047: From Pitfalls to Profits

SHOW NOTES FOR EPISODE 047  –  FROM PITFALLS TO PROFITS WITH MIKE FLAHERTY

In this episode, Mike Flaherty, the founder and president of L5 Investments, started investing early in life but nearly lost everything in the 2007-2008 crash.  He took what he learned from that difficult time and has leveraged that knowledge to success today and a strategic approach for the future, amassing a portfolio of more than 2,000 units throughout the US.

About Our Guest

Mike Flaherty

Mike Flaherty and is the founder and President of L5 Investments.  L5 provides its partners with short term cash flow returns and long term capital appreciation via the ownership, repositioning and management of apartment communities in U.S. emerging markets of growth and stability.  L5 has closed on over $160M of apartment deals since 2009.  They currently have over 2,000 units in 2016.  Their focus is on well-located, yield driven assets with both physical and operational repositioning value plays.  Throughout his career Mike has been involved in the ownership, development and entitlement of over 200+ nationwide commercial and residential properties – including multifamily, resort, hospitality, office, retail and large master planned residential communities.  He has worked internationally and domestically for Lend Lease, British Petroleum and Toll Brothers.  His niche has always been on thorough due diligence, market analysis and entitlements on value -add opportunities with attractive investor returns.  Mike is located in Northern California with a family of 5 and has lived all over the country.  He has a Civil Engineering degree from Villanova University and a MBA from USC’s Marshall School of Business.

More About Mike

• Has always been very close to real estate investing
• Started in real estate development business as an engineer
• Has done projects with such companies as McDonalds, Walmarts Walgrens and Home Depot
• Managed real estate development for ARCO on the west coast
• Broke out to start his own business
• Had a nice investor data base when he started
• Personally started investing in SFRs and small apartments – wanted to generate enough cash flow to go out on his own
• After economic crunch in 2007-2008, he felt apartments were the safest and most profitable asset

Light Bulb Moment

• Had always helped others make money in real estate but wanted to move to the “top of the food chain”
• Has Engineering degree and was in construction management for BP
• He said, I think I could do this on my own
• Went to USC to get his BA and learn the financial side
• Started investing on a personal basis in SFRs and small multis

First Apartments

• Started buying duplexes, fourplexes, tenplexes in Syracruse, NY
• Learned a lot and wouldn’t do it again
• Smaller apartments flowed best for cash flow
• Transitioned out of development into prudent investment into larger apartment buildings
• 50-400 units
• Buying at right timing, in right market, etc
• Studying micro and macro economics
• Cash flow focused investments

Biggest Mistake

• Investing in real estate development not real estate assets
• When recession hit it blew it up and there wasn’t much to hang on to
• Had to start from scratch
• Learned a lot from his mistakes
• Biggest mistake was also best mistake – caused him to move into more stabilized, cash flowing apartment complexes

Biggest Success

• Best deals were the ones he bought right after the recession
• Jumped in early
• Put on contrarian investor hat
• To quote Warren Buffett – He started buying when there was “blood in the streets”
• Bought 2 complexes in 2009 in Odessa, TX – investors earned 35%

Other successes

• Loves to buy off-market mom and pop owned apartments
• Did direct mail campaign and found an apartment that, at closing, was worth $2 million more than they paid for it – Investors today still earn an average of 12-15% cash-on-cash return

Top Deal Sources

• Brokers (50% of his deals) – off-market
• Relationships with other people

His Markets

• Primary markets
• Largerer markets
• Strong
• Economic, job, population growth
• Decreasing unemployment
• San Francisco
• Richmond, VA
• Kansas City
• Seattle
• Reno
• Top Markets
  • Seattle
  • Kansas City
  • Southwest

Always sits down with economic development council in an area of interest before investing

Key factors they look for:

• Pop, job, rent growth
• Home values
• Short or long term growth?
• He wants “the story”
• Bought in Reno because Tesla is there, SuperNap world’s largest memory center
• Annually meet with economists and demographers

Advice for those that want to get involved in real estate investing

• Invest in something you understand, feel comfortable with and believe in
• Believe in it short-term and long-term
• Start investing small
• Diversify your investments – pick more asset-based investments

What are you excited about in your company’s future

• Love making people money
• Enjoy being true to their approach of being patient and prudent and finding the best deals
• Leaving a legacy to his family is important to him and his business model
• Create long-term wealth, less risk
• Create a sustainable business model

Rap-it-Up

• Favorite real estate book: Think and Grow Rich by Napoleon Hill
• Favorite business book: Think and Grow Rich by Napoleon Hill Favorite website for business success:  google maps and trulia (crime, school rankings, rents)
• Favorite app: Elmo and dropbox
• If you lost everything and only had $1,000 in the bank, how would you start over? He would do exactly what he is doing now.  Find your niche and become an expert.  Read the books.  See the areas that are doing well and move in that direction.  Go to seminars.  Act upon what you learned.

How You Can Reach Mike

• Email: mike@L5invest.com
• Website: L5invest.com

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