Michael is a seasoned real estate syndicator, broker, and attorney, and the founder of Next Play Investments LLC, a firm focused on acquiring undervalued properties and turning them into high performing, cash flowing assets. With a portfolio spanning apartment complexes, self storage, and mixed use properties, Michael and his expert team, which includes a CPA, LinkedIn coordinator, and portfolio manager, currently manage approximately $15 million in assets and 1,250 doors nationwide.

Here’s some of the topics we covered:

  • Where Smart Investors Are Putting Their Money
  • How Michael Closed a Deal Fast Thanks to Strategic Debt Moves
  • The Real Story Behind the Debt Terms and Interest Rates
  • The Due Diligence Moves Michael Makes Before Every Investment
  • Why You Should Always Bring Experts to Your Property Tours
  • How to Know if the Demographics Make or Break Your Deal
  • The Hidden Key to Tenant Retention Is Property Safety
  • How Spotcrime Can Help You Avoid Dangerous Neighborhoods
  • Building Powerful Local Bank Relationships Around Each Property
  • What No One Tells You About the Pros and Cons of Agency Debt

To find out more about partnering or investing in a multifamily deal: Text Partner to 72345 or email Partner@RodKhleif.com

Full Transcript Below

01:20:08:21 – 01:20:29:05
Rod
Welcome to another edition of Lifetime Flow to Real Estate Investing. I’m Rod Khleif and I’m thrilled to be here. And I know you’re going to get tremendous value from the gentleman I’m interviewing today. His name is Mike. Margareta. And, Mike was. He’s a transplant from New York and New Jersey down to Florida. Hallelujah. I might add, because I could be a poster child for the Florida Chamber of Commerce.

01:20:29:05 – 01:20:30:08
Rod
So welcome to the show, brother.

01:20:30:10 – 01:20:31:07
Michael
We appreciate you having me.

01:20:31:08 – 01:20:47:19
Rod
Of course. I appreciate you coming. And and, even though you’re in Jacksonville. So that’s that’s a bit of a hype. That’s that you could almost slide down here. Might have been a little less time for you to drive here, but I. I’m grateful you came over and, Yeah. So. So what’s your story, man? You brought the boss with you, I see.

01:20:47:19 – 01:21:09:25
Michael
Okay, yeah. My my wife Marie’s here with me as well. And so, Marie and I were. We’re W-2 earners, and, one day we were just kind of searching for ways to more efficiently invest our money. And I was just at the gym and searching through some podcasts about how to invest those funds. And I thought I’d just stumbled across things about investing in the stock market.

01:21:09:25 – 01:21:26:05
Michael
And Biggerpockets came across my feed, and I listened to one episode about, burying single family properties, and and that was it. I was hooked, and I just I couldn’t understand why everybody doesn’t do this. And from then on out, we just, we set our focus on on building real estate.

01:21:26:12 – 01:21:33:13
Rod
Very good, very good. So. So talk about some of the stuff you’ve done in the in the real estate arena, because I know your, your resume has got quite a few things.

01:21:33:16 – 01:21:38:08
Michael
Yeah for sure. So we started mainly in the single family space. Like I said, we listened to that Biggerpockets episode.

01:21:38:10 – 01:21:39:28
Rod
This was in New York and New Jersey.

01:21:40:01 – 01:21:46:03
Michael
We were based in New York, in new Jersey. But, from day one, we set out to invest in the Midwest. Oh, just,

01:21:46:05 – 01:21:49:17
Rod
So we’re it’s just, I think you told me Indiana and Kentucky, right?

01:21:49:17 – 01:22:08:24
Michael
Yeah, mainly in Indiana. Kentucky. So we started in the Indianapolis MSA there. And, so we did, a couple flips there. We we did a few BRS and, kind of what we found was while our return on investment was fine for those projects, our return on time wasn’t. So it would take us months and months to find projects that we found suitable.

01:22:08:24 – 01:22:24:09
Michael
And, you know, the houses in the Midwest are just generally priced, a bit lower than some other parts of the nation. And so your ROI is, is just a little different. So we want to scale a little bigger. And now our focus is mainly on mid to larger size multifamily.

01:22:24:12 – 01:22:29:28
Rod
Okay, okay. I mean you’ve done some self-storage as well and some mixed use also.

01:22:29:28 – 01:22:32:28
Michael
Yep. We’ve done some self-storage and mixed use, in.

01:22:32:28 – 01:22:33:28
Rod
Indianapolis or.

01:22:34:01 – 01:22:43:04
Michael
Mainly in Indianapolis and Kentucky. So we own five apartment complexes, about 400 doors of apartment units, and then also six self-storage facilities.

01:22:43:06 – 01:22:50:05
Rod
Fantastic, fantastic. So, I know you your your focus right now is multifamily. Yes.

01:22:50:05 – 01:22:50:18
Michael
Correct.

01:22:50:21 – 01:23:11:23
Rod
Okay. So, are you I mean, there’s a lot of distress in the multifamily arena right now. Sure. A lot of a lot of operators that got in trouble with adjustable rate debt and even even regular debt just because costs have gone up and things like that. Have you encountered that or are you looking at distressed assets or what?

01:23:11:23 – 01:23:13:13
Rod
Tell me a little bit about your game plan.

01:23:13:15 – 01:23:36:27
Michael
Sure. Yeah. So we’re mainly targeting 50 to 150 unit complexes. So we’ve come across a bit of distressed, depending on your definition of distressed. So we haven’t seen anything out of foreclosure sale person. Right. But what we’re starting to see, and I’m sure you’re seeing this as well, just in the past couple of years, there’s been a lot of extend and pretend there’s been a lot of operators that have been holding and hoping for a lower interest rate environment.

01:23:36:28 – 01:23:37:11
Michael
Yeah.

01:23:37:12 – 01:23:44:06
Rod
And today, today said no again. You know, Trump was dogging him today online. It was pretty funny. But anyway yeah.

01:23:44:08 – 01:23:59:24
Michael
Yeah. So we’re just coming across operators who have been sitting on these things for a couple of years. And they’ve been looking to exit. And now finally they’re coming to terms with the market and they’re willing to kind of meet the market’s price. And that’s how we’ve gotten a few of our more recent acquisitions. Is just sellers getting tired of sitting in wait, becoming realistic.

01:23:59:24 – 01:24:21:21
Rod
Yeah. I mean, I will tell you, there’s a lot of deals trying to be sold for, debt plus fees. And they still don’t pencil. They still don’t make sense. Yeah. By the way, he used the phrase MSA regarding Indianapolis. That means metropolitan statistical area. And it’s it’s a it’s a large, geographic area around a big city like Tampa would be an MSI, you know, Phoenix, Denver.

01:24:21:23 – 01:24:46:03
Rod
Yeah. So, and so, let’s talk about, like, maybe a deal. I think you were starting to mention you had a deal that you had to, had to do a much faster closing on and, and I said, you know, I’d like to drill down on due diligence. So talk about the deal. You mentioned that because of debt, you had to accelerate your closing and due diligence period.

01:24:46:03 – 01:24:48:28
Rod
And let’s dissect that deal a little bit, if you don’t mind for sure.

01:24:49:01 – 01:24:55:17
Michael
So, this project called Chateau Village, it’s an 80 unit apartment complex in Louisville, Kentucky.

01:24:55:17 – 01:24:56:01
Rod
Okay.

01:24:56:01 – 01:25:00:25
Michael
And so it first came across our desk in January of 2024. Okay. So quite a while.

01:25:00:28 – 01:25:01:24
Rod
That’s a long time ago.

01:25:01:26 – 01:25:23:17
Michael
And, it was advertised off market by several different brokers throughout 2024. And we submitted several different lies on the property. Letters of intent to purchase it. And, the pricing guidance at the time throughout 2024 was pretty firm at 6 million. Okay. And so we were more in the low to mid 5 million range. And as we were just talking about the seller just wasn’t quite realistic with the valuation.

01:25:23:17 – 01:25:29:02
Michael
There was still some value that seller had to add and it just didn’t quite pencil for us. So it.

01:25:29:07 – 01:25:30:27
Rod
C class asset.

01:25:30:29 – 01:25:54:06
Michael
C maybe B minus class asset. Got it in local. And so in January 2025, a full one year later, they were on their fourth or fifth broker who was again just blasting it out off market. And we told the whole story to this broker about, you know, how familiar, familiar we were with the asset. And ironically, we owned a 62 unit apartment complex directly across the street from outside.

01:25:54:06 – 01:26:16:01
Michael
Been able to pitch that quite a bit. And we’re very familiar with the area and property management and all those things. And so the seller was very comfortable with us as, as a buying group. And they finally got realistic with the market. And so they agreed to our pricing at at 5.4 million. So we went under, I went under contract and we closed that in, April 2025.

01:26:16:02 – 01:26:29:29
Rod
Okay. So talk about what happened with the debt and, and and let’s and then I’d like to drill down on the due diligence that you did there and really micro micro that for sure. Okay.

01:26:29:29 – 01:26:52:12
Michael
So, April 20th, early April 2025. There was a lot of economic instability, both, here in the US and internationally, tariffs being implemented, the market uncertain as to where that would go. And we were slated to close in mid to late May 2025. So we were pretty much done with our physical and environmental due diligence that morning.

01:26:52:12 – 01:27:14:22
Michael
Fortunately, and we were just finishing out, our capital raising and getting our, our debt finalized. And our lender, it was a regional lender, and they reset their interest rates once per month. So our rate wasn’t locked till closing. And our lender called us on on a Monday at 6 p.m. and said, I got bad news for you guys.

01:27:14:25 – 01:27:21:09
Michael
A week from today, we’re resetting our rates, and our rates are increasing by a point, just because of a lot of the things that we just talked about.

01:27:21:12 – 01:27:23:10
Rod
100 basis points, a full interest rate.

01:27:23:12 – 01:27:35:28
Michael
Wow. 4.1 so that materially changed, the data for us both from a cash flow perspective and also, a proceeds perspective because we would have been debt coverage constrained.

01:27:36:00 – 01:27:47:26
Rod
By the way proceeds is the amount of money you get from the lender. And that can be adjusted based on market conditions and, appraisals and, and sometimes whims. So, okay. Please continue.

01:27:47:28 – 01:27:53:01
Michael
So, materially changed the deal from us. Yeah, yeah, from a few different vantage points there.

01:27:53:01 – 01:27:59:24
Rod
And you probably already hard. We’re already hard. Oh yeah. So I’m not in the hard means nonrefundable. Money wasn’t coming back if they backed out. So.

01:28:00:00 – 01:28:10:00
Michael
Right. Exactly. So, so we had a decision to make whether we were going to, you know, extend this, for another 30 to 45 days and maybe try to, figure out.

01:28:10:01 – 01:28:10:16
Rod
How the.

01:28:10:18 – 01:28:29:04
Michael
Rate comes around with the seller or, maybe try to find an alternate lender. But none of those options were very appetizing. So, we told our lender we’re going to shoot to close within four days. And they initially told us no, they said we can’t perform. And so we basically said, well, we’re going to perform and we expect you to perform.

01:28:29:04 – 01:28:38:07
Michael
And so the next day they said, fine, if you guys could perform, we’ll try to get it done by Friday. So, it was a hustle for us. Like I said, most of the due diligence was complete.

01:28:38:07 – 01:28:41:18
Rod
Fortunately, I want to go back to that, but make sure we have a list.

01:28:41:20 – 01:28:48:17
Michael
But just getting our capital partners in line for that project. So we had 20 partners on that, and so we had to get, 20.

01:28:48:18 – 01:28:49:21
Rod
How much equity in the deal?

01:28:49:24 – 01:28:51:16
Michael
It was about 2.2 million.

01:28:51:16 – 01:29:07:20
Rod
Okay, so about 100 grand a pop with 2020 partners, by the way, guys, equity is the amount of money out of pocket that goes into a deal. There’s there’s a capital stack that includes debt and equity. And sometimes you have preferred equity. But the equity we’re talking about is from private passive investors. That put money into this deal.

01:29:07:20 – 01:29:13:05
Rod
And I know that’s a little confusing. And you if you’re in the single family space. So but you got it done.

01:29:13:07 – 01:29:20:18
Michael
We got it done. Yeah. So we had our we had our capital stack in place. It was just a matter of at that point we hadn’t even sent out our docs yet.

01:29:20:18 – 01:29:21:01
Rod
Wow.

01:29:21:02 – 01:29:40:28
Michael
Our passive investors to review. That was pretty much on our list, our to do list for that week. Right? So we had to send it out that day, hit the phone with a pretty yeah, we hit the phones with a pretty urgent warning that, hey, if you guys are uncomfortable with this, that’s fine. But we just need to know today and we need you to review this with your team within the next 36 hours, because we need to get those signed packets over to the lender.

01:29:40:28 – 01:29:56:14
Michael
And then we needed to fund the then 48 hours. So we’re pretty fortunate. We only had one investor who, who bailed and and so we replace that pretty quickly from the existing group. And, and everybody else performed. So it was it was quite a hustle there and putting insurance in place too because we have.

01:29:56:14 – 01:29:57:09
Rod
Yeah, we had.

01:29:57:09 – 01:30:03:13
Michael
Our vendors in place to lock insurance. But again you know, we hadn’t planned to actually to, to get insurance.

01:30:03:13 – 01:30:19:10
Rod
Right. The lender lender wants to see insurance. So that had to get done. Now. Geez, I’m just sitting here thinking, wow, that’s incredible that you got it done. Because what he’s talking about, guys, it sounds like it’s no big deal. It is a big deal. What he had to get done in that amount of time is is candidly staggering.

01:30:19:10 – 01:30:20:05
Rod

01:30:20:07 – 01:30:27:24
Michael
And, you know, there’s even small things that you don’t even think of, such as the seller’s payoff statement. So the seller had an 18 oh oh, yeah. And the property. And so.

01:30:27:24 – 01:30:31:06
Rod
Yeah. And agencies aren’t fast to get to get payoffs. Wow.

01:30:31:07 – 01:30:47:00
Michael
So we had to call in a lot of favors from, the servicer on that. And wow. And we did get the pay off the day of closing. Wow. And there was no extensions from our lender, despite all the performance that had gone on up until that time, they were pretty clear that their their committee was not willing to extend this for any.

01:30:47:01 – 01:30:47:27
Michael
Well, no.

01:30:47:29 – 01:31:07:21
Rod
Because it’s costing them candidly, they don’t want to do it. Yeah. Well at least they at least they acted with integrity, you know, because they could have, you know, dragged their feet and pushed you into the next month because it cost them, you know, no restriction. It cost them. Well that’s interesting. Well great job number one. Because God, I can’t even think about the brain damage on that.

01:31:07:21 – 01:31:32:04
Rod
But but you know, let’s talk about due diligence. So I want to drill down on due diligence in this episode. And I appreciate you accommodating that, humoring me on that. So talk about the types of due diligence that you do when you buy an asset like this. And, and, and and I’ll, I’ll, I’ll, I’ll interject to to to dig deeper if I feel it’s necessary.

01:31:32:04 – 01:31:32:10
Rod
Yeah.

01:31:32:11 – 01:31:39:08
Michael
For sure. So one of the first things, my partner and I do is we’ll fly in and we’ll walk the asset. So we obviously.

01:31:39:09 – 01:31:43:01
Rod
This is, this is pre PSA. It depends.

01:31:43:01 – 01:31:48:06
Michael
On the timing. It sometimes could be post alloy pre PSA. It sometimes could be a few days after the.

01:31:48:14 – 01:32:15:10
Rod
So PSA is the purchase and sale agreement guys. So you start with a letter of intent because you know these these attorneys cost money. So you agree on all the main terms with a letter of intent. And then the let the attorneys fight out a purchase and sale agreement. And that’s typically how it’s done. The letter of intent just shows your interest in buying the property, and you give that to a broker or seller, and then when you agree on the main terms of price and when you’re going to close in the earnest money in the debt and all that stuff, then you write a PSA.

01:32:15:16 – 01:32:22:22
Rod
So anyway, so you visit the property, you do a, you know, just a, exterior walk through, look at a couple of the units.

01:32:22:25 – 01:32:36:24
Michael
Correct. Yeah. Okay. And then post PSA, we want to do more of an in-depth site visit. We want our property manager to accompany us, preferably contractors depending on schedules. And so we’ll walk every single unit and we’ll make notes on every single unit.

01:32:36:24 – 01:32:54:24
Rod
Well let me let me stop you for one second. There’s a, there’s a piece before that. Do you make a document request from the seller. Correct. Correct. Yeah. So so guys what what you, what you’ll do in the PSA and the purchasing agreement is you’ll ask for every document under the sun that the seller may have. You want to give some examples of some of the things on the list because my brains shop.

01:32:54:24 – 01:33:09:26
Michael
Yeah. So so we’ll ask for all types of financials from the entity tax returns to profit and loss statements, to obviously current rent rolls. We’ll look for the delinquency reports. We’ll look for any prepaid reports. We’ll always request any past environmental.

01:33:09:28 – 01:33:15:18
Rod
Surveys, environmental reports, you know, even appraisals if they have on the rack.

01:33:15:21 – 01:33:21:21
Michael
And one thing we do try to do in the PSA and sellers don’t always agree to this is, our timeline.

01:33:21:21 – 01:33:36:18
Rod
Due diligence doesn’t start and start until you get it right. Every single doc. Yeah. No, we do that every time. And, guys, you should do you should as well. You know, you’ll have a due diligence period. And that thing doesn’t start until you get all the documents you requested from the so that they have now they may not have some of them but but yeah, that’s how it works.

01:33:36:18 – 01:33:44:10
Rod
Yeah. That’s how it should be done. Okay. So then you you go and you walk every unit. Did you involve a property by the way are you vertically integrated or you use third party.

01:33:44:10 – 01:33:45:26
Michael
We’re mostly third party okay.

01:33:45:28 – 01:33:54:05
Rod
So so vertically integrated guys means you’re managing yourself. So he uses third party like we do. Do you involve the property management company to help you walk units.

01:33:54:05 – 01:33:55:01
Michael
Every step of the way?

01:33:55:01 – 01:33:55:19
Rod
Exactly.

01:33:55:19 – 01:34:06:25
Michael
Yeah. So we want so usually we’ll split up into 2 or 3 groups depending on the size of the complex. So one general partner will be in each group, and one representative from the property management team will be in each.

01:34:06:26 – 01:34:09:23
Rod
Might be a maintenance guy, might be a manager.

01:34:09:23 – 01:34:28:05
Michael
Yeah, yeah. Got it. Exactly. And so we’ll have a spreadsheet. We want to see that each unit that they say the seller says is occupied is actually occupied. We check on, pets in the unit because that’s something as soon as we take over ownership, we want to ensure that we’ll be charging the problem pet fees. And then we’ll just also check a box.

01:34:28:05 – 01:34:34:10
Michael
Is this, is this going to be a turn? This unit is going to be a full rehab. Is this, is it something that we just.

01:34:34:13 – 01:34:36:10
Rod
Done writing, or how do you document do.

01:34:36:10 – 01:34:37:17
Michael
It on a Google spreadsheet?

01:34:37:19 – 01:34:58:07
Rod
Okay. Yeah. And some, some management companies are a little more sophisticated. And they’ll have iPads and they’ll take pictures of everything and then they’ll document and, and they might rate the condition of the different things and some sort of a rating category. So you can, you know, you can circle back and you know, and guys when you do this, you know, you should be videoing number one, you should be taking pictures.

01:34:58:07 – 01:35:16:18
Rod
And you know, the first thing your video pictures, the unit numbers, you know everything behind that is that unit. And you do the ceilings, the floors, the walls under the counters, the appliances, the Hvac closet, the bathrooms, you know, everything. And that might be the only time you’re in that unit for a long time, especially if it doesn’t need to be turned or anything.

01:35:16:18 – 01:35:28:09
Rod
So you really want to take your time with that. But, so and, and there’ll be occasionally a unit or two you can’t get in somebody’s sick or the keys don’t work or something, but for the most part, you want to hit every single one.

01:35:28:09 – 01:35:32:03
Michael
Yeah we do. Yeah, we try to hit every single year. Nearby units we can hit.

01:35:32:03 – 01:35:43:25
Rod
We try to come back to do it later or see video. Yeah. Okay. All right. And then, what else is the property management company doing for you? Besides the physical inspections.

01:35:43:28 – 01:35:53:26
Michael
At that point in the process, we’re leaning on them to confirm our rental guidance assumptions. So when we’re underwriting a property, we obviously understand what the in place rents are.

01:35:53:26 – 01:36:04:09
Rod
They’re doing a market survey and giving you where you feel that you feel you can be. Do you have them help you with lease review for sure. Okay. So that’s where I was going with that. So there’s a document review process.

01:36:04:15 – 01:36:11:29
Michael
So we’ll request all leases as part of our due diligence process. And that also helps us build out our spreadsheet when we’re walking units. And make sure those.

01:36:11:29 – 01:36:16:24
Rod
Leases match the rent roll. Correct. Yeah. Yeah. So and the management company does this for you? Yes. We.

01:36:16:24 – 01:36:17:23
Michael
Work with them hand in hand.

01:36:17:23 – 01:36:18:25
Rod
Oh, you do it as well. Okay.

01:36:18:25 – 01:36:22:08
Michael
I’ll usually take the first stab at it. Okay. We’ll send it to them to you.

01:36:22:09 – 01:36:25:26
Rod
And we’re lazy. We have the management company do that but. Okay. Great. Fantastic.

01:36:25:27 – 01:36:27:03
Michael
You might just have more pull with us.

01:36:27:04 – 01:36:32:05
Rod
Well, I don’t know, but, you know what is about 35 bucks a unit? Is that what they charge you?

01:36:32:07 – 01:36:34:04
Michael
So our management company actually doesn’t charge.

01:36:34:05 – 01:36:53:24
Rod
They don’t charge, are we? Page. So maybe that’s it. We we we had to grease their palms, get it done, but. Yeah. No. Okay. And so, you know, they’ll do a lease review. They’ll typically do a vendor review as well. They’ll look at contracts, they’ll look at, you know, any contracts you have for pool, pest control, laundry, laundry you got to be careful with because it’ll survive closing.

01:36:53:24 – 01:37:03:15
Rod
Usually. Correct. And, okay. And then, anything else that we’re missing here? On the due diligence front, I really want to make sure we cover everything. Yeah.

01:37:03:15 – 01:37:22:22
Michael
So from there, we’ll we’ll look at, the property as a whole. So we’ll get more, property assessment report. So it’s basically just a physical inspection of the complex itself that’s going to look at the bare components such as the roof, the plumbing, the big components. The larger components. So we have an understanding as to what the useful life is on those components.

01:37:22:22 – 01:37:24:22
Michael
Because those are those could be very.

01:37:24:26 – 01:37:46:03
Rod
And if you’ve got any concern, you bring in an expert. Correct. Roofer. You sculpt the sewer lines, you have the electrical checked, make sure they’re not aluminum wires, or if they are, they’re pigtail. You make sure you know that the structure is there. I’ll tell you. I’ll give you a funny example. This, we purchased a 296 unit in San Antonio, and I’ve done thousands of inspections.

01:37:46:03 – 01:38:08:15
Rod
I mean, yes, I’m old as dirt and and I miss something which is very unusual, candidly. I mean, not many go, but it’s very unusual. I miss something like this. But this contractor I brought, I always bring a general contractor, by the way, or an inspector that really digs deep. And this GC, you had to stand just a perfect way to see that this brick wall was bulging and I and I missed it.

01:38:08:20 – 01:38:25:15
Rod
But that was a significant thing. And we got six figure reduction in the purchase price over it. And we stopped the due diligence and got a delay until we had the engineering come out and all that. So do you agree that you should have an expert there? If definitely for anything you have any question about at all.

01:38:25:15 – 01:38:28:02
Rod
But do you like, do you bring a contractor when you do these things?

01:38:28:02 – 01:38:37:13
Michael
Yeah, we try to always have a contractor with us when we’re doing a walkthrough or during the inspection. Yeah. And it also helps lock in the capital stack because now you’re going to have an understanding, you know, in your example that’s.

01:38:37:19 – 01:38:40:28
Rod
On the make ready on the on the value add components. Correct. Yes. Right. Yeah.

01:38:41:04 – 01:38:45:13
Michael
We need to know hey is this roof going to go in three years. Because if so we need to raise for that.

01:38:45:18 – 01:39:02:18
Rod
Or you know what your value add piece is going to cost you and not guesstimating it, but really coming in much tighter with it. And so yeah, so you know guys, you know the the name of the game here is to buy something you improve it. You get the rents up and exponentially improve the value. It’s called value add.

01:39:02:18 – 01:39:24:06
Rod
That’s that. You’re a value add player. Yeah yeah yeah. There’s value add and then there’s yield play. Grant Cardone would be a yield play example. He’ll buy something and hope the rents go up. And I’m not trashing him. He’s smarter than I am. But the point is we we do value add. And, and, and so you want to make sure that you’re bidding your estimates are accurate because you’re raising money for this.

01:39:24:06 – 01:39:35:05
Rod
And, you know, a common newbie mistake is to underestimate that stuff. And then they’re then they’ve got a challenge, right? Yeah. So. Okay. I think if there’s anything else on the due diligence.

01:39:35:05 – 01:39:36:09
Michael
Front, environmental.

01:39:36:11 – 01:40:02:03
Rod
Environmental. Yeah. You got to listen, guys. If you even if you have a seller finance deal, you always get an environmental report. And here’s why. Let’s say at some point in the past, there was a dry cleaner there or a gas station there. Something happened. And the air, EPA doesn’t care. When it happened, if if you bought it and you closed on it yesterday and they find a problem today, guess who’s paying for it?

01:40:02:03 – 01:40:05:28
Rod
You okay? And so, you know, you always get an environmental.

01:40:06:02 – 01:40:07:03
Michael
I’ll I’ll take that one step.

01:40:07:03 – 01:40:07:22
Rod
Further, okay.

01:40:07:25 – 01:40:12:05
Michael
Even if you get, a clean phase one. So phase one from the seller.

01:40:12:05 – 01:40:17:03
Rod
It’s by the way, that’s the first report you do is a phase one. It’s not quite as in-depth as the phase two. Right?

01:40:17:03 – 01:40:31:17
Michael
Right. Even if you get a clean phase one from the seller, or let’s say your lender orders a phase one in their name, we still get our own phase one in our entity’s name, because if you don’t, your entity doesn’t have the protection. If something happens in the future.

01:40:31:18 – 01:40:32:05
Rod
And it’s a.

01:40:32:05 – 01:40:35:04
Michael
Relatively inexpensive report together talking 50,000.

01:40:35:04 – 01:40:37:15
Rod
Dollars, oh, it’s not much in the overall scheme of things. Right? Right.

01:40:37:15 – 01:40:48:09
Michael
And to kind of have that protection because as you outlined, if something does pop up and one of these phase ones in the past missed it, and you don’t get your own phase one in your entity’s name, you will not be know, not covered.

01:40:48:09 – 01:41:05:01
Rod
Well, that’s really good advice. I wasn’t I didn’t even think through that piece. Okay, that’s good advice. Now another thing I want to talk about is the phone calls you got to make. Okay? You need to call the zoning department and make sure there’s no zoning change plan. You need to call the the the building department who handles infrastructure changes.

01:41:05:01 – 01:41:21:14
Rod
Make sure there’s not a new sewer line going in front of the complex, because if you close in, that happens. Guess who’s paying for it, right? So you got to make those phone calls. You know, the other phone calls that I recommend people make is, you know, the business development office or the Chamber of Commerce. You need to know what businesses are moving in, what businesses are moving out.

01:41:21:14 – 01:41:23:05
Rod
Right. I’m assuming you do all this for sure.

01:41:23:05 – 01:41:34:24
Michael
And one thing we actually do in our PSA, Sue, is we’ll put a question in our other terms and conditions. Are you the seller aware of any right, obstructions or government interactions and.

01:41:34:26 – 01:41:52:24
Rod
Upcoming governmental changes or things of that nature? Yeah. That’s critical. Yeah. We that’s that’s a good point. You we put it in ours as well. I forgot that, but, you know, you should make the phone calls and, and because you learn a lot, from a chamber of commerce, for example. Of course, they were going to tell you everybody it’s coming in, but you want to was leaving too.

01:41:52:26 – 01:41:56:16
Rod
Yeah. Because what’s the number one thing in multifamily that you want to look at?

01:41:56:18 – 01:41:57:24
Michael
Supply and demand.

01:41:57:27 – 01:42:00:28
Rod
Jobs. Right. Would you say jobs.

01:42:00:28 – 01:42:01:15
Michael
Jobs. Yeah.

01:42:01:15 – 01:42:19:20
Rod
Yeah for sure. And what supply and demand of course. Yeah. They there’s got to I mean there’s areas that are saturated. We’re dealing that with on a Nashville asset. But they’ve got to have a place to work. And I’ll tell you what’s cool. That’s another thing that on the due diligence front that I I’m sure you do this as well as you want to see employment, diversity, employment industry diversity.

01:42:19:24 – 01:42:37:05
Rod
You don’t want a one horse town for sure. You know, because you know, like even even if it’s a military base, because if that horse gets sick or that horse leaves town, you’re screwed, right? And so, you know, I, I forgot if it’s best places dot net or city hyphen data. That does a really nice graphic of employment industry diversity.

01:42:37:05 – 01:42:38:09
Rod
Are you aware which one does that?

01:42:38:10 – 01:42:39:11
Michael
I think it is city place.

01:42:39:11 – 01:42:59:10
Rod
I think it’s yeah. Yeah. And, and, and it’s a nice thing to present to investors when you’re doing an investor presentation because you want to see that diversity. And and then of course, you know, as you’re doing your preliminary due diligence, you’re looking at the median home price versus what you’re paying per unit, right? Yeah.

01:42:59:16 – 01:43:01:07
Rod
You got better be diversity there as well.

01:43:01:07 – 01:43:07:06
Michael
And we also want to know what is that single family home renting for. Right. Because if it’s renting for the same thing for the same people.

01:43:07:06 – 01:43:07:27
Rod
As well I mean.

01:43:08:03 – 01:43:09:18
Michael
Right, they’ll they’ll probably want to live.

01:43:09:19 – 01:43:31:05
Rod
Yeah. They’ll do a home because nobody’s living above or below or beside them. Yeah. So yeah, the rent and the purchase price, if the purchase price that they’re selling for is near what you’re paying for, they’ll go by as well. You know. And then the other thing we look for, when we’re checking median income in an area, is I like to see that the median income, can support three times the rent amount, for sure.

01:43:31:05 – 01:43:41:01
Rod
Yeah. Or at least your projected ultimate rent amount. So those are the kinds of things I want to see, you know, and we typically outline those in our investor presentations.

01:43:41:07 – 01:43:44:00
Michael
If the median income doesn’t support that, then.

01:43:44:06 – 01:43:45:06
Rod
You’re not gonna get your rents.

01:43:45:06 – 01:43:47:23
Michael
Right. They won’t be approved to lease a unit at your complex right.

01:43:47:29 – 01:44:05:11
Rod
That you won’t get your rents. Now, another thing that I like to I like to look for is I want to see national retail tenants. You know, if I get in Google Earth and I drive down the street on Google Earth and I get to the, I get to the intersection there and, you know, I don’t want to see, you know, a liquor store or pawn shop on a strip club.

01:44:05:11 – 01:44:24:23
Rod
Okay. I want to see Starbucks Circle. Right. You know, I mean, that’s what we call a clue, okay? And I want to see national retailers. I don’t want to see Bob’s Burgers and Sushi. Right? You know, because these national retailers really do their demographic research. Even the big grocery stores and these and so, you know, if there’s if there’s big national retailers, they’ve done that.

01:44:24:27 – 01:44:26:26
Rod
And you can feel good about the area. Right.

01:44:26:26 – 01:44:29:22
Michael
And Starbucks is always going to go deeper than. And we go.

01:44:29:28 – 01:44:47:10
Rod
Yeah, exactly. And I should own stock in them because I won’t buy a complex. And there’s unless there’s a Starbucks within driving distance. But but yeah. So you know these are I just want to give you guys some digging digging a little deeper on due diligence. Some of the things we do in our preliminary evaluation and in the ultimate due diligence.

01:44:47:10 – 01:44:53:18
Rod
Now, how do you address, crime prevention when you buy an asset? I’m just curious.

01:44:53:20 – 01:45:15:12
Michael
It’s a timely question because we closed on a property in late 2024, and we did have some, some crime issues, some homelessness issues in the complex. So, on that asset specifically, what we did was we installed cameras just as a first preventative measure. We also retained a constable company to come and survey the property four times daily.

01:45:15:12 – 01:45:31:25
Michael
So three times I’ll drive the asset once during the day, actually walk the hallways so they walk the hallways four times, daily. And it was expensive. But yeah, it was one of those expenses that we, we had to pay for for a few months just to clean up the asset, new doors. So we got, doors.

01:45:31:28 – 01:45:32:25
Rod
New exterior doors.

01:45:32:25 – 01:45:33:25
Michael
New exterior doors.

01:45:33:25 – 01:45:37:17
Rod
So this is this was this was an asset with interior hallways then, so. Okay.

01:45:37:17 – 01:45:52:25
Michael
Got it. So we had, exterior doors now that have, card readers do. Nice. So secure. Enter. Exactly. We still had some issues there because some of the residents were, less savory, and they were just letting the even less savory people in some ways.

01:45:52:25 – 01:46:10:17
Rod
And and what’s very common is, is you’ll get a woman, a single woman that’ll move in, and then the boyfriend comes and the boyfriends and drugs are a piece of crap. And that’s a very common dynamic. Yeah, honestly, asset for sure. And one of the things we do, I’ll tell you when we buy an asset, I take security, you know, very seriously.

01:46:10:18 – 01:46:25:11
Rod
Ideally, I’d like to see that the assets completely enclosed. I’d like to see that it’s fenced in. Has a gate. Now that may not always be possible. And it’s not cheap. Always cameras. We always put cameras in. And then we always look at the lighting and enhance the lighting as well. Yeah. We had a on our Nashville asset.

01:46:25:11 – 01:46:40:13
Rod
We had a homeless camp right freaking across the street. I mean, right across the street. I mean, you drove up and you see all these tents and. Oh, was a shit show. And thank God we finally got him out of there. But, you know, they were breaking in the cars and and they had this little pathway behind the complex.

01:46:40:13 – 01:46:58:19
Rod
We called it the Homeless Highway, where they’d get into our complex and we had to we actually dropped some big trees so they couldn’t get through there anymore. Yeah, it was a real debacle. But, you know, you deal with that stuff and, and, but. Yeah. And we and you know, I took over some assets at my ex-partner.

01:46:58:19 – 01:47:16:06
Rod
Oh, God. He screwed him up. And there were people getting killed and everything else. And, you know, that’s the first thing we did was just enhance the security. You know, another thing that can be very helpful is to offer free rent to, to a police officer. As long as they drive their, their, their car, their, their police car home every night because that that’s a big it’s.

01:47:16:06 – 01:47:17:08
Michael
Just to present. So yeah.

01:47:17:08 – 01:47:31:29
Rod
We had an asset Nashua. We had three actually three officers because there was a guy the day I was there I was at another asset a mile away and there was somebody got killed in a shootout there. I was like, oh, good lord. And so yeah, we got three officers to live there. And that really made a big difference.

01:47:31:29 – 01:47:37:28
Rod
And the gate wasn’t operational. Got that fixed. You know, so yeah, that’s great.

01:47:37:28 – 01:47:52:19
Michael
And we called the local police department as well just to alert them. Hey, this complex is under new ownership. We’re looking to clean it up. We’re looking to do the right thing here, but there’s a lot of unscrupulous activity going on there. Can you guys do some drive by? So they were willing to do drive bys for a limited amount of time.

01:47:52:19 – 01:47:59:08
Michael
And they were very willing to work with us. Yeah, we’re happy to hear that. We were investing in the community. We were looking to clean it up, and we were doing it the right way.

01:47:59:08 – 01:48:22:01
Rod
That’s a really important phone call. You should absolutely do that. I, I interviewed someone named Maureen Myles, who’s, just a freaking rock star in a business. Thousands of units in Atlanta and elsewhere. And, she had she, tells the story, and I love the story. So I’m going to share it real quick where she had, you know, these assets in Atlanta, and she paid for the police officers Christmas dinner.

01:48:22:08 – 01:48:41:11
Rod
Okay. It was like $1,800 or something, but she paid for it, and she was telling the story about her. Anna and her prop female property manager walked into an empty building and, like, eight very unsavory characters walked out. And she was texting the police officers, and she said you could hear the sirens all over the place coming, coming to help.

01:48:41:16 – 01:49:02:22
Rod
Yeah. They were there like in in minutes. And, you know, those police relationships make a big difference. And another thing you can do that I did once quite a long time ago, is you can have them put a little substation in one of the units in the front and have a frigerator with the I’m not going to say donuts, but you have, you know, have drinks and have a desk where they can do their paperwork and stuff and that can be really effective.

01:49:02:22 – 01:49:20:29
Rod
And that kind of senior. So, so I think we’ve covered the physical due diligence, you know, your preliminary evaluation, looking at an area, what you want to see in that area, what you want to see in rents and median income and things like that in crime, by the way, you can go to Spot crime.com and see if you want to do some interesting go to Spot crime.com and put in your home address.

01:49:20:29 – 01:49:39:25
Rod
You’ll be blown away by how much crime is in your backyard. It’ll blow your mind, but then you can compare that to a property you’re looking at, and you can see, you know, where the quote unquote hurt is, okay? Where it’s where where it’s tough and where it’s dangerous. And so that can be very helpful. But, so I think we’ve covered the physical and the financial due diligence.

01:49:39:25 – 01:49:52:28
Rod
When you’re looking at an asset in the area, due diligence. Let’s talk about, what you might want to do as far as due diligence when you’re dealing with a lender or a loan broker or a financing option for sure.

01:49:52:29 – 01:49:55:23
Michael
Yeah. So so we treat our lenders as partners where.

01:49:55:23 – 01:49:56:05
Rod
They are.

01:49:56:06 – 01:50:16:06
Michael
That that’s what they’re the biggest part of the capital stack. So we don’t treat them as vendors. Right. And so we want to know just as much about them, as we want to know about the asset. And we want to feel comfortable that they’re going to perform, because especially with some of the economic instability and lack 3 to 5 years, there’s been some lenders that have just pulled out of deals or just.

01:50:16:06 – 01:50:37:06
Rod
Decided or they made very unreasonable demands. And we’re seeing that as well, even with with fairly sophisticated borrowers, they’re making these ridiculous reserve requirements that they have the ability to do because the loan documents can be very onerous. But, you know, as sometimes it’s a what their demands are onerous as well. And so yeah. So please continue what.

01:50:37:08 – 01:50:56:22
Michael
There’s a few different tiers of lenders that, that we work with. And so the first is local banks and credit unions. Those are super relationship based. And if we’re going to work with one of those institutions, we like to have worked with them previously and have, some sort of understanding of their process. And, we like to be comfortable in knowing that they’re going to perform.

01:50:56:24 – 01:50:57:07
Michael
Then there’s more.

01:50:57:07 – 01:51:16:00
Rod
Of the regional, let’s stick with let’s stop there for one second. So with banks and credit unions, like you said, they’re relationship based. And guys, you know, if you’re going to buy in a market, you’d be well-served to start one of those or two of those relationships. And it starts obviously with a deposit relationship. Open a bank account, throw some money in there, but then, you know, find out.

01:51:16:00 – 01:51:30:18
Rod
Obviously before you do that, find out if they if they’re alone on commercial property and if you’re an out of state, borrower find out if they’ll loan to an out-of-state borrower. So ask those questions before you bother. But then you know then what you want to do, correct me if I’m wrong, is you go meet with them.

01:51:30:18 – 01:51:48:12
Rod
You’re going to meet with the president of the bank or the commercial loan officer there. You get to know them, you break bread with them. And and I mean, that could be a very valuable relationship. I’ve got students that have literally bought deals, nothing down because they had great banking relationships. They financed the whole thing, or they allowed the seller to carry a second.

01:51:48:12 – 01:51:52:22
Rod
In one case, you know, which is very unusual, but those relationships can be gone.

01:51:52:27 – 01:52:10:22
Michael
That’s 100%. Right. So we’ll fly in quarterly just to do relationship based meetings like that, because those institutions only want to lend to people they know, like and trust. It’s not enough that you have a resumé if you’re looking to buy something in their backyard. Another example is one of our credit unions that we work very closely with.

01:52:10:26 – 01:52:30:19
Michael
They sponsor, university in Indiana. So we donated to that university. And that’s something that that they valued quite a bit in their relationship. So nice. And you’re right to they could get super creative with loan structure. So we have some of our local banks and credit unions who on our existing assets where we have the first, loan with them, they’re willing to issue a second to.

01:52:30:19 – 01:52:31:17
Rod
Us to do some.

01:52:31:17 – 01:52:36:17
Michael
Improvements or maybe take some cash out and we could leave our lower interest rate on the first in place. We don’t have to refinance.

01:52:36:19 – 01:52:51:26
Rod
Yeah. That’s beautiful. Yeah. And and, you know, and I’ll tell you, as if things continue to go south with some of these assets, some of these banks are holding some deals that are going to go south. And there could be some incredible opportunities. And I will tell you in, oh nine and ten, banks were financing deals for people.

01:52:51:26 – 01:53:08:22
Rod
They had these relationships with where, you know, they they the banks don’t want to hold on to a property. And they called REO Real Estate home. They don’t want to they’re not in the management business. They don’t they can’t keep a property on their books. And so, you know, if they’ve got a relationship with someone, you know, that’s been built over time, you know, you could get a phenomenal deal too.

01:53:08:23 – 01:53:19:10
Michael
Especially in some of these smaller local banks and credit union because they’re not in any position, as you said, right across these assets. So that’s that’s another thing we do quarterly is we follow up with some of our closer contacts at these local.

01:53:19:14 – 01:53:20:03
Rod
Yeah. Do you problem.

01:53:20:03 – 01:53:21:28
Michael
Loans. Yeah. We’ll just ask them. Yeah. Yeah.

01:53:22:00 – 01:53:28:01
Rod
And they’ll they’ll share it too I mean the you know I call this guy I, I saw that happened lot.

01:53:28:03 – 01:53:29:09
Michael
It looks bad on them is the loan.

01:53:29:09 – 01:53:40:14
Rod
Oh, sure. Sure does. And man, if it hits their balance sheet, it really looks bad. So for, you know, particularly if they’re if they’re public. So. Okay, so, so banks and then let’s move on.

01:53:40:16 – 01:53:55:20
Michael
Yeah. For sure. So last thing I’ll mention local banks and credit unions. It almost helps us in some sense is to replace bridge debt in scenarios where it’s a deep value add project. Because sometimes these local banks and credit unions are still willing to finance 7,580% of those projects issuance.

01:53:55:22 – 01:53:57:00
Rod
Without prepayment penalties.

01:53:57:04 – 01:54:01:12
Michael
Prepayment penalties at, more of a market interest rate. So maybe and they’re.

01:54:01:12 – 01:54:03:16
Rod
A lot less onerous than a for the bridge lender.

01:54:03:16 – 01:54:08:11
Michael
Exactly. No points at closing right. You know maybe a half point lender fee. Right. And that’s it.

01:54:08:14 – 01:54:26:23
Rod
Oh that can be fantastic. Five years. Yeah. Usually I mean some of these bridge lenders, some of the terms they’ve got in their in their contracts are they make the hair on the back of your neck stands up. I mean, they’re bad. And we’re seeing it, and, and, you know, so okay, so beyond banks and small banks to talk about the next tier.

01:54:26:25 – 01:54:29:25
Michael
Let’s say the next tier is probably regional banks. So the larger.

01:54:29:25 – 01:54:34:21
Rod
Ones, have you worked with some of those Bank of America, BBA, Wells Fargo, fifth or any of those? Chase.

01:54:34:26 – 01:54:40:19
Michael
None of the ones that you just mentioned. Okay. We’ve worked with some in the space and coding in the the project that we talked about.

01:54:40:22 – 01:54:46:28
Rod
Okay, okay. Financing that because you can’t really develop much of a personal relationship with them. Right, right.

01:54:46:29 – 01:54:56:01
Michael
Yeah. So the, the institution that we have somewhat of a relationship with the one of the Arcadia, loan officers actually went over there to build out their commercial lending division.

01:54:56:03 – 01:54:57:00
Rod
So we had a relationship.

01:54:57:01 – 01:55:08:06
Michael
They were getting a little more savvy on, on their end, but, their requirements are a bit more strict than the local credit unions. And the banks are a little less willing to make exceptions. But, you never know if you don’t ask.

01:55:08:06 – 01:55:11:20
Rod
But that’s the that’s the lender that’s stepped up and and operated with integrity.

01:55:11:20 – 01:55:12:10
Michael
They do. That’s good.

01:55:12:12 – 01:55:12:24
Rod
Well that’s.

01:55:12:24 – 01:55:13:03
Michael
Great.

01:55:13:03 – 01:55:15:09
Rod
They did. Okay. So what’s the next step.

01:55:15:14 – 01:55:16:19
Michael
I’d say agency and yeah of.

01:55:16:19 – 01:55:32:26
Rod
Course agency. Now what is agency guys. That’s Freddie Mac and Fannie Mae okay. And you know they’re known for non-recourse debt. Meaning if they foreclose they don’t come after you personally as long as you haven’t bumped up against one of the covenants in their loan documents. Have you done any agency that.

01:55:32:27 – 01:55:46:19
Michael
We have mostly on the refinance side of things? Yeah, it’s a little more difficult for us to work with agency at the outset, just because the assets we’re purchasing are mainly value at assets. So some of the requirements that the agency has is, 90% occupied for 90.

01:55:46:19 – 01:55:47:27
Rod
Days, 90 for 90.

01:55:47:27 – 01:55:58:27
Michael
Yeah. And they go deeper in the financials and most of the other banks and credit unions that we work with and not only that’s just the time, the time it takes to close an agency loan. A lot of times sellers aren’t willing to wait.

01:55:58:29 – 01:56:21:18
Rod
Right. No. That’s especially on a, you know, troubled asset. So no, I agree completely. No that’s that’s very helpful. And and you know beyond that there’s insurance company debt. There’s CMBS loans, commercial mortgage backed securities. And you know, they’re viable options. If you’ve really got a stable asset. But, you know, with agency debt as well, you know, they’re they’re fairly strict on their requirements.

01:56:21:18 – 01:56:36:25
Rod
They want to see net worth equal to the loan amount in the in the loan guarantor group. You know, it doesn’t have to be your net worth, but, you know, you put a group together or maybe you got one high net worth individual that steps in as a long guarantor. And they want to see liquidity equal to 10% a loan amount after closing.

01:56:36:27 – 01:56:55:06
Rod
And so, you know, and that can be cumbersome as well. It can be a big amount of money. So Post-Closing liquidity is typically around 10% with agency debt. And banks aren’t quite as stringent. So you know, that can slow you down. So so you’ll go in you’ll you’ll do your value add play and then you’ll refinance into stable agency debt.

01:56:55:07 – 01:56:55:13
Rod
Yeah.

01:56:55:14 – 01:57:13:04
Michael
Right. And prepayment penalties is another one that you mentioned earlier. And so with agency debt you’re generally going to be looking at a pretty salty 5 or 10 year prepayment step down of some sort of yield maintenance. And so to go into a value add asset with that from day one, it really limits your options to refinance or reposition the asset.

01:57:13:07 – 01:57:14:27
Michael
Right. If that’s the business plan yeah.

01:57:14:27 – 01:57:32:16
Rod
Yeah. You can’t because you’ve got to pay that. You have to pay those those prepayment penalties which like you said, and that’s why people do bridge debt because very often they don’t have prepayment, but they’re very onerous compared to, you know, local or regional banks. All right. So so we’ve talked about property due diligence. We’ve talked about lender due diligence.

01:57:32:19 – 01:57:42:05
Rod
Now let’s talk about investor due diligence because you raise money right I raise money. My students all raise money. What are some due diligence you would do on an investor?

01:57:42:07 – 01:57:49:23
Michael
I’d say at the highest level know, like and trust. You want to know, like and trust the people that you’re partnering with, whether they’re a passive investor or a.

01:57:49:23 – 01:57:50:28
Rod
General or a general partner.

01:57:50:28 – 01:58:06:05
Michael
Yeah. And I tell our passive investors this all the time when they ask me, hey, what question should I be asking you that I didn’t think of? I said, just do you know, like and trust me. Yeah. You know what? Where did you get my contact information? It was where you referred over to me by somebody who already passively invests with us.

01:58:06:05 – 01:58:16:09
Michael
So those are the things that we look for, in our passive partners as well, because these are folks that you’re going to be partnering with for years to come, and you’re going to be talking to you on a semi-regular basis.

01:58:16:09 – 01:58:34:00
Rod
So I actually have a resource for this. If you go to Rod’s links.com, that’s my Linktree, and I’ve got a free book section. And in there is the questions you should ask a general partner before you get into syndication. So this is really helpful because there’s really insightful questions in here. But the no like and trust thing is the most important thing candidly without question.

01:58:34:00 – 01:58:53:01
Rod
But you know, find out what they’ve done. Find out what their background is. You know, if you’re going to invest in a deal. But from an operator standpoint, you want to be careful with the investors you bring into a deal. Because I can tell you, sometimes managing your investors is harder than managing your asset, especially if you get some you know, what holes.

01:58:53:04 – 01:59:02:10
Rod
Okay. And and so, you know, if they’re if they are that don’t do it. Don’t take their money I don’t care. Life’s too freakin short for that brain damage. Agree with me.

01:59:02:14 – 01:59:10:04
Michael
I agree yeah. And I think one really important question to avoid some of that pitfall, or to try at least, is to try to figure out what the investor’s goals are.

01:59:10:04 – 01:59:13:08
Rod
Yeah, yeah. If they need their money back quickly, this isn’t the fit for them.

01:59:13:08 – 01:59:14:03
Michael
Not it’s not the right.

01:59:14:03 – 01:59:30:08
Rod
You’ve got to ask that question. You know what if they need the money for for, you know, college or for an Aunt Mabel’s surgery or whatever, you know, you need to know. Because if they’re used to doing IPO’s, for example, and their money’s in and out in eight months, this is not for them. This is a 5 or 7 year horizon.

01:59:30:08 – 01:59:41:22
Michael
Exactly. It’s really looking to retire and right for three years. And they want to be liquid at that point where they want to put a pool in or whatever the case is. They have to understand that their investment is not liquid. And this tied up for we usually say 5 to 10 years, right?

01:59:41:23 – 01:59:59:00
Rod
Oh 5 to 10. Yeah. Fine. Yeah. And so, you know this is a long term investment for them. And so you’ve got to ask those questions and otherwise you’re going to have very unhappy situation okay. You can have the person’s unhappy. And then you know they want out of the deal and you’ve got to find somebody to replace them if that’s even possible.

01:59:59:00 – 02:00:03:18
Rod
And yeah it’s a pain in the butt. So anything else to add on the investor due diligence?

02:00:03:22 – 02:00:23:21
Michael
We’ll usually segue right from that conversation into, hey, do you have any old IRAs by chance, or do you have any old 401 case from prior employers? And we’ll just try to educate our investors on the opportunities that that are available there so they can self-directed a Roth IRA, traditional IRA, and then they have control of that account and they can direct that into real estate.

02:00:23:21 – 02:00:30:21
Michael
And I always tell folks, if you have those accounts or liquid funds, always use the IRA or the 401 K first, because that’s.

02:00:30:21 – 02:00:31:10
Rod
Illiquid or.

02:00:31:10 – 02:00:40:07
Michael
Exactly, you know, why not diversify from the stock market with with those funds before you tap into your liquid funds? And so I think investors really appreciate that. And it’s also educating them.

02:00:40:11 – 02:00:58:02
Rod
Sure. It is not. It’s very valuable advice. You know, it’s it’s it’s a much better way to invest, use utilizing a retirement related vehicle like that. And and yeah, and a lot of them don’t realize they can do it. Right. And, you know, we’ve all seen the volatility in the stock market. And I think that’s going to continue.

02:00:58:04 – 02:01:24:29
Rod
We’ll see if I ran gets a big bomb dropped on them. That’s where we are right now while we’re interviewing this. So we’ll see, you know, and you know what the impact that has on things, certainly oil could be impacted. So, yeah, a lot of crazy time things happening right now economically. So what are the some of the things you’ll tell a passive investor that’s evaluating you to possibly invest with you?

02:01:25:01 – 02:01:50:26
Michael
I’ll always tell them it’s the jockey, not the horse, meaning it’s the operator more so than the asset. So whether, it’s a password investor who’s already comfortable with you or a new passive investor, of course, they need to be comfortable with the asset, with rejections and things of that nature. But to me, that’s almost secondary to the operator, because you really need to know I can trust that person because, as you know, it’s very easy for an operator to to move a couple decimal points in an underwriting spreadsheet and or just move.

02:01:50:26 – 02:01:51:24
Rod
Or screw up a great.

02:01:51:24 – 02:01:57:27
Michael
Asset rent growth. Right? And all of a sudden your projections look materially different and much more appetizing.

02:01:57:27 – 02:02:16:06
Rod
Or screw up a great asset. I mean, I saw that firsthand with my ex partner. I won’t belabor that point, but that’s exactly what happened. And and so yeah, you’ve got to know like and trust and and do you know, do a little research and background on the person you’re going to invest with and, you know, don’t dabble in this, guys.

02:02:16:06 – 02:02:34:05
Rod
You know, if you don’t understand the business, get your butt to one of my boot camps. Because why would you give you a hard earned money to someone if you don’t at least have a basic understanding of the business? And that goes for stock market investing or any type of investing. Gold mines, whatever. Learn, at least some basic understanding of what you’re investing in so that you don’t make a mistake.

02:02:34:05 – 02:02:34:24
Rod
You agree with that?

02:02:34:24 – 02:02:42:01
Michael
Oh, 100%. And as an investor, you can and should ask for an operator’s underwriting and should. Right. And we always provide that.

02:02:42:01 – 02:02:54:13
Rod
But but they can make something look good. Just moving a couple of like you said, a couple decimal points, a couple of zeros or whatever, and they can make a, marginal deal look good. And if you don’t understand what you’re looking at, you’ll miss it.

02:02:54:13 – 02:03:10:13
Michael
And at the end of the day, nobody knows that deal better than the operator or the operator’s been on site. The operator is intimately familiar with the due diligence. The operator is probably the one that did the underwriting. So even as an investor and you’re reviewing that, you might be able to sign off on that. But if you don’t know, like and trust that operator, you really can’t rely on that underwriting.

02:03:10:13 – 02:03:20:08
Rod
Couldn’t agree more, brother. That’s that’s absolutely great advice. Well, I really appreciate you coming on. So Mike’s the founder of Next Play Investments. And I appreciate you guys coming down here. You.