Impact Investments In Affordable Housing, With Sam Sells

There is an extreme shortage of safe, quality and affordable housing in the United States. According to Sam Sells, CEO at Wild Mountain Capital, the key to the solution is creating good incentives.

Sam joins WealthChannel’s Andy Hagans to discuss how his company is working to address the affordable housing shortage in a way that benefits communities and investors alike.

Watch On YouTube

Episode Highlights

Background on Sam’s career, and how his experiences in the Air Force led him to create Wild Mountain Capital.
Why there is a severe shortage of affordable housing in the United States.
How good incentives are the key to creating affordable housing in a way that benefits local communities.
Why Wild Mountain Capital manages its own construction team in implementing a heavy value-add strategy.
How a heavy value-add strategy can be quite profitable for investors who are willing to invest in illiquid assets and be patient.

Today’s Guest: Sam Sells, Wild Mountain Capital

About The Alternative Investment Podcast

The Alternative Investment Podcast is a leading voice in the alternatives industry, covering private equity, venture capital, and real estate. Host Andy Hagans interviews asset managers, family offices, and industry thought leaders, as they discuss the most effective strategies to grow generational wealth.

Listen Now

Show Transcript

Andy: Welcome to the show. I’m Andy Hagans, and today we’re talking about impact investing in affordable housing, a topic that I know is very near and dear to the hearts of many of our LPs, many of our listeners. Joining me today is Sam Sells, CEO at Wild Mountain Capital. Sam, welcome to the show.

Sam: Hey, thank you, Andy. It’s an absolute pleasure to be on this show. Thank you.

Andy: Yeah, and I already love your company name, by the way, Wild Mountain Capital. I’m like, when I hear that name, you know, I think… I’m a big branding guy. I hear that, and I’m like, all right, this guy’s an adventurer. I wanna go on an adventure with him, you know. But I think that branding, storytelling is so, so important, so just, kudos for having just a good kind of memorable brand name. But before we jump in to asset management and real estate, because we have a lot to talk about today, but I wanted to ask more about your background. So, I read your bio, Sam, and I saw that you’re a retired U.S. Air Force officer and combat veteran. I have two sons. I know they’ll think that’s the coolest thing in the world. I think it’s pretty cool.

Sam: Thank you.

Andy: So, tell us about your first career. What did you do in the Air Force?

Sam: Yeah, I enlisted in the Air Force in the early 2000s, and I enlisted as a firefighter. I had no money for college. My parents didn’t have any money for college. I like to say I was born with a broken plastic spoon rather than a silver spoon, you know. But loved my childhood, loved growing up poor, had fantastic parents, still have fantastic parents, that treated us well, and very adventurous life, just exploring and doing things that you can do with zero dollars.

Andy: Have we lost that, by the way, Sam? I mean, you know, thinking back, I’m like, well, I was born in ’83, and, you know, probably this is what, you know, middle-aged men always say, but I’m like, man, when I was a kid, give me a pile of dirt and a stick, and I’m like, the world is my oyster, you know.

Sam: Yeah, the world is my oyster. Yeah. We grew up and we were just… I mean, we were hiking and building forts, and we just lived outside. And today, it’s like, “Oh, my goodness. I can’t see my son. I need to know where they’re at all times, and they need to have a phone when they’re sick, so that they can call me and tell me,” you know. And I’m amazed that my mom, probably just outta desperation, let us five boys run wild into the woods and the neighbors and everything else. And I could just tell you some wild, crazy stories of dumb things we did, and lived to tell the tale. So…

Andy: That’s young boys. It’s what they do. Well, so, I kind of get it. So, it sounds like you were kind of an outdoorsman, and I guess going into the Air Force then maybe makes some sense. I didn’t even know you could sign up as, like, a firefighter. Do you kind of pick a role or an occupation as you join?

Sam: Yes. You either pick an occupation or the military will pick one for you. Much better to pick your own. And being a firefighter was really good. The problem is is the military is really good at building buildings that have very few flammables. So, other than a whole lot of drunken bar fights and, you know, lots of medical emergencies, we weren’t able to respond to a lot of fires. And so I just kind of got bored. And occasionally we’d have, like, an aircraft fire or something like that, or we would support, you know, civilians. Anyhow, so, I deployed, got outta the Air Force, finished my degree, went to go work for Deloitte, and realized that that was not at all for me. I wanted something far more interesting than dinners with clients and trying to convince them to hire us as their management consultants. And so I went back into the Air Force, became a healthcare executive, or health…and focused in global health, got a master’s degree in health policy and global health, and then spent the better part of a decade traveling around the world, engaging with foreign militaries, foreign governments, and helping them develop healthcare systems that were sustainable. Americans…

Andy: Well, that sounds like a tall order right there. I’m like, well, that sounds like almost a mission impossible. Was that your experience or, you know…

Sam: It’s almost a mission impossible. The thing that it all comes down to is, can we align incentives? And as Americans, we think that gadgets are what make the world better, but it’s not. It’s people, all right? And then gadgets help, if the people are right and the systems are right to support that. So, quick example, I’m in N’Djamena, Chad, okay? And some Americans had come down there before us, and they had bought these Chadians, like, a $50,000 operating super whiz-bang cool bed that we use for air evacuations in the U.S., okay? Now, the Chadians, all they had was, like, a little Cessna 208, small airplane, and they couldn’t even fit that bed into the airplane. So they’re like, thank you, so grateful for you Americans, blah, blah, blah, blah. Americans leave, pat themselves on the back.

I show up there with my team and we’re looking at this thing going, who in the heck gave this to you and why? And just put it in a closet somewhere. You can’t use it. So, let’s get out, what do you guys have? I’m not gonna bring you a single thing. What do you have? And then we teach them how to use what they have. In this case, it was to move patients off a battlefield, because in that part of Africa, in Sub-Saharan Africa, if you get shot and they don’t think you’re gonna make it, they’re just gonna dig a hole in the sand and push you into it, and close it up. It’s nuts. And so we’re like, let’s help you stop the bleeding. You know, get them to a little airport and have this little plane come pick them up and fly them, you know, back to, in N’Djamena where they can seek care. And so it’s just preposterous some of the things that we Americans believe. And then, when you boil it all down, if you can align incentives, then that system becomes sustainable.

Andy: Sam, I think you’re my brother from another mother, because honestly, I’ve had a couple guests recently, I’m, like, repeating the same things over and over. Maybe I’m just getting old. But if there’s one thing that I know it’s true, these five words, human beings respond to incentives, and human nature. And I don’t care if you’re liberal, conservative, atheist, Christian, any religion. I don’t care…if someone doesn’t understand human beings respond to incentives, you’re not even living in reality. And it’s like your opinion on social policy is not interesting to me because it’s based in some fantasy land, where human beings don’t respond to incentives. Because that’s the one thing I know it’s true. I mean, I say I know it from the Bible, but I don’t even need that. I just know it from everyday life, from interacting with people. I know it from myself. I know I respond to incentives, right?

Sam: It’s why capitalism works in a lot of situations. It’s not perfect, and nor is there any society on Earth that has a perfect capitalistic society, which is fine. But, you know, people respond to incentives. So, I bake bread, I sell bread, money comes to me, I get to go do the things that I want to do, right? I mean, that’s why we do it. And so, yeah.

Andy: What I’m hearing, Sam, I mean, even, you know, your career trajectory, what you’ve told me so far, you know, I’m hearing you’re passionate about helping people, but you have a… I don’t mean to sound condescending, but you have a reality-based worldview, and I feel like some people don’t, you know, like… All of us, really, I think, when you kind of go out into the world as a very young adult, a lot of us are idealists, and it takes us some time to adjust to reality, but it doesn’t mean that you kind of give up on trying to make the world a better place, right? It’s more that you are armed with now, okay, I have, you know, seen a little bit of the world. I’ve been in different situations. I’ve seen where good intents don’t cut it.

Good intents don’t cut it in investing, they don’t cut it in politics, policy, healthcare. They don’t really cut it anywhere, right? What matters is incentives and results. So, how did you go from there, from being, you know, in healthcare, in the Air Force, having all these amazing experience… I mean, I feel like we could talk about your experiences in the Air Force, and we probably should, for a full hour, but I’m curious, how did that bridge to, you know, your current company, how did you go from there into real estate? Or how did that phase of your life wrap up?

Sam: Yeah. You know, repeatedly, over and over again, I’m spending time in the world’s poorest countries. Afghanistan, I spent a lot of time there. I spent a lot of time in Chad. Like, those two countries just alone are two of the poorest countries on the planet Earth, right?

Andy: Yeah.

Sam: And not just with the military folks and the government folks, but just down in town with the civilians, and we would always go to whatever schools we could go to, because you bring candy and they love Americans, and it’s just like a riot of kids breaks out, and it’s really fun unless they start fighting each other over your water bottle, so we’ve learned, like, don’t give them any water. You know, it’s just, no fights, kids. Let’s just play some soccer, you know. And then, I’ve been in Asia, and Europe, and all these different places, and one of the things I’ve learned over and over again is that if you do not feel safe in your home, if you can’t be educated by your parents, your parents are gone because they’re trying to live, then the rest of your life is an abnormally difficult struggle, right? And at the end of the day, it’s all about our homes. Now, I didn’t wanna…

Andy: So, this is, like, Maslow’s hierarchy of needs. If I don’t have a safe place to sleep at night, you almost can’t get to the rest of that good stuff in life if… You have to kind of pass through that first, you know, the base of that hierarchy of needs.

Sam: Right. And that’s it. So, then, you know, two or three things that stood out to me. One, as I was exiting the Air Force, I was like, okay, if I wanna go back and work for USAID, because I spent a year working for USAID, I could continue to do this global health stuff, and I love it, and I’m passionate about it, and I understand how it works. But I’m gonna be still gone from my family all the time. And my wife’s like, “I like you. I want you to be home and be with our kids.” We had adopted two kids, and then we were surprised with our own biological son, 16 years into marriage. So it was like, I really wanna be a dad. You know, I want to be a dad. I wanna be home for my kids. I love taking care of all that stuff, but I don’t wanna do that anymore because it just takes me away. Two, was like, okay, so, if I’m in America, can I do healthcare like that? No, I have to be a big system. It’s super, super regulated. I don’t have a lot to offer. But I can get at what I’m super passionate about and what I’ve learned is that, about the home. Can we create safe, clean places for people to live that are still affordable?

Andy: So, this is interesting. I mean, you were overseas, and you were seeing, I mean, essentially extreme poverty, I mean, the extremity of poverty, but then returning to the United States, you’re seeing, you know, that poverty still essentially does exist here, in certain areas. Maybe not to the extent, maybe not to the extreme, but there are many places in the United States where people are living that don’t have a safe, clean roof over their head. And in fact, that kind of housing is the housing that’s in the shortest supply. And it seems like over time, the delta of supply and demand is growing larger, not narrower, right?

Sam: It’s growing larger, and American are not making the policies that need to happen to create clean, safe housing, right? So, we talked a little bit before we started about Opportunity Zones. Great idea. But there’s a problem there. One, it incentivizes… Well, you can only really get there if you’re doing heavy, heavy value-add. And if you’re doing that heavy of a value-add, like $40,000 a unit or something like that, right?

Andy: It’s almost ground-up at that point, right?

Sam: Right. It’s almost ground-up. Or you’re gentrifying into luxury apartments, right?

Andy: Mm-hmm.

Sam: And so, what you’re doing is you’re actually getting rid of affordable housing by this policy, if they’re going to renovate. And folks who do that make these beautiful places, and they’re super cool places to live, but you just kicked out all of the folks who needed an affordable place to live, and now they’re bunched up somewhere else. And so, our feeling was, is okay, I’m seeing the same dumb policies around the world that America’s doing in our own country. And I’m passionate about policy because that’s what has the biggest impact. And if you align incentives and policy, then you create the result you want to receive.

Andy: Now, Sam, if I could pause there, and, you know, I agree on the Opportunities Zones program. I mean, to me, it’s mixed. Like, it’s done a lot of great things that I don’t wanna discount, and I would also say, this is really hard stuff. So, any program that even makes, like, a little bit of positive momentum, you know, I’m quick to say, well, how do we improve it? But with affordable housing, you know, there’s this core kind of incentive problem where you might say, well, there’s a broken incentive in the private market, where there’s not enough incentive, and sometimes policymakers make it too hard, even where the private market would be willing to create this kind of housing, but we’re disincentivizing it with policy. And then on the other hand, with affordable housing, you know, that’s publicly-owned or publicly-managed, to me, that’s its whole own set of bad incentives or misaligned incentives, you know, where people don’t really have skin in the game, so to speak, or the right incentive. So, I guess, do you have a philosophy? You know, like an overarching…

Sam: We do.

Andy: Okay. Well, please share it. I’m hungry for it.

Sam: Yeah. So, what I believe, what I see, or what I know, I guess, is that American cities are already full of housing. But, a lot of this housing is degraded, distressed, unutilized. And they’re in areas of the city where there’s not a lot of new investment. And for somebody to come into that and renovate those apartments, what they’ll typically want to do is jack rents up so that they can make a profit, which is where the incentive’s aligned. And then, which, of course, you know, reduces the affordability of housing and so forth. And so you have this entire segment of society, the workforce, the lower end of the workforce, the 50% AMI, adjusted median income, so forth. So, these people need places to live. Now, if you’re living on Section 8 vouchers, or you’re getting Section 8 housing, you can go live in a OZ place or something that’s under a LURA, a land use restriction agreement, with the city. You can go get fair, clean housing that way, but if you’re not in poverty, but you make a little bit of money, you’re in a really bad situation. So…

Andy: No, and that’s already a disincentive. And I don’t wanna go too far off-track here, but you’re right. It’s like, with all kinds of economic policy and social policy, there’s kind of a no man’s land, you know. The marriage penalty, there’s all these things, and the tax code, and you’re pointing out with housing, where, if you’re in Section 8 housing, you kind of have this track, and then there’s almost a jump then to class B or whatever. Whereas workforce housing, which is the private housing that, frankly, it’s, you know, it’s probably gonna be a little better than Section 8 or whatever. It’s private housing, but there’s a gap there. There’s such a shortage, especially in desirable places to live.

Sam: Especially in desirable places to live. And so we made it our business model of how can we create safe, clean housing that is naturally affordable. Not just meet Section 8, but for those people who actually have a little bit of a job, who are trying to be self-sufficient, but can’t afford the $1,500 a month one-bedroom in the brand new apartment complex downtown. And so we go in and we buy distressed assets. We get them for the best possible price that we can get them at. And I’m talking 40%, 50%, sometimes 20% and 30% occupied apartment complexes. We renovate them, we clean them up, we add laundry, we do a lot of things, but we can’t do granite countertops because we’re not gonna get a bang for the buck. Plus it’s gonna outprice the locals. We just create a clean, safe place, and then we govern the snot of that thing, because you need good governance, or if not, the gangs are gonna move back in and tear things up, and all your work is just gonna go right off the rails.

Andy: So, this is already super interesting, Sam. So, you’re buying apartment assets that are 20%, 30%. So this is not value-add. This is opportunistic. I’m thinking, you know, what label do I even give that? That’s opportunistic, right?

Sam: Heavy value-add. Opportunistic almost sounds like we’re trying to make a profit off the backs of the poor, and that’s not the case at all.

Andy: No. Yeah, when I use that word, it’s more just, this even has, you know, the higher risk profile or whatever, in theory, than a normal value-add. Okay, heavy value-add. And then a big part of it is it’s almost like Henry Ford and the Model T. You can have any color you want, as long as it’s black. It’s on purpose. We’re keeping costs down on purpose, and offering a basic product on purpose. And that’s actually good for consumers here, because the non-basic product just drives the cost up. And then, the last thing you said was very interesting to me. With heavy value-add, it sounds to me like from property management, or maybe there’s other concepts and activities you’re doing, you’re helping to actually keep the community safe. I mean, to me, that might be the main value-add. Like, to me, I’d rather, you know, live in the unit with the broken toilet that’s safe than the nicer unit that’s not… I mean, to me, that’s a non-negotiable for a mom or a dad, right?

Sam: It’s a non-negotiable. So, for example, we bought a 180-unit in Dallas Fort Worth, right off the 820, one of the main thoroughfares. While we’re in due diligence, there was a murderer on the property. Somebody got shot just outside the gate and came in and passed away. Not okay, right? And I think most buyers would’ve bounced. They would’ve been gone. And the day we closed, my brother, who runs our operations, he was there at the property, and he called me. He said, “Hey, Sam, the SWAT team’s here.” I was like, “What are you gonna do?” He was like, “I’m gonna go talk to them. I don’t want them breaking down that door. We need to keep that door.” He went and talked to them, convinced them not to break down the door, you know, convinced the guy to come out, and said, “Hey, don’t let these guys break down the door. Can you just come out, because they’re gonna arrest you anyways?” And he came out. I’ve told you we’re wild, right? Wild Mountain Capital. We’re really… But, you know what? The property is safe now. The crime is really low. We didn’t put cameras everywhere. We didn’t put giant fences and concertina wire. We focused on governance. We focused on evicting those…

Andy::Yeah, so what does that mean actually? Could you drill in? When you talk about governance, is that tenant screening? Is that property management? It’s evicting? Is it kind of like, I’m almost thinking of, what is it called? The broken windows theory in policing, where it’s like, you don’t necessarily let small things go, because then people pick up on the small thing and then it starts to become a pattern.

Sam: Right. It’s all about the small things. We fine people, well, it’s like 5 bucks or 10 bucks if they have trash on their porch. So, the first day that I walked around there, I saw a drug deal going on in daylight. I saw people stealing stuff, railroad ties out of the gardens area, loading ’em in the back of the truck and leaving. And we were like, are you stealing that? And they’re like, “Shh.” It’s like, okay. There were six or seven active sewer leaks. The property smelled terrible. This is 180 apartments, 90% full. This one’s the most full place we’ve ever purchased. And it was just so run down. And now, you know, we kept the same property manager who was there. We trained her. We spend a lot of time at the property. We’ve painted all the outside. We fixed all the broken windows. We found the kid who was running around throwing rocks at windows and censured him. I mean, we didn’t beat him or anything else, but we talked to him. His parents got him to stop, and if they didn’t stop, they were going to get evicted. Mama probably smacked him. I don’t know. But we gotta do what we gotta do. And then we evicted people who were not safe. If you’re not safe, you gotta go. They had community events, and they had to stop… Before we bought it, they had to stop their community events because they would all break out into fights. Crazy, right? Who wants to live in a place like that? What mom little kids? Yeah.

Andy: Sam, you know, in terms of the governance, and enforcing policies and implementing policies, is this the property manager, or, like, is this a layer above property manager that’s helping the property manager? I mean, this sounds like highly active management.

Sam: It’s highly active management, from my side, from the owners, from our asset managers. On this one, we have an institutional partner. They’re very interested, been very engaged. We just show up at the property all the time, walk it, talk to the residents, we talk to our property managers, we support them. If they have a great idea, we allow them to do it. We hold them accountable. We don’t fire them as soon as something bad happens. We work with them. We do fire them if they do something really bad. So, we have on occasion fired. Or they’re just not performing. But it’s, we align their incentives. We actually paid her less, provided more training, more coverage, and she is happier than she’s ever been. And she’s, you know, the property manager there, the head property manager there, and she’s doing fantastic.

And we give her bonuses for, you know, collections or profitability or other things. So, we aligned her incentives. She’d always wanted to do good there. She always wanted to take care of her residents, but couldn’t. We’ve also engaged the police department. We gave them an office there that they use now for writing reports, rather than driving all the way into Dallas or Fort Worth. We have Boys and Girls Club out there. We have lots of charities that we’ve engaged with, that come out and help residents from everything from mental health to education. That school supported the, one of the worst schools in DFW, but because of transientness, you know, and highly distressed, highly violent areas have a lot of transientness, right? People come in, they can’t live, they leave. They come in, they can’t live, they leave. And when you stop all that…you know, we have 180 families, residents, kids, and hundreds, 300, 400 people that live in that complex. And now the kids can go to school and not worry about getting mugged, sitting, standing out by the bus stop. They have better health outcomes. Moms have laundry units, washer/dryers in their apartments now, instead of going to spend five or six hours at the laundrymat. They’re spending 30 minutes doing laundry, and now they got 5 hours back in their life every week. It’s huge, right?

Andy: Okay. I mean, I get it. I mean, the social returns of what you’re doing are huge. I mean, this is an example where a private actor is coming in. And I have to say, you probably have a different mindset than a lot of private actors, but you come in with a unique mindset. You have skin in the game, and you’re sweating the details. I mean, that, sweating the details cannot be understated, right?

Sam: Right.

Andy: As you said, the details matter. You know, the broken window theory, and literally, in this case.

Sam: Yeah, literally. The kid was running around throwing rocks in windows. It’s like, bro.

Andy: Well, I see the social returns. How… Are these good investment returns? I guess, what’s that incentive, you know, for you, or for LPs? You know, I guess, describe to me the financial model that you had that enables this to be implemented.

Sam: Yeah, let me run through it a little, some numbers. We bought the property at $16 million, in the height of the increase in values, right? Sixteen million is what we paid.

Andy::This was the market peak, basically.

Sam: Market peak, right? We have $2.2 million set aside for construction. We’ve already done $1.5 million in the past year. So we’re getting after it, right? We’re getting after it. We’ve renovated, I don’t know, 90 or 100 units there, that were lived in. Like, moving people out, renovating, moving brand new people in. We repainted all the outside, cleaned up all the outside. It’s a beautiful property now. Looks completely different. If we look at the market cap rate, which is a tool we use to value properties, it should be worth between $27 million and $28 million right now. We’ve more than doubled the net operating income in less than a year.

Andy: And I guess, how did occupancy or vacancy, you know, how did that, during this transformation, of the value-add and the… I mean, to me, it sounds like the biggest thing, or maybe equally as big as the physical value-add, is that governance value-add? How did that affect vacancy, occupancy?

Sam: Yeah, we keep near 100% occupancy of available units. We’re constantly taking down 10 or 20 units at a time and then renovating them. We do all the same. Luxury vinyl planks, that we buy for about $2 a foot. We do new trim, gray walls, new bathrooms, kitchens. We’re all in and out, appliances and everything, for about $10,000 to $11,000 a unit, total. The countertops are laminate that looks like granite, that’s really attractive. And our crews knock out about three units a week or so per crew.

Andy: Wow.

Sam: That’s just our standard. And we have our own construction company because we had to control cost, right?

Andy: Yep.

Sam: Everyone else wants to do it for $15,000 or $16,000, or $20 grand. I’m like, no. We can do this for way less. Seven grand of labor and materials, plus appliances.

Andy: I mean, literally, might not even be possible to do what you do without that kind of vertical integration, right? But it’s interesting to me that you vertically integrated, I guess, the value-add to, you know, the construction team, and then you have this, you know, I don’t know if you’d call it a organizational layer above property management, but you’re actually happy to not totally bite off property management itself.

Sam: We did property management ourselves, and when we do it, the property is more profitable, but, on my side, we’re less profitable as a company, and we are tied up too far in the weeds. And so we had to let go…

Andy: It’s lower-margin revenue, that you have to work too hard to maintain, essentially. Yeah.

Sam: Yeah.

Andy: Yeah. I just heard somebody told me the quote, “No, you’re gonna pay 8% for property management, and it’s gonna be the best money you’ve ever spent, and you’re gonna be happy to write that check.” So…

Sam: Yeah. At some point, like, I need a life. And so, we hire really good property managers, and then we give them the same level of oversight that we were giving the others. So, weekly calls, and then we’re getting into the details, and we’re still going out to the property, we’re still doing that stuff, and we’re still having great relationships with the onsite manager, so that they know the owners are, they care, they’re passionate, and by golly, you better make sure those balconies are clean, right?

Andy: It’s so amazing how much of a difference it makes when, in an organization, in a community, when people realize, like, other people are watching. And I don’t mean that in, like, a big brother type of way, but more just, like, somebody cares. Like, even just, like, the owner cares, my neighbors care. That kind of social dynamic, it’s everything in terms of safety, community safety, and what kind of community you live in.

Sam: That’s exactly it. It makes a huge, huge difference. And so, one of the reasons why we were able to double the net operating income in such a short amount of time was because when they know that we care, and that we’re making a difference, and that we’re also evicting people who are not paying, we’re holding our tenants accountable, we’re holding ourselves accountable, people start paying, right? Like, oh, somebody cares. I’m not gonna leave this place. I’m going to stay. Because I know, once I leave, I’m just gonna go to some other dump, by some owner who doesn’t care, who’s only interested in money and so forth, right? And so, we spin the whole paradigm around, we align their incentives, we want them to stay. Yeah, they’re gonna have to pay a little bit more, right?

We spent money on that unit. We put in washer/dryer. Instead of you spending 500 bucks a month downtown, or 150 bucks a month downtown is what one lady said she was spending, she spends 75 bucks a month for a washer/dryer to be in her unit. So, yes, rents did go up, but the net savings to her is she gets 20 hours extra a month, and she saves $150 a month, or $75 bucks a month, yeah. It’s insane. So, they want to stay there, they want to be a member of our communities, and their kids get all of this free services that they weren’t getting before, and it’s remarkable. And, you know, investors, we more than double their money in one year. It’s not bad.

Andy: It’s not bad. So, is Wild Mountain Capital, is it structured? You know, are there open-ended funds, or do you do it deal by deal, where each large asset is kind of its own deal? Talk to me, you know, as an LP, you know, how do your offerings work?

Sam: We do deal by deal. Our deals usually are targeting around a 20% IRR, which, you know, is higher than a typical class A asset that’s looking at a 12% to 15% maybe. And so we understand there’s risk, and we try to advertise those risks to our investors. We are not going to post every single thing that happens wrong at the property. These things are heavy value-adds, and they’re a lot of work. A lot of blood, sweat, and tears. But we’re passionate. We’re not gonna walk away. We’re not going to fail. And so, we just keep going. But, you know, these things are older, so pipes like to break, and cast iron is terrible, you know, and so we get rid of that stuff. But we go in with eyes wide open, and we do everything we possibly can to make it a success.

Andy: With this kind of heavy value-add, does it require higher portion of equity, you know, cash, in an asset versus debt? You know, talk us through that.

Sam: We’ve been fortunate to find lenders who will lend us the construction dollars. And so, like, the $2.2 million, that’s our budget. A hundred percent of that was provided to us via loan, and we turn in our AIA forms, and turn in all the package, and the lender gives us the funds, returns our funds to us. And so, before, we were doing a lot more cash. Now we’re not doing quite as much cash as we were before, because it was very cash-intensive until we found the right lenders that help us. And now, you know, at least the last few deals we’ve done, we’ve had 99% or 100% of the construction covered by debt.

Andy: But basically, the assets in this kind of a situation, you mentioned that you might be buying an asset that’s, like, 20% occupied or something. Is it basically impossible to get debt financing on that kind of an asset?

Sam: It’s really difficult to get debt financing on an asset like that. I mean, we’re looking at another one that’s 100% vacant. Exactly the kind of deal we would do, but it’s a lot of units and, you know, you’re looking at, you know, almost a 3X for investors, but, you know, making sure we got the right lender on board first, before we take it to investors and say, okay, this is what we believe we can get to. But again, it’s aligning incentives, and our goal is, when the deal is done, the work’s all done and it’s stabilized, we want our debt, loan to cost, or loan to value to be sitting around, you know, 50% to 60%. So, we just wanna be in a really good position.

Andy: Got it. Okay. And so, you have Wild Mountain Capital, so that’s kind of the parent company. And then you’re approaching these assets, you know, one at a time, these heavy value-add opportunities. Are they concentrated in a specific geographic area?

Sam: Right now we’re primarily focused in Texas and Oklahoma. We have stuff in seven states. Our construction crews will go anywhere in the U.S., but we’re primarily focused in the Sun Belt, and Texas and Oklahoma right now is where our largest projects are that we’re focused on. We’re just finishing one in Alabama that we bought at… There were 12 people in the complex. Small, 57 units. But yeah, six people were paying rent when we bought the property.

Andy: Well, you know, I mean, to the victor go the spoils, right? You know, especially in the last couple years, as cap rates seem to be approaching zero, you know, maybe hitting an asymptote there. You know, being further out on the curve I think is quite interesting. So, the LPs that are participating in your deals, are they all individual investors, or do you have any institutional investors?

Sam: We work with two different institutional investors. We like that route really well, because they come in eyes wide open, they’re experienced, and they know. We have several hundred private investors who have come in. And sometimes that works really well, sometimes it doesn’t. You know, sometimes, humans, we hear stuff, but we don’t listen. So, they don’t listen to me when I’m like, “Hey, this is heavy value-add. Probably first year, we’re not gonna return any funds because it’s all going to be going into the property to do X, Y, Z. And we gotta stabilize, especially if it’s 0% or 10% or 20% occupied.” It’s like a ground-up development. And so, you know, it takes time to generate profits and revenue. And so sometimes, you know, you’ll, well, I’ll get this email, like, a month in, like, “Hey, where’s my money at?” “Like, we just started a month ago. Like, we went through all this, man. A year, 12 months.” I’ve got the emails, the conversations, you know. “Oh, oh, oh. That’s right.”

Andy: Well, it’s interesting, Sam. I’ve had this, the same kind of theme in my show recently, just talking about investor expectations, you know, the news with BREIT and some of these intermittent liquidity products, which investors maybe thought were liquid. You know, I use the analogy, you know, you’re pregnant or you’re not. There’s no half pregnant, so you’re either liquid or you’re not. But that’s really a matter of those upfront expectations, right? So, like, I’m a limited partner in some Opportunity Zone funds, and those are really, you know, first cash back is year three or year four, you know, depending on the fund. And so I almost go into it thinking, like, well, I’m not really expecting any liquidity until year 10 and, you know, maybe enough to cover the tax bill in year four.

So it’s just, I kinda have to play that human psychology with myself. It’s all about that upfront expectation. So, I can certainly sympathize with that. Let me ask you, you know, I know we’re running short on time, but I find your vision and, you know, your passion so inspiring. What’s the end game? Or is there, like, a big hairy goal for Wild Mountain Capital, or how big do you wanna get? Do you think that you reach… Are there scale problems at a certain size, where there’s too many assets to really keep a close eye on? Or what do you see ahead in your future?

Sam: You know, my BHAG, my big, hairy, audacious goal, is really to get a million Americans in safe, clean housing.

Andy: Wow. Wow. That’s awesome.

Sam: That’s a lot.

Andy: You just said that… Sam, that just hit me. I was like, wow, that is a BHAG. A million Americans in safe… I mean, you probably don’t even need to leave the state of Texas, you know, or…

Sam: Yeah, probably not. Yeah.

Andy: Yeah. I just mean, there’s such a need for this type of housing. Do you find that you… I guess what I’m asking, you’re never really gonna run short of opportunities to do this kind of heavy value-add, right?

Sam: No, no. Like, I was in Tulsa recently. We have a couple hundred units there. I’m driving around, I’m like, “That’s a disaster apartment complex. There’s a disaster apartment complex. That place is gonna be 50% occupied.” I’m like, why, in Tulsa are… You know, and I think it’s just because institutions have abdicated any responsibility to go there because they don’t like Oklahoma or something. And so, DFW, where there’s, you know, one of the highest transacted apartment complex community in the nation, and a lot of times it has the highest amount of transactions, there’s still a bunch of distressed assets there, because nobody wants to go into those communities and do the work. And it is work. What we have found is that we can’t have 20 different heavy value-adds all at the same time.

When they’re stabilized and things are good, we can back off and focus on other stuff, and still have our asset managers engaging and doing all the stuff they need to do. It’s easier to maintain than it is to go through at least a six-month process of completely changing the social mindset of a community, and at that, we need to focus. So, I don’t know that I will ever get to provide a million safe, clean houses myself, but I would love to work with other people who could help grow that vision and do their own things.

Andy: Yeah, Sam, I mean, at a certain point, your time, being a dad, your own time runs out, but your blueprint, you know, the vision and the blueprint, the methodology, that can potentially scale to others. So, I love that you came on the show today and shared, you know, the vision, the passion. I mean, ultimately, the other stuff, you know, the integrated construction team, that’s stuff anybody can really figure out ultimately, if they put the sweat in, they put the work in, and they put the time in, but, you know, your unique vision, I think, is very valuable and very inspiring. So, where can our audience of high-net-worth investors go to learn more about Wild Mountain Capital?

Sam: Absolutely. You can go to our website, wildmountaincapital.com, all spelled out. I really need to focus more on that, because we focus on communities and people more. And so, the website has old pictures of all these apartment complex, and you’re like, “Oh, that’s ugly.” Well, yeah, it was when we bought it. It was really ugly. It’s beautiful now. We should update that. So, wildmountaincapital.com. You can find me talking about clean money, this concept that we should invest our money in a way that makes a difference in the world, that has impact. On Instagram, there’s @cleanmoneysam. Follow me there. Send me a DM, and say, “Sam, this was terrible. You’re the worst person I ever talked to.” Like, great. Thank you, you know. Or you can just reach out to me directly, [email protected], and that’ll come right to my mailbox.

Andy:: Sam, I’m adding it right now. I just made a note. I’m gonna add your Instagram link on our show notes. Most asset managers don’t plug their Instagram. I love that. I’m gonna put Sam’s LinkedIn, the Instagram, and of course, the website on the show notes. Sam, thanks so much for joining the show today.

Sam: Thank you, Andy. This was awesome.