This week Bruce Norris is joined by Tom K. Wilson. Tom is a 5-decade real estate investor who transitioned from a 30-year engineering career, managing some of Silicon Valley’s pioneering high tech companies to a full-time investor in 2000. Since then he has bought and sold over 4,000 units and over 400 million of real estate in 8 states, including 9 apartment buildings, 11 commercial properties, 3 condo conversion projects, 15 syndications, and has flipped over 650 houses. One of his companies, Wilson Investment Properties, provides high quality commercial syndications to other investors. Tom and his wife of 50 years have lived in Silicon Valley for 49 years, where they are active in their community church and charitable organizations. Tom is a frequent speaker at investment clubs and expos. He has a weekly radio show on real estate investing and often provides investment education to other investors.
Bruce asked Tom his secret to keeping in such good shape, and he said he has always felt that you should keep all of the body active as well as the mind. He is fortunate to have arrived at Silicon Valley in 1969, even before it was Silicon Valley. He always aspired to live in the hills, so he was able to ride the economic wave and live in the hills on the edge of Silicon Valley. It is pretty steep there, so he takes a couple friends and his Labrador retriever to walk 3 miles and climb 1,000 feet every morning. This is what keeps his blood going.
What is interesting about the people Bruce hangs with and the ones Tom hangs with is Bruce just turned 65 this year, and you are not allowed to use age as an excuse where he works out. Last year, Tom climbed Mount Whitney and did not see anyone on the hill who was his age. Some of his friends think he must be an alien from another planet. He does not know to what degree we can create our own vitality and what genes help give us the ability to do this. However, he always had high energy and wanted to get things done. To him, retirement is being able to do what you want to do. For the most part, this is exactly what he is doing.
Tom has an engineering background in real estate investing. He often does not see those two going together. Tom said during the years they were providing rental houses, 80% of the clients for Wilson Investment Properties were all techies and engineers. Bruce has been a frequent speaker at SJREI and knows that it is a very analytical crowd. Tom thinks these people make good investors since they do not let emotion get in the way. It is a numbers business, and this is likely why it works.
Tom thought he was going to be designing and manufacturing widgets all his life, but when he first moved to Silicon Valley he met his landlord who owned half the street in his neighborhood. This was a real crossroads moment for Tom and where the seeds got planted. He realized that maybe working hard wasn’t going to be enough, he also had to be smart in his investing. In 1970, they had their first opportunity to buy their first house, and his wife’s hand was shaking as they signed the contract for $30,200 for a house that rented for $300. 1970 was before you really saw real estate do much. He really enjoyed the next ten years after that when he could do more with real estate. As we know by today’s metrics they all follow and use, there is a magic formula.
People say they wish they could go back to the 90s and high end cities in California where they could have cash-flowed. However, you would really need to go to places like Silicon Valley and coastal cities. You would need to go back to the early ‘70s to have really bought properties that had that magic 1% number. Their house they had in the 70s is worth $1 million today, which is the median price in Silicon Valley. It rents for $3,500, which the headlines squawked at how expensive that is. Its rent to price ratio has dropped by 3 times. After 30 years in high tech and having bought a lot of houses in the 70s, he realized one day that his rental properties he bought were earning him more while he was sleeping than his day job was with his stock options. This was when he decided to switch to full-time real estate investing in 2000.
The next five years after this were a lot of fun. He learned at that point in time since the rent ratio had declined so much, he needed to go somewhere else. He and Bruce both did this and found cities that still had strong economics. The house prices had not appreciated as much, however. If this is the case, then the rents don’t fall behind as much with the rent ratios. Dallas, Texas happened to be the place he picked and ended up being a good decision.
Tom had invested in other states, and Bruce wondered if this was before Texas or after. He said it was after and that the other states, it had become tougher and tougher in the last several years to find houses for investors with enough margin to allow them to still work. With his whole career in high tech, he was fortunate enough to be associated with high quality products. It was difficult for him to say he would just fly by with class C and D properties and metros. Instead, he always preferred quality. This was when he shifted his model for his business back to syndicating multi-family and commercial properties. Other people discovered hot areas like Dallas as well, so the demand to supply ratio increased enough to where it is difficult to find good products in a lot of the cities where people invested in the past. To get more deal flow and provide their clients with diversity of markets and asset classes, they started going to other states such as North and South Carolina and Oklahoma.
Bruce asked Tom what some of his biggest challenges were investing out of state. Tom said the old adage before prices went soaring up in the country over the last several decades, most gurus were saying to buy where you could go down the street and find a product where the numbers work. Tom differs from this approach because it is always good to learn a little bit about what the other people do who you hire and delegate to. Getting some skin in the game and paying your due diligence is okay as well as starting by managing some of your own rental properties. It can certainly impede your growth if you try to play landlord as well as investor.
He learned early in his career the power of delegating and surrounding yourself with experts who know more about different aspects of what you do than even you know. He has used this model in high tech as well as in real estate investing. When you are in another area, the biggest challenge is you have assemble a team or find a syndicator who does this work for you. Tom said even though he has had experience with volume and products, when he goes out to find another market or asset class he makes sure he has someone on the team who is an expert in where he is trying to invest. This could include single tenant industrial. For those looking for other markets, it is a real challenge to put together a team.
Bruce asked Tom how he has found the cycles in comparison to California, specifically residential. Tom said compared to Texas they have been very similar. Through his own experience and education he has attained from listening to Bruce over the years, he can tell people that the market is made up of thousands of sub-markets. Whether it is a different asset class or a different city, they are all somewhat out of phase. Although, he would say Texas is in phase with California as a generalization. However, it is not as severe both on the upside and on the downside.
It is very good to have somebody in your camp who studies these cycles well. If you are in houses in California, your listeners have learned that you provided your invaluable input to them. In the commercial arena on the larger scale, it is easier to get data. You have to pay for it since REITs and institutional investors are into that space. It was not until these past several years that institutions considered houses an asset class.
In watching these cycles in Dallas, Tom sold a $10 million apartment for a cap rate of 6. He then exchanged it into a commercial and office of industrial products. You can always pull money out of some asset class or field that has finished its expansion. You can then go find someplace else where you can invest this money. This technique certainly works well.
Sometimes people forget that different price classes can very quite a bit. In California in the early 2000s, most people think everything went up. In Silicon Valley where higher end homes also exist. Those are mostly bought by stock option money. The upper end houses actually went down during that time period because of the dot com crash, and all those who used stock options before that couldn’t afford it. Here you had the median price going up and higher-end houses that were at $2-$4 million dropping 25%. You have to be careful which price class you are in too, not just the market.
Bruce asked Tom if as a real estate investor he feels he has been self-taught or has had favorite mentors who have helped him. Tom said it is certainly both. Everyone needs to figure out for themselves how they learn best. Some learn best by attending class, others by reading books, while others it’s hands on. The problem with hands on is it can take a long time to get all the experiences that somebody else had. Tom said the way he has learned the most is by finding people who are more knowledgeable than him in the particular subject he is learning and ask them a lot of questions. He finds this method very efficient. If you read a book they wrote, you may still get a lot of this but not as efficiently as finding somebody gracious enough to spend time with him and answer his specific questions. This is a short-cut to filling in the holes of things he does not know.
It is amazing how much information you get just by asking. Most people, once they have acquired information, may be protective of it if they feel it is extremely valuable IP to their niche business. For the most part, most people like to share what they have learned and help other people not make the same mistakes they did. Most people are very generous in sharing their information. Bruce has been impressed with Tom’s persistence. He definitely gets people to say things and dogged in that pursuit. He always gets what he came for, and that is one of his best qualities.
Tom will also ask the same question two or three different ways. Sometimes this will help you get where you are trying to go. Bruce’s best friend Alex closes like this. If somebody says no to one thing, he’ll say he misstated his position and restate it. Neither he nor Tom give up easily, whether it is reaching a goal or getting an answer to something he is passionate to understand.
Bruce asked how the way he finds deals has evolved during the career he has had, especially 2000 forward. Tom said he has relied largely on the delegating and leveraging others approach he was taught, especially in the high tech industry. This is really tough for a techie to do. Most are trained academically and are genetically inclined to figure things out for themselves. Fortunately, he had a good mentor early on who told him he could get a lot more done if he utilized the knowledge of others.
During his years of providing turn-key rentals to others and now in recent years of providing multifamily and commercial properties, he has relied almost entirely on the technique of getting partners who provide the deal flow. He finds others he can co-syndicate with from a management and sponsors standpoint who have built up over many years relationships with others who know their integrity and trust them. They can then use those relationships and expertise to go find products. They will then filter it, bring the product to Tom, and further filter it with him. One out of every few hundred deals that comes across everybody’s desk filters down to being good enough, and they co-sponsor it.
In houses, rather than doing their own mailing campaign, they tapped on others who were already doing it and already developed the expertise with the systems in place to bring the houses. He was fine to pay them a fee for it. These people were providing a service, and they deserve to be rewarded and paid for their time. He has always used others to bring deals. Having been in the business for so long, he gets deals that are brought to him. He will immediately hand it off to one of his sponsors to look at and see if it works. He would much rather take a smaller piece of the pie and have more experts and resources to get a deal done.
Brue asked if he has ever had so much on his plate that he would not do it again. One measure of success is when you have enough deals that you can afford to say no. At times in the past he has tried to get too many deals going at once. He has been one who has done a few things exceedingly well. But when he gets to a critical point of the number of things on his desk, he does not do any well. He always recommends to not get too much on your plate. He has had folks come to him and remind him how they had given him advice on where and how to invest. They were proud to tell him how many houses they bought, and they would say which cities in which they purchased them. They could be in up to nine different places, and Tom thought this would be difficult for them to manage.
It is always good to have more than one source, but you have to be careful. A good friend of his became very successful by doing a leverage buyout of Kohl’s when they had a lot of stores. He has had a lot of success. When he gets together with Tom, they spend it as friends but also ask him for advice. He asks him his thoughts on sources for business since he was in the merchandising and retail business and had to have multiple sources of products put into stores. Most people make the mistake of trying to develop too many sources for the same item, and it is better to restrict it to 2-3 and develop deep relationships with them.
Bruce asked him what are some top recommendations to new investors. Tom said don’t do it yourself. Tap on others who have the experience. Sometimes it feels like you can do it yourself and save money, but in the end there is a high cost to learning. It is also very important to recognize how different sub-markets can vary from the averages. It is easier to get data from the averages, but the sub-markets can vary a lot. Once you get into that level of detail, you need to tap somebody else who knows that market very well.
Tom ended by saying great principals are not as complicated as people think. For example, Conrad Hilton, the first one to build a hotel empire, was asked the most valuable thing he learned. His answer: leave the shower curtain in the tub.
Tune in next week as Bruce continues his discussion with Tom Wilson.