Multifamily Strategies For Beginners With Mike Morawski

Hey everybody, welcome back to the New and Experienced Investor Podcast, the number one live podcast in Laguna Hills.

Mm-hmm.

Today we're talking about multifamily investing, where to invest, how to invest, how to get started as a beginner. It's definitely a show you don't wanna miss. I'm Alex Barnett. I'm one of your hosts. I'm the new guy.

And I'm Joe Holmes. I guess that makes me the experienced guy.

You're darn right. We have an amazing guest with us again. He helps investors get into multifamily investing through mentorship. It's going to be absolutely mind-blowing today. Please stick around.

Before we bring him on, let's talk about our next meetup we have October 27th. The guest speaker is Adam. I can't see that far.

Nishikawa.

Nishikawa. And he's gonna talk about 1031 exchanges, which is very important if you're an investor.

Yep.

Make sure you don't pay Uncle Sam a dime.

That's right.

Okay, they don't deserve anything.

No, that's right.

Don't pay 'em anything.

Nope, and it's better for your wealth, you know, so.

Yeah.

Yeah, it's a great time overall.

Yeah, it's gonna be good information.

Absolutely.

Very good information.

I always like to remind you guys, we are live right now. This is a live show. Please share it with any new or experienced investor in your life. Also jump into the chat, ask questions, get your questions answered live on air. It's pretty cool.

Absolutely.

Yeah, right on. All right, let's stop messing around. Let's go ahead and bring in our guest today. We have Mike Morosky. Mike, how you doing?

I'm good. How are you, Alex?

Great.

Good to see you, Joe.

Good. Thanks for having me back again.

Yeah, of course. Season 3 had to have the man himself back for sure.

Appreciate that.

Yeah, so, uh, why don't you, uh, Jump in. If everybody wants to get the full bio, they can go to you know the last podcast. But maybe do just a brief, brief introduction and we'll get into it.

Yeah, Mike Morowski, been in the real estate space for over thirty years. So I'm the old experienced guy also. So there's two of us.

Nice.

And my background is in the construction industry. So I did a lot of construction work. I had a general contracting business. We were building. room additions, uh, went into the residential real estate sales. Uh, my first 9 months in residential sales, I sold 78 houses. Went on to build a team. We sold about 125 houses a year for about 12 years consecutively, and then went in the apartment business in 2005 and absolutely love it. Uh, scale, you know, I've owned and operated over 8,000 units in multiple markets around the US. I primarily really like the Sunbelt. So I'm a market-driven investor. I like to invest in markets that make sense where there's a lot of positive migration and job growth and employment growth and things that will drive occupancy in those apartments. Perfect.

Yeah, I guess today we're kind of focusing on, you know, beginner investors. Multifamily seems like such a, you know, a big asset class. How does someone who's a beginner even be, you know, start to go down that road? Is it possible?

It, it's absolutely possible. And, uh, if I had it to do all over again, I would have went right in the apartment business to begin with. Uh, I, you know, I, I can remember from being a young kid always being fascinated by big buildings and, and apartment complexes. And really crazy, I remember asking my mom one time, hey, who owns that? She said, I don't know, some insurance company. And she didn't know anything. But, you know, fast forward a number of years, I did my first institutional deal with an insurance company, and, and that kind of story came back to me. It was like, wow, she was right, you know?

Yeah, mom's always right.

Yeah, well, yeah. And so, um, you know, you can, you can do whatever you want to do. And you can do this business with little or no money down. You can do creative financing. You can, you know, bring partners in. You can buy deals on your own. Anything is possible in the real estate industry, but specifically in the multifamily space. There's a lot of opportunity out there, whether you want to scale a business with 2 to 4 unit residential properties or you want to grow and do, you know, 50, 100, 200, 400-unit deals.

Nice.

Yeah, I think people think they always need to go residential first, then you kind of are in that cycle, and then once you have enough capital, you can jump into multifamily. But there are numerous ways to actually get started. I mean, you can just be a silent partner. What are some ways that people can, you know, kind of get involved that way?

That's a great question. Um, you know, not everybody's like I am. You know, I, I made a decision. I'm going in the apartment business, and I understood that I could syndicate. And syndication just means you group a large group of people together, some who bring capital, some who bring experience, and you operate that deal. And, uh, so I understood that model because when I was in the construction business, I did a lot of work for a couple of large apartment syndicators, and I watched them from from afar, and I said, boy, one of these days I want to be in that business. And I really think I kind of manifested that for myself. Um, I, I just jumped in. I went and I bought my first apartment building. It was 11 units, and I was so excited. I put this thing under contract, and this is going to go to the point we want to talk about a little bit later, is the due diligence, right?

Mm-hmm.

I did no due diligence, right? I didn't do an early evaluation or an early inspection. I didn't know anything. I just put this thing under contract. Then I was And I was like, oh my God, how am I gonna pay for it? What am I gonna do? And I went out and I raised some money and was able to buy that asset. We leveraged it with bank money and some investor money, and then we owned it and operated it. But boy, I learned a lot along the way on that first deal.

I bet.

You want me to tell that story a little bit?

Well, no, I kind of actually want you to bring it to 2025 And tell us, you know, like, what kind of deals are you doing right now? What, what, uh, like you were talking about, what's the due diligence process? How you're getting your investors? What kind of returns are you getting? How much you paying for these units? Where are you buying them? Things like that.

We have a couple days to talk.

Yeah, yeah, no, just pick a deal, pick a deal.

Um, so we're buying, we're buying anything over 50 units. Now, I have a couple of different partnerships that I'm in. I'm in a partnership where we won't look at anything under 150 units, but I run a coaching and training company. And as part of my coaching and training, I work with individual investors teaching them how to syndicate multifamily deals, how to get started. And I teach everything. Right? Everything from goal setting to how to pick a market to how to build a buying strategy to underwriting and due diligence and raising capital and networking and building relationships and everything along the way. And I partner with my coaching clients on their first deal. So I'm in a number of deals right now that one of my coaching clients is my partner in that deal. And, um, so when I get the opportunity to work that closely with someone, I get to walk them hand, you know, hold their hands all the way through the process, which is kind of, uh, it's a win-win for everybody because now these individuals are learning how to do it the right way because I've made some mistakes along the way and I know what to watch out for today. So these individuals are learning how to do it the right way and are able to do a little bit more than if they were just to go do it on their own. You know, today in the multifamily space, to get financing, you have to have some experience or a partner on your team that has experience so that you can get your bank loan, right? Because banks won't even talk to you unless you have some experience. And residential or commercial, or office does not equate for multifamily experience. It's an interesting phenomenon that goes on. But due diligence is really important. And I think that you have to take a look at all the aspects of that particular property. You know, I always call due diligence that— that's that piece of the deal that you are double-checking that you were really buying what the owner was trying to sell you. Because we can all grab these great MLS sheets or offering memorandums from brokers and with pretty pictures and all kinds of great words in them. But until you really dig into the physical complexity of that property and the, you know, books and records, you really don't know as you start to uncover things. And I always tell people, I say, you know, the books and records are one part, but the physical attributes of that property are the other side of it. So we, we will do a, you know, let's just say that we bought a deal today and we've gone to closing and or we've gone to contract. And once we go to contract, there's a timeline that you have to fall into to get your physical inspections done. Now, physical inspections will be anything from going out there and checking roofs to checking sewer lines to water flow to interiors of all the units, mechanical operation. Of appliances and mechanicals like HVAC. And maybe there's different types of systems on different types of properties. There's chillers, there's solar systems or some green energy systems that all those inspections need to be done. We check windows and doors and operations of those things. How do security systems work? And we check Structurally, are the buildings in good shape structurally? So we have checklists that we'll walk every unit on a property. We'll walk the exterior of properties. We'll check parking lots and lighting. We'll, we'll look at those properties during the day. We'll look at them at night. We'll spend time in the parking lots at night to see what type of activity is going on. And then, then there's the books and records side. And on the books and records side, you know, I always tell people, I say, you don't want to just get your numbers on the back of a cocktail napkin.

You—

that you hope that that seller has got some records and you want to go back 24 to 36 months because you're looking at trends. You know, what's the occupancy been like? What have the rents been like? Has there been increases, declines? How about expenses and repairs? You know, there's a number of things that we uncover. So, you know, I know you're working on a deal and, you know, some things have come up that, you know, maybe physically that you need to go back to the seller and say, hey, you know, you didn't put this in your disclosure or in your brochure. And, you know, we want to— we want a little bit deeper discount on the property as a result of this because it's going to cost us X. to go in and, and do those repairs.

Absolutely. Yeah, that's kind of where I'm at right now with a deal that I'm doing in San Clemente. You know, yes. So the, the, the places that you buy, you actually, like here, you actually do all the due diligence yourself. You don't rely on the seller to give you, you know, like any inspection report or anything like that.

I expect the seller to give me what he has.

Right. Okay.

And if they don't have it, we don't force them to go get it. You know, whatever he has, we get, and then we compare it to what we do. And, and not, not only are we doing inspections, but remember, your lender is going to do inspections also. So there's the lender inspection, or if you're doing agency debt, you know, Freddie or Fannie, they're going to go out and do their own set of inspections as well. So there's always 2 to 3 layers of inspections that happen on, on these assets. Along the way.

So, um, so talk, talk to us a little bit about, uh, you know, just a deal that you're doing and, um, how you structured it, how you put it together, what kind of people, investors, are you looking for? I'm assuming all the investors are passive investors or not necessarily, um, you know, helping you with the deal, or are there some that you're coaching that are actually Helping you?

Both.

So I have both, right? So I have the passive investor, the investor who says, hey, you know, I'm a doctor, or, you know, I'm an engineer, and I love my job, and I don't want to leave my job. I just want to invest in real estate because I know I get some write-offs and I can get some cash flow and I can build some long-term wealth for myself. So those investors invest in the assets and then we run them. and we operate them. We always tell people we take care of all the tenants' trash and toilets along the way.

Got it.

And, you know, you do what you do, whether it's go sit on a beach or work in this operating room. So, um, that, that's one side of it. But then the other side is the investor who wants to get their hands dirty, who wants to be involved. And though those active investors, you know, usually come through my My coaching and training program. But I really want to, I want to emphasize this fact: don't believe what the seller tells you. Don't ever believe the broker. You know, I was a broker for years. I love brokers. Some of them are my best friends. But I never believed the broker. I never believed the seller. And I learned that on the first deal I did. Because here's what, here's what they told me: oh, you'll be able to buy this. You'll be able to go in, put a parking lot in. put a new boiler in, fix the roof, fix the balconies, rehab the units. And then when all that's done, you'll be able to go and raise the rents $150 per unit. But here's what I didn't do is I didn't check the market. So I said I'm a market-driven investor.

Mm-hmm.

And what I have to do is I have to make sure that the market makes sense for the asset in that market, because you could bring me a great deal in you know, in a market I don't like or doesn't fall into the fundamentals, and I wouldn't look at it. But you could bring me a questionable deal in a market that the fundamentals are really solid, and I'm going to be all over it because I know that the market is going to help drive that asset and the value of that asset. So if I can't increase— if I can't increase the income and the revenue in that property, it— I, I don't, I don't have a chance of winning or succeeding. So I want to buy a value-add asset that I can go in, put some money into, change the operations, increase the value, and be able to exit 5 to 7 years down the road at a profit for my investors. So whether they're active with me along the way or they're just passive, you know, my job is to be a good steward of their investment with us.

Do you look for deals that are already cash flowing and then you do the value add on top of that? Or, you know, would you take a deal that's not cash flowing?

So, so most sellers will tell you that deals are cash flowing.

Okay.

And but they're not.

Yeah.

And until you really get in and do the due diligence, you're not going to see that. But then you, you put together a pro forma and you say, well, if I go in and here, I was on an asset management call yesterday. Wednesdays are asset calls and we're on with all of our onsite staff and property management team and we talk about each asset and there's 13 to 15 points that we cover on those calls. Everything from how much traffic is coming in to how many applications we take to repairs to the financials. Right. And a lot of things along the way. But what, what I want to look at is I want to look at new leases, but not just new leases, renewals. So where can I get my best bang? Like, I can go out today and buy an A-class asset, you know, a new build product with all the bells and whistles like swimming pools and pickleball courts and, you know, amenities that people want to live in those communities. That are lower in rent that I can increase the rents. So there's one way to make money. Or I can buy an older asset, a C-class asset in a, in a B-class market. And now I can go in and do physical enhancements and put new kitchens and bathrooms and floor coverings and lighting fixtures, give the new tenant an experience raise the rents and do renewals and really force the appreciation. So that's, you know, I spend more time on the value-add C-class product than we do on newer build A-class product.

Got it.

And that's because there's more of a spread there, is that—

There can be.

Okay.

So, you know, we go market cycles, right, Alex? So we're, we're in the, you know, market cycles. And I always say there's no geniuses in this business. There's only cycles. And the Market goes up for eight to ten years and comes down for eight to ten years. We're about four years into the down cycle right now. Now, what I will tell you is I think it's going to be a short cycle. I don't think we're going to go full eight to ten years on the downside. I think we're already in the conversion in the upswing. And you know, I said before the show, you know, if if people are waiting for you know, mainstream media or Fox News to say, hey, the market's changed, you're going to have missed it. I think that the fundamentals, uh, economically today and in assets are starting to change, that it's, it's going to change a lot quicker here than most people expect. And there's a lot of people that are sitting on the sidelines today saying, I don't want to invest. I think you're missing out. You know, we have a deal that we're raising capital on right now in Oklahoma. And, you know, first of all, I went into Tulsa, Oklahoma, really checking out those fundamentals. I think last time I was here, I was just talking about starting in that market. Well, since my last time on the show, we've bought 400 units in that market because we like where the market's headed. Right. And, you know, if anybody wants more details, I can get into that. But And then the assets. So we bought a 65-unit multifamily and value-add that we have to go in and do some renovations interior and exterior. But all the units were about $150 below market rate rent. So right away, I know I can take 65 units and, and raise $100 a month over the course of 12 to 18 months. get those new leases in place, move new tenants in at a bigger spread, um, and, you know, increase my revenue. And every dollar of revenue that I increase that property by, it, it increases the value of the property about $240. So I always say, how many $240 increases do you want to have?

So.

Hmm.

So your mentorship program, um, maybe walk us through a little bit of what that, that's like, uh, you know, like acquisition, putting that deal together, getting investors. What does that process look like?

Yeah, so I have a— I have 2 different programs. Um, I have an Inner Circle program, which is a glorified group program. And, you know, somebody could take that program and they could learn everything that they need to learn and go do a multifamily deal on their own. I actually have one guy that's very interesting. He took the underwriting sessions of that course and taught himself to underwrite, started coming to me with, with deals that he had underwritten, and we tore them apart. And I couldn't find any place that the guy missed a beat. Because he took my, my, my tool, my underwriting tool, and he took that course and learned line by line what needed to be done today. And this is like within a 5-month period. Today he's underwriting for a large national developer in Atlanta.

Wow.

So, you know, that's just one story, but I teach everybody everything from goal setting to mindset to building a buying strategy, how to pick a market, how to go build relationships and start raising capital. Social media, we teach in this program. Underwriting, due diligence, going to contract, how to get financing, how to raise capital very in-depth. And I talk about how to raise capital 3 or 4 times throughout the sessions if you followed them, uh, session after session after session. I have about 40 hours of video that all that is delivered in, including about 6 hours of video on operations and how to run those assets after you buy them, along— accompanied by a document library that has everything you need. From social media marketing pieces to webinar tools to contracts and addendums and riders and scripts for talking to people. And so it's a turnkey solution. Plus you get access to all my online events. I do a couple boot camps a year and a, and a large multifamily summit every year, which I hope we get to talk about in a little bit. Um, plus I do a group call every week. So every week I'm on the phone with my coaching clients. We go through one of those sessions and then we do a Q&A, and people will bring questions from what they're working on throughout the week. And it's really a turnkey solution, right? But then on the other side of that, I have a partnership program. And my partnership program, I only work with 5 to 6 people at a time in, and you get all of the inner circle components. But on the partnership program, once a week you and I get on the phone and we walk through a certain topic that we're working on, and then I give you an assignment to go work on throughout the week. And then you come back and I hold you accountable to that. So it's an accountability growth program where I'm holding you accountable to your activity. Because listen, all of us, I'm sure, have read a book and never taken action on it. All of us, I'm sure, have, you know, gotten education but never taken action. And you have to put action into motion in order to be successful. So I hold people accountable to those activities and those actions to help them grow. And push them forward. I have you know one of my coaching students started with me four years ago, worked with me for about a year and a half, came to me had no multifamily experience. Four years later, he owns 600 multifamily units. He has two commercial properties. One he just redeveloped and just opened doors and started renting in there, and he's building a 171-unit. new development, ground-up development. So, you know, how much action is somebody willing to take to grow, right? And then, you know, on the other side, I have people who get started and say, hey, it's not for me, and they, they drop out. But, you know, um, I'm there to help hold your hand along the way.

So, yeah, I think that's the, the biggest shortcut, the biggest cheat code to success is just teaming up with somebody who's already doing it. Yeah, you can go on YouTube and you can learn a lot, but it's really when you're getting someone looking over your shoulder, someone checking you on your mistakes, someone calling you out if you're not doing something, that is really going to skyrocket you to the top.

Right, 100%. 100%.

Yeah, so what's the summit about?

So every year— this will be my 6th year. Can't wait till it's 7, because that's too hard to say. We do a 2-day event. It's a virtual summit, and I have 20 speakers from around the country. I have some pretty big names this year that'll be speaking, but we go from 9 o'clock in the morning till 5, 5:30 in the evening, straight through. Bring a lunch, uh, camp out. Uh, it's recorded. I like doing the virtual event because, you know, a lot of times it's hard to take 2 full days out of work. Right? This is a Thursday and a Friday, and you can come, you can listen into the sessions you want to listen into. The rest is recorded. You'll get the recordings and be able to listen to them at your convenience. Or better yet, go to the whole summit and then be able to go back and listen to those sessions you want to hear again. But I'll have, I'll have people on that, you know, day one we open with some mindset I have a, I have a mindset coach that will be speaking that has a different philosophy than I've heard in the past. You know, we've all listened to Tony Robbins and, you know, people like that. This guy brings a different mentality to mindset. We have speakers that are going to talk about just getting in the business and how to do your first deal, how to get started, to a panel that has done $5 billion in assets over the last 10 years. I'll have a panel on raising capital. I have somebody on who's going to talk about 1031 exchange. I have a panel or somebody on who's going to talk about self-directed IRAs and how to use your self-directed IRA when you invest. I have a cost segregation specialist who's going to be on, and we have some asset managers that are going to talk. property managers that are going to talk. So it's a very robust, well-rounded event that's going to cover, you know, and it's not just me, right? I have 20 people that are going to pour into the attendees for, you know, for 20 hours. So it'll be a great event. So and you can register for that. You can go to multifamily25. That's multifamily25.com. And if you put in Joe Homs, uh, as the coupon code, you'll get a very deep discount on your ticket price.

Nice.

Okay.

Yeah. What is the normal ticket price?

$1 million.

Okay.

Because we're trying to buy another asset.

Okay.

It's $97 is the normal ticket price, but, uh, we're doing, I think—

$97?

Yeah.

For 2 days?

Yeah.

Why give a discount?

Because you're my friend.

Oh my gosh, thank you. Wow.

And because all the listeners are your friends.

Wow, $97. I'm there.

Yeah, let's do it.

Yeah, just got to get the discount code, see how much I get.

Heck yeah. Nice. Well, I guess, you know, in, in during this summit, you're going to go over kind of like where to invest and And talk about some of the fundamentals that you were mentioning. Now, last time you were here, you talked about going into Oklahoma because you saw certain markers. What are some key indicators you look for when going into a market?

Yeah, so we have to have positive migration. So the population growth has to be growing. And I went into Tulsa and, you know, questioning it because, you know, it was moving and it had moved for about 7 years consecutively. half to 3 quarters of 1%.

Hmm.

And, you know, traditionally that wouldn't really move the needle for me, but something was interesting going on. Why was it growing every year, right, a little bit? And then I started to look and I saw that Tulsa had a work-from-home program where if you were a tech worker, you could move to Tulsa and Uh, they pay you $10,000 for, for that move. Um, and they ran out of money. And this is in 2023 when they ran out of money and still had 1,500 people move there to that market because of that program. I said, something's going on here. Well, in 2024, we saw the population jump over 10%. So we went from 950,000 to almost 1.1 million. In 2025, so that was a big jump. So population growth is really important because then you see job growth, and because you have more people moving there, jobs expand, new businesses open, they need employees, and and that growth continues. Amazon built another hub there, so they I think they have three hubs in Tulsa right now. American Airlines. Tulsa was American Airlines' biggest mechanical hub. So that's where they did most of their airline repairs. And they had deployed $31 million into the market to expand that operation in Tulsa. They hired 300 new people. So jobs were really growing. The government stepped in and deployed $31 billion into the airport for international travel. So we went from domestic travel to international travel.

Hmm.

A brand new amusement park outside of Tulsa was being built. 2 executives had left Disney and they were building this theme park to rival Disney, $2.5 billion project. And then I know a bunch of people that are in the land business and speculatively, so they went and bought a bunch of land outside of Tulsa around where this development— so I knew that that market was going to move and has been moving and has been very growth-ridden. You know, I have a checklist that if anybody wants it, they can email me and I'll send it to them. But it's a 13-point checklist where we look at population, job growth, household income, employment, crime, schools, Economic development and everything that we go through to see if it's a market that checks all the boxes for us to go into.

Yeah. And it's going to be interesting. I mean, you hear about it all the time, like these— there's going to be all these data centers opening up or like, you know, Tesla opens something up in an area where, you know, maybe like you said, there's not that much population, but it's going to drive so much. Where are they going to live?

Right.

That's kind of, I guess, where you answer. Um, now you mentioned one of your students is going into ground-up development. Is that something that you partner on, or what's your—

I have not partnered on that. Um, he, he, you know, he went and found a couple of developers that he partnered with in order to do this development. But yeah, he kind of an anomaly.

Sure.

You know, Kind of like me, I made a decision that I was going to go into multifamily business and I did and I scaled the business. So yeah, you know.

Well, yeah, I mean, and I guess if all these trends keep going, there's going to be a need for new structures at some point. Is that a road you would go down or you are just sticking to your buy box of, you know, a value-add, you know, C-class?

Yeah. So good or bad, I don't— you know, I've always been focused. You know, if you look at the multifamily business, there's a lot of opportunity inside that bucket. You've got self-storage, mobile homes, RV parks, senior development, medical housing. You know, there's a lot of different asset classes inside the multifamily space that you can invest in. I've always been a market, market rate rent investor. I don't like tax housing deals. I don't like rent control. I want to be in markets that I can go in, I can add value to that community, which it does 2 things, right? Remember that it's— you're not only affecting your shareholder who's your investor, But you're affecting the stakeholder, and that's the local businesses and other homeowners around that community you buy. So if I buy an apartment complex and I go in and I do some curb appeal and I move a better tenant in because I've increased the rents and, and did some physical enhancements to that property, and I've created value there, That in turn will create intrinsic value in the neighborhood for homeowners and business owners because it carries through. I like to be able to raise my rent. So short answer is I'm a market-driven investor and I stay in that pocket because I'm good at it. And I like, you know, I want to stay focused. I see too many people get in the business and they say, Oh, this is hard and I'm going to go over here because this looks a lot easier. It's like being in a relationship, right? Your marriage gets tough and somebody goes off, right? It's the same thing that people always think grass is greener on the other side. I've always stayed focused and stayed in the, you know, inside my lane.

I think that's great.

Good answer. Yeah.

I mean, we see it all the time. Somebody walks in and I mean, we've had a few people where they started off wholesaling. Oh yeah. And then you call them a year later, they're like, hey, I'm doing an Amazon store now. You're like, oh, okay. You completely got out of real estate, I guess. Yeah, it was too hard.

But, but here's the good news around that, right? So that opens the door up for more opportunity for you guys, right? Because, because what happens is when the market's really robust and things are happening, people flock to it, right? And now that things have gotten harder, a lot of people have left the business. They've left the multifamily industry. You don't have multiple offers on deals today.

Mm-hmm.

Listen, if you're an investor sitting on the sidelines and you haven't wanted to deploy capital because you're fearful, you've got to walk through that fear. If you haven't gotten into multifamily because you felt you haven't gotten the right education, get the education and then take some action. But there is no doubt in my mind that we are at the bottom of this market cycle and that the next several months are going to be a little tumultuous. And but we're starting to upswing and get involved today.

Absolutely. I mean, it's like when Joe bought like 10 apartments after 2008 and most people were probably be, you know, scared, super scared. But that's where you get the upside is from getting it down here.

Yep. 100%.

So how did you walk through that fear, Joe?

Oh, I was way older at the time. I had been through 3 of these up and down cycles here in California. So way more experienced. And I knew what was going to happen when, you know, we hit bottom. I didn't buy them when they were totally, totally at the bottom, but Pretty close. And I knew they were going to go back up. And of course they did, you know, because that's just the cycle of business here in California.

Right.

Yeah.

Yeah.

I mean, and you see the opposite too, where people bought at the height.

Yeah.

And now they're freaking out.

And those, honestly, those were more end users than investors.

Right.

You know, and unfortunately, you know, for them, the banking industry at the time took a lot of advantage of them because they were doing warm body loans. You know, you had a warm body, they gave you a loan to buy a place. And it's like, okay.

Good fog and mirror.

Yeah, it's like, okay, so yeah, no money down. Yeah, no money down. You know, how about giving me a 110% loan? What does that mean? You give me money back when I close? Yeah, why not? You know, it got really crazy, just absolutely crazy. And I could see the writing on the wall. And it's like, Okay, let's wait for you know the other shoe to drop, and it did. You know, and so I just kind of waited for it to go back down. I was kind of very surprised that it it went down quick. It went down, I'd say six to eight months. It went from the condos that I was buying; they were literally five hundred thousand, and it went down six eight months later. They were a hundred thousand. That's how quick and that's how deep it went. These were D-class units. Okay. They weren't A-class units. They weren't on the beach or anything like that. But they're good moneymakers. They really are. They rent really well. You know, they're easy to fix up. So yeah, it's just, it was experience at that time.

But isn't it amazing? You know, a D-class property for $500,000.

Yes.

I can go to Oklahoma and buy a D-class property for about $40,000.

Yeah.

You know, can you imagine if that dropped that much?

Yeah, no kidding.

Holy cow.

Yeah. So, so this D-class property I'm talking about is back up to $500,000 right now. Right now, the places I bought 2008 for $100,000, they're back up to $500,000.

Yep. So, you know, I don't think we'll ever see 2008 again. A lot of people thought that coming out of COVID that, that, you know, into this market that we were going to see 2008. And I've been saying— and there's still some doomsday experts out there saying the world's coming to an end.

Yeah.

But I've been saying that this is going to be a soft landing. You know, here's the other thing that's really noticeable is that so much of the commercial business, the multifamily business, the auto industry, is all generated by the, the residential side. So residential sales really fuels what happens. And because residential sales have been so locked up because interest rates, all the equity people have, things have not moved. But I think with interest rates coming down now and normalizing Or what is perceived as normal, right, for the average, average person. The market is starting to move again.

So yeah, no, absolutely. I, and I agree with you totally. I don't think we'll see a 2008 again. You know, this— the banks aren't crazy. They're, they're wanting 20% down, you know, from normal people to buy houses. They're not getting crazy at all. Interest rates are finally on their way back down, which is a good sign. Unemployment's still up, so everything's pretty positive that we're not going to fall into that trap again.

Yeah, fundamentals are strong.

So yeah, yeah, I think people were maybe just triggered by 2008, so they saw, you know, some of the same markers, but it, it really wasn't clickbait.

And then clickbait, clickbait. Yeah, clickbait.

You can— I know Robert Kiyosaki's been riding that wave for years.

No kidding. It's like, oh God, how much How much more negative stuff can you, can you put out there? You know?

The world's gonna end this weekend.

Yeah, it's like, wow. Yeah, it's like the climate change people. Yeah, we're gonna like die in 5 years. Well, that was 5 years ago, wasn't it? Did you know?

Did you know bacon's bad for you too?

Oh yeah.

Oh yeah, sure.

All that stuff.

Yeah, bacon and butter, it's like back. Those are superfoods now.

Right. Awesome.

This is the part of the show where we've curated a few videos from the internet, and I want to get your honest, raw reaction right now.

Okay, great.

I love this part.

Okay, let's do it.

Honestly, anybody that bought in '21 and '22 is challenged right now, even with good debt. You know, we're major headwinds. So yeah, I'd love to drill down on some of that stuff because we're starting to see some of the impact of that. For example, just found out about a 700-plus unit in Texas being offered for $10,000 a door. You know, we're talking to Texas is, I don't know of an area in Texas you can find less than $100K a door.

So that's crazy.

We have an asset in San Antonio, 200-unit asset on a lake. Beautiful, beautiful asset. The one next door sold for 40-something a few years ago. They're down to 28 right now, and we'll buy it if we can get it for 24. So I mean, that's the kind of stuff we're, we're starting to see it hit a lot of these operators. The ones that didn't get adjustable rate debt, forget the ones that got adjustable rate debt, they're in deep, you know what, right now.

Right.

You know, they got the 3 Now they're at 8 or 9%. And even the ones that have decent debt, because expenses have gone through the freaking roof— taxes, insurance, and payroll. I teach this stuff and I teach 50% expense ratios. And candidly, it's hard to find anything less than 60% right now. And some are as high as 70% because all these expenses have gone through the roof and occupancy has dropped. Rents have flatlined in many of these markets and/or declined.

Yeah.

And we're seeing that in some of the markets that we're in. And so the proverbial, the water's going out, we see who's naked right now. So that's really what's happening. But, you know, with crisis comes opportunity. And I'm frankly excited because if you heard my story, I lost $50 million in 2008 and '09. I got crushed. And I've had a lot of people on my show that killed it in 2009, '10, '11, '12, '13, '14. And just because the opportunity was extraordinary. Well, I believe we're there again in the— definitely in the commercial real estate space, for sure in multifamily and even a little bit in some of the other asset classes.

Honestly, Whoa, that's a lot.

You know, uh, he sounded like Trump there for a minute when he said beautiful, beautiful.

Yeah, beautiful, beautiful asset.

Yeah.

Well, what do you want to know?

Um, I guess, um, just your thoughts. Yeah, what do you, what do you take away from that?

He said a lot in a minute. He said a lot. And the one thing he said is every asset that was bought in '21 and '22 is in trouble. I don't agree with that part of the statement. I agree with a lot of what he said, especially about expenses being high. You know, insurance has gone up, taxes have gone up, labor's gone up, tariffs are kicking in and starting to really affect us. So that expense piece is true. Um, here's the one— here's the people that got in trouble. Um, there are people who bought in '21, '22 on bridge loans that— or buydowns where they could buy their interest rate down, and they didn't have enough money or don't have enough money today to renew their interest rate buydown. Because that $30,000 interest rate buydown that you got in '22 is $300,000 today, and you don't have enough money to do that. And they're floating rate debt. So, you know, I know when I sold residential real estate, people would buy deals on adjustables, right? That's what floating rate debt is. You know, well, you can buy it today at 3%. But But in 12 months, it's going to adjust to where the market is and you're gambling as to where the market is. I'm not a gambler. Every asset I own is under 4% fixed-rate debt.

Nice.

For 10 years. I don't— and I have a very good friend who's been in the business as long as I do, and he's with a group that, you know, they've done 100,000 units. And we have this argument all the time, this discussion. He loves floating rate debt. I love fixed rate debt. He loves floating rate debt because he can go into a project, operate that project for a couple of years, increase the, you know, but then, you know, on the back end, he's got to sell, right? Where I can keep my project a little bit longer and I can make more cash flow as a result of that. So I like Rod. Rod's a good guy, um, and I've had him on my podcast and he, uh, has a lot to say. But, you know, he's one of those doomsday experts.

Hmm.

And, um, you know, there are some assets out there that are priced really well right now and prices have come down. And I think we'll still see some more decline in the, in the multifamily space. But not much more that you shouldn't be buying today.

Oh yeah, no, absolutely. I mean, so I guess with the expenses, is your underwriting changing, or are your expense ratios going higher as you're underwriting deals today, or where do you kind of land on that?

Well, you, you'd hope to be in a deal where, you know, your expenses are 50% of revenue, right? Um, or below that. Um, expenses have gotten higher And you're looking at stressing deals. So even though the current seller's expenses might be 60%, can you run the deal better or leaner than the current seller?

Hmm.

In some cases you can. In some cases you can't. Right. And it might even cost you more for the first year or so to operate that deal. But can you stabilize it? You know, I think right now a lot of deals you get into, you're kind of hoping those interest rates come down a little bit more along the way so you can go back and refinance. Right. I have, you know, 400, 350 units that even if interest rates dropped 100 basis points, we couldn't— it wouldn't make sense for us to go refinance. Because we're— we have such good interest rates on our assets right now.

Nice.

That's amazing. I love that. All right, next video.

Okay, here we go. I love this. Throughout history, there have been 2 things that people have always wanted as a source of wealth. One was gold and then real estate. And what do you think about if you're nervous about paper currency and the valuation of it, why not just buy real estate and hold on to it? Is that not a good Is that a good idea?

It's not a good idea. It's not a good idea because real estate is more interest rate sensitive than it is even inflation sensitive. So if you were to say, if this environment happens, does it go— it goes down in real terms. It's also an asset that is a fixed asset that is the easiest asset to tax. In other words, you, in any place, you're in a particular state, putting in real estate taxes means that they could always get the money. And so it doesn't— it's not an effective diversifier that way. And also being able to move money from one place to another, the real estate is nailed down.

Throughout history—

Ray Dalio.

Love Ray Dalio. One of the best books I ever read was Principles.

Right.

Yeah.

But I mean, what do you think about what he said?

Yeah, he's a hedge fund guy, so So, uh, yeah, he's a markets guy, right? He likes the stock market. So of course his— he's going to be more slanted. I, I really believe that, um, you shouldn't have all your money in real estate. I've always been a really real estate heavy guy and I didn't diversify, right? I think you should be diversified. I think you should have a good split-up portfolio, you know. You could be heavy in real estate, but I still think you need some money in the, in the markets, right? Um, the comment the guy made about gold at the beginning I thought was interesting too, because, you know, years ago our dollar was backed by the gold. So if you owned gold and you had a brick, you were protected. Today it's not so true. Because we've printed so much money that it's, it's outpaced what gold can do, and there's not enough gold that they have resurrected or mined to offset that, right? Um, he was right in what he said about real estate is so interest rate, um, specific or affected by interest rates, and he's right. That's what I was talking about on the last video. Um, but if you have— so what you want to do when you buy real estate is you want your interest rate below the cap rate, right? Because then you're in a positive yield position. You really want your interest rate to be 150 to 200 basis points below— or yeah, you want your interest rate to be 150 to 200 basis points below what cap rates are. But, you know, we're in this place right now where those deals are really hard to find. But as long as your interest rate's below your cap rate, you're in a positive yield position, which means you'll be able to create cash flow and be able to make money. Your hopes today are that interest rates will come down and you'll be able to go back and refinance. So, you know, we just had a quarter percent interest rate reduction. Supposed to, you know, Fed say that they're going to reduce them again another 50 basis points this year. Um, that could start to potentially move the needle south, which would help us. Um, but, you know, it's, it, it's speculative, but it's not a spec— you know, stock market's making a lot of money today, but You could wake up tomorrow morning and there could be an 800-point loss. Yeah.

So, and that's why I don't agree with him. I mean, he's talking to multimillionaires, billionaires, is, is I think who he's talking— he's not talking to somebody like me, right? And, you know, my experience is, uh, yeah, I was told to diversify from my real estate, and so I tried to invest in the stock market And every time I got my statement, it went down. Called the stockbroker at the time because we used to have stockbrokers at the time. Oh, Joe, don't worry about it. I got you diversified and blah, blah, blah. Next month it went down. And I go, well, I hired you because hopefully you're an expert on this and obviously it's going down. Third month it went down. And I said, no, that's it. I'm done. Let me have whatever's left in there. And that's the last time I invested in the stock market. And I think that's where he's wrong. He's not talking to the normal people out there that aren't Ray Dalio, that know how to do what he does.

Right.

We were talking about at lunch, Warren Buffett was basically saying in his report here recently that he doesn't think anybody over 70 should even own their own house anymore 'cause it's not an asset. And he's right, it's not. You're putting money into it every month. He said, you could take that money and put it in S&P and whatever. But my answer to that was, okay, if I'm Warren Buffett, I know how to do that stuff, but I'm not.

Right.

And the normal person out there who buys a home early on, raises their family, keeps it, you know, for a long period of time like me, you know, that's how I built wealth. You know, it's not at this point. I mean, if I sold it, what am I gonna do? Go rent someplace else? Um, you know, like if I put it in a stock market, just like you said, I, I could wake up the next morning and it's all gone.

Right.

And I, and I lived through that, uh, with the stock market bubble that we had in the '90s. And, you know, everybody was crying that they were losing so much money in the stock market, blah, blah. I was not crying at all. I didn't have any money in the stock market. My money was in real estate.

Yeah.

And that was another thing I was going to ask you, the previous video. Um, and I don't know if you've had any experience with this, but I, I've been in California my whole life. I've never ever had to reduce my rents, ever, ever. Like, I don't know if it's— that's California specific or what, but, um, never through, through 3 up and downs. So we have a downturn. The prob— the last 2008 problem was Everybody was losing their house. Okay, well, so what does that mean? They're gonna go find my rental that I have, and I've just jacked up the price on the rental, so I'm not losing any money. I'm actually making more money, right, with that situation, even in a downturn. It's like supply and demand. So I've never had to reduce rents here in California, so I'm not used to hearing people say that. Do you, do you have to in your units, like depending on the market? Have you been through that?

Yeah. So, you know, California's always been a phenomenon, right?

Yeah.

I mean, I remember, uh, years ago when everybody was like, wow, the pricing in California is so high, and then it crashed. But it's never crashed like that again. It's always continually grown and grown and grown, right?

Yeah.

Rents have gone up, house prices have gone up. The average house price in Southern California, it's $1.3 million, I think, right?

Yeah.

For 1,200 square feet. I can rent more than that for less than that. So, um, but in other markets, you do have to do concessions, right? And, and here's, here's one of the phenomenons that's happening right now. So, you know, you own an apartment complex and there's 3 other apartment complexes in the area and you're competing for that tenant. Right. So you might have to say, hey, I'm going to give you a month's free rent, or I'm going to give you 6 weeks free rent, right, to, to get that tenant in. That's a concession.

Mm-hmm.

And so you're always adjusting your concession because you're competing with everybody else who's adjusting their concession to keep your occupancy up. Here's what I'm seeing right now. Concessions are starting to go away. So that's one of the fundamentals that I'm looking at right now, saying, oh, we don't have to give away a free month anymore, right? Because nobody else is doing it. It's going away. Concessions are getting back to a normalized, you know, $100 to move in, or, you know, you're not seeing that today. So that tells me that the market is starting to change. The other thing, you know, you were asking about the new construction. Um, new construction starts are increasing. The market's starting to change. You know what, don't get caught behind the 8-ball right now. Get out in front of this because it's happening, and it's happening as we speak. You know, unfortunately, Rod's still saying It's going the other way. But, you know, yeah, there's some great opportunities out there. But, you know, those opportunities he's talking about are not available to the average, you know, person.

So true.

Because they're gobbled up before we even get a chance to see them. Yeah.

Nice.

Terry, one more?

Yeah, we got one more.

Okay.

One more video.

One more video. Here we go.

Love these videos. Should have made some popcorn for these.

Why has Warren Buffett invested over $1 billion in builder stocks, in particular Lennar and D.H. Horton? You'd think, oh my gosh, we're at the bottom or tending to the bottom of the market, and with interest rates high and demand down, why are the builders going crazy and building lots of homes, especially when people first-time homebuyers especially can't afford them. Well, it's called rent-to-buy. So they're building whole tracts of homes and guess who's buying them? It's the institutional buyer that's picking those homes up, like Blackstone or Keystone. Anyway, these companies are buying these tranches of homes straight from the builder. Now, why is that economic? Well, Buyers can't buy, so what's their next best option? They have to rent. And if they don't want to rent an apartment or a condo, most of them would prefer to be in a single-family home. So builders are creating a huge pool of homes picked up by investors which are being on-leased to the populace of buyers out there who can't afford those big mortgage rates. Let's face it, those first-time homebuyers, they are strapped. They need to have bigger incomes to afford a home. And so leasing Investing is a much better option. Why?

Freaky. Him?

Yeah, him and the thought of what Warren Buffett and all those guys are doing.

Well, here's what's interesting, and I, I, I, I love this. You know, Warren Buffett 15 years ago said, I would never invest in real estate, and went and bought Berkshire. Hathaway right after that. Yeah, Berkshire Hathaway and Sotheby's. Yeah, right, right after that.

Yeah.

Uh, after that he said, oh, I, I'm not going to invest anymore in real estate, but put a billion dollars in the new construction industry for this exact reason. You know, why don't you do what the smart money's doing, right? He knows how to make money, so obviously there's some validity to that, that you're going to be able to make money in real estate. And what these builders are doing today, whether it's Lennar or Toll Brothers or, you know, Country Homes, or they're building build-to-rent communities. So they're building single-family homes in planned unit developments that you get to rent with no HOA fee and no taxes and no upkeep or maintenance. You're just renting. So you can go in Vegas— I'll use Vegas as an example because I've looked at a lot of these— you go to Vegas, you can buy— you can rent a 3,000-square-foot home for about $1 a square foot. For $1.50 a square foot, you get a swimming pool in your backyard. But somebody else pays the taxes, pays the HOA, takes care of all the upkeep and maintenance. Now, I think there will be a shift. Do you remember when we had the big condo boom back in the '80s and '90s? And everybody was buying apartment complexes, converting them to condos, and people were buying condos, and it was a huge craze. Same thing will happen with this. 10 years from now, you'll be able to buy those homes at whatever that market rent is. These guys all have an exit plan on these. So Buffett's putting money into this deal knowing he's going to get some cash flow, but he's got a big exit on the back end. And, and I, my own personal opinion around, right or wrong, I don't know, but my own personal opinion around that is it's part of his, um, successory plan, right? How he's leaving his legacy. Uh, and company, you know, I mean, he's older. He's— that we're not, we're not living forever.

He's 94.

Right.

So, yeah.

Yeah.

Interesting. Love it. Well, thank— that's what we wanted. We wanted your opinion, you know, straight up. So thanks for that. Straight up.

Straight up.

Hey, I got a gift for you guys.

Okay.

Amazing. What you got?

So my book, Multifamily Investment Secrets, Amazon bestseller. You can go to multifamilyinvestmentsecrets.com and download a copy. I teach people right in that book how to buy multifamily. I talk about a creative deal that was 400 units that we bought with little money down, owner financed. And, and one comment I wanted to make today is I believe that because of where we're at in the market cycle, the next couple of years there's a lot of owner financing, owner oper— you know, owner participation opportunity. Call it whatever you want— subject to, creative financing, build, you know, uh, land contracts, whatever you want to call it. You know, Joe and I know terms from, from years ago, but I I, you know, I'm a firm believer that there is opportunity in the real estate space to buy with little or no money down today. And I've bought multifamily. I've bought 4 units, 20 units, 60 units, 100 units, 400-unit deals with little or no money down. And if, if somebody wants to learn how to do that, call me.

Absolutely. Well, you heard it here, folks. Mike's available to hold your hand through the whole multifamily process, even if you're a beginner to real estate. So definitely take him up on that and reach out. And he's also got that summit coming up, multifamily25.com for more information on that.

And use Joe Holmes as the coupon code.

There you go. He's always bringing goodies. He's one of our favorite guests. That's why we're always going to have him back whenever he wants.

No cookies because everybody's losing weight.

Yeah, exactly.

We're all on a diet. But yeah, we could use, uh, more money, of course. So, uh, right on, you guys. Thanks for joining us today, and we'll be back here next week, same time. And, uh, thanks, uh, thanks, Mike.

Thank you, guys. Appreciate you guys having me back. It's always fun.

Thank you. We'll see you later.

All right, see you guys on the next one.

Bye-bye. If you want some more advice on real estate investing, reach out to us one-on-one.