The Candid Truth to Building a $1.2B Real Estate Portfolio with Lane Kawaoka – EP 341
Lane Kawaoka is a real estate syndicator, family office advisor, coach, and mentor. He currently owns over 8,000 units and over $1.2B in AUM
Lane Kawaoka is a real estate syndicator, family office advisor, coach, and mentor. He currently owns over 8,000 units and over $1.2B in AUM
Ava Benesocky and August Biniaz share how they find incredible deals in the Sun Belt and solve pain points for real estate investors.
There’s a definite risk every time you invest, and after the nineties dotcom bust, Dinesh Gauba wanted to get his mind right about potentially losing everything again. His solution is what he calls the asymmetric risk-reward.
As a founding member of the Joint Chiefs of Real Estate Partners, with a founder from every branch of the military, Noel Walton has seen how military experience can directly translate to a successful real estate investing career. In the next year as he prepares to transition to civilian life, he has big plans to scale up his post-military career.
How fast can you raise private money? I just raised $3 million dollars in 90 minutes for a deal that I only needed $600,000 for. What would your investment look like if you could raise money almost immediately? Dave Dubeau’s going to teach you how he uses lists and marketing to find and cultivate private investors for real estate.
Getting a commercial broker or private investor to trust you on your first multifamily deal can feel like an insurmountable challenge. It’s a lot of money and a lot of responsibility, and maybe your own nervousness is showing through when you talk to them. Charles Dobens has invested in multifamily properties for years, and he knows that how you present yourself will change the perceptions of brokers and investors.
By the fifth time you hear someone say that they’re moving to Austin or Boise or Raleigh, you might wonder if they know something that you don’t. Chris Larsen starts paying attention to the real estate market when he hears how popular it is to move to. This, and other key metrics, help him drill down and find a profitable up and coming real estate market to invest in.
Starting without friends or capital, Reed Goossens was able to build a $250 million dollar real estate portfolio by using his “6 P” strategy to build real relationships and raise money. Creating a solid foundation of trust, sometimes over years, helped him find partners to invest in multifamily properties, and even helped him score his latest off-market acquisition.
Getting called by an SEC regulator could be the beginning of a dark chapter in your real estate career, but if you are prepared with an airtight disclosure, it’s not going to be a big deal. Syndication attorney Mauricio Rauld knows exactly how to keep you compliant and safe so that you can continue to work your deal-making magic on this side of a jail cell.
Josh: Hey, welcome back to Accelerated Investor. How are you today? Wherever you’re at in the world, whether you’re traveling, having fun with your family, in the car, by yourself listening to the at the gym. I appreciate you engaging with me at Accelerated Investor, our podcast community and our Facebook group continued to grow like crazy. We appreciate all of you that engage with us and shared on social media. I’m excited to be with all of you today and to be interviewing and talking with my special guest. His name is Michael Blank, he is the founder of Nighthawk Equity. He’s a multi-family investing expert. He owns and manages over $50 million worth of multi-family assets.
Josh: He’s raised over $12 million worth of equity capital. He has an amazing podcast himself and he’s also the author of the Financial Freedom with Real estate Investing book. Michael and I are relatively new friends. I actually met Michael through Jack Kettrick who you’ve many of you have heard on the podcast in the past and Jack highly recommended Michael’s deal analyzer. Michael and I connected a couple months ago. And so I’m excited to continue to build my relationship with Michael throughout this podcast. Michael, thanks so much for being here. Welcome to Accelerated Investor,
Michael: Josh, it’s great to be here.
Josh: Absolutely. So Michael, we connected through this deal analyzer, so I want to touch base on that first. So Jack just talked so highly of it. I actually think you’re using his testimonial on some of your Facebook ads, which is awesome. Jack and I are close personal friends. So why don’t I just talk real quickly about what is this multi-family deal analyzer and then we’ll jump into your story and a little bit more about multi-family.
Michael: Yeah. When I first got started with a multifamily investing, so back in 2007, it took me four hours to answer the question, how much am I willing to pay for this thing and why? And I didn’t have the techniques we have today and I didn’t have this tool. So I developed this over the years. And so as I started blogging about multi-family investing, I decided that the first thing that people really needed is a way to quickly analyze deals. And so The Syndicated Deal Analyzer was born at this point. It’s probably the most popular and most widely used a deal analyzer on the planet for multi-family people. They’ll customize it for other asset classes, like mobile home parks and stores and things of that nature. It just, it makes it really, within 10 minutes you can answer that question now. And it’s also used to go very deep all through the contract negotiation and due diligence process. So and then we use it ourselves all the time.
Josh: Fantastic. So you were able to take your four hour process and boil it down to 10 minutes. I’m sure people are going to ask me like, where do I get this deal analyzer? So I’ll, I’ll definitely ask you at the end a plug that we’ll put it in the show notes. That’ll be fantastic. So Michael, you started in 2007 and people will think, wow, 2007 was a scary time. The market’s at the peak, you know? Then we went through the trough of 2008 2009 10 so just let’s backtrack a little bit more on story. What was your first deal that you did? What was your attraction to multi-family and you’re looking back, how scary was it to be attracted to multi-family at that time in our economic cycle
Michael: At the time, Josh, that is a great question. At the time I was actually knee deep into restaurants. My, as I quit my job after a successful software IPO in 2000 and put a bunch of money in my pocket. And in 2004 and a half I read Rich Dad, Poor Dad. And it ruined my life because I was like, man, I need to get me some of this passive income, this financial freedom. And I was surrounded by people who were in the franchise restaurant business and as a cashflow business obviously. And I was like, that’s exactly what I’m looking for. So I went all in. I went into a franchise, a restaurant, it was a pizza franchise actually. And, and it worked well until about the recession. And it really kicked my tail. Pretty bad. Long story short, I subsequently lost all of my IPO millions in that experiment and added a couple of hundred grand of unsecured line of credit debt to the on top of that and I clawed my way out with real estate and like so many people who were thinking real estate to do single-family house investing.
Michael: Nothing wrong with that. That’s what I did and I flipped houses.At the time I also got a, I took a, I learned how to trade stocks and options and I took a multi-family seminar and I was basically learning from a firehose. I was like, man, I’m going to learn eight strategies at once and see which one I like the best. The problem was I was so deep into the restaurant debacle, didn’t really leave much time for anything else. And then after the recession when things finally started to quiet down a little bit, I was flipping houses and then got into my first apartment building deal actually in 2011.
Michael: Now I had been raising money about two years prior to that because I didn’t have any. So to fund the house flips, we actually had to raise money. So I learned the art and science of raising money had this giant light bulb moment. So that’s kind of the background. So I went through the, I ran through the recession, not so much holding real estate. I was flipping real estate and I didn’t actually end up apartment buildings, but I experienced the, I would say the nightmare and the panic of owning a small business that was losing lots of money every month because of the recession.
Josh: Yeah, we went through the same thing. We started investing in, I’ll say 2004, but Cleveland at that time it was already in a foreclosure crisis because we had a bunch of large fortune 500 companies that had all left town. So there was more inventory and people losing jobs left and right, starting in like 2001. And there were massive companies like BP oil, left town, went to Chicago and I can’t remember all the companies and there were like eight or 10 large fortune 500 companies left town or consolidated or moved out of the area or flat went bankrupt. Like the steel, Randy, what was the steel company in the middle of town? LTV Steel. Yeah. So all these companies are gone and all of a sudden there’s all this inventory and everyone’s like, we were getting calls for multi-family, Michael, you know how it goes.
Josh: And you’re like, well, what, how much do you think your house is worth? Well, it’s probably worth about $125,000. What do you owe it? I owe $150,000. I’m like, Oh shit, I can’t buy that unless they do a short sale. So we learned before the crash of 08 09 how to do short sales and very similar to you. We were very transactional through the recession. So we did well in the recession. And then after that, coming out of that, this last 10 years has been quite a quite a nice cycle rolling up. So 2011 rolls around Michael and you’re digging your way out of this debt from the pizza business. You’re starting to see and bought my first apartment building. Tell me about the first apartment deal. Everybody remembers their first big deal, whether it’s residential or multifamily. What was that like? How many units was it? How did you structure it?
Michael: Yeah, that was a, I remember it clearly. I like so many first deals, right? It was a 12 unit building in Washington, DC and I remember driving up to it. I put it on a contract without having seen it. That’s what we do. And I pulled up was like…
Josh: I’m so proud of myself. I never saw it.
Michael: I never saw it. I put it on a contract and I remember driving up and looking up at this three story building, I was like, Oh, that’s a big house. Oh my gosh. And I started freaking out. And then what I noticed that within 10 days, or maybe seven, you know, I was there every day. I was talking to people, I was interviewing people, contractors, property managers. All of a sudden that 12 units shrunk in size to me. And I was like, man, this isn’t so bad. I wish something were bigger. And I was just fascinated by how quickly my comfort zone grew. And it was essentially a nightmare first deal and basically every possible respect, if you think of something that could have happened, there’s a 90% chance it happened. We got through it. And then what happens is just start sending me mailbox money.
Michael: And meanwhile I was flipping houses, which the problem was that I was making great money with house flipping stuff, but it was so much work as you know, I couldn’t take 30 days off if I wanted to, was always someone quitting, someone screwing up, not showing up. And we had all the systems in place. We’re buying stuff site on scene. I had agents trained and PDF contracts automated, all that stuff. But really it was a very active, very exciting business. And I just noticed that the apartment building, apartment building was just quietly sending me mailbox money and I was like, man, I didn’t get into this thing to create myself a job.
Michael: I wanted financial freedom, meaning I could work whenever want and stop working whenever I want. And I was like, dag gone it, I got to stop doing this and start doing more of that meaning apartment buildings. And that’s kind of when I shifted, I was like, you know what? Maybe I’m going to start slowly, you know, ratcheting down the house flipping stuff and really start looking and thinking more about apartment buildings as a strategy. And that’s, that’s exactly what I did.
Josh: Nice. Yeah. It’s often like when we take a moment to reflect, it’s fun to record this and be with you. It’s kind of the end of the year 2019 because this is about the time when everybody or people that are thinking in advance should be thinking and reviewing. And often it’s as simple as looking at your balance sheet, right? Look at your balance sheet. Say, I’ve got this apartment building and it’s giving me this equity in this income versus I put all this time, effort and energy into wholesaling and flipping. It’s awesome.
Josh: So many people I know started wholesaling and rehabbing and rentals and eventually pretty much everybody says, you know what? Like my duplex or my quad or my 10 unit is so awesome because it just pays me all the time. And then there’s this epiphany boom that happens. Like, wow, I should really focus more of my time on multi-family. So what do you like best about multi-family these days now with a $50 million portfolio? Lots of money you raise, a hugely successful podcast, you do massive live events. What’s your favorite part about the multi-family business?
Michael: Yeah, I just love every part of it. I’m really having a lot of fun. I love the art of the deal. I always have. I just think every deal is different. You’re always problem solving as an entrepreneur, that’s what we do best. So every deal is a little bit different. Gives me variety. I also like the educational side of things. I like helping other people do something that they didn’t think was possible for, in this case, doing her first multi-family deal. And our mission is to help people become financially free, quit their job, which they can do once they’ve done their first deal, they essentially automatically do deals number two and three. Most people have covered the living expenses and that to me is super, super satisfying. So I really like the variety of it, frankly. I liked the challenge of it. One day, you know, we’re, we’re visiting a property and we’re, you know, evaluating whether we should close on this the next day. You know, we’re doing a podcast or live event or a coaching session and I just, I love all of it. I love everything’s, it’s different, but all synergistic and all kind of works together.
Josh: Yeah. Fantastic. So in every multi-family deal there is sort of the active operator who typically finds the deal, operates the building, brings in the team, brings in the contractors, brings in the leasing agents and then you have passive investors and you know we find that a lot of people kind of just fall into whatever bucket they fall into. We deal with active deals of ourselves. We own 2,400 units, we’re also a passive investor. We have $10 million just in multi-family. And so help our audience understand if they’ve never done a multi-family deal, whether they’re active or passive, like how do you help define those? How do you help people, your students and your investors find out which bucket they should fall into based on their goals, based on the money that they might have. You know, the difference between the two, active versus passive and how do you help people kind of fall into the bucket where they should based on their current life experience and their current place.
Michael: What’s interesting is that both active and passive investors want the same thing. And I know this because I’ve talked to them and I’ve studied them. They really want passive income so they can quit their jobs. So the only difference between the two of them is that the active investor is a hustler and they don’t really have, they have some money. They don’t have, you know, they don’t have a ton of money. And the passive investor tends to have less time and more money to invest, but they both want the same thing when you talk to them. They want passive income so they they quit their job. If they’re a dentist or an attorney, they want to quit their practice or their law practice and things of that nature. It’s just a way that they’re getting there. Is, is different, but the vehicle is the same, which is multi-family.
Michael: So multi-family appeals to a very, very wide audience. Now what’s also cool is the active investor side, there’s actually seven, six or seven different buckets in that, which I find really cool. And you know, you guys are, you are actually in several buckets yourself. So one bucket of course is the classic syndicator, right? This is the operators who are finding the deals, they’re raising the money, they’re operating. Their managing the asset after close is a classic. However, that’s not necessarily the norm anymore because you can specialize within that. For example, you could become a deal finder, you could do nothing but analyze deals and talk to brokers and get really good at underwriting and pre-negotiate and negotiating deals. Almost a little bit like a wholesaler would in some sense. Instead of wholesaling and selling the contract though you began to become a general partner and you partner with an operator because you might not have an interest in managing anything after it closes because it really bores you to tears, right.
Michael: On the other hand, you might hate Excel spreadsheets for example, which is really important as you’re analyzing deals. But your a relationship person, you might gravitate more to raising capital, meeting with investors, going to lunch, going to dinner, hosting a podcast a meet up, whatever the case may be. And through maybe your own investing experience. Maybe you’re investing passively. You are so excited about doing this that you want to tell everybody about it because investing in multifamily syndications is the number one best investment on the planet, cashflow, consistent returns and extraordinary tax benefits. Why would you not share that with people who are thinking the stock market is it. And so you have these different active, these different kinds of active roles that you have. And the answer your other question, which one do you go to? There’s really two ways to answer that. One is what are your strengths, what do you love to do?
Michael: And on the other hand, where is the current opportunity? So for example, like I said, if you don’t love Excel spreadsheets, then maybe you might want to stay with away from underwriting deals or maybe partner with someone. Again, if you love spreadsheets, you have a very unique skill set that someone who’s looking for deals or or looking to raise capital. And so what’s happening is there’s a lot of joint venturing going on. You might have a relationship person, capital raiser partner with an underwriter, analytical person. Those partnerships work really, really well because they’re both, they’re both required. And so we see a lot of partnerships happen between deal finding and capital raising and then the third through the operations side. So the thing that actually happens after the closing. So there’s so many different ways that people get and get involved both on the active side and on the passive side to achieve the same goal, which is passive income and financial freedom.
Josh: No doubt. I, you know, when you see posts on Facebook and a lot of our friends are you know, you’re buying multi-family, we’re buying multi-family and one of our friends, people that we know from different live events and podcasts and just guys that we know from masterminds buying multi-family and when they close on a multi-family deal, you typically don’t see one guy standing like in front of the, the name placard of the building. Usually it’s like six people. Me and my partners closed on this deal because like you said, everyone’s playing a different role. Maybe one guy signs the GP know or the PG to guarantee the loan. Another guy’s raising money another guy is doing the operations another guy found the deal. Several people are doing asset management, several people are raising money. Everyone’s playing a different role because the deals are so big, right?
Josh: $10 million, $20 million, $50 million deals, there’s enough kind of juice in them for everybody. So when, if someone’s getting started with multi-family, and I love to ask, this question especially from somebody that’s been around so much multi-family like you. For someone who is just first getting going. Maybe they’re just going directly into multi-family or they’re pivoting from single-family resi over to commercial and multi-family. Is there a place where you recommend that they start? Do you recommend they kind of start as a deal finder or building relationships or calling on brokers where is like a entry point, if you will?
Michael: Yeah, the common entry point really is education. And again and education means you got to speak the right language. You have to know what you’re doing. You have to know how to analyze deals. You have to know how the process works, whether you’re a deal finder or a capitol raiser, you have to be knowledgeable about the space. You can’t call up a broker and go, Hey, my name is Michael. I’m a real estate investor. Can you send me some deals? They’re going to go, I got an idea. Why don’t you send me your proof of funds and I’ll send you what I got. Which is, which is basically evidence that you just sounded like a newbie. So don’t do that, right? You need to educate yourself. And there’s a lot of great resources out there. We have training and coaching and books and that whole thing, it’s not super expensive, but you have to, you do have to invest in yourself so you don’t sound like a fricking blubbering idiot.
Michael: Now, once that’s done, once that’s done, you got to pick your track. A lot of people pick both tracks at once. They will start calling brokers, analyzing deals and they’re start meeting with investors and then they kind of see what they like, what pans out more. And then from there they may continue both tracks. A lot of traditional syndicators do both tracks at the same time. And then some people might say, well this capital raising the thing for the birds. I really don’t love dealing with people and I’m just going to find deals and I’m going to build my team that way. Other people would say this Excel spreadsheet stuff is for the birds. I’m going to align myself with a underwriter deal, finder person. I’m just going to raise capital for other operators. And that’s kind of what you do Josh as well. You align yourself with a small number of really high quality operators that you know theyir going to do a good job and you do what you do best, which is raising capital and everyone’s happy.
Josh: Right. Yeah. You bet. You know, when you get into real estate, you create this sort of love and affinity for real estate, the challenges it presents, but also the upside, you know, the tax benefits, the depreciation, the appreciation, the principal pay down. There’s so many different benefits to owning real estate. The downside is, is that it’s not super liquid, right? So the stock market, when I talk to passive investors, I try to present the positives and negatives of each type of investing. Most people, whether they’re doctors, whether they’re just sales people and nurses, teachers all the way up to the super high accredited, high net worth, most of them are very, very, very familiar with common stock market investments. And I have this whole process I go through to break that down and to show them why investing in stocks, bonds and mutual funds.
Josh: Why they do that is simply because we’ve been conditioned over the last, let’s say from the time we’re 8 or 10 years old and we hear from our parents for the first time about money all the way through. However old you are today, you’ve been conditioned by advertisements. You’ve been conditioned by your 401k at your former employer, you’ve been conditioned by your parents, you’ve been conditioned by your friends who invest in their 401k all to invest in the stock market. But the truth is stock market’s is averaging 9% return if you’re in large cap stocks, 9% will last a hundred years. And if you’re in a blended portfolio most financial advisors, when they do a diversified analysis of your thing, they’re going to tell you you should be in a blended portfolio, blended portfolio, talk to any financial advisors. They’re going to tell you you’re going to get 7% return stocks, bonds, mutual funds, all together 7% with almost no tax benefits, right.
Josh: But the benefit to that is that it’s liquid. You could snap your fingers and sell a stock today. So when you’re talking to passive investors or your students, Michael, about the stock market versus real estate, what are some of the, maybe the little one liners, the little zingers, where some of the education that you do for your students and for your investors to help them really understand it’s great to be liquid. It’s great to have someone in the stock market, but nobody ever got rich except for Warren Buffet maybe. Nobody ever got rich just purely investing in stocks. There’s so many more people that create financial independence through real estate. I know it, you know it, but what are some of the maybe tips or some of the things that you teach your students and your investors to help educate them in this conversation of stocks versus real estate versus multi-family?
Michael: You’ve identified the one and only drawback of investing in syndications, which is lack of liquidity. That is really the one and only drawback for that however, the benefits of investing syndication’s outweighed by so, so much that drawback that it’s a no brainer. Look, stocks don’t generate cashflow unless you’re very advanced in your selling puts and calls and no one does that, right? So stock rockers don’t generate cash unless you count interest and dividends, which it doesn’t make any sense. So syndications generate significant cashflow between 8% and 10% of invested. That’s, that’s pretty amazing right there. Number two, the returns are far higher than returns than the stock market and they’re consistent. With stock market, you’re dealing with volatility. That over time actually decreases your, your return. So you have consistency. And number three you have tax benefits that are extraordinary.
Michael: I mean it ends up that you don’t pay any taxes at all in any kind of distributions because of the way tax laws are. Obviously with stocks, you pay capital gains when you do, you don’t have that issue with syndication. So the pros outweigh by far the cons. And the question is the following, I mean the counter is why you want to be liquid. Really the only reason you want to be liquid is if you want to get out of one investment and into another. Well, if you’re in a great investment, why would you ever want to sell anything? I had the pleasure of actually interviewing Grant Cardone just not too long ago. And he says, back to the one zinger, you’re one or don’t save to save, save to invest. And he’s got this crazy little millionaire book and we basically says, stay broke.
Michael: Like, that’s his headline, like point 7, stay broke. I’m like, what the heck does that mean? Basically it means that you shouldn’t have any liquidity anywhere. Anytime you have liquidity, it’s a bad sign that something is not earning the way it should. So what he does is he takes once a year or twice a year, he plows everything he possibly can into investments, businesses, and most recently multi-family syndications. So he’s got no cash. And what that does, not only is his money working harder, but it keeps him going. So he doesn’t have like $10 million dollars. It doesn’t, he doesn’t have $10 million in a bank because he’s literally broke. He doesn’t have that kind of cash laying around. So therefore it motivates him to hustle more and generate more cash because he’s got to build up his coffer again. I found that hysterical.
Josh: That’s awesome. You know what’s interesting, Michael, about that, I remember being a financial planner. I was a financial advisor, a fee based financial planner. I used to charge my clients hundreds if not thousands of dollars to write a plan. I was in my early twenties but I remember hearing from one of the advisors up on stage that said, you know what? Like if you want to get motivated in this business that he was talking about financial services, go buy yourself an expensive condo or apartment and go buy yourself a Porsche and then go find a way to afford it. And that I thought was looking back, it’s like, well what Grant is saying what you’re saying, Michael makes way more sense. You’re actually investing in things that create cashflow. What he was saying though was very similar in that, just like level up your lifestyle, level up, your expenses to create motivation. I think the point here I’m trying to make is both of them create motivation, right?
Josh: And when I hear people that are like, well, I’m not investing because I’m just not, I’m pretty comfortable and Michael, you know it it I know it. Comfort is the enemy of growth, right? So whether it’s investing all your money and having no cash, so you have to hustle to create more cash or whether it’s taking on some expenses, it’s great when you can actually invest in assets like multi-family that creates cashflow that you can then turn around and buy things that you like, buy the toys, right? So what the advisor got wrong, and it’s interesting to hear from an advisor that was telling the audience, go buy a Porsche versus what we tell our numbers and students which is go buy the asset and let the asset buy the Porsche, right? That’s where it’s really at.
Josh: Michael, let me take a step back for a second though and go back to 2011 2012 13 you’re starting to build your multi-family portfolio. Maybe just help our audience understand some of maybe your fears, some of your anxieties, if you had any around raising money or around making offers on big apartment deals, building your portfolio. What are some of the common fears that you see some of your students have and some of the personal fears that you had to overcome? Making the pivot into multi-family and just saying, you know, like I’m good enough, I’m smart enough like I can do this, I can buy bigger buildings and raise more money. What are some of the fears and some of the, maybe the mental walls that people put up and some of the excuses why they don’t jump into multi-family sooner?
Michael: Yeah. And they really are made up fabricated fears like you’re talking about. They’re really made up because they’re not actually real. But in your mind many fears, they actually are really real. One of them is, you know, should I take friends and family money or no, I should not take friends and family money because God forbid I lose friends and family money. That’s the worst of it. And that’s again a fabricated mindset because why would you take anyone’s money and lose it? Like it doesn’t make any sense. Either way it’s going to be a bad situation. So it’s kind of a fabricated thing. And if you say, look, I’m not taking friends and family money, you really cut yourself off at the knees with regards to getting started with the art of raising money. It doesn’t make any sense at all.
Michael: And again, because of the asset class you’re in, multi-family, because of the education the probability that you will actually lose people’s money is very low. What may happen is you may not make as much money as you projected, but multiple bad things would have to happen all at once for you to actually lose principle. It’s just not that, not that high a probability. Number two though is, is the fear of actually raising money. And you know, what are you doing to protect yourself and your investors from a deal going bad or the market going bad, right? And so you’ve got to make sure that you are, you have steps in place to do that. Things like, for example, always buying for cashflow from day one. Don’t buy something, doesn’t cashflow.
Michael: Make sure you have the right debt product on there so you’re not forced to sell a refinance like so many people did in the 2008 making sure you never run out of cash. You never want to run a cash. So having enough cash at closing, taking out cash during the operation, stuff like that. You’re putting safety nets in place all along the way to protect the investors from losing their principal. So those are some of the major ones. And then other things around confidence. Your why would anyone give me money? I don’t want to beg for money.
Michael: And when, and that again is a mindset thing where you’re not begging, you’re actually providing a service you have, you are, have an opportunity that is so unique in the world that only you know so much about and you’re educating, you’re sharing your enthusiasm with investors who know nothing but the stock market. And as we know, the stock market is fundamentally flawed in many different ways and you can help people achieve consistent income and pay less taxes. I mean, as a high net worth earner, I want to hear about that, right? You are actually being selfish by withholding that information from your dentist, from your attorney who otherwise would not know about that.
Josh: I had a friend of mine, Michael years ago, his name is Francis Below. He works with a mutual friend of ours, Tim Bratz. And Francis told me this is going back 10 years ago and I’m not sure where he got this from. It was a seminar or workshop or a mastermind. But he said to me, we were talking about sales and the conviction of sales or the conviction of raising money or the conviction of selling education, coaching. And we were talking about some of the, you know, let’s say the haters or the trolls that will say, well, if you’re so successful, why do you coach? Or if you’re so successful, why do you raise money? And it came down, we were talking about conviction and he said to me, I’ll never forget this. He said, Josh, you know, I learned long ago that if you have something that will impact somebody else’s life in a positive way and you have a conviction that you know what’s good for you and good for them, you have a moral obligation to sell it to them.
Josh: I knew that cough was coming so we can cut that part out. But he said you have a moral obligation to sell it to them because if you don’t present it to them, you’re actually withholding something that can benefit them in their life. And I think that we’ll cut this out. You okay man? Get some water. This is the downside of having a production team. Michael, the guys get a cough and you got to let them out of the room. Okay sounds good. Yeah, we’re going to wrap up here in a few minutes. So he’ll cut that all out and we’ll cut this out. So three, two, one.
Josh: So you have a moral obligation to present it to them because if you don’t, you’re actually withholding an opportunity that can actually positively impact their life. And I think that conviction, the difference between I’m begging people for money and I haven’t, I’m providing them an opportunity or I’m begging for money and I have a moral obligation to present this to them because I know it’s going to enhance their life. That’s where it’s that small pivot in our own mindset, right. So again, help me understand, like when you’re educating someone, coaching your audiences, your team, how do you help them? How do you help them just convince themselves? Because at the beginning they’re like, multi-family is awesome. I know I want to do it, but I’m still got this fear. I still have this roadblock. We’ve got to punch through it.
Michael: You know, a lot of times I find that when someone can visualize the process, play it out. If I described you the money raising process, what are the 10 steps or whatever to raising money, maybe some scripts to use, what to say, how to find the investors. Once people see that, they’re like, Oh, that’s not so bad. And then I coupled that with, you know, here’s some other people that were in your situation that had maybe your job or your whatever, and they had similar problems and look at them now, right? So once they visualize this belief starts to creep in and belief is what you need to do anything meaningful in life and belief is at the opposite end of fear, right? You can’t be, you can’t have paralyzing fear and belief at the same time doesn’t make sense.
Michael: So what happens is you really need belief that the system works, number one. But oftentimes that’s not the problem. Oftentimes people think that I can’t make this work. I’m not good enough. I don’t have what it takes to do it. And getting that belief is again, in a way, visualizing it and having them talk to other people who have done it, who have maybe shared their mindset with them, they were like, my gosh, I used to think the same thing you did, but here’s what I did and look at me now. And they’re like, no way. And coupled with, especially if you’re working with a mentor, especially a paid mentor or a coach who’s done this, I just, I can’t remember.
Michael: I for example, and I’ll never forget, years ago, back in a restaurant days, I had someone who was experienced restaurant guy and I was like, man, I don’t have the money to open up another restaurant. He goes, that’s fine. I’ll help you raise it. You can do this. And I’m like, really? And I’m like, well, he never ended up raising the money for me. I had to do it myself. But he gave me a belief that I can do that. And so an experienced mentor coach can do that in a person. And from that point on, it’s just, they’re going to get it done because now they, they believe in themselves and they see how they can be successful.
Josh: Yeah. That’s fantastic. Yeah. You have to visualize it going going to have the knowledge first, right. And then it comes down to belief systems. And I think it’s interesting that belief systems, the acronym of BS right? Belief systems, bullshit BS. A lot of times our belief systems, they’re bullshit. It’s BS, it’s stuff that we concocted in our head from some experience that we had in the past or some experience that we haven’t yet experienced we’ve had. And we can cock this belief system, this bullshit in our minds that we think that we can or can’t do something right. The truth is, is if Michael wants to raise money and Josh Cantwell’s raised money and all these other people that raise money, you can do it too, period. The end, if they’ve invested in multi-family, you can do it too. Michael and I are, I often tell people, Michael, what makes you so special? What makes you think you’re so special that you can’t do this?
Josh: Yeah. that’s exactly right. Yeah, that’s right. No the thing is you look everyone is is kind of unique in some way, and I may or may not resonate with someone, right? Which is why it helps to have different success stories. I mean, certainly if you say you and I say, Oh, well we’ve done it, so can you, people are going to go, yeah, but look at you already own 2,400 units. Like it’s easy for you to say, right? Versus saying, well, Sam did it, you know, and he did his first deal only like two months ago and he did it like, Oh, well now maybe I’ll pay attention. So you really have to show people someone who has been in their, you know, relatively recently so they can resonate with that person. And that’s what triggers, that’s what makes people believe is seeing that.
Josh: So Michael, tell us about it. Somebody recently, you have experience with a lot of new intermediate and advanced multi-family investors. Maybe let me tell us a story or two about one of your most recent success stories with one of your students or members.
Michael: Gosh, I mean there’s so many. And I loved, you know, there’s so many there’s there, you know, there some people say, Oh gosh, I’m too young to do something. You know, there was a, you know, Jake Bolin, shout out to Jake, great guy. He was a 21 year old Airforce cadet and some miracle he was invited to invest in a final of an $11 million deal. Like how did he do that, right? Yes he educated himself. He went, you know, he bought our program and, and, and we didn’t know about until he brought us to deal to the deal desk. We have a deal desk process where people can bring us deals and we partner with them. How this guy managed to be taken seriously as a 21 year old, right? It’s just amazing. And Anthony Metzger is similar.
Michael: He’s a 29 year old winemaker for crying out loud. Right? Isn’t that they’ve never done real estate before. He goes, he educates himself and he makes these brokers believe that he knows what the heck he’s doing. He’s following our process, yes. But he wasn’t the mentoring student at the time. He brings us this deal and this was actually an $11 million, an $11 million dollar deal. And we closed on that about two and a half months ago. So it’s like these stories like that where people, they educate themselves, they acquire the knowledge, then they get belief in themselves and then the develop the confidence. Now they call up a broker and they’re taken seriously by the broker because they’re using the right language. We’ve assembled a team around them. All of a sudden they’re like, yeah, sure, why don’t you make an offer?
Michael: And all of a sudden before you know it, they’re awarded an $11 million deal. I mean, it’s just really, really unbelievable. And there’s stories, story after story like this where people who have never done real estate or people who have done single-family. It doesn’t really matter. Like I don’t see a pattern at all. A correlation between it all and they’re doing their first deal. And then the law of the first deal triggers I talk about a lot is that once you do that first deal, the second or third essentially follow automatically. They just, they just fall in your lap because now brokers are calling you, investors are calling you and you’d have to expend more energy not to do the second deal. And because these deals become subsequently larger, most people are covering their annual living expenses in just three deals through a combination of acquisition fees and passive income and then they quit their jobs. And that’s really what I’m about. I am all about helping people quit their jobs with real estate but maybe not in the way they think, which is typically a single-family house investing.
Josh: Yeah, I love it. And you know what, that story you know Jack Petrick, which is our common friend that connected on us.
Michael: Sure. He’s another example I forgot about him. Yeah.
Josh: Exactly like, you know, when I’ve funded a bunch of his deals, his smaller deals, because we do a bunch of small balance commercial lending. We fund a lot of deals in that $250 to $5 million space as a first mortgage lender. And Jack had done like a 20 unit and then a 24 unit and then a 35 unit and a 16 unit and then all of a sudden he had closed a couple of tough to close smaller multi-family deals that a broker brought him an off market deal 164 units, $12 million deal. Then Jack and I partnered on that. We closed that deal together, 164 units and again it was just like you said, because it was the first field trigger.
Josh: We had close one and then two and I had helped Jack raise some money for one and then I had funded his deal as a private lender on another and then all of a sudden boom, 164 unit deal in an A-class market an A-class property, but that needed some value add, needed some, some opportunity for some increases in rents and boom. Now you know when you close on a $15 million deal, not every broker’s going to look at you and take you pretty seriously and they are, now we close to 89 units that we just funded 123 unit he is closing next month. And I want to think a lot of it started with your deal analyzer.
Michael: He actually went through our course. Actually I was looking at our notes real quick to start with our course. And if you would ask him about the law of the first deal, he’ll know exactly what that means and he’ll probably say something like, yeah, within a few weeks of closing the first one I already had the second under contract or some derivation thereof.
Josh: Yeah, that’s absolutely right. So, Michael, as we kind of round third here and head for home, one final question for you is just you know, what are your thoughts on the state of today’s economy? You know, Trump is in office. There’s an election year coming up next year and there’s a lot of riff-raff and in this impeachment talk, there’s a lot of comments about China and trade war. You know, we get a lot of analysis usually once a quarter from some of our insiders on the state of the economy. I think there’s a lot of positives are certainly, our economy is showing some cracks in confidence in manufacturing. So I’d just like to get your take on what do you think’s going to happen here maybe in the next, you know, one to two years. And how does that impact your multi-family thought process?
Michael: Well, everything we do, we always are very cautious with what we do. Everyone is kind of predicting some kind of market correction, not so much for any particular reason, but simply because we appear to be overdue.
Josh: Yeah, we’re overdue, it’s got to happen.
Michael: So therefore it must happen like 2020 appears to be the magic year. However, no one can really say, well, why exactly, where in the fundamentals is there a crack? Yes, manufacturing is a little soft, but there’s tariffs going on right now going into election year, there’s going to be an uncertainty and uncertainty always breeds a massive around of volatility, especially with the stock market, not so much with real estate, with the stock market uncertainty until, you know, until the elections are over and things will quiet down again. People are predicting a market correction in 2020 again, no one can really say why that is. However, to me it doesn’t really matter.
Michael: Let’s say it happens in my mind it’s only good. It’s only positive because when we’re buying apartments for the reasons I mentioned earlier, we really buy apartments for the medium term five to seven years so that we can ride out anything that may happen. In the meantime. If my property is cash flowing, if the valuation goes down over the next year or two, it doesn’t matter to me unless I have to refinance or sale, which I don’t because I have the right financing in place so I don’t really care too much about that. Now what may change is instead of my five-year hold, it may turn out to be a seven year hold and so some investors may not be very happy because I told them it’ll be a five year hold. However most are like, I’m so glad you didn’t have to sell in some kind of short sale and get the heck out of there that you were able to hold on to years later.
Michael: So I don’t think anyone’s going to be so upset over that. The reason that I’m saying it’s going to be positive is because it’s going to open up more opportunities to buy stuff. And that’s really what we’re looking for. It’s a little bit overheated on the front as a seller’s market right now. So a correction would stable, you know, it would balance that out a little bit more. On the other hand, my gosh, interest rates went down a couple of months ago and an in in an incredible move downward. And we’re like, Oh, cap rates are going up. And the only reason we’re saying that is because, well, how can they possibly go lower. Well the other thing that was interesting as, so interest rates are going down, so that means a cap rates are going down with the fall industries. But what happened last year in early in December and January there was a spike in interest rates.
Michael: And what happened is cap rates stayed exactly the same and that was very interesting, which demonstrated to us that there’s so much demand for multi-family, there’s so much cash looking for a home and that includes 1031 exchange money. It includes foreign capital and that cap rates and the prices at about the same valuation even though for a period of time interest rates went up by a whole percent for about a period of six weeks. And that was very interesting. So my prediction over the next couple of years is with regards to multi-family commercial real estate specifically is stability stability. I don’t, I don’t see anything major, anything major going on. Having said that though, we are always cautious with how we buy stuff. You never know. And I, you know, you were through 2008, I was through 2008 on and you’re like, man, how much worse can it get? And then it got worse and you’re like, Oh, I don’t want to go through that again.
Josh: Well that’s the whole reason why we’re buying these assets now, right, is to create cashflow to get through a recession. You can get through a recession with cashflow, cashflow, cashflow, and like you said, the only time you lose is when you have to sell at the absolute worst time. And we’re going to avoid that with cashflow, right? If you’re five, seven, 10 year asset, hold onto it for the long term. Many people when they’re in stocks, right? They’re like, Oh my God, the market’s down. I better sell, like shit, don’t do that. Because if you sell at the bottom, then you just experienced the loss versus just holding onto it through the whatever time you’re going through.
Josh: So I’m like, Michael listen, I had a phenomenal time just getting to know you more are doing this interview. I look forward to, you know, being at some of your events, meeting more of your students and members, more people like Jack and others. I did want to give you an opportunity to talk a little bit more about your events, about your book, your podcasts, you’ve got a number of different assets and different places where people can connect with you. So what are some of those different places people can reach out and just learn more about you and your organization?
Michael: Yeah, we have a ton of free content out there, really designed to help people educate people about the multi-family space. To answer the question, Hey, is this something I should consider or not? I think a lot of people have a close mind to investing in multi-family because I think it’s some advanced strategy that need millions of dollars and years of experience. None of that is true. So we have a lot of these free resources. We have blog, we have the podcast, we have a free ebook called The Secret to Raising Money to Buy Your First Apartment Building Deal. You can get that all on the website, TheMichaelBlank.com and that’s B L A N K it’s written Blank. I was pronounced with funny and a great entry point is probably my book. Called The Financial Freedom With Real Estate investing, which is this yellow book. It’s on Amazon and it’s really everything kind of is in one place to help answer that question and to paint a picture of what it’s like to raise money and close a deal to try to,just to see if that’s something for you, if something you should consider either as a compliment to what you’re doing right now or something entirely new.
Josh: Fantastic. And The Deal Analyzer we talked about at the beginning, can that also be found on TheMichaelBlank.com?
Michael: It sure can. Or you just punch in Deal Analyzer and you know, you’ll, it’ll take you to my website. So yeah, you’ll have the Deal Analyzer. We have the courses and mentoring and the live events. Our annual event is called Dealmaker Live. It’ll be July 16th through 18th in Dallas in the middle of summer.
Josh: Nice. I will be there. That sounds awesome. Well, listen, Michael, thank you so much. I’m so grateful that you took some time off to spend with me and with our audience. And share all this amazing insight on your journey and the multi-family space and a little bit on the state of the market. Just thank you so much for taking the time. We’re so grateful to have you on.
Michael: Josh, thank you so much for having me on the show.
Speaker 2: Josh. Thank you so much for having me on the show.
Making the jump from single-family residences to multi-family units can seem daunting. Michael Blank from Nighthawk Equity knows that feeling well, and today he walks us through his first multi-family deal, and his subsequent success with this market. Michael currently owns and manages over $50 million in multi-family assets, and has developed a tool called the Deal Analyzer that is designed to take the guesswork out of whether a property will be profitable.
One of the first steps into multi-family units is definitely education. Michael emphasizes that before delving into real estate investing, knowing, understanding, and using the right language is important to communicate to the brokers that you have experience and authority. Find a mentor that resonates with your learning style, and he will help you move beyond your limited thinking. Michael and I both share the same passion to educate investors about the huge benefits of real estate in a personal portfolio.
We both agree that real estate’s only downside is that it’s not in liquid funds. Every other benefit, however, outweighs that, and liquidity just means that your money isn’t earning anything. Real estate has an 8-10% cash flow, the returns are far higher and more consistent, and the tax benefits are extraordinary. Teaching others who are more familiar with 401Ks and stocks about the huge benefits of real estate investing is immensely rewarding because you’re enhancing their life and helping them achieve their financial goals.
It’s pretty normal to be concerned about the state of the economy, especially when it feels like we’re overdue for a recession. Michael shares that it doesn’t matter about the uncertainty of the economy when you’re buying multi-family apartments because you’re buying for 5-10 years and you’re generating positive cash flow. We talk about our recession strategies and realistic plans if the market or economy should see a downturn in the next year.
We’re both big fans of using multi-families as a tool to accelerate a real estate portfolio, and we think you will be too after today.