GI293: Building Generational Wealth through Real Estate with Michael Kramer

GI293: Building Generational Wealth through Real Estate with Michael Kramer

Michael Kramer is a real estate investor with over 20 years of experience who has built a $40 million portfolio. Over his professional career, he has started and sold multiple businesses, but since 2016, he has shifted his focus to partnering with passive investors to build generational wealth.

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Transcript:

Charles:
Welcome to another episode of the Global Investors Podcast; I’m your host, Charles Carillo. Today, we have Michael Kramer. He is a real estate investor with over 20 years of experience who has built a $40 million portfolio. Over his professional career, he has started and sold multiple businesses, but since 2016, he has shifted his focus to partnering with passive investors to build generational wealth. So thank you so much for being on the show today, Michael.

Michael:
It’s great to be here. Thanks for having me.

Charles:
So you have a very interesting story as an entrepreneurial background. Many different businesses you’ve been involved with, which is different from a lot of guests. Every guest is a little different, but most people are going from some sort of a job or one business into real estate investing. You have a background of buying many different businesses value adding them, I guess you would say, and then selling them. So can you give us a little bit about yourself, both personally and professionally prior to getting involved with what you’re doing now in real estate investing?

Michael:
Yeah, absolutely. So my sort of beginning into real estate was not something that I was ever even on my radar, if I’m being honest. It, it kind of goes back to, you know, why I started a business in the first place. And it was, it a long time ago, my mom came to me the night after my dad died and said that she didn’t have $600 to dig his grave. And so, if you can imagine, and my dad was a business owner for 40 years raised 10 children my hero by all accounts, somebody I looked up to and wanted to be. And I still remember thinking, well, I’m grieving. She’s grieving. Seeing the look on her face of like, we don’t have $600, and the fear and the, the anxiety that I could sense in her, and just telling you that, Charles, I can, I can picture her face.

Michael:
And it was shocking to me. And I, I made a promise to myself that day that I would never let anyone in my family ever experience the pain of being completely broke again. But I didn’t know exactly how I was gonna do it. So if we fast forward a few years, I bought my first business, which was a franchise, and I was thinking, Hey, I, I’ve got this figured out. I’m gonna build a business. I’m gonna steal it. And, you know, live it happily ever, happily ever after. And so it’s funny how life works. You know, you set all these plans and then all of a sudden something happens, well, something else happened. I ended up getting an offer on my business that was completely unsolicited and unexpected. And 90 days after the offer, I sold the business. And so I quickly realized that that was not gonna be a business that I was gonna hold long term.

Michael:
And that sort of started this cycle of buying, building and selling businesses because I found that it was very lucrative and it was fun, and I loved the business side of it. Well, it wasn’t until 2016 that my wife and I were actually working on a project together. A little house flip project. We had a, to give you a little context we had a construction company and we were working, you know, with 30 plus guys and in the Midwest, I’m in Oma, Nebraska. The weather really dictates when guys can work. And people don’t want you in their homes from basically Thanksgiving until spring. ’cause They’re, you know, they can’t go outside. They don’t want the mess in their house. They don’t want you there during the holidays. Well, if you have a big crew, what do you do with your guys over the winter? So we buy a flip house and we’d keep the guys busy. So that come spring we had our full crew and we, you know, hit the ground running well. So my wife and I were working on a property in 2016, and I ended up shooting myself in the eye with a nail gun <laugh>, which is completely random. Oh

Charles:
My God.

Michael:
But it changed everything. I’m now blind in my right eye as a result of that. And I quickly realized that without depth perception, having the hand skills and the ability to work on houses was greatly impacted. I, I can’t see where the saw is when I’m cutting something, when I get on a ladder, I start to sweat. And so I quickly realized that, hey, I, I’m not gonna be able to do this. And so that’s when my wife came to me and said, let’s start holding real estate. We’re doing some flips, let’s just have as rentals. And I said, there’s no way I wanna be a landlord. And she promised me that she would do it. So she took care of the property management and, and that’s really how we got started in the real estate business. But for several years we didn’t even hold a property. We were just building our, we were wholesaling and, and doing some flips and building up a nest egg so that we had enough cash to start buying assets and holding them. And we actually ended up purchasing our first property to hold in 2019. So it’s really only been since 2019 until today that we have about 400 units that we now hold and manage and own here in the Midwest. Yeah.

Charles:
That, that’s quite the life changing story. I I could never imagine how that, I mean, imagine change your life every part of it, you know what I mean? There’s not one part that I didn’t touch. That’s

Michael:
Right. No, you’re a hundred percent right. And honestly, the, the biggest challenge for me, Charles, was the fear. The the internal narratives of, you know, my identity is tied to what I do, and I’m good with my hands, and I’m a still a licensed general contractor, and I love, I love doing that. And so how do you, how do you pivot out of that and how do you not, you know, lose yourself in a pivot like that? Right. And so I would say that was some of the biggest challenge I faced along the way, was just reconciling that and I was gonna be okay doing something new, and it really required me to rely on a lot more people where I was much more self-reliant before, which turns out to be a huge blessing.

Charles:
So going forward here, Michael, I mean, how did you, I mean, can you break down a little bit of your real estate investment strategy? Because you started off coming from your business background? Doing flips, having a crew and having a crew is when I started investing in real estate two decades ago, and some of the biggest real estate investors in the town that I was in they always had, they had a small crew, and they would, like you said, they would flip and then they’d manage their own properties. And I was like, okay, this is like a great way of how it works. You know what I mean? Because the problem is trying to find people to do work when you need them is very difficult. That was the most, that’s like the hardest thing I’ve found in real estate in general is finding good people to work. And That’s right.

Michael:
What,

Charles:
How can you go break down kind of like what you’re doing now with how you’ve transitioned that? What I’m trying to say is that your, your experience from before flipping houses with a crew to what you’re doing now and kind of what your goal is kinda what your investment strategy is and criteria for investing. Yeah,

Michael:
For sure. So the, what I mentioned a minute ago about moving from this rugged individualist, I’ll call it, to, you know, building a team and focusing on empowering others was sort of a light bulb moment for me where I realized that there’s a lot of people who are really capable and really good at what they do that I could empower to take on a role in the business and help us grow. And interestingly the majority of those people initially were my family. I’ve got four children and three of ’em work full-time in the business. My wife is our CFO. There’s 12 now, currently 12 family members that work full-time in the business. So it started there to really help us, you know, have high value, high trust people that we could empower to do these things and not have to worry about, you know, whatever you have to worry about when you have an employee you don’t know.

Michael:
And there’s all kinds of things. But that sort of mushroomed into then, well, we have all these mouths to feed, our investment strategy has to scale with our business, with our add, you know, adding these people. And so we pivoted, we, we ended up buying one property in I wanna say it was 2022. I lose track of time, but it was in the last few years. We bought a 90 unit building and it was the first, I’m gonna say large multifamily, okay. And we did it with our own capital. We had the, the purchaser agreed to do a little bit of a seller carry. And we ended up getting a line of credit against our portfolio that we had at the time to fund the rehab, the renovation. And in a two year period, we renovated 56 of the 90 units.

Michael:
We leveled up the tenant base, we raised the rents we did a true value add, and we did it with our own capital. And when we got the appraisal back, it was almost double the, the property almost doubled in value and our equity more than doubled. I ended up, in fact after, or we ended up after that refi paying off all of the seller carry, paying off a line of credit and getting over a million dollars at closing, which was completely life-changing for us. Like that’s when I said, we need to go all in on these larger assets because the efficiency of scale and the, and the ability to kind of rinse or repeat from one, one unit to the next, the setup and the tear down and all of that as you get when you do renovation, sort of is minimized when you can do it all at one location with multiple doors.

Michael:
So that’s when we decided to start a private equity fund and to raise capital to bring other investors in after we proved to ourselves that we could do it with our own money, we knew that all we needed then was fuel to grow it. And so now that’s what we focus on in terms of investment strategy is raising capital, putting investors money to work our buying criteria to kind of, I think, answer the second part of your question is definitely value add. We’re looking for we want to double the investor’s money within a five year period or less. And so, you know, we buy properties at cash flow day one, and we have a business plan that we know we can execute that involves, you know, tenant problems that we can fix and physical asset problems that we can fix. Again, leveling up the tenant base, leveling up the rents, improving NOI driving value for the investors. They love it because they’re getting, you know, if it’s a five year doubling, they’re getting 20% plus returns. And so the ability then rinse and repeat is what’s got us most excited. And in fact, even more than that, I’d say the way it changes the family’s lives too, when they can put their money work and have it passively grow like that, it’s pretty incredible.

Charles:
No, that is, that is definitely definitely a valuable and incredible asset class for people to invest into and, and using that method, do

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Charles:
One thing I wanna do is back up just about this deal you had, ’cause you it’s very interesting how you structured it and I think when you’re dealing with slower financing, it’s usually on smaller properties in my experience, right. I’ve never had a deal that large with people holding paper. So can you explain a little bit about how you did this? Because you explain how they held paper and then you, you’re having to make up that gap a little bit for the down payment, obviously. Can you, can you go into a little bit how that was structured a little bit more in depth? For sure.

Michael:
Yeah, so the property we, we purchased for we purchased for just shy of 3 million and it day one appraisal, it appraised at 4 million. And so the good news is, is the, the bank was going based on loan to value and, and cash flow that it was producing at the $3 million purchase they saw the seller carry. So we didn’t have to come up with any down money out of our pocket to purchase it, but we had about a, we were estimating about an $800,000 rehab budget that we had to come up with the cash for that. So we then used our existing portfolio to leverage against a line of credit secured by this, you know, equity in our portfolio to fund all the renovation. And so that’s how the deal was structured up front. Is it, we we bought it way under value. The, the seller was not a I would call him a don’t wanter, he wasn’t even really a seller. He had some health issues and, and was, we purchased some other properties, so we had a great relationship with him. So it’s a little bit of an anomaly to do that and we were fortunate to be in a position for him to, to help us with that. But without that structure, I think it would’ve been very difficult to, to pull that off. ’cause You know, you have down payment plus your, your rehab budget, it can be a very heavy lift, especially for that being our first project of that size. How

Charles:
Did you, when you say go into your own portfolio to finance it, was that against some sort of like a brokerage account or did you pull a line on a different property?

Michael:
Yeah, great question. So we have, at that time, I don’t remember how many doors we had. Let’s just say it was a hundred, I don’t remember exactly what it was. But we took that portfolio of houses and small multifamily, and our, our typical leverage is about 70%. And a lot of times our leverage is less than that. So we had built up some equity, you know, over a few years of ownership, plus had bought some of the properties, right? Some of ’em we had paid for. And so we had equity in the portfolio itself, and then the banks that had the the primary mortgage on it agreed to do a, a line of credit as a second position using the remaining equity that we had in that

Charles:
Portfolio. And that’s not a normal thing with a lot of banks I deal with. It’s usually, or I’ve worked with before. That is something, it’s a very, it’s a different product that most banks don’t provide. I you, I mean, it’s just, which

Michael:
Is great. What’s interesting, Charles, is that this is a, the bank that did that for us is an ag lender. So they’re used to dealing with farmers here in Nebraska, and it’s a product they’re actually very familiar with and comfortable with when they look at it through the farming lens. And so it was new to me as well, but when I, I told them what I was doing and they saw, you know, how far below appraised value we were purchasing them, they saw that we had plenty of equity in our portfolio to do it. They, they didn’t think there was a huge risk. They still hold the paper, they refinanced you know, on when we did the, the full turn, they refinanced us again out of the seller carry in and, and pay back the line of credit. So they’re currently still holding the paper and, and want to hold it long term. So it, I think it was you were just fortunate to find a bank to do that.

Charles:
That’s a local bank. It

Michael:
Is. Yep. So we like to, that, that’s, that’s actually a really good point because we try to only deal with local banks as to where the property is because, you know, they want to have a ve they, they have a mandate sort of within their bank charter too, to invest in their own communities, right? So they’re, they’re often incentivized and encouraged by their board, by their owners to invest in the communities that they’re, you know, have locations in. And so we obviously wanted to step into that and leverage that as

Charles:
Well. Yeah, no, that’s one thing on the show that I really push is that local, local lenders expect, especially with small commercial properties or any type of commercial properties when you’re getting into you know, getting five units and above, whatever it might be, but it’s something that, you know, when you’re smaller properties, one to four units, something like this, you can use any type of lender, right? Everybody wants that because they’re gonna sell it off. But when you start getting the ones where people are actually keeping keeping it on their books, right? Local lenders that are actually keeping this on their books for the duration of that loan, for the most part that’s where you can kinda make deals. And they are very, very local. And I mean, they probably drive by, there’s probably three people on that credit committee. They drive by your property.

Charles:
It’s, it’s easy to talk with, it’s easy to negotiate down on rates, and it doesn’t take days and days. You can get something back same day of like, hey, you know, fees, let’s just say they wanna put money back in the community. And it’s yeah, it’s, those are great lenders that have, so that’s, that’s why everything worked together with a specialty process at one time. People tell me, ’cause on the commercial properties they would say, oh, you know, you get 5, 7, 10 years from a local bank. I literally one time got a 25 year fully amortizing loan on a mixed use property from a local bank.

Michael:
That’s all we do. That’s all we, we only do 25 year amortization, all local banks. I think the downside with the local bank is they all have lending limits, you know, for the entities. And a lot of times they treat the entities globally. So they’ll aggregate. We have, you know, entity 1, 2, 3, 4, and each one has its own lending limit, you know, per their bank charter. They will roll those up as one and say, collectively across your portfolio, all entities can only be aggregate, you know, X amount. And so we end up having multiple community bank relationships because, you know, if they have a $2 million lending limit or a $10 million lending limit, it doesn’t take long to to fill that up. So we need multiple bank relationships, and frankly, we want to have a lot of runway for when we do get a deal. We have good relationships with multiple banks and we don’t, we, we don’t like to bump up against the lending limit at all, frankly, because we just want to have plenty of dry powder when we we find a deal.

Charles:
Yeah, no, for sure. And and the experience, well, I was saying it was, I had a 25 year amortization, but it was also 25 year term. Oh, wow. Which was something that is Yes,

Michael:
That is unique <laugh> Yeah, that is unique because we, so I, yeah, we’re not, we’re five year, seven year block and then 20. Yeah, yeah. I, I misunderstood. I apologize.

Charles:
Yeah, no, no, no. I forgot to finish that. That was the most important part of the whole, my whole,

Michael:
I probably just interrupted you.

Charles:
No, no, no, it’s no problem. So the thing is what but anyway, what we’re saying here to anybody that’s listening is that you know, you can work with these banks to figure out exactly what your goal is, and it will, they’ll try to work out a deal with you. And it’s one thing I remember calling community bank that was 45 minutes away from my property, and they were like, really offset. Like, why are you calling us and not someone to close stuff like this? They want, you really wanna deal with people like within like a 15, 25 minute drive of your property. And they just know it so well. So, but thank you so much. Sorry we took a really tangent there, but it was something that I like to get into it because it’s one thing of people when they’re getting, they get great deals and someone’s holding paper or they’re assuming a loan, right? And now you’re like, well, that’s great, I’m assuming a loan, but now I’ve gotta make up this equity portion, so how am I gonna do that? And that’s where you have to get creative where you’re borrowing in, you know, you bring a partner in that has the money that’s borrowing against portfolio or a line on something like this. And these aren’t relationships that you have, Michael, that you can do in a year or two. These take, you know, many, many years to build.

Michael:
Yeah, that’s right. Yeah. The best time to ask for ask a bank for money is when you don’t need it. <Laugh>, you know, if you’re waiting until you have a deal, man, it’s, it’s just tough. So building those relationships, connecting with banks, I, I sent an email, I know it was yesterday, I sent it to 23 different banks. We’re we’re working on another project. And so yeah, we’re, we’re dealing with a lot of different relationships and it’s necessary because, you know, the banks have different appetites at different times, right? So they might fill up their belly on a certain type of asset, and that’s what we’re in. And they say, we’re just not gonna loan on that for a minute. We’re gonna, you know, let our, our portfolio season and then maybe we’ll come back in and take another bite at it. And that’s fine. That’s how, you know, all banks work and that’s why we need to have multiple relationships to be able to go where there’s an appetite when another bank might not have that outside.

Charles:
Yeah. And that can range dramatically, just like what you were saying, but I had a bank before that lent on real estate. They’re like, oh, it’s perfect if you’re owner occupying your commercial property. Like if I’m an attorney or something like that, or I had a mixed use property, right? And that was like their niche. Like, no, we don’t wanna do anything like multifamily that you’re not in. You know what I mean? But like, you’re like, so everybody, like you said, has their own appetite. So if you’re, this is a great thing for someone that’s be getting involved with real estate initially, you know don’t be swayed by online banks or anything like that. If your goal is find banks that are gonna lend on what you’re trying to do, even if you’re not asking for our loan, open up an account there and start the process of building relationships because it’s gonna make it much easier because you’re gonna have to open up an account there anyway if you’re gonna get a loan from them. So

Michael:
Yeah, generally that’s true. It, it’s interesting as we’re having this conversation, because we also, you know, we, we sit on the other side of this desk too, Charles, we have a hard money lending business. And so we have, we have the same kind of appetite and, and criteria, and it’s different from the other hard money lenders, right? So not all hard money lenders are the same. Not all banks are the same. We all have this different way of looking at things. And so, because one says yes or no, it doesn’t mean, you know, that’s the answer for all others, right? Right. Because we all see things differently and, and generally we can say we’re in lending and that might be the only thing we have in common, right? But what’s your experience? What’s the asset? What’s your business plan? You know, et cetera, et cetera, that matters. Those, each of those variables matters more or less to each individual lender, depending upon their experience and what they’re trying to do with their business. Yeah.

Charles:
I, I talked to newer lenders or ones that are maybe taking capital from outside parties, and they have a very sophisticated underwriting model. I talked to private lenders that are 30 year veterans, 30 years of doing this. And they go, it’s very simple. I make sure if 10% of my loans or less are defaulting, then I can turn up and get a little bit more aggressive there go if more than 10, 10% is defaulting, I gotta turn it down. That was it. It’s back of the back of the napkin kind of math, underwriting lending. And I was like, that’s fantastic. No need for spreadsheets. Just a very simple look over it.

Michael:
<Laugh>. Well, and, and, and you, you touch on a really good point there, Charles, because you know, I, I’m on our loan committee, I don’t head up our, our hard money lending business, Alex does. And so he brings us the deals and then he, then we’ll sit on loan committee, and as, as I’m looking at the deal, I’m asking different questions than the other people on the loan committee, because what matters most to me is the individual and what’s their track record? And, you know, what’s their, do they have integrity? We look at the, for me, I’m looking at social media profile. I’m looking at, you know, who are they connected to that I already know, and how do I get a referral? Because I wanna deal with people I know, like, and trust, even if it’s vicariously, right? And so I tend to look at it that way, where, you know, my wife is also on a loan committee.

Michael:
She’s only concerned about, you know, what are the loan terms? She’s the CFO, right? Like, how much money do they need? When are they gonna pay back? How soon do they need it? What is the payment coming due? You know, what’s the interest rate? Which that’s the, that’s what a loan committee is for. My point in saying that is we all look at things differently, and it’s okay if you, if you, if you’re discouraged by somebody giving you feedback, don’t stop, go to somebody else and get feedback, because there’s lenders out there who are, are willing to serve generally, if the deal makes sense, what you’re trying to get. Yeah,

Charles:
For sure. Especially if they are a small operation and they don’t mind taking over the property, if you screw up they’re more likely to kind of sign that check for you. So one thing, Michael, as we kind of move forward here, is that getting back to kind of how you, how you run, manage your properties and stuff like this. And we talked earlier about having a crew and putting people together. You do you vertically integrate real estate investors? So you’re, you’re handling all the management, you’re handling construction, everything like that. Is that correct for all your properties?

Michael:
It is, yes. What

Charles:
Are some of the benefits of doing that versus, because now you’re adding in a whole nother another business inside a business. And the business inside a business, usually construction’s a little different, but with property management, what I have found, people that bring it in house you know, know they don’t make much money on it, right? It’s not a very profitable business per se, with a lot of headaches. How do you justify bringing property management in-house and also your construction?

Michael:
Well, I think it, it comes down to, you know, a couple of things. One is our own appetite for risk, right? So before we ever brought any, any investor money, I wanted to, anytime you introduce a third party, it’s really hard to get interest to a line, right? So let’s just use contractors for example, because we’re notorious, I’m a gc so I’m gonna speak in that as we we’re notorious for overpromising and under delivery, we’re notorious for getting, putting out a bunch of bids. And the more that people accept, the better. And we figure out the scheduling later, right? So we’re, we’re oftentimes viewed as people who don’t show up when they’re supposed to. They leave the job before it’s done. They don’t answer their phone when they want to come back, if there’s a quality concern or something to be redone, they leave it.

Michael:
They, they wait until they have a rainy day or they’re, they have a down period because they’re trying to keep a promise to somebody else that’s a headache. And I’m, I’m a contractor myself, and I know what we fall prey to because it’s a feast or famine business, right? If you don’t, if you don’t have a bunch of people saying yes to your estimates, you’re not gonna have work for your crew. And so there’s this selfish, and I would even argue scarcity mindset that a lot of contractors have, which is, if I don’t say yes to everything, I might run outta work. And what that leads to is just a bunch of headaches for the person who’s then trying to execute a project. So I don’t want that, for me, I wanna be able to own and control and manage the vendor relationships, the, the quality of the crews, the timing of the crews.

Michael:
I wanna make sure that I’m paying wholesale for all the product that I put in. All of those little additional benefits of having your own crews and having your own vendor relationships are each margin increasers too, right? So not only efficiency, but you make just a little bit more money every time you can go direct and buy wholesale versus retail. Or you had, you’re paying your subs, or excuse me, you’re paying your contractors, your, your crews a W2 hourly rate instead of hourly plus their markup plus, you know, overhead. And so it’s, it’s really just out of trying to squeeze every penny out of the deal that we can. And on the property management side, it’s exactly the same, especially because we’re, we’re deep value add people. So if I buy an asset and it’s needing a bunch of rehab, generally speaking, property management is getting paid based on collected rents, and they want occupancy.

Michael:
And so they don’t wanna upset a tenant, they don’t wanna push a tenant out. They’re, they’re interested in collecting rent, which on one hand I like, but if we’re deep value add and it’s not turnkey where everything is done and stabilized, then they’re gonna have a problem with me when I say force that tenant out because, you know, they’re, they’re not paying their rent or, you know, they won’t accept a rent increase, so let’s, let’s not renew their lease. You know, we, we can’t force ’em out, right? We can’t evict if they’re, if they’re within the, the rules of a lease, we can’t evict. But if we’re wanting to renovate something, we just don’t renew the lease. Well then the, the property management is saying, okay, now I have a vacancy, plus I’ve got noise in the building, plus I got an extra dumpster in the parking lot to manage, plus I got crews at night, they’re leaving a mess.

Michael:
All these additional headaches that come from leveling up a property physically the property manager doesn’t wanna deal with. And so we find, unless we have owners at every step of the way, owning the construction, owning the property management, and also owning the building itself, we don’t have the long suffering or the patience to deal with those headaches. And so, yeah, it’s, it’s sort of a necessary evil. And we do, on the property management side, we’re only charging enough to break ebit like our intention with our business. We don’t do any third party management. So we don’t manage for anybody else. We only manage our own assets. And so the idea there is to control the process and make sure the tenants are taken care of, and the, the property manager will handle all the headaches while also not costing us extra right. By, by going to a retail pricing structure. So that’s kind of the why behind it. And again, every little increment that we can save and make sure that tenants are taken care of just increases the odds of us delivering on our business plan, which now is uber important because we have investor capital involved and wanna make sure we can exceed our promises, not just meet

Charles:
That. No, that’s a great answer. I found that the people you have this really honed in, and when I ask that question with people that are vertically integrated I’ll get some answers all over the place, but I’ll get like your answer. And then I remember one other persons where they had it down so well that their workers were leaving during the day to like grab a, a Gatorade or something or whatever, energy drink. So they would just have, when materials got dropped off at every u new unit, they would drop off like a case of that as well. And you’re like, oh my God, that is like, that is like, that’s brilliant. That’s how, yeah, it’s brilliant because you’re just, you’re saving money from them doing it. They’re doing, you know, they keep people at the place, you know, working.

Michael:
We say every time somebody has to run and get materials, they lose an hour minimum, usually more than that. ’cause They’re gonna stop and, you know, get gas, they’re gonna get distracted by something. So the switching cost is huge. So our actually our project manager, which, you know, gets to be boring, but we do, we have the same standard on every single house or, or apartment. It doesn’t matter. Same paint, same floor, same hardware, same appliances. So when we do a scope of work, we know exactly what’s showing up. We place the order, it gets delivered, the first delivery gets delivered, it’s there, the guys are on, on site to use their hand skills. We don’t want them running for materials, we don’t want them running for gas. We want them there to stay there so we don’t get Gatorade. I might add that, but it’s the same idea, right? You, you, you lose money if you rely on a contractor on their schedule and you rely on their priority, it’s just not feasible to scale unless you have control of that, in my view.

Charles:
Yeah, no, that makes perfect sense. The other side too, one thing you were saying about property managers handling value add projects, which I feel is a huge no-no, I would never do that. It has to be someone that’s ownership, someone in general partnership, if we’re talking syndications, has to be managing that construction pro. I would never, I would never have an angry property man. Maybe if I had a one-off roof on one of my buildings or something like this. I mean, it’s a one day project, it’s not the end of the, you know what I mean? But when

Michael:
You’re involving tenants and theirs, their sense of satisfaction, it, it, you know, you have to have empathy and, and express, you know patience and, and long suffering, as I say, to be able to deal with that. ’cause It’s a bigger headache when you have tenants that are, are dealing with construction. They don’t want it. They don’t care if you’re fixing the place for somebody else. They just wanna be left alone and, and do their thing. So it’s a challenge that we hopefully try to overcome and for the most part, do it quite good. My, my or quite, well, my son-in-law who married my oldest daughter is our property manager, and he, I give him such a hard time because he cares more about the tenants than he does his own family. Sometimes. I’m like, then you have to draw a line. Like you can’t be answering the phone on Sunday, right? Just let it go to voicemail. If there’s an emergency, there’s an emergency number. Okay. But he’s really good at taking care of tenants. So it’s, it can be a double-edged sword too. Yeah,

Charles:
No, that’s fantastic. Customer service, right?

Michael:
It came from the insurance industry, and that’s what they’re all about.

Charles:
One question I have, because you have people that are listening to the show that don’t have hundreds and hundreds of units like you do, and where it makes sense, I would think, for bringing this in-house, or is it, it’s a really good possibility. When do you suggest someone to bring property management in house? Say if you were, you know, given advice to a new investor, when do you think that changes from, Hey, you know, you can manage this yourself. You understand the business a little bit, the ropes, and then now it’s, okay, now it’s time to outsource this to a professional third party company?

Michael:
Gosh, this is such a great question. I think what happens, Charles, is that people, in my experience, real estate is a very appealing sexy investment strategy. People, people, when you talk real estate, they get excited about it and for good reason, because it truly is life changing, powerful. It’s, it’s the greatest wealth builder, at least in modern history that I’ve ever seen. I don’t know anybody that’s wealthy a a handful, very few people that are wealthy that don’t own real estate. So I definitely believe in it. I think that the challenge is that people think buying a property equips them to run a real estate business. And it’s, it’s sort of like if I said to you, because I know how to serve tables at a restaurant because I know how to take care of, you know, taking an order, collecting the check, you know, make sure the drinks are full.

Michael:
I, I now know how to run a restaurant. The same is true with real estate because you know how to, you know, buy the property, you know what it means to have a tenant. Maybe you were a tenant, you understand what a lease is. It’s way different than operating a business with rentals and with tenants. There’s so many other things. There’s seven, actually, I’ve identified seven critical functions in every business. You know, I bought and sold several, and they all have the same seven critical functions. And a lot of times people forget that they have to manage and maintain all of these. You have to be able to, you know, lead, have have standards and principles and guidelines that you set out as a leader. You have to be able to sell, you have to be able to market, you have to have operations, you have to have back office and accounting.

Michael:
You have to have customer service, and you have to have somebody who’s willing to innovate and improve. So if you’re gonna own those seven hats, and you have one property and you have a full-time job and you have a family, you’re gonna, you’re gonna turn into what we like to call a tire landlord. This property is gonna generate, I don’t know if you’re lucky, a couple, two, $300 a month depends on what you buy and how well you buy and how much your rents are in Omaha. If you’re lucky to get two or $300 a month out of a single family in cash flow, assuming there’s no surprises. And so you, maybe you have a couple that are successful and you add one, and then you have two or three houses, and before you know it, you, you haven’t addressed all these seven critical functions and you get worn out, you get a maintenance call and it’s Christmas.

Michael:
What are you gonna do? You gonna leave your family and go? And so oftentimes we’re buying assets from people who thought it was a great idea, ran it for a few years, realized there’s no real money cash flow wise in it. Maybe they did appreciate enough to make it worth their while, but a lot of times people don’t have the, the business sense to treat it like a business day one. And so they become tired and they end up selling it at a discount. So to answer your question directly, I know that was a long sort of way to get to what you asked, but to answer your question directly, I personally recommend if somebody is willing to dedicate time and energy and treat it like a business, then I would say start managing it yourself day one and own that process day one. But if you have competing interests that are higher value to you, like being a dad or being a coach, or, you know, spending time with your wife or going on vacations and having time off, then I would not recommend taking on management yourself.

Michael:
So it’s really comes down to, to me, are you gonna treat it like a business and put the systems and processes in place, even if you have one? ’cause If you don’t have the system in the process and you add two, it’s gonna stress you out more. You add three, it’s more stressed. It doesn’t get easier for you without systems and processes. So that’s kind of a, a long answer to what you’re saying, but it comes down to how you’re gonna treat the business. And I think that’s, if I’m being honest, that’s why we’re able to, we were able to scale the extent that we did, you know, going from zero units to 400 plus in four years or five years. Because we, we treated it like a business. We put systems and processes in day one, and we started managing as soon as we could.

Charles:
No, that’s a great answer. I, I find it that real estate just works, especially multi-family, when you have a little bit of scale, and it doesn’t have to be 400 units per se. You can have it 15, 20 units and bring on management and find that you’re actually making money cash flow monthly, you know what I mean? You’re gonna have, you’re gonna be paying a lot different pricing for managing 30 or 40 units versus managing two or three, you know what I mean? And you’re gonna have a little bit more scale there, a little bit more operational efficiencies when it comes to the contractors you’re working with. They’re probably gonna, you know fine tune, sharpen their pencil a little bit when they’re coming down from bids if you’ve got 40 furnaces, not just two. So that’s how I’ve kind of worked and it’s business in general, having more clients. But it’s just one thing that I’ve found that when you’re able to hand over properties to a property manager, and then you can really focus on acquiring properties, and then also it’s not the end of the world. You’re not giving the properties away for good. You can always take ’em back at some point when you have a capable crew and maybe enough work for a full-time person you know, on the ground or whatever it might be.

Michael:
Yeah. I, I think that’s an interesting tension that each person is gonna have to navigate for themselves, because each situation is unique and different, right? So if, if there’s a, if it’s a two two income household and they’ve got three or four kids, I mean, good luck, right? There’s so many things buying for your attention that’s gonna be very difficult. In those cases, I suggest invest in a syndication. You wanna get into real estate, you can still get all the benefits of ownership, you get all the upside, all the tax benefits, but you have no work to do, and you get great returns if you find a good operator. So that’s a great option for people. But if you have time and if you’re willing to dedicate yourself to these seven critical functions, then by all means go for it. Because you get then all of the benefit and all the lessons and, and the experience that then you can grow and scale from there. If you do syndications, you’re really beholden to the operator, right? And if they don’t do a great job, where are you gonna invest next? You gotta start from zero and figure

Charles:
It out. Yeah, no, that’s a lot of great information. As we’re kinda wrapping up here, I know we’ve gone over a lot of pros and cons of investing actively, passively. Are there any, you know, when you speak to new investors or maybe seasoned investors as well, are there any common mistakes maybe that you see real estate investors make? Repeatedly?

Michael:
I do. Yeah. I think I’m gonna maybe answer this in a little different way than you, you might expect, but I think it’s, it’s more of a human challenge than it is specific to real estate investors. And what I mean by that is I, I’m, I happen to be a person of faith, and one of my favorite scriptures is, as a man thinks, so is he, in other words, what you think about becomes your identity. The challenge is, Charles, as you, you may be able to relate to this, most, most of us can is that oftentimes our internal dialogue is negative. We’re doubting ourselves for saying, I’m not good enough. I don’t have what it takes. Or maybe you have somebody chirping your ear that you respect could be your mother or your spouse saying, you know, why are you doing this?

Michael:
Questioning you and undermining that, that drive that you have, and what that turns into, if you believe that long enough, it turns into this feeling of, I’m in this by myself. And that sense of isolation, in many cases, paralyzes people, they’re frozen. Some people call it analysis paralysis. Other people are just delaying or procrastinating or saying, I’ll wait until the conditions are better. And I think that’s the number one mistake people face or, or make, is believing those lies. Okay? And to find the, the way you overcome that is to find a community, find a place that’s supportive of, of helping you break those ties to that thinking. Because if, as you think it becomes your identity, if you don’t level up your thinking, you’re never gonna level up yourself as you know, as a person, as your identity. And that the best version of yourself is what it takes to be successful in any industry, especially in real estate.

Michael:
Okay? But in any industry. And so I think that’s the biggest mistake. If they can find a supportive community and they can find other people who are on the same path and the same journey, and learn the tools that they’ve learned to overcome that thinking. And when they feel down and out, have encouragement, and when they’re, you know, letting themselves down to be accountable. There’s nothing better than that in my view. That’s why as a family we’ve been able to, to really make some, I would argue, powerful moves because we have that accountability, we have that support, and it’s invaluable. So those would be the, the, the main mistake, I guess is the thinking. And then secondarily is thinking, I gotta do it alone. And feeling trapped, not doing anything. The, the, the one last thought, I’m sorry. To me, the greatest tragedy is when that spirit that’s inside of us gives up when we let it, that fire that we were born with, when it, when it gets dampened and dwindled by this, this narrative and this life experience of isolation and, and feeling stuck, and then at some point you just relent and you settle into, yes, it’s not for me, that’s a lie.

Michael:
And the biggest mistake is believing that. Oh, that’s a lot of great information there. Michael. How can our listeners learn more about you and your business? Best way is to go to our website free by realestate.com. We have, you know, whether it’s support from a community like what I’m mentioning, or it’s investment advice, or it’s a deal that you wanna put money into, or maybe you just wanna get free content and, and free education, that’s all available. All that we ask is that you pay it forward. So if you get something of value, you pass it on to somebody else and help them on their journey. We’ve seen the impact of, of real estate on our family and how it’s affected us financially. And we want to help as many people as we can do the same and keep them from feeling that I’m alone, believe in that negative narrative and feeling stuck. Well, thank you so much for coming on. I will put that link into the

Speaker 4:
Show notes here and looking forward to touching base with you and me with you face-to-face here in the future.

Michael:
That sounds good, Charles. I’ve enjoyed it. Thanks for having me.

Speaker 4:
Hi guys, it’s Charles from the Global Investors Podcast. I hope you enjoyed the show. If you’re interested in getting involved with real estate, but you don’t know where to begin, set up a free 30 minute strategy call with me@schedulecharles.com. That’s schedulecharles.com. Thank you.

Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax, legal, real estate, financial, or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of syndication Superstars, LLC, exclusively.

Links and Contact Information Mentioned In The Episode:

About Michael Kramer

Michael Kramer is the CEO and founder of Freed By Real Estate, a private equity real estate investment firm dedicated to helping families achieve financial independence and generational wealth through real estate investing. His passion for creating a thriving community and educating others stems from a deeply personal journey. A family tragedy during his youth left his family in a financial crisis, sparking his determination to build wealth and share his knowledge with others. Over the years, Michael successfully started, scaled, and sold several businesses, gaining invaluable insights into entrepreneurship and resilience. He firmly believes that failure is a stepping stone to success and has used these lessons to develop the systems and processes underpinning his work today. In 2016, a life-altering accident that resulted in the loss of vision in one eye prompted Michael to shift his focus from merely building wealth to generating passive income and creating lasting impact. With over 20 years of real estate investing experience, he has built a portfolio valued at over $40 million, embodying his commitment to financial freedom and sustainable wealth. Michael’s entrepreneurial journey and dedication to leadership have also led him to co-author the Amazon best-selling book Empathetic Leadership: How to Build Trust and Drive Results with world-renowned hostage negotiator Chris Voss. This work blends Michael’s extensive business expertise with transformative leadership, communication, and negotiation insights. At the heart of Michael’s mission is his unwavering belief in the power of education and community. Through Freed By Real Estate, he empowers individuals and families to unlock their potential, build wealth through real estate, and experience the freedom that comes with financial independence.

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