TLI Member Spotlight: Investing in Industrial Real Estate with Levi Benkert – EP 173

Interview with Levi Benkert

TLI Member Spotlight: Investing in Industrial Real Estate with Levi Benkert

Featured on This Episode: Levi Benkert

✅ What he does: Levi Benkert is the founder and CEO of Harbor Capital, a real estate private equity shop that is focused on industrial properties in Texas. Levi is an accomplished leader who for the last 20 years, has grown profitable real estate. investments at scale while leaving a socially responsible footprint that has improved US and developing African communities and fostered wealth creation. He has bought, managed, and developed over $400M in real estate properties in his career. Levi is also a published author and co-founder (with his wife) of Elevate Orphan, a non-profit organization dedicated to raising up a generation of future leaders who were once orphaned in Ethiopia.

💬 Words of wisdom: “I want to build a big business. I’ve got no desire to sit at home and count dollars. I want to leave a legacy business that is building generational wealth for everyone on my team and also for thousands of investors.” – Levi Benkert

🔎 Where to find Levi Benkert: LinkedIn | Twitter

Key Takeaways with Levi Benkert

• Learning from market turmoils
• Why banks often intentionally fail to honor loan agreements
• Engaging clients with openness and inclusion
• What’s your ONE thing
• Prioritizing the well-being of your team over personal gain
• Building a business that supports family priorities
• Acquisition over starting from scratch
• Why the booming Texas market shows no sign of stopping
• Tax advantages of cost seg studies
• The collective wisdom of the Lifestyle Investor Mastermind

Buying Off-Market Real Estate with Levi Benkert 

Levi Benkert Tweetables

“I did not want to follow the herd and go where everyone else was.” - @Levijameshere Click To Tweet

Resources

• Harbor Capital
• Levi Benkert on LinkedIn | Twitter
• Hans Box
• Silicon Valley Bank
• Warren Buffett

Tax Strategy Masterclass

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Strategy Session 

The Lifestyle Investor Insider

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Read the Full Transcript with Levi Benkert

Justin Donald: What’s up, Levi? So good to have you on the show.

 

Levi Benkert: Thank you. Man, I am excited to be here. We’ve been talking about this for months and finally get a chance to do this. It’s great.

 

Justin Donald: We have. We have. Well, it’s funny, it takes a little time to get it in the schedule, but I mean, we have so many conversations. We just met up for coffee the other day over at the Soho House and just got a chance to kick it with some nice weather and catch up and hear about life. And every time we talk, I feel like there’s content that is relevant, like, “Oh, we should have recorded this. This would have been great on the podcast.” So, I’m glad to have you on now.

 

Levi Benkert: We caught that three weeks in Austin where the weather’s really nice, just perfectly, just sitting there having breakfast like you can hear birds chirping, it’s great. It’s about to be like death heat oven coming here soon, but it’s nice to enjoy the little break in the middle.

 

Justin Donald: That’s right. Well, and once the heat comes, we like to get out. So, we’re going to go to Iceland, we’re going to go to Portugal. We’re going to live on like a living yacht this summer. So, we’ve got a bunch of cool trips on the dreams list that we’re going to do. And we like doing that to get out of the Texas heat. But I would rather be hot and cold, I will say that.

 

Levi Benkert: Oh, that’s inspiring. Sounds like fun.

 

Justin Donald: Well, you guys do a good amount of travel, too. I mean, here, this is going to be fun because we not only get to talk investing and business and entrepreneurship, but we get to talk about travel and cool things. I mean, you’ve been all over the globe. I’d love to hear about some of your favorite spots you’ve been.

 

Levi Benkert: Yeah. So, we have four kids, two in college and two at home in high school. And that was kind of an early thing, Justin, I said when we got married and set out, started having kids as we wanted them to see the world. So, our claim to fame is when our oldest went off to college. He had seen 27 different countries already by the time he left the house. So, that’s fantastic.

 

Justin Donald: That’s incredible.

 

Levi Benkert: We’ve been all over the place.

 

Justin Donald: That is so cool. I love it. And my wife and I really said the same thing, that we’re not going to let kids or family stop our travels of the world because that’s one of the best ways to learn about people, cultures, just everything. And what a great education that is. Your children are so blessed to have that opportunity.

 

Levi Benkert: Definitely.

 

Justin Donald: So cool. So, you have really a fun story. So, we did our Lifestyle Investor Mastermind retreat and that’s where we learned first about your story. And by the way, you and I, we met through a mutual friend, Hans Box, who, man, I’ve met so many cool people through Hans. Such an awesome guy.

 

Levi Benkert: Great guy.

 

Justin Donald: Yeah. And so, I remember, we ended up meeting up for a little breakfast coffee the first time, and I was like, “This guy’s legit.” I want to learn more about your story. And I’m excited that we’re now doing these Lifestyle Investor podcast member highlights. So, as a member, we get to spend some time digging more into your story and hear more about what you do and even your experiences with the mastermind.

 

But we learned at our retreat since you spoke on a panel at our retreat in December about a really tough season of life professionally and how that really transformed you into who you are today and the business that you run today. And I’d love to have you share how you even got into this world of investing. I mean, you’re one of the best that I have found in industrial real estate, but I’d love to know how you got there. How did it start?

 

Levi Benkert: That’s a good question. Yeah, how far back to go. So, I weirdly was fascinated with learning but realized real early on that I was not going to get there through the traditional channels. It wasn’t fast enough for me. And so, I actually did not make it through eighth grade but instead tested out. In eighth grade, I tested out and basically finished high school by testing my way through it, and then just went on this journey of learning.

 

And I’ve read them, and I’ve kept every book I’ve ever read, and it’s in the multiple thousands at this point, everything from biographies to self-help and just business books and accounting and kind of everything in between. And so, still to this day, I mean, I read for a long time this morning, actually. It’s been something that’s just been a passion of mine is continuing to learn and learn at whatever kind of the fastest velocity possible is.

 

And so, Justin, I got married real young. I was 18. And we just got right to it, had our first– he was born a couple of days after our first anniversary and started doing business right away. So, it started coffee shop, ended up being a chain of coffee shops that we sold, small chain of coffee shops, and then started flipping houses, kind of went on from there, ended up growing into this very large business that was– the business, at first, was buying land, rezoning it or kind of developing it, getting it ready to build, and then selling it to homebuilders. And then that turned into actually buying a homebuilding company, bringing their whole team on staff, and doing basically kind of soup to nuts, we call it. You buy the land, you entitle it, you do all of the land development, and then actually put houses on it.

 

Got a little ways into that in 2008, and then the market crash hit. Banks called all the loans and had to go through this just painful, painful process of negotiating with lenders, talking to friends, family, equity participants in the deals and tell them that the money had been lost. You want to talk about a forming shaping season in someone’s life, have them lose everything, and kind of see what comes out of it. I mean, there was nothing left. I was just this raw shell of a human at the end of that.

 

But so incredibly thankful for them, and just to this day, many of the investors that we work with now, some of whom lost very large, multiple millions of dollars on those deals back then, are still some of our biggest investors today. And so, learning how to vet deals and assume that the market can kind of do its worst to you around the corner is one of the best experiences. Of course, if I could go back and talk to myself in 2007, I would tell myself to sell everything right then. But I don’t think if had I done that, that I would be the investor that I am today and be as cautious as I am today.

 

Justin Donald: Yeah, I mean, it’s one of those things where in the moment, it’s the most painful thing ever. But once you get past it, it’s one of the most defining things or moments ever, which is great. I’ve had some pretty tough moments as an investor as well, and those for me, have been the source of my greatest education, and I wouldn’t trade them for the world. But in those seasons, they’re tough and they test you, there’s no doubt about that.

 

And here’s something I want to just float out there because I think a lot of people are unaware that banks can just call your loans whenever they want to. So, let’s say you’re not even in a bad situation, but the bank is in a bad situation. The banks can call these loans, can they not?

 

Levi Benkert: Yeah, they can. I mean, pretty much every loan that’s out there is in some form of technical default or another. When you go sign the loan documents, there’s hundreds of pages long. If you were to go through those with a microscope and take out every sentence, there’s always something in there where they say, ah, but they didn’t send this document in on time. And so, therefore, because of this, and so when the bank is in trouble or they’re starting to have cash crunch situation, they go back out and look at the deals that they’ve got on their books and they have this incentive to clean up their books as quick as possible. And so, if they’ve got a development loan on a property that maybe in three years is going to be fine, but right now is really bad, the bank does not want to carry that on their books for three years because that’s a negative.

 

And so, it’s in their best interest to just take a loss in this quarter, show some bad results, and they try to do it all at once. They just want to get the bad news out so we can start the good news train again. I mean, it’s just like Facebook did recently where they took these big write-downs and all this stuff. I think it was back in January. They basically were like, hey, we made some bad moves. Let’s pay for them all right now and set aside all this money so that we can start looking better and better.

 

Banks do the same thing, and often that means them calling up their borrowers and saying, hey, that line of credit that we extended, we’re no longer extending that because you didn’t send us this document on time, or the market shifted a little bit. Because of that, we’re no longer your lender.

 

Justin Donald: And we’re in an interesting season right now where banks are under the microscope as is, their financials are weak. I mean, they’ve been weak for a long time. I did a podcast episode three years ago where we started dissecting and I talked about how insolvent a lot of these banks are. The solvency ratio in the US across the board is just atrocious, yet people just look the other way. But now, it’s coming into fruition, right? And so, we’ve seen some of the biggest banks in the history of the United States fail.

 

Levi Benkert: That’s true.

 

Justin Donald: I mean, this is big. And I don’t think we’re at the end of it. I think there’s more carnage with these banks. I’m curious your thoughts on that.

 

Levi Benkert: Yeah, I’m not a banking expert, I don’t even play one on Twitter or anything. So, I don’t pretend to know what is happening, but I do know that it’s pretty easy to go in and look, because all these banks have to post their financials publicly. And so, it’s pretty easy to go in and look. And for us, we made some shift.

 

There were some banks that we had accounts with that weren’t as strong and we kind of moved up the chain a little bit to some bigger ones. And that’s made us feel a lot better. But I mean, I do think, from what I’m reading, a lot of the pain has passed and that we are likely out of the woods. We’re not going to see another Silicon Valley Bank or anything like that happen. But yeah, I mean, that was a scary little season. We were in there for a bit.

 

Justin Donald: Well, there’s no doubt. And if you look at even some of the real estate that’s out there that’s using short-term lending, bridge loans, floating rates, there is still a lot of reason for concern with some of these banks, some of these smaller banks, the regionals, the local banks that have some pretty big real estate portfolios, especially in that commercial real estate sector.

 

Levi Benkert: It’s true. Yeah, it’s definitely true.

 

Justin Donald: So, it’ll be interesting to see how it all plays out. So, I’m curious, why did you have so many investors who invested big early on? And by the way, what a great lesson the financial crisis gave us back in 2008. But you had so many that said, “You know what? I trust you. You have integrity.” What was it that kept these investors confident enough to move forward on your next deal when the last deal did not go well?

 

Levi Benkert: Yeah. Communication was a big part of it. I mean, I was on airplanes, on phone calls talking directly to every investor, talking through the situation, getting there– it was a surprise to no one. As soon as we got notice from the bank, I sent out long emails and got on the phone and talked to them and said, “Hey, here’s what’s happening, here’s how we’re going to plan on dealing with it. Do you have any ideas? What do you think we should do?” And really, involve them in this process to say, “Hey, things don’t look good here. This is definitely not part of the plan. I can’t just pretend that this is fine. It’s not fine. Let’s talk about it.”

 

So, I feel like what a lot of operators who take investors will do is things will start to go south, and yet, all their updates are like, everything is fantastic. We’re doing another little top of raise if you want to put money in there, but the returns are going to get even better on this one. And smart investors learned to look for those signals and see that, hey, something’s actually not right here. Instead, I just was very, very clear, open, and just transparent with them about what was going on so that when things actually did start to become a real problem, no one was surprised. No one said, “Oh, my gosh, where did this come out? This came out of nowhere.”

 

I mean, for a while there, I was sending updates every week explaining the situation. And so, everybody knew. They had options. They could come in, and in some cases, the investors said, “Hey, I actually believe in this property. And instead of letting it go to the bank, I’m going to come and take out the loan here because I want to own it,” and held on to those ones for a long time. And to me, I’m like, “This is fantastic. Here’s all my documents.” I want to see those investors get as much of the value out of this as they can.

 

But I mean, just for scope here, I’ll pick one project that I was doing. It was a 32-home development, land development, bought an old trailer park, cleared it off, did all the site work, put in curb, gutter, sidewalk, drains, everything, electricity, then started to build. I think we had six or seven of the 32 houses done. I had $6.7 million in that property at the point when the bank called the loan. So, some of that was debt, a bunch of it was equity. I think it was about 50/50, so call it three and some change, a beach in there, $3 million. The bank ended up forcing us to do a short sale on that property for $520,000.

 

Justin Donald: Oh, my goodness.

 

Levi Benkert: That’s how far the market fell, more than 90%. So, it was sold for less than 10% of just the cash we had in it. It’s incredible.

 

Justin Donald: Unreal. Oh, that is brutal.

 

Levi Benkert: And I had an offer. This is the thing that, in hindsight, I wish I could have told myself to do. I had an offer in early 2008 from an international group that was coming in, and they went and found out all the properties that I owned because it was one neighborhood that I bought, just about everything. It was about $400 million worth of development that I owned that was going to be built, kind of the end value was $400,000. This one group wanted to buy all of it and put an offer in, I would have walked away. I mean, it was incredible. It was like 3x everyone’s money. I could have cleaned and walked away but did not happen that way.

 

Justin Donald: Well, those are great lessons where you learn when you get a win, you take it, right? No one ever is faulted for taking profit when the opportunity is there because if you don’t, it may be a dud down the road. And we’ve seen this happen through history time and time again. We’ve seen this happen the last 10 years. You could do hardly anything wrong. But we’re starting to see what happens as the tide shifts with the economy. And Warren Buffett always says it that you’ll see who’s swimming naked when the tide goes out.

 

Levi Benkert: It’s true. It’s true. Scary.

 

Justin Donald: No kidding. So, one of the things that I love about you and about your company, Harbor Capital, that you started, and I’d love to hear the story of how you decided this and move specifically into industrial. But one of the things that you guys are fantastic at is monthly updates. So, I have a rule that if I can’t get quarterly updates that, at a minimum, needs to be there, if I can’t get quarterly updates, I do not want to invest. Any group should be able to provide quarterly updates. So, when I find anyone that is providing monthly updates, that really excites me and I feel a lot more comfortable because I’d rather have over-communication than under-communication, right?

 

Levi Benkert: Yeah. So, let me give the elevator pitch on Harbor Capital, actually. I’ve realized we haven’t even dug in on what that is. So, I always joke around, we’re an inch wide and a mile deep in one market that we are just learning more and more and more about it. And the deeper I get into this market, two things, one, realizing I’m glad we’re here and want to do more of it, and two, finding that there are so many different ways for us to maximize kind of a depth of industry knowledge to get better and better deals done.

 

And so, we buy Class B industrial properties and we’re only in two markets, San Antonio and Houston. That’s it. We’ve looked at some stuff in Austin, are based out of Austin. We’ve looked at some stuff here. There’s certainly a few properties that we’d like to buy here. But we know what we know and we know it extremely well, and we’ll continue to just keep going into it.

 

So, we buy industrial buildings. This could be warehouses or manufacturing facilities. A lot of them are multi-tenant, like a whole bunch of small tenants. Some of them are kind of big single tenant buildings. We buy them either vacant or under lease, do some sort of value add, and then either sell it or hold it long term. We’re kind of agnostic on that front and find that it’s one of these markets that’s just kind of overlooked. There’s not that many people that are buying. So, when we come in and buy, there’s not a lot of competitors who really understand the value of these properties.

 

We’re now, some neighborhoods, we’ve got five or six properties in the same area. So, when we go put an offer and we know what we can rent it for, we often have a tenant already in hand that we’re leasing to. It’s a fun market, so.

 

Justin Donald: Yeah. I mean, it’s a great way to do it. I know we were talking about a deal recently where you had an offer. Well, someone was supposed to come in and rent it all and then decided last minute, I don’t like how far this is of a drive.

 

Levi Benkert: From my house, yeah.

 

Justin Donald: Or from where I live. And then, so it’s like they passed right in that moment. And then literally the next day or within a couple of days, you had someone say, “Actually, I would love to buy this.” And I know you had some other offers to visit. But I think it’s so funny that that fast, you had so many additional offers in. I mean, you thought it was done. You weren’t even accepting backup offers, and so…

 

Levi Benkert: That’s that deal you’re in. You’re going to do quite well. The sale that’s coming is fantastic.

 

Justin Donald: Yeah, I love that. So, I’m curious…

 

Levi Benkert: I’m paying for those trips you’re going on.

 

Justin Donald: That’s right, that’s right. I like that. I love the whole idea of living a life on your terms and being proactive and having a life by design. It can happen in any sense of the way that you set it up if you’re going to carve the time out to do it. But I love having passive investments, just assets producing income, producing cash flow or quick turns on capital where you get your money back right away. I love that. That to me is the most fun way to live and to travel is when you can do it on income that is not costing you time.

 

Levi Benkert: Yeah, yeah, definitely. Well, for that, you’ve got to find the right operators. And you were talking, I didn’t even answer your question earlier about monthly updates. I mean, in my mind, we’re managing people’s money. There’s a huge amount of trust that goes into it, and the least we can do is tell them what’s going on.

 

And many of our updates, I mean, we’ve got buildings that are on 10-year leases, the update is always well, nothing’s happened, everything’s good, but you still get to hear from us. There’s no reason why you shouldn’t. Call me up, happy to go tour the site with you. We got our rent check again from the county here, the credit tenant that we’ve got in there. And nothing’s happened, so.

 

Justin Donald: Well, I love that. And I like, again, just frequent communication. I think that’s great. And then when there are issues, you spell them out, you let people know, you let them know right away. I think you build trust when you are transparent. That’s huge.

 

So, how did you get back in the game? I mean, that’s a big blow what happened back in ’07, ’08. How did you get back in and say, “You know what? I’ve learned the lessons. Let’s do it”? And then how did you decide my niche market is going to be Class B industrial inside of two main markets in Texas?

 

And by the way, we just watched a documentary, I shared it with the Lifestyle Investors, that is like how Texas is the eighth largest economy in the world and all the things that are happening here and just a great place to invest. But I’d love to hear your thought process on how you came to (a) Harbor Capital and getting back in the game, and (b) this niche market that you’re in, and then (c) the locations that you’re in.

 

Levi Benkert: Yeah. Not a straight line. A lot of winding along that path. Took a while actually with where my wife wanted to go do something different and I’m thankful for it. We went and started an orphanage in Ethiopia. I ended up living there for six years, but while we were there, I started a business there and ended up selling that business in 2019. And so, that was another actually kind of a conglomerate of a few different businesses, agricultural arm, medical arm, and then also real estate.

 

Real estate was the biggest. So, we were building apartment buildings for the US government. These were kind of $150 to $200 million a piece, just big behemoth apartments that the US government needed for staff housing. But they didn’t have any way to buy something that they knew was going to be seismically safe for the residents there. So, we kind of came in and filled a niche. And so, I exited that business in 2019, took a little bit of time. It was actually the end of 2019, so really, a couple more months before the pandemic, which is kind of perfect timing for us, just had this big exit, was able to take some time off and be with the kids and not have the pressure during the pandemic, and then figure out what was next.

 

I’d been in LP. It’s not that dissimilar. A residential deal is structured very similar to an industrial deal from a capital stack. And different LLC is for every entity and just the way the whole thing is structured for tax efficiency and whatnot. But I’ve been in LP in some industrial deals and just loved the simplicity of how they were run and operated and loved that it was kind of a market that was being ignored. I felt like everybody kind of thinks of residential as the way to start in real estate and you end up in multifamily before too long. So, this is kind of one of those fun markets off to the side that I knew we could come in and dominate.

 

And for me, I want to build a big business. I’ve got no desire to sit home and count dollars. I want to leave a legacy business that is building generational wealth for everyone on my team and also for thousands of investors. And so, I knew I wanted it to be something big and this was something that had a lot of runway.

 

Eventually, we will outgrow these markets, but it’s going to happen a lot later than I originally thought. I thought we might get a year down the road and find that we just didn’t have any other opportunities in these cities. We’re two years in now in Harbor Capital and finding that we’re just scratching the surface. There’s all kinds of opportunities in these markets. So, we’ll be here for years.

 

Justin Donald: Oh, it’s great to hear. So, I’m curious, what made you out of everything decide industrial? And by the way, it was a good pick because industrial for the last five years has been the best performing real estate asset class out there. So, you put everything out there and this has had some of the largest growth, some of the best performance, some of the lowest defaults. I mean, this has just been a great real estate asset class. So, had you looked at some of that data to kind of figure that out?

 

Levi Benkert: Certainly, I mean, it’s this funnel for me. First of all, it was definitely real estate. I did not want to go do something outside of real estate. And then, having done that business in Ethiopia while we lived there for six years, but then had four years that we lived in Texas and we’re still running that business over there and the nonprofit. I was traveling a ton, which was a huge stress on the family, and so, kind of set this boundary around home, saying, “I want to be home by dinner.” Where can we invest and still have that goal met for a lifestyle? We wanted to have a good lifestyle and I wanted to be there for the rest of my kids being at home which is amazing how fast that’s going. It seems like they’ve got one foot out the door already.

 

And so, kind of taking those two things into account, there’s not really a bunch of different options within real estate that work. And then, like I said, I did not want to kind of follow the herd and go where everyone else was. And so, industrial was a great one that I felt like there was a lot of opportunity. I think I misjudged the opportunity and thought it was a lot, but it did not. Did not understand just how much opportunity there actually is. So, it’s bigger, which is great. I love it.

 

Justin Donald: That’s awesome. And really, you kind of niche down into Class B. So, I’m investing with another group that does only Class A and they do Class A builds. They’ll buy existing and then they do Class A development. And then I invest with another group in industrial that really only acquires existing, but I mean it is almost exclusively Class A.

 

So, how did you come to Class B being the thing? I mean, obviously that in itself is going to create a little bit less competition, right? I think, the sexier the asset or the asset class, the nicer the building, the nicer the asset is, I think it just kind of attracts more investors. It definitely attracts the institutional grade investors. And I know it probably is good to not be in competition with them, but I’d love to hear your thoughts.

 

Levi Benkert: I think the only way to make money, and we do some Class A as well. We have about 550,000 square feet that is under construction on our behalf. So, we’re not the builder or developer, but we’re buying it. We bought it on a forward, so we bought it almost a year ago before it had broken ground. And then, now, it’s almost finished. It’s going to be done within the next month, year, and then we’re going to own it all.

 

So, we’re taking up the leasing risk, but none of the construction risk, which has turned out to be an incredibly, incredibly good bet because construction costs have gone up quite a bit since then. And the demand is just incredible. Both of those are in Katy, Texas, which is growing like crazy. So, perfectly timed product. It’s working out really well.

 

The Class A, Class B question, I think that for us is, I want to be able to add value. I want to come into a building or come into an investment and know that something of my doing is what adds the value there. I don’t want to just sit and wait for the market. If I’m going to do that, I might as well just invest in the S&P and go home because, sure, you can kind of pick a neighborhood and see that it’s probably going to do better, but you’re not assured that you’re going to be right. You just kind of never know. You’re waiting for others to do their work.

 

I would rather go in and know that I’m underpaying because X, Y, and Z. In Class A, you can do that by developing because you’re basically taking that development risk. And that development risk pays well. I don’t want to be a builder, though. I don’t think those are all the same type of risks, construction costs, land development. I kind of got to a point in my career where I’m saying, “Hey, I actually want to go where the easier money is.” And I very much think the easier money is to be found when you buy something that’s existing and there’s just a lot more Class B for sale.

 

Class A, you’re typically going to be buying from an institutional and they’re not going to be selling for less in the market very often. It’s pretty rare for that to happen. Where in Class B, we always joke that our favorite sellers are conspiracy theorists, which is shockingly true. How many of the properties we’ve bought have been from people who were closing in on retirement and read some– I mean, I’m not kidding, QAnon post or something that told them that interest rates were going to do something crazy tomorrow or China’s taking over the world or Biden’s got some problem or Trump’s got some problem. It’s like on any end of these political spectrums, a lot of these sellers just are not sophisticated enough to hold these properties, and all of a sudden, they’re like, I’ve got to sell this thing today. It’s kind of funny.

 

The other thing about conspiracy theorist that holds true is they’re distrustful of experts. And so, when a broker comes to him and says, “Hey, I think your property is worth as much, you should sell to me and give me 6%,” they’re like, “No, no, no, no, I know better. I’m not going to give you all this, $200,000 or $300,000 for the commission for selling my property. I’m going to sell my property by myself here. So, get out of my way. I’m going to do this on my own.”

 

Justin Donald: That’s pretty funny. And it’s great, it creates that market for you. And you buy a lot of deals off market. You buy a lot of deals that are just direct with the seller, right? I mean, I have several stories that I’ve heard. And by the way, for me, the same thing, I mean, I’ve bought almost every one of my properties from a mom and pop, like baby boomer about to retire and really just wanting a different season of life and probably valuing that relationship of who they sell with over a lot of the other criteria for why they would sell or who they would sell to, right? The quality of relationship is important. Do they like you? Okay, well, they’re going to find a way to get the deal done with you then.

 

Levi Benkert: Right, right. It’s true. Yeah, this morning, we were doing our deal flow pipeline meeting. We’ve got $74 million worth of properties under contract. 100% of them are off-market properties. Everything we’re buying right now is completely off market. So, it’s incredible.

 

Justin Donald: And so, do you see this slowing down any time? I mean, we hear these talks about how we’re in a recession, we’re about to be in a recession, that the recession started however many months ago, at some point last year, based on different criteria used to come to that conclusion, right? What do you think moving forward? Is this still? I mean, obviously, you’re in it and you’ve got deals under contract right now, so I know you like it. But moving forward, do you still see this being one of the leaders like it has been for the last five years?

 

Levi Benkert: Texas, Texas, Texas, Texas, I mean, that’s my answer. We have this massive port that’s doing two and a half times the volume now that it was doing pre-COVID in shipping container volume, just the Dallas-Fort Worth Airport, the amazing amounts of oil money that sits in wealth in this country. Houston has, I forget the exact number, but it’s like 40% of the top, the Fortune 500 companies have a headquarter or main office in Houston. There’s just an incredible amount of diversity.

 

The fact that we’ve got Mexico right there, which is this trade, it is kind of perfectly balanced trading partner. They’re stable enough. They’re hungry to produce goods and services. We can ship directly across the– you can drive right across the border with all kinds of supplies back and forth. San Antonio is only two hours from the closest border to Mexico. It’s just incredible.

 

We’ve got demographics. I mean, as much as the Texas politicians complain about immigration, immigration is one of the best things about Texas because you’ve got people coming in ready, hungry, want to work, which gives you the labor force to be able to be a main manufacturing hub for the country. I mean, I don’t think there is a state that has any of these kind of geographical and demographic benefits that Texas does.

 

And then, we can kind of harp on the politics. Nobody’s perfect in Texas, it’s far from it, but it is a very open state for business and allows a lot of people to come in. And if you want to start a business here, many of our businesses that rent from us are from California and Illinois, these places that are kind of hard to work in. I mean, you see their faces when these owners come in and rent. They rent 20,000 square feet from us and start operating and they’re like, “You mean I got my business permit in a day and no one’s coming and telling me how to run my business? This is incredible.”

 

And a lot of times, their whole staff is or many of their staff are moving with them because they want to move somewhere where the cost of living is lower. There’s no state income tax. I mean, it’s just an incredible, incredible benefit. So, do I think the industrial boom kind of has this indefinite run? No, I don’t. I think many other states are already seeing a softening, and that’s probably going to continue. But I think Texas has got a lot, a lot more gas in the tank.

 

Justin Donald: Yeah, I tend to agree with you. I’m a huge fan of Texas from an investment standpoint. I mean, I live here as well as do you, but just where my dollars go. This is an economy that is growing, that is vibrant. And it is mind-boggling to me that you have these states like California and New York and Illinois that are raising your tax rate. They’re making it more difficult to conduct business. It is hard to do business in these places.

 

I have businesses and real estate I’ve wanted to do, but because of location, I’ve said no. And it’s like, how do the states and the state representatives not figure out the fact that they’re raising, their goal is like, let’s raise this up so we can get more tax revenue, except that they’re losing all the big tax revenue, right? They’re losing it corporately. They’re losing it from their ultra-high net worth individuals that are moving to Florida, Texas, Tennessee, a handful of other states. But what they don’t get is to me, like simple economics. I mean, Texas is attracting all the businesses because there’s no state income tax. So, don’t you want a smaller piece of a bigger pie? That’s what I want. I don’t understand how…

 

Levi Benkert: Absolutely.

 

Justin Donald: I don’t want the biggest slice of a small pie or a shrinking pie.

 

Levi Benkert: And one of the problems in Texas has been that the property taxes are fairly high and kind of uncapped. And so, I mean, we’ve got properties where we’ve had just massive tax increases. So, that’s another reason why I haven’t talked about this. But other reason why we love industrial is those taxes are passed on to the tenant, so we don’t actually pay our own property taxes, the tenant does. And so, if the rate goes up next year, it gets passed through per the lease. But the Texas legislature is now working on a new law that would cap the increases, which would be incredible.

 

Justin Donald: Yeah, that’s awesome.

 

Levi Benkert: And we need that to happen.

 

Justin Donald: What about depreciation? There’s all kinds of great depreciation opportunities in real estate and specifically in industrial.

 

Levi Benkert: Yeah. So, we take the full accelerated depreciation. We do cost seg studies on every property and we pass that through to investors. So, often, they’ll have these massive negative K-1 in the first year. It’s funny, sometimes we’ll get a really inexperienced investor and they’ll call us up. Maybe they just sold a business or something and had a lot of money and didn’t quite understand how the tax code works. And they’ll call us up and say, “I gave you $100,000. Why on earth did you guys lose $55,000 in the first year? What happened here?” Like, no, no, no, this is a good thing. You want a negative K-1. This is going to offset other income. We’re actually just taking this depreciation as quick as we can because we want to pass through to you as much of that as we can.

 

Justin Donald: Yeah. One of the greatest benefits of real estate is the accelerated depreciation, this bonus depreciation that we’re able to now take right out of the gate. So, instead of waiting 27 and a half years for a straight-line depreciation over that period of time or the various different ones, part of the reason I like mobile home park so much is because it’s 15-year straight-line depreciation. So, you’re getting more depreciation in a shorter period of time.

 

But when you do the cost seg studies, you can do this bonus depreciation and take what would be 27 years and fast forward it into one year and offset maybe a really high-income year. And they are raised that you can get real estate professional status so that you can have the depreciation offset your active income, right? There’s certain hurdles you have to meet and talk to your CPA about that. Obviously, we’re talking as friends and this is not financial advice.

 

Levi Benkert: Yes, this is not tax advice.

 

Justin Donald: But this has been a huge source of tax savings for me over the years being a real estate professional.

 

Levi Benkert: It’s incredible.

 

Justin Donald: Yeah, that’s so cool. So, where can we learn more about you and Harbor Capital?

 

Levi Benkert: I’m on Twitter a lot @Levijameshere, it’s called, my Twitter handle there. I actually have found a thriving community of real estate investors on Twitter. And I’m just kind of sharing the playbook on there always. So, that’s been a real fun source for us.

 

HarborCap.com is our website. You can sign up on there and get on our list and see the deals that are coming down the pipeline. We have a big one that you and I were talking about the other day coming. That’s a big portfolio. It’s $55 million worth of opportunity zone assets that we’re purchasing right now. So, we’re really excited. The opportunity zone, another one, talk to your tax professional, get to understand that opportunity zone law because it’s amazing, it can really help.

 

Justin Donald: Yeah, opportunity zones are incredible. You got to be careful that the tail doesn’t wag the dog where you just get into a deal because it’s an opportunity zone. But if you have capital gains that you want to defer, opportunity zones are a great way to do it.

 

Levi Benkert: Certainly.

 

Justin Donald: So, that is really cool. And one thing I’d love to kind of wrap up on is, why did you choose to join the Lifestyle Investor Mastermind? I mean, there’s a lot of other groups that you’re a part of, a lot of other networks that you’re in. You run in some pretty incredible circles already. I’m curious why Lifestyle Investor was the choice for you?

 

Levi Benkert: Honestly, you and I connected, and it was like, whatever this guy’s doing, let’s jive in. I feel like I need a better answer. I did not know the full extent of kind of what was offered. It was just that we met and it made a lot of sense and it was like, hey, this could be a really fun community to get to know. And it has been, I mean, the people in Austin are great. The deal flow, just getting to understand, kind of meet other people and see what people are doing has been fantastic, so.

 

Justin Donald: Well, I’m so excited you’re part of the tribe, and so many people get exposure to you and what you’re doing. And I love ending every podcast episode with a question to our audience here, those that are tuning in for our episode, and that question is this, what’s one step that you can take today to move towards financial freedom, move towards a life that’s on your terms that you truly desire? And what is one piece that we can take today that is maybe holding you back from financial freedom, that today, this content can allow you to move in that direction, so life by default converted to life by design? Thanks so much. Yeah, I appreciate you being here. And we’ll catch everyone else next week.

 

Levi Benkert: Awesome.