Podcast Transcript
Speaker 1:
Welcome to Real Wealth Real Health, the show that empowers you with insight, information, and inspiration to achieve your version of financial wellness. Learn how to balance living a full life today with planning for the future. This podcast is brought to you by Alpha Investing, a real estate-centric private capital network that provides exclusive investment opportunities to its members. And now here are your hosts, AdaPia d’Errico and Daniel Cocca.
AdaPia d’Errico:
Hello and welcome back to another episode of Real Wealth Real Health. Our guest today is Dave Werhly, co-founder of Wedgewood Enterprises, a vertically integrated real estate company that operates primarily in single family residential investments. They also have a variety of related business lines that either support or complement their core strategy, like non-performing loans, private lending, property management, brokerage escrow, and more. Wedgwood was founded in 1983, and Dave, along with his partner Greg Geiser, truly started with nothing. Following a single property purchase at auction, they’ve grown Wedgwood into the multibillion dollar market leader that it is today.
AdaPia d’Errico:
For listeners who are investors in Alpha Fund One, you’ll recognize Wedgewood as the entity providing fund capital with a return before it’s deployed into active investments. Like us, Dave, Greg, and the Wedgewood team place high value on relationships, and their integrity forms the backbone of their business. One of the many reasons we started our company at their headquarters in Los Angeles. If nothing else, you’ll find this episode inspirational and motivating. As you think about taking on any new project, not just investing in real estate, you’ll learn from Dave’s story just how important it is to put yourself out there and persevere in the face of adversity. Dave, Greg, and the Wedgewood team exemplify the entrepreneur motto popularized by Steve Jobs in his 2005 Stanford commencement address, “Stay hungry. Stay Foolish.” Dave, thanks so much for joining us on the podcast today.
Dave Wehrly:
Very welcome. Glad to be here.
AdaPia d’Errico:
You have one of the most inspirational stories of anyone that I know in real estate and we’re really excited to share your story with our listeners. And of course, Alpha Investing is part of your story. So can we start there? Why don’t we start there with how you got connected to Alpha Investing and how you became part of our network and our business?
Dave Wehrly:
Sure. So my son was attending UCLA at the time and I was visiting, and at some point, I saw a flyer for a presentation from this elderly couple who were graduates of the school, the Knapps, and come to find out they were putting on this presentation for a number of years, and they’d get really smart groups of people from school who had a business idea. And they would put together a competition wherein they would present their ideas. So I thought, “Wow, that’s pretty intriguing. I should go and see.” Because I’m interested in ideas and people and I got to see what this is all about, it’d be a great way to grab my son and have a good father, son meet.
Dave Wehrly:
And as I was sitting there, I was thinking how brilliant the Knapps were, always focusing on opportunity and how you can create things is, I don’t know if that was a gift that I was given at birth or developed over time from our mentors, but I thought, “Wow, this is pretty brilliant. You’ve got some wealthy graduates from the school who have put up a little bit of money, created this program and they are, in essence, interviewing the smartest people in the school with a new business idea in which they can choose to invest in going forward. I thought the basis for it was really fantastic.
Dave Wehrly:
So we ended up attending and there was this great group that I thought was better than all of the others and they were real estate related so they have something to do with my history in real estate. But just thought that they had a really great idea. And went and met them afterwards and said, “Hello.” We exchanged information. And when I got back to the office, it so happened we were moving into larger space and we had quite a bit of extra space available and I thought, “Well, let’s get some smart young people in, see if we can help them create …” I guess I’d call it, I called it an incubator at the time but in essence, it was somewhere between A, there’s a couple extra free desks that you guys can sit in and if you want to chat with us about anything, we’re here. So it was a bit of incubator light, if you will.
Dave Wehrly:
So the rest of the partner signed off on that and we started the relationship with Alpha at that point in time, and it’s been fantastic to see the growth to the extent of we’ve been able to support. I think that’s been great. That’s part of my personal view of the world and the company’s view of the world based on everybody at the company having been helped out by others along the way, that it’s now our responsibility to try to do what we can for others to help them grow and develop.
Dave Wehrly:
I’ve always liked the story, Benjamin Franklin had a group that he called The Junto, and it was smart people from the neighborhood, all walks of life, but thoughtful, intelligent people. And he created a group that would meet on a regular basis and they would come together and talk about their problems, personal, and their problems in business and what they were doing. And as they sat around, they would help each other through those issues and help them grow into better human beings. Ultimately, then a better neighborhood, a better environment, and to the extent that we can do that in some small way or another, we’re trying to carry on The Junto tradition there.
Daniel Cocca:
Well, it’s funny because you never really know how meeting one person or a group of people can have a long term impact on your company. And for us, you guys have actually been probably much more formative than we even share with you. In a couple of ways, one, the headquarters were originally in San Francisco and we moved into Los Angeles in part because of your offer to let us work out your offices, pick your brains, what-have-you. And there were, for a period of time, the four of us living in a house in Manhattan Beach, just kind of getting this thing started and a lot of our early ideas kind of stem from that.
Daniel Cocca:
Then as we heard your story, and I know you’re going to share a bit more about that in a bit, it really helped form the direction that we were taking as a company. Because if you remember from our original pitch, we were really setting ourselves up much more like a FinTech crowdfunding platform. And that was all the rage in 2014. The platforms out there raising capital from VCs, we all have venture backgrounds and relationships. Then we heard your story and we kind of learned about this slow, steady, patient, being very meticulous about the way you grew your company, very intentional.
Daniel Cocca:
And it really changed our mentality from, “Let’s build something in two or three years and then sell it to a PE shop or VC firm,” to, “Let’s create something that actually has long term lasting value and that benefits the people in our network.” We probably don’t say it directly but we really appreciate the guidance that you’ve provided along the way. It really has had a major impact on how we formed our destiny.
Dave Wehrly:
So Daniel, two funny things on that, one is, is the rest of the story. For the listeners, we had this … What for us was a really nice office. It was kind of Google-esque, people tell us. When we first moved in, we have plenty of space and as we continue to grow, we had to have conversations with the Alpha group of, “Hey, can you guys move over this area?” And, “Hey, can you move downstairs into this area? Hey, it’s a little bit smaller space, but can you move here?” And at the end of the day, I think we packed you guys into a large electrical room downstairs. I don’t even know if the place had air conditioning down there but you guys were packed in pretty tightly and always willing to do whatever it took. So that’s point number one in your comment.
Dave Wehrly:
Number two, it’s so interesting that part of life is just getting in, right? You’ve got to get in and start figuring things out. We were in a large real estate deal requiring 356 apartment units in Dallas. So it was five different buildings, five different properties in different locations around Dallas, with multiple buildings on each of the properties at 356 units, and this was pre-COVID. And one of the buildings was burnt out. It was owned by Japanese investors who had invested for tax purposes and had not done, to say it kindly, not done a great job on the management. So it was a little bit of a mess, which is okay because we liked those, actually.
Dave Wehrly:
But you get into the deal and you’re in a new area, because we’re not big in Dallas and so you’re trying to figure out if you’re going to be taken advantage of by the locals. Coming from California, that doesn’t fly well as an introductory piece to people in Dallas necessarily because they tend to be on one end of the spectrum and Californians tend to be on another end of the spectrum. But we met some really great people, we got involved in this deal. We got it in escrow, 33 million bucks. We then went through the process of trying to figure out what it’s going to cost to turn around, we renegotiated the price a little bit and then COVID hits.
Dave Wehrly:
All right, so relationships to us are incredibly important. I tell people that I’m mentoring every touch point you have with people along the way, either creates headwind or tailwind. And if it’s neutral, I call that a headwind because if you haven’t done something to ingratiate yourself or at least be kind to the people that you’ve come across along the way, that’s a headwind. Conversely, if you’re decent to people along the way and build positive relationships, doors open, things happen, and you don’t know why. But it’s because you’ve done something nice to somebody, you’ve behaved well in a difficult situation, that person has told someone else, that person then tells someone else and before you know it, things are happening and you’re not quite sure why but it’s because of the way that you behaved in the past.
Dave Wehrly:
So we were able to get in this deal and then we renegotiated it again, because of COVID. And got in, figured it out and good things started to happen. It would have been really easy to say, “Look, this deal’s got too much hair on it for us. Let’s just get out.” But getting in really helps. The second thing that you mentioned, which was your change of direction at Alpha. But when we started back in the mid ’80s, what was the thing to do was create a company, show that it could grow really big. This was the time, I don’t know if you guys remember, it was called greenmail where you’d have a group of wealthy investors buy up a bunch of stock in a company and then they were to essentially hold the company hostage and threatened to throw out the entire board of directors unless they got bought off at a premium.
Dave Wehrly:
So there was some crazy stuff going on at the stock market and it worked for quite a long time. But as young people, we thought, “Wow, the way that we need to comport ourselves is to build this machine that we can show can go nationwide and then we’ll sell and we’ll all be millionaires at 25.” Well, you get in, you find out it’s not that easy. There’s a lot of things that you got to learn. Just so happened then we had a little downturn in ’86 and then in ’91 ended up really having to get scrappy, and the whole idea of going big and going public was thrown out the window. It was a big change of direction at that point in time. That’s what you got to do, get in, be willing, and show up, and figure it out.
AdaPia d’Errico:
So Dave, just based on that, when you first started, how did you get in to real estate investing yourself?
Dave Wehrly:
I mentioned opportunities and whether I was born with them or whether I learned them, and I just I was always looking for how to do something that was cool and that I will enjoy and that would be able to create a nice life. So my dad went to Long Beach Poly, which a local high school where he grew up and he had a buddy named Freddy Michaegan. Freddie would buy a couple houses a year and fix them up. So my dad who originally sold auto parts, didn’t go to college, sold auto parts for a living for a while then started hanging drywall, that was his trade through the time that he passed, always respected Freddie Michaegan. “Freddie, he’s just super smart. He’s got a lot of things going on. And he buys houses and fixes them up and sells them.”
Dave Wehrly:
So being this guy that’s looking for opportunity, which … A funny side story here, I can remember back being in the back of my parents’ station wagon with my brother. There was an oil embargo in ’73, I was probably 12 at the time, and cars, a lot of your listeners will remember, literally a mile parked waiting to get into the gas station. People would push their cars forward as the line moved. I’m in the back of my parents’ station wagon and we’re driving by, and we never really had … I can remember, 99% of the time that we went to the gas station, the family didn’t have enough money to fill the tank. That was when gas was 35 cents, 40 cents a gallon.
Dave Wehrly:
So really good parents, really had the opportunity to stand on their shoulders, but we didn’t have a lot of money. We’re driving by this gas station. I’m in the back of the station wagon and I look over and I see there’s six pump hoses there but only four cars can fit at the pumps. So we get home and I tell my little brother who’s two years younger than me, “Mike, let’s go get the gas cans off the trailer and get the wagon.” So we would take the wagon down to the front, fill the gas cans up and we have this little, a sign that a 14-year-old, 12-year-old could make that said, “Gas.”
Dave Wehrly:
And I forget what the price was, we added 40% or something to the price that we had paid for it. And we’d walk down the street and you’d get dirty looks from a couple people like, “How did you get in line in front of me?” But a quarter mile back when people knew they still had 45 minutes away, you’d sell the gas, and then we’d go back to the front. So always looking for opportunities. So my dad’s talking about Freddie Michaegan and these houses that he’s buying and I said, “Dad, can you give me a job with Freddie? Because I’d like to learn.”
Dave Wehrly:
So my first job in real estate was scraping wallpaper for Freddie Michaegan. Freddie, he seemed to have a really nice life. He had an old black Buick Riviera that was really stylish. He had the hair swoop back on his head and really nice man. I would pull the guard nose in, spray the walls down and scrape wallpaper, to the extent that you can learn the business scraping wallpaper. That was the start. So I graduated from high school and wasn’t … So my parents didn’t go to college so I didn’t have any guidance there. Spent most of my time in high school reading Hot Rod Magazine in class.
Dave Wehrly:
And I ended up at the local Cerritos College, junior college. I’m thinking, “Gosh, what am I going to do?” I thought I was going to play professional football, that went away pretty quickly. I got to figure this out. So thinking back to Freddie, I thought, “Gosh, I need to figure out a way to get some money together and try to buy some real estate.” So I started to investigate what it took to get student loans. I found out that if I moved out of my parents’ house, I could declare my own income and I could get a lot of student loans.
Dave Wehrly:
So I moved in with my buddy, I took student loans, I took Pell Grants, I took all the money that I could get together, and I used it for a downpayment on a four unit apartment building in Long Beach on 17 grand. Because my dad was in the trade and he was active around our house all the time building things, I learned a lot watching him and tearing things apart in the garage and was very hands-on, so knew the inside of a wall and most of the components of a house very well. So my brother, who was working for my father then at the time, had a little bit of regular income. I put up the downpayment and deposit for the property on that using the student loans and we used his money to kind of cover any negative cash flow or construction that we have.
Dave Wehrly:
So we began working on that place and fixing it up, and I figured out a way to get myself into UCLA as a junior and continued to work on the property and got involved in a lot of different things at UCLA that were really helpful to my growth. But really, I always felt … I felt out of place a lot. Like I wasn’t worthy of being around these people, a lot of which had, for me at the time, seemed to be wealthy parents. So learning how to become successful in how you act and funny little things along the way that you remember. I can remember being in college and going into a hotel and for the first time ever, seeing cloth napkins on the counter, cloth towels on the counter, and thinking like, “These are cloth towels. This must be a pretty ritzy place. You wipe your hands off with the cloth towels. What do you do with the cloth towels? Okay. There’s a there’s a bin there.”
Dave Wehrly:
Learning these things along the way and met some good people, which I think always takes in life. And I started interviewing, I went to the Marine Corps Officer Candidate School during the summers. That was a great experience. Continued to work on the property on the weekends and had a role in the UCLA Ski Club and role in the fraternity that I was in. Again, got to meet a lot of people. Ultimately, started to interview for a job. Procter and Gamble came to school, went through a process, which was pretty rigorous. I think I interviewed with seven different people to get a job and started at Procter and Gamble. Great company. It was a sales management training position.
Dave Wehrly:
And when they would fly out, the guy that was in charge of our region, he lived back in Cincinnati and he was a big wig at Procter and Gamble, and we would drive my route, which was effectively going into grocery stores. Going to 11 grocery stores a day was the goal. And meeting the manager who did not want to see you. They got all their distribution from their corporate offices. And here I am at 23, trying to go in and take the manager’s time and it’s the last thing that you wanted to do. So it was difficult job. For me, it was, but I’d be with a senior guy and in the conversation, we’d be talking about, “What did you do last weekend?”
Dave Wehrly:
One time he said, “We’ve got a yacht, got a large boat, and we spent a lot of time on that.” As I’m pondering this, after he left, I’m thinking, “Wow, I could have that if I work really hard here. And I could probably have a million bucks in the bank by the time that I retire if I played my cards right.” But I’m selling Pringles, I’m selling Jiff, I’m selling Crisco Oil, and Duncan Hines cake mix, and soft cookies. I’m going into a store and they hate to see me every day. And I think they’re right, I don’t think that I’m worthy of their time. They got better things to do than talk about buying an extra case of cookies for me.
Dave Wehrly:
So six months in, I knew that job, I couldn’t do it. I couldn’t continue doing it. But back to the relationship piece, super important for me to have at least one year on the first job versus six months. So I’m going through that process about six months in at Procter and Gamble, and I was dabbling in triathlons at the time when I was in college. And just so happened through a series of events. I got to know the Dean of Students at UCLA. He oversaw a couple things on campus, one was the fraternities, and our fraternity often got in trouble with the university and I was vice president, so I’d often have to deal with Peter Weiler for that purpose.
Dave Wehrly:
And it so happened that my girlfriend at the time was a cheerleader and he oversaw the cheerleading squad as one of his jobs, so I knew him through her, too. So got to meet him and we were able … Always in relationships, even when there’s really difficult issues to discuss and you’re on the opposite side of the issue, to try to be super thoughtful and go away with the person respecting you. So because of the fraternity situation, I was often on the other side of Peter, and yet we were able to develop this great relationship. I was doing triathlons, I was cycling, and it just so happened I would cycle with Peter every once in a while. And Peter Weiler, this dean of students had a running partner and his running partner was this guy named Greg Geiser.
Dave Wehrly:
On these rides, I’d start to hear about this guy, Greg Geiser, and he was working for a big developer at the time, downtown Westwood, which is the town that’s adjacent to UCLA. And it was a multinational company, a company that all … It’s Castle and Cooke effectively, but they’re Development Division. And Greg was working there. So I hear these things that were going on with Greg and I thought, “Wow.” Undergraduate Oklahoma State in engineering, Anderson Business School graduate, now working for a huge company, connected with some very high level previous Chief of Staff of the United States was his boss.
Dave Wehrly:
I thought, “Wow, okay. I need to try to work on this relationship.” So as we continue the conversation, Greg, as I’m hearing it secondhand, well, Greg is starting to look at investing in small real estate deals. Then a little bit further on, Greg’s going to be leaving the company. I’m thinking, “I got to get together with Greg. I got to meet this guy because this is the kind of thing that I want to do.” So I asked Peter to set up a meeting under the auspices of, “Hey, Peter, I know that Greg knows development and I’ve got this little four unit building in Long Beach. Do you think I could get with him? I mean, I’d like to talk to him about developing that and maybe I could also talk to him about what his grand plans are.”
Dave Wehrly:
So we get a meeting. It’s at Papa Pete’s Breakfast and Lunch Spot in Westwood. And I’m nervous, right? I’m a kid from middle, lower blue collar area and meeting this guy who seems incredibly well-connected and I think he’s going to just not give me the time of day. I go in and I meet one of the nicest human beings that I could imagine and we have a great conversation. I said, “I’d really like to meet you again. I’d like to talk a little bit more about what I might be able to do for you.” So we set up that second meeting.
Dave Wehrly:
I go back and I put together this extended resume portfolio all the way back to selling gas as a kid, a 12-year-old. And I put it in front of Greg and he, in our second meeting, he flips through it, looks, like, “Looks like you’ve done a lot. It looks …” He said, “Well, okay.” At this point in time, he’s left and he’s starting this new company. I said, “Can I come to work for you?” And he said, “No.” I was shocked, but not being willing to take no for an answer. It’s just like, “Well, why?” He said, “Because I don’t have any money. The extent of the business plan that I have, Dave, is I get paid $3,000 a month and we’ve got another thousand dollars a month for overhead, and I’ve got to go figure it out. So I don’t have any money for you.”
Dave Wehrly:
I said, “Look …” I knew that he had purchased a duplex in Manhattan Beach at the time and I said, “Greg, look, you’ve got this place in Manhattan Beach. Let me do all the work. I’ll tear the kitchen out, I’ll paint it, I’ll do the landscaping. Whatever needs to be done, I’ll handle it. You just pay me what you would pay anybody else. I will work for free in the office two, three days a week. I’ll study for my real estate broker’s license. And when this duplex is finished and ready to sell, we can list it through my real estate license and I’ll get paid that way.”
Dave Wehrly:
Well, hard to take free, hard to say no to free in that sense. So I was able to get my foot in the door and come to work for Greg at the time. He’d been out at about six months and didn’t have a huge business plan that he had thought through for a year and a half. It was, “Let’s get in and try to figure it out.” How unplanned it was … This little story, we’ll let you know. So Greg stumbles upon these auctions. They’re listed in the newspaper. And wow, okay, what does it take to go to these auctions? They’re outside in a public place. You got to show up with cashier’s checks. Greg had been loaned $100,000 line of credit from this person that he had previously worked for with the understanding, “Greg, you go find the deals, we’ll use the line of credit to buy the deal, and you do all the work to create some profit and we’ll split the profit 50-50.” And that was the extent of it.
Dave Wehrly:
So Greg’s got a little bit of money. He’s got this clipping out of a newspaper. Without doing very much research at all, shows up at the auction site. There’s one other couple there, which is if no one else is at the auction, now we know is a little bit of like, “Okay. What am I missing? Because if this is the deal, there should be people here after.” In this case, there was one other couple. Greg blurts out after the guide calls out the opening bid and checks that they’ve got the proof of funds. Greg blurts out, “Pause penny.” And the auctioneer says, “Okay, going once, going twice, third and final. Sold.”
Dave Wehrly:
I think it was like $111,000 or something like that, that they paid for a little house in Pasadena. Greg’s with somebody at the time, that person goes inside to fill out the paperwork and Greg thinks, “Wow, this other couple was here. They look distraught. I’m going to track them down and find out what’s going on.” Greg tells the story, he’s shaking at the time because he’s just spent a huge sum of money, the hundred grand that he had been loaned plus money from Grandma and friends. Because none of us came from any money so we didn’t have anybody to call on for funds. So Greg chases this couple down, says, “Excuse me, I noticed that you were here and you didn’t bid. What’s your story?”
Dave Wehrly:
The wife says, “That is the best house in Pasadena. We love that house. We were in escrow on that house trying to buy it. We just didn’t have the cash to come to the auction.” Greg says, “Well, what will you escrow that?” They said 125 grand. So Greg quickly tries to calculate, “Well, what’s a 3% Commission on 125 grand?” And, “Okay, what if I sold the property to you for 122,500 right now?” They looked at each other and looked at Greg and nodded their heads and said, “All right, we’ll give you $1,000 deposit right now.” So on the hood of their car, they wrote out $1,000 deposit for this house. Greg walks back in, his buddy from Business School, UCLA, that he was was there with, he sets the check down in front of Chris and says, “I just sold our house.” So that was the start of Wedgewood.
Dave Wehrly:
Incredibly lucky start because it is very likely that that property could have had unknown deeds on it, liens, all sorts of potential problems. But I guess we’ve got some good guardian angels and it worked out. And from that day forward, it was refining the process day after day and trying to create positive relationships, a lot of mistakes, lots of mistakes, lots of sleepless nights, but continued to grow and build relationships. Fast forward now, I guess, almost 35 years, which is really amazing to think about. I think about somebody who was my age when I started at 25 and thinking, “Wow, they’d been at 35 years. They’re antique. That’s like a national treasure business. It’s old.”
Dave Wehrly:
I think we’re 600 employees or something along those lines. We’re in 17 states, we’ve expanded the operation from the backbone, which the backbone still is acquiring distressed properties. About 80% of those are acquired at auction. We also created a company called Civic Financial Services. Because as we were selling some of these properties off, we thought, “Well, if we sell some of these deals off early, before we go through the whole rehab process and we leave a little bit of profit there for an investor, we can turn them quicker and maybe increase the IRRs a little bit.”
Dave Wehrly:
So we started doing that but shortly, a second deal person came to us and said, “Well, can you loan us money on that?” So that really was the impetus to start Civic and create this platform that now is lending $100 million a month on fix and flip properties around the country. So we got that, we buy non-performing loans, large pools of non-performing loans, and just try to improve every day and keep the relationship solid which we’ve been through three, depending on how you count it, three or four recessions.
Dave Wehrly:
The ’91 recession was really devastating. I was literally making burritos out of a Rosarito refried burrito can, wrapping them in tinfoil and we were doing, to make money, we were doing broker price opinions for banks during the ’91 recession. And at 10:30 in the morning, I’d get that foil wrapped burrito out of my trunk and I’d set it on the manifold of the car, drive around another hour and a half so it was nice and toasty hot, and that was lunch every day. So we’ve been incredibly blessed to get to where we are and learned a lot along the way and lots more of the story that’s probably good enough for today.
AdaPia d’Errico:
So it sounds to me, I was going to say that there’s also a lot of resilience. I mean, like a lot of persistence and not giving up. How did you, I guess, personally or psychologically, how did you think and set yourself up to get through those times?
Dave Wehrly:
Well, I think, I had parents who instilled values, I went to Catholic school all the way through high school that instilled a certain level of values, which was always around doing the right thing. And I guess I’m a very optimistic person by nature and also willing to go like … Yeah, so I had to eat beans out of a can, really big deal. I mean, it’s a good story but I’d rather take a risk and end up in a situation like that than sell potato chips for the rest of my life, right? I didn’t really have any interest in doing much else. But the values piece I think is critical because along the lines of 35 years, you get people that come in and propose ideas and you work with and they don’t do the right thing and then they’re done. They’ve just blown their relationships and they’ve created huge headwinds and we won’t do business with them anymore.
Dave Wehrly:
And anybody that asks us about them, we try not to say bad things about people but we also don’t want other people that we know to get hurt by bad actors. So they pretty much cut their opportunities off drastically. Being good to people creates additional opportunities that even when it does get really tough and you’re trying to get through it and Greg as the leader of the company through the ’91 recession, which I said was really the worst because it was a combination of lack of knowledge, because we were still really young at that point in time, all under 30 still, we borrowed money from the bank to pay payroll for a period of time, which was a mistake and we had a bunch of different investors that we had developed through …
Dave Wehrly:
We created these Wedgewood funds and the idea was that they would run for 18 months, acquiring distressed properties. We’d bring investors in and then after the 18 months, we’d stop buying and we’d sell all those properties off. So we had told investors based on our previous experience that we thought we’d hit returns in 15 to 18% range. But when the recession hit, we couldn’t do that. Greg called everybody together and everybody at that time was probably, excuse me, it was probably 15 people, maybe 18 people, called everybody together and said, “Guys, I’ve got some challenging news. We cannot make Friday’s payroll. We will pay everybody what’s due to them the following Friday but I have to let all of you go.”
Dave Wehrly:
And it was all except for four of us and Greg, “I have to let all of you go. We don’t have any money for severance. When we get back on our feet, we’ll do something for you. But we’re very sorry, just the situation we’re in.” So, everybody, but Greg and four of us left. Greg, who is probably the most honest, thoughtful, giving, loyal guy that I’ve ever met, called us in and said, “Look, it’s the five of us now. I’m going to split the company up and we’re all going to get a share.” And he was very generous in giving shares out.
Dave Wehrly:
“We’re going to get in front of every single investor and we’re going to tell them exactly what’s going on. We’re going to call them the following week and tell them what we’ve done and what’s going on again. And we’re going to keep all of our banking relationships solid, we’re going to have the same communication level with them and we’re going to keep all of our credit reports perfect.” So those were the marching orders. Greg made those calls day after day after day.
Dave Wehrly:
And he tells the story, every day was worse than the last day and every week was worse than the last week for probably two years. And we just continued to try to grind through it. We have three partners at the time working on a broker’s price opinion. We’d get 75 bucks. And when that check came in, we’d split it up amongst us. It was really hard, but it’s leadership, I think. And I think Greg’s example of maybe giving a way more than most people would kept us very much involved and focused to get through the process.
Dave Wehrly:
And back to the tailwind analogy, because of what we did for the banks, we paid them all back and we had great communication with them. When distress deals started to come through and the economy started to look a little bit more solid, they call us up, “Hey, we got about this deal. Hey, we’ve got this deal. Hey, we’ve got that deal.” And things started to become more and more profitable. We learned an incredible amount from that. We now track every single call that we get on listings that we have. Because I got my broker’s license, we formed this internally owned company called Maxim Properties, and Maxim Properties, a division of Wedgewood that sells off most of our assets that we have acquired and then fixed up.
Dave Wehrly:
So we have the opportunity then because we received all of the calls and all of the offers on the inventory. We track every single call that comes in against our inventory, we track the number of offers that come in against our inventory. So since the ’91 recession, we’ve been about three months ahead of where our competitors know the business is going and about six months ahead of where the newspaper knows the business is going. So we were able to use that painfully learned information in the recession in the 2007, 2008 recession to our benefit. It was one of the most profitable periods of our company’s existence.
Dave Wehrly:
So your question, you know what? I guess, you just keep showing up and keep trying to figure it out. And if you’ve got smart people around the table, good ideas come from it and they evolve. Sometimes what you end up with is nothing like what you thought it was going to be but it ends up good, because luckily, the world and the United States in particular provides us with an incredible opportunity to do great things and it just takes hard work and thoughtful people.
Daniel Cocca:
Yeah. It’s a story that, I’ve obviously heard this story before, but it’s one I love to hear. It’s such a really inspiring story. So many people think that being an entrepreneur is just this sexy lifestyle where you’re your own boss and this story just really hammer home, the roller coaster ride that it is, the resilience. There’s a phrase that I love, “Stay hungry, stay foolish,” that comes from the whole earth epilogue, which is like a written form of Wikipedia back in the day. Just love the story. I think a lot of our investors, many of whom are entrepreneurs in their own way, whether they’re physicians in private practice or lawyers or running any variety of companies, this type of story really resonates with them. Personally, I love to hear it.
Dave Wehrly:
Well, thank you. I feel blessed to have been in a way stumbled upon it and, you know, success is a combination of hard work and luck and I’ve had a good share of that. I’m really proud of the company, especially in our current crazy times of what’s going on. We’ve always tried to be very supportive of the community. Not only is it good for the community, but it’s great. We revitalized a couple different schools, inner city schools where we send groups of people to actually repaint schools and put murals on and paint new hopscotch lines and put in new furniture. We do the teachers’ lounges. It’s been really good for us and morale. We try to do a lot of those things. We’re generally humble people so we don’t really advertise them very much but we got our hands on a lot of different things.
AdaPia d’Errico:
Well, Dave, I mean, I would love to probably spend another hour talking about everything else that we haven’t been able to cover. But I did want to ask in the context of what our podcast is about in building a healthy financial foundation, which you’ve done now, how do you think about building wealth?
Dave Wehrly:
I didn’t understand the stock market well, didn’t understand high finance well. What I came to understand about real estate, which was really intriguing to me and drove me towards real estate as an opportunity was that it was one of the greatest creators of wealthy people in the history of the world. So there was a drive to really understand it. When I distilled it down to something very basic, it resonated with me like, “This is the way to do it.” That distillation was properties have increased in value on average since World War II, was last time I looked 3%, may even be a little bit higher now, but 3% year over year.
Dave Wehrly:
So if the formula is I’m going to buy a property, I’m going to put 25% of my own money in and I get to own this asset, the asset is going to appreciate say 3% a year, but I’ve only got cash in of 25%. So on the 25% cash, I’m getting 3% increase in value on the entire asset that I own, which means I’m getting a four multiple. So if the property doesn’t throw off cash at all, I’m making close to a 12% return on my money over time. Where can you get that? Setting aside the fact that if you buy it appropriately, it should be throwing off in today’s market in L.A. 3%, 5%. In other markets, they we’re moving towards 4.5% to 5.5%, it just seemed like a no brainer.
Dave Wehrly:
And then as you get more sophisticated and you understand the opportunities around tax savings through 10-31 exchanges and deferral of the tax, and then you can drive by it. I think that was another big thing for me. I tend to be very fairly visual and I like having things that I’m proud of. So you take an old beat up building, and you improve it and now you’ve got this whole new life to the building itself and new life living inside with new tenants and you can kind of … It brings a smile on my face. I like it, I understand it, I control it.
Dave Wehrly:
I’ve always thought there’s the guy on the shop floor of Ford Motor Company, who probably knows what’s really going on. He’s trying to spin the story to his boss to make himself look good. His boss is doing the same thing to his boss. Then you have the Goldman Sachs analyst who’s getting spun the story. And the Goldman Sachs guy’s super smart, they’re going to get the first opportunity to make money on any thing that shows up and they’re going to take it. The Goldman Sachs guys are then spinning it to the guys that are actually interfacing with the public and that’s the guy that you’re talking to. So you’re six layers away from knowing what’s going on.
Dave Wehrly:
And even the smartest guy in the world, I don’t know if they could really tell you what Ford Motor Company’s worth. So it was always a bit of hocus pocus to me and the small amounts that I did invest in the stock market, I’ve had repositioned over time into something that I really understand and this is it. Hopefully, that’s a good answer to your question.
AdaPia d’Errico:
Yeah. I think it is. It really speaks to the essence of who you are and how you think about things. Yeah, there’s just so much wisdom even in that response. We’re really grateful at Alpha Investing for our relationship with you. As you know, we’re very relationship based as well. And having you as a resource, having you as part of our business really helps us be as good as we can be with what we’ve got right now. And we’re in that smaller phase. We’re not in the electrical closet anymore but I think Dan records from a closet when we do this podcast.
Dave Wehrly:
Yeah. You’re very welcome. It’s been a pleasure for me too, to see the growth as an investor with you guys. We don’t invest with people that we don’t trust and we’ve known you guys, I think six, seven years now. That’s been a great relationship and really excited to see the continued growth.
AdaPia d’Errico:
Yeah. We look forward to it. We very much look forward to it. Thank you so much for being with us. We hope to have you back again sometime in the future. Also, very much appreciate you taking the time at this time when things have been crazy busy, I’m sure for you as well. So thank you again so much for coming on and talking to us.
Dave Wehrly:
You’re very welcome. Go make things happen and have a great day.
AdaPia d’Errico:
Thanks for tuning in to Real Wealth Real Health. We hope that you’ve enjoyed today’s episode and found it both informative and insightful. We welcome all your questions and your feedback about today’s episode. Especially, we welcome your questions about specific topics that you would like us to cover. So shoot us an email at [email protected]. And if you have a moment, we really appreciate ratings and reviews as it helps us grow our online community and our interactions with you. We’ll also be linking to a number of relevant articles on topics that we might have touched on during our conversations. Some of them are broad, some of them are technical, but we’re always aiming to provide information that helps you better understand the mechanics of building this healthy financial foundation, especially if you’re looking to do this with real estate.
