know what I’m doing.

Dave:
Okay. That makes total sense. I think it’s very smart to go in and actually understand the operations, not just on a academic level, but on a physically what is actually happening in that business. It’s the same thing in real estate. So I always recommend to people self-managing for a while because you really get to understand and then when you go and hire out, you have the experience to know what to look for and what good looks like in your business. Tell me a little bit about the financials here, Matt. Talk to me about what these franchises produce in terms of revenue, in terms of profit and their margin, and then what did you buy it for in terms of a multiple of revenue or multiple of ebitda?

Matt :
So price range kind of depends on which franchise sector you go into. It depends on who’s operating it, what market is it in, what their SD is or what their EBITDA is. To me, it’s more of, I relate it back to real estate. I’m finding a crappy AST house in the best neighborhood. I’m fixing it up. I’m doing the same principles I would do in real estate is I’m doing in business. I’m finding a great franchise and a great location that’s just ran in the ground and then I come in and I buy it. I know what I need to do as far as advertising, far as operations, and I’m wanting to grow this business from $10,000 a week to $20,000 a week in sales because I want all these to be million dollar stores. I try to stick with, hey, what can I scale these to? As in how many numbers stores can I get into a market? I don’t want to buy one store in the middle of Kansas City. I want to buy one store in the middle of Kansas City and be able to expand to 5, 10, 15 stores and then just kind of go from there.

Dave:
Do you think your experience in real estate and picking real estate deals has helped you with this model? Because so much of franchise, I imagine is location.

Matt :
Absolutely. It’s all location. You don’t want to be in the back corner of a strip mall that nobody sees. You want to be in the front, you’re going to pay premium rent to get a premium location. Yeah,

Dave:
Okay. Yeah, and you’ve done that obviously with multifamily or single family houses, same sort of thing. Obviously there are different specific things you want to look for, but location obviously drives demand in both of these businesses. So let’s talk a little bit about what problems you’re solving. I think our audience understands what a house that’s not really up to its highest and best use looks like, and at least some of the steps you need to take to improving it. But what does that mean for a small business? What are the challenges or the inefficiencies that exist that you as the investor can go in and improve?

Matt :
Really these businesses are just, a lot of ’em are just ran by single unit operators. They’re exhausted. They’ve been doing this for five, 10 years. They’re working in the store. They’re not putting any money towards advertising. They’re not putting any money into fixing up the curb appeal or the equipment. They’re just worn out operators. So the best thing to do when looking at these as I like to identify, hey, do they want to sell? I don’t want to go to somebody who has 50 stores and say, Hey, I just want to buy your portfolio. I want to find somebody who’s tired. They don’t want the business anymore. They want to hand it off. Maybe they want to still get a residual income from the business seller financing is huge in small businesses right now. I would say probably 80% of the businesses I buy have some sort of seller carry, whether it’s a down payment, whether it’s the entire thing, but finding those businesses that the seller or that the owner wants to sell is key. Then once I find those, I just run the numbers just like I would in a house or an apartment building. Hey, this is your income, this is your expenses, this is your net profit.

Dave:
Yeah, it’s still just a math equation. The inputs, the assumptions are a little bit different, but at the end of the day, investments are mostly just an equation that you can figure out, and there’s obviously nuance to it, but it sounds relatively similar. Obviously the seller financing thing is very appealing, but how cash intensive are these deals? Would you give us a price point that you’ve bought a deal at?

Matt :
Yeah, so for instance, the last deal I bought paid $500,000 for it. SBA loan 10% down. The interest is higher. They’re usually at this market. Right now we’re looking at nine to 11% interest, but it’s on a 10 year term. So with a $500,000 purchase, you’re looking at anywhere between 80 to a hundred thousand dollars net profit per year off of these businesses, which is just insane compared to real estate. But you’re also not getting the principle pay down that you would in real estate or the appreciation because the businesses are usually sold on a multiple of the net income. So I also have to take in effect, hey, down the road in 10 years when this loan’s paid off, am I going to sell it for what I paid for a little bit more? Am I going to lose some money? That’s why right now I’m just stacking cash from these businesses and putting it on the sidelines and waiting for the real estate deals to come. We’re trying to purchase as much real estate we can with the business. Unfortunately, a lot of these small businesses, they don’t own the real estate that they’re in. They lease it. So I think that’s the biggest problem right now is trying for me, is to acquire the real estate that the businesses are in.

Dave:
Interesting. That’s a good idea. It sounds like generally though, your portfolio approach is like invest in these small businesses for the cashflow. Like you said, you don’t get the loan pay down the amortization and they may not appreciate, they could actually even depreciate in terms of the multiple of revenue that you sell them at. So it does sound like eventually you’re trying to take this money, put it back into real estate in that way. I assume you wouldn’t sell the small businesses right away then you would have maybe the best of both worlds.

Matt :
Yeah, so the overall goal is to hold as many profitable businesses in a portfolio as possible, just like single family home portfolio or an apartment building, build each little business to produce its own amount of cash to put on the sidelines to buy more businesses because each one could just potentially be a small ATM machine for you, and they’re not as passive as people think. They’re very much active. I think a lot of people get into this mindset where, Hey, I’m going to buy a single family home. I’m not going to have to work because it’s going to be all this passive income. Well, that’s a great theory and it will work to scale, but when you buy that first home, that second home, that third home, you’re going to have to work, be boots on the ground. It’s the same thing with businesses. You’re going to buy one small business, two small businesses. You’re going to be in the day-to-day operations until you get to five, six stores and you can hire an above leader to look over everything and now you have one person to manage. That’s the biggest benefit of going into these bigger markets to try to expand and develop is that if you can get to five, 10 locations in one market, you can hire somebody to overlook everything for you and then you’re just managing the managers from there.

Dave:
It’s such a great point. We talk about it a lot on the show all the time, that this idea that you’re going to magically start a business and you’re not going to have to be involved in it just doesn’t really exist and nor should it be your goal, in my opinion at least. I think you should learn to operate your business successfully because even if you do then become more passive over time, you’re going to be better at managing the business passively. Alright, we got to take one more quick break, but I just want to share a quick reminder with you. Part of our mission here at BiggerPockets is actually to help 1 million people become millionaires, and you could be part of this mission. All you have to do is hit the fall button wherever you listen. This helps us reach people like you and share all of the investing knowledge and information that we have to help you on your financial journey. So take a moment to hit follow and we’ll be right back. Hey investors, welcome back to the show. Let’s jump back in. Let’s talk about managing the business. Let’s start at a store level here, Matt. What is your involvement, one of these pizza chains? How many hours a week did it take you to stabilize the asset? So once you bought it, you’re in it, I assume pretty intensely in the first few months. What does that look like?

Matt :
Yeah, the first few months you’re going to walk in, odds are a lot of the employees are going to give you pushback. You’re going to realize, hey, the operations aren’t what they are supposed to be. A lot of people don’t like change. They’re set in their ways. They’d rather just move on, go somewhere else. That’s fine. That’s my open door to let everybody who doesn’t want to be there get out and I tell ’em from day one, Hey, change is coming down. This is what we’re going to be doing. It’s going to be better for not only the customer, but it’s going to be better for the employees, the business, the local area and everything. So I would say when you’re first taking over a business, you can go anywhere from 40 to 60 hours a week. It depends how intense you want to be in there. If you want to micromanage everything, I mean, you could work open to close every day, seven days a week, but once you do those two, three months of working hard, getting everything tweaked out right now I’m looking at probably two to three hours per week per store, and that’s because I do a lot of the bookkeeping. I’m tracking a lot of the financials and this is my full-time job is basically sitting in front of a computer analyzing things, putting ’em in spreadsheets, sending out reports.

Dave:
And how important is that store level manager to you? I imagine that person is invaluable.

Matt :
Oh, they’re worth their weight in gold. They, it’s just finding a good property manager. You want to find someone who, they take their passion and they put it into your project. They want to see the store succeed, they want to succeed. On the other hand, you want to pay them what they’re worth. If they’re doing 40 hours a week and you’re paying them for 40 hours a week, that’s great, but if they’re working 60 hours a week and you’re only paying them for 40 hours a week, that’s going to eventually catch up to them and they’re going to get exhausted. That’s why every one of my businesses, we have a bonus structure, whether they’re following food costs, they’re following labor costs, they’re following sales. If they hit certain metrics, they’re going to get bonused out, and that’s a way to keep your good employees staying with you and turn them from a good employee to a great employee and eventually move them up to hopefully a partnership deal.

Dave:
I love that. It’s true with everything. If you align your incentives, sort of like we were talking about between the franchise and the franchisees, as long as your incentives are aligned, you can get people motivated and working together and creating mutual benefit. That’s the beautiful thing about business. So you have these store level managers and then what does the rest of your operation look like? Do you have regional managers or does that even work because you’re buying different franchises within the same market? Do you need managers for each type of business?

Matt :
So we’re trying to keep one above store leader on each franchise. So if we have a hamburger franchise, we’re trying to keep that one person managing five of those in one market. We have a pizza franchise. We’re trying to keep one person who’s been in pizza 15, 20, 30 years to stay with those. So we’re trying to keep the managers managing the sector that they’ve proven their worth in. The higher we go up on the chain of management, the more versatile the people become. So we can have one person that can manage five managers on the west coast. We could have one person manage the five managers on the east coast, and then from there we just kind of pyramid up where at the top of the chain, that person’s looking at two people below them. Those two people have three people below them.

Dave:
Got it. Okay. Well this is fascinating, Matt. You’re definitely giving me some itchy fingers thinking about this kind of deal. Tell me what kind of investor, at what stage of your investor journey does this sort of make sense for people?

Matt :
I mean, I think it really comes down to what your goals are. If you want to look for a super passive investment, this is not for you. If you want to find something where you can work on your own project on your own time, you can build it to scale, you can expand across the country, across the world, then maybe this is the investment for you. But at the end of the day, I think you just need to figure out what your goals are and go from there. Whether you want to go into pizza, whether you want to go into tree trimming, whether you want to go into nursing consultant, it really depends on what your end goal is at the end of the day. And do

Dave:
You mean by goal or sort of like the return profile is different for each one or the operations are different? I

Matt :
Would say both. I think at the end of the day when you figure out what your goal is going to be, whether do you want to retire off these, do you want to be active every day? That’s what you really need to figure out by which business you want to pick. Don’t pick a business that you’re not passionate in, that you don’t want to be in, and you’re just looking at the numbers. Pick something that you can see growing, that’s something you’ll enjoy going to, that you’re excited to wake up for every day and go from there. Yeah,

Dave:
That makes total sense. I think that the same thing is true in real estate, right? Some people wind up finding themselves in flipping, doesn’t suit their personality, doesn’t suit their goals. They either burn out or figure this out quickly enough and switch. So Matt, what’s the, do you have any plans to spend some of this cash that you have stacked up on the side in real estate anytime soon or I’m just curious how you’re reading the market right now.

Matt :
I would say for right now, I’d like to just stay still on the real estate portion. I’m always looking for deals, but I’m not looking as hard as I was five, 10 years ago. I’m kind of concentrating more on the small businesses to build up a large portfolio and looking more to go into the private equity portion of business instead of, Hey, I’m just going to buy a whole bunch of apartments and sit on ’em.

Dave:
And by private equity you mean you might raise a fund and capital to go buy more of these?

Matt :
I want to be the private equity that buys people out. So right now we’re looking at a 40 unit portfolio of franchise restaurants that we’d like to acquire and put that in our portfolio and eventually build this up to a large holding company where it’s just like real estate. We have people do every angle of the operations and then I can concentrate, move from there and go back into real estate and concentrate on that sector. Got

Dave:
It. That makes a lot of sense. Very smart idea. So Matt, for people who are interested in this strategy, and I think you’ve shared some really fascinating numbers, and it seems like the cashflow opportunities just huge here. What are some steps that people could take to learn more about this strategy? I mean,

Matt :
There’s podcast books. Just start talking to brokers just like you would with real estate. Find the business brokers. They’re all over the place, all over the internet. Just Google businesses for sale. You’ll find a ton of brokers, get up with them. Start figuring out, Hey, how are these brokers and sellers valuing their business? Are they valuing off a multiple? Do they have a lot of emotion into it? Is it cash flowing? Is it not cash flowing? What can I do to make it cashflow? I just look at every business as it is a rental house. They’re all in different markets. They’re all different shapes and sizes. They’re all worth different amounts. They all cost different amounts to run. But at the end of the day, I like the business aspect because I can sell a thousand people, a thousand things, whereas real estate, you’re only going to raise somebody’s rent X amount of dollars every year.
So you’re kind of capped on what your income level could be. That’s the beauty with small businesses, is you can expand as much as you want to by advertising, by selling different objects instead of looking at it where you can say, Hey, I’m only going to make a hundred dollars per month per door with a business. Hey, I’m going to make a hundred dollars per day because I’m going to go out there and I’m going to sell this, or I’m going to pay people to sell this product. And the scalability of sales is unlimited. So you can sell a thousand pizzas to one business and make all that money on one week, whereas real estate, Hey, I’m kind of capped at what I can do because your tenant’s probably not going to want you to raise the rent a hundred percent every other month.

Dave:
That’s so true. I never really thought about that. Rents, obviously, you have some control over in terms of the quality of the offering that you have, but you’re limited a lot by macroeconomics. Things that are just like outside of your control, but there’s no limit. There’s obviously some limit, but the ceiling for how much you can sell at a franchise is much higher, and I guess much more scalable. I never really thought about that. That’s so true. And I guess in that way, it’s really good for people who really have that hustle or have that sales mentality and who are going to get into the business and really optimize every little piece of it so that you can keep cranking out more and more profit.

Matt :
So I was at a conference years ago and I met a gentleman who owned a tree trimming company. So he was telling me, he said, if you want to make money, sales is the way to go because your real estate’s great. It could be passive. You’re building all this equity, but at the end of the day, you can only raise people’s rent so much. Whereas trimming trees, you can always expand into different markets. There’s always trees to be cut down. You have reoccurring business just as hard as you want to work. That’s how much money you’re going to make, as much money as you can by this output you put into your work.

Dave:
That’s great advice. Matt. Thank you so much for sharing this with us. It’s got me excited. I am imagining that a lot of people listening to this are also really interested in the strategy. If you want to learn more from Matt, check out what he’s up to. We’ll make sure to put all of his contact information in the show notes or in the description if you’re watching on YouTube. Matt, thanks so much for being here.

Matt :
Thanks for having me.