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Today’s episode features a dynamic conversation with Spencer 
Hilligoss, Founder of Madison Investing, and your host, Dave Wolcott—serial entrepreneur and author of the bestselling book “The Holistic Wealth Strategy.” Spencer brings a wealth of experience as both a technologist and seasoned real estate investor, having gone full cycle on over 20 private real estate deals across asset classes like multifamily, self-storage, and medical office. Together, Spencer and Dave help investors cut through the market noise and navigate the complexities of alternative investments.
In this educational and insightful discussion, Spencer and Dave candidly share their personal investing journeys and the key lessons they’ve learned from recent shifts in the real estate landscape—especially in the wake of rapidly rising interest rates and tightening commercial debt markets. They emphasize that building true wealth requires strategic planning, rigorous due diligence, and thoughtful risk management, especially when promises of cash flow and “preferred returns” might not be as certain as they seem.
Listeners will gain practical advice on how to evaluate deals, spot pitfalls, and leverage the collective wisdom of investment communities. Spencer also shares how to align investment choices with your unique “Investor DNA” and long-term vision, rather than chasing shiny objects or relying on projections alone.
In This Episode
- The truth behind cash flow projections and preferred returns
- How depreciation and tax strategies impact real estate investments
- The risks and nuances of preferred equity and rescue funds
- Practical portfolio construction and recession-proofing your wealth strategy
Get feedback on your plan, on your big-picture multi-year, 5, 10, 20-year vision. So how do you find that, you know, like, who do you decide to put in the room with yourself? Those are big questions.
Welcome to the Wealth Strategy Secrets of the Ultra Wealthy podcast, where we help entrepreneurs like you exponentially build wealth through passive income to live a life of freedom and prosperity. Are you tired of paying too much in taxes, gambling your future on the stock market, and want to learn about hidden strategies for making your money work for you? And now, your host, Dave Wolcott, serial entrepreneur and author of the bestselling book The Holistic Wealth Strategy.
How’s it going, everyone? And welcome back to another episode of Wealth Strategy Secrets of the Ultra Wealthy. If you care about real estate and alternative investing, this is the playbook you’ve been waiting for. Today, Spencer Hilligoss and I cut through the noise on cash flow—why it’s projected, not promised—and how preferred returns and preferred equity really work, and the due diligence moves that separate pros from victims. We’ll map the tax implications most investors miss—think depreciation strategies that boost after-tax yield—and show you how to align investment strategies with true risk management instead of hype. We also get real about portfolio construction and why you can’t bat a thousand every time, and how a community and clear criteria help you avoid losses. If you want to make smarter decisions, protect downside, and position for upside in a complex market, lock in—this conversation is your unfair advantage. Spencer, welcome to the show.
Oh, Dave, it is wonderful to see you. We haven’t caught up in a long time. It’s good to see you, man.
Yeah, always great to connect, and I think this is going to be a great conversation. For those listening, Spencer and I have known each other for quite a few years—probably five, you know, five-plus years. And it’s interesting because we’re seeing the effects of rapid interest rate moves. On the real estate side, we’re seeing the effects of some operators who have not performed as planned, which has really created a challenging environment in the real estate and private side of things. So today, we wanted to unpack some of those things as LP investors to help you be a lot smarter, make you a better investor, and make sure your decisions are aligned with your investor DNA and your risk tolerance so that you know what you’re signing up for. So with that, Spencer, let’s open it up with a couple of the top learning lessons you’ve had over the past few years in investing in alternatives.
Yeah, that sounds great, and thank you for couching it that way, Dave. I mean, for both you and me, we have so much in common in our parallel journeys, right? Just to share this before we get into the topics—like, we both come from technology, and we both have found this journey into alternative and private investing to be very fruitful. And so if you look across these eras, we were just chatting about, wow, look at the 2010s. The 2010s brought this financial prosperity broadly, and that started all the way right at the beginning after the GFC, the Great Financial Crisis. And then everyone seems to, all of us kind of got used to that growth—that up and to the right. And now, looking back on it, sitting here in 2025, kind of getting close to looking toward 2026, I can’t help but sit here and go, like, man, in hindsight, you always have 20/20 vision.
You see the chapter breaks of life, you see the chapter breaks turning in the market, and you have to just post-mortem it, as you would say in the tech world, right? You’re looking at how did that go, what happened, and why, so that you can get down to the root cause. And so just to share for folks—I know that you and I know each other well—but I come from a background in tech companies. I’ve been with five financial tech companies, just for the audience, including Intuit, Gusto, Xero, and Stripe. And in terms of the real estate world, I grew up in a real estate household. My dad was a broker and was making me work open houses as a kid. That’s why I went into tech. So, you know, a couple of young boys and I live in the Bay Area, California currently, so I lead Madison Investing, our investing club, and it’s still a joy to work on for me.
Now that said, some of the learnings that I’ll share with you and the audience here today—and we can talk through, Dave—these are the reasons that I double down on my due diligence now. They are not the reasons that I’m deciding somehow to walk away from private investing. I will be forever investing in private and alternative investments as part of our portfolio. That’s just part of how you win the wealth race. That is absolutely part of our picture in our family. So we’ve invested heavily into self-storage assets, multifamily assets, medical offices, and mobile home parks, and gone full cycle on 20-plus of these deals. Now, as an LP, it’s been a great journey. But my goodness, if you think about the platitudes that we all hear about when we go and read blogs or listen to other podcasts, people say, “Okay, I’m about to go pull the trigger on my first private real estate fund investment,” or “I’m going to cut this check for 50k, 100k into a real estate syndication of some sort.”
We all hear, “Hey, you got to take a look at the track record.” And oftentimes, that’s where the conversation seems to stop. Now, in 2025, thank God, so much of that has gotten more built out. You hear the long tail of what it means to look at the track record—it’s not just about the pretty spreadsheet, it’s not just about the pretty PDF-looking marketing documents. Now it’s about truly looking at what’s the financial picture, do they have written records of history, do they have testimonials, references, etc. But I’m excited to go into some of the ones that I’d say, “Man, do I wish I could go back in time and tell myself as an earlier LP—Spencer, you really need to think about these things.” And you know, some of the examples I’ll share—there’s kind of five that we could, depending on the time, Dave, we could go through.
Here are the five, I would say.
Yeah, sure. So why don’t we—let me just provide some context to the listeners out there. Wherever you are in your journey, whether you’re thinking about making your first investment or you’ve already made, you know, ten. Basically, what we’re talking about is really a bit of a lens on the multifamily marketplace, right? And it was going strong for, I would say, at least 12 to 15 years. I had invested in many, many deals. Everything actually outperformed the expectations from sponsors. I was working with good sponsors, investing in all the fundamentals that we did.
And literally before even 2021, you could not even get access to opportunities. As soon as opportunities came out, they would be oversubscribed literally within days. So you had minimal time to do due diligence. But the track records were very strong. And what happened overall in the market, I think one of the biggest challenges was the unprecedented rise in interest rates by the Fed a few years ago, which essentially put pressure on the underlying structure of all these assets. The business plan was good, the track record was good. But no one, not even banks, could forecast this increase in debt cost, which basically created a lot of pressure for different operators and assets that came under a ton of pressure in the commercial real estate space—namely multifamily, and also on the office side as well, very heavily, which we’re working through right now. So I think that’s really the broader context for people to understand. If you got into a deal post-2021 or 2022—if it was underwritten between maybe 2021 to 2023—a lot of those assets have been challenged.
And frankly, 90% of the commercial real estate industry that went through deals during that timeframe are under pressure right now.
If you’ve got the fundamentals right and you’re investing in the jockey and not the horse, you’re going to do better.
Man, you could put that on a wall. That is so well stated and captured, Dave.
Yeah, okay. So that being the context—right—Spencer and I have been living through this with different operators, places we’ve invested personally, and people we’ve known. So what we wanted to do is really share some insights and learnings through those investments where there have been calls or maybe distributions that have been paused and things like that. So let’s talk about if you’ve got a couple of top takeaways that you could share. Let’s dig in.
Absolutely. Think of this, folks, as sharpening the pencil, as it were. And if you’re new to the space and you’ve never even cut a check yet as an LP—as a limited partner in one of these deals—think of this as the deep diligence, research, and prep that we all go through when we first get ready to cut that first check as an LP. But now you have a wealth of information available that wasn’t even so readily accessible up until about 2021. So that’s the other side of market pain—it’s that everyone gets smarter. And so I look at it now as, wow, this is a unique economic moment in the sense that when asset prices are down, there are buying opportunities to be had there, and investing opportunities to be had in kind. So you’ve got to be selective.
There is noise—as always, there’s noise—but on some of these opportunities, you just have to find them, diligence them, and act on them when they present themselves, because they are rare.
Yeah, so give us your top one.
Yeah, top one right off the bat—as folks are looking at deals—when I first got into the space, I thought, oh, look, cash flow. Let’s talk about cash flow and predictability. When we want to go out and find passive income, we might see something like a preferred return. And I think at this point you have a savvy audience, Dave. We all know preferred return is not the same as a cash flow number. As a cash flow projection, it’s certainly not a guaranteed number. So if I see a deal and it says, “Oh wow, look at that 8% preferred return,” the junior LP in me would have said, “Wow, that means I’m going to get that percentage back to my bank account in the form of cash flow on an annualized basis—quarterly or monthly.” Not the case. Never been the case.
What that is, is a contractual agreement. That’s the first level of learning. But here’s the real insight from the past couple of years: cash flow not only isn’t guaranteed—it really comes down to scrutinizing whether you’re buying that asset at a great price, and more importantly, whether that sponsor is up for running a tight business operation. Do they know how to generate revenue and manage those expenses tightly? How do you de-risk that? You ask for the plan. You ask for the plan on paper. And a great sponsor—a true operator—whether they’re in multifamily, self-storage, medical office, or mobile home park—they’re not only going to have that plan mapped out in detail on paper, they’re going to be able to show you your margin of safety. And that’s a term that, man, you’ve got in the equities world, in the stock world—but in real estate, you can spot that stuff.
You can take a look at how much reserves they have in place if they hit some headwinds. You can take a look and see how profitable they think they’re going to be running this asset. They go buy this big property—it looks great on paper—but what happens if insurance goes up? What happens if taxes go up more than expected? What happens if your vacancy goes up? All of these things you can mitigate on the front end as long as you’ve got enough cushion there on the first pass. Right? So that’s got to be the first one. Dave, I’m not sure how you’ve encountered that and the thoughts you’ve refined on this topic, but how do you bake in some kind of buffer or margin of safety on those deals? If you’re doing it for cash flow and if you’re there for growth or equity growth—and a lot of the folks that are in the wealthy and ultra-wealthy categories—they don’t necessarily want or need that cash flow. Many of the folks in our investing club don’t necessarily live off that cash flow—they’re good to go.
But many folks do, and they want to actually generate cash flow from when they deploy that check of 100k. So don’t assume it’s guaranteed, but do the diligence, take a look, and lean on other members of clubs and groups to beef up your knowledge to ensure that, “Hey, I do want that 8% or that 5% or that 6%—whatever the number is—to show up reliably in my bank account.” And here’s how I’m going to make sure that I know I’m due-diligencing this correctly.
Really great point, Spencer. These are the kinds of conversations we have inside our mastermind all the time on how to properly vet deals and sponsors, and really leverage the crowd to get smarter as you do that. A couple of comments that I’ll add on is that investors need to understand that when you invest in real estate, storage, or whatever the asset class is, understand you’re investing in a business. It’s no different than a business — it’s just a tangible business. And therefore, you have to be comfortable with the business plan.
And to your point, are they making assumptions where rent growth is going up 4% a year and then escalating up and to the right with no issues, or are they conservatively forecasting growth and then have room in between what you’re calling that buffer space? Some things will go wrong — in fact, they likely will go wrong. Costs will come up, there’ll be issues like burst plumbing or storms that come up, things like that. But nowadays, one of the great things investors can do is certainly leverage AI to help and do some of that analysis. You can actually create a bot and have some good due diligence measures for forecasting these things.
I would also say that when you see a pro forma of a return, understand that it’s just that — a projection. All investments, regardless of the asset class, are projections. Absolutely no one knows what is going to happen. We’ve even seen a few hundred banks fail in the past few years, right? So money is not really safe unless you put it under your mattress. And even then, you’re losing value on it. So just understand that everything is an investment.
Here’s another example. My wife had a very nice position in Kodak stock that at one point in time was a blue-chip stock recommended by her advisor and was there for her retirement — it would just keep scaling. Well, they went bankrupt, went to zero — no recourse, nothing. This can happen in any asset class. You really need to pay attention to due diligence and also set your expectations right.
Like you said, cash flow is not necessarily guaranteed. If you want a guarantee, then go get a CD — that’s about as close as you can get to a guarantee. I’m not sure if the government can even pay its debts these days, but that’s about as close as you can get.
When you realize that, and we talk about investor DNA a lot and how important that is, you need to also create your own buffer as an investor. So if you need that 8% cash flow to come in, if you need it, this is too risky for you. That’s not the right investment for you. If it stopped or the business plan changed or something happened, you need to be able to flex with that as well.
Oh my gosh, that Kodak story is so potent. It hits home for so many reasons, but primarily because you can have an excellent-looking company — a business that makes sense — and then disruption comes out of nowhere and suddenly the whole thing is wiped. Just remarkable.
A timely topic for this week, Dave. When I purchased some gold a few years ago back in 2019, I did not expect that to be some massive wealth builder — absolutely not.
It was a piece, a hedge — a piece of the portfolio. Here we sit, and I’m sitting here confused as all heck, going, “Wow, gold is up over $4,000 as of right now.” Scratching my head, I’m thinking, “I did not have that on my bingo card for 2025.” My goodness.
One other key learning I want to share as well is as we look at real estate — and you and I have invested in all these wonderful assets in commercial real estate, whether they’re challenged or thriving — a key piece of this, a real benefit or feature of the asset class, has been depreciation. And you know this, I know this.
The way we approach taxes every year — we file on extension, as many wealthy folks do — we reap the benefit of depreciation losses. When you invest in a big asset, whether it’s a duplex that we own and get little depreciation, or you invest in a syndication and benefit from a cost segregation study, they front-load all this beautiful depreciation to reduce your taxable income from the cash flow you get from that asset.
That all feels great on the front end. If I could go back in time, one of the other considerations I would put into play is to remember there are other components. Depreciation has some things that the IRS is very on point and very thorough about — making sure they come back and knock on your door and say, “Hey, at the end of this, we’ll have to pay back a couple different types of taxes on that,” called depreciation recapture. There are other moving parts as well. This is not tax advice.
I’m not giving advice on anything tax-related here, just sharing my personal experiences. When that goes well, you’ll have profits from a deal sold at a higher price point, with great improvements on that asset. If it’s a value-add deal, you could pay that tax bill.
But what happens if that deal doesn’t go well? What if it sells at a loss? Those realities happen. I had one of those in my own portfolio, unfortunately, but that’s part of investing — you’re never right 100% of the time. In the overall portfolio, we see growth, but on that one asset, the IRS bill still comes due.
So if I could go back in time, what I would do is still look at these great assets to invest in, but I would also put into my plan enough capital to absorb those types of bills — to be prudent, plan things out, and really think strategically about the portfolio, just like I would through a corporate lens for those W-2 business nerds out there like me.
If I were doing a quarterly plan or an annual plan, we’d always have our stretch case, expected case, and worst case — great, good, and not-so-good scenarios. In that scenario planning, you want to account for different outcomes this could have.
At first glance on that beautiful PDF, when you’re looking at a new opportunity to invest, it’s going to say something like “Amazing depreciation.” And I’m a fan of that — it’s massively helped our wealth picture. But it doesn’t always go perfectly. So prepare and have contingencies in place.
I’m not sure if you’ve encountered anything on that front, Dave, but that’s certainly something I’d be more upfront about.
It’s a good point. Our audience is very sophisticated. We understand recapture. We’ve had many strategic tax planners, some of the best ones in the country, on the show. And that has been my advice to people — the first thing you need to do is actually get a tax planner, not a tax preparer. We just did a whole segment on this — a tax planner on your team. Once you have that person as part of your dream team, you’re able to start forecasting how all of these assets work together — how recapture works, how depreciation works.
Here’s the complexity of it. As you keep adding different assets, you’ve got different income streams and all kinds of different things happening. The picture changes constantly. But if you have someone really proactive on the team, you can manage to those forecasts. The other thing is we inherently understand that problem, and that’s why we’ve actually built that into our software, Pantheon Wealth OS, where you can do tax liability forecasting. Even from a qualified income standpoint — how much tax liability do you have coming down the road when you’re trying to get out of some of those qualified plans, or if you have liquidity events from different assets or recapture — how does that all work?
So in that year, whether you have a liquidity event or something else, you can plan for something big with a tax offset — something like oil and gas or another strategy that can kind of wipe that out. If you’re in front of that, you can really come out ahead the whole time.
Oh, that’s brilliant. And your audience — I hope they realize how lucky they are to hear that level of insight, Dave, because no one necessarily came right out and told me on the front end of my LP investing experience, coming up on a decade now, “Hey, Spencer, it’d be really smart for you to go and track all of your forward losses — your carryover losses — for your taxes year over year,” amongst many other things. That has to be one of them, Dave.
Yeah.
So key.
It’s key for sure.
Good on you for bringing that education to bear. I think, in this current market landscape, the last thing I was going to share — and this is a little more nuanced, but I know you have a smart audience — I have to share this because it’s not spelled out so plainly.
When you look at different offering memorandums and try to review good opportunities to invest in — and this is just talking about real estate specifically — it could be multifamily, self-storage, or medical office, whatever it is — what does preferred equity mean?
Because there are terms like “preferred return” and “preferred equity,” and the terminology is distancing and confusing in this space. Preferred equity, in this case, means there’s a firm out there acting similarly to a bank. Many of these are sponsors, and they’re going to go lend at some sort of slightly higher rate.
It could be a million bucks, could be five million, could be ten million — to an operator — as stopgap funding because they want to buy a great-looking asset but can’t get the full loan they want for that deal. So enter a preferred equity loan or preferred equity injection. They want to buy that new acquisition.
You’ll also see on the market preferred equity being used to save or rescue — these are rescue funds for distressed assets. Two totally different business cases — the distressed assets and the fresh, amazing new acquisitions. There’s been an explosion of these preferred equity offerings, opportunities, and use cases in the past three years since lending tightened up and interest rates went up.
Now, I look at that and say, starting back in late 2023, I saw an opportunity there and said, how do I get on the other side of that? So we started to invest on the other side of that in private credit. It’s gone very well, and we continue to do that now — investing in these types of commercial real estate assets for new acquisitions.
However, on the other side, if I’m ever looking at an equity investment deal, like a private real estate deal, I wish someone had told me, “Hey Spence, look at the capital stack they’re putting together.” You have the common equity, which is what most of us LPs invest in. We invest in these things — 50k, 100k, 200k, and beyond.
If there’s preferred equity in that capital stack, take a really fine-tooth comb and understand what that means. Understand who that lender is, because just like a bank, they can have an agreement with the sponsor that says, “If this deal doesn’t go well,” or “The sponsor doesn’t perform or run the asset to the standards of that preferred equity firm,” that firm can come in and say, “You know what, guys, we want to get paid back.”
“We see a higher risk. We’re actually going to make you sell it now,” because they actually had that in the agreement first. That’s a high risk for the LPs in that deal, and they’re not prioritized as high as the preferred equity injection. Hopefully, I didn’t go too quickly on that one, Dave, but I think that is absolutely a key piece of essential education.
Yeah, appreciate you sharing that. And that’s exactly what’s been going on — a lot of rescue-type funds. And I think it’s of note — one thing that’s really interesting, if you look at the market as a whole for people to understand — if you’re investing and see one of these opportunities with good returns on these pref equity-type deals, really understand the history of that asset and what’s going on.
Because if those are the troubled assets, they may have a cash flow issue.
They likely already do. Maybe their operating income is down, and the debt pressure is high. So you are actually taking on quite a bit of risk. You’re also diluting original equity investors in that asset. There’s a lot more risk there than people think, especially in multifamily right now.
Now, you could be investing in private credit or debt in the defense sector or fifty other sectors that may have different dynamics.
But understand that if you get into that in real estate right now, a lot of those assets are troubled. So I think there’s a higher degree of risk. And again, that maps back to your own risk tolerance — your investor DNA. Are you okay with taking that on, or do you want to be in something safer, like a CD? Because it’s not a guarantee.
Right. And that’s why, you know, there’s one layer deeper that I look at all these now. One way I quickly filter out is I say, okay, that’s a compelling return. I’m interested in looking more closely at this one opportunity, this fund, if it’s real estate focused or if it’s a single asset deal and it’s a preferred equity opportunity. The moment I see “rescue” or if I see “distressed asset” and it’s on the preferred equity side, I move on. If it’s new acquisition potential, now we’re talking, because that is actually a really nice, in my opinion, more downside-protected scenario potentially, if it’s something that I’m looking at and it’s a good, solid return.
But that brings us back to kind of maybe just a “tie it in a bow” point here too, Dave. The risk profile of any investment at a high level generally is going to be correlated to the projected return. Right? And if you look back to 2019–2020, we would see these pro formas, we would see these investment summaries, and they would say something with a very high projected return. Now the lower projected returns — if you were seeing IRRs in the 13–14% range — folks turned their noses up at that oftentimes because they were so used to seeing ones that were much higher.
Me personally, I am far more interested at this stage of the game, going into 2026, in looking for a more moderated potential return. Because if I’m looking for stability in my portfolio, I’m looking for something that is going to have more predictability. That’s what I’m targeting. There are times to swing for the fences, and going in eyes wide open is important, but there are also times when it just says, okay, let’s go for a lower potential outcome.
I gotta say, one of the best exits we’ve had in the past three years on a multifamily deal — because sometimes it doesn’t go well — was an excellent outcome, and it was on the lowest projected return of any deal on multifamily that we’ve gotten into to date. And there’s the irony of ironies. I think it’s prudent to keep that in mind when you see that beautiful pro forma.
It’s not just about the highest number and picking that as your criteria. There’s more to it than that.
I definitely want to go into this one and talk about it as well, because I think investors are very often misled by a set of numbers or a marketing deck that may look very appealing. I can tell you that when we look at opportunities, that is not one of the first things. The return profile is one of the things we look at later on down the road.
We’re first looking for values alignment and cultural alignment in the sponsors. Are they trustworthy? Do they have integrity? Do they have the track record? Are they people we can work with — people we know we can go in a foxhole and go to battle with if things get difficult? Do they have the balance sheet to really work through the hard times? We’re looking at those things. We’re looking at the business model and the fundamentals of the business model.
Do they have something that’s super compelling? Like we did a medical office building deal earlier this year where the sponsor is owned by private equity, and it’s a dental group. They’re 60% of the occupancy, and they signed a 10-year lease. So it’s almost like your minimum threshold is already met right out of the gate before anything even happens.
When you can find great ways to mitigate risk and things like that, that’s great. And to your point, if you can really underpromise and overdeliver, those are the operators we want to work with. That’s why we work with institutional sponsors that really understand that. They’re much more moderate and conservative with things and understand that if you’re working with an operator that’s less than a couple hundred million in assets under management, there’s a risk premium there. So you might see higher projections, and they likely are giving out more equity or more upside because they have less of a track record, and you’re taking on more risk.
Again, that comes back to whether it’s a fit for you or not. Maybe there’s something you want to throw in there — maybe allocate 5% of your capital toward a little riskier investment. It’s got a better return and profile — and understand that.
But if you really need that capital, or it’s part of your retirement, or it’s really core to you, then just understand where that fits. I think there’s a place for both, but it’s about understanding where it fits in alignment with your goals and where you are.
So well said. Eyes wide open — in the end, that’s all we’re going for: wealth and prosperity over a long time horizon built on smart, eyes-open decision-making. We have a snapshot — any of us has that data at that moment in time. We can make a great decision with as much data as we can possibly find, both quantitative and qualitative. From there, we pull the trigger or not. And looking back, you can learn from those moments as well.
As of right now, going into 2026, I think there is great reason to be optimistic. I look at the horizon of what’s coming — prudent decision-making and deep due diligence are the name of the game. That’s why we’re continuing to look at deals and invest in alternative assets. Frankly, in some ways, the asset prices to get into some of these are better now than they have been in some time. That’s where we’re at right now, and I’m so fired up to head into 2026.
There is so much noise with the devaluation of the dollar — we’re down 10% already this year — so there’s a lot of people talking about metals, Bitcoin, central banks, and all of these things going on. So where do you invest?
I think the one really important thing for people to understand, and this is probably the biggest missing link I see with investors, is that no one has a strategy. No one literally has an investment strategy. When we sit down with our family office clients, the first thing we do is create an Investment Policy Statement, which is a completely comprehensive document that becomes a blueprint for your strategy, your plan, your vision of what you want to achieve.
What is your risk tolerance? What is important to you? Where do you want to be investing? How do you want to be aligned? What is your time horizon? What are all these things? When you have the strategy in place, then you can handle the tactics of, “Okay, now I need to fill that. I want to acquire four multifamily deals this year,” or “I want to add 10% in credit or debt to my portfolio.” Now you can look for those sponsors and those deals — but don’t do it the other way around.
I think most people are looking at it as, “Let’s go chase the shiny object.” My friend told me about this great deal over here — that’s how it works. But if you have this strategy in place, you’re going to be so much more successful in meeting your goals, whether that’s tax efficiency, income, or really creating legacy.
Oh gosh, beginning with the end in mind is just invaluable. And not only to avoid the shiny object syndrome and that squirrel moment, it’s also sitting there and asking the question: is this opportunity I’m looking at truly the “generational opportunity”? I have yet to see that exist.
But when you first get going, in particular if this is only your first, second, or third time evaluating an LP position in a private equity investment or real estate investment, emotion is at play. We are humans, and that always applies. But when you begin with the end in mind, just like you’re empowering your members to do, Dave, you can mitigate that, counteract that, and sit there and ask the question: do I need to deploy all of that $100K, $200K, or $500K this year — depending on someone’s position — or is the prudent decision to carve out some of that for year one, some for year two, some for year three, etc.? You don’t know that unless you plan. Slowing down is the hard part — and it’s the worthwhile part.
The phrase I try to share with every new member of our investing club and Madison Investing is: there will always be more deals — always. So let’s bring down the temperature a little bit. When it comes to someone seeing that beautiful-looking spreadsheet or that beautiful-looking PDF and saying, “I just got this; my buddy said I have to do it,” I say, “I hear you, but let’s hit the brakes, have a conversation about this, and work from there.”
What do you think is the biggest missing ingredient for investors?
I gotta say, it’s somewhere around community and sounding boards — the ability to have in-depth conversations with kind folks. For those who are more outgoing and bold, they’re able to find that. When I was first getting into the space, I had some real estate and tech experience, but I was comfortable enough to start attending meetups locally — many of them real estate investing and investor meetups.
I was going onto forums, meeting folks, and occasionally, if we built a relationship online, I’d say, “Let’s get on a phone call, let’s share notes.” Echo chambers can be very risky, and we all succumb to them sometimes. By “echo chambers,” I mean everyone validating each other’s opinions without questioning. When we can surround ourselves with like-minded people who care enough to say, “Hey, you’ve got something in your teeth, my friend,” — that’s invaluable. A person in your personal life or in business who genuinely cares and has the right intent is that person who’ll say, “You’ve got something in your teeth, man.”
When you don’t have that, you end up making decisions that aren’t necessarily in line with your big-picture objectives and goals. That’s what first comes to mind for me, Dave. You made an excellent point earlier about the current landscape of what’s available. We have AI tools now — ten years ago, that wasn’t the case. We couldn’t say we have this incredible power to analyze data that we didn’t have then. You still have to spot-check it; sometimes AI hallucinates.
Of course, the technology is still in flight. However, it’s incredibly powerful in helping de-risk the quantitative side — that part is getting easier. I’d argue the harder part is the qualitative, and that’s not changing overnight. You still have to do reference checks on new opportunities, get feedback on your plan, and review your big-picture, multi-year, 5-, 10-, or 20-year vision. So how do you find that? Who do you decide to put in the room with yourself? Those are big questions.
Great insights. It’s really such a relationship-based business. If you want to be in the markets and be exposed to volatility and all that technical data, it’s a completely different game. But one of the key takeaways from all of this is that there are challenges. Hopefully, today’s show unpacked that, and I appreciate the transparency and candor, Spencer — really talking through these things to make people better investors, giving insights and questions to ask sponsors as they evaluate different deals.
We still very fundamentally believe in the business case for real estate alternatives, especially compared to a devaluing dollar or markets with so much volatility — whether it’s tariffs or trade wars. Who knows what’s going to impact it on a day-to-day basis? But when you have the fundamentals right — and this is how we’re seeing family offices invest capital — they’re looking 10, 20 years out.
Not who’s in office right now, but 10–20 years out. Are you investing with the right fundamentals? If you’ve got the fundamentals right and you know you’re investing in the jockey and not the horse, you’re going to do better. You can’t bat a thousand every time either, but the more lessons you take on, the more you’ll exponentially increase your game.
I completely agree with every comment you made there, Dave. It’s a journey — a learning journey — and one that you only truly internalize when you play the game. Being in that arena, understanding you want to win most of the time (though you can’t win every time), helps you reflect, internalize those learnings, and apply them moving forward. Then you can ask, “Do I have a crystallized, clear new lens to make great decisions and build out my wealth picture?” Because alternative assets will continue to be a fundamental part of how we build wealth.
It’s a journey.. you only truly internalize these learnings when you play the game.
So much of this is expectation setting too. If you look at how a VC fund operates, they expect 80% to be losers.
Right.
And there are one or two unicorns in there that carry the entire fund.
Right.
So don’t look at it as if every one is going to be a home run. If you understand that some might not perform as expected and set your expectations accordingly, you’ll likely do better as an investor versus hanging on to every dollar thinking everything has to outperform.
Try to find some level of rigor and discipline while keeping objective and dispassionate. You want to look at this with as much objectivity as possible — it’s a numbers-driven thought process. It’s not about “I feel like I should be doing this now.” There’s an element of celebrating wins, of course, but also, to your point, taking the long view from a dispassionate perspective — that’s how you actually get a better chance of what you want.
Spencer, I really appreciate your wisdom and insights today. If people want to connect with you, what’s the best place?
Thank you, Dave. It’s been a while since we caught up, and this has been a blast. Folks can reach out to me at madisoninvesting.com. They can set up time, and we can talk shop about how we’re looking at deals in the market. We also have a private credit fund that’s currently open right now.
Awesome. Thanks again, Spencer. Appreciate it.
Thank you, Dave.
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