Apartment Building Investing with Michael Blank Podcast

Wealth is code for freedom.

If you want to be a millionaire, it’s probably because you want control over your time. You want the autonomy to make your days your own and spend them with the people you love. Today’s guest chose real estate as his path to freedom, spending less than he earned and investing the excess in apartment buildings. Maybe you are interested in doing following a similar path, but something is holding you back… 

Paul Morris is the co-author of Wealth Can’t Wait, a New York Times bestseller that identifies the seven traps that keep people from building wealth and equips readers with a comprehensive set of skills to achieve financial freedom. An active and consistent investor, he has grown his real estate portfolio to more than 700 rental units and 150,000 square feet of retail commercial space, and Paul was named among the 200 Most Powerful People in Residential Real Estate in 2013 and 2014.

Prior to working full-time in real estate, Paul enjoyed a successful legal career, working as an associate at a major international law firm and as Senior Counsel with the US Department of Justice. He has a degree in economics, a master’s in management from Oxford, and a JD from Cornell Law School. Today Paul shares his early experience in real estate, investing in a duplex while he was still in school. He speaks to the kinds of investments he prefers, the pros and cons of working with a partner, and how to get started in real estate with little to no money. Listen in to understand the three rules for investing that have helped Paul avoid losing money, as well as the seven wealth traps that keep people ‘stuck on the sidelines.’ Find out what’s holding you back and get on the path to health, wealth and freedom!

Key Takeaways

 [1:55] How Paul got into real estate

  • Working class dad invested in real estate
  • Provided income without working
  • Bought duplex in 1990 (Ugly Duckling)
  • Always worked with partner, gives courage

[4:59] The pros and cons of having a partner

  • Paul recommends working without partner
  • Choose partners based on brainpower, integrity
  • Clarify deal points, exit strategy in writing

[8:11] The kinds of investments Paul favors

  • Prefers buy and hold strategy
  • Buy and flip too risky

 [11:03] Paul’s philosophy of wealth as code for freedom

  • Ask yourself why you want to build wealth
  • Money affords power to choose, create
  • Allows to pursue greater goals
  • Love, health and time

[15:57] The 7 Wealth Traps

  1. Staying in a comfortable job
  2. Avoiding risk
  3. Viewing wealth negatively
  4. Giving up (not staying the course)
  5. Holding on to toxic friendships, the Weak Social Circle
  6. Victimizing yourself
  7. Thinking you know it all

[26:40] How to start investing in real estate with little or no money

  • Buy a home, live with roommates to cover mortgage
  • Use other people’s money

[29:32] Paul’s 3 rules for investing to avoid losing money

  1. Buy where you know
  2. Buy value-add (worst house in great/gentrifying neighborhood)
  3. Buy cashflow

[33:12] What Paul is excited about

  • Providing great, safe units in LA neighborhoods ‘turning a corner’
  • Traveling with daughter, girlfriend
  • Becoming better table tennis player

[34:04] Paul’s perfect day

  • Freedom to dress casually, work from home/coffee shop
  • Finished in time to pick up daughter from school bus
  • Hot yoga class with girlfriend

Connect with Paul Morris

morrisx.com

Paul on LinkedIn

Resources

Wealth Can’t Wait: Avoid the 7 Wealth Traps, Implement the & Business Pillars, and Complete a Life Audit Today! By David Osborn and Paul Morris

The Millionaire Next Door: The Surprising Secrets of America’s Wealthy by Thomas J. Stanley and William D. Danko

“7 Ways You’re Hurting Your Chances at Building Wealth, According to 2 Self-Made Millionaires” in Business Insider

Interview with Lewis Howes and Grant Cardone

“7 Strategies That Will Help You Build More Wealth, According to 2 Self-Made Millionaires” in Business Insider

“Are You on Track to be Wealthy? Two Successful Entrepreneurs Share the Most Important Skill to Have” in Forbes

“5 Timely Investments You Should Consider This Summer” in Forbes

Coaching with Michael

Review the Podcast on iTunes

Direct download: MB_082__Wealth_Cant_Wait__With_Paul_Morris.mp3
Category:Commercial Real Estate -- posted at: 7:09pm EDT

There’s more than one way to skin a cat, and though we spend a lot of time on the podcast addressing aspiring syndicators, there are other routes to financial freedom via real estate investing. High net worth individuals who are interested in getting a little skin in the multifamily game should consider the benefits of passive investing. Regardless of approach, the end game of apartment building investing remains the same: Permanently replace your income and get out of the rat race for good!

Dr. Tom Black (also known as The Passive Income Physician) was working as a busy emergency doctor in a high-volume trauma center. Yes, he was making good money, but he was working insane hours and he rarely saw his family. Tom was financially secure, but far from financially free—and he was fed up with sacrificing his time for money. Already enamored by the cashflow potential of real estate, Tom purchased several single-family homes and even tried his hand at commercial real estate before stumbling into his first multifamily deal, a 305-unit in Arlington, two years ago.

Tom’s brother, Tim Black, enjoyed a 32-year career in entertainment, retiring as the COO of a large hospitality company in March of 2016 when the business was sold to private equity. Eventually, his brother convinced him that multifamily was the best means to making your money work for you, and together they started Napali Capital. The firm has grown quickly, and the Blacks currently have 1,000-plus units in assets under management. Today Tom and Tim explain why multifamily is the best choice for passive investors, how to assess the risk profile of a multifamily deal, and the characteristics to look for in a potential syndicator. Listen and learn the returns a passive investor can expect from multifamily, the skill set necessary to become a successful investor, and the staggering tax benefits afforded by the platform.

Key Takeaways

[2:41] What prompted Tom’s involvement in real estate

  • Poor student in HS, gained confidence in Navy
  • Top of class in medical school
  • Couldn’t sell house after finishing residency
  • Rented to incoming resident
  • Enamored with cashflow
  • Busy doctor in high-volume trauma center
  • Making good money, but sacrificing too much time
  • Bought land in east Texas for commercial development
  • Resigned from practice and moved to pursue real estate

[5:51] When Tom identified multifamily as a ‘way out’

  • Bought foreclosures in Houston during downturn
  • Single-family was hard work
  • Studying economies of scale
  • 16-unit commercial development offered buffer in budget
  • Multifamily could take him to next level

[7:23] Tom’s shift from single family to commercial real estate

  • Cashflow limited to specific markets, required travel
  • Single-family very competitive
  • Saw vacant land, wanted to be ‘master of own destiny’

 [8:19] Why Tom wanted out of full-time medicine

  • Concept of security vs. freedom
  • Medical practice not sustainable
  • Doctors in their 70’s still working

[9:25] Tom’s first multifamily deal

  • Moved to Dallas for medical directorship
  • Attended real estate investing lectures
  • Stumbled onto 305-unit off-the-market deal in Arlington

[10:29] The difference between commercial development and multifamily

  • Developing is rough, many working parts
  • Multifamily offers formula for success, mitigated risk
  • Evidence-based reasoning appealed to Tom as doctor

[13:31] Tom’s advice around quitting your day job

  • He continues to work in medicine one day/week
  • Don’t be in a hurry to quit until achieve cashflow

[14:34] How Tim came to work with his brother

  • Poor student, but excelled at leadership
  • 32-year career in hospitality/entertainment
  • Retired in March 2016 (COO of large hospitality company)
  • Started Napali Capital together, capitalizing on each other’s strengths
  • Firm has grown rapidly, responsibly
  • Education is foundation of their business

[16:54] Why multifamily is the best choice for passive investors

  • Money works for you (cashflow, appreciation, depreciation, amortization)
  • Lack of affordable housing, cultural trend to downsize
  • Multifamily is stable and tangible

[19:22] How to assess the risk profile of a multifamily deal

  • Depends on syndicator, underwriter
  • Napali Capital is very risk averse (2% raises year-over-year)
  • Tim & Tom don’t offer huge returns (9% cash-on-cash)

[20:41] The returns a passive investor can expect in multifamily

  • 9% cash-on-cash
  • 90-100% return in five years
  • Napali always exceeds projections
  • 130% in 24 months on 305-unit

[22:22] The skill set necessary for a passive investor

  • Ability to read P&L
  • Knowledge of underwriting
  • Understanding of costs (rent rates, insurance)
  • Consider a mentor

[23:58] The Black’s advice around choosing a syndicator

  • Look for trust, integrity
  • Communication is key
  • Transparency (share financials)
  • Invest alongside you

[25:54] How to pacify the passive investor’s fear around risk

  • Trust the track record, pedigree of the syndication team
  • Stock market presents much greater risk

[27:06] The staggering tax benefits of multifamily

  • Stock market, mutual funds require payment of capital gains tax
  • With depreciation, taxed income is either substantially less or zero

[30:10] Tom’s final tips for aspiring multifamily investors

  • Get off the sidelines
  • Dip your toe in the water (crowdfunding)
  • Get educated

[31:09] What the Blacks are excited about

  • Growth of firm
  • Dynamic of relationship

Connect with Tim & Tom Black

Napali Capital

Email Tim: tim@napalicap.com

Email Tom: thomas@napalicap.com

Resources

The Passive Income Physician Blog

The Passive Income Physician: Surviving a Career Crisis by Expanding Net Worth by Thomas Black MD

Invest with Michael

Financial Freedom Summit Wait List

Free eBook: The Secret to Raising Money to Buy Your First Apartment Building


Your chances of doing even a 60-unit multifamily deal on your own—with no track record—are very slim. Even with the capital and the knowledge, if you are lacking in the reputation department, brokers will have no confidence in your ability to close. Enter Nighthawk Equity, my partnership with Mark Kenney. You bring the deals, and Nighthawk does the rest.  

Mark has been investing in real estate since he graduated from Michigan State 23 years ago, partnering with his twin brother to buy and rehab a $36K duplex. He continued to pursue small deals and flips during his career as a CPA and consultant for KPMD. Eventually, he started his own IT company. The business thrived, but 80-hour weeks and extensive travel translated to suffering in his personal life. With his marriage in trouble, Mark made the decision to take a huge pay cut, hand off the big projects to someone else, and pursue real estate investing full-time.

With the support of his family, Mark spent nearly a year securing his first big multifamily deal, a 64-unit building in Dallas. Adhering to the ‘law of the first deal,’ his second and third deals followed right away. In four years, Mark has purchased 2,000 units and raised tens of millions in capital. Today, Mark shares the process of working with Nighthawk Equity to secure a deal, explaining how we came to join forces, the response to Nighthawk, and the right time to get Nighthawk involved in your deal. Listen in to understand the mission of Nighthawk Equity, and how the firm also supports passive investors looking for a solid ROI.

Key Takeaways

 [2:36] How Mark got started with real estate

  • Didn’t have much money growing up
  • Knew real estate was tangible
  • Bought $36K duplex right out of college (with brother)
  • Used money saved over years for down payment
  • Full rehab
  • Continued to buy, rehab small multifamily properties

[5:13] Mark’s decision to become a full-time real estate investor

  • Worked as CPA, then consultant for KPMD
  • Founded successful IT company
  • Working 80 hours/week, projects all over world
  • Personal life and health falling apart
  • Decided to quit four years ago
  • Took huge pay cut, turned projects over

[7:16] Mark’s first syndicated multifamily deal (64 units)

  • Took nearly a year to secure deal (build relationships, team)
  • Raised $1M with one general partner, 14 other investors

 [9:44] The deals that followed in rapid succession after the first

  • 208-unit within two months
  • 255-unit, 454-unit and 344-unit within short period after that
  • Found partner with track record, relationships in Atlanta
  • 800 units in Atlanta this year alone
  • Raising money easier as well ($2.8M, $6.2M, $4M)

[11:30] The importance of surrounding yourself with the right people

  • Mark’s dad talked him out of buying early on
  • Risk involved in anything you do
  • Listen to wrong people, never do deal

[12:46] Michael and Mark’s partnership

  • Joined forces to scale transactional side of business
  • Chances of doing deal on your own very slim
  • Leverage their track record, reputation as partners

[14:51] The response to Nighthawk Equity

  • Looking for deals as syndicators
  • ‘Floodgates opened’ after Episode 74
  • Deals in OKC, Dallas, Memphis and Houston
  • Nighthawk diminishes fear of raising capital

[17:47] The process of working with Mark and Michael

  • Do initial underwriting, receive feedback
  • Coach qualifies (realities of assumptions)
  • Patrick reviews deal
  • Strong likelihood deal will work before gets to Mark

[18:52] The right time to get Nighthawk involved

  • After deal analyzed, researched properly
  • After pre-negotiation (verbal agreement, numbers discussed)
  • Before LOI
  • Before contract signed

[20:44] The future of Nighthawk

  • Help new investors alter mindset (i.e.: 69- to 321-unit in five months)
  • Continue to pursue joint ventures with students
  • Carry on mission to help others gain financial freedom

[24:44] Mark’s pitch to passive investors re: multifamily

  • Meets basic need, never going away
  • Incredible ROI
  • Performed well during recession (.4% default rate)
  • Tax benefits (pay little/nothing due to depreciation)

Connect with Mark Kenney

Think Multifamily

Email: mark@thinkmultifamily.com

Nighthawk Equity 

Resources

Podcast Episode 74

Partner with Michael

Invest with Michael

Financial Freedom Summit Wait List

Free eBook: The Secret to Raising Money to Buy Your First Apartment Building

Review the Podcast on iTunes


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