002: How to Acquire 3,000 Units in 36 Months with Michael Becker

SHOW NOTES – EPISODE #002 WITH MICHAEL BECKER

In this episode we examine the investment strategy of Michael Becker, a banker turned real estate investor. who acquired 3,000 units in three years.

About Michael

Michael Becker is a Principal at SPI Advisory LLC and heads SPI’s Frisco Texas office where he oversees all aspects of property operations, including asset management, property management oversight, accounting and taxation, capital improvement and renovation projects and investor relations. Michael is a 15 year veteran Commercial Real Estate Banker and has originated and managed numerous portfolios of permanent and bridge loans in all major asset classes. Over the last 5 years of his banking tenure, Michael focused exclusively on multi-family properties, where he was the number one loan producer for his division at a Top 3 National lender for his last 3 consecutive years. As a Portfolio Manager, Michael directly oversaw the management and financial performance of the countless C & B class Multi-Family properties he originated loans for. As a result, he accumulated an exceedingly diverse network of suppliers, contractors, consultants and service providers during his tenure. This gives him the ability to quickly and efficiently implement a breadth of value-added strategies for a fraction of the typical cost.

His “Lightbulb Moment” and the Launch of His New Company

• Long time banker who made loans on multifamily where he put together  many successful deals.
• One day he had his “light bulb” moment and said, “Hey, I’m on the wrong side of the transaction here.” Wondered why he wasn’t out there buying the properties.
• Bought 16 single family homes but it consumed way too much of his time (he self-managed) and he decided to sell the houses and go into multifamily
• In 2013, he met an investor from Southern California who became his business partner in a company that has since acquired 3,000 units in 3 years.
• Before he officially started the company, he wanted to create “critical mass” up front and immediately found and purchased 4 multifamily properties (800 units) with his new partner while he was still working full-time at the bank and while he still had most of his rental houses.
• Once the deals were done, he knew he could transition out of his “W2 job” and into running his new real estate investing business full-time

Being a Banker Definitely Helped in Putting Together and Positioning Deals

• He put together so many deals in the past that he knew exactly what to look for and what lenders want to see in a deal
• Because he had limited funds, he looked for deals they knew they could afford”
  • Class “C” deals (in Texas that meant built in 1960s-1970s)
  • Garden style apartments, 2-story
• As they’ve grown and have more cash, they are trying to sell the class C properties and move more in class B (1980s -1990s) properties that have better features (cast iron vs. plastic sewer structures and getting away from aluminum wiring from late sixties, better construction quality) that result in less long term capital expenses.
• The types of deals he seeks today are:
  • Class B that are in suburban settings
  • Have management problem that can be improved
  • Have some physical problem that can be improved
  • 10-15% below market rates
• When they purchase they:
  • Fix properties up
  • Cured deferred maintence problems
  • Upgrade units (new appliances, paint. etc.)
  • Spruce up pool area
  • Add dog park or play area
  • Raise rents
• Uses outside property management companies for their properties

Dallas is Becoming More Competitive but Still Can Put Together Good Deals

• High demand
• A lot of California investors in Dallas
• 6.5 CAP rate
• Qualify for great Fannie Mae loans
• Looking at other areas – Nashville, Houston
• Thinking rates will stay low
• Currently getting 10-12 year fixed rate – 4%
• Usually find either one JV (Joint Venture) partner or put together a syndication with many partners (15-20) – Do 50% JV, 50% syndications
• JVs may want longer term hold
• Syndications usually 3-5 year hold
• Can do Fannie Mae Supplemental Loans to cash-out early, pay off investors and hold the property if they want to stay in
• Typical syndication deals

Biggest Learning Opportunity (Mistake)

• No major mistakes but two come to mind
• In the past, used to get PPM (private placement memoradums) out, they used to to have one-on-one phone meetings with all members of the syndication
• Now, they do more webinars with multiple people, record it and investors can listen to it when they want.  This addresses 90% of the questions
• Another issue was when they were changing the name of a property and put it out to investors.  He was overwhelmed with recommendations and it is was tough to field and communication the decision.  Today he just lets investors know the name and fields any questions

Biggest Success

• Bought a property in Irving, TX, near airport in May of 2014
• Bought it at $33K per unit (260 units)
• Mis-managed (self-managed)
• 5 down units from roof leaks, stripped drywall, never fixed roof leak
• Horse racer, gave his jockey a free unit
• 5 employees had free rent units
• Not billing residents for utilities
• Doubled net operating income in first 18 months
• Doubled value of the property
• $2.3 million equity in deal
• Got Fannie Mae Supplemental loan for $4 million after 20 months in the deal.  Able to pull out 180% of original investment

What Long Term Vision Do You Have For Your Company?

• Adding more employees
• Systemizing the business
• Technology Centralization – Databases, etc.
• Better communications (Newsletters)
• He’s focusing more on the areas where is strengths lie
• Goal: To maintain 4-5,000 units consistently
• Add 2nd or 3rd  markets – be slow and steady to

Advice for Those Who Want to Get Started or Grow Their Investments

• Maybe go smaller – get a house or two to start
• Get involved with a simple syndicated deal where you don’t have to deal with the management but you get the yield

Rap-it UP! Session

• Favorite Real Estate Book:  ABCs of Real Estate Investing & Advanced Real Estate Investing Guide, both by Ken McElroy
• Favorite Podcasts: Old Capital, The Real Estate Guys & Creating Wealth Real Estate Investing
• Favorite App: Google Docs, Dropbox
• If you only had $1,000 to start your real estate investing what would you do with it:   Start going to real estate investment clubs, find other people with the same interests, find a partner who can front money for you, get educated, network, put yourself out there, take seminars

How People Can Reach Michael

• Old Capital Real Estate Investing Podcast where he is co-host with Paul Peebles
• Website: spiadvisory.com