SPEAKER_01 0:01

Welcome everyone to the Real Estate Real Life Podcast. I'm Nick, and my wife, Dr. Elaine Staggerberg, is with me here.

SPEAKER_00 0:09

Good morning, everyone. Welcome.

SPEAKER_01 0:10

Let's talk today about being anti-fragile, about being responsive to change and not just being able to cope with change, but being stronger as a result of change. We live in a time of unprecedented rate of change. And even though our strategy at Black Swan has been largely unchanged, we buy real estate that needs some love where we can add value, then we add that value, and then we we do a cash-out refinance to provide returns or return of capital to our investors. Our tactical playbook, it changes all the time. And so talking a little bit about today, last you know, a bunch of episodes, we've talked about sort of what brought us here today, but talking about where we are today, we are living in a time of just unprecedented rate of change. It seems like we are always, you know, one tweet away from the whole world changing this past Friday. It's uh March 23rd, 2026, as we record this. This past Friday was one of the highest rate volatility days in history, and we are in an interest rate sensitive industry. So, so how is it that Black Swan is making moves? Why is it that we're having our best acquisitions here in history, over you know, 52% growth here in the last 12 months? What is it that allows us to have so much clarity and stay so sane in this in this time of extraordinary uncertainty for so many people?

SPEAKER_00 1:30

So, although the theme of this episode is going to be about where we are in 2025, kind of bringing the culmination of our origin story to today, let's go back. Let's do a flashback here. Nick and I now consider this in retrospect our very first company retreat. Today, we do a full company retreat every December where we reflect on our accomplishments and our struggles from the year that we're wrapping up, and then we set the vision for the coming year. And the very first time we did that, it was just the two of us. We rented a hotel room right here in Rochester. It was our first time away overnight, away from our children. We only had two at the time. And it's so interesting to see how the retreats that we have today are almost the exact same schedule of that very first retreat. We didn't call it a retreat at that time. We it wasn't a date per se. We knew we were going to work on the business. We got an early check-in at a hotel, worked our tails off all day, took ourselves to a nice dinner, worked through the evening, and then we got a late checkout, worked as much as we could that day. And that was when we named the company and we named it Black Swan Real Estate. And that was really Nick's idea. I had to, I had to come around to it, which is a common theme. Nick often has the idea, and I maybe drag my feet a little bit and analyze it a little more than he does. And that really came from Nassim Nicholas Taleb, who talks about black swan events, and you know, they're often considered to be negative in the industry. We consider them to be extremely positive. Black swan events are things like meeting your spouse, meeting your best friend, hearing about a job opportunity in a casual conversation with someone who isn't even in your industry, things that happen geopolitically or worldwide, anything that's unpredictable in the moment, but in retrospect is completely predictable and completely changes the trajectory of your life, the industry happenings. Those are the black swan events. And it really is about being anti-fragile and being able to not just survive and make it through whatever those changes are, but to thrive and to benefit from them and to see change as this constant crucible under which you can strengthen yourself, very similar to The Obstacle is the way, an episode that we recorded a few episodes ago.

SPEAKER_01 4:03

It's so fascinating to me that people they often think of Black Swan as a negative thing because people like they've missed the boat. They've missed the whole point of Nassim Nicholas Taleb's thesis. Like, change doesn't have to be a bad thing. And when you anticipate change and no, just live in the reality that things are going to change, that that you know, people make plans and God laughs, the whole world opens up to you and change can be a joyful thing. So it's always it always gives us a chuckle when people are like, isn't a black swan a bad thing? No, no, no. That's the whole point, is that it's not a bad thing if you if you live in that reality. So we've talked to you about our journey and how we started out buying single-family homes, for example. Well, if you look at the market today, it's it's a tough time to buy single-family homes for investment purposes. It's a tough time economically and financially because when interest rates went up, the value of homes went down slightly in some markets, but you know, in our market, values are certainly not down. And the you know, like the rate of return you can get basically kind of went out the window. And in the multifamily space, there's there's so much doom and gloom that you know people would say, Oh, you're you're crazy to be investing in multifamily day. The same way that people told us we were crazy when we bought that very first single-family home, you know, over a decade ago.

SPEAKER_00 5:16

A decade and a half now. We're getting old.

SPEAKER_01 5:18

We're getting old, baby. You just have to know that the strategy can remain the same, but your tactics they have to change and you have to be adaptive to change and build your organization to be prepared for change. And and so, just tactically, like the most basic example of that is during the pandemic when kind of a bubbly market and prices were high, like 93% of multifamily transactions closed with variable rate debt. The vast majority of multifamily transactions closed with variable rate debt. And during that whole time, we got you know pretty much fixed rate debt across across the board. And and you know, we could have gotten variable rate debt at 2% or fixed rate debt at 3%. And man, the numbers worked so well on paper with that variable rate at debt at 2%. But we said, you know, we think the future selves, our future selves will thank us for getting fixed rate debt today. And more than anything, we we asked ourselves, what would make us you know the the most adaptable to change? If there was more change in the future, what would make us the most adaptable to change? And and today, we're still getting fixed rate debt, even though every you know, yield curve and stuff shows that it's likely rates will go down in the future. We don't know that for sure. And we live in a time of extraordinary change. So, you know, for example, we just closed on on Village Essex Park, the largest deal in our company's history,$40 million purchase. And we have you know two pieces of debt on that. One is a HUD 30-year fixed rate debt at 2.2%. We assumed a very favorable piece of financing there, and then we got a second piece of financing, it's it's split in two phases from a credit union that's a five-year fixed rate debt with some options there. And it would be there, there's a reality where we would say, oh, well, now's the time to get variable rate debt. But we are constantly asking ourselves, what can we do to be as anti-fragile as possible, to be as responsive to change, to become stronger as a result of change occurring. And even though the numbers theoretically might work better on a spreadsheet with variable rate debt, like the fixed rate debt, it prepares us for the future. It's even hard sometimes for people to, you know, to grasp how you can do a deal in today's multifamily environment because it's it's difficult to know how much a deal is even worth. There's fewer transactions, pricing is all over the board. And so, how how can you have the confidence and clarity to do a deal at all? And we we had to really reinvent ourselves as the market was shifting, cap rates were going up, interest rates were going up, and prices were going down. And then today, basically, when we're underwriting a deal, we just say, can that deal hit a 10% cash-on-cash rate of return with fixed rate debt that we can keep in place for the foreseeable future? And if we can do that, we know we can pay the 10% in secure freedom fund to those investors. And, you know, it's very unlikely that 30 years from now that property is going to be worth less. And it's very unlikely that that property is going to be cash-flowing less when that when that HUD debt matures. And so we know we're going to be okay. And whatever upside there is, or however long we have to wait for that upside, we're okay with that. And it allows us to take bold, clear action at a time when there's very few buyers in the market. So many people are paralyzed by uncertainty, paralyzed by this time of extraordinary change. And to be very successful, and we mentioned this many episodes ago, all you have to do is believe something that is the opposite of what is in the kind of common consciousness. To be right, you have to be right. You can't merely be opposite, and to have the clarity and the confidence to take bold action, to make a big moves, uh, to have to have agency, a huge threshold of control to make big moves predicated on that assumption. And that's exactly what we're doing today. People say, how are you able to buy when when people don't know what things are worth? Well, if you can just structure the deal so that it doesn't matter what it's worth. I know that sounds ludicrous, but that's literally the question we asked ourselves. If you can structure the deal so that it doesn't matter if you know what it's worth, you can buy with clarity and you can buy big at a time when when there aren't other buyers. And we see this as being like the opportunity of a lifetime right now, the current market conditions.

SPEAKER_00 9:14

There's so many more layers here to dig into. One of the things I want to make sure we hit before the end of the episode is that relationship with future self and how I believe real estate is such a great opportunity for us as humans to practice decision-making in relationship with our future selves. But before we go more into that coaching and mindset piece, let's talk about a fundamental belief we have at Black Swan, which is the idea that the closer you are to the end consumer, the more value you can create. The closer you are to the end consumer, the more value you can create. That shows up every single day in our property management company. We have self-managed all the way back to the very beginning, the very first home that we had, we self-managed it because we couldn't afford a manager. We needed every single penny of cash flow we could. And again, I'm gonna repeat this theme that the obstacle is the way. I am so grateful for that in retrospect, because that was just how we started the journey and we didn't know any better. And it just solidified in us that management and operations is everything, right? So the obstacle is the way, operations is everything. You're seeing these themes throughout the episodes and our 15-year trajectory. And then we also are very close with our investors. So Nick and I do the vast, vast, vast majority of all of our investor calls. We meet with our investors, we have an annual event right here in Rochester where our investors come out, they meet us, they meet our team, they tour the properties. And so in 2023 and 2024, as we were doing investor calls, we were hearing over and over and over a level of uncertainty and fear and confusion from our investors coupled with what we were seeing in the market as we were doing deal analysis and underwriting and realizing that we could kind of merge these two worlds together and create value. And so that's when we completely pivoted our investment model to the Secure Freedom Fund. If you're an accredited investor, you can learn more about the Secure Freedom Fund at securefreedomfund.com. Take a look at the slide deck, the webinar, the paperwork there. It's a 10% fixed rate of return, preferred return model, very different from some of our earlier models. And it was this way of creating value for investors who were craving clarity and security and simple underwriting and wanting to get out of the ups and downs of the volatility of the real estate market while still having a portion of their net worth allocated to real estate to get that diversification and the tax benefits that come from real estate. And then, as Nick just described, that was a way to solve a problem in our underwriting, which is we don't know if values are going to continue to go down. They will go up eventually. There's some level of certainty in real estate when you look at, you know, decades in the past 100 years that real estate continues to grow in value over long periods of time. So the person who is closest to the end consumer can create the most value. Think about how you can apply that to your own life. Listen to the operations as everything episode and think about those two things together. And how can you apply that to something in your life, maybe where you're struggling to create value or you're feeling some sense of confusion or doubt? How can you get closer to the actual problem, the actual question, and with the information that you learn there, create a solution that creates massive value?

SPEAKER_01 12:45

Another part of Black Swan Theory that people, you know, I think kind of miss the boat. And again, go go read the book, you know, The Black Swan by Nassian Nicolas Teleb if you want to know a lot about how we operate and how we think. Another kind of critical piece of that is not just that there's unexpected events that determine the course of your life or of a civilization, but it's really just the few things that make that course. And it's the one thing that changes everything. I think people get caught up on the fact that those events tend to be unexpected. But if you can hone in on that signal, it allows you to filter out so much noise. So there's really just a few events in your whole life that have brought you to where you're sitting today. So, for example, I met my wife and we got married and we've had some kids. And if I had met someone else, my whole life would be different. And in your day-to-day life, we we live in such a time of extraordinary noise. And if you can figure out how to focus on the few things that matter, there's really just a few things that matter, and filter everything out, you're gonna be extraordinarily successful. So, for example, in the multifamily industry today, we can think a lot about how there's uh interest rate uncertainty. Well, uh, you know, you can get fixed rate debt. And even though that debt is like triple the interest rate of what you could have gotten a few years ago, historically speaking, the rates today are not that bad. So I just had a term sheet that hit my desk here this past week at 4.9% on a potential refi that we're gonna do now. That rate has gone up quite a bit since then. This past week has been a roller coaster for rates, but that's a pretty good rate. That's not a bad rate. And we could get caught up in the noise of that fluctuation. We get caught up in the noise of you know how much worse that rate is today versus the rate we could have had a few years ago. But fundamentally, you can get fixed rate debt. And that fixed rate debt doesn't change. You can lock that in, you can have extraordinary clarity. And when you look at what purchase prices are like today, you can get a cash-on-cash rate of return. You can get uh something that will likely generate a total rate of return that's that's vastly superior and most importantly, vastly safer than what you could have gotten just a few years ago. In all that you do, we we encourage you to focus on the few things that matter. You could also get really fixated on the fact that you know a lot of operational expenses are are going up. You know, there's been a lot of you know kind of pricing pressure in the materials market, in the labor market, in insurance, in taxes. Everything is going up quite a bit. However, the fact that it's gone up a lot recently doesn't necessarily mean it's going to keep going up at that speed. And it's very likely that we're reaching a plateau on some of those fronts. We've already seen insurance costs start to moderate a little bit. We've seen tax assessors back off and realize that they got really out of control for a while there and values have come down. We've had two tax assessments, we're challenging a lot of taxes right now. We've had two tax assessments come down here in the last 30 days, and we've had some insurance premiums moderate, go backwards, you know, come down here in the last 30 days. And so it can be very easy to get caught up in the noise and the fear of all of the things that are outside of your control. If you just focus on the things that that matter, on the signal, you can move forward with exceptional clarity, and you can move forward very quickly, very confidently, very boldly. And that's that's exactly what we're you know, like if you just forget about the last five years for for just a second, prices are pretty good and interest rates aren't that bad. And there's not a lot of sell uh not a lot of buyers and there's a lot of sellers, and now is an absolutely incredible time to buy. And by the time we get to the office, sometimes we can feel a little exasperated, but that's just noise. And the day begins anew when we step in the door at our office and we're here to serve our team with clarity and and quiet and calm. Uh, we just had our, you know, every 8:30 a.m. every Monday morning, we have a team meeting and we we just love and serve our team and make sure we listen to them and know what's going on in the company, make sure they know what's going on in the company. And we can forget the noise of this morning, getting getting the kids ready for school. So, in in every aspect of your life, like lean into Black Swan Theory. There's a few things that that guide and shape everything. There's so little signal and so much noise out there. And if you do that, you're gonna lead just a beautiful, rich, calm, peaceful life, and you'll have the courage, the ability, the power to take bold action when other people are paralyzed by that noise.

SPEAKER_00 17:21

It's probably one of my favorite episodes that we've recorded so far. I hope you all enjoyed it as well. A little bit of a blast from the past talking about the last several years, bringing everyone up to speed of where we are today in 2026. I hope your perspective on black swan events has changed significantly. I hope you consider taking a look at Nassim Nicholas Taleb's work on anti-fragility and thinking of how you can apply it to your own life. And I hope you see how almost every decision that we've made in the last 15 years of our real estate journey and even our personal lives really circles around this central theme of anti-fragility. It is a completely life-changing paradigm. Thank you for allowing us the opportunity to share it with you today. If you got value out of this podcast, we would so appreciate a five star review. Give us a subscribe, share with someone who can also get some value. And we will see you on the next episode of the Real Estate Real Life podcast.