Episode 14 | Value Add: CAO Surplus

Yo, yo, yo, yo, yo and welcome back to the Sticks and Stones podcast. Sticks and Stones is the podcast where we bring serious cigar smokers together with serious deal makers. And welcome to episode 14. By the way, this is the value-add episode. And we're not just talking about being a cheap ass. There's a lot of a lot of different terms in which value-add could apply. And it is Sticks and Stones where we care very much about tobacco products, cigars. So, we are smoking the CAO Surplus Maduro this evening. And this cigar is roughly $2. I don't, you know, depending on where where you live and where you shop, this is roughly $2. What I'm drinking this evening is I made myself a little concoction of a bunch of espresso, I think like five different espresso pods. Uh some sugar-free uh Harry Potter white chocolate toad peppermint some [ __ ] like that and little bit of Kahlua. Oh, yeah. Now, we are approaching the holiday season. So, got a little plate of butter cookies. I went to the gym today. I really I killed it, so. We're going to have a cheat day. So, we're going to toast the foot. See if we can get it to hold some heat without puffing on it. I have the tried and true straight cut. All right, and we're off. We are off. Value add because it's like it's the favorite word. It's the catchphrase. It's the catchword. It's the buzzword. Adding value, what does that mean? What does that mean to you? Adding value, you know, nobody wants to nobody wants to buy something and and pay more for it. Nobody wants to purchase a service or product and lose money. Nobody wants to do that. Hence, the term value add. Everyone today is looking to buy something and find a value in there or create a value in there which adds that that value add, the value, the money on top of what you just paid for. You know, let's just say I buy this Maduro CAO Surplus and I go buy it at my cigar shop for $2. Two $2 even. I am going to let's just say buy a nifty torch and punch or a cutter and maybe some some kind of a kind of a thing that you would uh some kind of a pamphlet or or a coupon book or something. And I'm going to package this all up and I've I've maybe got you know, three bucks invested and I you know, go try and and sell that for 10 or 15 bucks. That's that's just making a profit. It's not really a value add, but you just to give you an idea in it like in cigars the I'm making money on top of that, but I'm taking something that I paid $2 for. I'm adding some other stuff in there to give someone a value, a perceived value. Like yeah, I like that. I like that cigar, but you know, I've also I've also paired it with a couple of espresso pods or Nespresso pods or K-cups from from the Keurig machine, whatever. I've like I've put a bunch of things in there that has given someone a a perceived value of, you know, this is 10 or 15 bucks. Even though I have $3 invested, someone you know, looking at this they have a perceived value because it's it's a it's a it's a drink, it's a cigar, have a nice time, relax. It's a cutter, it's a torch, it's everything that I need to have a really nice evening. You know, so I'm going to pay $10 or $15 for that. That's that's like a value add. Don't judge me. I'm going to I'm going to dunk. I'm going to dunk up all up in this [ __ ] So, what do you perceive is a value add? Is it adding additional services onto a service that you already love? Is it adding a product onto a service that you already love? What is perceived value and and creating an additional value to the already perceived value? How are you creating more value from what you're already invested in, what you're already agreeing to buy? Right? What is that for you? And that could be a lot of different things. Depending on, you know, what market you're in, depending on what you're buying. I'm just going to break it down from a commercial real estate standpoint. Value add. Value add properties. What does that mean? There's a lot of different value adds in commercial real estate. Right? So, one of the value adds is I'm going to go buy a distressed property or I'm going to go buy a property that has a lot of deferred maintenance on it. And why is that a value add? It's a value add because I can buy that at a lower number. Let's just say, for all intents and purposes, I find a property that if it were in tip-top shape, it would be trading at $5 million. But it has a lot of It's got 15 years of deferred maintenance. It needs It needs a roof. It needs four HVAC units. It's It's got plumbing issues. It's got some uh foundation issues. Jesus, this is sound like a real [ __ ] building, but let's just say it's got a lot of deferred maintenance. I'm not buying it for $5 million. I'm buying it for $2.5 million. And now, I'm going to put three to $400,000. I'm just pulling that number out of my ass. I put three to $400,000 into this building, and now it's worth $5 million. That is a value add property. Let's just say, here's another application. Sometimes, you have multiple value adds. As I'm smoking my $2 cigar. You don't always have to smoke a $300 Cuban, guys. $2 $2 stick will do just fine. So, here's another application for value add in the commercial real estate world. Let's just say I am buying a property, and let's just say it is a It's a multi-family property. Let's just say I'm buying a 21-unit apartment building on 2 acres. My value add there, let's just say the building is in tip-top shape, you know, it was it was it was built last year. So, there's it's tip-top shape, there's no deferred maintenance, it is everything is brand new. But, I have a lot of land on this this this apartment building is sitting on a lot of land, 2 acres. It's a lot. I can go and apply for building permits, and I can put another two apartment buildings, maybe 30, 40 units a piece. I have so much land that I can build the buildings and the infrastructure, the parking lots or the small parking deck, whatever. That is a huge value add, because now I'm buying a property that had 21 apartments in it, it's generating so much income, but now I am putting double the amount. I'm putting 42 units additional onto this property. Now, instead of making 150,000 net operating income each year, I'm making close to 400,000 net operating income. Value add. Now, sometimes you have both. Sometimes there's properties that have deferred maintenance, and there's land that you could build something else. Multiple applications of value add. There's also applications sometimes where you already own a building and or you may own a couple of buildings, and then something comes up for sale or it's a neighboring building and you're friendly with the person and they say, "Hey, I'm thinking about selling this thing." The value add for you there is you already own the other two buildings on either side of that property. Now, if you let someone else buy that property, you don't know what that owner is going to do. You don't know what what how they're going to treat the property. You don't know if it's going to uh you know, devalue the the real estate market depending on what they do. You know, for all you know, they can knock down that apartment building and put up a a gas station, you know. Highly unlikely, but I'm just saying. They can put up another building that you don't know what the hell they're doing and you have no control over it because you don't own that property. So, that is a version of value add. So, there's a lot of different ways you can interpret value add. There's a lot of different ways you can interpret value add. So, why is it so important for people and this is mainly investors. An investor doesn't just want to buy a commercial property and coast off of the income it generates. Nine out of 10 investors are always looking for a value add. Nobody wants just to coast on what the property is currently generating. Everybody is going to look at that property and say, "How can I increase the value of that property?" Creating a value add. And I already have plans of shooting an episode with the subject being value versus cost. That's a completely different thing, which I think is is very relevant. Cuz a lot of people are not really sure about that concept as well, but the value add. Like I said, the majority of investors are looking for that value add. You know, whether that's you know, I know I know people that specifically invest in coin laundries. You know, they buy coin laundries because it's it's their niche. It's their niche, however you say it, tomato tomato. It's their niche in it's what they see value in, right? I'm going to buy 15 coin laundries because I know them, I know they operate, it works well for me, and it's a cash cow. Cool. But let's just say you buy a coin laundry and with with very little investment you can now create a dry cleaners. It's in the same field, it's in the same same world, right? It's in the same vicinity, but now you're adding another service. So, it's the same property, it's the same building, the same employees, but now you're adding an additional service, so you're capturing not just the coin laundry, not just the people that need to wash their everyday clothes, but now you're also grabbing some business from the people that need their their fancy clothes dry cleaned. And potentially you're grabbing the business from your existing customers that you know, "Oh, I didn't know I didn't know that you had dry cleaners now. I'll give you my dry cleaning business." You know, so there's a value add there. Or let's just say that you're a coin laundry operator and you you know, you just bought a new property and there's there's a lot of space on there. You can put another retail building up, couple of stores, and now you're generating income off of those stores. You know, value add. Why is that important to people? Well, my opinion is because people want their money to work for them, not the other way around. You don't want to be working for your money. You want your money to work for you. Like I said, it's the holiday season. We're in We're in the holiday season now. These butter cookies remind me of my childhood. And if you don't remember these these butter cookies that came in a blue tin, I feel feel very sorry for you. You've had a very troubled past. Why is value add so important? Like I said, I don't think anybody buys a property and says I want to lose money. Nobody says, "I want to buy this thing or this service and it sucks." Like nobody nobody wants that. No one No one says, "Oh, I want to I pay $3,000 a year for this for this service and it's the shittiest thing I've ever had." No Like nobody wants that. But I think in today's climate with downsizing and people working from home, companies found out that that was that was a huge way to save save money. I think everybody is is cost-conscious. I think everybody is value-conscious today. And I don't think that people want to piss money away. You know, not that anyone enjoys pissing money away, but sometimes you get lifestyle creep and you start spending more money than you anticipated. You know, there's a lot of reasons why things could happen, but I don't think anybody wants to piss money away. And now with the the global financial climate of everybody is very conscious about their dollars. Inflation being at an all-time high or an all-time high in decades. Everybody wants to get the most bang out of their buck. Which I'm in total agreement with. I mean, obviously that's why I'm smoking a $2 cigar. Which is it's phenomenal. I mean, this this is the value add right here. You're smoking a cigar that if you closed your eyes all day long you would say this is a $7, $8, $9, $10 cigar. It's two bucks. That's value right there. It's got great draw, great flavor. There's nothing missing out of your life from smoking the CAO Surplus. You know, CAO makes a lot of great cigars, but you know, you could be smoking the the LFD Andalusian Bull at whatever that thing is, $22. I I just I just smoked one not too long ago. I did a podcast with it. Um I'm not I'm not missing anything with this. Value. That's the key. Value. Do you see value in it? Is are you getting a value out of whatever that is? Whether that's a service, whether it's a product. Where you spend your time. You know, that's another value. If you're spending your time with something that you see value in spending your you know, free time with friends, with family. Huge value in that. Are you spending your time wisely? I'm very guilty of that. Sometimes I get wound up in the details. Sometimes I get too hyper-focused on the very very small details. And it's like I've I've I look at my watch and I've spent hours typing out a an article for LinkedIn or whatever. Was that the wisest time spent? Probably not. You get really really wound up in graphic design details, hours working on a thumbnail. I mean, is that thumbnail really going to make the difference? The the the additional 3 hours you put into doing the smallest details of the artwork? I don't know. I don't think so. I mean, I wouldn't think so, but you know, time is the only commodity that we have that we can't make more of. It has priceless value. So, how are you spending your time? Are you spending that wisely? Are you doing Are you getting the optimal output for the time you're investing in things? Make time for a date night once a week. Spend as much time with your children that you possibly can. Many years ago, there was a friend of mine that I had not spoken to in a while, and I found out that he passed away. And then you're sitting there and you're and you're telling yourself all the things that you would have told that person. But, tomorrow is promised to nobody. So, from that point on, I decided that I was going to reach out to as many of my friends as I could on a daily basis. So, who I think of that day when I wake up, I'll make a list of my friends and I'll text five, six of them each day. In that way, I never have to feel that regret again. That I I never touched base with that person and he's no longer here. Because tomorrow is not promised to anyone. You can a piano can fall on you as you're walking down the street and you don't know when the next time you're going to see that person, hear from that person again. So, you know, that's that is definitely one thing that I learned a lesson from that ordeal. And I tend I have to wake myself up every once in a while and be like, "Hey, get back into the groove of it. You know, reach out to you reach out to your friends because you never know. Family members, you know, cousins. I don't know how uh large your immediate family is, but you know, reach out to your immediate family. Talk to your mom, talk to your dad, your siblings. You just you never know. I just recently had a death in my family. You know, as you're as you're helping family members get through things and mourn and make arrangements and stuff, you it really shocks you. It's like a it's a shock to the system. >> Is that even a value to you? Everybody's values are different. You know, family values, you know, whatever whatever your values are. You know, I know I know people that they value money more than anything. You know, so they they constantly looking at their bank accounts, making sure that, you know, they're they're receiving every penny that they possibly can, and making sure that their businesses are running optimally, and making sure that their expenses are as low as they possibly could be, and profits are as high as they could possibly be, and they get obsessed with money. I mean, there's no there's no wrong or right answer here. I'm just curious to what the people out there that with that listen and watch this podcast, what do you find value in? And what would you like to have more of? I would say I would definitely love to have more time with people that I've lost. People that I can't get back. You know, that's a that's a huge one. I don't know if many people can reverberate this, but I would love I would love to get back the things I spent on dumb [ __ ] You know, and if my director of operations he's always on me about this. I could spend some money. I mean, if if spending money was an Olympic event, I'd have a platinum medal. And I've not always spent wisely. You know, I have spent good money, lots of money on dumb [ __ ] Again, I'm being straight up, real talk. So, maybe I'd love to get some of my money back on some of the dumb [ __ ] that I've I've spent. You know, value is a very funny thing because that it's in the eye eye of the beholder. Right? So, what what I see value in, you may not see value in. What I think is precious and what I think is very valuable, you may not. You might say, "That's worth a hill of beans to me. I don't care about that." So, it's all relative. You know what's so weird is value also changes. Pre-pandemic I used to go I'm going to use an old people word here, too. I used to go to the cinema all the time. I used to go to the movies all the time. And if any of you have ever been to the movies with more than just yourself, if you have gone to the movies with your family or friends, you know that going to the movies is going to cost you at least a hundred bucks depending on how many people you've got with you. Um I have a pretty big family, so it's a bare minimum hundred fifty dollars. By the time you pay for all the tickets and by the time you pay for, you know, uh sixty-four dollar bucket of popcorn and a thirty-eight dollar soda, fountain soda, you're in you're in for a ton of money. And pre-pandemic, pre-COVID, I was I was at the movie theaters every week. I was always always going to the movies. Yeah, maybe I'm exaggerating a little a little bit there. Maybe not every week, but definitely definitely once or twice a month, definitely. And pre-COVID, you know, there was a lot of movies coming out in the cinemas. Now, you know, we're we're out of we're out of COVID a long time. You know, this is it's 2025. It's been five years since since COVID hit and the movies have been open for quite some time now, years. Probably three years or more. I think I've been to the movies maybe three times. Two or three times in a year. And most of them were probably for kids' birthdays, my children's birthdays. So, your perception of value will change cuz I I, you know, I couldn't live without going to the movies, without going to the cinema because you know, it was just it was a whole experience for me. It was like, you know, the dark theater, the huge screen, the surround sound, the flavor of movie pop. And I You look, I don't care what anyone says, it's almost impossible to replicate movie theater popcorn. And I'm a popcorn fanatic. So, going to the theater, picking out some popcorn, some snacks, and watching hopefully a really good movie. Um and I'm a I'm a movie fanatic. That you know, that was just that was paradise for me. I think I've been like I said, two or three times in the last year. So, with with the emergence of streaming services like Hulu and Netflix and Amazon Prime and Prime Video and, you know, all these different things and Paramount Plus and everybody Everybody's got a plus. Disney Plus, Paramount Plus. And if you are like my family, you have multiples of those things. You have You have like, you know, three or four streaming services. You find it less and less important to get your family in the car, drive to the theater, break up 20 fights on the way to the theater with your kids killing each other, paying those exorbitant fees for tickets and snacks and all that stuff to watch a movie when you've got it right in your house. So, value does change. I mean, you you don't see the same thing and a lot of I I have a I have a multiple friends that are wealth managers and value changes as, you know, you're you're young to aging and then back down again. I don't know what the hell that was, but what I mean by that is when you're a young professional and you're making money when you're younger, the people who manage your money, if you have somebody who does investments for you, buy stocks for you, or does any of that type stuff for you, they're going to tell you be aggressive when you're when you're younger. Invest in more stocks than anything else and then, you know, have a backup of annuities, maybe some bonds, and whatever. And then as you get older, they tell you, "Okay, back it down. You don't need to be as aggressive anymore. You've saved a lot of money. You've done some good investments. Your value structure, your value strategy should have changed. I don't need to be as aggressive anymore. I don't need to be as risky anymore because I'm up in age now and I can't make this all again. I can't lose it all and then go try to make it again, you know, I want to coast out the rest of my years and be comfortable. You're very aggressive, you're very, you know, you're making money and you're you're putting your investments in and you're, you know, doing a lot of stocks and you're very, very risky because it's like, you know, you're in your you're you're in your 20s, you're in your 30s. [ __ ] it. Like, I can I can make it again. If I lose this off, I lose my entire stock portfolio or my my investment portfolio, I can make it again. When you get in your 50s and 60s, you're like, maybe not. Maybe I I don't want to make it again. Maybe if I lose all this [ __ ] I'm just going to go put all my [ __ ] in a uh in a sheet, tie it to a stick, throw it over my shoulder, and go on down to Costa Rica. And uh live on the beach, whatever. It's all relative, and your perceptions of value are going to change as you get older. So, I think um I think your values today, I think you should always monitor them. I think you should always keep some sort of track, you know, keep your goals, keep your value propositions, your perceptions of value. I think you should record that somewhere, like in some some sort of a journal, or some sort of a vision board, or you know, some way that you can, you know, just just for the shits and giggles of it, if for nothing else. You know, as something you can show your kids later on in life, or your grandkids. Like, hey, this is what I thought was really important back then. This is what I invested in. This is what I saw value in. This is what I saved up for. And then, you know, come years later, that completely changed. Value also is relative in you know, someone who makes X amount of dollars would see you know, like, oh, 10% of my income um you know, which is $10,000 a year, goes on entertainment, or you know, [ __ ] whatever. Versus someone who makes you know, Y amount of dollars and their entertainment or thrills or [ __ ] is like a hundred thousand dollars. That's their two perceptions of value are going to be very, very different. You know, someone that I knew someone and I was actually telling a friend this story that they vacation internationally every Christmas. You know, we're coming into the holiday season, so it brought the story up and I was sitting in the office and this person, very successful business person, went to the the staff accountant and said this was like a few weeks away, they were going to take their family vacation, big family, international vacation. Hey, you know, as you know, we're we're going on vacation and can you wire seventy-five thousand dollars into my bank account in that country so we can have some spending money because it's like a three-week Christmas vacation. Seventy-five thousand dollars spending money? Like pocket money, seventy-five grand. It's all relative. To someone who is a high net worth person seventy-five thousand dollars could be spending cash. Versus you know someone who maybe is not as high net worth seven hundred and fifty bucks could be spending cash. Seventy-five bucks could be spending cash. It's It's all relative. You know, it's like what is the value add mean to you? And I think if value is what you're looking for which I think anybody in any walk of life should be looking for a value. May maybe not in everything. I I do know people that they look for value in [ __ ] everything. Maybe you're not that person where you're looking for value in everything and you're looking to, you know, squeeze the nickel out of everything, but I think everybody should be looking for value in most things. You know, it's it's I don't think anybody today, no matter what your net worth is, I don't think anybody's got, you know, money just to piss away or, you know, blow out your ass. It's the dollars are becoming more and more precious as the days go on. Especially as our economies are what they are right now. And that's another sidebar. You know, what most people see as an economic scale, like the economy, to other people that may not make a [ __ ] bit of difference. Like I remember when I was in a different I was in a different business and it was very, very lucrative business and it was millions upon millions of dollars were being made. Income was very, very high and it was at one of the most one of the worst economic times ever. But it was a different industry, it was a different service, it was just a lot of things were different. So, I I'm sure there's a lot of people right now that are feeling a crunch with the current economy and current, you know, job scales and I know that the US government has was in a shutdown for like 40 plus days and that affected a lot of people, but even with that, I'm sure there are some people in other businesses, other industries that are having the time of their life, you know, having having the the best income that they've ever had. You know, the most income they've ever had. So, I also think that what is going on for one person is not going on for every person. So, be that as it may, whatever that was that was a total sidebar, but you know, just a random thought that popped in my crazy head. You know, so I think that value is it's important. It's it's something that should be important to you. And I think that especially when you're doing any kind of investment, whether it's residential real estate, commercial real estate, stocks, bonds, crypto, whatever, I think that a value add should definitely always be in your in your in your focal point, in your your your purview, your field of view, whatever you want to call it. I think that if you're buying commercial real estate to run your business, to house your business, wherever whatever that business is, I think that's your value. That's your value add. Your value add is having a a successful place to house your successful business, operate your successful business out of. That should be your value. If you are buying real estate to reap the benefits of the rental income, that's a completely different value, set of values. Completely different. You know, that is something you should be concerned with well, what's a net net operating expense? What is the net operating income? What are the total operating expenses? What is the gross? You know, these are all things that you should be worried about. I just think it's a it's a beautiful subject. It's a beautiful thing to talk about the value add. You know, getting value out of your dollars. Making sure that your dollars are going longer than shorter. I mean, any anybody who is common sensical should be looking to stretch their dollars as much as they can get value out of them. You know, there's a lot of There's a lot of ways that people get value out of their dollars that may not be all but legal, you know, and I think that's going a little too far when when you'll decide to bend or break laws to get value out of your dollars. But I think anybody with common sense should be looking to maximize the value, maximize their hard earned money. I think that cigars are no exception, right? You shouldn't be just looking for the best cigars out there. I'm not I'm I only buy cigars that are $10 or or a higher. That's not always the best value cuz sometimes I've had many cigars that were high in price and they were pretty shitty. Ooh, so, you know, to that to that extent, one of my own personal um rules in cigar smoking is I always buy two cigars. If If there's something that I'm trying for the first time, I don't buy one, I buy two. Because any cigar, any brand, any maker could could have a dud in a box. You can You could have a shitty stick in a box of 10 or 25 or 20 or whatever. Two duds in one box. Stay away from that cigar. You got the CAO Surplus, two bucks. You've got the Drew Estate Factory Smoke. That's like three bucks. There are cigars out there that are very economically priced. Don't just look for every AJ Fernandez or every high-dollar Drew Estate or you know, the the Aganorsa I don't think there's a cheap Aganorsa cigar. And since they sold out, the original, the founding the founders of the cigar company, Aganorsa, since they sold the company, I have not smoked a good one. You know, they die out quickly. When the original Aganorsa came out, that thing would stay lit for days. I mean, that that [ __ ] was like I shot a whole round of golf on one Aganorsa and it never died. And if you've ever shot a round of golf, you know that you There's a lot of There's a lot of movement. There's a lot of moving parts to that game. And you know, you're driving from one hole to the next or one shot to the next. And you know, you're not smoking the the damn cigar the entire time. So, for one cigar to never have to relight on a whole round of 18 18 holes of golf, that's that's saying a lot. Atabey's today are like 30 40 dollars a stick. And don't hold me to that, but you know, they they're up there. And I I I pass them I pass them by. Every time I'm in the cigar shop, I pass them by. If I see them there, I don't I don't buy an Atabey. So, value is important. You know, get your get your value out of of what whatever it is. If it's cigars, if it's cars, if it's clothes, whatever. You know, get your get your value out, but don't I I know people that they only go for the top priced stuff. You know, like don't get me wrong. A Tom Ford suit is phenomenal suit. But, you're talking four grand or more. It's also going to last a long time. But, you know, very few people fit in their clothes over 20-year span of time. You know, you're going to lose weight, you're going to gain weight, whatever. I know people that only buy like the top end Mercedes-Benz and they it's they you know, every two three years they're they're buying the new version of that vehicle. I mean, if that's you, great. God bless you. I you know, more power to you. But, you know, check check your options. You know, there are options. You can buy valuable things. You know, like these these things literally are burnt up in the air, you know, these are those are going to be burnt up. That's what we're buying them for. We're buying them so we can light them on fire and we can puff on them. You don't have to buy boxes of $25 stick cigars. Don't get me wrong, is that nice? Yeah, it's great. But sometimes it's not what you need. Sometimes you just need a $2 stick to get you by. This is a this is a great daily driver. Don't get me wrong, I have a $7 a cigar daily driver. But I'm going to feel a lot less shitty if I toss this out because I've, you know, got to jump into a meeting or I got to leave or something. I'm going to feel a lot less shitty about doing that with this cigar than I am that that $7 cigar. Values are different for everyone. As long as you're good with the value you're getting, great. If you think you can get more value out of something, maybe you should look for a professional to help you. Maybe you should Google some of the information that you're looking for. Maybe you should reach out to an investment professional, a commercial real estate broker, a residential realtor, a residential real estate professional. But as long as you're getting your value out of things, it's all that matters. That's all I've got this episode, for this podcast. I pray that you all stay blessed and above all else, keep it rolling, baby.