238 - How to Easily Turn Vending Machines Into a Passive Income Empire

0:00No money down. First payment wasn't due for 90 days until after it was delivered. So I was doing 90 days of sales. My monthly payment was$112 and I was doing 900 bucks in revenue. So think about this. We get a monster for a dollar from Costco. We list it for$4. Well, this CEO of this roofing company is like, I will pay$2 of that$4. So we list it for$2 because he doesn't want his roofer to go to the 7-Eleven. and spend 45 minutes of their break driving to the store only to spend$450 at the 7-Eleven. We have guys in the community and gals that are doing 35 plus machines now, like freaking raking in 30K a month.

0:44I'm obsessed with a$100 million exit in three years.

0:50All right, what's up guys? Welcome back to Nickonomics. I'm super excited today because we talk about something that everybody in entrepreneurship loves to talk about, but never know it goes deep on. And that's the side hustle. I sat down with Mike Hoffman. He's a serial entrepreneur, passive income expert, and he's built this diverse portfolio of income streams, including vending machines, Airbnb properties, Bitcoin mining, large-scale real estate development projects, and a community of over 400 plus vendingpreneurs that he manages. And in this episode, you are going to hear how Mike transitioned from college football coach making next to nothing into entrepreneurship through side hustles.

1:21We talk specifically about how to transition from the corporate life into entrepreneurship through side hustles, how to build passive income with vending machines as well as creative real estate strategies, and why Mike thinks that vending machine routes will soon become a private equity darling. I think you're really going to like this episode. And if you do, please give us a like and subscribe. It would be amazing. Love you guys. Let's hop into the episode. Mike, welcome to Nickonomics, my friend. Nick, thanks for having me. Fired up to be here. Good, good. I'm fired up to have you. I've been doing a lot of research.

1:52stoked to ask you a lot of questions. But before I do all that, why don't you give people a flavor? Who are you and how do you make money? Yeah. So I am a Northwest guy like yourself out here in Oregon and have different income streams ranging from vending to Airbnb's to consulting with our special operations community. So a little bit of everything under the moon. I think what's really fascinating about you is your Twitter handle is, is it Mr. Passive Income? Yeah. And I just listened to an episode that you did on, I believe it's called financial independence is the podcast. I'm actually going to link to that in the show notes because any question that I would have asked about your business was answered in that podcast.

2:33It was like phenomenal, but you started out as an assistant coach and evolved into this, what you are now in building a passive income stream, just like high level. Tell me a little bit about your background. Yeah. So I kind of had an aha moment when I was a coach. And when you're in collegiate athletics, like you don't want to calculate your hourly wage because you're just working all the time. So I was on one of those working on a Sunday, middle of the football season. And I was like, I need to learn how to earn with my mind and not my time kind of moments. And that's right around when Tim Ferriss and the four hour work week and that whole thing.

3:15So that's when I really started to explore other income streams that were more passive and led me to real estate and then eventually down this unattended retail and vending path. Yeah. So give me the high level. What are you into right now? What are your passive income investments? Yeah. So it's a good question. We have an Airbnb down in Florida that I just outsource management. I tell the manager, I don't want to know anything unless it's damage above$2 ,000. So I try to make it as passive as possible by letting them run point with that. I have vending machines in actually East Coast, Midwest and West Coast and operators that run those routes for me.

3:59And then I got a little Bitcoin mining. I'm really interested in just like value adds with real estate, just trying to find good deals. We bought some land on like the home and ADU concept and rented out both as separate homes. And we're doing a development project right now with eight units that we're going to do four townhomes and sell off each individually into eight units. Bitcoin mining, how many miners do you have? I actually outsource that. So I don't have any miners myself, but I have a facility out in New Jersey that does it for me. And it's like a third party thing that I'm, again, trying to make everything as passive as possible.

4:37Yeah. So I have a business partner, mobile home park guy, Chris Kerner. We own a business that sells crypto mining hardware. And we were in the hosting space for a while, but that was just a nightmare for us to manage. We were actually a wholesaler middleman. We had relationships with facilities that were doing the hosting. And then we had customers and we would like charge a pass through rate and it just was a mess. It didn't work. So we got out of that business. Yeah. Our company sells hardware to mainly Bitcoin miners. Yeah. So how is that market these days? Is it trending one way or the other?

5:08It's a hard market right now. there's three things that really affect mining. The price of Bitcoin is only one of them. So even though the price of Bitcoin is appreciated, which is great, you still have to factor in the cost of energy and the difficulty rate that you're hashing at. So for those who don't know, Bitcoin, I think everybody knows what Bitcoin is, but Bitcoin was specifically created to be a finite resource. There will only ever be 21 million of them. And the way that it is produced, it is quote unquote mined. And the way that it is mined is there are these computers that essentially solve, this is like a dumbed down version, but essentially solve math equations that get progressively harder so that it limits the amount of supply that's in the market.

5:52And with each successive Bitcoin that's minted or mined, it gets harder. So 10 years ago, you used to be able to mine Bitcoin on your laptop. And now it takes hundreds of computers pulled together in order to mine one Bitcoin. So that the difficulty rate, the hash rate is one of the three components that contribute to crypto mining profitability. And that has been really, really difficult because there are a lot of people who are getting into mining and you have operations that their cost of energy is almost zero. You have these like flare gas operations that essentially siphon off the flare from natural gas fields, which essentially those fields will pay you to take that flare gas and that powers their mining facilities, or you've got people with big solar farms, or you've got people with lots of renewable energy.

6:39So anyways, it's difficult right now because of that. We expect it to come back up. We're very bullish on it. It's not a question of if, it's just a question of when. So that's been a very volatile business though. That's not passive, Mike. Yeah, yeah, yeah. I'm glad I outsourced it. You just validated my hypothesis when I was looking into it. So yeah, dude, be glad, please be glad. I could tell lots of stories on that one. So you have real estate, whether it's Airbnb or rentals, you have some crypto mining, you have vending machines. Is that it? Yeah, that's the main core of everything. We have a couple different equity play, like we're building a oil lube station in Florida, like one of those 10 minute oil lubes, a development group that I just, I'm a silent investor.

7:24And so So there's all these kind of random projects like that, that are behind the scenes in the works. Have you gotten to the point where those in passive streams of income, like they provided you enough where you've quit your corporate job? You're working essentially on those businesses now, not necessarily for another company. Yeah, exactly. So the cashflow from my vending route alone, November of 2022 was when I left quote unquote, corporate America for kind of that dream of being able to just live off the cashflow. How long did it take you? When did you start doing it? And how long did it take you to get to 2022?

7:59That's a good question. Could have been a lot shorter. Hence why I try to help people like avoid the mistakes I made. But I think I got into vending right before COVID. So like 2018. Oh my gosh. I got into real estate back in 2014. So it's just been kind of my first property was like a classic Midwest$70 ,000 home that was renting for 900 bucks. And I was like, Oh, I broke the 1 % rule. You know, I don't know what I don't know. And then I got a second one and then I was like, shit, I can't just keep coming up with a down payment for every home by myself. So that's when I was traveling a lot for my day job and I was sitting in these airports and I was like, someone's making$8 off of me with this cold brew that I'm paying nine bucks for.

8:41And I know it costs a dollar at Costco. Like this is fascinating. And he's not even here selling it to me. So like He's clearly earning with his mind, not his time. And I went down this rabbit hole and broke into Vendy when I got home one time after just a work trip that just created a fire under me. All right, now's the part of the show where I feel the most uncomfortable, but my therapist says I need to face my fears. So here we are. I've started a newsletter and I want you to subscribe. And what you're going to get every single week are the aggregated conversations from that week that I have on this podcast with an overview of what their business actually looks like.

9:14I'm also going to throw in a review of one or two businesses that are listed for sale. I'll give you my opinion on whether or not the EBITDA multiple is good or there's customer concentration or there's red flags or green flags. And then lastly, I'm going to give you one piece of actionable advice every single week on how to buy your first business. So click the link below, subscribe to my newsletter and let's get back into the show. Okay. So you went from 2018 buying your first vending machine to 2020, all the debt included. I think I remember you saying that you don't buy these with cash. You finance them.

9:44many of them you can get with zero money down, but you got to make debt payments on that to 2022. Like you're living off the income just off of your vending machines. Yeah, absolutely. It's insane. We have people now that will do it in six to 12 months because now we actually have a system of scaling. Like I was just going door knocking to build my vending route. We're now like with a strategy of kind of who to target, you know, I could have shortened that up by at least three years. Okay. So what you just said is like my main question of the day. It's very sexy on Twitter in particular, but Instagram, are you on Instagram?

10:22I am. Yep. I'd be shocked. I haven't seen you. Do you have a large account there? I think I have like 47 ,000 followers, but it's not as accurate as Twitter. So Chris, my business partner, he has a hundred thousand followers on Twitter and like 120 ,000 followers on Instagram. But he plays into a similar vein, which is people who are just looking for that side hustle that's going to take them into entrepreneurship. I don't mean what I'm about to say in a negative or derogatory way, but they're looking for like, oh, this is easy. Oh, this is the hack. This is the thing that helps me skip the line.

10:53And in my experience, I've never bought an asset that was like truly passive. I never bought something that didn't take work to get there. And you may be at a place now where you're passive, but what were the first few years like? I mean, you said you knocked doors. So Nick, you bring up a great point because vending is not passive. Like for me, landing your first location isn't, I mean, yeah, that's exciting of, okay, Hey, I got my first vending lead wherever in Idaho. But like what intrigues me more is like when people take those steps to quantify leverage and how much their time is worth and hire that operator, build out the systems.

11:32Like when you start out, you can't delegate what you don't know what to delegate. So that's where I think the big steps for most kind of people getting into entrepreneurship is actually being able to focus on the business and not in the business. And that's like taking a step back and not being in the weeds. It's true. It's hard to focus on the business when you don't know what's going on in the business. You know what I mean? Agreed, agreed. Agreed. But like, that's also people are afraid to think like even the knocking on the doors or the cold calling, like one of the biggest value ads I found when I went down this coaching business was people didn't want a cold call.

12:10And I was like, okay, well, let's figure out how to do this for you. Like the classic friction, let's remove that step. But at the end of the day, it's still, you gotta, to me, I just come back to like the quicker you can build systems to whether that's vending, whether that's anything really Bitcoin mining, like whatever all of those things are, I would gladly give away a margin to make it as passive as possible. Tell me about the first couple of vending machines that you have. Did you hire an operator or were you the guy going around, refilling them, going to Costco? I was a guy. Yeah. So I went into a property.

12:51I was hey do you guys have any machines they were like nope we need one can you provide one and so i did a quick google search there's a company that came out yeah oh yeah there's just like yeah we need one sure like it was that easy oh well it's like a perfect storm with these property managers they don't want headaches from their tenants and especially nowadays with the pressure of we got to keep rents high all these new builds we got to keep up with the joneses like all the amenities properties so yeah they were like we want something this was definitely a class a property the first one i popped into and i literally did a google search i found a machine manufacturer out of iowa and i'm from iowa originally i was like okay midwest i can trust these guys clearly you got every alibaba and machine company from china that pops up too but i was like i'm not shipping something across the ocean so and then they had the most how-to videos on youtube so like all all right, I'm going to figure this out myself.

13:47And Nick, no money down. First payment wasn't due for 90 days until after it was delivered. So I was doing 90 days of sales and my monthly payment was$112 and I was doing 900 bucks in revenue with 60 % margins. And I was like, this is cash flowing more than my rentals and I can depreciate this machine. How much are the machines? That one was like$5 ,500. dollars. Oh my gosh. Yeah. Oh my gosh. Okay. Mind blowing. You get that first machine. You're like, I'm just going to figure it out. I think most people do before they get to the operator point. And you said something really important. It's like, you got to figure out your systems first.

14:32And it sounds like these first couple of machines, like allowed you to figure out that system of how you manage it. Yeah. Like, where are you going to store product? Is it in your garage. Like for us in Oregon, the weather is pretty fair. It doesn't get ridiculously hot in the summer. It doesn't get ridiculously cold in the winter. So we just had a landscaping shed on the side of our house. That's where I would, you know, would go to Costco at the time. And then I just line it up when we were shopping with the kids. So I'd literally have my daughter in the shopping cart. We'd do our groceries, all the vending items underneath the cart.

15:05And that was like our Saturday routine. And then I'd stock it every Tuesday on my way to the grocery store. So I was like, just kill two birds with one. That blows my mind. You weren't a part of like a large GPO. You were just going to Costco and buying things in bulk. How quickly did it take you to ramp? So you bought that first machine, you placed it. When did you buy the second? When did you buy the third? Yeah, the buying the machines is the easy part, especially if you finance them. The limiting factor is finding good locations. Right. Like I'm a firm believer that I'll take one class, a, let's say apartment complex that's doing 1200 bucks a month and five Jiffy lubes doing 250.

15:47And so like, for me, it's all about good locations and what your time is worth. And so that's the ramp up. That's the step that people miss out as they just do the shotgun approach instead of like land and expand. I've heard you say before that basically there's two types of places that you look for. There's high traffic places and there's high employee count places, right? So it's like the Jiffy Lube may be a high traffic place, but it's going to be low, lower margin, but that's not necessarily a high employee place to go in place as vending machines. Yeah. And there's also leverage there too, with that, we need to get into like employee subsidies.

16:23So right now there's a huge push to get people back in the office and how do we get them back in the office? When I was working for a startup in Menlo Park, we were literally right across the street from Facebook and Facebook would park these tens of food trucks in the parking lot because they didn't want their employees to go home. And so if they stayed, they'd even give them$15 dinner credit, but you can't access it until 7pm. So people would stay for the free meal and just work the whole time. And so like, same thing, We have a roofing company that pays us half of the cost of the vending sales in our cooler and their shop.

17:01So think about this. We get a monster for a dollar from Costco. We list it for$4. Well, this CEO of this roofing company is like, I will pay$2 of that$4. So we list it for two bucks because he doesn't want his roofer to go to the 7-Eleven and spend 45 minutes of their break driving to the store only to spend 450 at the 7-Eleven. So now they're spending more of their paycheck. They're using his trucks and gas and more time to get there. So we're literally selling all our items for 50 % off and invoicing the company for the other 50%. For the a hundred percent. Yeah. I mean, 25 employees, nothing's doing as much as a 500 person apartment complex.

17:45How many vending machines do you have now? 64 we just installed two yesterday 64 yeah we have uh one install friday afternoon here in oregon i mean we're just kind of at that bell curve of of growth right now what kind of an operator do you need for that someone that's patient and is actually really good with the details that like my operator here in oregon he's basically my boss for our oregon route but he wouldn't even know how to set up this riverside on his laptop but that guy knows the ins and outs of route where to buy product what's been selling all the operator things so he's doing everything like when you say operator they're doing purchase decisions they're also stocking they're running the route they're managing relationships all that stuff yeah we run a pretty lean ebitda and so he's doing all of that.

18:39We might get like a picker at some point where they organize our warehouse and all of that. But right now he's doing all of that. And we do have a purchasing agreement now. So we're not going to Costco. We're getting delivered from a performance food group type. Tell me about the morph because you've got these vending machines, you're making money off of real estate, but you also offer, and I don't even know what it's called. So you can educate me. Yeah. Is it a community or coaching or a GPO that people are a group purchasing organization that people are a part of where you're actually helping people do this themselves?

19:13Yeah, it's kind of all the above. So we run a community, it's called Vendingpreneurs. So they all set up their own businesses wherever they live. And then we help them through coaching of like, what kind of any, okay, Nick goes and does a pop in at the Jiffy Lube, we quantify revenue projections and help you really see if it's a good location. We also help you find leads. So we have in-house, we have six full-time cold callers on staff. We have two email SDRs. And then, yeah, we have purchase agreements with these either machine manufacturers or product distribution folks where we're getting volume-based pricing to our community.

19:54How did that arise? People just saw you posting about it and they're like, will you teach me how to do this? And you realized, oh, there's... yeah well you know we talked about earlier my backgrounds as a coach and i think what drives me every day is how do you coach people at scale that's the beauty of x and getting out to people and why i'm so bullish on so many people are like why do you share so much why are you so open like those are your secrets and it's like guys come on it's a mark cuban there's no patents you just the cream will rise to the top like that's my mindset if i can help people great and then the second piece is the vending machine industry is going through such a disruption right now when you think of like the old school motors and i gotta press like e4 to get a snickers when now you got the open shelf coolers with the ai cameras you open the cooler you can get your snickers your diet coke and a bag of chips walk away and it's going to charge the credit card used to open the like it's just going through such a disruption that even 90 of our leads we find already had traditional vending and they're either broken.

20:58The operator doesn't know how to use a cell phone, so they can't track inventory with, without going by the machine. It's like that whole baby boomers just holding on to this machine and they're not getting with the times. Like it's more than just throwing a credit card reader on there now. It's a classic example. And you see this in real estate as well, where the owner has extracted all of the value from that asset because they've refused to reinvest in it, right? They view it as, oh, this is value for me, not necessarily I'm going to have the best product. And so when the time comes, real estate in particular, to sell that commercial building, it's dilapidated, but they still want to charge the market price that a new building would go for.

21:40And so it doesn't surprise me that you're seeing the same effect with these vending machines. Two weeks ago, I was in Chicago and I bought a route in Chicago about three months ago and we've been doing like a land and expand model to grow the route in the loop right downtown in the loop i met with a property two weeks ago they have an entire city block on michigan ave 39 floors and their interest is literally the cvs on the first floor went out of business during covid and so they're they just want a micro market with cvs type items in it they're literally like you can put Tylenol in here, charge 3X.

22:21We have tenants that just want to go downstairs because they're used to going to that CVS. And so like back to the value add of these owners and commercial real estate, they're trying to keep their tenants happy because they're just hurting so bad. Tell me about the community. How many people are either a part of it or how many people have you coached i think we're up to like 400 right now active members wow out of what period of time is that november of 2022 mike that's pretty incredible man oh thank you i mean it's 400 people yeah and we have guys in the community and gals that are doing 35 plus machines now like freaking raking in 30k a month it's not just uh kind of oh onesies and twosies we got you a gym you're making your 300 bucks and you're good.

23:11Is that the core offering the community or is there a coaching component as well that comes with it? Like, Hey, here's the course you can buy. What does the business look like? The main part of the business is the ancillary benefits. Like we get bulk pricing with machines, we get bulk pricing with products, and then we find leads for you. So let's say we help a vendingpreneur get started in Boise, Idaho. Like we're going to pull all the businesses that fit our revenue criteria to be a good vending location. We're going to either cold call or email into them on your behalf, the vendingpreneur and Boise.

23:44And then when you get a meeting, you're going to be like, well, shit, how do I approach that meeting? What am I pitching them on? Okay. We had a great meeting. What's a contract template look like? Like my whole vision with this is like, make this as out of the box as possible. You get, you sign up and you get started with basically leads at your doorstep. How does it work for the vendingpreneur? Are they locked into a community contract where they like, hey, you have to be a part of this community for X period of time, or do you get a percentage of sales? What is the revenue model for you? Because that's a lot of work on your end, right?

24:18Yeah, that's a good question. So we're kind of fine tuning that because we're actually having the opposite problem. People come in the community. So our original plan was like, hey, come in for six months. We'll get you some locations. We'll get you to a revenue target. and the training wheels are off and you've done this with one, two, three, five locations. Now you can do it yourself. Well, now people after six months, they are at that margin where it's like, why wouldn't I throw gas on this fire? So they want to keep using the services and keep getting access to more leads, getting access to more bulk pricing.

24:52Now we're at the point now with 400 members where I have a meeting with PepsiCo at the end of the week where it's like they want to fight for shelf space. Because all 400 of these people have micro markets or machines that are going to either put Pepsi or Coke in them. And so the community members, how are they paying for that value? Is it just the community membership or do you like, is there an affiliate agreement with them? I mean, it almost sounds like a franchise, but you're not a franchise. Yeah, we're not a franchise. We're kind of working through that, Nick. The most obvious is like, okay, we just slap on a monthly fee to stay involved in the community.

25:24You get rights of access to leads in your zip codes and you get all the discounts that come with it. or back channeling it in a way of, I had a meeting with a group in Portland on Thursday, they have 680 properties across the country. Well, if I'm the contract holder and there's a standard of like, these machines need to be stocked, whether they're in Boise, Eugene, Reno, Nevada, like we gotta be buttoned up about what our unified brand is going to out to the whole portfolio. So we're also working that side of like, do I just take a revenue share off the top? And then I'm just kind of running point with it or I don't know.