Mastering Multifamily Wealth Building Secrets with Mike Morawski

Hey everybody. Welcome back to the New and Experienced Investor Podcast. Today we're talking about building wealth through multifamily investing. I'm one of your hosts. I'm Alex Barnett. I'm the new guy.

And I'm Joe Homs. I'm the experienced guy.

Oh yeah. We have an amazing guest here today. Like I said, we're gonna be talking about building wealth through multifamily investing. This guy has, he's got the full hero's journey. You see it in the movies, you, you read about it in books. He's got such an amazing story. We had him at our meetup actually, and I linked that in the description. If you guys wanna see the full story, click on that link after this. But we're gonna be talking mostly about building wealth through multifamily investing. I'm super excited. Before we bring him on, let's talk about our meetup.

January 27th, Anchor 24, 6 PM. It is this coming Monday, and we'll be talking about financial freedom through out-of-state investing. You owe it to yourself to come. Danny Bettor will be there, and he's also been on this podcast, so if you want to look that up as well.

Absolutely. It's going to be a good one. You do not want to miss it. And I always like to remind you guys, this is a live show. Um, so, you know, you get the most out of it by showing up, interacting. Um, you get to have, uh, I guess, you know, a way to talk to the guest. You got a way to talk to Joe, to myself at this time. So make sure bring some questions. We pick a few of them at the end to get answered live on the show. It's one of our most requested parts.

Excellent.

Yeah, absolutely. So let's go ahead, um, before we launch into the topic of, uh, building wealth through Multifamily investing. Let's talk about 2 tips really quick.

You want me to go first?

Go for it.

You don't know what you're going to say. Yes, I do.

Okay. I have a tip of the day.

You don't want me to steal it from you?

I don't want you to steal it from me.

Here's a tip. Here's a fantastic tip for those people who are out there looking to purchase a home. Did you know that you could assume FHA and VA mortgages? And there are some out there that are at 2%, 2.5%, 3%. With high loan amounts. I'm looking at one right now. I won't tell you where, but I'm looking at one now that basically there's $30,000-$40,000 equity in this place. It belongs to a person that obviously he needs to move out. He got transferred. So we're looking into that one as well. And I have a buyer for it.

Nice.

So tip of the day, if you want to find out where they're at, And you want to work with me, reach out.

Nice. Joe's always doing deals. Mine is, um, it's based off of something that I went through personally, and then also something that our guest is, um, he's going to talk about how you can work with him directly, but talking about mentorship. So when you're getting into your real estate journey, the best thing you can do is work with someone who has experience that can You know, kind of just guide you exactly where to go, what mistakes not to make, hold you accountable. And we're going to talk about how you can work with our guests directly, possibly.

Yeah.

So that's my tip. Find a mentor.

Yes.

Cool.

Good job.

Thank you. So let's go ahead and bring our guest in, Mike Morawski. It's amazing to have you here.

Thanks.

Thank you so much, Mike.

How you doing?

I'm good. Appreciate you guys. Uh, been trying to get here for a while, so appreciate you having me on. Great setup.

Thank you.

Love this.

Thanks so much. Um, yeah, so quickly, um, like I mentioned, you were at the meetup, you kind of went through your whole bio. Maybe just do a quick bio and, um, you know, introduce yourself to the audience, and then we can get into kind of what you're doing today.

Yep.

I've been in real estate 30 years. Started out as a residential agent. My first 9 months in the business, sold 78 houses. I'm a little above average. Uh, built a team selling 125 houses a year. Did that for 12, 13 years. Then I went in the apartment business, scaled a $100 million company, uh, in a very short period of time, and lost everything, uh, in 2008 when the world crumbled. And so, uh, back rebuilding. Uh, resilience is, is a key word in my life, and tenacity. And so you want more than that?

No, that's good. That's amazing. Yeah.

And experience. Now you have all the experience, all the things that you didn't necessarily do correctly, and you've— you're gonna make sure that this time it's, it's good.

Yeah, this time, uh, we're doing things a little bit differently and, uh, growing and, uh, having fun doing it. You know what happens is, as an investor, it, it becomes part of who you are. It becomes your DNA, comes in your blood. And, you know, people say to me all the time, well, why don't you do something different? You know, you had all those problems, you— why don't you do something different? I go, because I don't know how to do anything else. You know, I mean, what would I go do? So I love what I do.

So tell us, what is it that you're doing now?

Yeah. So 2 sides of my world. As Alex mentioned, I do coaching and mentoring and I teach people how to invest actively in multifamily real estate. And then I tend to partner with them on their first or second deal, trying to help them scale their business. On the other side of my business, we buy large apartment complexes. And, you know, I love this because when I go to a meetup and you're talking to people and you're meeting people, you know, you should have an 11-second elevator pitch. And so what I tell people when they say, what do you do? I say, well, I'm the chief investment officer for a multifamily hedge fund. We buy large apartment complexes in specific markets. We raise private capital from people just like you and share in the profits. Is that something you'd have an interest in?

Perfect.

I'm stealing that.

Yeah. So tell us, tell us the secret. Where are you buying?

Yeah. So we monitor right now about 40 markets around the U.S. Some we like better than others. I'm a big Southeast guy. You know, if you looked on a map, the smile from Charlotte to Dallas, that whole smile of the U.S. But there are other markets. So we look in, you know, Tennessee and northwest Arkansas and Tulsa, Oklahoma. Tulsa, Oklahoma is a market that we bought about 400 units in last year. Like that market a lot. And, you know, the thing about multifamily is there's different strategies, right? There's different product class, there's different strategies. And whatever you have an appetite for as an investor is accessible to you out there.

Okay, so let's be specific. The 400-unit complex that you bought, what is the strategy there? How much did you pay for it? Do you have investors? What's the return looking like?

So Tulsa, Oklahoma, if you don't know anything about Tulsa, as I didn't when we went into that market a year ago, started to do some research, and the market has to make sense before the deal makes sense. If the market doesn't make sense, I won't even look at the deal. So I won't buy multifamily in Chicago, right? 'Cause I don't think the market makes sense there. But I can go to a market like Tulsa where I have good population growth, good job growth, good household income, and about 10 other things on a list that we look at before we even look at property. So when we started buying there, I didn't want to be in the Tulsa market at all. And my underwriter said, you really need to look at this market. I said, okay. So I've learned over the years we should listen to people, and especially if they're younger than we are. Um, or younger than Joe and I anyhow.

Sure.

Um, and so we dug in, and I found that there's very diverse, uh, employment industries in Tulsa, uh, which has caused the population growth to grow. Big tech market in Tulsa. And so we started to dig into that and saw that household income was good, population growth had grown consistently year over year for about 5 years. And then last year it jumped 10%, which is a big number for population in a market to grow. Household income grew, and it gives you that ability as an investor to have some certainty in what you're doing. So Tulsa is an interesting market for product because I, I think in 1990 they stopped building there. So all the product is older. Now there is some new stuff coming on these days, but you know, you're buying 1960s, 1970s, 1980s product in Tulsa. And depending on the mark— the submarket, because it's not just the market, right? Tulsa is a market, but there's about 8 submarkets in Tulsa. So depending on the submarket that you're in Um, is going to be dependent on the product you buy. So we buy C-class properties, 1970s. Generally they cost about $75,000 a door when you go in. We're buying product between $55,000 and $65,000 a door. So I'm well under, you know, what average cost is, and I'm well under replacement cost. And then we go in, we do upgrades. put a lot of capital improvements into these properties, and then we hold them for 5 to 7 years depending on where the market cycle is. You know, we're, we're in a business that's cyclical, right? And, you know, somebody said— actually, a Harvard professor, Glenn Mueller, wrote a book about market cycles, and he, he talks in that book and he says that There are no geniuses in this business. There's market cycles. And, and what part of the cycle do you catch yourself in? You know, so that's— those cycles go up 8 to 16 years, peak out, come back down 8 to 16 years. And there's 4 quadrants along the way. So you've got good rent growth, good, uh, good online absorption, new product coming on the market. On the other side, you have Negative rent growth, interest rates going up, market shifting, investor uncertainty. And that's where we are right now. We're in that low 4th quadrant. And I tell people all the time, listen, if you want to get in front of the next bull run and see a redistribution of wealth not only in your own pocketbook but in your investors, this is the time to, to start to get involved as we come out of this market cycle. So I don't know if I answered your question or not.

Yeah, a little bit. I'm more, I'm more of a numbers guy. So how much did you pay for the place? You said, you know, $50,000 to $60,000 or whatever, ARV's $75,000. So how big of a deal was this? How many investors do you have? You already told us the timeline. How much ROI are the investors getting every year? Things like that.

Great, great questions. So, um, we bought a 3-property portfolio. We paid about $65,000 a door for it, um, bought it from a slumlord, and we knew it going in, but it— the, the lift on it has been a little bit heavier than we expected. We, in the last 12 months, have put in about $600,000 in capital improvements to 185 units.

Wow.

We've had people get shot, people get stabbed. We, you know, it is a bad product, but we have turned it around incredibly in the last 12 months. We paid about $12 million for that portfolio. When we turn around and sell it in 4 years from now, we will get out around $18 million. Now, what's interesting is we assumed mortgages, agency debt on these properties at 3.5% interest.

Nice.

As the market was going up and interest rates were hitting 7%, 7.5%. So I'm still below what cap rates are in the market substantially, which gives me the profitability side of that asset. So we have about 8 years left on those 3.5% mortgages. We know in 4 years we'll get out of these deals. Somebody else will want to assume those low mortgage rates, which will help us exit at that higher, higher profit margin.

A question about assuming. Did you actually assume the loans, take them subject to? Did seller financing—

We— you So it's, it's a little bit harder in the commercial multifamily space to do subject-to. You can do it. And I have done it. I'll tell you about a deal in a minute that we did creatively, but we actually did an assumption. So it was about a 4-month process working through with the agencies to— it's Freddie debt. So Freddie wanted this operator out because they were so bad and wanted a better operator in. And because of our history and our experience, We were able to come in and do that assumption.

Did you get any help from the city in any way? You know, you said somebody got shot there and stuff. I would imagine that the police department or somebody at the city is knocking at your door saying, you need to do something here. And these are the services that we have available. Nothing like that?

Nothing like that. No. They don't offer any services. Tulsa has a very high homeless rate, and homeless people are always looking for a place to live, so you have a lot of break-ins. We had a situation where we had just finished rehabbing 4 units. We had them leased, people ready to move in. Somebody broke in. We went and the police came, our security came. We got them out. Uh, 2 of the 4 people that were in the units got arrested. The other 2 went back in and started the units on fire. Oh, burned 8 units down on us. Um, you know, um, the good news is that, you know, and I had an investor tell me one time, he said the best investment he ever made was the building that burned down.

Yeah, yeah. I used to have a partner telling me the same thing. Let's, you know, let's insure it to the max and torch it. Yeah, I think, yeah. Heard that before.

Classic exit strategy, right?

Yeah.

Always know what the end result is going to be. So, but we had a great insurance claim. We're rebuilding and putting them back online. The good news is that we don't have to spend CapEx dollars on 8 units and we have them upgraded even more as a result of this and we'll be able to push the rents. So because of the amount of product we own in the market, we become more of a product Maker, market maker, then have to follow the market. So we're able to— we have one complex that's, um, we're— because lease-up has been so good because of our repairs and upgrades, that we are able to actually push the rents. So when we took over, our rents were on a 2-bedroom townhouse about $575, $625. Today we just changed our rents to $1,100.

Wow.

Oh my gosh.

So we've made a major push in that market. And like I said, we become a market maker.

So, so definitely not in California. The police are not going to come here and kick anybody out. It's on you.

Right.

So I'm glad to hear that it was handled that way.

Red states.

Yeah.

I like red states.

Okay. Yeah.

Because the tenant laws are better.

Yes.

You know, I'm not, you know, I don't want to get into any politics or political stuff, but Because the tenant laws are better, where, you know, and I, I've never done anything in California, but I know Chicago is a lot like, like California. And if you have a tenant, it could take you 9 months to get somebody out, where I can have somebody out in 3 weeks.

Nice. Yeah. Um, have you ever watched or heard the series called Tulsa King?

I have.

Is it anything like that?

No.

No?

Maybe Mike is.

Have you seen, uh, Sylvester walking around or anything?

He does not record when, when they do the, the, uh, Sylvester, uh, Stallone stuff. Yeah, he does not record in Tulsa. He records in OKC, Oklahoma City.

Okay.

For whatever reason, he doesn't want to go to Tulsa. So, but they do do other, other stuff in Tulsa. Yeah, you know, but he's just never there. So kind of funny.

Sly can do that, you know, he's earned it.

Yeah, right.

I love that series. Yeah, yeah, I've watched this 2, you know, 2 years worth. And yeah, I can't wait till it comes back. Yeah, I know, I blow through it in one day. It's like, you know, they release 7 or 8, whatever, 10 episodes, and it's all gone in one day. He's such a great actor, you know, the people that he has surrounding him. Anyways, back to, back to multifamily. So, um, What's your investor mix in this type of a deal? And, um, are they putting a lot of money down? Uh, are you— said you were getting some financing, you assume some financing?

Yeah, so, uh, you know, you guys know that, you know, I built that big company, got in trouble, wound up, you know, and part of my problem was I was overleveraged. And, uh, you know, I was 85% loan to value on deals. I had no equity, no Forgiveness. Today we don't do deals unless we're 65 to 75% LTV.

Okay.

So all these Tulsa deals were about 73% LTV. Okay.

On them.

Is that loans that you assumed or is that investor money coming in or both?

Loans that we assumed. And the other chunk of money that we get is investor money. So then we go out and raise capital. So we'll bring a deal to the market, we'll open it up as a 506. For non-accredited investors. We'll typically give our non-accredited investors an opportunity to invest, and then after that, we'll close it down and open up a 506 so we can go out publicly and market and, you know, do social media marketing and Facebook ads and things like that and bring in other investors. So we have a mix of non-accredited and accredited investors. Um, you want me to explain what that difference is?

No, I, I want to know, um, what is the difference in the ROI? It sounds like if you're not accredited, you're getting in on the ground floor.

Yeah, all, all the same returns.

Oh, okay.

So when I bring a deal to the market, I want to make sure that I'm hitting a mid-teens return for my investors.

Okay.

So if I can't bring something out that is going to pay my investors a 17% per year IRR, which is different than ROI, right? IRR is the time value of money. How much, how much time is my money tied up? So it's actually a little bit more than what ROI would be.

Mm-hmm.

So I hit a 17% IRR. Along the way, they get maybe a 7% preferred return. So they're getting cash flow along the way. Rents come in, expenses go out, debt service is paid. We have money left over, we distribute that back to the investors.

Sounds like a plan.

That sounds good.

Yeah.

Yeah.

Um, I, I noticed that, uh, you have a, I guess, a tagline. You say multifamily is better than single family. Why is that?

Okay. Uh, great question. You know, it's the economies of scale. I've owned 200 single-family homes. And, um, although we did okay with that portfolio, you had 200 roofs, 200 furnaces, 200 hot water heaters, vacancies. You know, the biggest pain is if somebody doesn't live in a house and you have a $2,500 mortgage and you have a couple of months of vacancy. That's coming out of your pocket. Where if I have a 200-unit apartment complex, I maybe have 5 roofs, 5 furnaces, 5 hot water heaters. And if I have a 20% vacancy, a 30% vacancy, I can still pay my mortgage. I can still pay my bills. So it comes down to the economies of scale and spreading your risk across a number of units. It's just like, uh, with management, right? Property management. I don't have all my units in one portfolio. I have a couple of different businesses, and my property management is spread across all those businesses, which lessens my cost, my exposure. So it comes back— it comes down to economies of scale and making more profit for our investors as a result of that.

Yeah, that's what it's all about.

Hey, can we talk about creative financing?

Please.

Absolutely.

I, I'm on this kick lately. Matter of fact, you know, my group coaching program, I just did a session yesterday on creative financing. And I love what you guys do in the, in the single-family space, the subject-to, the, you know, owner-contract, owner land contracts and And I did a lot of that over the years, but I don't think people realize you can do it in multifamily too, right? I've done 4 units, 60 units, 400-unit deals owner financed. We just did a deal mid-year last year. Seller was distressed, ran out of capital, really lost interest, owned a bunch of assets over in Vegas, had one asset in Tulsa. said, you know, he just didn't have interest in the asset anymore, wanted out. You know, your total don't-wanter, right? I mean, that's what we look for.

Yeah, absolutely.

Seller in pain or a don't-wanter. How do we, how do we help solve that problem? So we went to him and, you know, one of the metrics we look at is what's the DSCR, that debt service coverage ratio, and will it be enough for us to go get a loan at the bank? Well, you have to generally be about 1.25 or higher in order to get a loan at a bank. This guy's debt service coverage ratio, if we would've tried to get a loan, was 5.8. You're just not getting there. Or 0.58.

0.58, yeah.

Yeah. And so we went to him and we said, hey, look, we'll bring an injection of cash into the deal and we'll do these repairs. He had 26 down units. It was 60% occupied, needed a roof. You know, he had interior roofs falling in 'cause of the rain. Parking lot. He needed a parking lot. The balconies were falling off the buildings. And we said, we'll bring an injection of cash in, we'll turn this thing around. But here's what we want to do. We want to do, you know, almost like a subject-to. But what we did was we created a master lease. So the master lease is a great way to do this because it gives you ownership control. I can rent to anybody else. I can do all the repairs. I can collect the rents. I I can sell it when I'm ready to sell it. So the master lease gives me all of the ability to do that. And then you can negotiate in there who gets the tax benefits and where's the depreciation going. So there's a lot of flexibility in that. So we create this master lease. He's got an underlying mortgage that's at 3.9% interest, fixed rate with a credit union. Now you're not going to be able to assume that. So we left that in place. We took it subject to in the master lease. And the seller held $1 million in paper at no interest and no payments for 10 years. So the loan expires in 10 years. So we set it all up to do that. We came in, we put a roof on the building, new parking lot. We fixed the balconies. This year we're going to do some curb appeal, some landscaping. We did a lot of exterior maintenance. We put those 26 down units back online. We turned the tenant base, we've raised rents, and now we're stable. We're in the 70% percentile of occupancy continuing to move up. And, um, it's a great deal. And the seller participates in a small percentage of the upside after a threshold. So we said— we drew a line in the sand and said, here's where we're at today. Anything above this, you get X amount, um, as part of the profit. And he was like, do it, you know. And, and for the seller, what's the worst thing that can happen, right? Is he lessens his exposure. Now he doesn't have to pay interest or pay attention to it. And we've created a win-win situation. And the seller gets some tax breaks because he still owns it. And we get some tax breaks and get to do some write-offs. And, and we have a performing asset.

Yeah, I think that's great. Amazing.

Everything's negotiable in real estate.

Exactly. And when you're, when you're working directly with the seller and you're kind of outside of the banks and the lenders, it's— you're able to move a lot quicker, are able to find his pain points and create the solutions that much faster, creating the win-win.

Right, right.

Let me ask you about a pain point, nothing related to what you're doing. Uh, Alex and Lauren were looking at a deal in Hawaii, and it's like 15 units, right?

15 bedrooms.

15 bedrooms.

It was 3, 3 levels. It was a multi-family originally. And the family turned it into one large dwelling with 15 rooms.

Okay.

5 bathrooms.

The sellers are in their 90s and they're getting a divorce. And so my question is, what's— In their 90s and they're getting divorced? Yeah, they're in their 90s getting— what's the motivation there? You know, I, I have my thoughts, but what do you think the motivation is there?

20-year-old?

I don't know.

Oh.

Yeah, I mean, I, I did mention that, but I'm thinking like, you're in your 90s, you know, any day that you wake up is the best day in the world for you. I don't think it's money. It can't be money, you know. And I'm sorry, if you're in your 90s, yeah, everything's not working. So I don't know about a 20-year-old, you know. Sorry.

My mom turned 91 yesterday. Oh, good for her. And I don't see her trying to You know, her— my dad's been dead for years. You know, I, I don't see her trying to, you know, like, get on the date, maneuver her way out of a deal like that.

Yeah. You know?

Yeah. So I don't understand, you know, cause I like to understand motivation of people. That's what I love to do. I just don't see what the motivation is here.

Nobody knows why, you know, that's just the backstory.

Anyway, that's a crazy story.

Off the topic.

Off topic. Off topic. Win-win. Always create a win-win.

There it is, right? Yeah.

If you walk away— I always tell people, when you're doing a creative deal, if you walk away from the table feeling like you got the upside and the seller got the bad— the downside, what, what did you gain really? But if you— and if you walk away and the seller got the upside and you got the downside, you, you're gonna feel like crap about that. So always create a win-win in everything you do, you know?

Good advice. Yeah.

How has your approach to multifamily investing evolved since like the beginning of your career?

It's a great question. You know, I've always wanted to be in multifamily. I had a construction company before I went into real estate, and some of what I did was we were subcontractor for a couple of large syndicators in the Chicago market. And I saw what these guys did, and I understood that you raise private capital, you marry it with a great real estate deal, you stay in the middle. And these guys built an empire. Matter of fact, one, you know, short story, um, Inland Real Estate. The 4 high school teachers, uh, bought their first multifamily 4-unit in Chicago. Today they're, uh, one of the largest REITs in the world. They're in 80 countries around the world. Every product class. So, you know, just imagine what you want to do and where you want to go, right? But I watched these guys and I said, man, I, I could do this business. I was a carpenter. I knew how to read blueprints. But I was always intrigued. I went into real estate. If I had it to do all over again, I would have went right in the apartment business from day one. And like you said earlier, I would have got a coach, right? I would have got somebody to help me. Do it. Because when I spent 15 years on the residential side, and then when I went in the multifamily side, I thought, oh, this will be an easy transition. I'll get it. And the first time somebody said cap rate or NOI, I went, what? You know, so I didn't get it. I didn't understand it because that's not the language on the residential side. But, you know, over time you learn. So, you know, you learn the language, you learn the anatomy of a syndication, you learn Buying strategies. You know, my approach today is, um, we're a product of the capital that we raise. We can't do anything unless we have capital. So I have to be able to go and have certainty of capital execution in order to do a deal. Where, you know, in my previous life, I really didn't have that. We just— we went and bought deals, tied them up, and banks were giving us money so we could do 10% down, 15% down. Today you have to be a little bit more structured in how you do it because the markets have changed, banks have tightened up, gotten smarter with the paper. Um, so my strategy is just to, to have a solid exit plan at the end and go in knowing what that is.

So let me defend you a little bit here as far as mentors go. Uh, my first deal, I was 20, and I'm sure you'll remember back, there's no cell phones, there's no internet, there's no YouTube, there's nothing. And I'm looking around to find somebody that's doing what I want to do. There's nobody. And then I finally do find somebody. It was actually a coworker of mine who was buying properties and, you know, fixing them up and selling them. And I asked him, I said, you know, can you kind of teach me what you do? And he says, why would I want to teach you? You know, you're my competition. Why would I want to teach you? And I think that's why I, I give back to people more now because of what he said back then, you know. But to defend you, there was no mentors back then. There really wasn't. You know, it's not like today where you can jump on, uh, ChatGPT and find a bunch of mentors in your area or whatever. So that's what I experienced.

Yeah. Just so you don't feel like the only experienced guy here, okay, age-wise, um, my first, uh, experience at real estate was I went to a Robert Allen seminar.

Remember him?

And this is back when they would have, you know, they'd do 6 events, half— 6 half-day events. It'd be on the back of the newspaper. You could go to this hotel or this hotel.

What's a newspaper?

Yeah.

Yeah, there you go, throw me under the bus.

Yeah.

Um, so I go to this half-day event and I'm hooked. I'm like, wow, you can do this kind of stuff. So I sign up for the weekend, and at that time I think it was like $2,200 for the weekend. My wife wanted to kill me at the time, right? Um, and so I go to this weekend event and he's teaching OPM, other people's money. He's teaching creative financing. I go Man, I get this. I can do this. So I go home, uh, seminar's over Sunday. Monday I'm sitting at the kitchen table at the kitchen phone dialing, right? Uh, talking to sellers. I schedule a couple appointments. I go out before the day is over. I buy my first piece of real estate, 4-unit, with $1,000 down and the owner hold the paper on the rest of it. Great creative financing.

Nice. And I think the most important part of that story is he actually did something, got on the phone and looked for that lead and followed up. Because yeah, you can go to these seminars and that's what they hope that you do. You spend, you know, I don't know when's the last time you checked, but they're charging like $20,000, $30,000 nowadays, you know. And that's fine. You can pay that if you can afford it, but you actually have to do something. If you don't do anything, then you've just spent all that money for nothing.

Can I, can I do a little commercial right now?

Please.

I do not believe in a $30,000, $40,000, $50,000 coaching program. What do you get out of it? Listen, Alex, if you have that kind of money, let's put some money in a, in a syndication, in an investment, so you get a little bit of that experience and your money's working for you. Spend a little bit of money on coaching. I have a coaching program. I have a one-on-one partnership program that I don't charge anywhere near that for people. And my hopes is that people learn, take action, and get in the business and that I help them get that first or second deal done.

Yeah, I've talked to people that have spent like over $100,000 on mentorships It's like you could have bought multiple properties with that and learned that way, right?

Yeah.

But it's, you know, and haven't taken— Well, you haven't taken action. So yeah, you can make any mentorship you take or, you know, purchase or whatever you want to call it, you can make it work for you if you take the action and get the return. But right, it's just, it's gonna always be the top 1% that kind of actually does something.

Unfortunately.

Yeah, I don't know.

It is.

Yeah.

Um, I mean, when you see somebody transform their life, let's say you're working with, with them, what, what does that do for you on an emotional level?

Oh my God, it's amazing. Um, I'll give you an example. So I was working with, with a, a client for 2 or 3 months, and he just wasn't getting it. He wasn't getting the underwriting piece. You know, underwriting is a big thing what we do. You know, it's just a fancy word for saying we analyze a deal, right? But I have a tool that we built over 20 years that, you know, it— you, you put rents in, you perform a rent, you put construction costs in. What's your return on construction going to be? You know, what's financing going to be? What's refinancing look like? And it blows it out 10 years, what, what I would sell the property at, what the unit cost would be, what my cap rates are. I mean, it tells the story, and this is what you build your business plan on. This poor guy just wasn't getting it. One day we're on the— on a call and we're on Zoom, and he, he looks up at me and he goes, oh my God, I got it. And it was like somebody turned the light bulb on, right? And I could see the expression on his face, and I was like, Holy shit, he did get it.

Can I swear?

Yeah, yeah, it's fine.

I was like, he got it. And you know, it's, it's a feeling of exhilaration. So I have a— I have another client, you know, just another quick story. We worked together for maybe 6 months. Uh, chiropractor, comes from the chiropractic industry, does some, uh, fix and flips, residential. Heard me speak at an event. Got in my coaching program. 6 months in, we do our first multifamily deal. And to, to be at the property with her and do the due diligence and, and walk the property and just her excitement about— I, I just, you know, I just love that, right? I feed off of that. And so it's, it's always great. That's a great question. You know, nobody's ever asked that. I've been on 300 of these podcasts.

Yeah, no, I mean, it's, it's gotta feel good to see, you know, people doing pretty good that you taught from nothing. So—

Well, that's kind of your story, the Zoom story. You know, it's COVID and I'm doing a Zoom because my meetups are, you know, no good live in person anymore. So I'm doing a Zoom and I see Alex, and Alex is kind of like, Joe, don't call on me, Joe. You know, I'm here to listen, but Like, and I, you know, I can see that. And I, and I go, hey, Alex, what the heck are you doing? You know, tell us a little bit about yourself. And so he does. And I says, well, I think you should meet. So we did. And here we are 3 years later, multiple flips, podcast 4 years. Oh my gosh, time flies. I'm getting older by the day.

Pretty much we all are.

Yeah. No, it is a good feeling. It really is a good feeling.

Yep, now I'm passing it on to the noobs.

Yeah, you know, I always tell people that's, that's so true. You don't, you don't open your mind up or make any room to learn anything new unless you give it away. So you, you know, you, you have to teach somebody else what you've learned and what you do, um, in order to, to make space in your mind to learn something new. That's a good point.

Yeah. What sort of trends do you see— getting back to multifamily— what trends do you see in multifamily that you're sort of tracking, that you're kind of, you know, making business decisions on today?

So one important thing to watch for is a negative yield curve. And that happens when your uh, interest rates are higher than your cap rates. You generally want to buy a deal where your cap rates are higher than your interest rates because then you know you're going to cash flow. But when they're the other way and you're buying a deal that, you know— so, so we own some real estate that we're under 4%, but interest rates, you know, cap rates in the market are 7%. So I have a big spread there. But we just bought a deal that we're at 6.5%, um, uh, interest, and the cap rates are 7. I don't have a lot of room there, but I still have room.

Yeah.

Now, where it gets bad is, um, some of these assets out there and people that are in assets where the interest rates went to 12. and cap rates are 7 or 6 or 5, that's where the stress is, right? Because now they can't, they can't keep up with it because you don't have enough cash flow and you can't raise rents high enough. You know, unachievable, unachievable ends. You know, you have to— you've got to liquidate a deal. You got to get out of it at that point. So, so that would be like a big thing to watch for. Other trends right now are we've seen, we've seen pricing stabilize a lot. You know, cap rates got way down. I mean, you were buying deals at 2, 3 caps, right, in some markets. Today, cap rates have decompressed and they're back up 6 or 7. They're, you know, a little bit more palatable. And as a result of that, seller pricing has come down. So we're in a business that, you know, everything is priced on NOI, that net operating income. So a good thing to watch is for every dollar of NOI you add in profit to a multifamily deal at a 7 cap, it adds about $240 worth of value to that property. So how many $240 do you want to add in value to a property?

So there you go. There's a lot of stuff that you got to learn. I mean, if you're in residential, like, you know, all that's—

that's—

It's like over my head, I guess. But if you're in multifamily, then that all makes sense. I heard rumblings about, you know, there were very short loans that were coming due and a lot of people were just left holding the bag that had raised a bunch of money and they were banking on the interest rates staying low. And what are your thoughts behind why that happened?

Yeah, a couple. I think there's a couple reasons. One, I kind of just alluded to, but, you know, say that you bought, You know, there's— I have a friend who's been in the business as long as me, and his group has done 100,000 units in the last 10 years and like $10 billion in multifamily, you know. And we get in this discussion about, you know, the difference between fixed-rate debt and floating-rate debt. And I'm a fixed-rate guy. You know what? Give me a 6% interest rate for 10 years, and I know my interest is 6%. And I'm not going up. But you give me a floating rate debt where I have to do a buydown on it today, and that buydown maybe cost me $30,000, and I can get a 4% interest rate for 2 years. And then because interest rates went up, now my— now my buydown to keep that interest rate low went up. We probably went from $30,000 to $300,000, and there's not enough money in the deal to pay that buydown. So because those interest rates went up like that and mortgages went up as a result of that, you know, that's where a lot of the stress in the market is and the problem in the market is today.

Are you able to take over that as, you know, a reputable operator and make something out of it, or is it just kind of— it has to go back to the bank and then you There's rescue capital.

There's, there's groups that have, have raised rescue capital out there to step in and do deals like that. You know, we didn't— that wasn't a road we wanted to go down. In a lot of these cases today, you're seeing a lot of negotiations happen behind closed doors with the banks, with the lenders, with agencies. Deals are trading and they're not even hitting the street. Um, you know, there was all this talk 2 years ago that there was going to be a lot of blood in the street and the world was going to blow up. And I said, we're not going to see it because the dynamics were different from 2008. Right. And we weren't going to see the same amount of stress. Yes, there's deals that are blown up. Yes, there's problems. But Freddie, Fannie Mae, they're calling up experienced operators and saying, Hey Joe, we know you're an experienced operator, you know how to run this. Why don't you come in, buy this deal for par, and take it over? Um, and now that's the type of trading that's going on right now. So a lot of those deals aren't even hitting the street that are stressed. So that's why I've said for 2 years it's not going to be as bad, and we've kind of like skated out of this thing.

Mm-hmm.

Market's changing.

Do you see any changes with the new administration affecting anything that you're doing?

Oh yeah, I think there's going to be a lot of changes. You know, you have to remember that Trump's a, a real estate guy at heart, and so they're going to do things that are going to affect the real estate industry in a positive way. Um, and, and I don't think it's just Trump, but I think it's, you know, the Republican Party and You know, don't— I don't want to go there, but— Yeah, it's all right. I think we're going to see a lot of things. One of the things that, that we're hoping happens is the bonus depreciation, right? You know, the bonus depreciation, you know, because of the 2017 JOBS Act that got put into place, you could take 100% of depreciation year 1. And then there was a step down, went to 80%, 60%. This year it's 40%. Um, and there's a bill that's passed through the Senate already and stuck on the House's desk. All it needs to be signed, and I think he'll get it signed, but it's going to revert back to 100%.

There we go.

And there's talk, and my accountant thinks this, and I don't know, you know, I don't know if this is right or not, but I hope that this happens. My accountant thinks that they're going to redo that bill And it's going to be 100% for 5 years and then be a 5-year step down.

I could use that.

Time to buy another Tesla.

Exactly.

Could definitely use some of that.

Okay.

That's, that's hopeful.

Yeah.

I know we saw some video today where he was like, we're taking the interest rates down. I don't know if he has that power, but he's like, I'm going to make them take it down.

It's going to be low interest rates for everybody.

I'm not sure if that's going to happen.

He probably brings Powell out to Mar-a-Lago and shakes him.

Yeah, exactly.

Turns him upside down, shakes the change out of his pocket.

Oh man. Okay. This is the part of the show where we've curated a few videos. I want to get your reaction as an experienced multifamily investor.

Okay.

All right, pull them up. What do we got?

First one is what you don't know about multifamily investing.

Here's what you don't know about multifamily real estate. People think that if I own a big apartment building or a couple big apartment buildings, I'm gonna have crazy cash flow. And you know what? It could be true if you're out there buying, you know, apartment buildings down in the Midwest where the doors are real cheap. But majority of the big city, these apartment buildings, they're very expensive. And in order to cash flow these properties, you got to put 35%, 40%, even 50%. Even some part of the Midwest, you got to put down a big chunk of money. So the ROI on your money isn't that great. So why do they do it? They do it for the appreciation because there's no more land to build houses, let alone to build apartment buildings. So in time, these apartment buildings, they just go in appreciation a lot. So what they're banking on is the resale, not the cash flow. Now, who buys these? These are like hedge funds, family trusts. They buy them because they don't expect a lot of big return. They don't care. They get small return on the ROI. What they want is they want the big, big appreciation and they want the tax write-off. Here's what you don't know about that.

I got a lot of thoughts. First of all, I love Thatch. Yeah, he and I grew up in the real estate business together. We're good friends.

Oh, awesome.

And I love what he does. He, you know, and he's got a lot of good insights. Different product classes in multifamily. You have A, B, C, and D. He's standing in front of an A-class building. He's right. Hedge funds buy that. Insurance companies buy that. Because it produces a coupon and they can pay their investors their 3% or 4% return. Um, you don't have to always put 30, 40, 50% down, and you don't have to do it with all your own money. You raise money, right? OPM. You create a syndication, you bring investors in, everybody gets to share in the profits.

So, so I'm assuming that property was somewhere here in California, is that correct? Do you know?

Well, he's in Seattle, so—

In Seattle.

Okay.

It's probably somewhere Yeah, I do the same thing.

Yeah.

And, um, why— what the reason I've always stayed in California is for appreciation. Um, you know, I bought a condo 40 years ago, paid $50 grand, and it's up to $550,000 now. Um, and that's appreciation. What you're doing, that may be a little bit different, because I know when you do out-of-state investing, it's not really— you're not really counting on appreciation. So you're, you're buying, uh, an asset class in the C, the It's, uh, underperforming, and then you're making it perform so that that's how you get the appreciation, correct?

Which creates cash flow and appreciation. So I try to fill 4 buckets, right? Preservation of capital. So you invest in these deals, we preserve your capital. Cash flow along the way. Long-term wealth. And then tax planning strategies.

Those are good buckets.

Perfect.

What do we got?

All right, next one is why multifamily investors fail.

Guys, I know you didn't ask this, but I do want you to pay attention to business plan execution. One of the reasons this is a really good buying time right now is because a lot of people bought and didn't pay attention, didn't do the work that Gabe did to make sure rents could be moved. They didn't check comps. They didn't do all that stuff. And the people that didn't do that, they made ridiculous assumptions. Then they were slow to implement them. And now they're toast. That's what's happening right now. So I just strongly, strongly urge you, don't ever ignore the operations of a property. Don't turn it over to a third-party manager and think that will kill your deal in no time.

Ken G, good guy. Just had him on my podcast.

Wow, Mike's getting to know all these guys.

These are random, you know. You, you didn't ask him. You just picked these at random.

Like, I just—

that's amazing.

I just went golfing with him last week.

So he's right, he's right. Um, I think these deals are made and broken at the asset management level. You can't have a property manager and turn your back and hope You know, read a report once a week. You got to be involved. And we're deeply involved, especially when we're doing a heavy lift or doing recon— you know, reconstruction. You got to be able to push rents. You have to be able to increase value. And that's how we do it. We pay attention. So, you know, remember I talked about 5 mistakes I made, right?

Mm-hmm.

Second mistake I made was I didn't pay attention to details. So I was overleveraged, didn't pay attention to details, undercapitalized, grew too fast. So he's right, though. You have to asset manage and pay attention to those numbers and details.

Can you do it even if you don't have a construction background? I mean, what do you do at that point?

You—

yeah, you, you go get a contractor to work with you, maybe even partner on the deal with you. So I always teach people, I say, you know, even if you don't have the construction background, uh, for your preliminary underwriting, throw a number at it, you know, make sure it's high. You can always adjust it later, but get a contractor, go get a local contractor and say, hey, you know, what's it going to cost me to do this? Talk to other operators and find out from other operators how much they've put in to renovate units or, or bring them from Classic to premium units. So, you know, we don't slay these dragons by ourselves, right? We slay them as a team. So I have a team. I'm in, you know, 3 or 4 different partnerships because somebody somewhere brings other value and a contractor can bring great value to a partnership.

Excellent. Producer?

Well, we got a couple people in the chat.

Okay, cool.

Yeah, uh, Liz is in the chat. She says, hi, how is everyone doing?

Hi, Liz.

We're doing well.

Doing great.

And then Stephanie's in the chat. She asks, where are the multifamily properties at 5% cap rate that are coastal with pedestrian access to the beach?

The Philippines.

Oh, nice answer.

There you go.

And we can move you there next week. We'll all chip in and pay. Nah, you know what? I'll do it. I'll just pay. I'll just pay. Yeah.

Oh, okay.

There you go.

Economy class to the Philippines.

So yeah.

Nice.

There we go.

Cool. All right, do we have any other videos?

We're having some sound issues with them.

Oh, okay. Gotcha. All right, well then there you go. The 2 guys that Mike knew personally, of course. But, um, that definitely, you know, shed some insight on it. And it, it kind of reminds me of, you know, same thing doing a flip. It's like you got to be hands-on. I think people get into real estate with the idea of this financial freedom, passive income, the buzzwords.

Mm-hmm.

And the idea is that I'm just gonna put some money in and this other guy will do it and I'll get some But I think the only way to actually do that is to join a syndication where you're just getting the check.

Right, right. And, and you can do that, right? So you can invest in a syndication in one of these deals and walk to your mailbox once a week, provided you have a good operator, or walk to your mailbox once a month, once a quarter. Mailbox money, right? You get a return. Um, or you sit in a deal for 4, 5, 6, 7 years and Get it, you know, a promote part of that profit. But if you're the operator, you can't do that. You know, it's like Ken said, you've got to be able to operate that property, make sure that everybody's doing what they're supposed to be doing.

Well, and you said something kind of important there. You said you can walk to your mailbox and get the money provided you invested with a good operator. So that's— I mean, even there, you can't be passive. You're going to have to do your due diligence on it.

Good point.

Even the operator, right? And the syndication, because you hear about it all the time.

Yeah.

The, you know, it, things can go sideways. Well, I mean, and in real estate it's risky, you know, there's no way around it, right? So.

Um, I got a quick question before we, um, head down the road. Um, when you're mentoring somebody, do you, um, you know, I'm sure you tell 'em, you know, hey, do this, do that, do that. This is way to do it. Do that, do that. And constantly, Saying that, do you let them get to the point where they're not listening to you and you let them fail? I mean, not a big fail, but a fail that they wake up.

So I believe in accountability. I, I've personally had a coach in my life for 20 years. I got coached in the real estate business, and I think I grew my business every year 20 to 30% because of my coach, because of the accountability piece. I can teach you what to do, but if I don't have you do it and then hold you accountable to those actions, you, you're going to fail, and then it falls back on me. So if I teach you something— okay, so let's say we're underwriting and part of the process is, hey, go out and build some relationships with a, with a commercial broker and get on a buyer list. So in order to do that, you need to know how to go build a relationship. You need to know what your buy box is. So, you know, if somebody says, you know, if I call a broker in a market and he says, hey, what's your experience? I say, listen, we've done over 100,000 units in the last decade. And we, you know, We're in a couple different partnerships. Here's what my buy box is. I look for garden-style multifamily Class C and B product built 1990s or newer, 150 units or bigger. I want to have 1.5 car parking spots per unit. I need a swimming pool. I want a tennis court. I want something that's value-add. I know what my buy box is. So if you can say that with confidence Now you get on that guy's buyers list. Now those deals come to you. Now you have to underwrite those deals. So I'll stretch somebody and I'll say, hey, go to, go to the market you want to be in. This is the market you've chosen. Uh, go to the market, build 5 relationships with commercial brokers. Now you have to come back the next week and say, I did that, or I didn't do that. And, and when you come back to your coach and, and you didn't do the action You, you— I always felt like, you know, you know what, what bad, you know, why did I not do that? I wanted to say something else, but yeah, yeah, yeah, might not be appropriate. Uh, so I, I think my, my clients do the same thing. And then, you know, then I, I'll work with them and we'll work over 4-week period underwriting, right? We'll put the income in, we'll put the construction in, we'll put the financing in, we'll put the expenses in. And then I have them go and do it themselves. And now this week underwrite 1, this week underwrite 3. You know, you're building the muscle. So by holding somebody accountable and having them come back, just like when I was selling real estate, right, my coach said, okay, this week you're gonna make 25 contacts, next week you're gonna make 50, this week you're gonna make 100, now you're gonna make 100 and 100. And I have to keep going back, you know, a day by the way. 100 a day. I made 20,000 cold dials a year. I knew I got paid $20 a dial, um, so I knew my numbers, right? And I think you have to know your numbers in anything, especially when we're raising capital in this business. So they say the biggest fear in the world is public speaking. I think the second biggest fear in the world is telling somebody, I'm a real estate investor, we syndicate deals. Are you interested in investing? Right? So you have to teach people to do that, build relationships and stretch them to go do more.

Thank you.

Yeah, I, I, that's great. Um, what do you do? I mean, do you ever have somebody, you, they keep coming back, they're not doing it. I mean, is, is there, is there anything you do at that point?

Yeah.

You know, I have told people, I don't think this is going to work for And shuffle them out.

Um, you know, yeah, because people get it.

They have to.

Yeah, they just get addicted to the education and then they don't.

So I have 2 part— I have 2 coaching programs. One is an Inner Circle program. It's a group program. You can go online if you're a do-it-yourself person. You can watch 40 hours of video. It's a document library. There's a bunch of bells and whistles with it. Plus I do a weekly group training Q&A where they come to that. But I have a partnership program and I only work with 5 people under my partnership program. And these are the people that, that want it. They're the ones that the light bulb goes on and go, oh my God, I got it right. They're the people who really want it. So I don't run into that a lot with people not doing it, you know.

That's good.

Well, you have to weed through a few to get to the 5 that you want, right? Now, you also wrote a book because I know it's down there. You want to grab that book and tell us about your book? Yeah, please.

So this is my 3rd book. Um, this one is called, uh, Multifamily Investment Secrets: Your Explosive Guide to Wealth in Multifamily. Uh, Amazon bestseller. If I can toot my own horn, 7-time bestseller on Amazon, 3-time bestseller internationally.

There you go.

It will walk you through everything you need to know to go do this business. And again, creative financing. I talk about a 450-unit deal in here that we bought seller-financed creatively, subject to a $12 million underlying mortgage. You know, so, um, it will— it'll change the direction of your business. If you are somebody who wants to go in the business and you're not sure if you want to go into business, read the book. You know, listen, it's $4.95, uh, for a downloadable version. Go to multifamilyinvestmentsecrets.com. You get $999 worth of free bonuses with it. So, dang, did I give you a copy?

That's a deal.

No, not yet.

You want one?

Yes, I would. Thank you. Yes, it only took 68 episodes for a guest to bring us a gift.

Joe, I brought you one too. That's very nice.

Thank you. I appreciate it.

Thank you.

I love that.

I'm so sorry, Miss Producer.

Thank you.

Oh no, we read together.

Oh, they share everything. Yeah.

We read together like this every night.

Yeah.

She reads to him at night. Pretty much.

Plot twist, I can't read.

Just kidding.

Thank you.

That's great.

Thank you.

Yeah, absolutely. Okay, well, you guys, you know, this— we just scratched the surface of all this. You know, this is just— Mike is a wealth of knowledge. And I strongly suggest that you reach out to him. What's the best way for people to get a hold of you?

Yeah, so if you, uh, participate in social media, any platform, you can find me, uh, Instagram, LinkedIn, uh, Facebook. Or you can, uh, send me an email at mike@mikemorawski.com. Uh, you can go to my website, mikemorawski.com, or Go get the book at multifamilyinvestmentsecrets.com.

Perfect.

Yep.

Yeah.

And, um, and I love the network. I love to just chat with people. And that's how we met, right?

Yes.

I love the network. And yeah, you and I, uh, went to a, went to a black tie event. Yes, we had a great time. We—

awesome time.

Joe talked about it for a long time after that.

I did.

Yes, we spent some time in the limo together.

Yeah.

Yeah, which was a whole nother story. We should do a whole podcast.

Okay, I want to hear about that.

We sat behind the presidential desk at Nixon Library.

Nice.

Acted like we were presidents.

Perfect.

Yeah, it was a great dinner.

It was a great dinner.

It was a great dinner. Yeah, good information.

How do I—

And if you like an economist, a lot of charts, a lot of graphs. Yes, I like a good economist.

What do you got to do to like— how do I get involved in that? How do I get an invite, guys?

You got to be old and know the person that invited you.

Oh man.

Karin Hall, okay, who does, uh, URA, is it? URA Self-Direct or, uh—

UDirect.

UDirect. Self-directed IRAs, 401s and stuff. A little plug out to her.

Okay.

We've known each other for quite a long time. She just invited me, and then that's where I met Mike.

All right, well, I guess I'm not going. Okay.

Thanks.

Yeah, Joe has these people, he's like, I've been working with them for 40 years.

Yeah.

Wow. Well, just like Mike, you know, it's like on the videos, oh, I know this guy. We had him on my podcast last week.

Yeah.

Yeah, that's nice.

How can people—

um, I was kind of hoping for a few more videos.

I know. Yeah, sorry. Yeah, maybe we'll play the last one and then you'll know the guy. Where can people find your podcast?

Uh, uh, thanks for asking. So I have a couple different podcasts. Uh, Multifamily Unplugged, uh, airs on Saturday mornings, uh, at 10 AM Central, so might be a little early for some West Coast people, but And then I have a— and that's a videocast, so you can go there or you can go to my YouTube channel and it'll be on there also. And I have a podcast that's called Insider Secrets: The Home of the Passive Investor. So Apple, Spotify, all those platforms.

Love it. He is everywhere. So make sure you guys connect with him and we will be back next week.

Next week.

Before then, Make sure you guys make it out to our meetup at Hangar 24 on Monday.

Monday, Monday, it's not gonna rain. Come out, come out.

We'll have umbrellas and heaters. We'll be fine.

We'll be good. Okay, thank you so much, Mike. Appreciate it.

Appreciate you guys. Thanks for having me on. It's been fun.

Yeah, thank you.

See you guys.

If you want some more advice on real estate investing, reach out to us one-on-one. 949-625-4533.