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From Neuroscience to Real Estate: Tim Fergestad's Analytical Approach · Go Big with Gib Podcast

• 0:00
  Speaker 1: Welcome to the Go Big with Gibb podcast, where we talk to professionals, business owners and entrepreneurs about their big wins.
• 0:06
  Speaker 1: Ladies and gentlemen, welcome to this episode of Go Big with Gibb.
• 0:17
  Speaker 1: Today, I've got a good friend of mine here with us, tim Fergestad.
• 0:21
  Speaker 1: Tim, how are you today?
• 0:22
  Speaker 2: I'm great, Gibb.
• 0:23
  Speaker 2: Thanks for having me on your show.
• 0:24
  Speaker 1: Yeah, thank you for coming on.
• 0:26
  Speaker 1: If you could start things out just briefly, give us a little bit of an introduction, tell us a little bit about yourself.
• 0:34
  Speaker 2: Yes, I am here in Phoenix, arizona, but I'm from Minnesota originally.
• 0:39
  Speaker 2: My wife and I are both from there.
• 0:40
  Speaker 2: That's where we met.
• 0:41
  Speaker 2: I'm a nerd, so I was a physics and chemistry student, an undergraduate, and my wife and I both went out west to the medical school at the University of Utah where I got my PhD in neuroscience.
• 0:52
  Speaker 2: She got her MD degree, and that was an eye opener in a sense, getting out of Minnesota and enjoying the west.
• 1:00
  Speaker 2: For a while we went back to the Midwest, to Madison, wisconsin, where I did genetics research.
• 1:06
  Speaker 2: Well, I did neuroscience research in the genetics department.
• 1:09
  Speaker 2: I did all sorts of technical stuff there, but ultimately, well, it was funny because we moved there in, I think, june and it was cold and sleeting and my wife said we made a mistake.
• 1:21
  Speaker 2: So when we were done there she wanted to move back out west to Arizona where it was nice and sunny.
• 1:27
  Speaker 2: Regularly we had friends and family out here.
• 1:30
  Speaker 2: So we've been here 17 years now.
• 1:33
  Speaker 2: About that time is when I started phasing out of science.
• 1:36
  Speaker 2: I chose to leave science for lifestyle largely.
• 1:40
  Speaker 2: We had started to have family and kids and ultimately I started to realize I can make better money in investing.
• 1:48
  Speaker 2: And that was about the same time, too, as I started to dive into investing and realized my investments were not good following traditional advice, and so that opened up my eyes a lot and started a next phase of sort of self-development and starting to learn a whole new field of skills.
• 2:05
  Speaker 1: Let's go talk about your wife for a minute.
• 2:07
  Speaker 1: You said that your wife had obtained her medical degree.
• 2:10
  Speaker 1: So your wife is a physician.
• 2:11
  Speaker 1: What kind of physician is she?
• 2:14
  Speaker 2: Well, she's an anesthesiologist.
• 2:16
  Speaker 2: She matched in surgery and did that in Madison Wisconsin for a couple of years and then she realized she liked it.
• 2:23
  Speaker 2: She just didn't love it and it was one of those things where you realize as a surgeon, even when you're not on call, it's still your patient and you're still kind of on call, right.
• 2:32
  Speaker 2: And so it was a big commitment.
• 2:33
  Speaker 2: She made a transition in residency after a couple of years to work hard, play hard, right when you're done as an anesthesiologist.
• 2:42
  Speaker 2: Often you're done for the day, you don't have to worry, you can pass it off to the next person.
• 2:47
  Speaker 2: Often you can still have call on weekends and stuff, but you have a little more control over your time and your cognitive load.
• 2:56
  Speaker 2: Right your stress and if you can actually check out and go enjoy something else for a while.
• 3:02
  Speaker 1: No, that makes a lot of sense instead of being on call all the time.
• 3:07
  Speaker 1: So, Tim, before the show you told me that you had been full-time in real estate for about 10 years, I believe.
• 3:16
  Speaker 1: Is that accurate?
• 3:18
  Speaker 2: When I started getting into more investing, I realized how real estate arguably the best wealth building vehicle on the planet and I've always liked that and I'm pretty handsy, so I wanted to flip and hold my own plexus.
• 3:31
  Speaker 2: So I got licensed here as an agent.
• 3:34
  Speaker 2: I wanted to go do some of that.
• 3:35
  Speaker 2: A lot of delayed gratification in our chosen fields, right, I mean, we didn't buy our first property until we were in our 30s.
• 3:42
  Speaker 2: When we moved out here.
• 3:43
  Speaker 2: When you sell your first house and you realize how much you're paying for commissions and stuff too, I was like, wait a minute, I can do this, this isn't too difficult, right?
• 3:54
  Speaker 2: But also, yeah, I was never like a traditional agent or I never sat at open houses or something.
• 3:58
  Speaker 2: I just wanted to, and I still will do things for friends and family if they ask me to.
• 4:04
  Speaker 2: But for the most part, I got my license to get my own rental properties.
• 4:07
  Speaker 2: Ultimately, I ended up getting most of mine in other markets where things penciled better.
• 4:12
  Speaker 1: Yeah, so tell me a little bit about that.
• 4:15
  Speaker 1: What states did you end up investing in?
• 4:19
  Speaker 2: Predominantly Indianapolis or Indiana Several in Indianapolis and around Charlotte.
• 4:34
  Speaker 1: Yeah, no, that's fantastic.
• 4:34
  Speaker 1: So you were investing in Indiana and North Carolina, even though you were living out in Arizona.
• 4:36
  Speaker 1: So what kind of properties were you buying back?
• 4:38
  Speaker 1: Then you said you chose to invest in other states.
• 4:40
  Speaker 1: Tell me a little bit more about that.
• 4:41
  Speaker 1: You chose to invest in other states.
• 4:43
  Speaker 1: Tell me a little bit more about that.
• 4:44
  Speaker 2: So there's something called the 1% rule, which is a general rule of thumb for rental properties and particularly so short answer single family rentals.
• 4:57
  Speaker 2: And the idea is you want your rent to be approximately 1% of your purchase price.
• 4:59
  Speaker 2: That way, if you buy a $200,000 house, you can get $2,000 a month rent.
• 5:02
  Speaker 2: That'll typically cover the expenses and have a little bit of profit left over.
• 5:06
  Speaker 2: It used to be the 2% rule.
• 5:07
  Speaker 2: By the way, for listeners who've been in the industry for a while, there were challenges with that.
• 5:12
  Speaker 2: I mean I've done projects and sort of flipping projects here, and land wholesaling I've done here as well.
• 5:20
  Speaker 2: When I say here, I mean in the Arizona market.
• 5:23
  Speaker 2: But when you have out-of-state properties, you have to have third-party property management companies running stuff, and some of those I use retirement funds for too, in which case I'm not allowed to work on those.
• 5:33
  Speaker 2: There are certain rules when you're using those funds.
• 5:35
  Speaker 2: You can't go stain them yourself.
• 5:37
  Speaker 2: You can't right.
• 5:39
  Speaker 2: There's rules for things like that, and so you have to rely on other people and nobody.
• 5:44
  Speaker 2: It's very educational to do that and you start to appreciate how important a tenant screening is, and along the way I uh kept growing my education through websites like bigger pockets and so forth and started to get interested in self-storage and multifamily and other stuff and started to learn more and more about the power of scale, cause you have a bad tenant and you have a vacancy for a month or two and it can just crush your returns.
• 6:06
  Speaker 2: And I know a lot of people who are in that mindset still, too.
• 6:09
  Speaker 2: That's something that they think oh, I want to get into real estate, I need to get a second home, I need an investment home or property.
• 6:16
  Speaker 2: And without thinking it through right, we realize that people often say it's passive.
• 6:22
  Speaker 2: But single family rentals are not passive.
• 6:26
  Speaker 2: Even if you have a third party property management company, you still have to deal with a fair amount of stuff sometimes.
• 6:30
  Speaker 1: Yeah, you sure do.
• 6:31
  Speaker 1: So when did you really make the shift to multifamily?
• 6:35
  Speaker 2: Maybe 2015, 16.
• 6:37
  Speaker 2: I started to invest in somebody I met here in Arizona just through a social network who did the same stuff right.
• 6:46
  Speaker 2: He started with smaller properties and got into smaller multifamilies and just kept scaling.
• 6:51
  Speaker 2: I invested in a couple of his deals.
• 6:54
  Speaker 2: This is as a limited partner in apartment syndications.
• 6:58
  Speaker 2: You start to really appreciate the power of scale when you see the returns.
• 7:02
  Speaker 2: You can get there as well, so expenses are lower, and when you have a single family rental and there's no tenant, you have to pay for everything.
• 7:13
  Speaker 2: There's a lot of holding costs and so forth Whereas if you have a 10 plex and you have a couple of people who move out and you don't have two or three tenants paying rent, you still have seven who are, and that still covers a lot of your costs and so forth.
• 7:26
  Speaker 2: So you can still make money even when you're not a hundred percent occupied, and that's very forgiving, and so so I made better returns as a passive investor than I did actively doing my own single family rentals, and so that was a that was a big turning point for me.
• 7:41
  Speaker 2: I was thoroughly impressed.
• 7:42
  Speaker 2: I did more of those and I started getting even better returns.
• 7:45
  Speaker 2: The market had some building tailwinds and stuff.
• 7:48
  Speaker 2: So it was a great time to be in multifamily and, combined with all the other benefits of scale and so forth, those were rockstar events.
• 7:55
  Speaker 2: We were doubling our money in a couple of years and stuff right, whereas traditionally I'd be happy to double my money in the stock market in 10 years.
• 8:05
  Speaker 1: So, before you started raising capital yourself, can you give me a ballpark about how many different operators you invested with, I think, eight.
• 8:09
  Speaker 2: I did a couple with the one guy and then I started to branch out.
• 8:13
  Speaker 2: It was partially for diversification but partly because I knew I wanted to learn more and I wanted to see how different operators worked and how different markets compared and so forth.
• 8:23
  Speaker 2: So there's some good diversification there as well, but that wasn't really my goal.
• 8:26
  Speaker 2: I'm analytical so I'm sometimes slow to act, but I'm not risk averse per se.
• 8:32
  Speaker 2: I'm a little bit of a crash test dummy when it comes to some stuff like that.
• 8:35
  Speaker 2: I'll try it out and see how it goes.
• 8:37
  Speaker 2: I mean, when it's my own funds, I'm not as risk averse, I guess.
• 8:42
  Speaker 1: Wow, so I'm sure that was very enticing Like, given your background, you were able to double your money in two to three years.
• 8:50
  Speaker 1: That is pretty huge.
• 8:51
  Speaker 1: When did the tax benefits really start to get your attention as well?
• 8:57
  Speaker 2: Well, they got my attention early on as a spouse of a high-income earner.
• 9:02
  Speaker 2: That's one of the reasons why I was keen on getting my own rental properties in the first place.
• 9:09
  Speaker 2: However, it didn't take me too long to realize that you shouldn't let the tax tail wag the dog type of thing.
• 9:16
  Speaker 2: It's ultimately about returns, and you can leverage let the tax tail wag the dog type of thing.
• 9:19
  Speaker 2: It's ultimately about returns, and if you can leverage that for tax advantages as well, that's just gravy right.
• 9:23
  Speaker 2: I know some people who've done that with oil and stuff too, where they've gone into deals that didn't play out very well but they got the big tax breaks they wanted.
• 9:34
  Speaker 2: But if your returns are not very good or you lose your investment, I mean it softens the blow, but it's not a good thesis in my opinion.
• 9:41
  Speaker 1: The more you earn, the more you appreciate the tax advantages, for sure, yeah, and so with you being a full-time real estate, I assume that you're able to file as a qualified real estate professional, which then enables you to take your losses from real estate as active losses.
• 9:59
  Speaker 1: Is that correct?
• 10:00
  Speaker 2: That is correct.
• 10:01
  Speaker 2: I have real estate professional status, but based on the number of hours I put in in total in real estate but also on some of the projects I'm active on.
• 10:11
  Speaker 2: And so when we say losses, just to clarify for listeners and viewers, that's paper losses, that's the depreciation studies and stuff we do because the government allows us to recognize that.
• 10:28
  Speaker 1: This episode of Go Big with Gibb is brought to you by Irons Equity.
• 10:31
  Speaker 1: At Irons Equity, we specialize in helping investors like you create long-term generational wealth and save money on taxes through recession-resistant real estate investments that create passive income for you and your family.
• 10:45
  Speaker 1: If you want to secure your financial future, go to investwithgibcom to schedule a 30-minute introductory meeting with me.
• 10:52
  Speaker 1: Gib Irons Again, that's investwithgibcom.
• 10:59
  Speaker 2: Structures fail over time, the land does not, but windows, carpet, other things have a lifespan, and so the depreciation of the paper losses of the property, which can be incredibly powerful.
• 11:14
  Speaker 1: Yeah, I'm sure that you've been able to significantly reduce your tax burden every year that you've been a real estate professional.
• 11:23
  Speaker 1: It has probably been a pretty big needle mover for you, given your wife being a high W-2 income earner.
• 11:30
  Speaker 2: Yes, yes, and growing.
• 11:33
  Speaker 2: I've been fortunate to partner with a lot of great people on a lot of great projects.
• 11:36
  Speaker 2: Each project, I'm bringing more, doing more, and so that continues to grow, which is great.
• 11:44
  Speaker 1: Yeah.
• 11:44
  Speaker 1: So, Tim, right now let's talk a little bit about Oak Street Assets.
• 11:49
  Speaker 1: When did you open your own real estate investment firm?
• 11:53
  Speaker 2: I decided to actively start doing these deals as well about five years ago.
• 11:56
  Speaker 2: It's very educational to do it all yourself, but I just don't have the bandwidth to keep all that stuff up nowadays.
• 12:02
  Speaker 2: So, yeah, I stopped sourcing and broker relations and underwriting deals a couple of years ago and just started focusing on educating my investors, growing my network and sharing these deals.
• 12:12
  Speaker 2: And as I've progressed, I've also gotten a lot.
• 12:16
  Speaker 2: My network's gotten better, I've gotten to be a better operator and underwriter and I'm getting better and better deals, and so I'm very excited about that.
• 12:25
  Speaker 2: Every so often you level up and I've been able to stay active because of my, I guess, not just conservative nature but also been able to grow the relationships which provide quality, steady deal flow.
• 12:42
  Speaker 1: Yeah, is that one a 506C offering, or is it a 506B?
• 12:48
  Speaker 2: It is.
• 12:49
  Speaker 2: We do predominantly Cs.
• 12:50
  Speaker 2: I can talk about the details of it publicly, and so forth.
• 12:54
  Speaker 1: You know, you and I have partnered together on the 10Y Rise Fund, which is also a 506C.
• 13:01
  Speaker 1: What about that opportunity really got you excited and caused you to, you know, to want to jump in and participate.
• 13:08
  Speaker 2: There's a lot of unique aspects to the 10Y model that is very appealing.
• 13:14
  Speaker 2: First of all, just to back up, one of the things we try to do in real estate is to get the best returns we can.
• 13:21
  Speaker 2: We try to grow our capital as quickly as possible and then put it in the next deal and keep growing it right.
• 13:25
  Speaker 2: Most of us are in growth phase and that's exactly what this fund is.
• 13:29
  Speaker 2: It's a growth fund, an exponential growth fund.
• 13:31
  Speaker 2: So what we try to do is to invest in a really good deal and as soon as it's done, we try to, in the most tax-efficient way possible, put those proceeds into the next deal, try to grow the capital again as quickly as possible, and it can be a lot to have different deals and, depending upon the time of the disposition or when you sell it, you only have so much time to put that capital into the next deal.
• 13:52
  Speaker 2: You can try to do a 1031, or what we call the lazy man's 1031 is you just get losses in another deal that same tax year to offset the gains that you're going to have.
• 14:01
  Speaker 2: All of that is done for you in this fund, which is what's great.
• 14:05
  Speaker 2: So we have a great product in a great market where we're just trying to turn and burn.
• 14:09
  Speaker 2: The first couple cycles are planned to be all development, just because that's where the the best play is now.
• 14:15
  Speaker 2: Development often has better returns, but also often, historically, has more risk.
• 14:20
  Speaker 2: One of the great things about this team has a number of rock star local operators who've been active in this market for decades, who pre-entitle the land to get all the boxes checked so you can hit the ground running.
• 14:34
  Speaker 2: Basically, it's a turn and burn growth fund where we try to double your money as quickly as possible, trying to shoot for two years for each cycle, for five cycles.
• 14:41
  Speaker 2: So it's a big 32x targeted return on there, which is great, but it also is tax advantaged and mitigates a lot of the development risks.
• 14:48
  Speaker 2: There's other things associated with it.
• 14:51
  Speaker 2: I could go on and on, but those are the big things.
• 14:53
  Speaker 2: Right, it's kind of an easy button.
• 14:54
  Speaker 2: It's done for you.
• 14:56
  Speaker 2: It's just one-time investment with a big return at the end.
• 14:59
  Speaker 1: Yeah, and I love the points that you made.
• 15:02
  Speaker 1: It's not a real heavy cash flow play, but you're constantly reinvesting the profits into the next opportunity, which creates a compounding effect that produces a larger return.
• 15:14
  Speaker 1: And so you know, with the cost of real estate being so high, to buy an older property, you know that's a no brainer for the tenant that comes in and says, hey, I could either rent this brand new class A, you know property or pay comparable rents for something that's, you know, 15, 20 years old.
• 15:34
  Speaker 2: Sure.
• 15:35
  Speaker 2: Not only that, though, but this is providing an incredible service for workforce housing.
• 15:40
  Speaker 2: The cost of owning a home right now in Phoenix is legit.
• 15:44
  Speaker 2: It's $1,000 a month more to buy a home right now than to rent the product that we're doing right now.
• 15:53
  Speaker 2: These are three bedroom, two and a half bath, two car garage townhomes, which and you don't need the $100,000 down payment to buy the average home that you would in Phoenix right now, so the affordability gap is huge.
• 16:04
  Speaker 2: It's about $1,000 a month cheaper to rent this new product.
• 16:08
  Speaker 2: You mentioned that they're nice, high end, they're new product, but they're not like an affordable high end right?
• 16:15
  Speaker 2: They're really in that nice sweet spot.
• 16:17
  Speaker 1: What are you seeing in the Phoenix market right now from a 30,000 foot perspective, like what is your take on the Phoenix market today as far as the economic factors go?
• 16:28
  Speaker 1: Are you seeing things that make you feel good about investing in that market or do you have concerns?
• 16:34
  Speaker 1: What are your thoughts there?
• 16:35
  Speaker 2: I just got back from a family trip.
• 16:37
  Speaker 2: We took a road trip over to California.
• 16:39
  Speaker 2: It was always eye opening to see how many people have left California for Arizona For a while.
• 16:49
  Speaker 2: There it was like 600 a day, I think.
• 16:52
  Speaker 2: People were moving to Phoenix and they're continuing to, and the fact that it's a business friendly state means that it's not just retirees coming here.
• 16:59
  Speaker 2: There's a lot of industries.
• 17:00
  Speaker 1: Yeah.
• 17:01
  Speaker 1: So, tim, for like a new investor that's really never invested in any kind of, you know, multifamily, the alternative space and the passive investing space, what would you say to them that you know to that person that's considering entering into passive investing, or what?
• 17:20
  Speaker 1: How can you share your experience with them?
• 17:22
  Speaker 2: Yeah, great question.
• 17:23
  Speaker 2: I've been talking to a number of people about this lately and it's kind of a life philosophy as well as an investment philosophy that I'm just consistently taking steps towards what I want.
• 17:35
  Speaker 2: I don't try to time the market generally.
• 17:37
  Speaker 2: As you get funds set aside, you put it to best use at the time.
• 17:41
  Speaker 2: We've started a debt fund for people who want liquidity, who you know.
• 17:45
  Speaker 2: It's been running 10 years actually now and it's consistently giving basically double a high yield savings account People who want that.
• 17:52
  Speaker 2: You know it's not as good of returns as some of the other value add projects we can offer, but educate yourself and take little steps.
• 17:58
  Speaker 2: You don't have to go all in on your first thing right away, but one bite at a time In terms of again, I don't like to time markets per se, but we're not at the top of the market.
• 18:10
  Speaker 2: That's pretty clear, and almost every successful real estate investor I know the only regret they ever really have is that they well, maybe two one that they didn't start sooner and two that they sold.
• 18:24
  Speaker 2: One that they didn't start sooner and two that they sold it, that they sold the asset that you know, and they thought oh, I thought it was, I couldn't imagine that was going to go up anymore.
• 18:31
  Speaker 2: And that's what real estate always does it always goes up.
• 18:35
  Speaker 2: I'm a big fan of the value add model, right Development and value add where if the market goes up, that's gravy right.
• 18:41
  Speaker 2: But we have a business plan, we're executing on something, we're adding value and which makes the incredible asymmetric returns Right.
• 18:48
  Speaker 2: You get some of the best risk adjusted returns out there with real estate because of that.
• 18:52
  Speaker 2: To summarize, that sort of windy answer is I would educate yourself, find somebody you can you like and trust and just take a couple of steps Right.
• 19:03
  Speaker 2: Start.
• 19:05
  Speaker 2: You don't have to go all in, but I would definitely say don't sit on the sidelines and wait.
• 19:12
  Speaker 2: If you look at the people who really know, the bigger people are already transacting.
• 19:17
  Speaker 1: I agree with you completely.
• 19:18
  Speaker 1: I hear people say I'm going to wait until these different market conditions come about, and they may even mention what the market conditions were like in the past, and they're waiting for the past to repeat itself.
• 19:33
  Speaker 1: And I've told them that's a pretty dangerous business plan.
• 19:38
  Speaker 1: If your plan is just to wait, because we may never see those exact features in our economy at any given time, that may not happen again, and so you could be waiting and sitting on the sidelines forever.
• 19:52
  Speaker 1: I like your philosophy of.
• 19:54
  Speaker 1: I like real estate as an asset class.
• 19:56
  Speaker 1: I believe it does all for the best risk-adjusted returns and I'm going to invest in it consistently, and so sometimes I may buy high, sometimes I may buy low, but in the end, you know, real estate generally goes up over time, but no, I like that philosophy as well.
• 20:12
  Speaker 1: So, tim, for people that have listened to the podcast, that want to get in touch with you, what's the best way for them to contact?
• 20:19
  Speaker 2: you.
• 20:20
  Speaker 2: I'm on LinkedIn, but I also have timfergustadcom and my business websites oakstreetassetscom.
• 20:27
  Speaker 2: I mentioned that lending fund as we started as well impactlendingfundcom.
• 20:33
  Speaker 1: Yeah, that's a pretty neat opportunity.
• 20:35
  Speaker 1: This is not sitting on the sidelines, but the risk is maybe less than it would be with some other opportunities.
• 20:42
  Speaker 1: So thanks for mentioning that, tim.
• 20:45
  Speaker 1: Look, it's always great to see you.
• 20:46
  Speaker 1: I look forward to catching up with you next time I'm out in Phoenix, and thanks again for coming on the podcast.
• 20:52
  Speaker 2: Looking forward to it.
• 20:53
  Speaker 2: Thanks, tim, thank you.
• 20:59
  Speaker 1: Thank you for listening to this episode of Go Big with Gibb.
• 21:02
  Speaker 1: If you haven't already, go follow us on social media at Gibb Irons.
• 21:05
  Speaker 1: We'll see you next time.