Why I Feel Investing In Realistic Is A Mistake

– It's like one, you don't need two homes. Two, you don't need, you know, Homes that are that expensive, Three is just cheaper to rent. Because when you start parking into a home That you're living, it's not
really an investment anymore. You're living, you could
say whatever the gains are, It doesn't matter. You're still living in that, So you're not realizing the gains. While on the flip side, Just putting it in the S&P, Let's say clocks 9% a year compounded. It's just better because
you can take the gains And start living off a portion of it. (gentle ambient music) Welcome to the show. I'm Andy Haggins, And today I'm taking you
inside the family office Of my friend Neil Patel,
who's 37 years old. And if you're watching
or listening to this, You may wonder, "How does a 37 year old Have his own family office?" And Neil, Normally I ask guests
to introduce themselves, But I'm not going to do that. I'm going to introduce you myself Because I love this intro
that I wrote out in my notes. Neil Patel is a New York
Times bestselling author. The Wall Street Journal
calls him a top influencer On the web. Forbes says he's one of
the top 10 marketers, And Entrepreneur Magazine
said he created one Of the 100 most brilliant companies.

I'm not done. Neil was recognized as
a top 100 entrepreneur Under the age of 30 by President Obama, And a top 100 entrepreneur
under the age of 35 By the United Nations. Neil, that's got to be an
all-time best introduction On my show. Welcome to the show. – Thanks for having me. – I just had to read that. And to let my listeners
and viewers in on this, I met Neil, I want to say
it was back in 2006, so- – Yeah, like at a conference. – Yeah, we're dating both of ourselves. I'm thinking, how old was I then? Whatever, I was 23 or 24. And you're a couple years younger than me. And the reason I loved reading that intro, I feel like when I met you, It was at a marketing conference, You were kind of like
the new kid on the block, If I can say that, and then- – Yeah. – A year went by and like, At the next marketing
conference I saw you, You were already huge. And I remember thinking even then, Like, "What the heck is
going on with this guy?" And back then you used
worked for Patrick, right? – Yep, I worked for Patrick
Gavin, that's right. – Yep, and he- – Was it Text Link Ads or Position One? I forgot what the company name was back- – He has had so many companies
that I was involved with

And honestly, I learned so much About entrepreneurship and
private equity from Patrick. – Yeah, that's right. He likes raising money for his deals, And then he tends to
flip to private equity And then flip again
and yeah, good for him. – Yeah, Patrick for me
was a great role model, And I learned a lot from him
implicitly, just by watching. I've also learned a lot from you, Neil, Like as we discussed
before I clicked record, I stalk you on social media Just because I want to
kind of soak up, you know, How you do things. I think that's sometimes
the best way to learn. Like you can Google how
to do marketing, you know, And get tips, but you can
also just watch people That do it well and like see what kind Of content marketing they do. How did you get your start though? So we're going backwards
now back to the beginning. Walk us through those first
couple years of your career. – So, my first couple years of the career, And similar to you, I
started really young. So there really wasn't any corporate jobs. I started when I was 16, So there really wasn't any corporate jobs, But I started creating
websites, getting traffic, Got good at it, wasn't
good at making money, Was just good at getting
traffic to a website, right? And more people that go
to a website more likely To make money Although I couldn't figure
out the money portion. And eventually I got really
good at the traffic part, Frustrated about the rest.

So every day I got home from school, I would call all the people
that were placing ads On Google cuz you could see if it Was labeled like a sponsored or paid ads. I don't know what the verbiage
that they used back then. And I would call them, they're like, "I'll do marketing for free. I'll get you traffic. If I get you traffic, pay me. If I don't, don't pay me." It wasn't really like a guarantee pitch, It was more so like, if
you're happy, pay me. If you're not, don't. When you're a little kid, You're wasting hours watching
TV, you're playing basketball. So I'd waste hours on websites. Most people ended up paying me. Got a good start there, built a agency. The agency started making
a few million bucks When I was a kid. But it crashed really hard in 2008 During the financial crisis, right, With all the subprime
mortgages and stuff like that. But luckily before the crash, A few years before that, I
started creating software, And I created an analytics company. And during the 2008 crash,
the analytics company Was continually growing month over month. It didn't really see any pullback. – And was this Crazy Egg or KissMetric? – This was Crazy Egg. – Okay. – So then I shifted resources, And I didn't shift it by choice.

I shifted by more so had no choice Because the agency was
continually declining In revenue and profitability, And the software company was growing. So stopped doing agency
work, kept doing software. The software companies, I think crazy Because like 16 years old
now and we still have it. But when businesses just get old, And if you create a good
enough product or good service, You don't have to be the best. It kind of just grows
through word of mouth. If you do it long enough
and continually adapt And listen to the market and
give them what they want- – It has to be good though. You're not going to grow by word of mouth. – Yeah, yeah. You have to have create good product Or good service, And you have to continually adapt And keep up with the competition. But that's worked out well for us And some of it did really well. And overall, the winners made
up for the losers plus more. And then my latest company, NP Digital, Got back into that space Because we were just getting so many leads And have fun time doing that. I think we're now at 750 employees. I think will be maybe thousand by the time Of next year- – Only 750 employees, Neil? I mean that's huge. – Our competition, some
of them have like 60,000 Or 100,000 employees, right?

So we still feel really tiny. – Wow. Wow. – So you know, so many, We're talking about your
family office today. And so many family offices do actually Have their genesis not
only in entrepreneurship But in that software or technology world Where you have an
entrepreneur who builds up A successful company in
software, technology, Or some kind of startup and
then has a liquidity event. And that liquidity event is the, you know, The genesis or the external event That leads to the creation
of the family office. So for you, obviously you're, you know, Earning a lot of income, Having a lot of success
early in your life. In your twenties, was
there a liquidity event? Like, like looking back- – So, I had small
liquidity here and there. I've been doing angel
investing for 16 years now. So I've had some wins from that And then just kept recycling the money. I've been at LP and a lot of angel funds Then venture funds and
private equity funds. And then again, you recycle the money And then my businesses spit off millions A month in free cash flow. So when you're making
millions and millions a month, It adds up. I'm 37, but when you've been
making that for a while, You kind of have a lot of money
to invest over time, right? So then just probably like, How many homes you're going to buy? I'm in a rental right now.

I was telling my wife, I'm like, You know, the ideal thing to do Is just never buy any
homes or real estate. We do have homes, but you know, I don't know how much we have in homes, But let's call it 20 to $30 million liquid In real estate, right? That is our equity value
cash in real estate And bought it all recently. So it's pretty much cash. There's no gains, really. But I was telling my wife, I'm like, "You know, renting a house
for 20, 30 grand a month, Whatever you want, is so much
cheaper than just buying." Because even if you make 10,
15% on the money, you know, Rent doesn't cost that much. And everyone's like, "Oh, you're home, And real estate goes
up in value over time." And I'm like, I've made more money in the stock market Or angel investments and entrepreneurship Than I ever have in real estate. And I've done quite a bit of real estate. I just hate it as an investment class. It's illiquid, you know, It's a pain to manage and
the returns suck compared To a lot of the other asset
classes, but it is steady. – Yeah, and you know, Well, Neil, it's hard to argue With the guy who says that, you know, "I'm earning several million a month, And I have trouble deploying it fast." Now, hard to argue with that. But I would say real estate I think can be

A good investment. But what you're pointing out, The difference between I'm buying homes For myself and treating
those in as an investment- – Bingo. – Versus I'm investing as
an LP or CoGP or whatever In an external fund. It's a fundamentally
different animo, right? – It is and it's, how
do you put a price tag On having a home that you like, right? And the reason I don't
know how much I've put In a home is we're building
a home here in Vegas, Hence I'm in a rental, it's almost done. And then we're building
one in Beverly Hills, And I don't really know
how much money I'm in Cuz every month you get bills And then you just pay your bills, right? I have a rough ballpark, But either way I look at
it and it's like, one, You don't need two homes,
two you don't need, you know, Homes that are that expensive, Three is just cheaper to rent Because when you start parking into a home That you're living, it's not
really an investment anymore. You're living, you can say
whatever the gains are, It doesn't matter. You're still living in that. So you're not realizing the gains. While on the flip side,
just putting it in the S&P, Let's say it clocks 9% a year compounded, It's just better because
you can take the gains And start living off a portion of it Versus having your money
tied up in real estate. I could also start getting
mortgages and stuff like that,

Although the rates are
really expensive right now, But just not a fan of real estate For living in and buying it. I don't mind real estate
as an investment class. I still don't prefer it. I still prefer tech. Like a great example is, We bought a business last
year in February for 8.6. Right now, conservatively
made some changes to it, Added it into one of my
businesses as a tuck-in, And I probably were conservatively
in this bad market, 20. So like I look at that as like
I'm not going to make those kind Of returns on real estate, right? But we've been able to
rinse and repeat tuck-ins, Investments and stuff like
that when we have expertise. – So that already, I'm
pulling out this theme, Which, you know, I talk with a lot of family offices, And to me this is a recurring theme. DJ Van Keuren says, "If you know one family office, You know one family office," right? And a lot of times, when
you look at the patriarch And it's funny, Neil, to
call you the patriarch, But you're the patriarch of
your family office, right? A patriarch oftentimes, or matriarch, A family office will Have an investment
philosophy that reflects The skills, personality, life experience, Career experience of that
patriarch or matriarch? So you've made, you've
generated enormous income And enormous success in
marketing and technology. So it sounds to me like
that's kind of a theme In your family office then
is, and why wouldn't it be?

Because you have expertise, You have access to deal flow, You have connections and
insights in those sectors, right? – That's right. I literally invest in what I know. Like a great example of
this is my buddy Andy, He created a venture fund called Unlock, I think, Venture Partners. I call it the Andy Liu fund. I don't really know the fund name. I think it's Unlocked. And I did angel deals with
him on ton of them over time. And I believe, if I'm not mistaken, I could be quoting inaccurately here, But the numbers around here From the last time I had
a conversation with him, His cash return as a angel invest, Not paper returns, forget paper returns. Everyone talks about paper returns, What really matters
with your cash returns, And what you're seeing
in your bank account. And it takes a while with angel investing, But it's around 40% a
year, which was amazing. Even if you drop it down, Let's say he's not
having as good of a year, It's drop down the average of 30, right? So I think he did like
something like 90 plus deals. I was co-investing in a lot of the deals, I don't know how many, But let's take a guess
around maybe 10 deals. And I had good track record
with him doing the diligence And him hitting me up be like, "Hey Neil, do you want
to put it in a check?" And I'm like, "Yeah,
that sounds good." Right?

And that's typically what I look for Cuz I don't want to go
through the legal docs Or anything like that. You want someone else
to lead and figure out The deals, and you just want
to ride along the, you know, Ride along the journey with
them and give them checks. And I looked for people With really amazing track records Cuz then, you know, you
don't really have much To lose there. And yeah, maybe not every
single deal works out, Some work, some don't. But it's a numbers game, And I did really well with
my angel investments with him And then he was just like, "Yeah, I'm going to do a fund." I was like, "Yeah, sounds good." You know, "I'm in." And I don't know what I
put into very first fund, This was a long time ago,
maybe like 250 grand. It was a small fund, so I
couldn't put in too much. Technically I could have,
but typically as an investor, You don't want to be a really big portion Of someone's capital, right? You don't want to be the sole person, You want them to have
money from a lot of people. And then his second fund, it
grew a little bit in size. It was still small. I think I put in a million
bucks in his second fund. But yeah, he's done a really good job. And I just look for people Who have continually
done really, really well, And I just keep betting on the same person Over and over again.

– Yeah, that makes sense. I mean that's another theme From the family office world regardless Of sector area focus, Whether it's real estate, venture capital, Private equity, you know, family offices, They like long-term partners, They're very collaborative
at some point, you know, An issue, if you can call it an issue, It's not a problem, But an issue is you need
to start recycling capital. And we'll get to that later, Neil. But I kind of want to rewind a little bit. So you're in this ramp
up in your twenties, You're earning tremendous income. Do you mind sharing like what age At which you were actually
an accredited investor, And you were like, "I'm now able to invest In these kind of private
equity deals, private funds," Kind of where you started
your journey with LP? – Maybe 20, 21, 19,
somewhere around there. I'll probably say, 20, 21. – That's pretty young. Okay, so you started doing
alternative investing At age 20 and 21 kind of- – Yeah, 21 makes sense. I've been an angel investor
for more than 16 years. So 20, 21 somewhere or another. I'm almost 38. – So for you it was kind
of your entrepreneur By day and then your income is growing, And then you're basically
recycling your income Into variety of investments,
including private investments, Doing that by night,

Your kind of in parallel
with your entrepreneurship. So, you know- – Well, not even by night. Here was the key to my success
as alternative investor. I still spent almost all
my time as an entrepreneur. So many of my friends
are entrepreneurs who Are older than me, right? Like we both know Patrick
Gavin, he's older. Now, I've never done a deal with him, But they're like that age. I don't know how old Patrick is, But I'm guessing he's
at least 10 years older Than us, right? – Oh, maybe five. Maybe five. He looks very wise and distinguished, But he's a young guy. – Oh, okay. So most of my friends,
and I haven't seen him In a very, very long- – He's got a, you know what Neil, He's got a great beard. I think maybe just having a
great beard makes you look, But no, I think, I think Pat Is maybe three or four
years older than me. So five or six years older
than you, but I get it, and- – So yeah, but most of my friends Are like in that 50 plus range. – Okay.
– Right? So they're at the tail
end of entrepreneurship. They've been investing in ages. So one, I've invested in
a lot of their companies And made money from that. Two, as they do angel investments, They'll be like,

"Hey, we're looking to fill up this round. I put my money in, can
you throw in some money? It's a good deal." And with a lot of them, cuz
I've known them for so long, I don't really get that
much details of the company. It'll be like five minutes
or like just an email With a few paragraphs and
I'm like, "Sounds good." And I usually just ask them, "How much are you in?" Right? Because I usually know some
of my friends' net worth. So based on that, I can
figure out all right, If like someone's putting in 25 grand, And they're worth a
half a billion dollars, Like yeah, whatever, right? – And Neil, Neil, can I stop you there And just thank you for being honest Because, you know, I'm a big proponent Of due diligence and I encourage LPs Of due diligence. I do due diligence. But in my experience, most
LPs don't do due diligence Or their due diligence
process kind of is like yours. It's more gut feel, relationship,
trust of the other party. I just want to thank you
for just like being honest About that, like not BSing me and saying, "Well, I put them through
due diligence process" When you're like, "No, it's based on
relationship and trust." – Yeah, so one of my buddies Has a similar net worth and they're like, "Oh, I'm in 3 million and
I really believe in this. I spent, you know, months and months." Like, "Okay, cool." And I don't even have to
get that much into detail. The moment they told me
they're in $3 million,

And I know how much they have
roughly, it's easy, right? I'd be like, well, if
you have someone you know Where you put 3 million, "All right, here's a million
or $2 million check." Because they wouldn't
have put that much money In it unless they believe in it. Now, it doesn't- – Skin in the game, skin in the game, You're asking what's
your skin in the game? And that's a big mover for you. – It's usually the biggest mover. And here's the thing, the skin in the game Is how much skin Into the game do they have
percentage wise, right? Like if they're worth a
hundred billion dollars And making up that number. I don't have any friends who are worth A hundred billion, and they
put in a million dollars. It's like me putting in 50 cents Or a penny in something, right? Or a dollar, whatever the ratio would be. That doesn't mean anything to me. But most my friends
have been entrepreneurs For a long time and investors For a very long time, And we all share a lot of the deals. So I'm just writing checks, And over time it's added up, And it's the easiest way I found my deals. And when I put money in with my friends, If they lose my money, it's
not like I get (beeps) off. The key is not to be upset
that the deal went south. Cuz a lot of them will,
the key is to know, "Hey, when you do a lot of these deals

Or you're putting your
money in, let me know." Cuz this is a numbers game, right? And the ones that hit usually hit hard, But there's different
asset classes as well. I tend to focus a lot on tech. Well my friends like- – Tech is going to have
more, you know, unicorns. Like in real estate,
you put your money in, You get 2x back, you know, A deal goes bad, you might get 1x back. You know, sometimes you get
nothing but like real estate, There's going to be like- – You're not going to, it's
hard to lose it in real estate, It's hard to have a zero. – Well, well, people
have found a way, Neil. Yeah, using leverage. (laughter) You can find a way, trust me. But there's- – No, you're right, you could have a zero. But typically, if you buy a property And let's say you're just buying it With cash to keep it
simple for $10 million With a group of people. In a bad economy is hard for them To go from 10 million to zero. – Yeah.
– Right? With the mortgage and stuff, yes, You could lose your
money and be wiped out. But typically, If you're buying the whole thing outright, With real estate, just generally speaking, Unlike tech, it's very rare for something To go up from like a hundred million And then to zero, which-

– But tech, you have the
power law distribution, Which is where some of these
are unicorns, you know, 100x or 1000x returns and
then you're less flapped By, you know, the strikeouts. It's a little bit more
like baseball, right? Where even-
– Yes. – A great hitter is bating
300 and you're happy, You're like, "Well, this
guy's a great hitter If he's bating 300." So to kind of continue
on this journey though. So you're in your twenties,
you're earning more income, Your businesses are very
successful, you know, You're starting to earn millions a month Or at least a year, eventually per month. And you're recycling this money with some Of your entrepreneur friends That you trust into angel investments, Into private deals, into,
you know, venture capital, Tech type investments and
other private investments. At what point, you know, Was there a point I guess
where it all just got To be like too much? Like where you're getting, you know, 25, 50K once every year
where you kind of go, "Well, wait a minute, I need
to professionalize this." Or I guess, what was the kind of That first milestone or was there a point Where you were like, "I need an advisor or I
need a full-time CPA" or- – The first part was I was doing A lot of these like 25 brand checks Cuz I'll swear I started off as an angel. I think I had maybe one
or two at 12 and a half Or somewhere small like that.

But I was starting off typically at 25, Then I started increasing
at 50 and then a hundred, And then it kept growing from there. Then I got a bookkeeper named Beth. And Beth would just keep track of it Because I would have a spreadsheet Of here's the investment I made, you know, Here's when it sells, and it
would just be gain or lost. And it started getting
messy after a time, a bit. And then I realized this is a lot of work To start going through
all these angel deals. So then I started writing
bigger and bigger checks, Doing less of them. And then I started just becoming a LP Because I had friends who were doing A lot of them and I would try to push him Like my buddy Andy, I'm like, "One day you should create a fund." And he sold his first company to, I think it was called aQuantive Which then aQuantive got
bought out by Microsoft. That was I think a multi-billion
dollar acquisition. His portion wasn't, But he still did really
well for his investors. And then his second company he sold to, I believe it was Vizio, the TV company. So then he had a good track record there, He had a better track
record as a angel investor. And I'm like, "Dude, you should just create a fund. I'm tired of writing all these checks." Like, it's just easier to be like, "Here's a lump sum, Just go and do whatever you want."

– "Give me one K-1, dude, Don't give me 20 K-1s," right? – And it's a pain in the butt, right? Like I'm doing my taxes
literally this week, And I won't get them done. But like, I don't know how
many K-1s I sent my guy, But I think I probably sent him 50 To 60 K-1s, no joke, right? Like I have a lot of K-1s, Like I'm just sending
tons and tons of them And eventually, you want to consolidate And have less and less. But you know, the amount
of documents I sent him For like interest and 1099s
and all this kind of stuff. Because the wages and W-2s or
whatever they're all called, I probably sent them over
a hundred plus documents Of investments and gains and losses and.