Stop Swinging for the Fences: How I’m Building a Multi-Generational Wealth Engine the Low-Risk Way

Stop Swinging for the Fences: How I’m Building a Multi-Generational Wealth Engine the Low-Risk Way

9 min read
Paul Moore

Paul Moore is the managing partner of Wellings Capital, a private equity real estate firm.

Experience

After college, 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 scaled and sold the company to a publicly traded firm five years later.

After reaching financial independence at the age of 33 and a brief “retirement,” Paul began investing in real estate in 2000 to protect and grow his own wealth. He completed over 85 real estate investments and exits, appeared on HGTV’s House Hunters, rehabbed and managed dozens of rental properties, built a number of new homes, developed a subdivision, and started two successful online real estate marketing firms.

Three successful commercial developments, including assisting with the development of a Hyatt hotel and a very successful multifamily project in 2010, convinced him of the power of commercial real estate.

Press

Paul was a finalist for Ernst & Young’s Michigan Entrepreneur of the Year two years straight (1996 & 1997). Paul is the author of The Perfect Investment – Create Enduring Wealth from the Historic Shift to Multifamily Housing (2016) and has a forthcoming book on self-storage investing. Paul also co-hosts a wealth-building podcast called How to Lose Money and he’s been a featured guest on 150+ podcasts, including episode #285 of the BiggerPockets Podcast.

Education

Paul earned a B.S. in Petroleum Engineering from Marietta College (Magna Cum Laude 1986) and an M.B.A. from The Ohio State University (Magna Cum Laude 1988). Paul is a licensed real estate broker in the state of Virginia.

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Email [email protected]
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Twitter @PaulMooreInvest
How to Lose Money podcast

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Are you a swinger?

No, I’m not talking about ’70s-era party animals. Most of them swung out decades ago. I’m talking about baseball. Well, sort of.

A friend of mine named Bruce Chick was a star baseball player and a great guy. He played minor league baseball in the Red Sox organization. One season, he abandoned his solid hitting strategy and decided to aim for home runs on every at bat.

Bruce started swinging for the fences.

This didn’t work out too well. He didn’t hit the number of home runs he hoped to, and his batting average sunk to dismal depths.

Of the thousands of baseball players who came up from sandlots to the Big Leagues, this strategy has worked for some.

  • Babe Ruth
  • Hank Aaron
  • Barry Bonds

But these names stand out because they are the exceptions. It’s well known that Babe Ruth was also well known for striking out. He had almost twice as many strikeouts as home runs in his 22-year career.

When I talk about swinging for the fences, I am talking about taking big risks. Giving it all you’ve got. Investing every ounce of your resources into the highest or most dramatic possible outcome.

Should you swing for the fences? Well, it depends.

It depends on the situation. There are times when I love swinging for the fences. In fact, I think it’s mandatory if you want the most out of life.

There are other times when I think it’s disastrous—specifically when it comes to investing.

When Should You Swing for the Fences?

Like I said, there are times when it’s critical if you want to live the life you were designed to live. Here are a few examples.

Following Your Dreams

The Daily Positive reports on a recent study performed by terminal care nurse Bronnie Ware. Bronnie says the number one regret of the dying was that they didn’t pursue their dreams and aspirations. Rather, they settled for what others expected of them.

These people wish they had swung for the fences. But it was too late.

Are you suffering from analysis paralysis and stalling on that first real estate purchase? Are you dreaming of quitting that nine-to-five but are too scared to make the leap?

Maybe it’s time to swing away.

Loving Others

I love “taking risks” with people in public—to show people that someone cares. I engage in conversation with strangers. I encourage people who look depressed. I offer to pray for people who are sick. I give away two-dollar bills to kids.

It’s a lot of fun to swing wholeheartedly when it comes to people. And it makes for a lot of memorable (and a few awkward!) situations.

I believe we were created to receive love and to love others—even strangers, co-workers, and enemies. And like I tell my kids that shyness is no excuse.

Are you holding your cards close to the vest? Playing it safe? Protecting yourself from pain?

I can confidently say it’s time for you to take a swing.

real life

Related: 4 Ways Technology is Shaking Up Commercial Real Estate (& Why Multifamily Will Pull Ahead)

Being There for Family

It may have been the late Senator Paul Tsongas who first said, “No one on their deathbed says, ‘I wish I had spent more time at the office.’”

If you’re married or have children, it may not seem that investing more time with them classifies as swinging for the fences. In fact, to be honest, the time needed there has sometimes seemed to be the very thing holding me back from swinging.

But you know the truth in your heart. Most spouses and children need more of us than we are giving them. There are obviously seasons where we are running hard to get a new project or company off the ground. But those seasons shouldn’t last forever. No matter how tempting or fun that seems.

We were made for relationships, and we will find deeper meaning and fulfillment there than any amount of success and financial reward could bring. The evidence is in the shattered lives and families of many successful people. We have all seen them.

Are you tempted to put business or hobbies or sports or TV ahead of the people you should be loving the most?

Then it’s definitely time for you to take a swing for the fences.

And When Should You Refrain From Taking That Big Swing? 

“It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.” —Robert Kiyosaki, Author of Rich Dad Poor Dad

If you’re a millionaire by the time you’re 40, but blow it all by age 50, you’ve gained nothing, except the opportunity to start all over again.

Investing Your Money

Are you still swinging for the fences with your investments?

I hope not. But if you are, let me encourage you to stop. Right now. Whether you’re 22 or 82, it is not a workable long-term strategy. It wasn’t for me, and it won’t be for you either.

Sure, there are rare people who defy the odds and make it big. And many investors hit it out of the park once—but they get the taste for a repeat, which often eludes them the rest of their life. 

There comes a time in many investors’ lives when swinging for the fences is no longer fun or profitable, when the elusive glitter is seen for the illusion that it really is.

Like I said earlier, stories of those hitting grand slams abound, but there is a reason they’re told repeatedly.

Because they are the exceptions.

For each of these stories, there are dozens who have swung away and caught nothing but air. They were left rebuilding for years to get back to where they were when they took that crazy plunge. Which story do you think will be told in blogs and bars and real estate investing clubs?

a.) Johnny bought a home for 45 cents on the dollar, then while renovating found out it could be rezoned commercially. He went on to sell it for four times what he paid!

OR

b.) Gary and his son began quietly buying apartment buildings. For years, they faithfully built this business. They never made a fortune in any one year, but over time, they became one of the wealthiest families in town.

By the way, Johnny’s 300 percent profit story didn’t include the slam dunk deal that went south or the quick flip that turned into a slow nightmare, landing him a job delivering pizzas for Domino’s ‘til he got back on his feet.

The Law of Risk and Return

This is elementary, but it’s worth underscoring here.

Risk is proportional to potential return—at least in the age in which we live and the planet we inhabit. Look at the odds on the lottery ticket, the “beta” on stocks, or the published success rate of making a million in multi-level marketing.

I don’t think I can top these four paragraphs and graph from Investopedia:

“The risk/return tradeoff could easily be called the ‘ability-to-sleep-at-night test.’ While some people can handle the equivalent of financial skydiving without batting an eye, others are terrified to climb the financial ladder without a secure harness. Deciding what amount of risk you can take while remaining comfortable with your investments is very important.

In the investing world, the dictionary definition of risk is the chance that an investment’s actual return will be different than expected. Technically, this is measured in statistics by standard deviation. Risk means you have the possibility of losing some, or even all, of your original investment.

Low levels of uncertainty (low risk) are associated with low potential returns. High levels of uncertainty (high risk) are associated with high potential returns. The risk/return tradeoff is the balance between the desire for the lowest possible risk and the highest possible return. This is demonstrated graphically in the chart below. A higher standard deviation means a higher risk and higher possible return.”

A common misconception is that higher risk equals greater return. The risk/return tradeoff tells us that the higher risk gives us the possibility of higher returns. There are no guarantees. Just as risk means higher potential returns, it also means higher potential losses.”

Did you catch that? “The risk/return tradeoff tells us that the higher risk gives us the possibility of higher returns.”

tenant-screening-tips

Don’t Roll the Dice With Your Investment Funds

If you treat investing like gambling, you will likely not retain your wealth long. Investment advisors typically advise their clients to allocate no more than about 10 percent of their funds to high-risk equities. This should be money you can afford to lose. As one advisor told me, “Don’t allocate any funds to high-risk ventures that you won’t miss if alternatively used as kindling in your fireplace.”

If you roll the dice with 50 or even 100 percent of your investible capital, and win, what about next time? And the following? This is simply not a sustainable strategy for 99 percent of the population and not one that lends itself to commercial real estate investing. If that is your strategy, perhaps you should stop reading this article and go bet on horses.

In my first venture into commercial real estate, in the 90s, I invested with my partner who built a beautiful office building in a great location in Colorado Springs. Though it finished out nicer than expected, faster than planned, and under budget (even building through a Colorado winter and dealing with environmentalists over a rare breed of endangered mouse and 53-foot deep concrete piers) we opened our doors not long before the 2000 downturn—something we could not have anticipated or controlled.

Related: Why the Wealthy Put Their Money Into Multifamily & Commercial Real Estate

The profitability on that venture never approached what we planned. The project barely survived the first several years. We made it through a very lean time, but here’s the point: This high-risk/high potential return project was another example of the boom and bust mentality of a developer.

If you want to invest that way, I hope it works out well for you. Many developers are among the world’s wealthiest individuals. But I believe that many more have ended in shambles, losing their wealth, their health and sadly, sometimes, their reputations and families.

It’s important to get this straight. High risk does not lead to high return. It leads to high potential return. And equally true that it leads to high potential loss.

After years of hard knocks and lessons, I recommend that you consider investing carefully and not gambling with your assets.

Like I said in a previous article, it is critical that you know the difference between investing and speculating. Hopefully you do. And hopefully you’re investing.

“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” —Paul Samuelson, First American Winner of Nobel Prize in Economic Sciences

Think about it—if you continue to play double or nothing, you may win a few times. But you will eventually land on nothing. And then what will you have left to play with next time around? You can do the math on that.

Bears prosper in some markets. Bulls prosper in other markets. But sooner or later, pigs will be consumed. I don’t want to see this happen to you.

For the Long Haul 

I have heard of dozens of ways to invest in real estate, and I’ve been involved in close to a dozen myself. I’ve made money flipping homes and lots, in rental homes, lease options and more. After a lot of research, study, and observation, I made a decision to follow a new path several years ago.

I have concluded that multifamily investing is one of the safest, most stable, and most profitable investments on the planet. After doing a few smaller deals, I have determined that the safest path to wealth in this arena is specifically through commercial (large scale) multifamily investing.

I interviewed Rod Khleif, a well-known real estate investor, on my podcast the other day. He had over a thousand single family rental homes when the big downturn hit. He also had some multifamily in his portfolio.

Though his total loan-to-value ratio was only about 30 percent (this is very low) when the market turned, he lost everything in the downturn. He told me that this was due to the fact that his single family rental homes stopped cash flowing.

But he went on to say that his multifamily assets performed well during that whole difficult period. This is why Rod only invests in multifamily assets now.

And this is similar reasoning for my change of direction about the time I turned a half-century. (Yes, I know I don’t look a day over 40.)

single-multi-apartment

Building a Multi-Generational Wealth Engine

Building multi-generational wealth through real estate investing does not come through wild swings for the fence. It involves careful planning, diligence, and patience. However, the gains you will receive over time are impressive. And done right, the risk can surprisingly modest.

Successful real estate investing has an eye on the distant horizon. But it often has stable cash flow from the first year or two, and the tax benefits can be astounding.

Building a multi-generational wealth engine targets wealth for decades, or longer, and gives little thought to one-time gains.

Successful real estate investors are aiming at generations they may never see. An opportunity to leave a legacy like Babe Ruth or Hank Aaron.

Without the arthritis.

Are you aiming at home runs or ground hits in your real estate investments? Why?

Let me know your thoughts in the comments!