Surviving Real Estate Markets With Resilience and Negotiation Strategies With Luis Belmonte

In this episode of The Same Day Podcast, host Yoni Schmidt speaks with Luis Belmonte, Founding Partner of Seven Hills Properties, about navigating tough real estate markets with resilience and negotiation strategies. Luis shares his tips on thriving in uncertain times, using street-smart tactics in negotiations, and the importance of timing in real estate pivots. He also offers practical advice on avoiding too much debt and the value of starting small to reduce risk.

Surviving Real Estate Markets With Resilience and Negotiation Strategies With Luis Belmonte

Luis Belmonte is the Founding Partner of Seven Hills Properties, a company focused on retail, multifamily, and industrial real estate development. With over 50 years in the industry, Luis was a key figure at AMB Property Corporation (now Prologis), where he led the development program and expanded the company into new markets, including Mexico. He also spent 16 years with Lincoln Property Company, overseeing the development of 18 million square feet of industrial space in Northern California. A US Navy veteran, Luis is also the author of several books on real estate, including Real Estate 101, Street Dog MBA, and Street Dog Negotiator.

Here’s a glimpse of what you’ll learn:

• [3:04] The most pivotal change Luis Belmonte witnessed in the real estate industry
• [8:27] The importance of having cash when others don’t
• [11:19] Common pitfalls investors run into when evaluating foreclosure opportunities
• [16:19] Why Luis believes in approaching any negotiation with indifference
• [20:21] Challenges in building low-income housing
• [23:31] Typical mistakes new investors make
• [29:28] How Luis’ military experience shaped his approach to stress and decision-making
• [36:00] Luis’ proudest accomplishment as a real estate developer
• [38:58] Luis’ advice for young aspiring real estate investors

In this episode…

Economic downturns often create uncertainty in real estate, making it difficult to predict market trends and make informed decisions. What strategies can help investors stay ahead and secure profitable deals in these tough times?

According to Luis Belmonte, a real estate developer with over five decades of experience, the key lies in maintaining resilience and mastering negotiation strategies. He highlights that the party that cares the least often holds the most power in any negotiation. By remaining indifferent and willing to walk away from deals that don’t meet your objectives, you gain leverage. Luis also stresses the importance of keeping debt low and staying flexible with market conditions to avoid being forced into unfavorable deals. His approach shows how having the right mindset and financial discipline can help investors weather downturns and still come out ahead.

Resources mentioned in this episode:

• Yoni Schmidt on LinkedIn
• Keyrenter Property Management
• Keyrenter Property Management in Tulsa | Oklahoma City | Arkansas
• Keyrenter Property Management email address: [email protected]
• Luis Belmonte on LinkedIn
• Seven Hills Properties

Special Mentions

• Prologis (formerly AMB Property Corporation)
• Real Estate 101: A Guided Tour of the Business With an Industry Veteran by Luis Belmonte
• Street Dog MBA by Luis Belmonte
• Street Dog Negotiator: Tales From The Trenches by Luis Belmonte
• Lincoln Property Company
• Hamid Moghadam on LinkedIn

Related Episodes

• “Exploring New Possibilities in Entrepreneurship” with Chip Gaberino on The Same Day Podcast
• “Revitalizing Communities Through Multi-Concept Restaurant Development” with Elliot Nelson on The Same Day Podcast
• “The Future of Financial Advising: Building Relationships Over Returns” with Morgan Martin on The Same Day Podcast

Quotable Moments

• “He who cares least wins.”
• “Big money in real estate is made by those who have cash when nobody else does.”
• “Land doesn’t have value. What has value is the building permit.”
• “The only way you learn to be a developer is to develop things.”
• “I’m in the business for the giggles and cannot wish for a more rewarding way to spend your business life.”

Action Steps

1. Adopt an attitude of indifference in negotiations: This mindset increases your leverage by demonstrating a readiness to walk away from deals that do not meet your objectives.
2. Build a reserve of cash to capitalize on opportunities when the market is dry: Having liquidity enables you to take advantage of distress sales and foreclosures for profitability.
3. Assess and manage the amount of leverage in your deals: Keeping leverage low is critical for mitigating risk and increasing financial stability.
4. Continuously educate yourself about your local real estate market: An in-depth understanding of your area empowers you to identify undervalued assets and exit overvalued ones.
5. Start small and learn from each real estate venture: Mistakes will happen, but beginning with less sizable deals allows for learning without catastrophic financial consequences.

Sponsor for this episode…

Keyrenter Property Management:

This episode is brought to you by Keyrenter Property Management.

Keyrenter Property Management is a full-service property management company that helps clients buy, renovate, and operate real estate assets.

The team helps clients build wealth while taking the headache out of property management.

That’s why, no matter what rental you have — single-family homes, condos, townhomes, or apartments — they can give you the management solutions you need. 
To learn more about their services, go to https://keyrenterpmc.com/ or send them an email at [email protected].

Episode Transcript

Intro 0:05

Welcome to The Same Day Podcast where we discuss driving incremental business growth and other topics related to real estate, property management and entrepreneurship. Now to the show at hand.

Yoni Schmidt 0:20

Hi there. Yoni Schmidt here, hosting today’s episode of The Same Day Podcast where I connect with top business and real estate leaders. Past guests include Chip Gaberino, a local restauranteur entrepreneur, Elliot Nelson, the CEO of the McNellie’s, and Morgan Martin from Merrill Lynch. Today’s episode is brought to you by Keyrenter Property Management. We are a full service property management company, helping our clients buy, renovate and operate real estate assets. We help our clients build wealth while taking the headache out of property management. That is why, no matter what rental you have, a single family home, a condo, townhouse, an apartment, we have the management solutions for you. Go to keyenterpmc.com or email us at [email protected]. Today’s guest is Luis Belmonte, a highly seasoned real estate developer with over 57 years of experience in the field as a principal at Seven Hills property. Luis focuses on retail, multifamily and industrial development across California, Oregon and Nevada. He was also a Founding Partner and Executive Vice President at AMB Property Corporation, now known as Prologis, where he spearheaded major real estate projects globally, including in the US, Mexico, Japan and Singapore. In addition to his extensive real estate career, Luis is a US Navy veteran and an accomplished author of Real Estate 101, Street Dog MBA, and Street Dog Negotiator, where he shares valuable insights and strategies for thriving in the real estate industry. Today, he is here to offer his wisdom on surviving economic downturns, strategic real estate pivots, and street smart negotiation tactics, which I’m very interested about. Welcome to the show, Luis, thank you so much for being here.

Luis Belmonte 2:18

Great. Glad to be here.

Yoni Schmidt 2:22

So Luis, is it? It’s Luis, right,

Luis Belmonte 2:26

You know, Luis, Luis.

Yoni Schmidt 2:28

Luis Luis. Okay, my name gets butchered all the time. So I, yeah.

Luis Belmonte 2:31

Yeah, it’s, it’s my mother’s fault. She named me after an old boy from San Luis Obispo. So, you know, I didn’t have any choice in the matter. But people have been mispronouncing, getting, misspelling my life, so I’m used to it. Anyway. I go by Luis.

Yoni Schmidt 2:47

Okay, great. I’ll call you Luis. So tell us with you know, over 57 years in the real estate industry, you’ve seen the industry evolve significantly, right?

Luis Belmonte 2:58

Horrendously, horrendously.

Yoni Schmidt 3:00

Tell us about some of the most pivotal changes that you’ve witnessed.

Luis Belmonte 3:04

Well, probably the most pivotal change in our industry came in 1986 prior to 1986 we were all in the tax evasion business. You raised money by selling a deduction. So the archetypal deal in the 70s and 80s was based on the tax code and inflation. So kind of the the deal was the the garden apartment with a HUD loan, as big a loan as you could get, because interest was deductible, a big developer fee on a ground lease. So you could write off the ground lease payments, and you were producing write offs of two or $3 per dollar invested. So if somebody gave you $1 you’d give them two or $3 worth of write offs, so they’d get the return immediately, if they were in the 50% tax bracket and and, you know, you might or might not get your money back. The deals I did with Blinken property company were much more conservative. You got about a one to one write off, but we sold equity, and in return, you got all the depreciation and all the so all the tax losses generated on the deal. Went to the investor, and they got a preferred return on a piece of the profit, if there was one, and that was our business. And because inflation was very high, if you even with maximum leverage over three to five, six years, you could roll over your leases, raise your rent, sell the building for considerably more than you paid for it. Pay the investor back their investment, give them some return, and you would transfer ordinary income to capital gains, moving it from the 50% rate to the 20% rate. Everybody was a happy camper. From 1986 they passed the Tax Act and. And it went into there was a Senate bill and a house bill. They went into conference committee. What came out wasn’t what anybody expected. So the highest rate went from 50% to 28% there was no longer ability to take investment losses and write them off against ordinary income. And suddenly every commercial developer in America was out of business and and they all went broke, whether they knew it or not. And prior to 86 developers on property, subsequent to 86 the money on the property, institutional investors, private equity. So most people in the development business today are simply indentured servants to some money source. I mean, if you’re in the leagues, I’m not talking about House rehabs and little apartment deals, but if you’re, if you’re doing big deals, you’re working for the money. You’re working for a private equity shop or an institutional advisor or something like that, and you’re working at earn out deals. So you know, the investor gets a cue preferred return, and you get a percentage of something above that. Now, the reason you know that I no longer do big deals like I did in corporate life is I don’t want to report to an investor. So my partner and I did a little some merchant building for a national retailer to build up our balance sheet. So we’re our mostly our own equity. Now, we don’t have to go to a financial source, but we only do smaller deals that. And you know, kind of My motto is, every deal is a million dollar deal. If I’m doing $100 million deal, I get the last million, if it’s there, if I’m doing a million dollar deal, that’s my deal. You know, either all of the equity or most of the equity is mine. And so we do, you know what I want to do. If I’m doing a bigger deal, I do what the investors want to do. So the and so that’s the biggest change that’s happened in our business, in my business career, and that, I guess the the corollary is that in the in the 70s, we had high inflation and interest rates at nine or 10% and then we went for 10 years with artificially low interest rates, and everybody Got seduced. And I stood behind podiums at industry events, waving my arms for 10 years saying, this is going to end. These interest rates make no sense. Inflation adjusted. Borrow now fix long watch your ass. No variable rate loans. You’re going to get your ass kicked if you do that. And I was wrong year after year after year, until a year or so ago, and that I was finally right, but, but, you know, the the artificially low interest rates led to a whole lot of misallocation of capital, and a whole lot of people taking risks that they have taken, and the chickens are now coming home to roost all over the place. I mean, there’s more defaults going on, more write downs going on than you can jump over and and it’s going to be ugly for the next year or two or three.

Yoni Schmidt 8:12

Yeah. So tell us, I guess you know, how can someone capitalize on that if they were, if they were to, you know, keep their finger on the pulse of the market. Right? Where would you imagine there would be opportunities?

Luis Belmonte 8:27

Okay, so I will start by quoting my former boss, Hamid Moghadam, who is the Chairman and CEO of Prologis, the where I used to work, the largest REIT on earth at this point. And his line is, big money in real estate is made by those who have cash when nobody else does, and that’s that’s number one. So right now, you can buy quality office buildings for 20 cents on the dollar, because the lenders are bailing out and and so you and and the values have come down dramatically. It’s going to take a few years for the market to recover, because the supply and demand dynamics have changed. But you’re going to be able to buy stuff well below replacement costs. If you can buy a product well below replacement costs, where supply and demand will eventually stabilize, and you have the pocket and the tenacity to hold on you are going to make money. The other thing that’s available out there is you can go to smaller lenders and buy loans, because the regulators are on the ass of lenders to get real estate off their books. Real estate owned is not what a lending institution wants to have on its books. They need to get rid of it as soon as they can. If you’ve got cash, or you can raise cash, you can go to a lender and say you got any loans. For Sale, and they will sell you loans for less than the face value, and then you can either collect on that loan and make a high return, or if the loan isn’t paying, you can loan to own, foreclose on the property and buy something well below replacement cost, which is the key to happiness, in my view.

Yoni Schmidt 10:21

Yeah, because the cost would essentially be, if you’re foreclosing, the cost would essentially be, you know, whatever you paid for that debt, plus whatever attorney fees and, yeah, and legal fees and.

Luis Belmonte 10:35

Cost of the loan plus cost of the lawyer. You’re the owner.

Yoni Schmidt 10:39

Right. Yeah. Have you ever gone through a process like that? I guess where you went out and bought debt?

Luis Belmonte 10:46

I have. I have done. I have been through foreclosure stuff on several occasions. It requires some tenacity. You know, the it’s, it’s like the Johnny Cash song, you’re in the street with the mud and the blood and the beer. But if you’re, if you’re prepared to do that, you can make money at it.

Yoni Schmidt 11:06

Yeah, what are, what are common pitfalls that you would recommend someone, an investor, that’s coming into the market, looking out foreclosure opportunities or perhaps even debt opportunities, to watch out for.

Luis Belmonte 11:20

Well, first off, you got to decide whether you’re a real estate person, so and that takes a certain type of personality. I mean, you’re in the property management business the bottom of the hill down which stuff runs. I mean, you get all the plugged up toilets and bitchy customers and crazy people and cockroaches and all that stuff, if, if you’re unprepared to deal with that, don’t get in the damn business and and, you know, I use third party managers in my business for some of our remote assets, but what we manage some ourselves. We manage our own low income assets, and I’m prepared to manage anything. I used to do joint ventures with developers when I worked for the predecessor Prologis. And, you know, we’d go contract with a local developer in the 90s who had no money. They’d build the building for us, and, and we’d be in partnership, and then we’d split the upside. But I was always prepared to go to the job shack and run the damn job, if, something went wrong, and if I’ve got a manager who isn’t performing, I can toss the manager out tomorrow. Go manage the damn thing myself for years. You know, in my own personal assets, I did all my own maintenance work because I’m such a cheapskate. My son’s out running the buildings, and he hires it out because he thinks his father is nuts so, and now I can’t do my own maintenance because I’m too old and my skin’s too thin, and I bleed all over everything, but, but, you know, I know how to manage property, and I don’t mind it. I’ve unplugged a lot of toilets. I’ve run a lot of evictions. I’ve stood a lot of doorsteps, served a lot of paperwork and, and I know what I’m looking at when I look at a real estate deal. I mean, I used to, I used to do a lot of market research and a lot of Investor Relations at a helicopter, and I can look at a site and tell you what belongs there based on a lot of experience and my notes and, and I once bought a contractor to buy a piece of land in Fresno and and I came back and I talked to my boss, and I said he we wanted to open in Fresno and and he said, Go out and find something. I went out and tied something up, and he said he looked at the map, and he said, well, our stuff isn’t where all the other players are. And I said, That’s because all the other players are in the wrong place and I’m in the right place. And he said, Well, you know, I’m sorry, but you know, I don’t trust your judgment that much. So we got in a plane and we flew out there, and as soon as we flew across the site, he said, You’re right. You got the right place. It had everything going for it. It was an industrial building. It was on a rail line. It was next to a freeway interchange. It was the right shape. It had the right traffic patterns, but I took one look at the site and that what was supposed to be there, because I had a lot of experience, and I got a real estate nose, and that’s my business as a stock investor. I’m mediocre at best. You know? I’m not so good at balance sheets and footnotes, and I always stay on the shallow end of the gene pool every time, with one exception that I’ve done a pretty deal I haven’t made any money because design ain’t my thing. High end ain’t my thing. I do a working class apartments, dingbat neighborhood, retail, industrial buildings. I’m in the shallow end of the gene pool where I belong. So the first thing you need to figure out is, Are you a real estate person? Is it something that you’re okay with that interests you? And you know, my wife and I have traveled all over the world, and she claims I can find the industrial area in any city on. Earth, you know, I’ve looked at warehouse buildings in Paris and, and that’s not normally where tourists go, but, you know, warehouse buildings interest me because I built them for 35 years. So that’s, you know, the kind of a person I am. So you need to figure out what kind of a person you are before you get into the real estate business and, and you know this, you’re in the business. You can look at a property and know what’s wrong with it. You can assess tenants, you can do all of that stuff. If somebody can’t do that, don’t get in this business.

Yoni Schmidt 15:31

Yeah, absolutely. It takes a lot. And you know there’s always, I just got a work order from one of my rental properties this morning that there appears to be a mouse in the plumbing causing some sort of leak. So I’m thankful for sound property management that can deploy the right vendor to go out there and take care of the problem, so that I can spend this time with you and have this conversation, switching, switching gears a little bit here and talking a little bit about, you know, your book Street Dog Negotiator, you emphasize in the book street smart negotiation tactics, can you share, you know, I guess maybe a little bit about that, or maybe one of your most valuable negotiation lessons.

Luis Belmonte 16:19

The the mantra is this, in any negotiation, HE WHO CARES least wins. He who cares least wins. You need to attempt to approach every negotiating situation with an attitude of indifference. If the deal makes, if it works for me, fine, if it ain’t going to work, if the other team has objectives that that I can’t meet and still meet my objectives, it’s time to say, Guys and girls, this ain’t working. I’m sorry. Get up and leave the room and never look back. Never turn around. Never put any hesitancy in your step, just walk out and say goodbye and say goodbye in your head. If you are indifferent, you are going to win. Now, in some situations, you’re on the low ground, you can’t be indifferent, but you need to be ultimately realistic, ruthlessly realistic about your situation, and if you’re going to cave in because you have to, then just get the best deal you can and get out of there. But, but, but assess, assess the who has leverage ruthlessly, and if at all possible, be in a situation where you don’t care. So you know, let’s say I want to buy something from you. Let’s say I got a tenant in hand who wants me to build a building for him. I’m going to do a little merchant Bill deal. I got a I got a customer who wants a building. I got the specs. I know how much it’s going to cost, so I know how much I can pay for the land. And let’s say I want to make a a 10% spread. So I build in a 15% spread, because something always goes wrong. There’s the oops stuff that comes up every day if you’re doing a deal. So you know you got, you got kind of a five, 5% slack and 10% margin. I say, Okay, here’s what I think I can sell it for. I want to make 15% so here’s what I gotta here’s what my cost is going to be. I know what the building’s going to cost. I know what the soft costs are going to be, so I know what I can pay for the land. So I come to you, and I say, Okay, I’m going to give you 100 bucks for your piece of dirt. And you say, oh, no, I want 200 bucks. Well, my answer is, okay, if you want 200 bucks, I ain’t got a deal here. So, you know, I’m sorry, this just doesn’t work for me. And and, and away I go, and, and, but if you need the money, you’re going to stop me as I walk out the door and say, Well, you know, how about 150 and I’m saying, I’m sorry. You know, this is my number and, and if I don’t care, then either you come to where I need you to be, or we haven’t got a deal. And that’s the way it goes onward and upward. So the same thing, if I’m a seller, I got a price that I think, you know, meets the market, and either you want to pay that price or you don’t want to pay that price, you don’t want to pay that price. We ain’t got a deal. And I want to be in a position where I’m never forced to sell anything, if at all possible. So that’s why I have long term fixed rate debt. That’s why I keep my leverage low. I don’t want to ever be against the wall where I gotta do something, if at all possible, and if I gotta do something, then just take the pain and go on about your business. But the attitude of indifference in a negotiation is the strongest thing you can have going ever.

Yoni Schmidt 19:44

Interesting. Well, I have to remember that going into my next deal, you’ve been pretty vocal about challenges in building low income housing and high cost areas, right, such as San Francisco, which is where you. Currently are, you know, given the economic environment that we have been facing over the last two years, with very strong inflationary pressures and high interest rates, you know, what strategies do you think help make affordable housing more feasible?

Luis Belmonte 20:21

Well, the first thing is this, the anytime the government involves itself in an industry, well, the great line is from, and I can’t remember his name, the University of Chicago, Milton Friedman. He said, if you put the government in charge of the Sahara Desert, within five years, there’d be a sand shortage and and, you know, that’s the way it is. So the more regulation there is, the more opportunity there is if you’re able to cope with the regulation. So if I go to, you know, say, Tulsa, Oklahoma, to build low income housing, it’s going to be easy, but I’m not going to make much money, because everybody else can build, if I can manage to get something built. In San Francisco, we’re getting outrageous prices for a room and a bath. In San Francisco, we’re getting more than you’re getting for an apartment in Tulsa for one room, because the supply is constrained, because the government makes it so hard to build. So the question is, can I overcome all the obstacles? Can I work the system to get something produced because the government has generated a monopoly? For me, I got the lowest price in town, even though it’s an outrageous price. So a house in your market, you know, good looking house, costs 400 grand. Same house in San Francisco cost 1,000,004 what’s different is the drywall. Different is the lumber different. It’s the government that’s different. So, you know, I need to I need to work the government to get something done. I need to understand all the rules. I got to figure out who the all the influencers are. I got to figure out the regulatory climate, and if I do all of that, and I’m prepared to go through that brain damage, which I’m only prepared to do every now and then, because you got to forget how painful it was, then I can produce a product that’s, that’s, you know, we, we don’t even have an advertising campaign. We don’t even have a phone number on the front door of our low income place, we refer Craigslist listing once a week. That’s our marketing program. I mean, it’s once you get it up and running and you’re able to follow all the rules. The thing leases itself. You know, in places it’s easy to build, it’s hard to lease. In places it’s hard to build, it’s easy to lease. So in coastal California and in general in the coastal United States, land doesn’t have value. What has value is the building permit. So when my partner and I were doing build a suits for a national retailer, we took on the reason we got businesses. We took on all the jobs that were hard to entitle. So what we were bringing to the table was the ability to get a building permit.

Yoni Schmidt 23:07

Interesting. So in your in your book, Real Estate 101, you provide some essential real estate investment tips, right? What? What are some of the most common mistakes that you know you see new investors make, and how can they avoid them, of course. You know, aside for the obvious adjustable rates that you know, like you said, put you in a corner, 357, years down the line.

Luis Belmonte 23:31

Well, the first thing is, one way or another, get enough equity in the deal so you have some room so your own money or investor money of investors that you have an appropriate relationship, whatever it is, you know, don’t get too much leverage. Now, you know, if you’re building, if you’re doing apartments in a dense market, you can have 75% leverage, especially if you can get it from HUD, that’s okay. But if you’re, if you’re buying a spec office building, you know, cheap, cheap for long term hold waiting for the market to recover. You want to make sure your debt is such that you can service it with very little occupancy. So, you know, get your leverage in the right place for the deal. But don’t over lever, because then you just your risk just go crazy. The second thing is, you got to balance your risk and reward. So if a deal is going to be brain damaged and take a lot of time, and it’s in a marginal neighborhood, so you know if, if I’m buying a triple A net leased at the corner of Maine and Maine, then, you know, a 5% return might be just fine. If, you know, if inflation is two, two and a half, three, I’m making, you know, a real two. Okay. If I’m buying a pool hall in in Barstow, that’s, that’s also a methyl. Lab where the constituency is is rides motorcycles. I’m going to have a hard time collecting rent, and may need to buy a firearm or hire a bodyguard. I’m going to have to go out there with my handout to get my money. Then, you know, I want a 20% return. So you got to you got to figure out how much brain damage is in the deal, how much risk is in the deal. And and say, Okay, I ain’t buying a meth lab at a five cap. I got to have a 20 cap, or 25 cap. So you’ll get that correct. The next thing is, is, is, stay in your wheelhouse, be an expert on on some subtype of property, some neighborhood. So you know, in the immortal words of the country song, you know when to hold them and when to fold them. So you should always want to buy when the market undervalues the asset and sell when the market overvalues the asset. You’re not going to know that unless you’re a local expert. So if you know your your area, block by block, you can see a building that’s got a price that you say, you know, I’ll put some lipstick on this pig, and it’s worth us and such. So one of the first deals I did is a partner and I bought a house in San Francisco out of an estate. And, you know, we had no money. We were pumped kids and and so it had a better rent house. It was beat up and and we bought it for $28,000 to show you how things have changed, that same house today would sell for 1,000,004 but we bought it for 28 grand. Wow, $2,800 down 90% loan two years so and and we decided we’d create a masterpiece. We refinished all the hardwood floors. I rebuilt all the double hung windows, uh, replaced all the sash core, new glazing. I mean, they worked perfectly. They were the best double hung windows in San Francisco. Uh, we put in a new kitchen, we added a bathroom, big time landscaping, big new deck, and then we we ended up interest rates had gone to nine and a half percent, and in order to make money, our house was priced at like $55,000 well, this was a dingbat, post World War Two, cookie cutter neighborhood, the going rate was 50 grand and, and so we over remodeled the damn house because we thought we were artists and, and. And no matter how good our product was, it wasn’t going to sell from a market would bear, especially in a nine and a half percent interest rate climate. We got our ass kicked. We barely made wages. And, you know, I learned my lesson. You gotta, you gotta look ahead to your exit. You gotta stay in your wheelhouse, and you gotta figure out where the money is. Now, we could have gone into that house with a little paint and carpet, and by the way, the guy who bought the house put in aluminum windows and wall to wall carpet over our hardwood floors. You know, that’s as close as I’ve come to crying since I was five, you know. So I learned my lesson, you know, go in white paint. New lawn. Put a for sale. Sign up. We could have sold it for you know, 48 five made great money and gone on about our business. So you, so you, you, you need to look through what’s realistic ahead of you and and, you know, stay disciplined instead of getting delusions of grandeur. You know, you’re, if you’re doing ding bad deals, do dingbat deals. Now, you know, I know people who make money in the taste market, who sell and stage multi million dollar homes, who do rehabs on mansions, that’s fine, but it’s not me and and a lot of them really get hammered when the market turns or interest rate turns. And you know, you can, you can do spec houses in Bel Air and sell it for $100 million and make 30 million, but you can also lose 30 million. That’s just not my business.

Yoni Schmidt 29:06

Yeah, yeah, high risk, high reward. You mentioned discipline a moment ago. You know, your military background must have instilled a strong sense of discipline and strategy in your in your life and your career. How has your time in the Navy shaped your approach in business and real estate?

Luis Belmonte 29:26

Well, it taught me. The most important thing that the military taught me was the nature of stress. So I’m in Vietnam, and I’m the naval gunfire officer for the First Marine Regiment. And for the most part, I didn’t see combat. You know, I most of the time I sat in a bunker surrounded by sandbags with a bunch of radios coordinating fire support, but occasionally I went into the field as a forward observer, and the key people in this. Situation where company commanders, so, you know, they’re out on an operation and, and they got three platoons of people to run and, and so what happens when they get hit? So you’re there and, and the shooting starts and and, and the screaming of the wounded, and the stench and and the dust and and the chaos and, and you got to stand there, and you got to say, Okay, I need to maneuver my platoons. I got to decide whether I’m going to advance, retreat or dig in. I got to call my battalion commander, let him know what’s going on. I got to talk to Belmont and get some artillery in here and decide where it’s going to go and how much I got to arrange for medevac and, and I got to get my corpsman out there and, and I got to do all this with people shooting at me and, and the people who were good at it were, were absolutely cool and, and it didn’t make any difference whether They were they? Were he men or mouses with thick glasses? The guys that had battle sense could do it, and those were the people who advanced in the core. And what it taught me is that all stress is inside me, not out there, because you could not find a more stressful situation. But these people had had training and kept their cool and kept judging the situation under the most severe circumstances. So anytime I’m under stress, anytime that you know something’s going on, I say, Oh God, it’s all inside me. There’s nothing out there. So what I need to do in any stressful situation is look in the mirror and say, What are you afraid of? And and analyze my own situation, as opposed to blaming somebody else or blaming circumstances. So it’s all inside me. That’s where the discipline has to come and and then I need to understand where my wheelhouse is and where my wheelhouse is it. If I’m looking at a real estate deal and my nose is twitching, I know something’s wrong, and I know I’m right. If I’m outside my wheelhouse, I better find somebody whose wheelhouse This is so I’m a big believer in hiring expertise. When I get outside my wheelhouse. I want somebody who knows exactly what they’re doing. So you know, if, if I’m buying units in your neighborhood and I’m going to hire a third party manager, I don’t just go down and look at the unit and decide, well, you know, this is the right block, or this is the right units, or this is the right price. I come and talk to you, and I say, you know, I’m thinking about doing a deal here. I’m looking for a manager. How about you come and look and, and, and, you know, tell me what you think, because it’s your it’s your turf in your block. So, you know when, anytime, when I went overseas to do deals, you know, before I did a deal in Mexico, we spent a year interviewing partners and and so, and we eventually ended up with a partner and I built a lot of warehouse space in Mexico City, or north of Mexico City, with a local partner who didn’t know squat about warehouses, but he knew a whole lot about the political situation in Mexico, which turns out to be the most important thing in Mexico, because nothing goes on unless the political scars are aligned. So my deal with him was, okay, you teach me Mexico. I’ll teach you warehouse. And between the two of us, we’ll build something and and What? What? I never thought I could go to Mexico and do deals because, you know, I’m going to get local to death. So anytime I’m outside my wheelhouse, I have to have the humility to understand that and find somebody like you who knows the neighborhood and and, you know, and let’s say I’m building a deal in your market. I got a piece of land. I’m building something, and you’re going to be my manager. I’m inviting you to the architects meeting so you can tell me where to put the hose bibs and how to work the gutters and where the plumbing lines go, and maybe I got a sewage system I got to build where the leash lines are going and which soils engineer I gotta hire to figure out if the site’s got a perk, and 1000 things like that that I never got to know about your market.

Yoni Schmidt 34:29

Mm, hmm, yeah, that’s very interesting. So much knowledge from, you know, such, such a, I guess, five, five decades of experience in the industry.

Luis Belmonte 34:43

My entire body’s covered with scars, stuff I’ve screwed up.

Yoni Schmidt 34:49

Yeah, well, you know, we all, we all have to fail forward in our lives, and one of the ways to do that is by. I, you know, going through the motions and experiencing it.

Luis Belmonte 35:03

Well, that’s and, you know, the thing about the development business is, after all is said and done, the only way you learn how to be a developer is to develop things, and you’re going to make mistakes. There’s no question about that. And the important thing is, start out small, because you’re, you’re on a small deal, your small disasters won’t send you to the bankruptcy court if you go big time and screw it up, then then you’re pretty much done. I mean, a few people come back from that, but not many. So, you know, learn your mistakes along the line and develop your instincts as you go, and then you’ll get better at it as you go and and, and then you tend to see bad things coming sooner, and you’re able to mitigate them sooner.

Yoni Schmidt 35:49

Yeah, tell me, I guess, with you know, a career that spans over five decades, what’s been your proudest accomplishment as a real estate developer?

Luis Belmonte 36:00

My My proudest accomplishment is founding a little company where we don’t report to the overhead, meaning we’ve set ourselves up where we don’t have to do any deals. So right now, my partner’s, uh, children are all in college or or beyond college, he wants to kick back. We’ve just put it neutral. You know what? We don’t need to do anything. Our system runs. We aren’t under any pressure. We don’t have any loans rolling over anytime soon. We’ve set things up where we can open the door and close the door based on the market, because the the general rule of thumb is development deals work just fine in a rising market. They don’t work with a bean and a falling market. So what you want to do is you want to enter the market when it’s at the bottom or somewhere close, and get out of the market as it improves. And don’t try and call the top just when it gets real good, pull back. And you know, when the land prices start to get crazy or cap rates get really compressed, you know, just time to say, ah, you know, I’m going to take a breather here. And then, I mean, if you look at one of the great investment careers in history, which is Warren Buffett and his partner, Charlie Munger, their motto is, we want to buy when everybody’s selling and sell when everybody’s buying. And, you know, that’s where I want to be. I want to be able to go out and and do a deal when everybody’s running away and, and it doesn’t mean you’re 100% right. I mean, you could have gone to Houston in the 80s and bought something and still got your ass kicked, which I did, because the market kept going down and and, and the older supply of multifamily got so bad that they were bulldozing buildings. So you can, you can. It’s possible to miss the bottom also, but generally speaking, when things bottom out, you know you can. You can, kind of figure you can’t call a bottom, but you can get somewhere close. So if, if, if there’s, there’s 100 million feet of vacant office buildings in Manhattan today as an example. So if you go to Manhattan and you buy a C building for whatever cents on the dollar, you might very well get your ass kicked, because the C’s may never fill up, but if you manage to buy an A or a minus building, well below replacement cost, and you’ve got a plan to hold it for five years, you’re undoubtedly going to make money, because Manhattan isn’t going away. And if you buy in, right, and you hold for a while, you will make money. So, yeah,

Yoni Schmidt 38:44

Love that. So lastly, what advice would you give a young aspiring real estate investor who is just getting started in today’s competitive market, aside for buying, you know, a class buildings in Manhattan for less than replacement cost?

Luis Belmonte 38:58

Well, the the trick is, number one, you want to save some money. And the way to do that is save first. So anytime you get $1 say five cents, and then, you know, go spend the 95 cents on whatever you have to do. But, but every month say five cents or 10 cents, or whatever it is, any anytime you come into money, just put a little bit aside. And don’t get cute. If you’re not an investor type, buy treasury bills or triple A Munis or a CD or, you know, Don’t get cute because you You ain’t an investment professional. And you know, if you want to get good at buying stocks and bonds, get good at buying stocks and bonds, but, but don’t assume you are, and don’t give the money to somebody who’s going to invest on your behalf, because they’re in it for the fees and and, you know, everybody does what they get paid to do, so just put aside a little money so you have some capital. Because nobody who’s got three brain cells is going to invest with you if you don’t have skin in the game. So you’ve got, you got to have some money, and then you’ve got two way. To get good at this. You can go to work for somebody who’s doing it and learn on their dime. Or you can do it yourself, and either works fine, you know, if you go to work for somebody, you can see how they do it, see the mistakes they make, see the markets they’re in, see which markets you like, maybe cultivate some investors and and then go out on your own. Or you can go do a little deal. You can buy a rent house. You can buy a duplex at speed up, you know, some small deal that, you know, where you put up a little capital, maybe you got a friend or two who will throw in with you and work the deal, go out, you know, fix it up a little bit, raise the rents, sell it, see if you make some money, do a couple more. And then you get into the stream, you get to know some lenders, you get to know some investors. And you got a track record, you gotta write up a little resume. Say these are the three deals I did. This is how it came out. This is the IRR that that I made on the deal. Here’s what my investors made. You know, here was our business plan. Here’s what I proposed to two going forward, and then people will invest money with you, and and, and then you know which level to go to and how to negotiate a loan. And you learn a little bit about construction, because if you’re going to be any good at this, you got to learn something about maintenance management, construction, architecture, finance, demographics, all kinds of stuff so, and you’re not going to do this until you wait in and do it. And, you know, I don’t think there’s, I mean, once a year I I’m a guest lecturer at a class at Stanford in real estate development. And, you know, I can, I can tell people a few things. I can recommend that they read my book, but, but I can’t make developers out of them. And, you know, and a few of them have got the instincts, and you’ve got to be, you’ve got to have a hard heart and a ruthless mind and and be willing to break some rules and be willing to be a villain in front of public meetings and all kinds of nasty stuff. Very few people have that mindset, and very few people will come out of that class and excel in the development business. I mean, you’re a property manager. How many people want to do what you do? It’s a hard business. It’s a hard way to make a living. And, and you put up with a lot of grief and a lot of sniveling and a lot of complaining, and, and, and, and you’re a bad guy when you show up on the door to collect rent. You know, not everybody’s up for that.

Yoni Schmidt 42:28

Yeah, yeah. We deal with that a lot, managing about 3000 properties in five markets, so we’re quite familiar with that. And you know, it’s it’s not always up to us. We don’t own all of the assets that we manage, and these are investments. At the end of the day, people buy them to build generational wealth for themselves and their families, and they run them as a business as they should. Louie, this has been a very inspiring eye opening, educational. I want to thank you for your time here, sharing all of this with us and anything, anything that you would leave us with.

Luis Belmonte 43:14

I have to say that I got into the real estate business accidentally. The first deal I did was in 1962 I sold a funky little duplex in Corning, California that I inherited from my father. And I’ve been doing it, except for the time I was in the military ever since, and it’s been an incredibly rewarding career. And I do deals in my old age, and I am older than dirt giggles, and my partner and I have a single criterion when we’re looking at a deal, is this going to be fun, or ain’t it? And if it’s going to be fun, we do it, and if it ain’t, we don’t. And and I cannot wish for anybody a more rewarding way to spend your business life than doing something that gives you a sense of satisfaction and gives you some giggles and, and that’s what I’m in it for these days, is the giggles and, and it’s such a blessing. It’s hard to convey how grateful I am for the career.

Yoni Schmidt 44:20

I’ve had love that. Thank you so much. Thank you for your service. Thank you for sharing. If you haven’t already, go check out his books and reach out to us. If Is it okay? If they reach out to us, they want to connect with you.

Luis Belmonte 44:36

Absolutely. You can. You can go on on Amazon. The books are, are, are cheap. There’s, there’s Kindle and paperback. It ain’t like I’m in it to make money. I write the books for giggles too. So and, and hopefully you will get some ideas and and a few wise ass remarks, which is my mission in life. And. Uh, it’s been a lot of fun to be on with you.

Yoni Schmidt 45:02

Thanks so much Luis, chat soon.

Luis Belmonte 45:06

Thanks.

Outro 45:10

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