Michael is another expert syndicator and author of a new book, Financial Freedom with Real Estate Investing. Today he’s here to tell us how people can do exactly what the book title says, be financially free through real estate investing. Great advice in this show, get ready to take notes! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Michael Blank Real Estate Background:
- Full time entrepreneur and investor who controls over $65 million in multifamily assets
- Host of the popular real estate podcast Apartment Building Investing with Michael Blank
- Releasing new book soon called Financial Freedom with Real Estate Investing
- Listen to his previous episode:
- Based in Washington D.C.
- Say hi to him at http://www.themichaelblank.com/
Best Ever Listeners:
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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.
First off, I hope you’re having a best ever weekend. Because today is Saturday, we’ve got a special segment called Situation Saturday… And here’s the situation – you want financial independence, and hey, you’re listening to a real estate podcast, so it’s likely that you are looking at or currently implementing real estate as a way to achieve that financial independence… And fortunately, we have Michael Blank on today’s episode, and he just wrote the book “Financial Freedom with Real Estate Investing”, so we’re gonna learn about how to do that. How are you doing, Michael?
Michael Blank: Hey, I’m doing great, Joe. Thanks for having me on the show today.
Joe Fairless: Well, my pleasure and nice to have you back on the show. If you recognize Michael’s name, well, you’re either a loyal listener of this podcast; you can just search “michael blank joe fairless” and listen to previous episodes with him, or you can listen to his podcast; he is the host of the popular real estate podcast called “Apartment Building Investing with Michael Blank.”
He’s a full-time entrepreneur and investor who controls over 65 million buckaroos in multifamily assets. Based in DC… Michael, how about just real quick maybe give some background about yourself, and then let’s dive into financial freedom with real estate investing, the book you’re releasing, what we can learn from it.
Michael Blank: Yeah, I’ve been on a multi-year (nearly a decade) quest for financial freedom, and I had it for a while and then lost it again, and regained it… And I’ve done everything from software, to restaurants, traded stocks and options, flipped houses, did apartment buildings, negotiated short sales… I’ve done a bunch of stuff, and some were successful, some weren’t, and some really didn’t give me the lifestyle that I wanted… And when I looked at it, when I took stock of all these things and I looked at the lifestyle I wanted, which was financial freedom, there was really one that checked the most boxes, and that was always apartment buildings. That’s what I focus on right now. My passion really is sharing how to do that, and what’s really exciting about it is that people can get started with apartment buildings, regardless of whether they have experience or cash. That’s what I really find exciting about that.
Joe Fairless: Yeah, that is certainly intriguing. As you mentioned, you can get started without experience or cash… I guess that’s a great way to start the conversation. How can you get started without experience or cash in apartment buildings?
Michael Blank: Well, first let me say a lot of people think this, and as a result, they take certain actions that may or may not be misguided. Normally, the argument goes “Michael, apartment building investing is a great way for passive income, long-term wealth, but let me do some single-family house investing for the next five or ten years, and I’ll take that experience and the money I make and then I will graduate to apartment building.” It’s not a bad plan. Shoot, I’ve done it, and most of the people I know have done it. The thing is it’s not the most efficient plan. There’s a more direct path, which is getting started with apartment buildings right away…
The two main objections – one we talked about already, “I don’t have the experience. I don’t have the money. I’m stuck.” So how does one overcome the lack of experience? There’s a couple very simple ways to do that, but first and foremost is educating yourself, so you don’t sound like a newbie… Because as you know, apartment building has its own language, and when you don’t use the right language, you immediately sound like a newbie, and you know you sound like a newbie when the broker says “You know what, send me your proof of funds and I’ll send you more details.”
When that happens, there’s evidence that you just sounded like a newbie. So number one is don’t sound like a newbie, and number two, build a team around you, so when the broker says “Who are you? Why should I talk to you?”, you say “My name is Michael and I’m a real estate investor looking for blah-blah-blah, a certain deal… But I’m working with Frank, who manages 5,000 units, and I’m working with so-and-so down at a title company…”, and the broker will be like “Oh, Frank? What a great guy! I’ve known him for years!” and all of a sudden the conversation is about the experience of your team members, versus the lack thereof on your side.
So the lesson there is to build a team around you, and you do a great job with this, Joe; you’re awesome at creating teams. So you talk about the team around you, and the focus is no longer on you. That’s the main way that you very quickly can overcome the lack of experience without spending 5 or 10 years investing in single-family houses.
Joe Fairless: How do you track the right team members?
Michael Blank: It’s really about — I would boil it down to enthusiasm. If you’re enthusiastic and you have ambitions, people wanna be part of that… And when you can share your enthusiasm with others, it really attracts other people. Then what I also find is when you do attract a great team member, great team members attract other team members.
You know, start with a property manager – if you have a great property manager that manages 5,000 units in Birmingham, Alabama, a lot of people are gonna know this property manager, and if they know that he’s on your team, gosh, they may wanna be on your team as well.
Sometimes you need these team members to attract other great team members. So using word of mouth, and then leveraging the team to attract even better team members.
Joe Fairless: You mentioned it boils down to enthusiasm… I can see a scenario where someone can be really enthusiastic, but they don’t attract quality team members. I’m thinking of some specific examples where people will reach out to me on Bigger Pockets, and they send me seven pages worth of messages, and that’s showing a lot of enthusiasm, but it’s not attracting me… And who cares about me, but I’m just using this as an example, because it’s something that I think of when I hear enthusiasm, but there can be misplaced enthusiasm or not necessarily strategic enthusiasm. What are your thoughts on that?
Michael Blank: Yeah, this is a really good point, and this happens to me a lot as well. “Hey man, I’ve got a smokin’ hot deal. What do you think?” I’m like, “Are you kidding me? It’s gonna take me 90 minutes to answer that question.” So this person is not being very respectful of my time. It’s all about being respectful with people’s time and adding value to that.
So I do think though it is partly by building a vision and by appearing credible to a team member, and you’ve gotta convince a new team member that you’re credible. This goes for the property manager as well. So again, it’s all about appearing credible, being respectful with people’s time, and adding value. The property manager wants to manage units, so they’re gonna wanna talk to you if they think that you’re gonna actually get into a deal. If you can show them that you’re building a team, that you’ve done this coaching program and you’ve aligned yourself with this equity partner, they’re gonna go “This guy is for real. I wanna be a part of that.” Then you use that again…
But you’re right, it’s not just enthusiasm. It’s certainly about appearing credible… The same thing goes for brokers. The brokers wanna know that you’re credible and that you’re serious, and that you’re not wasting their time. There’s a big thing around not wasting people’s time.
Joe Fairless: Is there a sequence that you should look to bring on certain team members?
Michael Blank: It’s always a bit of a chicken/egg problem. I always say the gateway into a new market are always the brokers. But then again, you call a broker without a team being built, and you don’t wanna appear like a newbie also. For example, if you’re breaking into a completely new market, you can certainly google “property managers” etc., but word of mouth is still the best thing.
The way I normally do it is I call up the broker and I say that “I’m expanding into a new market, I’m working with XYZ, with high net worth individuals… What do you have? Show me some deals” and you start the conversation there… And then you slowly build on that; you provide feedback on that first deal, and you build a relationship and you say “Look, I’m talking to property manager XYZ, who you don’t really love… Is there anyone you really love?” and now you get that first referral, and you start building relationships and getting referrals in that way.
Joe Fairless: And in that scenario, you’d mentioned to the broker that you’re working with private investors and equity investors… So do you need to have those investors in place prior to reaching out to the broker?
Michael Blank: That’s right, and that addresses the second objection that people have with getting into apartment buildings, aside from experience – it’s “I don’t have any money of my own, or I certainly don’t have enough money to get into these large buildings, so what do I do?” and the answer, of course, that you and I know, is “Raise money”, and the question is “Well, when do I do it? If I don’t have a deal under contract, I have nothing to talk about to investors. On the other hand, if I’m lucky and someone actually accepts my offer, I have 45-60 days to close – I don’t have enough time to raise the money,” which is also true.
So a lot of people throw up their hands and go “Can’t be done.” The way that we do it and you do it is we kind of have a sample deal. We start with a money-raising partner and the relationship building right now, today, because what I want is I want someone to verbally (at least) commit to me that “Hey, you know, if you find a deal like this, that you just show me, even though it’s made up, hypothetical – if you find a deal like that, I’m in for $50,000, $100,000.” And you use these sample deal packages as a way to get out of the way the large questions – “Why multifamily? Why should I invest with you? Why this? Why that?” and you get these big questions out of the way, and then you make someone comfortable with the whole idea and they give you a verbal commitment.
So if I have verbal commitments from five investors, now I have a lot more confidence that I can actually make offers on something. A lot of people try to make offers on deals – or worse, they don’t, because they don’t have the confidence… So why not go out, start the relationship and the conversations early, slowly get them to the point where someone’s actually comfortable and interested in investing with you, getting a verbal commitment, and then when you get a real deal, you then firm up that commitment.
If you do that, and you do actually have a deal – and you guys do this all the time, you talk to people all the time, build up relationships over weeks or months, and then when you have a deal, you subscribe it in five days… Why? Because you’ve already had conversations long before the actual real deal.
Joe Fairless: When you’re starting out and you have that sample deal and you’re speaking to the first ten or so people about it, and you finally have a conversation where someone says “Yeah, I’m interested. Let me know if you find something like this”, should you ask him/her “What is the investment amount that you’re looking to do?”, or would you not ask that question?
Michael Blank: It depends on what stage I’m in in the relationship. Normally, when someone has an interest in finding out more, I will normally say “Well, typically, the minimum investment is $50,000, returns are X, Y and Z… Do you know someone?” and if they go “Me! Pick me!”, they kind of self-qualify themselves, because I’ve just said the minimum investment is $50,000.
For example, early on I made a mistake where someone was very interested and I spent an hour, took him to lunch, and got really excited… I said “The minimum investment is $50,000” and he goes “Oh… I have $5,000”, and I’m like “Darn it! I just wasted my time!” Even though, of course, in the beginning you’re not really wasting time because you’re practicing… However, as you get a little more sophisticated, as part of the elevator pitch I typically drop the fact that there’s a minimum investment.
Joe Fairless: Okay. What are some mistakes that a beginning investor tends to make as it relates to either building out the team, or having those investor conversations to qualify investors and build up some of that equity they need?
Michael Blank: Well, you just identified two of the major mistakes that people make, and I think it’s really a function of education, because… I mean, I had a call week — you’re not gonna believe this, but I had a call with someone, and he just lost $23,000 on a multifamily deal that didn’t close; it was a bigger deal, but it was his first. I’m like, “Oh my gosh, John, I’m so sorry to hear that. What happened?”
He was describing what happened, and the series of events, and I’m just starting to shake my head, I’m going “Oh my gosh, there’s mistake number one. Oh, what? Compounded by mistake number two. Oh, gosh! Geez, I wouldn’t have done that!” And I don’t wanna judge him, but it was an expensive lesson that he’s not gonna do again.
I think fundamentally it does come down to education, because if you get education, whether it’s through your program, or my program, or someone else’s program, they’re gonna point out the things that you need to be doing. You need to be building your team, you need to be raising money, you need to make sure that on due diligence you don’t spend money until XYZ is done – like unfortunately our friend John has done – so the whole thing of education… Also, using the right words, building confidence. I think it does come down to education, and I think that will eliminate most of the errors.
Joe Fairless: What were some of the specific things that he did to lose 23k? Because I’m sure that would be applicable to a lot of people.
Michael Blank: Yeah… Small stuff, like hopping on a plane before you have it under contract – there’s an expense there. Now, you have to pay an attorney for the contract, that’s important, but he very quickly thereafter retained the attorney to draft the PPM, he immediately ordered the property inspection and locked in the rates. Well, shoot, I haven’t even seen the actual financial documents yet.
Typically, we stagger these things. We do everything that basically doesn’t cost money first, like reviewing the financial, utilities, doing all the financial review I can do from the comfort of my own home, and if that checks out, I’ll hop on a plane and actually get eyes on the property… And if I like what I see, I’ll have scheduled the property inspection the day after, because if I don’t like what I see – which happens as well – we’ll cancel it, and not spend $8,000, and I will only initiate the PPM process once those first two steps are done.
Had he followed that sequence, which you can get through either program which we’ll teach you, it would have probably cost him $2,000 [unintelligible [00:15:22].29] and maybe the attorney for the contract, but the other stuff – he would have never had that problem. And that’s just an example, which of course cost him a lot of money.
Joe Fairless: Your book is called Financial Freedom with Real Estate Investing. We’ve talked about two components of the process – experience and cash, and those tend to be the two main objections that (potential) investors have as it relates to getting going in apartment investing. Is that how your book is structured, or can you elaborate more on the book itself and how it flows?
Michael Blank: Yeah, I spend about a third of the book addressing those two objections, because I have found when I’m so enthusiastic about sharing my blueprint to financial freedom, I lose the person if they don’t agree with me that it’s actually possible to overcome a lack of experience and a lack of money… So I spend the first third of the book kind of showing you how it’s actually possible. I spend the rest of the book showing you how to do it, and the focus of the book really is on your first deal… So I show you step by step how you do your first deal, actually the mechanics of raising money, doing due diligence, and the reason I do that is because I have observed that people who do their first deal of any size is always the hardest, and takes the longest, and is usually the smallest. Then what happens is a second deal follows almost in automatic, rapid succession, as well as the third, and I call it “The Law of the First Deal.”
In all of my podcast interviews I observe the same phenomenon, that if you do your first deal, all of a sudden everything kind of happens automatically after that. You’d have to exert more effort not to do the second deal than to simply do the deal, because you become a deal man and a money magnet… And because of this phenomenon, I just know that if I focus my resource in helping someone do their first deal of any size, the second or third will follow, and financial freedom is literally a year or two away from that.
Joe Fairless: What’s the best way the Best Ever listeners can learn more about the book, and quite frankly, go grab it?
Michael Blank: Yeah! Go grab it on Amazon. Just google “Financial Freedom With Real Estate.” It’s a bright yellow book, you can’t miss it. And I’m at themichaelblank.com.
Joe Fairless: Michael, thank you so much for being on the show, talking to us about the Financial Freedom With Real Estate Investing, the book that you just published, as well as lessons in the book and the objections that a lot of investors have as it relates to apartment investing – “I don’t have the experience” or “I don’t have the cash”, and as you said, you cover about a third of it in your book, and I was fortunate enough to read through it prior to it publishing, and certainly gave it my endorsement, and best of luck for that book launch… I know it’s gonna add a lot of value to a lot of people’s lives.
Michael Blank: Joe, thank you so much for having me.
Joe Fairless: Thanks for being on the show. I hope you have a best ever weekend, and we’ll talk to you again soon.