TSI003: Investors Die From Ingestion Rather Than Starvation
THE SOPHISTICATED INVESTOR EPISODE 003
Investors Die From Ingestion Rather Than Starvation
EP: Hello, everyone. This is Edwin Epperson, your host of The Sophisticated Investor. The Sophisticated Investor is an incredible community, which is focused on education, training and collaboration to help each of our members, and that includes you, to build, protect and preserve your families generational wealth. Now, I believe that we truly have a unique and one-of-a-kind educational community. For one, I believe that there are four primary markets, not just one. I believe that those four primary markets include your personal finance and mindset market. I believe the second market is your hard, tangible asset market. I believe that the third market is your stock and paper market. I believe the fourth market is your business investing market. Now those four markets are imperative to be able to understand and then call yourself a sophisticated investor. Today, we have an incredible guest who is going to educate us on their preferred market of investing, as well as the assets that they like to invest in. Please join me as we welcome today's guest.
EE: Hello, everyone. This is Edwin Epperson, host of The Sophisticated Investor, and today we’re going to have an incredible conversation with Mr. Jack Miller. Jack, welcome to the show.
JM: My pleasure, thank you for having me on. Hopefully you're having a great day.
EE: Absolutely. Thank you for taking us the time out of your day to be on the show with us and real briefly, I want to introduce you to our listening audience for those of them who don’t know. Jack Miller has been in the real estate investing timeframe since 1987. You have completed over a billion dollars’ worth of loans in the lending sphere, over tens and tens and tens of thousands of loans. You have managed your company, which manages hundreds of millions of dollars in mortgage portfolio currently and you are actively involved in the commercial real estate and that covers a very broad spectrum of assets under management. So, thank you sir, we know you’re very busy and we want to thank you again for taking the time to come on the show and divulge some of your wisdom and knowledge to our listening audience. Welcome again.
JM: My pleasure.
EE: One of the things that – just wanted to dive into, you know, when somebody reads your resume or when they maybe meet you, connect with you on LinkedIn, which I know you have a LinkedIn profile that I will give to listening audience to connect with you on. When they read what you’ve done, what you’ve accomplished, some people may assume that you were born that way, you were born into this wealth, you had all this knowledge, you had all these advantages. Could you walk us through sort of where or how you started, what was life, what was a childhood like for you and were you a privileged, advantaged person as some may think?
JM: I believe anyone who was born in this country has certain privileges by itself. I certainly wasn’t a privileged child. While I did have great parents and grandparents and brothers and it’s a close family network, the reality is, my childhood wasn’t particularly pleasant one. I’m dyslexic and in the 60s, dyslexia, when I went to school you were called brain damaged. I really did terribly at school and my public education, my schooling, every day was a torturous day. The truth is, I don’t want to get too much into the school system, dyslexia and how it’s treated. But the truth is, it wasn’t a great childhood for that reason. I started to thrive when I got in the working world and from the time I was of very young age I’m guessing 10 or 11, I used to sell pretzels on the street corners of Philadelphia, sell coins, take summer jobs, sold pencils, literally, anything you name it, to make money. I could and to me, the pure opportunity that someone could say, "Hey, with your hard work, no skills, no education, you know, a lousy reader, terrible grammar, terrible spelling," this was way before spell check. "Your determination and your gut brute force can go out and make a living," was unbelievable to me so I viewed everything as an opportunity and I make mine, if it took someone five minutes to do something, I didn’t mind spending five hours on it or I didn’t mind keep swinging, you know, certain people seem to go through life and they always hit the nail on the head the first time. I’m the guy who hits the nail on the head the 20th time, you know? Just a story, yesterday, out of the blue, I was paid on something that came out of the blue, that I’ve worked my butt off for probably seven, eight years on. It’s the typical saying, you know, it takes about 10, 20 years to be an overnight success and that’s my story. Nothing has ever come easy for me.
EE: I want to dive into that because I think a lot of people, especially in today’s – and the proponent and we’re in this age where the university, a degree and you may have a degree but when you started, it sounds like you didn’t have any formal education beyond high school?
JM: I have no degree whatsoever except the school of hard knocks and being beaten up. That’s the only degree I have.
EE: That’s awesome. Again, I want to remind people that are listening, that right here, you’ve just heard from a man and you will hear from a man for the rest of the time who doesn’t have a college degree, he doesn’t fit within the mold of what a lot of people maybe telling you as a listener that this is what defines a successful individual and what type – only, this type of individual has the opportunity to succeed as someone who goes to a university or college. They have a four, six, eight year degree, they get a job, work at it, make someone else wealthy and then they can retire and live off their pension. Jack, you completely broke that mold and I think that there is a shift happening underneath the bedrock of a higher learning right now that says, you know, not everybody needs to have a college education. There’s certain jobs that in my opinion, if I would have heard about you. Let’s say, 10 years ago, I would have thought, Jack Miller, he manages his companies, got hundreds of millions of dollars in assets, under management. He’s done over a billion dollars in lending. Well, you have to have a master’s degree from the Wharton’s business school or Harvard or Yale or something and so, very incredible to hear that you’ve accomplished where you’re at today without what the rest of the world if you will, deems as necessary to succeed. That’s really incredible. As speaking to dyslexia, I grew up at a family, I have a little bit of, but my brother struggled very much with dyslexia and even for them growing up in the 90s, it was still the stigma that we’re going to put you in the special school and this special class and you know, it’s done damage to them as their self-esteem if you will as they’ve grown up and trying to overcome the stigma that was placed on them. Absolutely, it’s amazing to hear your story that that’s something you start with and yet you're still able to accomplish what you’ve accomplished right now.
JM: I appreciate it but I really don’t’ struggle with it. People around me may struggle with it because my grammar’s terrible, my spelling’s terrible but no struggles, I’ve learned, I have so many weaknesses and so many problems, I need to focus on my strengths. I don’t give really, my weakness or my problems too much attention. Or focus, I need to focus on the task and solving my mission and using my strengths to do that. Those who have to deal when we struggle with it, frankly, more than that too. I appreciate it.
EE: Absolutely. You started of basically as a salesman on the streets of Philly, selling whatever you could get your hands on and that – sold pretzels and then on the coins and anything else and so where was the pivotal moment that you said, man, I see this opportunity in the commercial real estate space and even more like becoming the lender like a lot of people think that there’s such a barrier to entry to that. What was the – was there a catalyst, was there a moment that really spurred you into wanting to get into that industry?
JM: I think it was multiple moments, you know, my first real experience was probably 17 or 18 during the Jimmy Carter era, give or take with 15, 16%. I was buying a lot of homes in Philadelphia with a friend of mine. I love the field, unfortunately, the partnership didn’t work out, it was all kinds of issues, I don’t want to go into them right now but all kinds of issues and everything went bust and that exited quickly but I got a taste or again, it’s unbelievable to me that someone could wake up in the morning, go out and through their hard work, make money. I thought the real estate business and the lending business and the finance business was a great way to do it. You don’t need a medical degree, you don’t need anything. Just through your sheer determination and a lot of hard work and a lot of failures. I could tell you, one failure after another. You just keep getting hit in the head with a two by four and say, why the heck did I go back in the ring? But one failure after another led to successful careers. But for me, it was, I was very lucky when I met my now wife of 32, 33 years. I really wasn’t employed, I was making money any which way I can and I applied for a job and I got a job, I don’t know why they hired me, I know still, no education, in the mortgage business and all of a sudden, they hired me on a Friday and start Monday, go out. I didn’t know anything. But it was again opportunity was largely commissioned but it was an opportunity. If you close a deal, we’ll pay you and I said, this is great, I just got to go close deals, I didn’t know what a deal was but again, it was the opportunity and we lived today – this was way before the internet, way before cellphones or anything or acknowledge it, we’re unbelievable, we live in a world of unlimited opportunity, it’s a global world. Anyone could go out there and make money by just working hard.
EE: Absolutely. That’s maybe something that is being lost in translation. Again, going back to you need to call this degree, you need these papers, you need these certificates you need this, you need that. There’s a lot to be said about just straight hustle.
JM: It’s hustle. A quick story and I’ll let you go, I don’t want to monopolize –
EE: Go ahead.
JM: We’re out with some people, mother’s day thanksgiving or mother’s day. Three days ago, two days ago, whatever it was and then a few other people were talking about how they get what they call the Sunday Scurries. Some they make, they started to fear going to work in the morning. I said, they asked me, do I feel that way, I said no, I can’t wait to go to work in the morning. I look at it as excitement, as what can I accomplish today? What can I do within the world today? I don’t look at it as the Sunday Scurries and some people refer to going to work. I look at it as opportunity to accomplish things
EE: That’s incredible. That brings out a great discussion point is the benefit of being an entrepreneur, of being your own boss if you will. Now, you obviously have employees that work for you but you get to set the vision, the course and what you want to accomplish and really, what you want your company and your business to accomplish. For all of those who struggled with working – this is something I struggled with is the reason I wanted to branch out and start my own business was I was taught, I worked under people but I felt like that leadership, the dichotomy of leadership just was not there. I felt that I believed I could make better decisions than what my current leadership could do. I went out and I started, now, granted, I was in the military so you know, going into a completely different field in the private lending sector. However, that ability to vision cast and then get other people onboard and then to go out and accomplish, you do wake up on a Monday morning and you’re excited about man, this was – these are the plans, these are what we’re wanting to do with our business and who we’re going to bring along with us. It is a shift in mindset to be able to look at your job if you will and have that type of anticipation and excitement. I wanted to cover real quick, you had mentioned, there’s this question here that I have everybody filled out and you filled it out Jack. One of the things that you had mentioned. I had asked the question that if somebody wants to get in – to start to get invested in the real estate commercial real estate or just real estate in general. We see this all the time. I’m sure you see this, you have somebody come to you and say, "Hey, Mr. Miller. I’m looking to maybe not you directly but through your company. I’m looking to borrow money, I’m going to go out and I’m going to buy this commercial strip centre, we’re going to do XY and Z, we’re going to turn around, lease it out, it’s going to be performing all this. Very, what we would say, optimistic. There was a statement that you had written, you said, don’t get emotional and don’t be too optimistic. People die from ingestion, rather than starvation. If you could break, unpackaged that standing because there is a lot of wisdom in there, more wisdom that maybe some people would realize. There is a huge amount of wisdom and insight in that statement.
JM: First of all, thank you for your service. I never realized you were in the military. You know, people don’t focus on that we’re a free country today because a lot of people made a lot of sacrifices. Freedom is always very costly. I genuinely thank you and all the military map or the past couple of hundred years because we’re living in a free society and you're speaking to me because a lot of people like you, a lot of young men and women, really put themselves out there where a lot of us, me, get it. Thank you. But what I meant to say in my dyslexia may came through there is that stuff is always happens. Everyone’s neighbor, it looks like they’re a great success but my life, I struggle with things, every property’s great until I get involved with it. The bad stuff happens. You have to prepare for the bad stuff, it’s good. Good will take care of itself but you know, people always come in with – you can make anything look good and you could sell yourself on anything. Entrepreneurs and sales people are great at convincing themselves, they believe it so much that they convince other people. But the reality is, whatever you’re projecting. It may come true but your timeline is going to be of. My experience is, everything takes longer, good stuff happens but it takes a lot longer and everything costs more than you would expect. Everyone’s always projecting, the rents go up 5% and the cost will be this, what about when rents go down? Be prepared for the downside because the downside always happens. Always. What I meant by, I meant to put more people die from indigestion than starvation. It’s true. Again, that’s probably my dyslexia came through there. What I mean by that is, I believe that’s a fact in the country, in the world today. But within business, it’s a very delicate balance between growing too fast and growing at a steady pace. I’ve seen over the years and it’s happened with me personally. When you grow too fast, you’re in trouble. You see a guy who does one – in the real estate world. Let’s say a guy who buys and sells properties. Say a guy who does one and then he does two and then he does three. He’s doing okay. After he had done his third. The guy thinks he is Superman, he is thinks he is the next whatever, superstar and he is doing five at once and inevitably he collapses because where he may be able to sustain one deal, something going wrong, bad things happening in groups and bad things happen in large weight. So maybe he could survive one or two deals but he is doing five and that is not within his bandwidth. So I always – it scares me when we see people who are growing at a very rapid rate. Without times for the deals to settle in. They just keep growing and growing and there is always a good reason, a good excuse but inevitably a lot more than tech. Again, we like slow and steady wins the race.
EE: There you go. If I could, I want to unpack what I interpreted on what you wrote and I know that maybe you said it was a misspelling or maybe I didn’t read it right, however I think there is a lot of truth in that. Don’t be optimistic, people die from ingestion or you said indigestion but I want to focus on the word ingestion rather than starvation. So as we are looking, you and I both are involved in the commercial real estate sphere. You are involved in actual commercial assets. My involvement stays in the single family residence but on the commercial lending, right? So commercial purpose lending. I have seen and when I think of the word ingest, I am thinking of the deals that I want to consume. The deals that I want to loan on and I am ingesting these deals and this could be either on the lending side or somebody who is going out there to buy a property, reposition it, renovate it, build up whatever. They are ingesting these deals however, they are so hungry to just get a deal done. I remember the very first deal. Now the very first deal I ever did I made my loan, my very first loan. I originated it while on Afghanistan on the side of a mountain and I thought I was God’s gift. I had this grand visions of sitting in the Caribbean on a computer making loans. So when I came back, I was very motivated. I wanted to go ahead and exit the military and start doing this business full time. And so I started doing loans, I had investors who are very happy and I started like you said, I started to feel like, “Oh man I’m hot stuff. Nothing could go wrong.” And I was so hungry for a deal. I was so hungry to ingest something that I was scared of starving not having a deal and I did my very first bad deal a year a half after I started. So we made a loan, it ended up being – and this is a whole other story, ended up being scammed out of the money. The gentleman that scammed us is in prison right now. He was indicted by the FBI in a different fraud, scammed us out of money. The title company that handled that with the attorney were pursuing him because he violated us for instructions and a bunch of other stuff but that really shook me to my core because that phrase, people die from ingestion rather than starvation, man that was me. I just wanted to consume anything and everything that looked like a deal. I wanted to take it, I wanted to do it and I was so scared of not doing a deal. I’m starving that I was willing to eat anything so that I could continue to grow. Like you said, grow-grow-grow and I was not focused on slow and steady wins the race. So I know you said it was supposed to be ingestion but when I read the way that I wrote it down it’s like, “Man that is some powerful stuff,” because that applies to me.
JM: I think it applies to a lot of people and we’re actively saying the same thing. By not doing a deal, you don’t make money. By doing a deal you could lose money. So I never personally lose sleep over not putting a tenant in or not making a loan or losing a deal. The worst that I can do is invest some time but if you do a deal, bad stuff can happen too. So I agree with you 1000% and by the way, what happened to you I think it happens to everyone. Unfortunately it is a reality but you got back. You got beat up you got back in the arena and fixed it.
EE: Yes, still recovering in some regards. So I had an investor come out to me and this is before the deal went bad and so we were talking and I was explaining this is my business model, this is what we’re doing, this is how we are growing, I’m very confident and he says, “So have you ever lost any money?” I said, “Oh my god, no I have never lost money. That is horrible,” but I didn’t say that but my attitude, I am sure the expression on my face conveyed that. And I said, “Oh no sir, I have never lost my investor’s money.” He said, “Okay, well, come back and talk to me after you’ve lost a million dollars.” It was like who would like somebody that’s lost money? And now having gone through that fire I realized that man, the lessons that I have learned. Now granted, I wish I could have learned these lessons. I am hard headed like you said it yourself Jack. I wish I could have learned these lessons in another way. But after walking through that fire, there is things that man, I went back and talk to the investor afterwards. It is more or less, “Hey, who do you know who could help me out?” And afterwards he said, “You know Ed, you probably learned more during that experience than a lifetime of an investor who has never lost money.” He said the fact that you have walked through that, you have been able to do that, communicate with your investors. He said, "Man, that’s powerful," and now he is an investor. So it speaks volumes to somebody like you said, I can get laser focused, go through the fire and then when they get knocked down being able to get back up and continue to push through, push through so.
JM: I agree, that is my whole life so I have plenty of being knocked down.
EE: And that is a great segue to the next topic of conversation and we are going to be wrapping up here for the listeners and for you Jack. So we’ll talk about briefly this one last thing and maybe we could have you back on the show at a future date because you got a lot of wisdom and insight that I would love to dive in some other details and aspects of your investing career but one of the things that you said is one of the ways that you’ve gotten in trouble in the past is getting involved in things outside of your box. Could you unpack that just a little bit? Maybe what are those things that you got involved with that was outside of your box.
JM: Yeah, so throughout my career I am a little bit adventurous and we have been in the title company business. We invest in two or three title companies. We’ve owned an appraisal company, property management companies, tax link company, equipment leasing company, we have owned and pride a lot of good services and all of those, I never really lost money. I did really good because I understand the basic concept. But over the years, you get hit with things, guys you know, friends and family who are looking to raise money for different businesses and I would invest here and there and the reality is almost every one of them tanked and looking back over 30, 40, 35 year career I said, “You know what? I would have been matched. I am fine when I keep it within my box, things that I understand.” I understand the financial services, the real estate, the lending business. But when I invest in something that is outside of my box forget it and even within lending. You know when we look back the hindsight of I’ll call it the recession, the depression, whatever, 2006, 2011, when we look back over hundreds and hundreds of thousands of loans that we add, the only money we really lost on the credit decisions were deals outside of our comfort zone that we did that we shouldn’t have done. So we had all kinds of underwriting guidelines what we were comfortable with. For example, one of them was no land. We made a few exceptions here and there and almost every loss we had was on the exceptions we make. So even besides sticking within the business, even sticking again, we’re not comfortable with land and things that require zoning and construction. So when we look back and say, “Where do we lose money out of 500 deals or whatever the number is,” it is those deals that we made exceptions on that we were uncomfortable. Maybe it was for a borrow, with some cases we have done 20, 30, 40 deals for a borrower and he called us and say, “Hey I have this deal. It is a special deal. It is a piece of land. Lend me money on it,” the truth is that on that deal that is where I lost money.
EE: Interesting, yeah.
JM: And unfortunately, if you lose money on one deal, you have to do 20 deals to make up for it in my business anyway. They cost more.
EE: That goes back to that philosophy or that thought process, more people die from ingestion than they do of starvation. That idea that “I’ve got to do a deal, I’ve got to do a deal.” Instead of saying, “You know what? No I don’t need to do a deal. I will not die from starvation in this business if you will,” or really any business.
JM: You’re right. You know we do a lot of work within the distressed arena chapter 11 and people who have distress and I have seen it. We were involved in the case and I will tell you, it is just a quick story. I feel bad for taking up the time but you will appreciate it.
JM: I worked this whole life, I am guessing he was in his mid-60s. He had accumulated a third interest in I think it was 31 or 32 wolverines that were almost all unencumbered or the debt was very little. On paper, this is his third interest was I am guessing worth $30 million or so. What happened was, he did another deal on a shopping center during the downturn. It was probably a four or $5 million deal. That put him in default, he wound up losing his third interest on the wolverines. And effectively went from a guy who had a 10, 20, 30, $40 million net worth to losing just about everything because of one deal that went south and we were involved in that deal as a stopping horse bidder but that is a classic lesson and I have seen almost every day of the week. You know if not every day, every other day. I’m speaking to someone who has a pristine beautiful portfolio, one little thing caused it to go south and now the whole thing is tanked. All it takes is one landmine, excuse the expression because I know you’re in the military but I use it a lot.
EE: No, it rings a bell.
JM: One thing could go wrong and you’re toast. A life’s work gone down the tubes. I could tell you just like I told you the story of the Walgreens that was public record. So I didn’t violate anything, it was in chapter 11. I could tell you in my month, I have 20 or 30 other stories and these are good people. These aren’t bad people. These are good hardworking people.
EE: And so we are nearing the time Jack and like I said, I want to keep it between 30 and 45 minutes and man, I would love – I want to go ahead and just offer an invite for you come back on the show on a later date. I would love to dive into because there’s two topics that I think so The Sophisticated Investor is a community of investors that are looking to increase their business in financial acumen to be able to make those wiser investment decisions. And there is two things that you as a lender, now most people think of a lender they think of a bank. So you’re loaning money, you are wanting collateral, you are going to loan it out as debt but you also operate in the preferred equity and the mezzanine space and we didn’t even get a chance to touch on that but that is some interesting way to look at being in the lending space if you are lending and you are operating in that pref equity. If you are operating in that mezzanine financing and even on the if you are looking for different ways to structure a deal and implementing those type of equity or that type of lending until your deal structure can really – you can generate some really great deal structures and unfortunately, we don’t have the time to be diving to that but I do want to visit one point. You had just mentioned this gentleman, spent his lifetime building up that and he did one deal and basically wiped out. And you have seen a lot of those throughout your career. If there is one thing that you could tell, speak into the mind or the heart of a budding entrepreneur or maybe somebody who is currently investing and they are wanting to continue to expand and grow, what would be one component of their portfolio or the way that they are going about business that you would just highly encourage them to have this as a – I don’t want to say as a fail-safe but as something that can help them weather that storm when it comes because it is not if, it is always when.
JM: Leverage and cash. Those usually at the end of the day is what destroys deals, lack of cash in a deal and too much leverage. So I would say don’t over leverage, I will keep the leverage low and have a lot of cash reserves.
EE: And if you have minimal cash, don’t get that thought process that you’re going to die from starvation. So you got to go out and ingest the deal. You got to go out and get that deal that man, I will tell you what, when you combine that mentality I am like, “I am going to put that on big and put it in my wall man.” I mean that is huge that mindset of ingestion. I am going to die from starvation rather than ingesting something and it is quite the opposite.
JM: It is. If you don’t have a lot of cash, partner with someone who has a lot of cash. You don’t need a lot of cash. All you need is to partner with someone with a lot of cash and right now the country is deal starving. They think they are starving for deals so a lot of people are doing a lot of deals. So if you have the deal that frankly is as valuable as the capital right now.
EE: Yep, well Jack thank you so much for coming on the show. I am super excited about launching this. I think this is going to add so much value and content. Again, I want to extend an open arm and an open hand to have you back on the show. I would love to dive into preferred equity, dive into mezzanine, how do you work in mezzanine financing into your deals. For those listeners that want to reach out, follow you, connect with you, what are some of the best platforms and the ways that they can find you.
JM: You know you can go to geltfinancial.com and you can go to quickliquidity.com. Quick Liquidity is the provider, it is our equity company that we are providing preferred equity, equity mezzanine seconds. We’re lending on LP and GP positions that almost no one is doing throughout the country. So go to those two sites, you can check me out on Twitter, Instagram, LinkedIn. You know today on social media, everyone is out there for everything. Feel free to reach out and it will be my pleasure to come back. I’ll tell you I get so excited when I start to talk about preferred equity, LP and GP positions that are waterfalls and things like that. I could go on forever. Somehow in my mind, the most boring topic, our partnership agreement or a structure of a deal becomes incredibly exciting.
EE: Yeah, right?
JM: To talk about the structure of a deal for me is like heaven, I love it. So anytime, it is my pleasure all right? I well up when I think about it.
EE: Well excellent. I promise you, when we have you back on, we are going to take the entire session to dive into preferred equity, mezzanine financing and limited. So for those who don’t know what LP and GP stands for is limited partnership and general partnership ownerships. You are lending on those ownerships that people have on companies. So man, I’ll tell you what that is exciting. I get excited. We could schedule the next one tomorrow but thank you so much Jack for coming on the show. Sincerely sir, I appreciate it. I look forward to having you back on and thank you very much, I appreciate it.
JM: Thank you. You are a good guy, I appreciate it. My pleasure, keep up the great work.
EE: Absolutely. Everyone, this is Edwin Epperson, host of The Sophisticated Investor. We had a great conversation with Jack Miller, CEO of Gelt Financial, diving into his past experiences and lessons learned. Join us again as we continue to raise family’s generational wealth and teach them how to build, protect and preserve that generational wealth. This is Edwin Epperson, see you guys later.
EE: And that wraps up our show for The Sophisticated Investor. Thank you so much for joining me and joining our guest today, as we dove into the specific assets and the market that they invest in. Please join us again when we dive into more investing techniques and strategies in different assets within different markets, so that we can help you, the listener and our community member build, protect and preserve your family's generational wealth. This is Edwin Epperson, your host of The Sophisticated Investor, God bless and have a great rest of your week