Listen to hear Mike Roeder talk about growing up wave skating and snow boarding and and then teaming up with his high school buddy to go after multifamily success. These guys started with an 8 unit and a 20 unit and then scaled up into syndications. They now have seven syndications deals for over 700+ units on the books! He's still an outdoors guy and can often be found on the lake with his family wake surfing!
Table of Contents:
- Where To Listen To The Podcast
- Mike Roeder and His Way to Multifamily Success
- What Is Multifamily Syndication?
- The Importance of Accountability Partner In Your Multifamily Success
- The Role of Leveraging in Multifamily Success
- Change Your Mindset and Gain Multifamily Success
- Investing Out of State to Gain Multifamily Success
- The Biggest Sacrifice for Multifamily Success
- How to Reach Michael Roeder
- Join These Multifamily Conferences In 2021
Mike Roeder and His Way to Multifamily Success
Darin: Mike Roeder lives in Minnesota with his wife and two children. He grew up snowboarding and wakeskating. Both he and his business partner moved to Utah to go after snowboarding as a profession. Mike decided it was not his path and moved back to Minnesota and started investing in single family real estate. Dan Brisse, his business partner continued on the professional snowboard path, and then they decided to come together and go after multifamily success. They started with an eight unit and a 20 unit deal, and then started on the syndication path and they have seven syndications in over 700 plus units under their belt. And they have a ton of running room ahead.
Michael: Thanks so much for having me on the show, Darin. I appreciate it.
Darin: Absolutely. So the way Mike and I know each other we actually are part of the same multifamily mentorship group and it probably goes back, I joined the group three years ago and it probably goes back close to three years ago when we came for an event. I live in the Dallas area, the event was in Dallas and Mike lives out of state, and we'll talk about that. He came in and we met the night before for a little happy hour and just a really, really good guy. And I actually had his partner, Dan Brisse on is episode number four and two great guys and looking forward to hearing what they have going on and go from there. So, Mike, thanks again. Just to start out with how many properties and how many units do you guys invested in?
Michael: Yes. So we're general partners on 764 units. And that's a total of seven different assets. And it scales across four different States. We own in Minnesota, Wisconsin, New Mexico and then also Texas down where you live.
From 0 to 7 Syndication Deals
Darin: Minnesota, Wisconsin, New Mexico and Texas. So that's crazy, seven deals, 7 syndication deals. Man, when we met, you had zero.
Michael: Yes. And it's been a wild ride over the last three and a half years or so. And it's just been a phenomenal space to be in. Obviously a very competitive space in the multifamily industry, but we've really enjoyed it. And we'll talk a little bit more about Dan and myself partnering, but that's been instrumental to our success.
Darin: Yes. So one of the things that I was thinking about before doing the show was the saying, good guys finish last. And I'm like, this is just the opposite of that. These two guys are just two good Midwest guys and they're killing it. So, Dan is an ex-professional snowboarder and you are definitely an outdoors guy too. Help, the listeners understand how you guys came together.
Michael: Yes. So Dan and I have known each other since high school really. We grew up snowboarding together, actually we both moved out of Salt Lake City. I lived with Dan for a year and we were both pursuing professional snowboard careers. And Dan obviously went on to become a professional snowboarder. I decided that it wasn't quite right for me and didn't quite have that skill set to get to that level. And so I moved back to Minnesota, kept going for my college degree and finished up with an undergraduate degree from St. Cloud State University, which is a small school in a small town in Minnesota.
Partnering with Dan Brisse
Michael: Other than that, I had been buying single family rental properties in central Minnesota. Dan, because of his higher income due to his professional snowboarding career, he was looking for a way to offset his taxable income and to build up his passive income. So that he'd be set when his snowboard career is done.
He had started buying mid-size apartment complexes anywhere from 20 to 30 units. And we had talked on the daily and just decided that, Hey, let's partner together. Let's buy an apartment complex together and see how it goes. So Dan and I partnered up, pooled our money together, we brought in one other friend as well. And we bought a 20 unit together. We bought an eight unit together. And after that, we really decided that, Hey, let's scale this business, let's jump into the syndication route.
Darin: Awesome. So you did single family first, Dan wasn't doing single family and then you guys came together and you did the 20 unit, eight unit, all with your own capital and with a third partner. And then from there you guys really saw the value in multifamily and decided to grow it and scale it from there.
Building Wealth Through Multifamily
Michael: Exactly. We were really enjoying the cashflow that the 20 unit and the eight unit was pumping out. And we had a lot of friends and family that were asking us, how can we get involved? And we just decided, Hey, let's go the syndication route, we can really scale our business and help other people get a good, solid return on their money as well.
Because I think, there's a lot of people out there that don't have access to syndicators like you and that are putting together projects. And it's just such a phenomenal way to build your wealth and build your passive income that there's a lot of excitement when people actually learn about it.
Darin: Absolutely. I couldn't agree more. I'm shocked that I talked to people all the time. I'm like, how is this kept a secret? 47 years, I'm 50 now, but 47 years, I didn't have one person invite me into one of these deals. And I read the Wall Street Journal, I read all the financial publications, they just don't talk about it. But then once you get into the world, I'm sure your email box is full of deals like mine is, but it's like until you get into that world, you don't get the invite.
Michael: Exactly. It's just, it's really a hidden industry, unless you're actually networking with the people that are inside the industry. And it's a powerful one, too. It's a powerful industry and a powerful investment asset class to be in.
Do More With Multifamily
Darin: That's awesome. So you mentioned friends and family prompted you, how can we get involved? And that probably sounds like helped push you guys along into the syndication space. A lot of people, they do either single family and then they get into in the large scale multifamily or whatever, but it's more coming from the focus of, Hey, how do I scale this? How do I make more money off of each deal? How do I leverage other people's money and time and effort and that sort of thing? But for you guys, you already had people that were prompting you, Hey, how do I get involved? That's awesome.
Michael: Exactly. That was powerful. I would say it was a combination too, Dan and I wanted to do more with multifamily, and at a certain point you can buy your own deals, but you're likely gonna run out of liquidity. These banks or lenders are wanting your net worth to be at a certain level, your liquidity to be at a certain level. And then you need to pay the down payment and the escrow and whatnot. So, you have to take that into effect as well and that helps.
Darin: So syndication is again talking about this small world and if you're outside, if you're listening to this for the first time, people are like, that sounds like a complicated word. It sounds like that's for somebody else, it's too complex. Explain syndication in a nutshell.
What Is Multifamily Syndication?
Michael: Yes. So syndication is really, you have a group of individuals or an individual, that's finding the deal, they're putting together the team, they're implementing the business plan. And then you're bringing in a group of limited partners or passive investors that are going to fund the project or most of the project for you. So you have two different class shares, you have class A and class B. One set of class of the shares is for those limited partners and one set is for the sponsor or the general partner.
Darin: Absolutely. So it's just a group of people coming together to buy an asset that they couldn't buy on their own. It's a win-win scenario, again, I wish I had known about it before. Now you start going down the syndication route, doing seven deals, how much equity have you guys raised?
Michael: I don't have a specified amount, but I would say around 20 million range.
Darin: So 20 million, I'm guessing that 20 million wasn't all from friends and family.
Michael: It was not, no. You put in a lot of work networking, networking is really where it's at, as far as being able to raise capital. So, Dan and I, over the last three and a half years, we've really taken every opportunity that we could get to mentorship meetups, lending meetups, local meetups. We started our podcast. So there's a lot of different avenues that we've taken to really build up our database and that's allowed us to eventually scale our business.
The Keeping It Real-Estate Show
Darin: Awesome. So you mentioned the podcast, talk about the podcast, so why did you start a podcast? Who is it geared for? What are your goals with it?
Michael: So our podcast is called the Keeping It Real-Estate Show, and it's strictly focused in on real estate investing. We started it back a few months ago and we're about 15 episodes in. Our goals with our podcasts, we have a couple of goals. So first off to educate investors that are looking to get into the game, whether it be a general partner looking to do their own deal or syndicated deal or passive investors that are just looking to learn more about the industry. We also started the podcast to grow our database as well, and to allow other individuals to really get to know us.
When you jump into the multifamily space and you have limited partners entrusting you with their money, it's really about trust and how well they know you, if they like you. That goes so far and I just can't speak highly enough about that.
Darin: Those are some of the same reasons I started, I wanted to get the word out, again, I hadn't heard about doing this until three years ago. And so with the podcast my goal is to get the word out to more people and educate them and hopefully bring people in that want to invest with either me on a deal or with one of my guests that come in. And then the last thing is I'm 50, I want to inspire people to take a chance in life, when you get on the other side. So I've started a business back in 2007 and I was scared to start my own business, leaving corporate America when everybody has trained you to say, that's what you should be doing. And that's the safest place to be.
Surround Yourself With the Right People to Secure Multifamily Success
Darin: It's scary to take that chance, but I did it in 2007 and I'm so glad I did. And then with the real estate side, I was scared to get in the real estate side. I remember the first purchase I made three years ago was a little duplex and I was scared doing that duplex. And then when I joined the multifamily mentorship group, I started meeting all these people that were doing 100 plus unit deals, 200 plus, 300 plus, and they were on their third, fourth, fifth deal. I was like, Holy cow, how did they do this? Then I just realized they're people just like everybody else. They just learned the process and what they had to do. And so I just followed them and now it's awesome watching you guys do the same thing.
Michael: Appreciate that. I think that's really important that you mentioned that is just surrounding yourself with the right people. If you surround yourself with people that have been successful at what you're looking to do and you take action and copy what they're doing. You're going to find success in what you're doing, guaranteed.
Darin: That's huge. You said a few things there. One is take action. At some point look, everybody's got to get educated, right? Whether you're a passive investor getting in your first deal, whether you're buying a duplex for the first time, or whether you're trying to syndicate your first deal, you have to get educated. But at some point you got to pull the trigger. Talk about that, the fear associated with actually pulling the trigger on your first large syndication or even one of your eight unit and 20 units. It's scary when you're first getting going. So talk about that fear.
Consider the Worst-Case Scenario
Michael: It really is. And fear can really paralyze you and prevent you from taking action. And I think what you need to do is consider the worst-case scenario. So if you're buying a 50 or a 100 unit property, what's the worst-case scenario that's going to happen? What's the likelihood of that actually happening? And when you actually dig in and figure out those two items, you're likely going to find out, Hey, the worst case scenario is probably a pretty good scenario. I would say, just take calculated risks. So do your homework, get your education and just know what you're getting into before you jump into a multifamily deal.
Darin: It's so funny how so many guests answer that the same way. Like what's the worst thing that can happen? And then when people realize they're like, all right, well, I could live with that. If that's the worst thing that happens, I could live with that. And then you talked about what's the likelihood of that happening? Mostly if you're going to pull the trigger, you're probably thinking that it's a low probability that that worst case scenario is going to come through.
And then you didn't talk about this, but I know that other guests have talked about, well, what's the upside? Okay, well, the upside is so much better than the downside. So take the risk. And some people can't get over that hump. And one way to help you get over that hump is by surrounding yourself with other people that have already done it.
The Importance of Accountability Partner In Your Multifamily Success
Michael: Exactly. And I think, if you can bring on a team member or multiple team members that have done a syndication or bought a duplex or whatever you're looking to do, that's just going to give you that much more comfort. You can bounce ideas off of them. You can talk about, the worst case and the best case scenarios, what their track records like. It's just going to help you tremendously.
I'd like to talk a little bit about Dan and my partnership, it's been instrumental to have that business partner not only to bounce ideas off of each other and to have a second set of eyes on each property that we acquire but also to motivate each other. If you have a partner and you jive well with them, that can really be a huge portion of your motivation from day-to-day.
Darin: That's a great point. In this business, you really have to have self-determination and persistence to win deals. And having a partner, I don't know, you can liken it to, if you've ever had a gym partner, right. Where you're meeting at the gym in a certain time, look, all of us have gone through those days where we don't want to work out, right. We want to hit snooze. And if you have that partner that you know is going to be showing up at the gym at 5:30 a.m., you're like, I don't want to let him down.
So I'm going to get my butt out of bed and I'm going to make it over there. And so the same thing holds true on the real estate side. If you have a business partner that you can bounce things off of and hold each other accountable that just helps both of you progress forward.
Michael: Exactly. Can't agree more.
Think About the Future
Darin: So it's very cool that you guys knew each other in high school though. It's like part of you guys are, have to be sometimes having a beer on the side and just laughing that, look what we've done. Like we did the snowboard thing and I didn't even know that you went out to Salt Lake City with him. I knew that he went out there, but I didn't know you went with him. So you both go out for the snowboarding thing, he takes it a little further. And then you guys follow through and get into the business world and now have seven deals and over 700 units and you guys must laugh and can you believe that we're doing this man?
Michael: It is unbelievable. It's fun to look back and see where we were before and where we're at now. It's also fun to think about the future and what it's going to evolve into over the next 10, 20 years. I see myself doing this until I'm 50, 60 years old at least.
Darin: Hey, you better move that number up. I'm 50 now. I feel like I've still got a long runway.
Michael: No, it's an industry you can do until you're 80 or 90 years old.
Darin: Better numbers.
Michael: You've got 40 more years, Darin.
The Mindset Shift
Darin: There you go, better numbers. So talk about mindset, because when you're doing single family and a lot of people when I've talked, they started in single family and that first single family was scary. And then by doing that, you've kind of, I don't want to say master it, but you understand the process and you understand that there actually is a positive return on the other side of it.
And so then your mind starts going to, all right, what's next? What's the next challenge? And so going from single family to eight and 20 unit, you had to have a mindset shift and then going into syndication, that's another shift and then wanting to continue to blow it out is another one. So talk about mindset and how you keep upping the Ante.
Michael: So first off, my mindset really changed when I started talking to Dan about his apartments that he was buying. So I was buying single families, one or two a year, and just planned on doing that until I got up to about 100 properties. That was my original goal. And I had been talking to Dan about his apartments that he had been buying, he had really said, why don't we partner up? Why don't you partner up and we can buy something bigger? And at first I really didn't get it. I almost told him, hey, does it really make sense to complicate things, get more partners involved when I can do this on my own? The more we discussed the more it really made sense.
Why Can’t I?
Michael: And so it really changed my mindset into thinking, a little bit about the abundance mindset, but also it's going to be better if we have more eyes, more minds working on these projects. When we jumped into syndication spot, same thing happened. We came down to the Brad Sumrok event that he had put in DFW where we met. And you have these conversations with all these investors that are doing bigger, larger deals, and they've already changed their mindset. And so it really starts to wear on you and just start to change your mindset.
I would say after the first couple of days that we were around all those individuals, our minds really shifted to, Hey, we can really do this. Like you said before, these are just people, they're people that have put actions into place and they've learned what they needed to learn and they're doing it. So why can't we?
Darin: Why can’t I? You look across the room, but if you don't put yourself in that room and see those other people, you're probably going to have that self doubt and you're surrounded by friends and family that haven't done it. They're probably going to say, you're crazy, that's for somebody else. So getting yourself surrounded by other people that have been successful is so key.
On that note, you guys decided to partner together. On your first syndication, did you bring an experienced person on, or did you just leverage? All right. Dan had some smaller multifamily and this is going to be our largest one.
A Home Run to Multifamily Success
Michael: So we did not bring a more experienced sponsor on to our first deal. It was just Dan and I, however, it was a smaller deal. It was a 45 unit property located in Western Wisconsin. And we really leveraged the connections that we had through the group that we are a part of down in DFW, just to make sure that we were underwriting properly and we were selecting the right team and doing all the due diligence upfront to make it a success. Crazy enough that first syndication project has been an absolute home run. It's been one of our best projects we've ever done.
Darin: How do you define a home run?
Michael: Well, a home run, we're actually refinancing the project right now. It's been a little over two years since we acquired the property. And we should be able to kick back 150% of the investor's capital and it'll still cash flow really nicely.
Darin: So somebody invests a 100 grand into that deal. You're going to do a cash out refi, give them back their 100,000 plus another 150,000? Plus another 50,000.
Michael: Yep. Exactly.
Darin: Plus another 50,000. So they get their 100,000 back plus 50,000 and they still have the same ownership percentage in the deal.
A Long-Term Passive Income
Michael: Exactly. They still have that same ownership percentage. So it's in a long-term passive income plus it's a tax-free wealth. When you refinance a deal and I think some people don't understand this, that aren't in the industry, those funds coming back to you, you typically don't have to pay taxes on them, until you sell the asset down the line, which is just phenomenal.
Darin: That's huge. So a 100,000, and you get 50,000 on top of that and you don't pay tax on it because it's a cash out refi.
Michael: Exactly. Yup. And those are rough numbers, but that's what we expect so we're pretty excited.
Darin: That is awesome. Awesome. Congratulations. And I wish I was in that deal. I've seen pictures of that deal and you guys did an awesome job, but they get some serious snow there though. I've seen some pictures of that property, but it's just covered, man.
Michael: Exactly. And you got a budget for that up here, in Minnesota and in the Midwest, it's like, you got to take snow removal into account. That deal, we walked into it and it was a trifecta. The rents were super low, the expenses were extremely high and there was a lot of deferred maintenance. So it wasn't attracting the right tenant base, but at the same time, it was in just a phenomenal location. Those are a few aspects that we look at when we're looking at deals today and how we looked at deals back then too.
The Role of Leveraging in Multifamily Success
Darin: That's awesome. So one of the things in terms of moving on to bigger stuff is the word leverage, right? Is you're able to leverage a lot more. So what does that mean? While you're leveraging the bank to get a loan, 70 to 80% loan to value, you're leveraging now other people's money and that has a huge impact. And then you're leveraging having onsite management. Hiring a third-party property management company and having them manage the day to day and all the leases and hiring employees and the maintenance.
So you're able to really scale much better by going down the multifamily route. I was never in single family. And you said you had a goal of getting to a 100, I've talked to a lot of people that were in single family before, and they've told me, and I don't know if this number is right, but when they get to 15, 20, it starts to become very difficult to manage.
Michael: I only had a handful, so I wasn't even up to 15 single family homes, but I was managing them all, self-managing them myself. And I can tell you this and same thing with apartments is, if you have a really good tenant, it's very easy to manage a property. When you have a bad tenant, it's very tough.
And so we had a couple of bad tenants and man, it took up a lot of time and was a lot of stress. I liked how you mentioned, you can leverage management companies, you can have an onsite manager in a third-party management company managing these larger apartment complexes, and that can take a ton of stress off your plate, and it can give you a lot of your time back as well. So that's what we do. We have all of our deals third-party managed, there's always that option to start your own management company, but I think you have to think long and hard about doing that and make sure that it's the right play.
Systemize Your Business
Darin: Exactly. You already have to. It seems like people that look into that get over the, this is just general, but a 1,000 units or more before they really start considering, should I take property management back in-house? But to give the listeners some perspective, that little duplex that my wife and I bought, we put $50,000 into that deal and then got a loan and it was bank loan and full recourse. And then on the 76 unit deal that we syndicated, that was a $6 million purchase and we put a 100,000 into that deal.
When the duplex was like a $290,000 purchase, so it's like, you really can leverage your capital much better. Another thing is that, people bring different skill sets to the table and have different roles in partnerships. Talk about the roles that you and Dan play. Do you guys both do the same thing and just watch over each other's shoulder, or do you focus in one area and he focuses in another?
Michael: So that's a great question. We both have a similar role in our organization, so we're both looking over deals, asset managing, we're on our weekly phone calls with our third-party management companies. We are both networking. However, I can say that I really focus a lot of my efforts on creating systems, so systematizing our business. So that way we can scale to where we want to be.
And also the more systems that you put in place that are working effectively, the more success you're going to have at your properties.
The Process Guy
Michael: So that's something I really focus in on, and then Dan, he really excels at creating relationships with other people, whether it be our management company, limited partners, brokers that are selling the deals, that's extremely crucial. So he's phenomenal at that. So I would say those are two of our skill sets that really compliment each other truthfully.
Darin: That's awesome. So you are the process guy.
Michael: Exactly, I enjoy it. I think my whole life, I've been successful because I'm always looking for different efficiencies in whatever I'm doing, and it's something that's fun for me. And I thrive when I'm looking for those efficiencies.
Darin: That's awesome. That's awesome. So let's go back. You guys got together in high school. Let's talk about your childhood a bit. Do you have brothers, sisters? Did you grow up in Minnesota? Parents, rich, poor, middle-class, entrepreneurs, W2?
Michael: Great question. So, I grew up, I have one younger brother and he's actually been integrated into our business.
Darin: Oh, he has really?
From Strawberry Picker to Multifamily Success
Michael: Yes, part-time real estate analyst. So he's analyzing a lot of our deals and doing that while he has his full-time gig. I have a younger sister that's 12 years younger than me, and then an older sister as well. Grew up in a middle-class family, my parents did well, but we weren't wealthy by any means. I think when I was growing up, I was really fascinated by sales and just trying to make money when I was young. Even as young as seven, eight years old, I was always trying to sell stuff to my brother or my siblings or neighbors or whatnot. And it's funny because at age 12, I got a job at the local strawberry farm of all places. And so I would bike to Clearwater, it was about four or five miles away, 12 years old biking by myself.
Darin: Wow. Those were different times. I remember biking all over town too. I can't imagine letting our kids do that now, but that's what we did, right?
Michael: Yes, exactly. Exactly. So I biked to work in the summer and we'd pick strawberries all day long and there's, I don't know, probably 15 kids or so that were picking strawberries and they actually paid us by how many baskets of berries we could pick per day. So that really motivated me as well, and I was actually their top picker, so to speak. And so I think it started out at an early age that I was motivated and persistent, I think that's really played into my success.
Change Your Mindset and Gain Multifamily Success
Darin: Awesome. Can you think back to a time when you were a kid that you actually thought to yourself I'm going to be successful? What did that look like?
Michael: I think I was about 16 years old and I remember telling my mom, Mom, I'm going to be wealthy or rich or whatever word I used. It's just something that I believed. And I still do believe that. And it's just, I don't know where that came from. My parents both did well. My mom owned an insurance agency, so she had a little bit of that entrepreneurship blood in her. But it's just something that I just had in my blood early on.
Darin: That's awesome. I don't think it's a firm requirement, but I do think that you have to have some belief in yourself and drive that you can get there. Because look, it's not easy folks. All these things it's very doable and you can learn from other people, but it's not like people come just knock on your door and hand it to you. You got to go out there and hustle and make it happen.
Michael: Exactly. Yeah. And that mindset is so crucial. I think kids aren't taught that you can change your mindset, if you surround yourself with the right people and you put the right information in front of you, you continuously do that, you're going to change your mindset. And I really wish that parents and schools would focus more on that.
Darin: I agree. I agree. Maybe it was a month or two ago, with COVID everything, all sports is, not too many fans at the stadiums, but there was a baseball playoff game here in Dallas. My son was back from college, and so my son and I, and another father and his son who's also in college. The four of us went to the game. Well, we're eating dinner before the game. And my friend's son is into trading baseball cards. So he buys baseball cards and then sells them for a profit. And he's making really good money for a kid. Very good money for a kid. When I say kid, college student but he said, this is what's interesting. And it plays back to real estate and anything else in life.
Darin: He said, I've got a lot of other kids that come up to me and say, how do you do it? Teach me how to do it. And he says, I'm happy to, and he starts to tell them, and then nobody will do the work. So he tells them what to do and they're like, well, I don't want to do that. That's work. And so it's funny. It's funny. You really have to have drive and belief in yourself, I believe.
Michael: You do. Yeah. And that's funny. You're wanting to learn from someone and do what they're doing, take action. That's just phenomenal that, that young child or young adult is giving that advice to other people. And I just wish more people would take action when they hear advice like that.
Darin: I completely, completely agree. So I saw a really cool video that you guys put out. It was just a fun video. You probably know which one I'm talking about. You were in the back of some farm or something. There's a pond or a mini lake or something, and you've got all these cool tricked out things and you're scurfing or something. Overall, talk about what do you call that thing? You had a weird name for it and where is that? And what do you do? I just think that's pretty cool.
Michael: So our family is huge into water sports. My family had bought a cabin when I was, probably three years old or so. And so I've been doing water sports ever since three. I started kneeboarding when I was three years old and I've just continued that passion. But what you're talking about is wakeskating. So it's similar to a skateboard on water. Yup, exactly. I got big into that, I rode for a handful of companies just got free product. I wasn't getting paid, but it was a blast. We did a lot of filming and just had a lot of fun with it.
Darin: That's awesome. Now, is that in your backyard?
Michael: It is not. I'm not quite sure what video you're talking about. There's quite a few out there.
Darin: Okay. Maybe there was a red barn or something. I don't know.
Michael: So that was in Chetek, Wisconsin. It was a gentleman that owned a filming company and he invited us up there and did a bunch of wakeskating, but we live on the Lake now and we get the girls, our daughters out there all the time and it's a blast.
Do It Enough to Achieve Multifamily Success
Darin: Your youngest is how old?
Michael: She's five. So we have a five-year-old and an eight-year-old.
Darin: And you must have started her six months old. I'm probably exaggerating, but I've seen pictures and videos where she's out there on the board with you, the two of you out there, she was young, young, young.
Michael: So crazy enough. She was born June 17th, our first daughter, and I had her out on the water late August. So she was two and a half months old, and I was carrying her out there on the wakeskate.
Michael: It's funny, a lot of people look at that and they're like, oh my gosh, that's so dangerous. Why are you doing that? Well, you have to understand that, that sport is like walking to me, I've done it so much and I have so much control. And I think that, that goes into other industries too, multifamily or whatever you're doing, if you do it enough, it becomes more safe, more and more safe.
Darin: Absolutely. A lot of people that I've interviewed, the first duplex or the first multifamily or the first single family was their scariest. And then now they're buying 10 and 20 and $40 million deals.
Fine-Tune Your Processes
Darin: And they're just like, they understand the process and they understand how to evaluate it so that they're not scared anywhere near. I'm sure that there's still some fear that maybe you're buying at the top mark, who knows? But there's not that fear that I don't know what I'm doing.
Michael: Exactly. And the more and more that you can do that and fine-tune your processes, the more comfortable you're going to be and more success you're going to have.
Darin: So talk about buying from outer state. Because that, I think is something that a lot of people are interested in. Look, here you want to buy in States that have population growth and have income growth. So Texas and Arizona and Florida and the Carolinas, they seem attractive from that perspective because population is growing. But what if you live outside of that state, but you want to buy in that state? That can be nerve-wracking in itself, and so how did you guys get over that hump? Where's Dan?
Michael: So Dan's out in Washington, he grew up in Minnesota, but he's out in Washington State now. We don't own anything in Washington. We own a handful of properties in Minnesota where I'm at. But like you said, we also have properties in Texas. We have one in New Mexico as well.
Investing Out of State to Gain Multifamily Success
Michael: And I think when you're buying out of state, which you should definitely consider because not all States are landlord friendly or have the population or job growth. So you really need to look at what market is going to be a good market to invest in? After you figure that out, you really need to implement systems in your business. So that way your property isn't being overlooked by your management team. So I can speak on a few things that we've done over the past few years that have really allowed us to successfully invest out of state.
Darin: That'd be huge.
Michael: I think the first crucial thing, if you can, is try to find someone that's boots on the ground and you don't necessarily have to bring them on as a general partner. You can find people that are up and coming that are looking to learn from your experience and someone that's in the market that might be able to go drive the property on a bi-weekly or monthly basis, and take videos, take photos for you, talk to the management company, look at the rehab units, see how the work is being done. See if the property is being landscaped properly, if there's garbage around.
And so if you can find someone to partner up with that's boots on the ground, that's instrumental. For instance, like our New Mexico property, there's been a two-week quarantine, I believe ever since COVID started. So if we go into that state, if we fly in, we're stuck there for a couple of weeks.
Darin: Oh, wow.
Michael: So we actually found a lady that's in the same mentorship group as us and she lives in Albuquerque, New Mexico, and she's driving to that property once a month for us. And she's just super excited about it because she can learn from our experience, which has just been phenomenal.
Darin: I haven't had anybody else bring that up, and I think that is such a good opportunity. And again, it's a win-win, because when you get into this space, I know I had it. When I was a passive and I was trying to find my first, every sponsor I had invested in, I was like, Hey, I want to learn, include me in, in as much as you can. And they're all like, yeah, Darin man, I'll help you learn, but then they get bogged down. They're the lead sponsor, they're just trying to implement the business plan. They have to bring a bunch of people on to teach, is not something that they were really had the drive to do. And not only the drive, but they were just busy.
And so then I saw when I took over my property, I had the same thing. I had passive investors say, Hey, Darin, this is my first passive deal. Can you bring me out to meetings? And Can you do this, can you do that? And I didn't, because the same thing, I was like, I'm focused on trying to get the returns and manage the deal.
But in this scenario that you're talking about, it's really a trade off. You're getting something for it because you can't be there. And then the other person is getting something from it because they're like, Hey man, this is what I saw. What do we do? And then you guys all huddle, the three of you, and you come up with a game plan on what to do next, and then that person learns from that. That's fantastic.
Be in Front of Your Management Company
Michael: Exactly. And it has to be win-win for everyone. And I feel like that's what we've put together with the people that we've co-sponsored with or brought on as people with boots on the ground. A couple of other things that we've done for our out-of-state properties is we've installed cameras. So we have cameras in the office, sometimes around the property. So we can see, if there's garbage floating around the property, how the onsite is doing and so on, weekly calls with management, regardless if you're out of state or in state where you're investing. You really need to have a weekly call with your management company.
Once you get a year or two into the property, you should be able to scale that down and maybe do a bi-weekly or monthly eventually if you have that trust. But you need to be in front of that management company overseeing what they're doing. Because they have a lot going on as well. And, if you're not touching base your property can definitely slip quickly.
Darin: That's a huge point. So both you and Dan are big family guys. Family is important to both of you. Have you incorporated the family into the business at all? You mentioned your brother is doing some stuff.
The Key to Investing and Multifamily Success
Michael: So my brother is doing some stuff. My wife's very supportive, not really looking to get into the multifamily space but she'll help us with editing. She used to be a photographer, weddings and portraits. And so she'll help us a lot with our media. And then we've integrated my eight year old as well. So I did a podcast with her.
Darin: Did you really? That's awesome.
Michael: She talked a little bit about her candy machine business and mindset and so on. It was a lot of fun. I brought her to property tours and we were starting a lesson on mindset that Dan actually put together for his son. So we did a lesson yesterday, just trying to get them more I guess, ingrained into the multifamily or into the entrepreneurship business.
Darin: That's so cool. So you said your wife is supportive. I think that can be overlooked many times, even if you're looking to invest passively. It's your first passive deal and the minimum investment ranges, typically 50 grand, some of the larger deals, 75 or a $100,000 minimums. Some of the smaller ones may be 25,000, but most deals that I've seen are 50,000 and up.
And if one or the other spouse is very interested in this business and wanting to do a passive deal, but the other person doesn't spend any time getting comfortable with it. That may be a big hurdle to, Hey honey, or I'm going to wire 50 grand tomorrow into this investment. So having a supportive spouse is key on the general partnership side and also even on the passive side.
The Crucial Support You Need
Michael: I completely agree. Something that I did right off the bat when we got really involved in multifamily is, I brought my wife down to a couple of networking events down in Texas and she really warmed up to the idea. I think she would have been supportive regardless, it's just who she is. But I think if you're a limited partner and your spouse is so-so on the idea of investing, bring them to some networking events, get some podcasts in front of them and let them learn a little bit. Because once they learn about it, most likely they are going to be supportive.
Darin: That's huge.
Michael: It is. It is. And I think, if you're in the general partnership position, having a supportive spouse as far as how much time you're sticking into the business is crucial as well. Darin, you know that when you have a deal under contract, it's go time. You have a lot of time that you need to stick into that deal. And obviously your family can, I don't like to say it, but put in the backseat for a couple of weeks or a month if you need them to. And as long as you have that support there, and you're trying to balance it as best as you can, that can really make life a lot easier.
Darin: That's great. So do you still work in a W2 job or are you a full-time real estate?
Michael: Good question. It's hard to answer that. So I am a full time real estate investor. I would say I put 50 plus hours a week into real estate investing, but I do have the opportunity to still do a little bit of a high net worth insurance sales for the clients that I've serviced over the past. So I still do that a bit as well.
Darin: Well, that is complimentary too, if you're clientele are high net worth individuals, you can talk to them about both opportunities.
Michael: Exactly. Really feeds into one another.
Darin: Yes, that's fantastic. And also, well, we won't go down that path now, but there are advantages of using certain type of insurance products to really be your own bank and use that for real estate deals too. So you can talk about all those things, which is pretty cool.
Michael: Exactly. It's been phenomenal. I've been in the insurance industry for gosh, 12 years or so. Like I had mentioned my mom was in it before myself, so that's what got me into it, but it's been great.
Sources of Passive Investors
Darin: All right. So you may not have the numbers handy, but in the back of your head, you probably have this. You raised $20 million worth of equity. Where did the passive investors come from? So what percentage, family and friends? What percentage personal network? Which I would classify, your insurance contacts and then what percentage from multifamily mentorship groups and going to multifamily oriented type of events?
Michael: Great question. I don't have the exact percentages, but I would say, maybe 30% or so comes from the networking groups that are mentorship groups that we're a part of. And then I would say a good 40 to 50% comes from outside sources and that can be friends, family, family offices, CPA firms, just people that we've met through local meetups or podcast. Just a slew of different efforts that we've put a lot of time and effort into.
Darin: People told me from day one that this business is all about finding deals and finding investors. Finding investors to me, that sounds like we need their money to get into the deal, but I really look at it as, man, I wish somebody was presenting me with these opportunities when I was in another role and I was generating a ton of money.
But my time was tied up with my business or with working for another company. So they're really opportunities, and so presenting the opportunities to more people and getting more people involved but you're always having to get new people involved. And I didn't really understand that until I first started. When I first started, I would talk to some of the more experienced syndicators and I was looking to get in as passives.
A False Notion
Darin: And I thought like, okay, well they're experienced syndicators. They're not going to even want to do business with me because they already have their investor database.
Michael: You're right. That's what you think initially. Yeah.
Darin: It's a false notion because what happens is a lot of people, they pull money out of stock market and now they want to do these real estate deals. And they put their money into a bunch of deals and eventually they get tapped out. Because the deals are five-year business plans. And so they get tapped out and then the syndicator is still doing the next deal. And so they've got to find new investors to get involved.
Michael: Exactly. You're always looking for additional investors to come on. And like you said, really it's an opportunity for both sides. It's an opportunity on our side as a syndicator to bring more capital to the table and to do more deals, but on their side, you can get them a really solid return in a lot of circumstances, a lot better than you might be able to get in the stock market or elsewhere.
Darin: Absolutely. And on that note, one of the things that high net worth individuals look for is, I want to make money on my money. But they also want capital preservation. They want, if I'm going to invest in something, I want to know that it's solid. I want to know that my capital is going to be returned. It's not I'm rolling the dice. And I saw a chart which floored me, because Fannie and Freddie do probably, I don't know, 50% or more of the lending in the large scale multifamily space. And they have the most data available to them than anybody else, because they do the most lending. So they have all the performance of all their properties across the entire country.
A Horrible Time
Darin: And through good markets and bad markets. And through up economies and down economies. And I saw a chart that showed it was either, I want to say it was 90-day delinquency. It was either 60 or 90-day delinquency for Fannie and Freddie. And they showed it for a huge time period, right up to the great recession. And their 90-day delinquency was like 25 basis points. So less than 1%, that's not defaulting on the loan. That's just delinquency. And during the great recession, 2008 to 2012, that was a horrible time, a lot of people lost their homes. A lot of investments went bad. And so I expected that number to jump dramatically and it did jump, but it went up to 90 basis points.
Michael: Wow. So less than 1%.
Darin: Less than 1%. And that was delinquency, not defaults. So I'm like, okay, that shows the power. And I also think that for my own benefit and also for the investors benefit is that, look, if you're investing in a deal where the agencies are providing you with a loan on that deal, they have all that data. And if they approve the loan, at the loan to value that you were presenting in your proforma, in your business plan, or they decide to even give you more proceeds, that to me is another huge comfort. Look, we've got Big Papa. That's looking over our shoulders. They have way more data than we have. And they're not going to write that loan unless they're completely confident that the property can sustain it and will be profitable.
The Biggest Sacrifice for Multifamily Success
Michael: Exactly. They've become a little bit more conservative recently. And so I think, especially now in the times that we're in, if you can get approved, like you said, and get good loan proceeds, they have a lot of confidence in that deal performing.
Darin: What sacrifices did you have to make to get to where you are right now?
Michael: So I would say sacrifices. The biggest one is time. I worked a full-time job probably 45, 50 hours a week and got into real estate and stuck 20, 30, 40 hours a week into that as well for a couple of years before I really laid off my full-time corporate position.
So I would say, time with family, leisure time. It's something I still do to this day is, I'll cut it off at about 5:00 p.m. So that way I have three, four with my family in the evening, we'll put the girls to bed and then I'll go back to work for two, three hours if I need to, and that's not every day that week. But I try to do that three, four or five times a week, just to get ahead of the ball and really progress our business.
Michael: So I think you just cut out some of the things that you don't need. We don't have any TV besides Amazon Prime or whatnot on TV, which we'll watch a movie every week or two, but we cut that out. We cut out a lot of other minor items that we really didn't need in our lives.
A Benefit, Not A Sacrifice
Darin: That's very cool. We have not been able to do that nor do I know if I want to. But when I asked that question to somebody they actually answered it in a cool way. They said they had the same thing as you is that they would work and then spend family time and then stay up at night. But they said, look, I don't look at it as a sacrifice. I looked at it as I'm investing in myself. I'm investing in myself and for the future, in the future of my own development and the wealth of my family and generations to come.
Michael: That is so true. And I think it is really more a benefit than a sacrifice. And I think that plays into financial freedom. What is financial freedom worth to you and how important is it? And in our lives, it was extremely important. We're at the position now where really, if I didn't want to work for the rest of my life, I wouldn't have to. And I just think that's, there's so much value in that.
Darin: Say that again. Say it again.
Michael: If I didn't have to work again, I wouldn't have to, I'd be able to maintain the lifestyle that we're currently living.
Darin: I'm sorry, I'm interrupting, but so many people listening just want to be there.
Michael: Yup. And it's just putting one foot in front of the other, keep grinding, keep putting in the time, keep educating yourself and you can get there. Anyone can do it.
Darin: Why keep going, if you are already there?
Michael: So a couple of different reasons, we're trying to teach our kids to really become entrepreneurs and push as much as they can throughout life, but at the same time, have a great life and enjoy it. Truthfully, I really enjoy putting together deals. So I enjoy acquiring deals. I enjoy trying to kick off really good returns to our investors. So it's really at times, obviously it's a job. It can be tough, but at the same time, it's very, very enjoyable.
Darin: I think what I see with people that have said what you just said, they don't have to work, but they continue to go after deals and they enjoy it. I think of a word as impact. Look, if you go off and you just sit on the beach or you go out on the lake with your family and you're just on the lake every day and you're not doing this business anymore. Well, you're going to be impacting way, way, way less people.
So by staying in the business and getting yourself out there and pushing yourself, getting uncomfortable, trying to do the next thing, you are putting yourself in a position to positively impact more people.
You Can Make an Impact
Michael: Exactly. And it's phenomenal how many people you can impact. You can impact other investors, help them along the way. You can impact your investors that passively invest with you. And I think most importantly, you can impact the tenants that live at your properties.
You can do upgrades to the property, make the property more appealing for where they live, put in place certain community events in the community that you own and really build that sense of community. For instance, when Christmas and Thanksgiving kicked around, we did free turkeys at a lot of our properties or pies. And it's just amazing at how much appreciation those tenants have for just those simple things. So like you said, you can really impact a lot of people, if you keep going and keep striving to do more.
Darin: I'm glad you brought that up because most of the conversation typically is surrounded by investors and returns for investors. And one of the side benefits is really is, you're impacting all the tenants on the property. I remember walking across the parking lot and having a tenant stop me and be like, thank you. I'm like, why? They're like, I've been living here for 12 years and the paint looks so much better and all new fencing, I just feel like I live in a nicer place now. And it put a smile on their face. Because I'm a business guy, I think of it more in terms of the numbers and the returns. And so that was like, Holy cow, what we're doing is impacting all the lives of the people that live there.
Michael: It really is. And we had a similar situation that first property, or first syndication that we acquired in Wisconsin that had a ton of deferred maintenance. About six months into ownership, we got a letter from one of the tenants saying that she had went to the college that was nearby. She went to that college, but she went to the facility, to the admin department and just made a comment to them how we've upgraded the property, how she actually feels safe on the property. Before she didn't feel safe living on the property, now, she just really enjoyed what we did. And like you said, it just brings a smile to your face. It's phenomenal.
Darin: That's awesome. So, Mike, what do you do outside of work for fun? Are you still wakeskating?
Michael: We do a lot of wakesurfing, so surfing behind the boat, that's a huge, huge passion of ours. Getting the girls involved in that, we wakeboard, we snowboard, a little bit of skateboarding with my daughters and we love to travel. We're traveling all the time and the great thing about having a business partner like I do is, you can cover each other when you're traveling or when you're checked out. And that really allows you to spend that quality time with your family and actually enjoy getting away, whereas if you're a single man show that can be tough to do.
Connect With Mike
Darin: Listeners, he's not just saying this. I see all of his posts. He's out there, man. And he's out there before the kids go to school, he's out on the lake. He's out there when it's cold, he's out on the lake. He's out skiing. And he's an outdoors guy and he's brought his family out there too. So very cool, but look, your kids are very fortunate to be growing up with a dad and a mom who not only are teaching them about business, but are getting them out there and doing fun stuff in the world and in life.
Michael: Thank you.
Darin: I applaud you.
Michael: Appreciate that.
Darin: Absolutely. So if listeners want to reach out to you, what's the best way for them to get a hold of you?
Michael: So I'll give you a couple of ways. First, you can visit our website, it's granitetowersequitygroup.com, or you can certainly email me directly. My email is firstname.lastname@example.org. And of course you can check out our podcast as well. It's called The Keeping It Real-Estate Show, real estate has a dash in between it, it's on iTunes, Stitcher, Spotify. We have a lot of fun with it.
Darin: Listeners. These guys are just good guys to know. I really like them as individuals and they have killed it, in the last three years, they just keep on adding to it and pushing the envelope. So I hope you enjoyed that one. Until next week, signing off.