Financially Free in Less Than 5 Years Through Apartment Investing With Michael Blank

This is a BiggerPockets podcast show 324.

‘Michael: Basically, you take your comfort zone, what is your comfort zone? Then you want to try to expand it through various different methods and then do that as your first deal. At the end of the day though, Brandon, does not matter what size. It just matters that you do one.’,

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Brandon: What is going on everyone? This is Brandon, hosts of the BiggerPockets podcast. Here with my co-host, once again, David Greene. I was going to go with a middle name but I could not remember it.

David: That is fine because I do not want you knowing my middle name. It is great.

Brandon: David Leonardo Greene.

David: Greene.

Brandon: What is up? How have you been?

David: What is up, Brandon? I have been really good. Just dive in deep into this whole real estate world, learn as much as I can. How about you?

Brandon: Yes, about the same. I mentioned in the show later, I read this really good book lately recently called Vivid Vision. It was a short, easy, it does not make an hour. Like I literally, because I flew from Denver to Salt Lake City for an hour and I read the entire book in that hour. Then, from Salt Lake City to Maui, flying back home was a seven hour flight. I spent the entire thing building my company’s vision, vivid vision. It was one of the most enjoyable flights and I just have a really clear picture of where I am headed. Anyway, I think I mentioned it was in the show, I think I mentioned a couple weeks ago, I am just like fired up about this thing but yes, I am growing, a thousand units within three years.

David: Wow.

Brandon: Headed, yes, 10X, right? Alright, speaking of that, let us get to today’s Quick Tip.

David: Quick Tip.

Brandon: Alright, today’s Quick Tip comes from today’s show. Today’s show is unbelievably good. It is fantastic, very very fun. Michael Blank, who is our guest today, he has a lot of really good advice, but one of the things we talked about and one of the piece of advice he gives, I am going to make the Quick Tip, and that is like make it easy on people. If you want something from somebody, make it so incredibly easy for them. In the show, I give an example of my own life of an agent who made something really easy on me and ended up buying a deal with them and they made a bunch of money off this deal and I even gave a couple shout outs on the podcast because they made it easy. This will help you in every area of life but listen for that. But basically, that is the key, make it easy. That is all I got about the Quick Tip.

David: But that is big. I mean I am telling you guys, if there is one thing you do well in life, if it is that, you will be successful. Brandon and I have so many people that are reaching out that want to learn from us, that want to be around us, that want to experience or exposure to what we are doing, but they do not make it easy for us to bring them into our world so we have no idea how to do it and they miss out.

Brandon: Yes, very very true. Anyway, good good stuff. Without further ado, let us get to today’s show sponsor.

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Brandon: Alright, and that is it. Now, let us get to today’s show. Today’s show is with Michael Blank, the Michael Blank. He has been on the show back in episode 66. Here is the thing, this show is both incredibly high level and incredibly, let us keep the cookies on the lower shelf. In other words, it is kind of like I remember back in the day when I read the book The ABCs of Real Estate Investing by Ken McElroy. It was like this is everything about multifamily you need to know and it was really like a sparked my interest in it which is why I ended up buying my first apartment complex.

This episode is going to be like that for you. I really hope so anyway. It says like here is everything you ever wanted to know about getting started with buying apartment complexes. Like literally, it is like 30 questions. We just like boom, boom, boom, boom. David, I just go back and forth because we are so interested in this ourselves and so this show is definitely one you are going to want to take some notes on. Definitely when you might want to listen to one, two or three times. Of course, Michael Blank, he has a book as well. This stuff gets overwhelming. He has got a book called Financial Freedom with Real Estates, it is a real estate investing. It is really really good. If you want to get dive deeper to get that book or get The ABCs of Real Estate Investing.

There is a lot of books out there but learn this stuff, right? This is not that complicated but the first time hearing it, you might be a little overwhelmed if you have never heard this stuff before but stick with us. You are going to love this show. All about how to get started with real estate investing through apartment complexes and with that, let us get to today’s show. Alright, Michael Blank., welcome to the BiggerPockets podcast again. How you are doing, man?

Michael: I am doing awesome, man. It is good to talk to you again.

Brandon: Yes, yes. It has been a while since you were on the show. I mean it was like it was back in the 60’s, was not it? I do not know.

Michael: A quick 30 years ago for sure.

Brandon: Yes, yes. It has been like 400 years. I am excited to kind of see where you transitioned to where you are at today and I kind of know the topic of where we are headed today and that is apartment complex syndication, something that I really want to get more involved in. David, I know wants to get more involved in. Today, we are just going to pretend that the audience is not here and we are just going to pick your brain on exactly how we are going to get started with larger syndication. I think that will be fun. But before we get there, let us just kind of go back, and for those who did not listen to your first episode, I guess who are you, where did you come from? How did you get into real estate and kind of walk us through your very first kind of entrance into real estate?

Michael: Yes. I mean I have a background like many other people. I was taught to get good grades, get a good job, and that is what I did. I got into computer science. I was actually a programmer, believe it or not. I was not a very good programmer, I was in the right place, right time. Join the software startup late in the 90’s called Web Methods. We IPO in March 2000 and put a bunch of money in my pocket and I was the man. Then in 2004, I read the Rich Dad Poor Dad, which ruined my life, because when I read it I was like man I am such an idiot. It does not matter how much money I have in the bank, it depends on how much passive income I have, which I had basically none. After several months of a really like man, I decided to throw it all away and I just quit my job and just did everything.

I learned how to trade stocks and options. I flipped a house, I took an apartment building bootcamp, but my big idea was restaurants. Before you judge me, which you should, before you judge me I was surrounded by a Frank Burger franchisees and they are like, oh, we are going to hire a guy and he is going to run everything. We are just going to fund it and it is essentially a passive investment. I was like, well that is great, that is my cash flow business. I went all in, Brandon. I just took my chips and went boop, cash flow business, I am in because I want financial freedom.

Now, make a long story short. I subsequently lost my IPO millions in the restaurant experience and add a couple of hundred grand of debt on top of that and clawed my way out with real estate and with so many people who are thinking we have real estate on their mind, single family house investing. In my case, I was flipping houses. I did not have any of my money anymore so I learned how to raise money. I got into an apartment building and then after like several years, I was like, man I am making great money but this is such a job. Like I could not leave 30 days like I do now or 60 whenever I want.

Brandon: Yes.

Michael: I was like, man, I got this somehow something is not right. I determined that I need to do a little bit less of this and a lot more of that, which is the apartment buildings were just sending me a mailbox money. That is kind of when people were asking me, how do you raise money? How do you do apartment buildings? That is when I started blogging for you guys back in 2014 and then doing so, I have come to the inclusion that all the shenanigans I have done, the single best way to achieve financial freedom is with multifamily investing. After all the things I have done, that is why I was so enthusiastic about blogging about it. Then from that point, we just shifted. We got deals, new connections were made, deals came in, money came in. That is kind of… Now, all we are doing is multifamily syndications.

Brandon: Cool, that is great. Alright, now they are kind of your story and that is exactly what I wanted to hear. Kind of like how you got started into… Why you transitioned into apartments. Like I said, today who is going to be a little bit different. I want to really just dive into topical, how did you invest in apartments? I want to just kind of go through, I mean, I literally listed out like I do not know, 30 questions here. I do not even know if we have time for everyone, but I thought we just go through this first, to call this one on one coaching, well, two on one coaching with Michael and David.

Let us just kind of run through this stuff. I am first curious, what do you think is a good size to start with? When you were wanting to get it into apartments, like can the 21 year old who has got no money and no nothing, should he go and buy a 200 unit? Is that feasible? What is your general recommendation on where to start with size wise and where you are at in life?

Michael: It is more important that you start with something. I used to think go big or go home and I no longer think that and the reason is because I have this thing called the law of the first deal which says that if you do a multifamily of any size, you will be financial free in three to five years. I know that because of my talking with my podcast and talking to people and studying this at great length and the phenomenon is so universal and so strong, even for people that do a duplex, right? Because what happens is they will do a duplex which… Then the second deal they do comes in rapid, almost automatic succession and it is never a duplex. Again, it is normally around 10 units. The third deal then is always almost around 20 to 30 units and the deal after that is normally 50 plus.

To answer your question, it does not matter what size it is. However, having said that, it depends a lot on you. If you have… If you are a high income earner and you are trying to replace $10,000 of income, well, you want to find a deal that is both meaningful and achievable. A duplex in your case will be highly achievable but maybe not so meaningful so do not pick a duplex, pick something more like a 20 unit. It is basically you take the edge, you your comfort zone, what is your comfort zone? Then you want to try to expand it through various different methods and then do that as your first deal. At the end of the day though, Brandon, it does not matter what size. It just matters that you do one.

Brandon: I love that. Okay, I want to pick apart a couple of things you just said here in a good way. Like because I feel like I am talking to myself here. I mean I say the same stuff all the time, right? It does not really matter what that first deal is as long as you get that first deal. Where a lot of people struggle is they just want that home run deal. That is like the thing they heard that during the deal deep dive on the podcast that was like a home run that you did after 10 years of doing this, right? They want that deal and they think that if they cannot get that deal, then they probably should not do anything. I love that you just say like start with something.

On the same token, what you are also talking about is like what I call the stack. I put it into this phrase called the stack and it is this framework of thinking about real estate, right? Where if you start, what a lot of people will do is what you and I both did when we got started, right? Like a single family house, maybe flipping a single family house. What we do is we get stuck in that mode for a long time because we are comfortable. I love that you said the two, to maybe 10, maybe 30, that is the stack, right? It is saying I am going to push the bounds of what I feel comfortable every single time. I am growing exponentially. I am not just staying nice in my little cocoon of whatever it is that I felt good about. This is something that I struggled with a lot over the past decade, it is I always want to go back to where I feel comfortable. I want to go back to that single family house or duplex. Nothing wrong with starting there but I think it is smart to think how do I grow?

Michael: Greatness is right outside your zone always. There is also something you said about the first deal, that home run, and that does hold lot of people back. Here is the thing about the first deal, the value of the first deal far outweighs any kind of money you can ever make from it. Okay, I want to be very very clear about that. Because of the law of the first deal, because that second deal will come along and in rapid almost automatic succession. You would have to spend more energy not to do the second deal than to simply do it and it is all because of that first deal. There is several reasons why, we can go into it if you want, but really the value of that is much much higher. Even if someone were to do a mediocre deal, even if you were not to pay yourself an acquisition fee or if you were to give up 90% of the equity to, which is insane, but let us say you did that, the value of that first deal far far far outweighs any kind of monetary value you would get from it.

Brandon: Yes, I love that. That applies to people buying… I mean doing anything. If you are out there saying I have got no money to invest in real estate, I want to buy that first duplex but I mean I have nothing, like I oftentimes joke with people, give away 99% of the deal then. Who cares? Like nobody is rich on their first deal. Nobody is rich on their first deal but they are rich because of their first deal, right? Because the first to the second, second leads to the third and so on. Like you got to get something done. Now, that does not mean go buy a bad door, right?

Michael: No, you should not do a bad door. It is absolutely right. You never… We always could take care of investors, whoever that may be first, and you have to use conservative underwriting. But if you have to pay yourself less or possibly nothing at all, it is something to consider.

David: You what is funny? Is people will go pick guru, $10,000, $20,000, $30,000, $40,000, $50,000. Like, honestly, we are not exaggerating. There is… I think someone was just telling me that they almost sign up $50,000 and you pay your own ticket to fly to Texas and he will walk you through like his flip business , right? But they will do a deal where they think that they are going to give away most of the equity.

Brandon: I heard about one of the guys other day, one of the TV guys, I will not say his name, but he was bragging is the right word. But it was on stage at a conference, his new plan, his new like Platinum Level whatever coaching program is $250,000. $250,000 to be able to learn how to do this, I just always, it always shocks me. But anyway, again, I do not have a problem with paying for education. I mean like if it going to help you, if you are going to get there, fine. But if you have got a quarter million dollars or $50,000, it could go a long way is to getting that first duplex or whatever you got to do to get started.

Let us go to the syndication versus not syndication. Like you do not have to syndicate, maybe we should step back even further. Can you define what syndication is before we start talking about whether or not somebody… You can tie that into should somebody do that or just go ahead and just do it all on their own? What are the kind of the pros and cons of each and what is syndication?

Michael: Yes. Syndication is really at the heart of what all entrepreneurs do. Entrepreneurs make something happen out of thin air and that is really what syndication is. A syndicator basically finds a deal, whether it was none, puts a manager in place and then gets investors a variety of different investors to invest the deal. Without that entrepreneur, there will be no deal, right? The investor would not have anything to invest in.

Brandon: Yes.

Michael: The beauty of a syndication is that I, as an entrepreneur, can do exactly that. Make something happen out of thin air whether I have money or not. A question of whether you should syndicate or not is one of your personal situation and resources. If you have $1 million to deploy and you can fund your own deal, well there is really no need to syndicate. However, you do one or two deals and guess what? You are going to be out of money. If you want to continue doing that, you are going to end up raising money. The real thing with syndication is it really allows you to scale.

Brandon: Definitely, definitely. Okay, Scaling up. I mean I know like the first time Grant Cardone was on our show, up until that point he had never syndicated. He has just built all his money over the course of 30 to 40 years or whatever and I think he had I think it was 300 million at first when he was on our show and I think he is hoping to be at a billion by the end of this year and it was like two years ago, right? He is definitely like I mean he made a lot of money to be able to personally go up to $300 million. But now because he is syndicating, he has now shot that up 300% to 400% in the last couple of years. I definitely know what you were saying there and that is why I am interested in syndication because my money will only go so far, right?

Michael: It allows you, when I say you it is the general, it allows you to get started without any money. If you have zero in your pocket, all of a sudden you get into the apartment building a business and this addresses the major objection that people have in their minds, ‘Oh, I need lots of cash, do not I?’ Well you do, but it does not have to be your own.

Brandon: Yes.

David: If you are going to be investing other people’s money, you better know what you are doing. You would agree, I am sure, Michael. Let us go through some of the terms that a multifamily investors have to understand so that if you get to the point where you want to borrow someone else’s money, you can pitch them or you can explain to them a deal and they will feel comfortable with you. The first is what we want to talk about is like the cash on cash return, can you tell us what that means?

Michael: Yes, cash in cash return. Let us say a investor invest $100,000. The cash in cash is, and this is the beauty about multifamily real estate is that there is actually cash flow distributions. Unlike the stock market, you invest a bunch of money and you make your money when you sell for a gain presumably, but with multifamily real estate was actually rental income which creates income which allows you to have distributions. The cash on cash measures what does my annual cash flow distribution base divided by my investment. If I am distributing $10,000 to that investor, then the cash in cash return is $10,000 divided by a $100,000 so it is a 10% cash in cash.

David: Okay, that is the return that you are getting on your money which is very so much like a return on investment, like an ROI, right?

Michael: It is part of it.

David: Now, let us talk about the full picture. Thank you for bringing that up. Let us get into the Internal Rate of Return, what does that mean?

Michael: Internal Rate of Return, I am going to answer the question in a slightly roundabout way, the Internal Rate of Return or IRR is a very advanced concepts. If you are raising money from friends and family, I would advise that you do not speak about the IRR because that is an advanced thing. What I would advise is that you talk about the average annual return which is very similar but not mathematically exactly the same. But the really the question is what is my overall return?

That is really what the average annual term measures. If I put in $100,000 and the investment is five years, I want to know how much money am I going to make overall over the entire life cycle of that and let us say I am doubling my money in five years, I am getting $100,000 back and I will have made a $100,000 and that $100,000 “profit” is made up of the cash flow distributions as well as a profit when we sell at the end.

Now, I have that 100% return let us say, where I doubled my money and I divide that by the number of years, say five, and the average annual return is 20%. Now, compound that is going to be slightly less than that, but on average, that is what the investors really asking. I would stay away from IRR because the IRR is a mathematical formula. It measures the net present value of time and money and it just confused as to hay out of everybody and a confused mind says what? No.

Brandon: No.

Michael: Do not confuse your investors. When you are analyzing deals, yes. We are talking about the IRR because it allows us to compare different investment vehicles, even accommodating things like a cash out refinance which messes up your average annual return. But again, I am complicating things, but people are thinking what is the overall return, what is my average annual return and what is my cash on cash?

David: You are basically taking every variable that could play into this investment and adding it all into a projection. It is more like an algorithm that takes several different variables and puts it all together. You are looking at when I sell, how much would I sell for if things went according to plan? If we get this cash flow, how much would it be? If we refinance halfway through and we get our money back, that obviously affects the ROI because capital is being returned. Investors have less money in there. It is probably the most accurate way to compare several investments together but that makes it the most confusing and I think what you are saying is that is why you should stay away from it because it will scare people that are new.

David: Okay. Next up is a metric that is much more simple and easy to understand and that is going to be the capitalization or the cap rate. What is that?

Michael: Well, it is actually a little more difficult to explain and understand because it involves simple math, which is terrible, I know. But the cap rate, it is very simple. Cap rate is used to value commercial real estate. In commercial real estate, the more the box produces an income, the more it is worth, right? I can buy a box for $1 million and then right to next is an identical looking box but it is worth $1.5 million because the one on the right just producing more income than the one on the left. That multiplier, that multiplier of income is essentially the cap rate. That is really the cap rate. We can get in the math, but again I do not want to confuse people.

Brandon: Sure, yes.

Michael: But the cap rate people, the next question people ask is where is the cap rate come from?

The answer is you get it from your broker. Your broker would say, ‘Oh, this is an eight cap property.’ Right? The simple math of those that need to know is basically the NOI divided by the cap rate gets you the value and that is essentially it but it is used to value commercial real estate.

Brandon: Okay. Cap rate is usually like in an area or for a certain type of investment there is like an average, right? You could say that in Memphis right now with these mid-size apartment buildings, a six cap is pretty normal, is that that kind of right? Then therefore, mathematically, again this is really something like it is a lot easier to explain in like a whiteboard, but like if the income goes up, like if your profit on this property goes up, if your net operating income goes up, the property should be worth more if the cap rate stays the same.

Now, if cap rates change, then I that can change things as well. Then all the three are kind of related together. There is a million videos on YouTube if people are like, I mean, it is a cool concept that we definitely have to understand if you are going into multifamily or commercial real estate but you can find on YouTube a million videos about this that will explain it and a million blog posts on BiggerPockets to explain it. But anyway, I think that is pretty good explanation. Cap rate is that multiplier, it makes something worth more or less. What about cash flow? Just a nice easy one. Like what is cash flow?

Michael: Yes, cash flow is essentially the rental income that is leftover after covering all the expenses as well as your mortgage payments or your debt service and that is distributed to the investors and that affects the cash on cash, right? The cash flow divided by the original investment equals your cash on cash return.

Brandon: Alright.

David: Alright. How about what is a syndication?

Michael: We talked about a little bit earlier. Again, it is basically taking a variety, and money, from a variety of investors and using that to purchase a multifamily property. There is some SEC guidelines around that. Your SEC attorney will take care of all the details.

Brandon: Okay. I want to get into, I have some questions about SEC a little bit later and obviously not an attorney but we will get to that in a little bit. What about net operating income? You mentioned that a minute ago, but let us define that.

Michael: Yes, the net operating income, that is the number, that is the figure that is used to do to derive the value of a building and the net operating income is your income minus expenses, but before debt service. That is called the net operating income or NOI. You have income minus expenses is the NOI and then minus debt service is essentially your cash flow. But the value of the building is derived from the net operating income. The higher the NOI is, the higher the value of the building.

David: By debt service we just mean like your mortgage?

Michael: Mortgage, yes.

David: Yes.

David: It is like the profit of the company before you have to account for whatever you spent to buy the building basically.

Michael: That is right.

David: Then the number you get after you take out the mortgage would be cash flow. These are all… I mean it is not very complicated stuff but something about multifamily investing, we make it sound more complicated than it is because it makes us smarter. You hear multifamily investors will throw around a lot of fancy terms and you are like oh I do not know what they are talking about. But like I know this is just a sidetrack, but like agency debt, you will hear oh yes. I am talking about agency debt and people are like, ‘I do not know what that means. Is that like the FBI?’ It really, it is just like, no. It is like a Fannie Mac of Freddie Mac, Fannie Mae Loan, like the easiest type of thing that there is but they give it a cool term.

Brandon: There you go.

David: Okay. Next step would be what does it mean when we talk about value add?

Michael: Value add is essentially forcing the appreciation of a building. What does that mean? Forcing appreciation was done, it implies that I am making value go up in some way. How am I doing that? I am making the NOI. If I want to make the building go up, I have to then make the NOI go up. Well, how do I make the NOI go up? I can do it in a variety of ways. I can raise rent or if the building is… If the vacancy for example is very high, I can fix that problem. Or if the expenses are high, it can reduce the expenses. All of those things will affect the NOI. If I buy a building at whatever NOI it is, and I apply that going cap rate, I get a certain value.

Let us say it is $1 million, back to our initial example, and I do all these things and I increase NOI and variety of different ways and within a year or two or three, the NOI is now higher in that same building that was worth $1 million before is now worth one point $1.5 million without the market doing anything. That is a value add. Value add means is that I am actually adding value. I am doing a bunch of stuff to add value and therefore I forced appreciation. That is the beauty of this because when in the house flipping business I added value in a similar way because I had to make rent renovations. But the value of that building was purely driven by comps and that was highly market dependent. If the market went up, my building would go up or my house would go up the market, went down like in a recession, regardless of what I did it is was it went down. With multifamily, I just have to increase the NOI and get the same thing.

David: Yes. That is why Brandon and I are so just like gang ho about people understanding real estate investing rather than just blindly following someone else’s model. Because when you understand what drives value, then you can understand what moves you need to make to increase value. Like for instance, you have got ROI. ROI Is dependent on two things, how much money you make and how much money you put into a deal. If you can put less money in a deal or you can make more money, you can increase your ROI. There is only two levers you have got to pull, right? Well, what you are talking about with value add with multifamily is very similar. There is a cap rate and there is an NOI.

You cannot really control a cap rate, just like you cannot really control how much money you make buying a single family house because rents are going to be what they are but you can control how much money you leave in a deal. That is why we like the BRRRR method because you can get more money out and increase your ROI. Well, with multifamily add ons, you can control the NOI. The better you run that business, the lower your expenses are or the higher your rents are, the more you can make that property worth money. It sounds complicated when we talk but it is actually really really simple when you boil it down. I think, Michael, like you have done a very good job explaining that.

Michael: Yes. It is simple in a sense that the favorite deals that we love or or deals that are self-managed. These are owners who are trying to maybe cut corners, saved money and they manage their own building. Maybe they have owned it for a long time, they do not have to squeeze every single dime out of their property and they are great with it. But if you take a building like that that is slightly mismanaged or grossly mismanaged and you put a professional manager in place, that manager now can actually do the value add for you. It is actually relatively simple to add value. You do not have to be a genius. Not only that, but a small increase in NOI will make a huge disproportionate different in value. I do not have to like have to like have a home run like you said earlier, Brandon. If I can tweak, if I can increase rents by $50, reduce expenses by $25, that is… If you divide that by the cap rate and you times it by the number of units, you can create a hundreds of thousands of dollars fairly, fairly easily.

David: Yes. They say that a small hinges swing big doors and that is your hinge.

Michael: That is the hinge.

David: It is a very good point. Okay, next thing we want to ask is what is the difference between an accredited investor versus sophisticated investor and why does that matter?

Michael: It matters because, depending on who you are, we will talk about that in a second, it depends on who can invest in a particular syndication. Accredited investors are high net worth individuals. There is around… There is people with lots of money, let us say. The SEC then says, well, if you have a lot of a lot of money you are kind of on your own. You should know what you are doing. If you lose the money, well you are probably okay. Then there is a non-accredited investor. Those are people who are not rich. Okay, let us, for those a lot of the SEC rules protect them to these non-accredited investors.

Over the non-accredited investors, there is something called a sophisticated investor who is basically is non-accredited, they are not rich, but they have some experience with investing and something probably outside the stock market. Maybe they took a class or a seminar or they have rental property and or something like that and those are considered sophisticated investors. The reason that matters is you as a syndicator, depending on what kind of SEC exemption you file, you can take up to 35 non–accredited investors and an unlimited amount of credit investors, which for most people, does not matter. If I have like 10 investors in the deal, that will be all I ever have right in the beginning. It is the only when you are doing larger deals where you have to pay attention to that.

The requirements around bringing those non-accredited investors on to have a preexisting relationship with people. In other words, they cannot be strangers. You have to know them, you have to meet them in person, have a phone call and an email or something where you can say it was a pre-existing relationship and you cannot give them a deal when you first see them. I mean accredited investors are quite a bit different, again, because the SEC does not really protect them as much as non-accredited. For the beginner syndicator, the only thing that really matters is how you solicit and bring on investors. You cannot bring it on strangers, you cannot put up a billboard, you cannot advertise. It has to be all pre-existing relationships.

David: Okay.

Brandon: Yes, that is a tough line sometimes I feel like. I just went to a Joe Fairless’ conference and a lot of that conversation was on syndication and it is interesting like the gray that is in there. Like what is a pre-existing relationship is exactly? I mean like how many conversations, how close do you have to be? I mean somebody listens to you on a podcast and calls you up, does that count? A lot of that stuff is kind of left to the I guess the course that some they decide it seems like. Is that true? Do you have any insight on that?

Michael: Yes. There is a civil action letter, which again I am not an attorney nor pretending to be one, but there is a letter written by a syndicator to the SEC. They said that if I were to do these things, would I be okay when the within the SEC guidelines and they said yes. Everybody kind of hangs our hat on that, which is essentially it is a system of defining preexisting relationships. For example, let us say I have a website, someone fills out a form and I want to establish a preexisting relationship. Well, the more touch points I have with a person, the better I get to know that person the more I can say is a pre-existing relationship.

I want to have them fill out a questionnaire that asks them questions about their investing experience, what have they done? Are they accredited, non-accredited? Then I want to have a phone call with them. I want to have a series of emails. I might want to meet them in person. I might not want to do a zoom call and then some time should go by and at one point I can say, okay, I feel pretty good about having a pre-existing relationship and now show that person a deal but not before then. This letter then kind of describes that there is like seven points it goes through. We are kind of, we and a lot of other syndicators are just, as well as the Joe, I am sure are very aware of these of these letters. We have a routine of interactions with new investors before we show them a live deal.

David: When I was a police officer, we would have similar situations with like the fourth amendment, freedom from search and seizure of the government without due because. There is a lot of gray area with like, well, what becomes due cost, right? They would all determine it by case law. Some cop would search somebody and they would find drugs and some judge would look at it and say, ‘Was this search lawful or not?’ Right? It was like that with when you can use force, all kinds of things. Is there a place like people can go to to get case law on how judges have determined what was and what was not a pre-existing relationship?

Michael: I think that is a question for the SEC attorney for sure. The frustrating thing about that is every single SEC attorney will give you a slightly different response.

David: Yes.

Brandon: Yes. If you ask 10 SEC attorneys, you will get 11 responses. Like, yes, it is like they are…

David: Is not that just how life goes when you get into this space though? Like you can never get a solid answer from anyone. It is the same way I felt when I was a cop but like can I do this? They are like, ‘Well, it depends.’ Everything started with, ‘Well, it depends.’ Okay. Last question.

Brandon: That was good. Yes, go ahead.

David: The difference between a general partner and a limited partner?

Michael: In general, the general partners are the entrepreneurs. We call them the syndicators, the sponsors. These are the people who are putting the deal together, who are operating the deal on a day to day basis and then there is the limited partners who are the passive investors. In the context of an LLC, those are actually not the right words but we use them all the time, because it communicates the roles of a syndication to get the GPs who are calling the shots. They are putting the deal together. Then there is the LPs who invest the money and have limited voting rights but their liabilities is also limited to the amount of money they invested versus the general partners have essentially unlimited liability because they are responsible for the deal itself and they are signing on notes and they are doing these and then the old thing.

Brandon: Nice. Cool. In a typical deal, you are going to be the general partner which is in real life, like you are generally a general partner. If I were to invest with you, I am a limited partner because I just put my money with you. Now I cannot lieu if I give you a $100,000, I am likely not going to lose more than my $100,000. I mean that is what I am limited to, right? It is not just a loss of the capitalists liability, imagine lawsuits, right? The LPs will not be part of any kind of lawsuits. The worst that can happen, which is bad enough as you lose your investment, but there should be nothing outside of that typically around lawsuits.

Brandon: Okay. Yes, that is it great.

David: Is that where the phrase comes from? Limited partner, because their liability is limited?

Michael: I think so.

David: I have never heard it but Brandon said it so it probably is true.

Brandon: Oh, wow. Look at me. Alright.

Hey, it is Brandon. We are going to take a quick break from this podcast episode to invite you to this week’s upcoming webinar, How To Really Invest In Rental Properties The SMART Way. That is a acronym and you will find out what it stands for if you come to this Webinar. I mean basically going through the things like how to identify the best type of rental property to buy, the four step daily process that only top investors are using and that you can use as well even if you want to just one deal. I am going to show you how to run the numbers on a rental property in under five minutes. We will even do a real life deal analysis and it is going to be breaking it down using the acronym SMART. I hope you can attend. It is going to be awesome. Do not waste years of your life and tens of thousands of dollars trying to figure out how to do it. Just come to this online class and see exactly how to get started the SMART Way. Just go to BiggerPockets.com/smartwebinar. Again, BiggerPockets.com/smartwebinar. I will see you there.

Brandon: Let us talk about the different ways a syndicator makes money because I find this fascinating. Back in the day, I thought it was just like, hey, the syndicator gets some kind of percentage of the deal but it is actually multiple ways that you as a syndicator can make a revenue. Is that correct?

Michael: It is and that is why I love this business. There is at least three ways a syndicator can make money. One is when they purchased a property at closing through something called the acquisition fee and that acquisition fee is typically one to 3% of the purchase price is paid to the syndicator or syndicators at closing. Some people are like, ‘Wow, that is not. That does not sound right. Why are they getting a $100,000 on this deal?’ Well, if you divide the whatever acquisition fee they are getting by the amount of hours that syndicator has worked, to not only close that deal, but the other 10 that did not close, they are basically working for minimum wage. That is totally deserved number one. Number two, the second way to make money is through the equity that syndicators getting a deal.

For example, when normally the syndication is done and its equity splits, 70 – 30 split means that the alignment pardons LPs get 70% of the deal and the GPs get 30% of the deal even though the LPs played in all the money. It is this idea of what is called carried interest. The GPS get 30% of the deal for not putting any money. It is like sweat equity for putting the deal together. The GPs then get paid out of their percentage of the equity. They get their share of the cash flow of 30% cash flow and then the investors get the other remaining. That is another way to get paid while they own the property. There is also something called asset management fees. Not unlike property management fees, this is for essentially managing the asset. It is expressed in a variety of different ways. It could be a percentage of NOI, it could be percentage of income collected.

It could be a variety of all those things but the idea is the asset management fees are there to cover overhead on the of the syndicator while they are managing the asset. The third way is not frequently done but it could be at the end of the deal when all the principals returned either through a refinance or through a sale, through a capital transaction fee. A very few people do it but it is not a reasonable charge to say a point at the end. The idea as a syndicator is that you make money upfront during the investment and once it is disposed of.

Brandon: Yes. That is kind of the reward of a syndicator is that if they all this work of finding the deal, bringing together investors, they should get paid at various points in it because otherwise they could not. I mean most indicators would not be able to survive and put food on the table if they did not make a little bit of money at least some time in between. I mean it was limited to only like the super wealthy who have already succeeded in life which are not probably going to put all the work into syndicating a deal. There is definitely a value to the syndicator and there is also a huge value to the limited partners, right? Because now they do not have to go find the deal, they do not have to go find and do all that work, raise the money. They just give their money to somebody and they get 70% proportionally up to 70% of the deal potentially. Now, does that change? I do see sometimes 80 – 20, 70 – 30, 60 – 40. Like how do you decide how much the syndicator, the general partner gets of that and how do you decide how much to the limited partner gets?

Michael: That is typically answered by the return of the deal. Let us say you have a really real rich deal, well it could be a 60 – 40 split because their deal is so great. The bigger question to the investor is what are the returns? We talked about it earlier and typically what is my average annual return? In other words, how long does it take to double my money and what is my cash flow? More cash and cash return. If those are satisfactory, at the end of the day, the LP should not care what the split is now. Some still cared. Like, 60 – 40 split, what are greedy syndicator you are. You are paying yourself too much. I am like, okay, well you are getting a return. At the end of the day, what do you care how much we pay ourselves? But typically splits are between 60 – 40 and 80 – 20 sometimes. As a deal get a lot larger, you might see a 90 – 10 split but it is not very customary.

Brandon: Okay. Would you personally like take a smaller… I mean let us say, this is something that I personally have thought about. Like when I am putting together like the ideas of syndication, I am running the numbers and sometimes the deal just does not pencil out for the investors, to the limited partners on a 70 – 30. In 80 – 20, it actually looks pretty good. Like would you take a smaller cut personally to get the deal done? And how low would you go?

Michael: Well, it depends. Like we talked about earlier, if this is your first or second deal? The answer is maybe, right? Maybe. If it is not, maybe it is a larger deal. Maybe it is a $10 million to $20 million deal. While I would rather do a 80 – 20 of a gigantic deal than a 70 – 30 of nothing. It really depends. Brandon: Okay, yes, that is a good answer. Again, yes, I can see how it ties into the thing we talked about earlier about if it is your first deal.

David: Yes. I am curious, Michael. In all practicality, how much does it matter? Like how much is it determined whether what your split is by who the people that you are borrowing money from are? I guess a better way to ask that is if you are a borrowing money from extremely sophisticated people that have a lot of options that will give them a high return, do you have to give them a smaller percentage? Whereas if you have got a bunch of people that are like, man I have zero idea what to do with my money, please do something with it, then you just offer a…

Michael: Yes, it is a lot driven by who your investor is, right? For example, your friends and family would be just unbelievably ecstatic. If you gave them a 10% return on their money, they are like I cannot get anywhere near that. Versus if you are going with a sophisticated investor who actually looks at deals or maybe has some done deals, like I will not get any, I will not get up for anything less than a 15% IRR because they will use the IRR term because they know it better. You have to structure your deals based on who your investors are.

David: There you go. Dude, that makes a ton of sense to me. The offset for that is even if you have to give away a worst split for yourself and give away more to your limited partners, if they have a whole bunch of money, right, you are happy to do that because you are going to make more money. If they have got $5M instead of $50,000 and you get to keep 20% instead of 40%, you are probably have zero problem doing that because you could buy a bigger deal which has more meat on the bone. There is more to go around and the volume will make up for it.

Michael: Yes, that is right.

Brandon: Can I ask your opinion on family and friends? We mentioned it a few times, how do you feel about borrowing money from grandma or from Uncle John on your first or second syndication deal?

Michael: I mean, I would address that same question as taking money from anybody whether it is your friends, family or people you are networking with. first of all, you should not be taking money unless you know what the heck you are doing, first of all. You should not be taking money where it is the last money that someone has. This is why I advise the minimum investment really should be $50,000. Do not invest money at $10,000, $15,000, $20,000 at a time.

As I looked from my own experience, every time, especially when you do it early on, you just want to take people’s money and you are taking $25,000 and it is the non-sophisticated investor whose last $25,000 you took that are constantly calling you every single week, ‘Hey, how is my money doing? How about now? Why is my check late? Where is my check?’ Like you do not want to deal with people like that. Take grandma’s check if just under those under those parameters.

Brandon: Okay. Yes, that is really good. Yes, I have gone back and forth on that but it is true. Like the people who are the non-sophisticated ones are the ones calling you because the other ones like they just trust the process is going to work itself out in the end. One more question before we get into location on finding deals and all that. I am curious about I guess this idea of a… Shoot, where was I going with this? I had this really good question. Dang it, now I do not remember it at all. Alright, well whatever, I am going to remember it later, I am going to come back to it.

David: Brandon just had that moment where he walked into the kitchen and he is like, why did I come in here again? What was I looking for?

Brandon: That is exactly what I did. Oh my gosh, even as I was saying it. Whatever. Okay, let us go to location. It will come back to it a little bit. Oh, I got it, I got it, I got it.

David: There it is.

Brandon: I know what I want it in the fridge. I knew what I wanted. I came for, I do not know, whatever, Lacroix. Alright, I am wondering like, oh no. Okay, wait, let me… I got it. Good deal. Okay, syndicators have two things. I got it, I got it. The syndicators have two, well, there is a lot of options, but let us say there is two if we divide them into two categories. There are the value add deals where all the profit generally in the deal is made at the very end. I mean like the cash flow is almost nothing because the property is disgusting. It is going to need years of rehab or run through all of these units and they are like probably is not going to be any cash flow for the next three years.

However, at the end of the day it is going to be a really, really good deal. Then there is a deal, it is like this is mostly a cash flow play. We are hoping to get a little bit bumpy at the end. Maybe add $1 million in value, but it is going to be give you a 10% cash on cash returns. I guess what I am asking is where do you personally lie in there of like a 15% IRR but 0% cash flow versus a 15% cash on cash return and a 15% IRR at the end. You know what I mean?

Michael: The answer is somewhere in the middle as I do not love the first and the second is really hard to find. The reason I do not like the first because it smells a lot like a development deal, right? There is no money, no money and this giant pop at the end. I do not love that. The reason I am in this business I want cash flow as close to possible in day one.

The ideal scenario, Brandon, is where you have a stable cash flowing value add deal. Meaning that it is already making money but it is not making as much money as it should. I can go in there with a 10 year agency loan, like David said, Fannie or Freddie Mac, a low cost government loan. Because it is already 90% or more occupied but the rents are low because it has not been renovated. That is the ideal scenario because the risk is a lot lower.

Now, if you are going to do a heavier value add like you are talking about, you are still, you are still looking for a stabilization somewhere in year two so your business plan has to be really concrete saying the rents are low and the vacancy are high because they have not made any repairs whatsoever over the last 10 years and a place is a dump but the property next door is gorgeous and the rent is $150 higher. Which I would go in there and hire a general contractor and they are just going to clean everything up and renovate the units and they get a strong property manager lease up the units. By the time year two stars I should have or before I should already start having cash flow. It is not ideal to not have cash flow for more than, I do not know, six to 12 months.

Brandon: Then one more follow up question on that. I know we are getting real deep in this and I hope people do not mind, but like this is something else I have been dealing with both of my own personal investments and in what I plan to do in the future. Let us just say you raise money for a deal and it needs a lot of cap backs. A lot of like that fixed up in the beginning. Do you have a separate pot for that money that does not affect the cash flow? Because I mean if you think about it, let us say your property cash flow a $100,000 this month but you also had a $100,000 in cap x that you already knew was going to be there and you already raised money for, it is in like it is separate, right? Do you distribute that $100,000 in cash flow to your investors or do you just say, hey, it is basically a wash, we made no money this month. You know what I mean? Does that make sense where I am going with that?

Michael: It depends, it depends what the $100,000 dollars is for, right? If the $100,000 is for improvements, renovations, you better use it for that purpose. Otherwise, you cannot execute on your business plan, right? However, the general rule of thumb is to always raise more money than you think you need. In this case, let us say I raise $100,000 more just for good measure, let us say, because for emergencies and it is a good thing to do. But let us say you have gotten your… You wrap your head around then you stabilize a property after 12 months. You still have the $100,000, you have already done on your renovations, you do not really foresee anything major. Well, then you might want to just return that hundred thousand dollars, maybe not as a return, but as capital and your operating agreement can allow for that. Now, what you are doing is not a return but you are reducing the principal that was invested in the deal. You have so many different options, you can do really whatever you want.

Brandon: Okay, cool. Let us move on. Location, how do you find a good place to invest? There is a lot of markets, places, you should invest. With local, long distance, how do you research it? What can you tell us about location?

Michael: Yes, never almost always long distance, right? No one is buying in Hawaii or the bay area, no offense to you guys, right? 85% of people are buying outside of their own area. Where we want to go is we want to go to areas that are growing. They were growing but we can still get some kind of yield. San Francisco might be growing like a weed but I cannot get any yield there at all. I do not have that combination of two things I am looking for versus for example Jacksonville, Florida, crazy demographic growth and the cap rates are still reasonable. I want to find areas like that and then within the area, sub market is very important, right? You want to go into areas that even within an area is going to be growing so I want to buy in that area. It is essentially under the guise of a rising tide lifts all boats. If I buy in that way, I could theoretically still screw up the purchase and then within two years it will fix my mistake if I do that.

Brandon: Alright, good answer. Where are you investing?

Michael: We are going to be in the Sun Belt too. We are in Jacksonville. Orlando, Florida is a great market. Alabama, Huntsville, Birmingham. We are in Memphis not because it is a growth market but it is a high high cash flow market. We love Memphis for that reason, I know you do as well. Texas is very great. Austin, Houston, Dallas, very competitive. Atlanta, great market, also competitive, but that is kind of where the demographic is moving to is those as those areas.

Brandon: Alright.

David: Yes, basically the southeast, that is kind of where. Southeast, south, anything that is warm basically. Wherever the sunshine is people want to be. No, it is the same thing I would sell people. It actually it sounds really simple but it is true. Any people are moving into those areas. If you look at like the population of the United States, it looks like someone took the whole thing and tilted it and everything sliding down into the right and then the fact I like investing in warmer areas because I do not like the problems that snow brings. Snow wears out roofs, it burst pipes. You have to worry about shoveling it out of people’s driveways. Like there is just a lot of problems. Like water causes problems in houses and anywhere it is really cold and it snows, you are going to get water. Even though that sounds really simple, most people doing what Michael is doing are investing in those same markets.

Brandon: There you go. Well, let me ask you this. Let me just go back to the good location and that will lead us into this. Do you pick a market first and say I am only looking in these nine MSAs or whatever or do you just like start meeting brokers and looking at deals or whatever in the entire Southeast and then evaluate the market after you find the deal?

Michael: No, you should probably evaluate the markets first because there is only so many hours in a day. You study this markets and you pick maybe your top markets, your top two market. You want to pick a market or markets that are big enough for you to generate the deal flow you need. Let us say if you want to analyze two deals a week, well that means that whatever market or markets you pick should produce that level of volume. If it does not, you should pick a larger market or maybe pick a second or possibly a third market.

Brandon: Okay. I like that. That is really really good advice. Okay, what you got in market then? How do we find them? I mean what are you typically doing? Are you doing DirectMail, anything creative like that? Or is it just brokers? Like, yes, what is your process?

Michael: I love the creative stuff, but in this particular case, it is not a house flipping business. The number one way to find these deals through brokers and it is all about the relationship with those brokers. The good brokers, it is like the 80 – 20 rule, right? 20% of the brokers control 80% of the volume in the business. You want to get to know those brokers and you want to build a relationship with them. What you are looking for the point where they call you a week before they put a listing out. They will say, ‘Hey, Brandon. I got this thing coming out. I am still working on the marketing package. But if you come in at this point, I do not have to do a bunch of work and I could sell it without doing a listing of some sort,’ That is really the magic. That is something that someone starting from scratch can get into within 90 days. To educate themselves, use the write language, build their team.

As they approached the brokers, they seemed very credible. They meet with them in person, maybe to tour some properties. Getting to that level does not take years, it takes weeks and maybe a few months but that is where the magic happens. It is reaching out to more and more brokers and generating that deal flow and building that rapport with them.

Brandon: How do I find the 80 – 20, that 20% of brokers I mean? Because I cannot imagine going and asking other syndicators, ‘Hey, who is your broker in that market?’ Right? Because you are basically saying, ‘Hey, I am going to compete directly with you with your same broker, right?’ How do I find that 80 – 20 broker?

Michael: Yes, the best source is LoopNet, LoopNet.com. It is a free website. Typically, we say that is where deals go to die and that is partially true, okay? Partially, but the biggest benefit of LoopNet is that is where all the listings are, whether they are dying or not, it does not matter. But the point is you can see the listing brokers behind them. You can look at all that you search in an area, the size you want, and then you create a spreadsheet of all the brokers in there. To me, I make note how many listings that broker have. You see all the listings on LoopNet. While someone has got one listing, eh, it could be less interesting. I will still call them. But if someone has a half a dozen listings, now it is a clue that this guy might be or gal might be a good broker. Then you always check the big broker’s house, Marcus Millichap, CVRE, there is always the big ones and you can always go through their website directly. That is how you find them.

David: Brandon and I always say that, and by Brandon and I, I mean me and Brandon agrees, that rock stars know rock stars, right? If you want to deal with the top 20% of brokers, which you do, you need to be the top 20% of investors because they are like the rock stars could sniff out if you are a pretender, if you are legit. Can you give us some practical advice for someone who is newer, who wants to desperately be in that top 20%? What they need to know and how they need to communicate?

Michael: Yes. It is actually much easier than people think. People just over complicate this thing. But I talk about education a lot. You need to have education. We threw out a lot of terms here today but you need to know what those are. You need to use the right language and you need to build your team. As you approach a broker, you are talking, when they say, ‘Hey, tell me about yourself.’ You are not actually really talking about yourself, you are talking about your team. You are talking about the property manager that manages the 5,000 units in Atlanta that the broker probably already knows, right? You are doing that kind of stuff.

Brandon: Yes.

Michael: Elevate yourself quickly in the top 20% of broker. All you got to do when you got a deal from them is get back to them 24 hours with feedback on that deal. We have something called the 10 minute offer. Allows you to make an offer within 10 minutes of getting a marketing package, fairly simple. If you do that, and I pulled some of our brokers about this, I said how many of people on your list actually get back to you in a deal? 25% will respond. If you are one of those 25%, you will be automatically in the 25%.

Brandon: That is so good. This is true for everything in life. Like people like want their job to be easier. If you just understand this thing and all like human civilization, right? If people want their job easier, if you can make someone’s job easier for them, they will instantly like you, insulate and want to do business with you, right? That applies for anything. Contractors would make their life better, make their job easier. Boom. If you are trying to raise money, make it easy on your investors, right? Present the deal in a way that is easy. Do not complicate it with IRR when it is your grandma, right? People want easy, whether or not they say it or not.

Everybody wants their life to be easier. I know, I bought an apartment in Ohio and the way that it happened, I mean, I was at a conference. My [inaudible][53:18] who was the agent, [inaudible][53:20], check him out if you are in Cincinnati market. Like he was smart, right? He knew that I use the BiggerPockets calculators. He deliberately signed up for a BiggerPockets pro membership that day. Ran the numbers through that, knowing that that is how I would want to read it. Sent me over the PDF, I pulled it up on my phone, looked at all the numbers, made it so easy for me to call him and be like, yes, let us put an offer in right now. Right? Like knew exactly and because of that I ended up buying the deal, right? Like he made my job easy.

When you can do that, I love that tip about just get back to the broker right away with feedback. I think that right there is going to get a lot of people listen to this like more deals this year. Again, small deal, single family, duplex, whatever, your agent, your real estate agent, your broker, whatever, any level, right?

David: Yes, love that stuff.

Brandon: Alright. When you find a deal then, what is the process? You find something good, you run the numbers and I wish we could spend four hours just on running the numbers here, but I know you have a really good deal analyzer people can check out, but like after that point you have got this price, you know how much you think you can pay for it. What do you do? You do not have a real estate agent in this case, it is not like residential. What is the process look like?

Michael: Well, it is a little bit different than on the house side. The house side, you, you make an offer by essentially sending over a typical MLS kind of contract with commercial real estate, it starts easier than that. I mean, typically, the offer is made verbally or via email and then you are invited to quote, make an offer, and what that means is you submit a letter of intent which is a legally meaningless piece of plain English document that says I am buying it for this price. I want 30 days to look at it and I am going to close and so and so and people sign it. The reason for that as a conversation piece number one, then you hand that to the attorney because that costs real money.

Once people sign the LOI, again which is not legally binding, the next state phase is then actually create a what is called a purchase and sales agreement and the attorney drafts that up and that is bounced back and forth, red line here and there and then when you sign that you are officially under contract which is a major milestone but now the real work begins because now you have to kind of see what you put under contract. You have to unwrap the box and crack it open and see what you got.

Brandon: There you go, I like that.

David: I think that is really good advice because a lot of people are afraid to take that first step because they think they do not know everything there is to know so they do not take a step at all. But the way that this works for people that are really good at it is this as a series of like a hundred small steps and you do not need to know step two before you take step one. In fact, you cannot know step two until you take step one and you do it enough times. You start to recognize patterns that come up over and over and over so you get more efficient with your time. But literally, the only way to learn this is to put something under contract, start looking into it and then realize oh I cannot buy it because of that. Then the next time you come across a similar situation, you are like, no, no, no, I know that did not work out. I will do it different.

Brandon: That is really good. Alright. What about like earnest money? What does that do? Does it work the same way as residential? I mean you have got to pay some money when you make an offer, right? Or when do you owe that and how much is it usually?

Michael: Yes, it is similar. Typically, it is due within certain number of days after the signing of the contract, not the letter of intent, after signing the contract. It is typically it is somewhere around 1% of the purchase. Some brokers are looking or seller is looking for that is quote hard on day one meeting that is nonrefundable. It is happening a little bit, it is starting to back off a little bit just because we have been in a seller’s market. We do not prefer to do that but sometimes that happens.

David: Okay. Once you are into it, tell me about funding. What kind of options that people have to fund deals?

Michael: Funding as in the debt side or the equity side?

David: Probably both. The funding side is through loans, right? The best way to do it is to have our previous relationship with a mortgage broker who can bring a variety of loan products to the table. This depends a lot on your deal. Is it a stable deal meaning that is it occupied at 90% or above or is it more of a non–stabilized deal if it is occupied below that? That affects a loan product. Say if you have a building that is 90% occupied, the loan amount is at least a million dollars, you qualify for Fannie or Freddie, a small loan balance of loans which are the cheapest and best you can. You can get their non-recourse, meaning you do not have to personally guarantee them and that is the way to go if you can.

If you do not qualify, if the deal does not qualify for that, then there is something called bridge loans. Bridge loans are short term loans between one and three years, that many of them are also non-recourse. Some are personally guaranteed. If the deal is smaller, you are going to have to go with a regional local bank and get those loans and those are almost always personally guaranteed.

David: Is the purpose of a bridge loan to get you from a non–stable asset into a stable assets so that you can then refinance it with the best debt?

Michael: That is right.

David: Yes, that is very similar to what Brian and I talked about with single family homes where you use a hard money loan to get the house. You get it fixed up, you get it rented out, that would be the equivalent of it being stabilized then you go refinance it into a lower interest rate?

Michael: Yes.

Brandon: It is funny actually when we talk about BRRRR investing on BiggerPockets all the time. BRRRR investing which is Buy, Rehab, Rent, Refinance, Repeat. Like that was stolen directly from how syndicators operate most of their apartment buildings. Like they buy big apartments, they then rehab those apartments and they add the value and they are renting them out now for cash flow and they got this remodel thing. Then they go and refinance it, pay their investors off, maybe get cashed out, whatever and then repeat the process. Go do it again. Oh, we are talking BRRRR, we are talking to doing a smaller version of what syndicators are doing all the time. I always thought that was fascinating. What about this, deal first or loan first? I mean like do you need to go get pre-approved in the same way on a residential? Should I go talk to a loan broker right now and get pre-approved?

Michael: No and yes. You do not get pre-approved with commercial loans but you should talk to a loan broker before. The reason is, number one, relationships are important. When you need to leverage those relationships is normally in a time where you have a deal, where time is of the essence. Number two is you have to know the terms of the loan and their underwriting requirements.

For example, if you do not know the interest rate or the amortization or the requirements around how many reserves require or what is the liquidity requirements of the sponsor because you have to have a certain net worth and liquidity. If you do not know those things, it could really ruin your deal. If you underwrite it, when you analyze the numbers using false assumptions or you try to do a deal and when the lender tries to quote underwrite you, they determined that your net worth is not high enough and then you have to go find someone that is and bring them in the deal. All that can can ruin your deal. It is very important that you understand the loan products that the loan broker has and some of the parameters around them.

Brandon: Alright. That actually leads to a good point about if your net worth is not high enough. Now, I have heard a rule of, and maybe this is a rule of thumb, may this is an actual rule, maybe it is completely not, but I have heard people say you need to have a net worth higher than the loan amount. Is that true or is that just a rule of thumb or how does that work?

Michael: Yes, that is about right. You also need to have liquidity, meaning cash in the bank, that is equal to 10% of the loan balance.

Brandon: Okay. That has got to be somebody in the general partnership, correct?

Michael: That is right.

Brandon: The key is that if you do not have that, you sit on the couch and you watched dancing with the stars every night until you are retired, right? No, you bring in somebody, right?

Michael: That is right, you bring in someone. This is the beauty of syndication. Remember we talked about the entrepreneur making something happen out of nothing. Well, if you do not have that net worth, then go find someone who does. This could be one of your potential investors, but it does not have to be investors. It could be someone that likes you, wants to support you, but has no interest in investing in a deal but they would be willing to co-sponsor or co-sign the note. Now, if they are co-signing on a non-personally guaranteed note, the risk is very very low even for the co-signer, right?

The only time that there was a be re-course for them if there is fraud and fraud was committed and proven, hopefully that will not happen. Someone is co-guaranteeing a non-recourse loan, in return they will get equity in the deal. The question is how much do you give them? Again, it depends on where you are in life, what you give them. Give them equity, give them some acquisition fees or whatever the case may be. Do whatever it takes to get that person on board.

Brandon: Alright, that sounds like a really good position to be at in life is to be somebody who is just rich enough to just like…

Michael: It is a strategy. Brandon, it is a strategy. People, all they do all day says, ‘Hey, I am rich. Let me go sign and I will get 10% for every single deal.’ You have 10 of them and essentially own 100% of deals across 10 different deals. It literally is a strategy and they are never investing any of their money. All they are doing is co-sponsoring stuff and the risk, in the scheme of things, extremely low.

Brandon: That is fascinating.

David: That is what I want to be. I have decided. I mean we are going to call it a rich hacking and I am just going to make myself available. I will just pour myself out. If you guys need somebody to go into your deal with a high net worth and some liquidity. What is funny is that the money that I make from the deals will then go back into my like savings account so I have even more net worth and more liquidity which makes me able to do more deals and you are just in this awesome spiral upwards.

Brandon: Robert Kiyosaki would proud.

Michael: Yes, that is a good point.

David: Okay, this is awesome. Now that I know I want to do this and I obviously have to start moving forward, I need to build a team. Tell me where should I start with building my team and who are the team members I am going to need?

Michael: We talked about the mortgage broker, that is the second most important team member. The first one by far is the property manager. It is not for the reasons you think. Yes, they are going to manage my property which you think is sequentially after you close a deal. No, the property manager will help you buy the property. If your business plan calls for $5,000 a unit to get a $100 rent bump, my first question is how do you know? Are you making this up? Did you go to rentometer.com? The answer better be no because I talked to three property managers and this is what they told me. They all told me the same thing. I am like, okay, now we got something.

Brandon: That is great, great. What about negotiation tricks? Like when they come back. Do you know… Not any tricks, just tips or advice on that negotiation process?

Michael: I do not really mind about tips or tricks but there are some things that are very very important. That there is at least two major mistakes that people make. One is the point at which due diligence begins. Most contracts read from ‘Hey, you have 30 days from the signing of this contract to complete your due diligence,’ which sounds great. But the problem is what if it takes to seller two weeks to give you all the documents that you requested? What? All of a sudden that you have two weeks to do due diligence? That does not sound right. Make sure due diligence starts at the point where you receive all the documents.

They can take a year for all you care, do not matter. Clock does not start ticking until you have all the documents. That is number one. Number two, always always get a contract extensions because here is what happens, okay? It is hardly ever your fault. The bank almost always takes longer for reasons you cannot control. Again, it just all over the board the reason why, sometimes we never know. But if you do not have contract extensions, if the bank or the lender takes longer than the 45 or 60 days that they promised, you are essentially in default. Now, the seller may give you an extension because they want to, otherwise they would have to start over again. But sometimes they do not.

We have had sellers where they felt that they should have gotten more and so they actually are looking for a way to get out so that is a problem. What we do is we always have at least one, if not more, extensions in return for additional deposit, right? Pick your favorite deposit but I could say for an extra quarter point, I am buying myself a 30 day extension. We propose unlimited extensions and then there might be a back and forth on it and maybe end up on two or three or maybe one. But that is by far, those two tips, you got to insist on those too.

Brandon: Perfect. I love that, it is great. Alright, what about like management? Now you close the deal, you get through the whole process or actually before we get their title companies, are they the same ones who had closed this or is it attorneys or both?

Michael: Yes, it is normally attorney with a title company. Unlike with residential where you are not really working with an attorney. You are always working with an attorney and you are always working with your own attorney. You are not sharing one with the seller. You have your own attorney and they are going to be helping you with purchase and sales contract. They are also going to help you with the closing.

Brandon: Okay, cool. Now you buy this thing and now you are going to manage it. Now, you are not out there swinging a hammer, you are not showing up at the office every day at the apartment building and managing correctly. Like how does the management part work on a syndication deal?

Michael: Yes. While you are doing due diligence and before you have closed the contract, you should have interviewed and vetted and selected your ideal property management company and once you have selected them, you sign a management agreement that becomes effective, pending the closing of the deal. The morning after or the day after, the hour after you close, here is a plan in place with a property manager walks in, they put letters on everybody’s door. Here is the new address to send your rents to, they take the keys and they move into the office and we start managing the asset.

Brandon: Alright, that makes sense, cool. Then how much work do you spend managing your manager? I mean like that actually ties into the next question. I will just ask both right here and then we can go back to the management part. What are the things I have held back from the syndication models because I feel like I am just getting into another job? Like it is a lot of work. I mean like there is a lot of steps here. Does it get easier over time once you buy it? Does it really reduce your hours down to something that is more manageable and then how is the property manager play into that

Michael: The short answer is yes. However, a lot of it hinges on the quality of your property manager. You can have a property manager who is not good and all you are doing is chasing him, micromanaging them, pulling your hair, or in your case, beard out. Okay, that is the other extreme and you are spending way more on managing property than you should. On the other hand, you have a property manager who is just high quality stable, just getting the job done and the extent of our management is a 30 minute call with them where we talk through any issues. They are already putting out reports so I already got my dashboards. I am just talking about action items and things that we want to do, very very simple.

On the investors side, depending on what stage you are in, you might have 10 investors for the first deal let us say, that is not a lot of extra work. Once a month you are putting out a report, once a quarter you are sending out checks. As you get a little larger, there are websites and systems out there that help you automate that. You load your investors into a deal, it is like a CRM system allows you to email them, upload reports, and it just eases all that stuff. Really all you are doing is you are uploading a report, which you should be doing anyway for your own benefit, communicating it out. Really, this is one of the things I love with this.

There is no such thing as passive income, I truly believe that. I used to think there was but there is not. This is not completely passive. The only path of thing. No, I was going to say something that is not true either, but it is a highly highly leveraged activity. I mean in 30 minutes I can quote or manage our 321 unit building. That is insane, that is insane. Versus I can spend 10 hours chasing the guy on a 12 unit building, right? Size at this, it does not matter. It is all on the quality of the property manager.

David: What about limited partners? Would you consider that to be passive income?

Michael: Yes, largely.

Brandon: But they still have to go to the bank, right? They have just to wire… I mean I have been a limited partner a couple of times now and like it is still…

David: I love this. Only Brandon considers it work to have to go to the bank to wire money. This is ridiculous. I have to wait in line.

Michael: It is funny. The limited partners after like three or four months or six months, when it stopped becoming exciting to you anymore, they do not even open emails anymore. I was going to say stocks is the closest passive but actually I was going to say that is not true but you are right. LPs is even closer to passive because you should spend a lot of time upfront, vetting your operator. That is a  lot of work. Lot of work, vetting, vetting, vetting, vetting, vetting. But once you found that person and you have made the investment, there is not much you can do. I mean you are tying up for like five years.

David: That is me. That is our buddy, Andrew. I just ride that race horse. I do not even pay attention to where it is going. I just wanted it to take me. That is funny.

Brandon: Okay. How does somebody vet a syndicator? I mean why should I invest with you, Michael, or any of the other syndicator on the show? Like what makes me feel comfortable about that?

Michael: There is a variety of things but the operator is everything. Because a strong operator is going to find the right deal and the right market and finding the right property manager, right? It is really about the operator that has track record and consistency, right? You want to look and see who the partner or partners are and what is their track record? What are their systems behind their operation? Like how are they managing these things? Do you like them? Do you trust them, right?

That is really all it is. That takes some time, right? You want to get to know certain people and then once you found them, you may want to never invest all your money in one deal, you may want to do that with a second operator, but you do not need a lot of operators. Like you need two or three strong operators that you invest with over and over again and people do very very very well just by doing that. It is a lot of work upfront and then you just keep doing it over and you see how they perform. Let us wait a couple of distribution checks, see how they communicate, see how they are executing towards a business plan, how are they behaving? I see that a couple times and now I can re-invest and tell my friends about it.

Brandon: Alright, really really good stuff. Really good stuff. Now, I want to tie all this together in the next segment of the show which we call our Deal Deep Dive.

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Brandon: Alright, let us get to the Deal Deep Dive. This is the part of the show where we dive deep into one particular deal that you have done, something that you want to talk about. It can be a good deal, it could be a bad deal. It could be something but we are going to ask you just a bunch of specific questions. Actually, very much related to what we just went through for the last 20 minutes. In theory. Now, we are going to go into practical. Do you have something in mind, a recent deal? Something, Michael, we can dig into?

Michael: Sure. 321 units in Memphis.

Brandon: Alright. My first question is what was it and where was it? Alright, next one, I go how did you find it?

Michael: We found it back through making something happen out of nothing. We found it through a deal finder, through by joint venturing with someone who had a deal. A young guy, did not have any money but had hustle, found this deal, brought it to us and we partnered with him, raised the money on it. That is how we found it.

Brandon: Okay.

David: How much did you pay for it?

Michael: We paid about $7M for it. We had a $4M renovation budget.

Brandon: Wow, that is a pretty big rental. Okay. Any negotiation stories, tricks, things that you worked in there, did not work in there, what was the negotiation?

Michael: No, no, not really. We just paid attention to some of the two things that we talked about earlier and those are really really important because sometimes it does take 10 to 14 days to get all the documents, especially on a property like that.

Brandon: Yes.

Michael: I cannot remember offhand whether we needed to have that extension but the probability is pretty high that we exercise at least one.

Brandon: Okay, alright.

David: How did you funded this bad boy?

Michael: We funded it again joint venturing. We raised money from direct investors as well but we also had a joint venture partner, actually we had two in the deal. Again, the joint venturing is kind of the key idea with multifamily, as you can tell. We joined venture a lot. Joe Fairless joint ventures a lot. It is just a really cool exciting thing where we joined venture with deal finders and also capital raisers. We had a couple of capital raisers in the deal and the capital raiser possibly starts off as a passive investor, really likes it, tells their friends about it and then brings to capital into a syndication.

In return, they become a general partner. What I love about is that the result is exactly the same. They get equity in deal, they get passive income and they get long term wealth. We partnered with a couple of capital raisers in addition to raising similar own capital and it allowed us to raise a lot more. This is a very common model which then increases your capacity to raise money.

Brandon: That is cool. I had not even known about this and I feel silly saying this because it is like I have been in the industry for so long but I did not know this was how it was done until just fairly recently. That like things as you as a syndicator can bring in other general partners who have the other strengths that maybe you do not have or you do not have time for, right? You bring in the capital raisers and they become part of the deal but they are out there raising money from their family and friends, colleagues, whatever, because they are in those circles and they liked doing that. Then there is you bring in a partner who is really good at working with brokers and negotiating and finding deals and they were in a good market, maybe they can go check things out or whatever.

You are all part of the general partnership together in a way because like it is what we always talking about the show is like focus on your strengths, figure out what you are good at, what do you like doing? I mean like, yes.

Michael: Yes, that is right.

Brandon: It makes me so happy.

Michael: It should, right? If someone is a relationship person and the idea of an excel spreadsheet is as much as making slit their wrists, right? There is literally a career path. It is a career path where all to do is raise money and then we see partnerships forming between two different kinds of people, the relationship people and the analytical people, right? If you are an analytical person, detail oriented, the relationship guy is not, right? Like the relationship people. We see a lot of partnerships forming a in that regard. One of them raises the money and has a relationship with a broker and the other guy does the analysis, the chief underwriter and the due diligence and those partnerships work fabulous.

Brandon: Yes. Anyway, it makes me happy because like as I said before, like there is some things I am just not good at, I know that. Like I am not real great at raising money. I mean I have a big platform and I reached out to people but like talking to people and raising money is not one of my strengths. But I love all day long like digging through numbers and going through spreadsheets and figuring out what I can pay. I will do that all day long. Actually, recently, just a couple of weeks ago. I sat down and worked out with a… There is a book called The Vivid Vision. It is like basically like you write down and document exactly what you want your company to look like in a few years.

I specked it out, like I want like within like hopefully by the end this year I want to have two or three people that work with me directly. Whether or not it is an employee or a JV, but like I want somebody who just raises money because they are so good at that and I want somebody else who is just really good at building relationships with brokers. Like that is what I am building right now in my own real estate business because for that same reason, the JV thing, anyway it just makes me happy to know that even though I have got weaknesses in life, there is ways to compensate. You do not have to just sit on the couch and watch Dancing with the Stars, you can go out there and invest anyway.

David: Alright. Michael, you mentioned having a big rental budget which was actually, I mean if it was a $7M deal and $4M was for the renovation, that is huge. Tell me like what did you do with this deal once you had it fixed up?

Michael: This was a compounded value add deal, meaning there were multiple problems with it which is one reason we loved it so much. The vacancy was high, it was about 30%. The question is why, right? Is the market bad or is it something else? This is an important question to answer. The answer to that question is they just did not turn units over. The comps were all 96% occupied. Now, of course was why were not they turning units over? You got to understand these things. It was a an older partnership.

One of the senior partners had passed away and there was a younger partner that came on and he wanted to take the company into senior living, which is highly profitable. They built this thing in the 70s and 80s. It was probably paid off making a gobs money for them. They do not need to, like I said, get the last dime out of that one. Then because of that, the rents are under market. Just as the units where there were probably about $75 under market compared to the comps in the consisting condition, but then there were other comps that were improved considerably so. There was another $75 rent bump. You go in there with a $4 million renovation budget, meaning you are going to replace the roof parking lot, new lights, camera system, playground, fire pit.  You are putting $5,000 per unit and you are painting the exterior, you are removing the 70 style mansards on the side, you do all that and it is going to look just like the property down the road, that is getting $150 more in rent. That is how we used that renovation money.

Brandon: Cool. Alright. What was the outcome at the end? I mean you bought for seven, you put in four, what was the outcome you would end up doing?

Michael: This is a case study in your BRRRR method because we just re-financed out literally last week at evaluation of something like $13M for that. We were into it for seven plus eight and we added about $5M or $6M in value return 90% of the investor’s capital back and now we are just going to hold it.

Brandon: Wow. Let me go back because I am a must have… Did you buy it for $7M and put in $4M or the $7M including the $4M?

Michael: Actually, we bought it for $7M and we did not actually put it in the $4M. We had $4M but we only deployed about, we only… The crazy thing is we only deployed about a million of the $4M. Just because it was so compound, that there was so many multiple problems, coupled with a very strong property manager. I mean within… We bought it at like 68% occupied, within three months he hit the 90% mark. It was just flawless execution. We could never have done that without a strong property manager.

Brandon: Very very cool.

David: That is incredible. Okay. What did you learn from this deal?

Michael: Well, a lot of things. Now, typically you do not nearly as much as successful deals that you do with unsuccessful deals which we could spend another episode on. Having said that, I learned relatively little, I am just kidding. You learn a lot of things. Number one, it is really about your team is really important. I mean, the property manager and we have had other not so mixed results where the property manager was more than mixed, unable to execute on our business plan, replaced the property manager, got back on track, but lost six months in the process, right? That is not ideal. But the property manager we talked about before is so critical, so critical. Number two, joint venturing is very very powerful for the reasons we talked about.

Brandon: Very good, very very good. Alright, cool deal. I like hearing that. Let us move on to the next segment, the Fire Round.

It is time for the Fire Round.

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Brandon: Alright, it is time for the world famous Fire Round. These questions come direct out of the BiggerPockets Forums, which you can visit at BiggerPockets.com/forums. Let us see what you got to say. Number one, let us see. This is from AJ, I think this is. ‘I am new to investing. I want to be a house hacker. I want to buy like a duplex, triplex, fourplex, and live in one unit in Baton Rouge, LA. Oh no, not in LA. Baton Louise in Louisiana. So I can live free and learn how to be a landlord on a small scale first. When finding a potential small multifamily deal, what are some of the things I need to request from the listing agent or seller to completely analyze this deal?

Michael: I would not, first of all, I would not rely on a listing agent at all, right? With anything less than five units, you can look at the rental you have, look at the rental income, but it is not going to be valued. It is going to look on the comps. You want to look at the comps from your listing agent. Obviously, you want to understand what the rents are so you can kind of figure out can I cover my expenses, my mortgage? But it is all going to be comps driven.

House hacking, by the way, is a fabulous way to get started. I have talked to several people, that is exactly how they got started. They got an FHA loan, 3% down. It is crazy insane. You have got to live in it for a year but it is fantastic. My counsel is trying to get something that is undervalued, meaning that it is maybe vacant or partial vacant or kind of needs repair and do the same thing we talked about here. While it is not going to be income driven, comps are also driven by condition as everybody knows, right? The income is not so important but the way it looks it is very very important. But I love that. A great great way to get started in the business.

Brandon: Cool.

David: Alright. Next question is from Zack. He says, ‘I am new to real estate investing and I just spoke to an investor whose niche is section eight housing. It seems to be an interesting niche market. Do you have any experience with section eight and if so, how has it gone?

Michael: Yes, I do have experience with section eight and it went well but it was very painful. This was a property in Washington DC. Section eight is definitely a specialty. I am not saying you should not do it. DC is difficult because not so much because of section eight, but because of the landlord. Tenant laws are highly favorable to tenants, makes it very difficult to manage in that. Similar, I suspect, from I heard in New York and California. But section eight is in fact a strategy, kind of like student housing. The property manager is key. When we first did that deal, I had the wrong property manager in place, did not know what they were doing, constantly struggling and then we replaced him with someone who specialized in section eight, knows all the organization and knows all the inspectors and it was like, wow. It is was like night and day. If that is what you want to do, I think especially if you want to help out lower income, it is definitely strategies. Just make sure your property manager is in line with that asset.

Brandon: There you go. Alright, next one. Okay, kind of touched on this already but it is a good one so I will ask real quick. ‘I have settled on what I think is a great market for my first multifamily purchase. Who should I form a relationship with first? A broker, a lender, a property manager or a contractor?’ David Greene here talks a lot about the core four which are like those four people, right? Broker or lender, property manager and contractor and one will hopefully lead to the other because rock stars know rock stars. The question for you Michael here is like who should you form relationships with first? Who would you recommend?

Michael: I am going to agree with what David says. I would leave out the contractor because typically the property manager will bring those in. But you really want to have the property manager and the broker kind of simultaneously. Ideally, if you have the property manager on board first, you can reference them when you talked to the broker.

Brandon: Alright.

David: Good.

Brandon: Cool.

David: Okay, last question of the fire round. ‘When you are negotiating the price of a single family home, there is a lot of psychology and emotion involved. How is it negotiating a multifamily deal different from that? I assume someone who is selling an apartment building is more sophisticated and data focused. How do you get them to move on price?’

Michael: Yes, you might think that. It really depends on the size of the building that you are working with, right? If you are dealing with 12, 25, even 50 unit buildings, there is a lot of mom and pop owners out there and they are not sophisticated at all. This could be a good thing or a bad thing. It could be a good thing if they are completely mispricing the asset, we bought one just like it and just did not really know what they had and it was great, but sometimes they have unrealistic expectation because someone down the road said they sold it for gazillion dollars.

Firstly, because they do not know how to value that. But in general that is true. It is much more numbers driven which makes it a lot easier. A lot easier because I am dealing with three levers, price, NOI and cap rate. That is it. Price, NOI and cap rate, right? I can have a very objective conversation with someone if I adjust someone’s net operating income because obviously way too low and their expenses are under reported. If I apply some rules of thumb to that, I can then adjust my NOI normally down, which then reduces the price down. If the NOI lower, the prices lower. Would you not agree Mr. Broker? Yes, because that is how it works.

David: I love that you boiled it down into those three levers, right? Like when you understand what generates value in an asset class, it becomes very simple to understand what to do and you just do a very good job, Michael, of explaining that so it seems a lot less daunting than it might from an unsophisticated perspective.

Brandon: Very good, very good. Alright, well that is pretty much the end of our famous Fire Round.

David: Let us head into the Famous Four.

Brandon: Let us head into the Famous Four. Wait, we did not do the sound effect. Cue here. Famous Four.

Brandon: The Famous Four is the part of the show where we ask guests every week the same four questions. We have asked you this, Michael, what 500 years ago when you were on the show last time but we are going to ask you again. Michael, other than your own, which you have a fantastic book, but other than your own what is your favorite real estate related book? What is a real estate book you could recommend?

Michael: I did enjoy yours that you put out a couple of years ago. The How We Bought The 24-Unit. That was awesome because it makes a lot of my points. You got started, you got it done, you were creative, I love that.

Brandon: Thank you.

Michael: Matt Faircloth’s recent book on Raising Money is is fabulous because I interviewed him a little while ago. Praising private cap of building in your real estate empire, really good job on that. I would say my recent favorite non real estate book, though I apply it to real estate, is probably The One Thing by Gary Keller. It just clarified so many things for me and then gave me the tools to actually just work on that one thing.

Brandon: Cool.

David: That is awesome since you answered question number two with question number. You are an efficient man, clearly a multifamily investor.

Brandon: Maybe he has another recommendation. Maybe, I do not know.

David: Do you have a second non real estate book that you really like?

Michael: One that made a lot of difference to me about two and a half years ago was The Miracle Morning by Hal Elrod. In fact, he is speaking at our event later in the summer so I am really excited to have him on board, so awesome. I know, Brandon, you know you will. But that made a pretty big difference because I have always been struggling kind of with a morning routine. Like how do I structure it, what do I do and he really makes it very actionable. That has made a pretty big difference to me.

Brandon: Do you know, actually, the reason we are all here right now, the reason me and David Greene here like besties is because of Hal Elrod actually. Hal Elrod was the whatever you want to call that. The hinge between David and I. He introduced us all together and this is why we are here today. Thank you, Hal.

David: Hal was the matchmaker that made this magic happen?

Brandon: Matchmaker, matchmaker, make me a match. Alright, next one, number three.

David: What are some of your hobbies?

Michael: I love to travel. It is my number one thing. I love to travel with my family. Normally, we travel at least 30 days out of the year. If we can do it longer than that, then that is ideal.

Brandon: Like in one shot or you do a lot of separate little trips?

Michael: Ideally in one shot. As you know, we can do this business anywhere in the world so why not do it? Why look at the same four walls every time when you could be in Prague or in Mexico or wherever the case may be? Our entire team is virtual as well for that same reason. Other than that, play competitive tennis, probably less than I used to and less than I should but those are some of my hobbies.

Brandon: Nice.

David: Brandon likes to travel too. He travels to Starbucks in all kinds of different places. Starbucks in Rome, Starbucks in Prague, Starbucks all the way.

Brandon: Actually, no, this is a true story. We went to Paris a few years ago and I mean this is like eight years ago now. My wife and I like literally like walked for like hours and hours trying to find a Starbucks. Like how could there not be a Starbucks in Paris? We finally found one, it made our life… It made the whole trip worth it. There was also like the Eiffel Tower crap, but like really it was Starbucks. Alright.

David: You had to walk past all those horrible French coffee shops to try to find the good Starbucks in Paris.

Brandon: Exactly. Yes, we are not going to go with that. Hey, Michael, because I did not ask this earlier and I should have and I want to now and I am going to totally break apart the Famous Four here, but you mentioned your team is remote. What does your team look like? I mean employee versus like people used to work with partners or whatever. Like what is the overall structure of your business look like?

Michael: It depends a little bit on which side you are looking at but on the syndication side, it is all essentially partners, right? There is no salary, no by the hour, everyone is working for equity. On the other side, it is paid as a contractor. They are either paid as almost like a partner or they are… They are all entrepreneurs at the heart of it. That is kind of why we love working in this environment.

Brandon: Yes, do you have people who just like underwrite? Again, I know we are breaking the Four, like you just have underwrite deals left and right because like as a first pass before you get to them?

Michael: Yes, we do actually. A lot of other people do as well. They use whatever analyzer tool you just tell them to use and by the time it gets to your desk, there is a certain amount of pre-qualification that they have done to the deal. If you are doing volume or you are busy guy or gal or you do not love the underwriting process, it is a great way. You might pay them $20 an hour and give him a sliver equity once you close a deal and there are people out there a lot and we, like I said, we see a lot of partnership forming in that way.

Brandon: Yes, I know both David and I are beginning to look into having those people on our team. To those people listening to this right now, you have made it through an whole hour and a half long show on this stuff and you are interested, reach out to one of us. Maybe Michael too, like if you like analyzing deals, you are good at it, maybe you are a High C, right? Like you like crunching numbers. Yes, reach out to any of the three of us. I bet we could chat. Alright, going back to the Famous Four, what do you believe sets apart successful syndicators from those who give up, they fail or they never get started?

Michael: Yes, I thought some time about this thing and I think it is really really fundamental. There is various tactics and mindset things but really fundamentally it comes down to deciding. Here is what I mean by that, okay? One of my favorite quotes is a quote by Tony Robbins, it is in my wall here, ‘It is in your moments of decision that your destiny is shaped.’ But what I have found is I studied people who are successful and you never get out of the gate. It comes down to them deciding that enough is enough. Deciding that being in the same place this time next year is no longer acceptable to them. Typically, there is some kind of trigger event. It could be a health event or it could be an experience with their daughter about missing their recital the next day and something just clicks in their mind going, hey, I have been working for 20 years.

If I keep this up, I am going to work another 20 years and I am going to miss my kids grow up or whatever the case may be and something happens inside then where they decided that this can no longer go on. If they have truly decided that, what happens is there can be no other results but that which they have already decided. On the other hand, there is all the people who have not decided, here is what this looks like, oh yes I am ready to get started in multifamily investing. Alright, great, well you have got to make time for that. Oh yes, I will make time for that. Two months later, they take a promotion at work which requires them to travel nonstop. Well wait, let me get this straight. You just told me that you were trying to find time to get started. Now, you accepted a promotion. You just lie to yourself and me in the process. That is a difference what I mean by people who have truly decided and then make decisions and set priorities accordingly.

David: Wow, you sound like Brandon Turned during a Webinar, right? The chills.

Brandon: Speaking of webinars, BiggerPockets.com/webinar, you can sign up for one. Alright, that is really great.

David: It is free real estate, you got to be there. It is free real estate. Brandon’s webinars are incredible. Okay, Michael, this has been probably one of my favorite episodes, mostly because we just feel like we got to rip free knowledge out of you to help our own businesses and it is 250,000 other people are listening, well that is cool, but really Brandon and I had benefited. Can you tell me for people that are fascinated by what you do, what you know and what you can do for them, how can they find out more about you?

Michael: I mean, the first thing is just to check out my book which is called Financial Freedom with Real Estate Investing and it is on Amazon. It is a bright yellow cover. Financial Freedom with a Real Estate Investing, it really embodies a lot of what we talked about here. It is really what the mission that I am passionate about. If people want to quit their jobs with real estate and they got real estate in their mind, I strongly consider multifamily even if they have no prior experience for cash. That is probably a great entry point into that world. The website is theMichaelBlank.com, that is how people can find me.

Brandon: Perfect dude. Well thank you very very much. This has been like just really really really fantastic. Thank you and we will see you around if you get back on the show again someday in the future and kind of see when you get to that billion dollar level, I do not know, is not a goal of yours?

Michael: Sure, absolutely.

Brandon: Alright, I like it. Alright. Well, thank you, Michael, and we will see you around. Thanks. Alright, that was our show with the Michael Blank. Fantastic. Love that, love that guy. Like I just feel like I learned like my brain grew three sizes, kind of like the Grinch’s heart grew three sizes. Yes, my brain just went do do do, just like that.

David: I do not know if your head has the capacity to get bigger.

Brandon: I have a pretty big head but it can get bigger though. It has got room.

David: Yes, that was an awesome show. I mean that was just so much actionable meat and potatoes type stuff. Like, normally you got to pay a lot of money to get information like that. Michael did a great job.

Brandon: Yes, it was really really good. Cool. Well, everybody take one thing from today’s show and go apply to your life, right? Maybe that means you are going to listen to it again and go try to pull out a couple of things but like this stuff, knowledge alone is not enough, right? It is going to be knowledge plus action. Take some action. If you are driving to work right now, you are driving home from work, like that is great. Learning this stuff is important. You continue to do so. But it does not matter if you do not put it into action. Go to your calendar, put it in there.

Hey, at this time I am going to contact this broker. At this time I am going to go and go on LoopNet and go find some brokers, alright? This time I am going to go and run the numbers on my first multifamily and see what it looks like. That is so important to get that on your calendar. It will increase the chance of you actually doing it. That is all I got off my soap box. Let us get out of here.

David: Alright. This was an awesome time. This is David Greene for Brandon ‘Big Old Head’ Turner, signing off.

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