"A Recession-Era Raw Land Rollercoaster Ride"
Commercial Multifamily Investor
Episode 28: "Best Deals"
Listen to the Podcast Here:
Would you give away your money to charity if you were $2.5 million in debt? Investor Paul Moore did exactly that during the lowest point of what looked like the worst deal of his lifetime. And against all odds at the height of the 2008 recession, it worked. On today’s episode of The Real Estate Nerds Podcast, Paul Moore joins our host and real estate attorney Scott Smith to share all of the ups and downs of a deal involving a New Jersey waterfront lot. Paul’s story is one that shows how blind investors truly are in the moment, as well as how the darkest moments in investing can lead to profound growth. Tune in to Episode 28 of The Real Estate Nerds Podcast now to hear a truly incredible comeback story and learn about how an abundance mindset can allow you to prosper in even the darkest financial times.
Paul Moore’s House Flipping and Raw Land Rollercoaster Ride
Scott welcomes Paul onto the show. The two investors go over Paul’s background, real estate debut, and initial triumphs and fails. Paul sets the scene for the raw land deal that appeared doomed in the years leading up to the 2008 recession.
[2:00] Paul Moore has a Petroleum Engineering degree and worked for Ford after receiving his MBA. After starting a company with a partner that experienced rapid success in the 1990s, he sold his company in 1997 for $1.7 million. He knew he would be using this money to give back to society in some fashion, and used real estate as a vehicle towards his philanthropic goals. His first endeavor was a nonprofit to serve international students studying in the U.S. He experienced such rapid growth in his early career that he was able to go into semi-retirement in his early 30s.
[3:12]Paul’s first flip was successful, earning him $24,000. He assumed he could rinse and repeat, but actually lost on the next two. His fix-and-flip method wasn’t necessarily the best approach in retrospect: “It’s not really a good idea to build a house if you don’t know how to tighten a doorknob. But that didn’t stop us from building seven.”
[4:09] He built a real estate website and began buying expensive waterfront lots in Virginia, but accrued a massive amount of debt from these assets. In just a decade, he went from having $2 million in the bank to nearly $2.5 million in debt.
[6:00] Scott asks how Paul handled the personal stress of this profound debt. Paul explains that his lack of experience and faith that things would work out may have blinded him to how bad his situation was. His area and raw land assets felt the pain of the economic downturn as early as 2005. Paul points out a single 5-acre lot that he had planned to divide into multiple lots and homes was the source of $900,000 worth of his debt.
[7:45] Paul’s partner was struggling to keep up with the interest payments and later had to back out of their arrangement. As he was meditating one morning, he wondered to himself what George Mueller would do in this situation. George Mueller was a German philanthropist who owned orphanages and believed mindset alone could raise the money to fund the labors of love that Paul ultimately wanted to pursue. This idea of raising capital through magnetism resonated with Paul, who saw Mueller as a role model. Paul reasoned that the famously generous Mueller would do something counterintuitive: give away his money, even in debt.
[10:25] Paul’s friends looked at him askance when he announced his plan: “I’m going to give my way out of debt…I’m going to start giving generously to causes I care about and see what happens.” Paul can’t recall how he even came up with money to give, but believes he may have done so with borrowed money. Beginning in 2008, he began following his plan to donate weekly through 2008.
[13:00] A developer gave Paul an idea that could help him recover. He approached the local Zoning Commission having identified a loophole in the law that would allow him to subdivide the piece of land. He hit additional obstacles with the bank, but stuck to the plan of giving generously while developing this real estate.
[14:40] Against all odds, the 5-acre lot that held the most of his debt became Paul’s way out of debt: “We were completely debt-free 10 months later. We did it principally by selling these 1-acre lots…We sold them for $1.5 million in the middle of the biggest downturn since the Great Depression.” Paul sold four of the five lots in just two months at the peak of the 2008 crisis: “My worst real estate deal became my best one.”
Diving Into the Details: Analyzing Paul’s Deal and the Minor Miracles That Saved It
The two investors dive into both Paul’s mentality and the nitty gritty details of how he turned his 5-acre waterfront lot around.
[17:00] Scott applauds Paul’s continued networking with others and probes Paul about his thinking behind living with an abundance mentality despite crushing debt. Paul agrees that this was one of the main things that helped him, particularly since he didn’t read desperate. Scott presses Paul for details.
[19:50] Paul explains that local law allowed only two occupants per bedroom, but that bedrooms in this area aren’t defined by the actual number of bedrooms, but by the septic system. High end rentals for this area correlated with a higher number of bedrooms. Paul made it his goal to rent out 8-bedroom homes. Subdividing the lot immediately wasn’t possible, as local laws didn’t allow divisions on private roads. Yet this division was critical to his plan. Paul had been banking on the city’s intentions to turn the road by his lot into a public road.
[22:20] Paul explains a legal tactic he exploited during this time–the family exemption. The law was intended to help farmers who wished to cut off a piece of land for a family member. While he wasn’t a farmer, Paul noticed the law didn’t require him to be one. The law did require that any tracts split off had to be held for 3-5 years.
[24:00] Paul instead sold the entire 5 acres to a single buyer for $1.3 million. The buyer relied on Paul to continue executing the plan, as he divided 4 acres from 1, which he donated to his wife. The law allowed him to sell the “master” 4-acre track, while holding the 1-acre. Another buyer came in and bought the 4 acres, and repeated this process. Each buyer lined up and divided the land, one after the other.
[26:00] Paul describes the difficulties of convincing a bank to loan the first buyer over $1 million for land appraised at $800,000. He tells the story of approaching the bank that he owed initially, who naturally declined but agreed to a small loan for repayment of outstanding debt. Instead, Paul took those funds to a community bank and told them his whole story and plan. Not only did the bank help Paul, but they also made loans to the four buyers he had lined up.
[29:00] Paul describes how he pulled off his minor lending miracle. Scott points out he should have been dealing with loan sharks at this point, and asks for the details on how Paul sold the community bank on the arrangement. Paul actually had no pre-existing relationship with this bank or banker. He simply had a good plan and amazing luck. Scott even admits if he was the banker’s attorney, he’d have advised against making Paul the loan.
[31:30] Paul elaborates on the method to his giving madness: “Some of the greatest business owners in the world are really generous…I believe that there’s a universal law of sewing and reaping that is almost always true.” Scott admires this commitment to generosity and the degree to which it served Paul.
[33:30] Scott points out that Paul’s mindset almost certainly got him through without reeking of desperation: “The reality we want doesn’t exist yet. But if we can act as if it does, amazing things can happen.” Scott points out that Paul is one of the only people who has actually walked the walk on this idea.
[35:00] Paul concludes his story by pointing out how savvy these buyers were. These were intelligent businessmen assuming a great deal of risk: “Lots still aren’t selling well now. I feel very grateful and thankful to be able to tell this story.”
The Takeaway: Do Something Great and People Will Follow You
Scott and Paul conclude this episode of The Real Estate Nerds Podcast with their takes on the greatest lessons of Paul’s story. For Scott, Paul’s experience speaks to the power of ambition. Paul has learned many lessons from his experience, but above all encourages listeners to pursue a unique, good idea and believe in it.
[37:00] Scott observes that Paul began with a massive goal. Scott believes “If you shoot really high for the stars, even if you slip up, you can land on the moon.”
[38:00] Paul offers his own takeaways, pointing out that in December he had half of the property and interest. His partner walked in early January, four weeks before Paul solved the entire problem and made all of the profit. Paul even offered his partner the chance to stay in. Now, Paul raises capital for real estate deals and learned the mindset that avoids desperation: “I think before 2008, I would have been this desperate, clamoring “Will you invest please, sir?” And because of this, I’m really not.”
[40:00] Paul offers a final metaphor about investing. Ultimately, he believes almost anyone: “Have a great product, service, or investment, and people will come to you asking to be part of what you’re doing.”
Connect with Paul Moore
Thank you for joining us on today’s episode of the Real Estate Nerds Podcast.
For even more free educational resources on real estate investing and the law, check out the Royal Legal Solutions blog. You can also reach our host Scott Smith directly, connect with him on LinkedIn, subscribe to the Royal Legal Solutions YouTube channel, or join our investor community on Facebook.
Don’t forget to subscribe to stay up to date and have the most current episodes of the Real Estate Nerds Podcast directly in your listening library. Every subscription helps us create new, custom content for you. What did you think of today’s episode? What would you like to hear more about in the future? Leave your thoughts and questions in the comments section below, or leave us a review in the iTunes store. We love hearing your feedback, so fire away. Join us again next time for another fascinating investing conversation with investor and attorney Daniel Barli. Thanks for listening and joining us on our journey to become better investors!
Hosted by Scott Smith, Lead Attorney and Founder of Royal Legal Solutions. Schedule your personal consultation now. If you have questions about our content or suggestions for future episodes or guests, reach our podcast team at firstname.lastname@example.org.
About Paul Moore
After graduating with an engineering degree and then an MBA from Ohio State, Paul entered the management development track at Ford Motor Company in Detroit. After five years, he departed to start a staffing company with a partner. They sold it to a publicly traded firm five years later for $2.9 million. Along the way, Paul was Finalist for Ernst & Young’s Michigan Entrepreneur of the Year two years straight (1996 & 1997). Paul later entered the real estate sector, where he flipped over 50 homes and 25 high-end waterfront lots, appeared on HGTV’s House Hunters, rehabbed and managed rental properties, built a number of new homes, developed a subdivision, and started two successful online real estate marketing firms.
Three successful developments, including assisting with the development of a Hyatt hotel and a very successful multifamily project, led him into the commercial multifamily arena. Paul is the author of The Perfect Investment – Create Enduring Wealth from the Historic Shift to Multifamily Housing (2016). Paul also co-hosts a wealth-building podcast called How to Lose Money alongside Joshua Thomas, is a featured guest on numerous real estate podcasts, and is a regular author for Bigger Pockets. Paul is married with 4 children and lives in Central Virginia.
When making business decisions that affect your long-term goals, like what types of investments to make with your retirement dollars and which vehicles to use, it really is best to be aware of all of your options. We frequently talk about the Solo 401(k) and Self-Directed IRA as tools for funding your retirement. But what about life insurance? And what about the stock market? What if we told you there is a tool that allows to to reap some benefits of both? It’s called Indexed Universal Life Insurance–and some investors have found it a useful addition to their retirement plans.
What Is Indexed Universal Life Insurance?
Indexed Universal Life Insurance (IUL) plans are a variety of permanent life insurance plan that features a cash-building element. One primary benefit of these plans is that the policy holder gets some of the gains of being associated with the stock market without all of the risk Wall Street is famous for. This is in no small part because of how these policies are designed. IULs earn in part because they are directly linked to a market index, such as the Dow or the S&P 500. Any gains remain within the policy, albeit a cap rate will limit how much you can make. However, you are protected during a particularly bad year for your index with an IUL. The worst case scenario with these plans is that you make nothing, but you never actually lose money no matter how poorly your index performs. The protection of your principal is actually derived in part from the same cap rate that limits your gains.
How much money do policyholders stand to make? Historically, returns run between 5-9%. The S&P Index has actually returned at 9-11%, but the upside limit on UILs stems from the account’s cap rate. For this reason, many advisors argue that the UIL can make a wise addition to a retirement or estate plan once more traditional and self-directed accounts are maxed out.
Tax Benefits of Indexed Universal Life Insurance (IUL) Plans
There are three key tax benefits of IULs. First, you may pay into the policy with pre-tax or after-tax funds. Withdrawals from the policy may be made tax-free if you are under 59 1/2. Such withdrawals are regarded as loans, with your death benefit serving as collateral. Any funds paid out to the beneficiary are also tax-free, including normal benefits upon your passing. This is true regardless of their value.
Ask the Experts at Royal Legal Solutions About Your Retirement Planning Options
Regardless of where you are in the retirement planning process, Royal Legal Solutions an assist you. We have extensive experience educating investors about self-directed investment options. Many of our investor-clients love our Solo 401k information, product, and compliance services. Our Self-Directed IRA services can also be helpful for retirement planning, as the SDIRA is yet another vehicle that allows you to diversify and take total control of your investments. To determine which of the available retirement planning strategies are best for you, consult with one of our experts at Royal Legal Solutions. You may also contact us with any questions you may have about your options.