REIA 267 Mike Ealy: From Broke to Millions

Welcome to Real Estate Investing Abundance, the show for busy, fulfilled professionals like you to learn how to develop financial independence built on solid passive real estate investments. Now, here is your host, Dr. Allen Lomax.

Hello, enlightened investors. Delighted to be back with you again today as we take a look at going from broke to millions with our guest, Mike Ely. He started investing in 1999, but lost everything and even became homeless in 2002 and 2003. He was able to get back in the real estate game, and he became financially independent in just 4 years. Today, he owns 1,500 apartment units, 40+ houses, a few parcels of land, and 4 hotels and an industrial warehouse. Mike, thanks for being with us today. And start us off by sharing a memorable experience from your formative years that helped you to be who you are today.

Man, some of these deals had so many great memorable experiences, but one of my favorite ones is when we made our first million dollars off of one of our deals. It was actually a deal we actually decided we wanted to wholesale, and we said, you know what, nah, We're going to hold on to it. And it was a challenge. It was 48 units. The building was pretty much vacant. We only had about 8 tenants, and another 80 units needed to be fully gutted. And Nate was my partner. Nate was handling the construction. I was handling the leasing of it. And we made a deal. He said, I'm going to handle construction, and you just get this thing leased. I made a call and leased the whole building. Within 30 days of the project.

Wow.

We created so much value. We had a lot of learning curve right there. Learned about doing things the correct way versus being cheap, fixing things ahead of time instead of waiting until they break. But we netted $1 million and that was one of my first million-dollar deals.

Wow.

Fantastic. That wasn't your first deal though, was it?

No, it wasn't my first deal.

That wasn't the first deal. Well, that's an interesting, interesting story there. So tell us a little bit more about it. It was a 48-unit, about 8 tenants. You said, I think, 8 units had to be totally and completely regutted. Tell us a little bit more about that particular project.

It was in a C neighborhood, and we found it right before the market went down. We bought it for about— well, right after. Coming out of the recession, about 2013, I'll say '12 and '13. I know you may not believe it, but you know, these numbers sound crazy, but I think we bought that for like $4,000 a door.

Wow.

Yeah, that's about right. Wow. $4,000 a door because we paid $200, $220, but we got money back. Yeah, imagine that. And we were all in at $8,000 a door and we sold it for $30,000 a door.

Is that right? Wow.

All right. Yeah. So, so amazing. We gave a credit back to the seller, but it took us like 5 or 6 years. We learned things we should do and the importance of having reserves set aside. And instead of trying to, you know, keep things less expensive, we didn't do that at first. Like, for example, we should have replaced some of the kitchen cabinets. And when we replaced some of the cabinets, we should have took care of some of the plumbing behind it.

Right.

Should have just put on different nozzles and different springs. Because what happened is we saw it then, but we didn't want to incur that expense. And so over a period of time, it broke anyway and started leaking, and we didn't know it. The tenant didn't say anything. Then it eroded the cabinet because it came on so much moisture. Then mold started to set in. Then plumbing went down into the other floor, so it created even a bigger expense. So that was one of the first things we learned about not being cheap, controlling your expenses, but not being cheap.

Yeah.

And we began to learn the importance of the value of the lease because before we took that, we weren't as educated as most in, in real estate. Right. I think it wasn't until after them, I went and got educated and got what they call the CCIM, Certified Commercial Investment Member, and took those courses. But other than that, we evaluated properties based on what our gut said and what we saw in the market. And what we saw, what my gut said was, hey man, this is a deal. We can buy this for $250,000 and sell it for $600,000. That makes sense. Let's wholesale it. And then my partner, Nate, was like, no, we can manage this, man. Let's do it. And then we looked at the history of what it traded for. We saw $1 million, $1.2 million, $1.4 million, $1.6 million. And we were like, who in their right mind would pay that much for a building like this in a C neighborhood? And once I understood how to evaluate the cash flow and understand cap rates, and once we understood that and how much value we created, that's why we held on. And we had this goal, like we were thinking that was crazy, but we thought we could only sell it for $1.3 million and we ended up selling it for $1.6 million. And we were all in for just under 4, just a little over $400,000.

Wow. Well, that is an amazing deal. I'm sure it was nerve-wracking and trying, and that may be the reason you're bald today.

Absolutely. That's, that's one of the reasons there.

But I'm sure it was a wonderful learning experience, but I think if I understood you correctly, you said you had that leased up in 30 days. Did I hear that correctly?

Yeah, we thought outside the box. It was a C neighborhood. I didn't want to get into leasing. So I never forget, I read a book about how this guy rented some of his building to different agencies. And when I first started off, I was buying in D and F neighborhoods.

Hmm.

These are war zones, but they were cash flowing greatly, but not a lot of appreciation, but great cash flow. So you had to, What we call guerrilla marketing. You had to be different and out of box and aggressive on how you market it. And at the time, that market was— even though internet is readily available, it— even with internet available then, people really weren't looking at that at all.

Mm-hmm.

So I still had to do what you call the tear-offs and post it in locations. They were lifting where you tear off, you have a sheet of paper and apartment for rent. And people just tear it off wherever they were. But I learned that I could speed up this process if I just leased the whole building out. And sometimes when you lease the whole building out, they sometimes do their own repairs. But the great thing about this is when I lost the tenant, they would bring another tenant in. So what happened, they stayed in there long enough for the market to catch up that we got to the point like, hey, it's not worth them having them in there. Let's do it ourselves and we can get $500 for the ones and $600 for the twos. Because at the time, I think I was leasing the whole thing to them for like $350, $450 a tenant or $500, and we paid their utilities. It was a good deal. I didn't have to deal with anybody. I didn't have to go out leasing. It cut my staff in half. So it was great at the time.

Well, smart thing to do there. And that certainly is one way to get educated. And I'm sure you did through that process, but let's back up. Before this to, I think it was around 2000 or so, that you lost everything. Tell us about that story and how it is that you eventually turned that around.

Even before then, I had this dream of doing real estate and doing concerts and parties. And throughout high school and college, I threw all these concerts and parties. It worked out great until it didn't work out, right? And so I wanted to get myself out of debt. I ended up working 3 jobs. I was delivering newspapers in my car at midnight to 2 in the morning, and I'll come back home. And then I would go to my 9 to 5 or 8 to 5, whatever you want to call it. And I was electrical construction project manager. And then from there, I will go down to the stadium for the Reds or Bengals games and sell ice cold beer. And that's how I made my money and tips. And I saved up enough money to pay off any debt I had, paid off all my bad credit, and then I used that money, what I had left, and I bought a 2-family with owner financing. Look, I didn't even know how to paint, and I had people come upstairs and paint for me. They actually sent me back downstairs because they said I was terrible at painting. And, but he ended up getting it fixed up, and I rented the second floor For $500. I got a roommate, which now they call house hacking. They paid $200 and my mortgage was $700 a month, $700 a month. And I was living rent-free and I was like, this is the life.

Mm-hmm.

And so then I did something similar again. I bought 2 four-families, a no money down technique. Actually, I didn't have $3,000 for a down payment. Actually borrowed that money from the, the realtor that brought the deal to me. He lent me $3,000, but at the, at the beginning of the month, I collected $5,000 from deposits and first month's rent. I took that money, made the deposit, and then paid him back his $3 million. And I did another deal with no money down and had bank financing. And I just kept doing this thing over and over and over again. Then I had 2 full-service car washes using these same Owner finance, no money down. And I was overleveraged. I was using some of this Robert Allen, and I used those techniques, which were great to get me started, but then I lost it all. And literally I was couch surfing, and then to the point I didn't have anywhere to go. And then finally I moved back home with my mom and dad and they painted my room. Well, I guess they didn't expect me to come back home, so they had painted the room pink and lavender. So, you know, that was pretty motivating to get back with little roses all the way around. And it just made me more hungrier.

Yeah.

And so I went and got my realtor's license and I wanted to understand the market. And so getting my realtor license, I started getting investor investors. And, but I told them, I was like, you can be an investor. I'll bring you the deal. I'll manage the deal. I'll manage the construction. I'm just going to take points and fees, but you can take all the upside. And so I basically, you know, I did a fee base. And from doing multiple deals, I won, and I figured out the right way of doing things.

Mm-hmm.

And then I went out on my own. And by that second year, third year, I bought a house, uh, for myself. And I bought multiple houses and multiple deals. But when I lost everything, I was going through foreclosures. And I learned how to do short sales. I learned how to buy mortgage notes. I learned how to restructure deals.

Well, the timing couldn't have been perfect.

Because right when I figured all that stuff out, the Great Recession came. That's when I made my money and became stabilized. I wish I knew more at that time because I would have probably bought even more. But that was the beginning of me buying multi-units. I really only got into real estate to buy about 4 or 5, 2 or 4 families.

Mm-hmm.

I just wanted something to where I could live rent-free and it pay for my car payment. I never really imagined me buying hotels and everything. It wasn't until I went broke. I don't regret that, but I don't want to ever do it again. But during that period of time, I was able to put a master plan together. And that is the reason why I'm here today.

Mm-hmm.

I envisioned myself doing hotels, I envisioned doing large apartments. I envisioned myself doing resorts and doing tech companies. And then we started putting action with it, and that's where we're here today.

Well, give us some details, Mike, in terms of this, the master plan you put together, and how did you implement that master plan?

One of the things is creating a vision. I know a lot of people have this vision, this idea, and they may think about it. But they don't even believe it's possible. And one of the things, keep it simple. I, well, I've learned, and I was, first of all, I was blessed that people always told me, Mike, you can do anything. You could be the president. You could do this. You know, that was back in 1971. I'm this young Black kid and they telling me I could be the president. And so I said, okay, I believe you. Now, not knowing if they were talking about the president of the United States or a president of a company, but either way, I became a president. And but what that taught me was things were possible. And also, what I've learned is when there's something you desire, something you believe in, or you have a goal, don't worry about how it's going to come to fruition. Write it down. And so I began to write these ideas and these dreams. And I wrote them down, anything and everything I want to do. And then after I began to write it down, I began to put them in categories. Then literally after I started putting them in categories, I matched it up like a flowchart. Then once I got to the flowchart, I would just meditate over it. I'd post it on walls. I would create this vision and think about it. And then after a period of time, I started meeting people that were doing all these things I wanted to do. And then I started reading more about it. Like I started attracting these people. Or I became attracted to those things, and they began to come in my life. And then once I figured out what I really want, then I put action steps literally to the time I need to wake up in the morning, to what I need to do to make that accomplished. Is is really this small? I want this goal of buying apartment building. So I said, well, I need to talk to these many brokers a week. So. Until I find some? Because it's all math. I said, well, you probably got to talk to 50 to 100 different people. And then out of that 50 to 100 different people, they all going to send you 2 or 3 deals. So that's probably 300 or 400 deals that I got to go through. And out of that, that's going to be one. So how many deals a day am I going to look at? And how many people am I going to talk to? And so I was like, well, in order to do that, I need to get up at 5 in the morning because I need to work out and I need to eat. Then I need to spend time with my family. Then I need to get out there and make calls and handle all the work I'm doing. Then at this period of time, I'm gonna work on this and literally step by step. And then you just have to execute. And so I talked to people, talked to people, talked to people. And then all of a sudden I talked to so many people that they start circling back to me on deals, or I looked at so many deals and then I wrote so many offers. And yeah, the deals I wanted didn't come, but quite frankly, some deals I didn't expect to get, I got. And then deals that I just wrote and never thought about, they came back a year or two later. And from there, that's what— and then we started creating more partnerships and they started bringing deals. Then I started educating people and they brought deals and they raised money. And so it's just sharing your vision, writing your vision, and execute. And that's how we got there.

Well, interesting how All of that came together and, and clearly starting with the dreams. I mean, that's very interesting, writing down the dreams and then categorizing the dreams. And then you developed a flowchart from those dreams and those categories. Fill us in a little bit more about how this flowchart arose from dreams and categorization of the dreams.

Yeah, no, it's just really, I started reading so much when I went broke. Now, just to give you an idea, I'm a math guy. I finished school in electrical engineering. So if you give me some math, I can create a story for you. Reading, literally, I would fall asleep on the first page. So I had to force myself to start reading. And I'll never forget the only reason I picked up a book. I was at the car wash one day and I was so upset with everybody. I left and I went to the bookstore. Actually looking for, and I know, and imagine this, kids are still doing this today. I was looking for the cheat code to a video game. Back then they didn't have YouTube where you could figure out all the things. So I was looking for this book and then I came across this book. It was Rich Dad Poor Dad. And that was the first time I picked up a book and it felt like somebody understood me because I didn't have anybody to talk about money about. I didn't have anybody that really understood money. And that was the first time I picked up a book and I stayed in the bookstore and read the whole entire book before I left.

Wow.

And then I didn't think really nothing about it, but I was just touched that somebody else would think about it. And then a month later or so, Rich Dad Poor Dad, the Cashflow Quadrant. Now that's really what took me to another level. It was about not working in the business, But working on the business and not being self-employed, but the investor, the business. And so that helped me categorize all these ideas that I had. Because whatever it is, like, I just knew there was so much money out there, I wanted to obtain it. I just didn't know how. And that's when I understood the importance. Everybody kept saying it's about who you know, not what you know, who you know. And then I started seeing these CEOs, right, in charge of these, you know, billion-dollar companies. And like, they had a degree in biology. And I'm like, what does that have to do with running a billion-dollar business? And then I looked back and I saw that from the art, they related or knew somebody in the family. I even still know CEOs of major companies right now. Their son— they were CEO of a major billion-dollar company, and their son got promoted up through the ranks. And now they're kind of taking charge. But with all those different ideas, I took those and I saw how people were being successful and I leveraged that. And I said, when I get to a point that I could get there, I would do it. For example, another example, I was doing single-family houses and this is the main reason I went into larger deals. These guys were developing $20 to $50 million projects a year. And I'm listening to them. And they were having the same problems I was having. I was like, how is that possible? Says, well, they're stealing my copper. The leasing agent didn't lease the units up in time so I can meet my quota. We had to reimburse someone condo deposit because we didn't finish the project in time. The bank wanted to, you know, call the loan or whatever.

Mm-hmm.

I was like, you got the same issues I'm having? And then, and then just as an individual, I'm thinking, well, they owe this money. They're married, their kids. Yes, their kids were crazy and their wife argued with them. I was like, but you have all this money. And, you know, I learned like it doesn't matter. And when I was done with a project, I netted $5,000 or $20,000. When they were done with a project, they netted $5 to $20 million and still had my same problem. I was like, well, you know what? I need to scale up and get into bigger projects. And quite frankly, the same amount of energy that you would put on these smaller deals, you're going to put the same amount of energy on these bigger deals. It's a little more convoluted. There's a couple more strategies you need to take, like understanding equity metrics, you know, cash on cash, internal rate of returns, price per square foot, feasibility, market demand, you know, the demographics of an area. But for the most part, it's the same thing. And that's what made me go there. And then I started seeing people run tech companies. And so these people became my friends. Like, I still have my good friends I grew up in high school with, but they're not doing what I do. I see them at Christmas or Thanksgiving. I started hanging around people that were doing the things where I wanted to go. I think Wayne Gretzky says it best. Don't go where the puck is, go where the puck is going. And that's why he was so great. He already anticipated where it was going. And so I would watch what other people were doing, anticipate where they were going, and then start planning and watching them. And that's simply— at the time I wouldn't call it that, but those were my coach and mentor. And that's how I accelerated. I was one that was just hardheaded. I was like, I'm not paying all that money for a coach and mentor. That's crazy. But if I would've had a cultural mentor, I probably wouldn't— if I did, I probably wouldn't have went broke because they wouldn't have let me do it like that. The good thing about me going broke, I know what not to do and how to get myself out of that. So that's why I don't regret it. You know, they can't bankrupt the mind. They can bankrupt your finances.

Well, Mike, you have a great deal of experience and knowledge and wisdom to share. So share with our audience how it is they can take advantage of that. And get in touch with you and also tell us about your book.

Yeah, we wrote a book called From Broke to Millions. In this book, I share all my secrets. I share my ups and my downs. I share how you find a good deal, how to analyze a deal, how to buy your first building. And so with that, this is going to definitely accelerate your career in real estate and actually give you the mindset you need. To overcoming things. Because one of the biggest things about buying real estate, yes, the numbers, it's, it's this, but there's things that you're going to have to do that make you uncomfortable, things you haven't done before. That's what's going to push you away of not doing it. I like to say, like, look, even if you want to win the lottery, you got to go out and play it. And so for some people, raising $1 million or $2 million is very uncomfortable. And it probably should be like you weren't raised to go ask somebody like, hey, Mom, just give me a million bucks. All right. Most of us, right? And that's different. That's uncomfortable. And so in real estate, in growing, you're going to do things that are not in your comfort zone. And you knew that, need to do that in order to grow. I do things that are very uncomfortable daily. That's what makes me so bold. That's what makes me so direct. That's what makes me— communicate so direct and effectively and to get things done. But being fair, you know, that's what it was all about, being fair and uplifting people. So yeah, you can get my book From Broke to Millions from broketo-millions.com. You can join us on our Apartment Investing Secrets, our Facebook group Apartment Investing Secrets, and we'll teach you all that we know. And you'll be surrounded by over 30,000 different other people that's doing real estate deals as well. And they all share their tidbits of what they're learning, how they're doing, how they raise capital, how they find deals, the good or bad in deals.

Well, that is wonderful and excellent advice. Move out of our comfort zones. It's such a challenge to do that. We feel so good in those comfort zones and don't want to leave them. It's like getting out of bed on a cold morning. It's much better in that warm, comfortable bed, but yes, we've got to move on. We've got to move on to do that. Mike, it's been wonderful having you. What an interesting trajectory and life you've led, and thank you so much for sharing that with us. Enlightened Investors, we're so glad you were with us once again today. Be with us again on our next episode. Thanks, Mike, for being with us today.

Thank you so much.

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