Don’t miss this captivating and informative WTR interview of Paul Moore as he shares how he has learned to create enduring wealth through commercial real estate. And you don’t have to be as wealthy as you might think to take advantage of his wealth strategies.At WTR, we have a core belief that there’s more to be had by avoiding losses rather than just chasing a rate of return.  You also know we believe there’s wisdom to be learned from entrepreneurs who have achieved success in their lives. Join us as WTR talks with Paul Moore of Wellings Capital and How To Lose Money podcast. Paul has a great story to share, from his early days of working a regular career at Ford, to discovering he had a passion for being an entrepreneur. We talk about the importance of speculating versus investing. Paul shares his progression into real estate and why his experience, and wanting sustainable wealth for him and his family, led him to commercial real estate. We talk about the reality of real estate investing versus reality TV real estate investing. Paul also shares some great tips on how to pay less taxes. And so much more.Ingenious tactics to accumulate wealth, for people who see things differently.Paul Moore[email protected]Wellings CapitalHow To Lose Money Podcast Paul’s LinkedIn URL Paul’s Twitter URL Read Full Transcript Transcript[[I'm your host Kevin Dumont and I've been thinking differently in the wealth field for well over 10 years.[Hey Kevin great to be here. Fantastic! I love having you here Paul today. It's a nice sunny day, I'm feeling the energy today. Yah, me to it's going to be a great day.The day after April 15th right, so we got past that, that mound. You know a lot of people are smiling on April 15th, though. And sum arenot smiling as much hopefully your audience is among those who are smiling, on tax day. Yah, I hope so! I hope so![And he eventually found out that he wanted to do something else, that wasn't his[All right. Well yeah I got an engineering degree actually and then and that was my first mistake and I got an MBA, which was,hopefully, hopefully a better move from me and I went to Ford Motor Company I really like Ford, Kevin.But I found that I was always doing something on the side, I was trying to start a property tax Consulting business or an oil change shop for goodness sakes,in, ah, Farmington Hills Michigan. So I eventually started a P.E.O. which is a professional employer organization which is an HR Outsourcing company with a couple friends we do that for about five years end,I was finalists for entrepreneur of the year a couple times in Michigan and I.Got an offer from a publicly traded company to buy our company and so I thought, well this is a great opportunity to retire, or semi-retired in my mid-30s and so I sold the company.Add more money than I had since didn't have any idea how to invest thought I did,and I actually became a fairly miserable version of myself I thought I was going to be super dad.[charity volunteer work and all the stuff and she wasn't very good at any other because I was a high-energy entrepreneur and if people think that you know if you're a high-energy entrepreneur and you think you might want to retire early you mightwant to make plans to do something really valuable and meaningful with your time because I wasn't very goodperson you know in 7th so-called semi-retirement my thirtiesyeah so I actually started flipping houses in the year 2002. So what got me into real estate,you got into real estate so where did that lead you into speculating correct.[you know investing is when your principal is generally safe and you've got a chance to make a return speculating as when your principal is not at all safe,and you've got a chance to make a return am I stuck with real estate I did pretty well it did real well a lot of things,but when I got involved in a wireless internet companyor some other things I did buying gold and silver trying to time the market investing in an oil well I lost a lot of money Kevinand that's one of the reasons we start a podcast called how to lose money we talked to successful entrepreneurs and investors and Executives about theirpast failures and mistakes that they made along the way on the road to success but.Anyway I think you can learn more from people's failures and their successes so before my choice one is good.Add heard it but the wisest Samurai of all time was the one who lost a thousand battles while it's it's so true what you know we talk to 160 people now I thinking.Almost all of them said they learn more from their failures and mistakes and they ever did for their successes I think it's easier to replicate.[I bet you if I could learn about all his mistakes I would learn more yeah I hear you. That's very important we all want success but success doesn't come.Unless you were going to say maybe have a couple on the way but not everyone can afford to have a failure is not everyone wants that the failures don't think anyone really I know we don't want itwe really don't think you're how to lose money is valuable tool for people toavoid those losses to begin with. Yah. Which, I think works along with our Wealth Tactic Rebels mantra as well, where we really believe there's,a lot more to be had by avoiding losses, then chasing rates of return, which is what you're exactly what you're talking about. I agree.You got into the real estate investing.Let me ask you a lot of people out there probably listening to this episode of been thinking about this before you know they watch HGTV, whatever other channel and they see people doing these flipping shows, seems to be thething now. Right? Right. Is it different, when you get into it, than what people are seeing?[[[Trying to find a house to flip and they usually find things you know that you know what is said it's it's it's, now I should things cost twice as much they take twice as long and they're usually have is profitable as you expect.That does you know everybody watches he's HGTV shows thinks I mean not everybody but a lot of people think they can do this it is possible.The problem is right now real estate is highly overpriced.And it's very hard to get a deal that makes sense so she's got an inside track on a house to flip go for it but unless if you're trying to buy it and compete on the courthouse steps or find it on the MLS you might find.It's pretty hard and another track people get on as they try to build a portfolio single-family rentals or small multifamily like duplexes for plexus.[[That one guy was in Fargo with 325 you know what he told me he said I'm not Lovin life even though I've got a whole staff and team and property manager,I'm not loving this I want to Pure down from the 325 to my top hundred rentalsand then I'm going to put that money in a vest it past the volume Channel a lot of people I thought would be better off staying with their day jobs making as much money as they can,and then investing passively and a lot of people go on this path,flips then single-family portfolio and then back to passive rentals it's like contractors you everybody knows almost everybody knows construction peoplewho did really well with one or two employees so they expanded to 50 or a hundred employees they were miserable and they went back to one or two or even just a cell.Very similar with this and I think a lot of people will be happierinvesting passively my mantra for this is why work harder than you need to to make less than you could.[yeah we've been investing in commercial real estate for about 9 years nowI actually had tweet we built a aground up multifamily quasi Hotel quasi main camp in the Bakken oil rush in North Dakota.And we operate that for a number of years and that went really well.Now then we took a lot of that money and a lot of effort and we built a very classy Hyatt House hotel.Everything went wrong we overspend on at the general contractor went belly-up oil prices it was an oil location,oil prices went from $110 at their Peak down to below 30 at their death.[And so I looked at that I looked at different things I've done over the years I said you know I'm in my fifties now for heaven sakes, I want to,get something, I want to really invest I don't want to keep speculating. So I wanted to get into something that was predictable.A demographic trends that were looking out over many years or decades.And I want to get something it was stable not a silly liquid I mean I know it one end of the Lakota at the Spectrum you've got liquidity,potential instability in the stock market at the other end of the spectrum you've got predictability and stability but not look what it is in commercial real estate why I chose that.And so I start investing in multifamily I wrote a book called The Perfect investment which is about multifamily investing and then eventually I.Actually we are company welling's Capital actually also spread out into Self Storage & mobile home parts as well and we opened up to funds,and we actually are working with investors to invest in these large projects.[Investments working with investors I can get into a correct right so it looks like to me you try to build stable wealth right something that's lasting something multi-generationalyeah we're looking to build how people build multi-generational wealth with as little taxes as possiblecan you talk a little bit about this path to multi-generational wealth to reason that most of the Forbes 400either make or perpetuate their wealth in commercial real estate the problem I had with it as I would look at these malls you know that were built 20 or 30 years ago and now they're.They've got flea markets at the malls or whatever and that and I really that made me nervous I look at these old Office Buildings that were half empty n.[If there is a very powerful driver in commercial real estate that's not available in residential real estate,and I think that's why a lot of the wealthiest people in the world want to be in commercial,the problem is and I'll get back to that driver in a minute the problem is there some very high barriers-to-entry nicely generally were not invited to their party.And the barriers to entry are you need a whole lot of net worth a whole lot of liquidity and a whole lot of experience to get a bank loan or even some cases to get a seller's even take you seriously if you want to buyso there's reasons for that though there's something called the value formula in commercial real estate.Kevin you and I know if we sold if we bought a house for half a million and we.[you know make it really beautiful has been a million dollars doing all that but all the other houses in the neighborhood were still at five or six hundred thousand we're probably not going to get.Are million dollars out of that because residential real estate is based on comps or comparable values commercial real estate entirely different.The value formula is this its value equals net operating income divided by the rate of return or the cap rate.And still the net operating income is a numerator the cap rate is the denominator the cap rate is typically been a to 10% over many many decades but now,in the trunk boom it is really dropped into the mortar the four to 7% range for the capitalization rate,what's a value formula again income / rate of return if you and if that's the expected rate of return for that type of asset in that market.[You can drive appreciation you can force appreciation and when you add leverage init's super powerful example you can increase our investors are operators that we work with are fun they say they go around looking to pick up dollar bills done like what what do you mean by that.I still listen to this formula if you can increase income by $1 at a property let's say you increase revenue or decrease costs by $1 a month.That $1 out I'm really good at math that's $12 a year okay that's the value the value formula is again income by chapped right so the $12 in income,divided by a chap right which is an average cap rate these days of 6% 0.06,12 / 0.06 it's $200 you can increase the value of that property $200 by driving $1 in increase monthly income.[you divide that $200 by 1-6 or point for and basically you multiply as a two and a half,Ximpact on the value of the equity two and a half times that $200 into the value of the asset so I mean if you want I can go to a real example not just using a dollar but this is why commercial real estate,investors are happy,another reason they're happiest on tax day they usually pay very little if any in taxes so those are two reasons people love to get in commercial real estate.You have some stability for the future right yeah those are powerful.What are the couple of tax advantages that you're talking about so so depreciation is a powerful thing and there's.But we commercial real estate can actually Implement something called a cost segregation study which is an engineering session or a CPA a team that comes out in a analyzehow much is property is land which is not depreciable how much of it is a building which is real property and it is depreciablehow much of it is personal property can be depreciated in an accelerated Manner and so what they can determine is well for example.[But you also have roofs that actually can be depreciated in not 27 1/2 years like the apartment building but roof might be able to be depreciated in 15 yearsand the Landscaping parking lot Stripes Paving that could be 15 years,but interior you know you've got carpets paint lighting.You've got other electrical outlets you've got cabinets and countertops and sinks all that can be depreciated much more quickly like in 5 years.It's all costs a cost segregation study will allow you to put these different cost in buckets and appreciate some more quickly what this does is it often means,that the investor while getting cash in their pocket every quarter,is getting a negative number or a zero let's say on their tax return on their K1.And by Jenny Matt it's a powerful way to save taxes and it's apowerful driver for them to again buildup multi-generational well now another text Advantage for commercial real estate.[The wind affecting effecting late 17 actually says that.You can actually do bonus depreciation and a lot of things that can be depreciated over say 15 years can it be now depreciate in the same year.So if you had up to a let's say a million dollars and roofs.HVAC Etc you can depreciate those in one year that's a huge loss they're going to be able to carry for it on your tax returns for a long time and that's one of the reasons Commercial Real Estate Investors.Don't.[That used to be in fact for cars and boats and airplanes and art even a patent now that is not true it's only good for Real