Michael Blank on The Blueprint to Quitting Your Job with Real Estate – EP 028

Michael Blank on The Blueprint to Quitting Your Job with Real Estate

Today, I’m talking with Michael Blank — the leading authority on apartment building investing in the United States.

Through his investment company, Nighthawk Equity, he controls over $90 million in performing multifamily assets and has raised over $21 million. 

In addition to his own investing activities, his unique training programs have helped his students purchase over 7,600 units valued at over $337 million.

He’s also the author of the best-selling book, Financial Freedom With Real Estate Investing and host of the popular Apartment Building Investing podcast.

Not only has Michael dedicated his life to showing people how to achieve financial freedom through real estate, but he believes anyone can do it within a 3-5 year period, regardless of experience or capital. 

In this conversation, Michael shares his incredible story of nearly losing everything before winning in the world of real estate investing. You’ll also learn all about multifamily apartments, the power of real estate syndications, finding and assessing off-market deals, and so much more. 

If you want to create passive income with real estate so you can live a life of significance and purpose, this episode is for you!

Key Takeaways with Michael Blank

  • Why financial freedom almost always leads people back to serving others.
  • How Michael quit his job without notice to pursue a life of financial freedom and the mistakes he made along the way.
  • How real estate investing in syndication allows buyers to purchase relatively safe assets with a minimum of risk.
  • Why Michael has the same problems with stock market investing that I do–and why it’s so easy to think you’re earning back more than you actually are.
  • How private equity investing, alongside real estate deductions, make it possible to achieve pure profit.
  • The value of building relationships with brokers instead of chasing publicly listed deals.
  • How real estate investing lowers the barrier to entry for so many entrepreneurs.
  • What Michael is doing to build a legacy.

Financial Freedom with Real Estate Investing

Michael Blank Tweetables

“It's very difficult to live a life of purpose and significance when you're working 55 hours a week.” - Michael Blank Click To Tweet “It's not crazy to invest in the stock market. It's crazy to invest the majority or all of your money in the stock market.” - Justin Donald Click To Tweet

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Connect with Justin Donald

Get the Lifestyle Investor Book!

To get access to The Lifestyle Investor: The 10 Commandments of Cashflow Investing for Passive Income and Financial Freedom visit JustinDonald.com/book

Read the Full Transcript with Michael Blank

 

Justin Donald: Alright, well, Michael, it is great having you on the show, it’s great to reconnect. And additionally, you couldn’t be wearing a better shirt. You’re wearing a shirt that says freedom, I just love it. So, how are you today? And tell me about your shirt.

 

Michael Blank: Yeah, this is our mission. It’s a little bit similar to yours. It’s financial freedom, really, is what we’re trying to create. And the name of our book is called Financial Freedom with Real Estate, but it’s probably not in the way that people think, which is typically, the single-family house investing. And I’ve had the pleasure of interviewing in our show. So, I know that our missions are actually aligned where we do talk about creating a lifestyle where we control our time and we use various mechanisms to do that, but it’s not the end itself as a means to an end, which opens us up to living a life of significance and purpose as I found in talking to people, even for myself, it’s very difficult to live a life of purpose and significance when you’re working 55 hours a week and you really have to make a living to provide for your family, which we accept as it is, but just leaves very little room for anything else.

 

So when I have conversations with people about, hey, man, you’ve got to figure out your purpose, man. You live a life of passion, man. I don’t even know what connection that is. I don’t know, some surfer dude. They’re like, what are you talking about? I work 50, 60 hours a week. Sometimes I’m on call. I come home, put the kids to bed, and then fall asleep from the TV and get up and do it again the next day. Like you’re so out of touch, Michael, right? And I was like, oh, my gosh. Versus people who become financially free, after going through a momentary transition of confusion where they’re like, oh my gosh, I’ve lost my identity because it was wrapped up in my job. And they get over that and they start asking these questions, well, why am I put on this green earth? Like, is this all there is to life? Like, what is my purpose?

 

And they start asking these questions and they start filling the vacuum in their brain with answers. And they almost always revolve around serving others in some way. And that’s very powerful to me. That means if I can help one person become financially free and that person can now affect a hundred, maybe a thousand people, that’s leverage right there. And so, that’s why I wear the shirt.

 

Justin Donald: I love it. I love it. And you know what? Our missions are so aligned, the language that we use is so aligned. And I just love all the things that you’re doing and building. I definitely want to talk about your book here today, because your book is, I mean, you just speak the same message and it’s a powerful message. So, let’s definitely spend some time talking about it, but I’d love to kind of hear your story because you have an incredible story, kind of you thought you found the way to achieve financial freedom, but it ended up being a total decoy, you ended up crashing and burning, but then you were able to figure it out. You were able to stay, you were able to persevere and stay disciplined to continuing to do the things, to buy assets, produce income. I’d love to hear the story because now, you are a titan in the world of real estate, but it wasn’t always the case.

 

Michael Blank: It wasn’t always the case. And you talk in your book about living intentionally, and I did not live life intentionally. I started to slowly wake up in probably my early 30s. I mean, that’s where I started, I was looking around, took the head out of my sand, and started looking around. And that’s also right around that time when I picked up the Rich Dad Poor Dad book, which subsequently did in fact, ruined my life because of my big idea. Also, at the time, I had a bunch of money, you must know because I have a software background. In the late 90s, I got myself into a software startup in Northern Virginia, and it was a home run. We were in the right place, the right time, went public in March of 2000, and put a bunch of money in my pocket.

 

So, around 2005 is when I picked up the book and I was like, oh, my gosh, I’m such an idiot. It doesn’t matter how much money you have in the bank or your stock market or whatever, how much passive income you have. And at that point, I had like nothing. It was like interest and dividends. So, I felt like such a– oh, you can’t say retard anymore, such an idiot for not having this. And after about two to three months, I came home and announced to my wife that I had quit my job. And she’s like, what? Should you have perhaps consulted with me on this? No, we got plenty of money. Who cares? I’ll figure it out.

 

So, I figured it out and I took a bunch of seminars, some stocks. I actually traded options for a little while, some iron condors, that was fun. I flipped a house, I flipped two houses actually, that was kind of fun. I took an apartment building boot camp and I’m sure I took some other class, but my big idea for a cash flow business like Kiyosaki talks about was restaurants because I was surrounded by some franchisees and they’re like, oh, yeah, you put your money in, you hire a guy to run it all, and you sit back and you count your passive income.

 

So, I was pursuing this financial freedom thing. And now, in hindsight, of course, I can kind of consider myself a crash test dummy of financial freedom because some things worked, but it wasn’t the lifestyle that you talk about in your book, some things completely did not work. This particular pursuit for restaurants did not work at all. I’ve subsequently lost my IPO millions, added a couple of hundred thousand dollars of debt on top of it, had my credit cards maxed out, almost lost my house. And then I kind of dug myself out of the hole with house flipping because I did that, I got this close Justin to going back to my job. I literally dusted off my old resume, which was like seven, at this point, eight years old. And I was like, maybe, I need to bring money in.

 

And I decided instead to flip houses, and that’s when I learned how to raise money because all my capital was deployed/losing at the same time. And so, I dug myself out of this with single-family house flipping, and I was actually pretty successful. It was pretty cool. So, I had this bucket, was leaking water down below and I’m pouring stuff on the top with the income. I was treading water. I was working my butt off and we’re earning no money, whatsoever. It was the absolute worst time of my entire life.

 

Then, I sort of accidentally got into an apartment building and that was a nightmare. And after about 12 months, I stabilized that, and I kind of forgot about it, you know? And meanwhile, it’s sending me like a thousand bucks a month. And I was like, oh, that’s pretty cool then flipping houses, flipping houses. And after a while, again, level awareness rising a little higher than maybe before, I was like, wait a minute, I’m working my tail off here, flipping houses. And as soon as I sell one, the money stops flowing. Meanwhile, I got this boring apartment building. Maybe I should do more of that and less of this. And that’s kind of when I started pivoting and the light bulb went off. And that’s also when I started blogging around raising money in syndication and apartment building as an asset class. And people were really interested in learning more about that. And so, here we are, one of the leading authorities on teaching people how to do syndications, and it’s been really exciting.

 

Justin Donald: That’s so awesome. I love your story. And in fact, it reminds me a lot of James Altucher’s story as well, because he made millions and then lost everything, found himself in debt. And I mean your situation, I just feel like most people throw in the towel. So, why didn’t you? What made you say, you know what? I mean, you could have gone back to a job, you said no. And if you really had to, you would have, but at that point in time, your wife is probably like, honey, get a job like you need to provide. So, what made you think, hey, I can figure this out a different way?

 

Michael Blank: She was surprisingly calm and supportive in a time where I was the exact opposite of those things, but to answer your question, it was through a variety of conversations I had with God about this subject. I was like, hey, you made me go on that limb, quit my job, go out on the entrepreneurial ledge, jump off the deep end. You made me do that and I did it. And I refuse to believe that the lesson in life is to crawl back into the hole that you came from. Like, this is a philosophical question. Therefore, you’re going to have to get me out of it. Like this is the conversation I’m having with God. You have to get me out of it. I did what you told me to do. Okay, maybe I screwed it up, and maybe the recession had something to do with it, but at the end of the day, you have to get me out of it. What do you want me to do?

 

And I got a clear impression, it was not to go get a job again, it was something different. It was actually more insane than that. It was basically, started blogging, started sharing your story of success and failure. And I was like, another discussion with God, okay, I get it, but did you know it’s a really bad business plan? I’m going to show you a spreadsheet that I’ve created because I love spreadsheets of how bad of a plan this is because a blog is not going to generate money for at least three years. And that’s if I’m lucky, that’s if I’m having our content every week, I’m growing my lesson, then I managed to come up with something or something to sell, and then I did it anyway.

 

And I’m pretty good, Justin, but I’m not that good. Things just kind of materialized after that, that came about after that. I started getting picked up by the bigger pockets. I started attracting deals and capital from that point on. And it was amazing how quickly that thing showed results, but it was really from that. And I started asking the question, what do you want me to learn, because it was kind of one crap storm after another? And I came to the conclusion that was not the lesson. It was something else, but it was not the lesson to go get a job.

 

Justin Donald: Yeah. Wow, that is incredible. And I love that you were still enough to be able to listen, to listen for God’s voice to speak to you. I feel like most people, they’re so busy, they can’t do that, they don’t hear it. And I’m so guilty of that, where I’m just at points in time in my life, I’ve been go, go, go, or even when I have bought my time back, sometimes I just have so many things lined up that I want to do, that it’s go, go, go, it’s just all things that I want to do and it’s exciting, but I think it’s really cool that you were able to listen and take the time to just be.

 

Michael Blank: Yeah, but this is an acquired skill. I mean, I’m a little bit maybe like you, I’m a kind of go, go, go person. Being still, I associate with unproductivity, okay, because I felt this was a weakness of mine and one of the things I did is I actually started hunting like, I don’t know, ten years ago, because when you’re sitting in a tree stand, this was bow hunting. When you’re sitting in a tree stand, you have to be still, you can’t go anywhere, and it’s forced me to be still. And so I was trying to put crutches in place to help me be still because I felt like I needed it, I sensed it. I was like, man, I can’t keep drifting through life like this. I got to figure it out and I got to create clarity. Your first commandment is getting clarity about the lifestyle that you want and being what you don’t want and what you do want, and I sucked at that. And so, I really worked on that.

 

And like I said, I normally dismissed that first commandment that you have in your book because I didn’t think it’s very productive, but here is a result of lack of clarity coming from all that stuff. So, that’s what I was trying to. And so, I was not born with this trait. Some people just come out of the womb doing yoga. Okay, this is not me. I came out of the room running. I’m just running, I don’t know where else, run that wall, I don’t care. I’ll figure it out once I hit it.

 

Justin Donald: Well, that is an incredible story, and I love hearing how it all kind of played out. And what’s need is you are doing better today than you ever would have with that pizza franchise and you now have an asset, many assets that are growing in value while you’re getting cash flow, and that’s incredible. And I’d love to talk a little bit about your syndications because I know that you raise money. And for people that don’t know what the syndication is, I’d love for you to elaborate on that. And I’d love for you to elaborate on, you said you are one of the authorities in the education space for real estate investing in syndications. I’d love to learn more about that.

 

Michael Blank: Yeah. So, there are two things I love. I love the art of the deal and I love teaching. And I was able to combine it now with this thing. And once I recognize the power of multifamily real estate, specifically how it might help someone quit their job, and not in five or ten years, but in one to two years, once I saw that happening, once I got into the educational space, we help people do it. I was amazed, and not just to our own students, but other people that didn’t come through or either didn’t get any education at all or grew up somewhere else, it was always the same thing. Within one to two years of when they decided that they would want to shift to multifamily, either from not doing anything or from typically a single-family house, from that point forward there, they’re one to two years away from quitting a job. And that was over and over and over again.

 

And I’ve done so many shenanigans in my life that I thought that was pretty amazing. So, I study that further and talk to more people on my podcast in my book. And it was the same thing over and over again. That’s when I became very excited about the vehicle. At first, I was very excited about the active investors. I know you got started at active investing as well. I was very excited about the active because I’m an entrepreneur. Like, I just need to go out and do stuff. I’m not much of a passive investor. That’s too passive for me, but at the time, I didn’t have any money to invest anyway, so I had no choice but to get into active investing.

 

So, at first, it was directed at kind of the active investing on the educational side. And I didn’t realize that we’re actually serving people on the syndication side. Now, syndication is just an investment vehicle where people can invest in a very large apartment complex and maybe, invest only $50,000 or $100,000, have a piece of that that equity, and have limited downside, meaning because they’re limited partners, their exposure is, the worst they can do is lose the money that they invested, which sounds pretty bad, but as you know, as a general partner, someone who’s signing on leases and guaranteeing things, if there’s, for example, a lawsuit, you’re loss would go far beyond the money invested. And so, because the laws protect limited partners in this way, they’re able to invest with limited downside and they’re able to invest in an asset class that performs extraordinarily well in recessions, which is why you got in mobile home parks, and that’s why I got into multifamily because of how it’s performing the last two recessions and it generates cash flow, which stocks generally do not do and it has extraordinary tax benefits, which stocks generally don’t have.

 

Oil has that. So, we got much more excited around the actual education around the passive side, because the passive investor wants the same thing that the active investor wants, they want to be a lifestyle investor. They want to control their time. They want financial freedom. They just have enough money to invest. And so, they’re not necessarily going to be the active entrepreneur who wants to find deals. No, they don’t have to do that, because they have the money to invest, they’re high-income earners, and they would otherwise invest in the stock market. So, we serve our passive investors by educating around syndications, number one, but the education stops at one point just because at one point, it was like, okay, I get it, okay, I know how to invest my IRA. Okay, I know the steps how to close. Now, give me a freaking deal, okay. So, now, we have to serve our investors with the consistent deal flow as well. So, having a good deal every once a quarter or so is serving our passive investors who are building up that passive income stream.

 

Justin Donald: Now, you and I, we share a similar philosophy where our outlook on public equities, the stock market, isn’t as favorable as a lot of people. And to me, I think it’s just crazy that most people put all of their money into one vehicle of the stock market, which can crash at any time. It could crash the day that you decide to retire. So, to me, it’s not crazy to invest in the stock market. It’s crazy to invest the majority or all of your money in the stock market, especially in a way where there’s no utility, it’s tied up. And I know you share that sentiment as well, but I’d love for you to elaborate maybe on why you feel that way and why you prefer your private equities. Why do you like private investments and things that are not publicly traded over the stock market?

 

Michael Blank: Yeah, I mean, one thing you know about me, my secret power, my superpower spreadsheets, I love it. Actually, I find this relaxing. Some people swipe Facebook, I whip out the Excel spreadsheets. So, I actually did and analyze the stock market. And over 20 years, the average annual return was like 7.2%, this is with all the ups and downs in the stock market. And once you take out the fees, the fees which typically range from 0.1 to 0.5, sometimes higher, if you apply capital gains to that, and then you apply inflation to that, because inflation is 2.2%, you apply all those things to the spreadsheet. On the actual average, the end return is like 4.2%. That’s insane to me, okay. And so, the problem I have with is, number one, the returns suck, there’s no cash flow, and the volatility is extraordinary, the biggest frustration that investors have.

 

And you just mentioned it, is they can’t reliably make financial plans for their retirement, for their kids’ education, because if there happens to be a recession the day before the retirement or before their kids go to college, they’re hosed. And this is very frustrating. They’re like, my gosh, I know it always goes up over the long term, but the timing is important of these things. And this frustrates investors. And they’re like, is there nothing better out there? Because 99% of the stock market investors, they handed over to their advisor and they say, here, put it in these funds and I’m sure you’ll take care of me, right? I have much greater respect and I’m not pooh-poohing the stock market in its entirety.

 

There are people who are more like Warren Buffett, who invest in specific stocks because they research them and they move them around and they’re long-term fundamental investors. I have great respect for those people. That’s fundamental investing, kind of like investing in mobile home parks is, but the majority of people do not do that, they just hand their hundreds of thousand dollars over to their financial advisor and they assume that they know more than they do about investing and that they’ll take care of them. And none of those things are true.

 

And so, these investors are scratching your head, going, is there nothing else? And the answer is, there is something else. These are private placements, private equity like you’re talking about, and they’re in different categories and different asset classes. Obviously, mobile home parks, self-storage, multifamily, these are kinds of investments that are not publicly traded, they’re not publicly available unless you’re in the game yourself. And so, these syndications open the world up to investing in asset classes you would otherwise not have any access to, not even like IPOs, for example, you don’t qualify for those unless you have a high net worth, for example. So, you don’t even see the IPOs. Syndications, you can invest with a minimum of $50,000. And you can use your IRA, and that opens the world up to a lot of people who have money in their IRAs or money in the stock market.

 

Justin Donald: Yeah, that takes a vehicle like an IRA or any of your qualified plans that really kind of strip you of utility, right? And if you can self-direct those funds into something that helps diversify away from all of your money in the stock market, I think that’s a good thing. And I think you are actually really generous with the fees that exist. I mean, you said you were under 1%, and I would say that in most cases, for most people, if you’ve never check this out, check this out because most of the time, I believe you’re actually paying 1% to 2%, and in some cases, it’s high as 3%, so that 4.2%, maybe 3.2% or 2.2%. So, like you, Michael, I’ve run this calculation myself. I know what I was really earning and it was not what was shared. It was not what was always told or broadcasted was the average rate of return, not the actual rate of return. And it makes you, it manipulates you to think that you’re earning more than you really are, but when you run just the math, you’ll be surprised, shocked, dare I say, at the results. So, I think it’s great that you went through the numbers to do that.

 

And on the private side, you do have real estate deductions that you can take. And in many cases, those deductions outweigh the profits that you make. So, you can get pure profit and not have to pay the taxes on it, legally. And in many cases, you have big investments where you can do an accelerated depreciation, and you can speak to this more because you guys probably utilize this, but that’s where you can kind of fast forward a ton of depreciation into a year where maybe you’re going to have a large income year. This is something that I do in my own portfolio, and I think it’s great. I also like that you have cash flow, you’ve got returns that to me, are more, like they’re still projected returns, but I just think they match up way more of the time than in the stock market. Stock market, you can say that you’re going to earn 8% on average for the long haul, I mean, that’s not taking into consideration all these fees and taxes and inflation.

 

And by the way, you said 2.2%, which is kind of the talking head, say that, based on the fact that we’ve created over 50% of the money in circulation today, in the last year, I mean, it’s probably closer to like 5%, maybe even 6%. I mean, I just don’t believe any of the talking heads that say it’s only 1% or 2% or 3%. There’s no…

 

Michael Blank: Well, we’ll see with the numbers over 2021, but just anecdotally, the way that prices are going up across the board and different things, there’s no way it’s 2.2%, I think we are in an inflationary wave, but you know what? I love it because I ran a spreadsheet on this also just because if inflation goes up by 5%, guess what? Your rents are going up by 5% and your expenses are also going up 5%, but there’s an income gap that widens over time, it’s not linear. So, a 5% inflation implied to both the top and the bottom line creates a widening income gap or net operating income, which, of course, increases the value of the property.

 

So, while this is happening, I don’t care, 5% or 10%, 20%, I don’t care. Our rents are going to go up, which means our cash flow is going to go up and our valuation is going to go up, which means the returns are going to go up but adjusted for inflation, they’re going to be roughly what we projected before the inflation hit. And so, there’s no way, again, that in the stock market, you’d have to have a 15% average annual return, which is never in history happened. And inflation, when inflation does hit, it’s going to crash the market. People go, oh, my gosh, inflation? You mean my money is worth less now than I had before? That’s not good, you know? And so, inflation for real estate is fantastic.

 

Justin Donald: It is. And I talk about this all the time because as monetary supply expands, so does the value of assets. And so, it’s a great hedge against the devalued dollars to own assets that are going to appreciate. So, not only is it appreciating in accordance with the inflation of money, but it’s also appreciating because of what you said, where you’re able to add the expenses back in or add that chargeback in, and expenses are becoming more expensive or if they are, you’re covering that. So, when you really boil it down, it’s exponential growth. It might not look like a lot, but the compounding of those percentages over time is absolutely massive.

 

And I’ve said this before, I said this in my book, but I looked up the numbers and 95% of financial advisors, money managers, do not outperform the S&P 500 index. So, you got 5% that do it. Most of the 5% probably works with very high net worth, ultra-high net worth individuals. We’re talking the cream of the crop hedge funds. And so, I just think it’s important to consider diversifying into other assets that have value and retain their value over a long period of time.

 

Now, I do have a question for you, Michael, because we both probably agree that the stock market is overvalued just based on, I mean, based on PE ratios, based on a lot of stuff, but what about multifamily? Because of multifamily, a lot of people would argue that it is overvalued. I would say that I’ve seen some deals that I can’t even believe they get done based on the price, the cap rate, the spread, which is the difference between the interest rate that you might get from a bank on a loan or a mortgage and the cap rate that you are buying real estate asset for. So, I’m curious, your thoughts on this.

 

Michael Blank: Well, look, there are people who are overpaying, and it’s for a variety of reasons. One is pure incompetence, they just don’t know how to underwrite deals and they’re just dying to get into a deal, but other words are, for example, 1031 exchange money, they can afford to overpay because they’re saving a hundred thousand dollars in taxes. So, I can’t compete with that. I also can’t compete with foreign money. This is money from abroad, maybe in China or Russia or places like that. They’re just looking for a certain amount of certainty. They don’t really care about a return, they just care about a certainty, right?

 

So, people overpaying for various different reasons. They’re also overpaying because they are going after publicly-listed deals. And I think your commitment number three if I remember correctly, is finding those invisible deals. And the majority of our deals are, in fact, off-market deals. And real estate investing is fundamental investing like Warren Buffett does. He looks at these companies, I don’t know exactly how he does it, but he can tell that on paper at least, what the company should be valued compared to the actual stock. And he was like this company is cheap.

 

Well, I don’t know how to do that, but I can do that with apartment buildings. Therefore, if I know what my investment criteria, what returns do I want to achieve for my investors? And then what are my assumptions to get to those returns? If I know what those are, and I’m conservative enough and I can get it, make a deal work, then I know I can buy that deal. And if I can’t make it work, then no, I can’t make that deal work. Now, one of the secret sauces that we have is we have recognized that by sharpening our pencil a little bit more, we can actually pay the asking price if we, for example, find or unearth potential profit centers that are not apparent to anybody else.

 

A lot of people are not prepared to hop on a plane and actually go to the place and do some doodles before we go under contract, because it’s risky, you spend a lot of time. Well, we do that and we see that, hey, these camps have these particular amenities or this kind of finishes and they’re getting $25 more, or they have this valet trash feature. Well, that’s pretty cool. Would that work? Oh, they have a billboard or we have a billboard. Like, all these different things. And you put these little tiny profit centers together and it really affects the numbers in a material way. I mean, even a $10 move in rents and a 200-unit building allows you to offer a hundred thousand dollars more.

 

And so, I think what’s fundamentally important is don’t go chasing necessarily the publicly listed deals. Build a relationship with brokers so you have access to these off-market or semi-off-market deals, number one, and then really stick to your underwriting. And there are people, and I see it all the time and even syndications, and I got to warn, passive investors, do not just compare one return with the other that is not. I can make my return, my spreadsheet, do anything I want. Okay, you got to look at the assumptions behind the underwriting, right? What are they projecting? What assumptions are they making? Do they sound reasonable to you in this kind of environment?

 

So, really sticking with the underwriting, and if we do that, do the combination of these things, we’re building a relationship with brokers, we’re sticking to underwriting, and we’re trying to unearth kind of mini profit centers that allows us to be more competitive. This allows us to get into deals.

 

Justin Donald: That’s amazing. I love hearing all that you’re doing and your boots on the ground and going the extra mile. I think that’s fantastic. And you’re right in so many ways. When you buy right, you lock in all the profits right there, but I do think you have to be aware of who you’re working with. How long has someone been in business? How many deals have they done? What’s their track record? Have they lost money? By the way, I am okay if someone has lost money. I’d actually prefer someone to have lost money because they will have learned a lot of lessons. And if they are still in the game, then they have figured out and they’re successful enough to still be in the game, but at the same point in time, I think it’s important to look at who’s had a track record of success beyond this bull market because anyone for the last 12 years can get a good return, whether they’re skilled or not.

 

And so, I think paying attention to that, paying attention to how the property is managed, paying attention to assumptions, like you said, I mean, little things and assumptions where people say, well, here’s what we can refinance it at. And is that rate reasonable? And are they using a bridge loan? Are they not using a bridge loan, which is a shorter-term loan, or can kind of hold you over until you get a refinance in place from maybe Fannie Mae or Freddie Mac or something like that? And what assumptions are they making on rents? Are they doubling occupancy, because that’s probably unrealistic? Or is it increasing 5% per year?

 

So, I think you’re spot-on on this. I would love to drill down even more if you don’t mind, Michael, because I think the word syndication can be intimidating, and people that have never invested in a syndication, they don’t know what that means, they don’t know what they get. And so, you talked earlier about a limited partner or an LP. You talked about a general partner or a GP or a sponsor, you’ll hear it called that way. And so, they run the deal, they manage the deal. Either they do the operations in-house or they basically ship it out to a trusted third party that has the experience, but then, from there, there are deal terms, there’s a projected IRR or internal rate of return. There’s often a preferred rate of return where you get paid a certain amount before the sponsor or GP gets anything. And then, there’s are also splits.

 

So, once you’ve made that amount, there might be a catch-up, there might be other terms in there, hurdle rate, catch-up clause. And then, there’s a split or a waterfall. I’d love for you to kind of share with our audience what all goes into one of these deals and what they should look for.

 

Michael Blank: There’s a lot there. And I don’t want to overwhelm the listener on this. I think it really boils down to who you’re investing with. It’s really all about people in the team. Everything else really kind of flows from that because everything kind of comes from a little bit of a position of trust. If you trust the operators or the sponsors, that goes a long way, but this does not mean that you shouldn’t pay attention to certain things, but that goes a long way. If you are able to invest with someone who does have a track record of consistent returns, who’s been around for a while and maybe, yeah, they’ve gone through and lost some money, someone who communicates well, someone who’s accessible, that is very important because it solves the other questions.

 

Some of the other questions that you asked, for example, well, is this a good market to invest in? Well, how do you know? How are you going to find a good market? Well, you can maybe do a bunch of analysis on it, okay, but if you trust the operator to make sure they’re in a market that’s growing, that takes care of that. Well, is this a good deal? Well, how do you know exactly? Unless you go through the due diligence in Dropbox and spend six hours going through it yourself, you’re not really going to know.

 

Now, you should ask questions, and that’s always the answer to the questions. Does it make sense? Is a coherent? Does it appear too aggressive? Are they being evasive around that? So, it’s really building a relationship with the operator. And you meet these operators, you listen to a podcast or a YouTube video and you watch them on YouTube or listen to a podcast, and you kind of get to know their character a little bit, but then maybe you meet them at a conference, right? And you ask him some questions, you look him in the eye, and you ask him some of these difficult questions. And you start building up that rapport.

 

I want to know, hey, tell me about a time when the deal didn’t go quite right. What happened? How did you fix it? How did you behave with your investors? What I want to know because stuff sometimes happens. I mean, we have put a proper manager in place and they sucked. They’re like, gosh, why can’t you? You took it – let me get it straight. You took it from 89% occupancy down to 68%. Well, I could have done that. Like, what good is this? And what happened? What did you do about it? And more importantly, how did you treat your investors during this time because what the investors hate is complete radio silence because now they know something’s going on. If you don’t return phone calls, you stop sending out the happy newsletters and no one likes sending out unhappy newsletters, oh, I’m sorry, your distribution is delayed this month because our property manager sucks. No one likes to put out emails like that, but that’s really what’s important because investors, while they won’t be happy, what they hate even more is being blindsided by something much worse than missing a distribution payment.

 

So, getting in those operators is absolutely important. And yes, then there are different structures, Justin, like you talked about. And we like that you mentioned waterfalls and splits, I don’t like any of those things and I don’t think investors like them either, they’re complicated. They’re complicated, multiple classes of investors, we’ve toyed with it. I kind of sort of get it, but it’s also complicated. And a confused mind says, no, I want to keep it simple. We do straight splits, whatever, the 75, 80/20. There are no waterfalls, no catch-ups, no preferreds. All complicated, complicated, complicated, blah, blah, blah. Straight splits, keep it very, very simple.

 

And then to ask questions. Ask questions if you’re confused about something, take advantage of any kind of sponsors, educational material they have, or find someone else who has educational material like you or us, learn about the class of syndication. It’s not that hard, it’s not nearly as hard as getting into it actively. And then ask questions and see what the responses are. And the good news about passive investing is you’re not investing with 10 operators, you’re not investing with five. Most passive investors are investing with two or three operators over and over and over and over again. That’s all they do.

 

And yes, you’re doing some due diligence on an operator and you may be spending some time. You’re going to a conference, you’re getting into the weeds, but the second deal around, you’re not going to do that as much. In a third one, you’re like, “Yeah, just let me know. Just sign me up. One hundred thousand, I’m in.” And so, at that point, a passive investor becomes actually really passive. And it’s almost like calling up your financial advisor at that point.

 

Justin Donald: Yeah, that’s really a great way to frame it. And I do love that when you gain comfort and familiarity and see some deals all the way through, get what was projected as a payout. There’s trust that’s established. And it’s so much easier to just go into future deals. You don’t have to do as much homework. You still should do some homework. You should still make decisions. Is this a market I want to be in? Do they still have the same team in place? And something else I really like to do is I like to interview current investors and past investors. I think there’s a lot of value in that. And so, that’s one thing that’s always on my hit list. And companies that don’t want to provide that, I mean, that to me is a red flag. And companies that do, I mean, they should be happy to provide that. That to me is a huge plus. And there’s a lot of comfort that can come from speaking to a fellow investor for sure.

 

So, Michael, you have a really great book with a compelling title, by the way, and we’re living in this world, where we both value freedom so much. Can you talk a little bit about your book?

 

Michael Blank: Yeah, it’s called Financial Freedom with Real Estate Investing. It’s yellow because the other ones were all blue and it really talks about how do you become financially free with real estate as an active investor. Now, there’s a lot of parallels with a passive investor, but it’s really for the active investor. And it’s really for the person who is looking for a way out of the W2 job and has real estate on the brain. Now notice, I don’t mention anything in the title. It’s actually the subtitle is: The Blueprint to Quitting Your Job with Real Estate – Even Without Experience or Cash. Never in there, as it mentions multifamily because I already know it raises certain objections with people because most people who are thinking real estate are thinking single-family house investing.

 

And the truth is that almost nobody is able to quit their job as single-family investing. They try and they realize the insanity of their back to clarity of lifestyle. They realize they can never get there in their lifetime or it might take 10 years to get there. And so, they quietly shift to multifamily or some other asset class, like mobile home parks, and then they quietly quit their job within one to two years of that, but not very many people talk about that. So, it really takes that person from where they are right now and shifts their mind a little bit going, “Hey, have you thought about apartment buildings? Oh, yeah, yeah, I thought about apartments.” But here’s my plan: I’m going to build a portfolio for the next five or ten years, I’ll flip a wholesale or landlord, I’ll burr myself to freedom. And then I will use my experience and the money I make, and I will then roll it into apartment buildings.

 

Now, okay, not a bad plan. It’s better than 99% of the other population who basically are investing with their IRA and their 401(k). I get it, but it’s an unnecessary plan that takes far too long. The problem with that plan, people go, “Okay, Michael, I get la la la, I heard you. Okay, is I don’t have the experience, I don’t have the cash.” Okay, well, let me tell you, there’s a way you can actually appear more experienced than you are and it’s going to take you 60 days. And in that same time frame, you’re going to learn the art and science of raising money. And in 60 days, you’re going to appear to a broker, like an experienced multifamily syndicator with millions of dollars behind you. And that’s what the book’s about.

 

Justin Donald: That’s cool. I love that. And by the way, I couldn’t agree with you more on the challenges that exist in scaling single-family home rentals to the point that you would need to from a cash flow standpoint. So, I love the asset class. I mean, I was on the cutting edge of this when we started one of our companies that services single-family home rentals for institutional owners, so your Blackstones of the world.

 

And so, this asset class didn’t even exist thirteen 13 years ago, right? And so, now, it’s an actual asset class. I love it for that. And I think if you can invest in other people’s funds and syndications of these deals, I think that there’s tremendous opportunity and upside. But for you, as the individual investor, it takes a lot of time. And I’ve got a lot of friends that have built their portfolios, and generally speaking, most of my friends in this world say that you’re not really getting the economies of scale that you want until about 40 or 50 homes. And that’s a lot. It’s not only a lot of time to get there, but that’s also a lot of money to get there. So, I’m a big fan like you are of many units for the same price and getting as many units under ownership as possible.

 

Michael Blank: Absolutely, and a lot of people are doing it, and you probably know Gino Wickman. He wrote the Entrepreneurial Leap, and he postulates then that entrepreneurs are born, not made. And I do disagree with him on my podcast. It’s kind of fun, but his idea of an entrepreneur is a little bit different than mine. I’m thinking real estate, and he’s thinking I’m going to build a 150-employee business. Okay, I get it. Those are two potentially different people, but I’m running a 110-million-dollar portfolio with five people right now. So, I don’t need to build a 150-employee company.

 

And what I love about real estate is that it lowers the bar for an entrepreneur for many, many different reasons. Financing is readily available and cheap. Raising capital is amazingly simple, right? I can hire a professional manager to run the business. I mean, think of any other business. My pizza joints can’t get any funding, no one wants to invest in that, and I have to run it myself. There’s no other thing, like multifamily. It is the easiest business in the history of businesses to get into.

 

Therefore, real estate investing, multifamily investing specifically, is open to a very broad demographic, regardless of background, what your background is, if you have a sales background and technical background, whether you have money or don’t have money, whether you have experience or don’t have experience, it is a great leveler. And that’s what I really love about it. So, it’s not like a niche thing that only 1% of the population can take advantage of. I would say, maybe not everybody, but a large majority of people can be successful.

 

Justin Donald: That’s awesome. Earlier, you spoke about people at their core really wanting to give back and to serve and that when money’s taken care of, that often is at the forefront of what they do. And by the way, I’ve experienced this in my life, so I totally agree. I’m curious for you, from a legacy standpoint, where do you see things? Why are you doing what you’re doing and building what you’re building? You’ve got an incredible following. You’ve got a very successful brand and a very successful real estate business, but long term, why are you doing what you’re doing and what’s the legacy here?

 

Michael Blank: Yeah, it’s really to empower people to make a difference is really what it is. And in order to do that, they need financial freedom. They need freedom, they need time freedom, which is enabled by financial freedom, right? So, it’s kind of like a big leverage point, really. My mission is to help a thousand people become financially free. And that’s a pretty big number, but the leverage of that is immeasurable because if you’re financially free, it’s like you have an oxygen mask on. You get in a plane maybe sometime in your future and they tell you to put your oxygen mask on and then they tell you to put it on your kid or whoever.

 

Well, once you have your oxygen mask on, you’re financially free to look around and go, I got another oxygen mask. What should I do with it? You want to put it somewhere. So, the person that’s financially free is not just going to sit there and maybe some are, but they’re not going to sit there in a vacuum and enjoy their success and not bless anyone around them. They’re going to try to help people with it, right? So, the leverage of that is innumerable. So, I want to empower people to make a difference in the people around them. And the vehicle that I’ve chosen is financial freedom with real estate. So, that’s what I know how to do. I’ve just become very passionate about the asset class and I’ve been effective with that. And yeah, so that’s what my legacy is right now.

 

Justin Donald: That’s fantastic. I love that. And I love how much your message resonates with me because I feel like we have such alignment in what we’re teaching and the passion that we have to help educate people that, yes, they too can have financial freedom, that this is not just for some special group of people, that anyone can make this decision and take these steps to do it. Michael, where can our audience find you online?

 

Michael Blank: Yeah, I’m at theMichaelBlank.com, that’s B-L-A-N-K, it’s pronounced funny. So, that’s where all of our resources are. Our investment firm is NighthawkEquity.com. If you’re interested in investing, we do have that special report, it’s called What’s the Better Investment: Stocks or Real Estate? That is at theMichaelBlank.com/report. So, if you interested about that, look at some of the numbers, that’s where that is. The book is called Financial Freedom with Real Estate Investing. And the podcast is Apartment Building Investing, which, by the way, we’re going to rebrand and I’m probably going to call it the same thing as the book.

 

Justin Donald: Cool.

 

Michael Blank: So, yeah. So, that’s where different places people can find us.

 

Justin Donald: I love it. Any last thoughts you have?

 

Michael Blank: Yeah, I just love it. I love what you’re doing, educating people about alternative asset classes. I think it’s great that you’re bringing different ones to the mix. And I think the important thing about that is opening people’s minds to stuff outside the stock market because once you get into syndication, you get into multifamily, well, then you might as well look at mobile home parks and self-storage, and for good measure let’s look at some oil and Bitcoin. Anything besides a stock market because the thing is, every one of these asset classes has a slightly different strategy.

 

So, I think I would just encourage the listener to have an open mind. If they’re currently in a stock market, don’t sell it all overnight. I think that might be a little traumatic, and I feel sorry for the financial advisor, but take some out and experiment with an asset class that really resonates with you and just keep an open mind about these things, because there’s a reason that Justin and I are talking about it because they’re just better, just trust us.

Justin Donald: I think that’s great and what a great way to end this. Thank you so much for your time and for joining us, Michael. And I just want to end the way that I end all of our shows, and that is to encourage our listeners and those of you watching, take some form of action today towards financial freedom and the life that you desire to live. Thanks for checking in this week. And we’ll see you next week.

 

[END]

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