Michael Ealy: from broke to 1,000 units

Journey

Where did you grow up?

I grew up in Cincinnati, uptown, then to College Hill, public schools, apprenticeship in electrical engineering.

What was your first job?

Out of school I worked as a project manager for an electrical construction company, doing concerts and parties on the side, this is how I paid for school.

Why did you think of starting in real estate?

Growing up, I had a fascination for money and I went to the library and found books about the stock markets. Junk bonds were hot, minimum investment was $50,000 so I put the book right back on the shelf. Ì came across Robert Allen No Money Down and I was hooked. I was gonna do concerts and parties and buy real estate.

How did you educate yourself?

I was 15-16 years old when I started reading those books. I then watched Carlton Sheets after college I did my first deal at 26 years old, I bought a duplex, I gave a $1,000 down and paid $500 for the first 2 months. I had it rented for $500, got a roommate for $200. I was living mortgage free.

I bought a few more with little down. I am still doing deals with no money down using other people’s money or how we structure the contract. This got me started. I bought 2 more 4-families, making $600/month. I bought myself a car, the properties paid for car and insurance. I thought I was rich.

The incredible rebirth: from broke to over 1,000 units

• What happened that made you broke

I bought more units and a full service car wash with limited money down technique. I had no budget or projection, I didn’t save for a rainy day, didn’t put any escrow away. It rained for 60-90 days straight, I had no income and the whole thing started falling apart. I was overleveraged and couldn’t sell to pay off. You get in a crunch without reserves and things fall apart on you. They started foreclosing on me. I moved back to parents at age 30.

In that process, I was being foreclosed on. My godmother was in real estate as well, we did short sells on everything. Short Sell means to sell at a discount accepted by bank. Eg debt was $100k, property was worth $80k, you call the bank and ask if they would take a loss or short sell ie selling at $80k. I went through this trouble before the great recession: I knew how to do short sell and debt restructuration so that when I came out of being broke, I made more money than I did the first time.

• How were you able to not declare bankruptcy and what were the advantages of not doing it

It was a blessing: I sat and prayed, I didn’t know how to get out of it. I prayed about it and the next day an old guy comes to my car wash and says he was in real estate and said he had had bankruptcy. He said to never file it: it will screw you up for ever. Go work it out, do short sell, foreclose, work deals, don’t file for bankruptcy: they hang it over your head for years. He was 1,000% correct. I had a partner who filed for bankruptcy 8 years ago and he still has issues with banks. I am no lawyer, but after a certain amount of time you don’t have to disclose it anymore but they find out eventually. You can be part of the deal but can’t sign debt.

• What did you learn? How much reserve do you suggest to keep?

Don’t be overleveraged, a deal is made on the buy, always try to buy below market value and sell high.

When you buy something, put all your capex together depending how long you will own this, put it in the budget upfront if you have to turn 6-7 units in the first years, put it in cap ex reserve at the very beginning, don't plan to take it from the cashflow.

Take it from the very beginning and stay within budget.

Eg kitchen cabinets and board rotted under the sink, piece of painted plywood to make it look good: better do it right the first time

Plan escrow for your taxes too.

Save 3%-5% of gross income for reserve until you feel you have enough you can slow down. It will depend on how much you think you will be needing to make improvements on the building.

I like basements to be dry or waterproof at the very beginning

Escrow, escrow, escrow and pay yourself.

Then you can enjoy the cash flow.

• Where did you find the strength and motivation?

I sat back and took a break. I read a lot of books about religion to landscaping, to people in power and I sat in a corner and cried and kicked myself a few times, I was emotionally drained but I kept pushing myself after feeling sorry for myself for a while. I listened to inspiring stories, pastors, ministers, I surrounded myself with people who were doing real estate and like the law says: who you hang around eventually you become, most of my associates are all real estate or have some big businesses

• First 2 deals

I met 2 college buddies and told them about investing: I found them a single family for $20-30k and managed the renos and tenants for them

I tested my new way of buying out

I was successful every time

I started with something simple, "putting lipstick on the pig", with simple maintenance. I found stuff that was undervalued where you have options to renovate and rent it, maybe rents are too low then I push the rents.

• How did you grow to so many units?

It was teamwork: throughout my multiple experiences I started growing and people started helping. I was approached to buy a 28 unit building that had reserves, the seller told me to fix it up and they would buy it back from me, I knew how to operate and manage.

One group wanted to get to 1,000 units and they were raising cash and wanted hotels, we did hotels together and I found them a 1,000 units. We grabbed 100, 200, 50 units here and there, developed multiple relationships with brokers, they would call us when they had a deal.

Today’s operations

What do you focus on today?

We already have about $70MM the last few months of acquisitions. Next 2 years we plan 2,000 units. We want to get to a billion dollar in assets: I do it to make money but also to give back to the community: scholarships, community support, help others achieve their dreams. Me and my partner made it, time to help others achieve it too

Who is we: me and my partner
What are your goals? I will be out there teaching, marketing, we want to make some people wealthy, the more you give, the more you get in return.

Productivity and work processes

How do you go from goals to actions?

There are lots of action steps, the main thing is that I can achieve it through my team.

For my hotel, I put a team together and between those groups, we have 30 years experience in hotel business, my other partners who are equity partners and guarantors help sign for debt and bring experience, they are my board in a way. We have so much experience and know so many people in the industry that they refer us deals.

We literally have a machine here.

We are based in Cincinnati, one of the partners is in Atlanta, GA, Newport, Kentucky, we can cover everywhere.

Chinese investors are in Shanghai.

What are your daily routines?

I am up at 4:45, I hit the gym, back at 7, I have breakfast with the kids, take them to school, off to the office, looking at deals or doing interviews, I look at investor reports, I have meetings with new investors, day in and day out, and having a great time doing it. I also check on construction sites. I am out by 5pm or 6pm and then pick up kids, take them to soccer practice and coach them soccer, basket ball and football.

Do you have a mentor?
A lot of my mentors are people I work with, I watch people from afar, I learned a lot from others, I learned from their success, I listen and ask questions, I keep it close to my heart and utilize it.
How do you stay accountable?

Everything we do I write down and put it in order, label it 1 through 10 based on importance and I do each task and work on it until I don’t have time and need to move on to the next one, I hold myself accountable, I am self motivated and self disciplined.

How do you stay on track to grow?

You got to push yourself and if you see yourself failing and you can’t figure it out, remove the ego and get somebody that can get it done, ask for help.
If you write out your vision, a clear vision, people will join you and if you believe in it, people will come and help you get to your goal.