Welcome back to the Timeless Investor Show. I'm Ari Van Gemeren, real estate fund manager, student of history, and your host today. Thank you for joining me for another week of the Timeless Investor Show. If you're on the video version on our YouTube channel, which if you haven't checked it out, just check it out. This is my in-laws place in the San Francisco Bay Area. I'm excited to be bringing you another incredible episode this week. from the beautiful bay area where the sun is shining and all is good picture this april 26 1478 florence cathedral lorenzo de medici is attending easter mass when assassins strike knives flash into sacred space blood splatters across marble floors his brother giuliano falls dead lorenzo barely escapes with his life racing to the cathedral as the crowd screams But here's what's fascinating about this moment. The assassins weren't just trying to kill these two men. They were trying to destroy what might be the most successful investment empire in human history because the Medici weren't just bankers. They weren't just art patrons, which is what most of us remember their name for today. They were the architects of something we take for granted today. The idea that strategic real estate ownership creates lasting political power. Lorenzo survived that bloody Easter morning through speed, luck, two very important factors to escape knife men, and popular support. The people of Florence rallied to him, not because he owned the buildings, but because the Medici had built genuine relationships with the city. But here's the crucial point. When Lorenzo's banking empire later collapsed, Thank you. I'm going to take you inside the original family office. We're going to learn how a wool merchant named Giovanni de' Medici built an empire using strategies that worked just as well in today's markets as they did 600 years ago. Because here's the thing about timeless investment principles. They don't change. The names might change. The technology may change. But the fundamentals of building generational wealth, timeless wealth, those are eternal. Let's talk about the Medici method. The year is 1397. Most people think medieval Europe was all mud, peasants, war, devastation, the Black Death. But Florence was different. Florence was the Silicon Valley of the Renaissance. Trade routes converged there. Money flowed through its markets like data through fiber optic cables today. And in the middle of it all was a wool merchant named Giovanni de' Medici, who was about to understand something that most investors still don't get. You can't eat a stock certificate, but you can always collect rent on a good building. So Giovanni started with wool, but he was watching the money and he noticed something interesting. The merchants who got rich and stayed rich were not the ones with the biggest inventory. They were the ones who owned wealth. the warehouses. They were the ones who owned the shops where business got done. They were the ones who owned the land underneath the actual economic activity. So Giovanni made a decision that would, to sound big here, would echo through the centuries. He was going to become a banker, but not just any banker. He was going to be a banker who understood that real assets beat paper assets every single day. time. Here's how we did it. First, revolutionized accounting. The Medici Bank was one of the very first to use double entry bookkeeping systematically. Think of it like, I don't know, the Excel of the 1400s. Suddenly you could track assets, liabilities, cash flows across multiple geographies with precision that their competitors simply could not match. That is operational excellence. That is what ultimately separates the pros from the amateurs. I want to double click on this really quickly because it's a really interesting point. So I've recently been delving into double entry bookkeeping myself. And I was curious, why is it such a revolutionary undertaking? And here's the quick answer for those of you that don't know. It is an easy and powerful way to detect fraud, to detect bad books. Double entry bookkeeping is allows you to better understand the financials understand what's actually happening and to delve into other businesses as a lender it's invaluable for understanding how your building is performing it is invaluable it is a truly remarkable remarkable innovation in human economic history so after the double book double entry bookkeeping what happened next here's where it gets really interesting from a real estate perspective While other banks were lending money, Giovanni was doing something, I think, even smarter. He was using his real estate as both collateral and as part of his investment strategy. So when someone needed a loan, Giovanni didn't just want promises. He wanted property, buildings, land, things that couldn't disappear overnight. And when borrowers defaulted, which happened frequently in medieval Europe, Giovanni didn't lose money. He gained assets. It's almost like modern-day hard money lenders, right? They have an incredible envious position. They collect high interest, and if it doesn't work, they get the property. I know multiple guys in this business. They slay it, slay it, and often at the detriment of the borrower that takes their money. But they are fine. Either they get their exorbitantly high interest rate, or they take the building back, and they own the collateral. It's incredible. But Giovanni... took it even a step further. The Medici Bank didn't just have branches in other cities. They owned buildings in other cities, prime real estate, the best locations in Florence, Rome, Venice, Milan, London, Paris. These were not just offices. They were anchor investments, strategic positions in the most important commercial districts of Europe. Think about that for just a moment. While other international businesses were basically tourists in foreign markets, the Medici Bank were actual landlords. They had skin in the game. They had local influence. They had assets that appreciated independently of their banking operations. And here's the craziest part. They used their banking relationships to identify the best real estate opportunities before anyone else knew they were available. Someone struggling with debt, the Medici, they knew first. Prime property coming to market, they had the inside track. Political upheaval creating buying opportunities, they were positioned to act while others were still figuring out what was happening. This, guys, is the first and most important lesson of the Medici method. Information advantage plus asset accumulation equals compounding power. They were not just making loans. They were systematically acquiring the infrastructure of European commerce. But Giovanni understood something else that modern real estate investors often miss. Real estate isn't just about the rent. It's about the influence. When you own the building where important people conduct business, you become important. When you own the neighborhood where powerful families live, you become powerful. So the Medici started buying entire city blocks in Florence, not just random properties, strategic positions. They own buildings around the central markets. They own the land near the river where trade goods arrive. They own properties near the cathedral where political and religious power And then they did something that shows, I think, true long-term thinking. They started commissioning art and architecture, not just for status, but for property values. So when the Medici hired Brunelleschi to design buildings, when they commissioned Donatello for sculptures, when they funded public works projects, they weren't just being philanthropic. They were improving their neighborhoods. They were increasing their value of their real estate holdings in that moment. And this is something we understand today, right? Great schools, increased property values, walkable neighborhoods, command premium rents. Cultural amenities can and often do drive some level of gentrification. In the Medici, we're doing urban planning, if you will, years before we had an actual name for it. So by the time Giovanni died in 1429, he had built something unprecedented, a family business that generated income from banking, but whose real wealth was locked up in strategic real estate across all of Europe. He had created the world's first international property empire that was disguised as a bank, the Medici Bank. And that foundation would allow his descendants to survive assassinations, political upheavals, papal excommunications, and economic crashes that destroyed other wealthy families. Because when everyone else fails, People still need somewhere to live and work. So Giovanni's son, Cosimo de' Medici, inherited more than a bank. He inherited a philosophy, real assets over paper assets, land beats loans, ownership above all. But Cosimo took it to the next level. His father, if his father had built a real estate portfolio, Cosimo was going to build a real estate empire. and he was going to use political power to do it. And here's where the story gets really interesting for modern day investors, because Cosimo figured out that in uncertain times, in medieval Europe, as any of you can guess, was definitely uncertain. Traditional diversification wasn't enough. You need geographic diversification, and you also need political diversification. You need to own assets in multiple jurisdictions so that when one government falls apart, you are not wiped out. Now, the Medici Bank had branches in eight European cities by 1450. But think about this strategically. These were not just banking offices. Each bank, each branch was anchored by significant real estate holdings. In London, for example, they owned properties near the wool markets. In Rome, they had buildings close to the Vatican, of course. And in Paris, they held real estate in the commercial district. So this gave them something really valuable. local knowledge, and local influence in each market. So when political upheaval created opportunities, and it always did, the Medici were positioned to act. When other international investors were still trying to figure out a foreign market for the distance, the Medici were locals, and they used this power to incredible effect. So when the English crown needed money for wars, the Medici didn't just lend cash, they structured deals that gave them additional property rights. When Italian city-states needed financing for infrastructure projects, the Medici positioned themselves to own pieces of the completed project. But here's what Cosimo's genius really shows. He understood on an intrinsic level that in a world where governments were unstable and currencies were very unreliable, I would argue they're still unreliable today, but I mean, even more so then, then the ultimate store of value wasn't going to just be gold or silver. It was going to be influence. And the best way to build influence was through strategic asset ownership. So the Medici started buying properties for political positioning. They acquired the buildings where important decisions got made. They owned palaces where powerful families lived. They held land along the trade routes to connected cities. And then they got creative. As we talked about before, they started investing in the arts. They funded the construction of the Platonic Academy. They were not just supporting education. They made an institution... that made Florence more attractive to wealthy, educated families who might buy or rent Medici properties. And when they sponsored public festivals and events, they were essentially marketing their city and their real estate holdings to the rest of Europe. This is, as I said before, basically like urban planning disguised as patronage. They understood that all of this stuff was going to increase the value of their land and it worked. Florence became the most desirable city in Europe. Property values soared. The Medici is the largest property owners, of course, captured most of that appreciation. But Cosimo's master stroke was political. He figured out how to use his real estate ownership to build unshakable political influence. So when you own the land where all of these things happen, where the politicians are eating, where they live, where they meet, you have the control. The Medici never officially ruled Florence. They were technically private citizens, but they owned so much of the physical infrastructure of the power of the city that they effectively controlled the city. It's like being the landlord to the entire government. And this gave them something truly priceless, which is very difficult and I would say impossible to emulate today. They had the ability to shape policy in ways that benefited their own investments, zoning decisions, infrastructure spending, tax policy, trade regulation, all influenced by the family that owned all the strategic real estate throughout the city. So by 1464, when Cosimo died, the Medici had built something unprecedented, a private real estate empire that generated political influence, which generated more investment opportunities, which generated more real estate holdings, which generated more political influence. It was a compounding machine moving in this ever moving forward wheel that was an absolute monster. But here's what I think is one of the more remarkable points here. While other wealthy families of the era, the Fugers, the Welsers, other banking dynasties were building wealth through trade and finance, they remained vulnerable to political changes, currency devaluation, and sovereign defaults. When governments changed, these families often lost everything. But the Medici were different because they owned the buildings where the new government operated. They owned the neighborhoods where the new leaders lived. They owned the infrastructure. Political change didn't destroy their wealth. It often enhanced it because new leaders needed the Medici properties and the Medici networks to govern effectively. So this is the second lesson of the Medici method. Strategic real estate ownership can create political influence, which can create more investment opportunity, which can create more strategic real estate ownership. It's like a flywheel effect. Let's go into the crisis. So by 1478, the year of that bloody Easter morning in Florence Cathedral, Lorenzo de' Medici, known as Lorenzo the Magnificent, was running what might have been the largest financial empire in history and in the world. The Medici bank had assets equivalent to billions in today's money. Their real estate holdings spanned multiple countries. Their political influence reached from London to Constantinople. But Lorenzo had made a classic mistake that destroys wealthy families in every generation. He confused leverage with wealth. He confused cash flow with having ultimate security. He confused being too big to fail with being too smart to fail. So here's what happened. By the time Lorenzo took over from his father, Piero, in 1469, the Medici Bank was already showing signs of strain. Several international branches had made very bad loans. Coordination between distant operations was becoming difficult, and Lorenzo himself was more interested in politics, art, and diplomacy than in the day-to-day banking operations that made his family wealthy. Meanwhile, same time, other Italian banks were competing aggressively, as happens in any capitalist society. interest rates were being driven down, profit margins were shrinking, and Lorenzo, rather than consolidating and protecting the family's core assets, was spending lavishly on political campaigns, artistic patronage, and maintaining his position as the unofficial ruler of Florence. He was also making classic mistakes that destroy family businesses. He appropriated funds from the bank to finance personal and political expenses. He allowed branch managers to operate with Insufficient oversight, probably because he was distracted. He chased prestige deals rather than focusing on profitable conservative banking. And then came 1478. The Pazzi conspiracy wasn't just an assassination attempt. It was a coordinated attack on Medici power backed by Pope Sixtus IV. Now, when the plot failed and Lorenzo survived, the Pope retaliated by seizing Medici assets in Rome, excommunicating Lorenzo and putting Florence under interdict. This was a financial disaster. The Rome branch of the bank collapsed, international credit dried up, years of war followed. And this, of course, is when Lorenzo's enemies struck. The Pazzi family, rival Florentine bankers, conspired with Pope Sixtus IV to eliminate the Medici. They organized the assassination attempt I mentioned at the beginning and again just now. The plan was simple. Kill Lorenzo and his brother during Easter Mass, seize control of Florence's government while the family was in chaos, and replace the Medici as the city's dominant power. Lorenzo's brother, Giuliano, died in the cathedral that Easter morning. Lorenzo barely escaped by running to the sacristy and barricading himself inside. The people of Florence, though, rather than supporting the conspirators, rallied True Lorenzo. They saw the Pazzi as traitors, not liberators. And the real test came immediately afterward. The banking crisis followed. It was already destroying the Medici family's empire. The papal states were at war with Florence. Remember, at this time, the Vatican was not a tiny little city-state within Rome. It was its own military power. The Pope had secular power. He had armies. And on top of this, international lending had collapsed. everything that had made the Medici family wealthy for three generations, what's falling apart. And this is when Lorenzo learned something critical about wealth building that every investor really needs to try to understand. When your primary business fails, because it can and it does, you better have assets that generate income independent of that business to protect yourself, call it a fallback, cash reserve, something to protect yourself. So the Medici's Real estate holdings, the palaces, the commercial buildings, the residential properties across Europe, these didn't disappear when the bank fell. They kept generating rent. They kept providing places for the family to live and to operate. They kept serving as collateral for new financing when the family needed to restructure their debts. Physical assets endure. Even when paper assets disappear, buildings will not just vanish into thin air when banking operations collapse. Land doesn't just go away when political relationships sour, and rental income keeps flowing even when your other revenue streams dry up. So the Pazzi thought they could destroy the Medici by eliminating Lorenzo, but they discovered something important. You can't kill a diversified, geographically diversified real estate portfolio. The buildings remain, the rental income continued, the strategic positions and prime locations stayed very valuable. Lorenzo survived the immediate crisis by doing what everybody in the situation does. He liquidated some properties, he restructured his debts, and he focused on the core real estate holdings rather than international banking expansion. He learned the lesson that his grandfather Giovanni had understood, but that he had forgotten for a moment. Real assets beat paper assets, always. Their banking empire never fully recovered, but the Medici family not only survived, They thrive. Lorenzo's son became Pope Leo X. Nice. His cousin became Pope Clement VII. Extra nice. The family produced four popes total, multiple queens of France, and remained influential in European politics for centuries. And all of that later success was built on the foundation of strategic real estate ownership that Giovanni had established and that survived even when the banking operations failed. So this is the third lesson of the Medici method. Real estate holdings can save you. Physical assets can endure when financial assets disappear. And strategic property ownership creates options and opportunities even in your worst moments. What timeless principles can we extract from this 600-year-old case study in building and preserving generational wealth? First, Information advantage plus strategic asset accumulation creates compounding power. The Medici didn't just buy random properties. They used their relationships and international networks to find the best opportunities. Today, I think this probably means building relationships with the best brokers, staying connected to local market dynamics, positioning yourself to act when others can't or they won't. Niche down, understand your market, dig in. That creates power. you'll be the first in line to see the best opportunities. Second, geographic diversification without local knowledge is just speculation. The Medici didn't just own properties in multiple cities. They understood each market intimately. They had the underground intelligence. They knew the political dynamics, the economic drivers, the cultural factors that affected property values. Modern investors who buy rental properties in markets they'd never visited before in my opinion, are making the opposite mistake. I have met so many people who acquired properties across the United States. They've never even been to that market. Are they doing okay? Yeah, they seem like they're doing okay. Is it smart? I don't think so. You need to know your market. I'd rather invest in a market that's next door to me that's not that sexy, but that I know, than invest in the sure thing market across the country. They did a good job at this. Good investors today do a good job at this. Most of the really bad horror stories that are coming out and we're hearing are about California syndicators investing in Texas or in Denver and markets they've never been to and they don't really understand it. We're just getting into it. Third, another lesson from the Medici method, real estate isn't just about cash flow. It's about optionality. and influence. When you own strategic properties, you get into the flow of information that generates value just beyond just having rental income. Simple example, you own a property in a city. Your name is now on the map. You are taken seriously. You are part of the community. Brokers will view you as an actual buyer. So many times we look at markets and we have an informational asymmetry because we own the kind of asset that they're selling. We buy vintage buildings. We're big on vintage buildings right now. I think they're mispriced. I've talked about it many times. We've been buying them. Who do you think gets the calls today when a new, interesting vintage opportunity comes up? We do. And the brokers know that. And they push that story to the seller. We can offer good pricing on assets. We create strategic value for ourselves by being in the market, understanding the market, and And our existing assets create new investment opportunities for us because now the brokers go to their client. They say, listen, these guys, they buy this kind of building. I know they do. They bought three or four in the last year. You have to take them seriously. These are real buyers. Next, cultural amenities and infrastructure improvements can and do drive property values. The Medici understood this. It's one of the reasons they're known today as one of the biggest historic patrons of the arts. Today, this might mean supporting your local schools, advocating for transit improvements, or investing in businesses that might make your neighborhoods more desirable. Being a good citizen of your neighborhood, improving the area where your property is, right? Being involved in local politics is a big one. Local politics is where all the real power lies. We all talk about the president, the Senate, and Congress. Forget it. Forget it. Local politics is where it is happening. Why? Nobody votes. Nobody votes. So if you're involved and you participate and you give money and you're participating in local politics, you have a huge influence. Do you think you have any influence on what happens and who's elected president of the United States? No. But you have a big influence on who gets on city council, a big influence on local legislation. Get involved. Understand it. Make your city better. Fifth, leverage is a tool, not a strategy. Lorenzo's mistake is and it's not just his mistake, we've all made the mistake and everyone makes this mistake eventually, was to confuse leverage of wealth and chasing higher and higher returns rather than remembering to protect the core assets. Modern real estate investors often make this same mistake when they refinance profitable properties to buy more properties or when they bet everything on appreciation rather than focusing on cashflow and asset protection. There's a really difficult and sad story happening in our local market here. in Portland, not Oakland. And I won't say names, but a local person that has built a great generational wealth for their family, sold everything and invested everything in one big project in downtown Portland. And that project is hundreds of millions underwater today. So they bet everything and they lost it. I don't know the veracity of that story, right? That's the speculation and the rumor and what I'm hearing. So this is complete hearsay. I'm not saying this is actually what the situation is, but this is what I've heard from many, many people I trust. That happens all the time. Some guys and gals just can't stop. You have to know when to stop. Here's what I find most fascinating about the Medici story. They weren't just successful investors. They were successful investors who understood that building wealth is ultimately about building systems that survive. They were not optimizing for quarterly returns or annual performance. They were building something timeless. And that, to me, is what separates the great investors from the merely temporarily successful ones. The great ones think in decades, in centuries, not months and years. They build assets that get stronger with age, not weaker. And they create systems that benefit their grandchildren's grandchildren, not just their next tax return. So the Medici method, is not really about real estate. It's about understanding that true wealth comes from owning pieces of the infrastructure and the properties that civilization needs to function. And that infrastructure, the buildings where people live and work, the land where commerce happens, the physical spaces where communities gather, that infrastructure is always going to be valuable because human nature doesn't change. People will always need shelter. Commerce will always need locations to operate. We thought that we would get away from that, right? The whole Amazon thing happened and retail got really crushed and it was like a decade long crushing on retail. Guess what's back, guys? Retail is back. It's back, right? We thought everything would go, like all retail got hammered. It's not the case. It's back, right? And like people will always need, and power also will always need a place to operate. The families who own those places will always have influence, options, and security. So think about your own portfolio. Think about your own investment strategy. Are you building paper wealth or real wealth? Are you optimizing for this year's tax returns or this century's legacies? And are you chasing yields or are you accumulating assets? Because here's the thing about timeless investment principles. They don't care about current market conditions. They don't care about interest rates or inflation or political cycles. They worked in Renaissance Florence and they work in modern day America. They work when times are good. And they still work when times are bad. The Medici figured this out 600 years ago, and their methods are just as relevant today as they were when Lorenzo was dodging assassins in the Florence Cathedral. Real assets, geographic diversification with local knowledge, strategic positioning, long-term thinking. These are not complicated concepts, but they're powerful concepts. And when you combine them with discipline and patience, They then create something that no amount of financial engineering can hope to replicate, true generational wealth. Think well, act wisely, build something timeless. Thanks for listening to the Timeless Investor Show. If you enjoyed this episode, please subscribe to our podcast show and share it with others and join me next week as we continue exploring timeless lessons for modern wealth builders. If you haven't already, also check out the Timeless Investor newsletter on Substack, where we do deep dives on incredible concepts throughout history that are profound, challenging, contrarian, and I think fairly fun to write. So thank you again. This is Ari Ben-Gameron, your host. I look forward to seeing you next time. Have a wonderful week.