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SHOW NOTES FOR EPISODE 093 – WORKING WITH BROKERS AND FINDING THE BEST OFF-MARKET DEALS
Michael Becker has a track record unlike few others. In less than 4 years, Mike has acquired over 4,000 units. That’s right! 4,000 units in less than 4 years! In this very special podcast, Mike will be sharing some of his insider secrets on how he got there so fast. In his interview he will be discussing tips for working with brokers (your number one source of great deals), leveraging and how to find the best off-market deals.
What You Will Learn
- How to recruit people into your deal to help you qualify for the good loans
- How to build and maintain a strong deal funnel
- How Mike went from buying single family foreclosures, rehabbing and renting them out to buying multimillion dollar apartment communities
- How to get brokers to listen to you even when you have no prior experience
- How to get brokers to call you first when they have great off-market deals
- The importance of knowing how to properly underwrite potential properties
- Creating a powerful “elevator pitch” to share with everyone you meet to attract great deals and high net worth investors
About Our Guest
Michael Becker
Michael (who was featured on Old Dawg’s episode #002 & #067 – “How to Acquire 3,000 units in 36 months“ and How to Get Bankers to Love You) has two roles in commercial real estate. He is affiliated with Old Capital Lending as a Senior Director of Mortgage Origination and a Principal at SPI Advisory LLC. SPI Advisory LLC owns and manages over 4,300 apartment units in Texas. Michael 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. Michael is a lifelong resident of North Texas and a graduate of The University of North Texas with a BA in Finance. He is married and has two young children. He is also the co-host of the Old Capital Podcast.
More About Michael
- Background in banking
- All he did, all-day long, is analyze multifamily transactions for loans
- Networked with a lot of owners, operators, brokers, property management companies, and vendors
- Serviced the business in North Texas
- Able to establish relationships and look at a lot of deals
- Through all that, he realized he was on “the wrong side of every transaction” and became an investor. Always better to be the borrower than the lender
- Over the last 4 years, acquired 4,300 units from 21 deals
- It has evolved/scaled up over time to bigger and better deals
The Role of Brokers
- Commercial real estate brokers have controlled the type of deals he received on and off -market
- It is important that you have a good working relationship and reputation with brokers to continue to get good deals
- He had an advantage in that most of the brokers already knew Mike as a lender
- His challenge was to change brokers’ perception of him from banker to buyer
How he Started as an Investor
- Bought single family home foreclosures, fixed them up and rented the homes out.
- Had 16 homes
- When he wanted to move into apartments, he remembered a Southern California-based client he made a multifamily loan to purchase a property in Dallas
- The former client needed someone in Dallas area to oversee and manage assets in the area
- Flew out to meet him and he became his business partner
- The former client had a group of high net worth clients who wanted to buy properties in Dallas (JV deal)
- Was still a full-time banker through the first 4 deals they did together
First Big Deal
- Worked with a high net worth individual from So Cal as a Joint Venture partner
- Brought in a local Dallas person from a well-established property management firm to meet the lender requirements for an experienced multifamily asset manager and owner (to get the good Fannie Mae loans) and sign on the loan
- Leveraged the same people for the first several deals
- Now he does more JV deals and 50% syndicated deals (last deal raised $8.4 million from 65 people)
Getting Off-Market Deals
- Why would a seller want to do an off-market deal when they could get open bids and bump up the final sales price in a bidding war?
- Some common reasons:
- It may be a “mom and pop” owned property where they know tenants and staff personally. If people got wind of the sale, they would be nervous that they would lose their job with new owners or be kicked-out of their home
- Loan may be coming due soon and they don’t have time to list it in the open marketplace
- Deferred maintenance or current owner under-capitalized the deal and need to sell
- It’s a completely unfair business: people with track record, money, other chips to trade with the brokers who control the deals are always going to get most of the great deals
- Out of his 21 deals, 16 or 17 have been “off-market”
- You need to work on “positioning” yourself so you can get the good deals
Sounding Credible With Brokers
- It’s the broker’s job to assess the credibility of potential buyers for their seller clients
- If they detect that the person they are talking to lacks the experience or education, they won’t likely pursue that relationship
- If you don’t have the education or know the terminology, acronyms (ROI, RUBS, CAP rate, etc.) you probably shouldn’t be talking with a broker on the first place
- Get educated
- Listen to podcasts – Old Capital and Old Dawg’s REI Network are a good start
- Read some of the great books on real estate investing (see Old Dawg’s Top 20 Real Estate Books). Ken McElroy books, The ABCs of Real Estate Investing and The Advanced Guide to Real Estate Investing.
- Go to local REI club meetings and real estate investor meet-up events
- Mentoring programs
- You need to sound like you know what you are looking for and what you want – know your criteria (develop 60 second pitch)
- Here is Mike’s pitch: “I’m looking for class “B” multifamily properties 150-units are better in the suburban DFW area, in the good parts of town. Low crime areas. Near employment centers. Near places where people want to be. A property that is 10-15% below market rents. That has a light value-add that qualifies for Fannie Mae debt out-of-the-gate.”
- Two different types of deals:
- Yield play – Working well. Already renovated. Just buy and operate as current owner has.
- Value-Add Play – Distressed, under-performing, mismanaged, under capitalized and not upgrading of units, keeping up with competition and/or taking care of repairs.
- You need to clearly define for broker what you are looking for
- You can ask for 10-15% under value if it’s a value-add deal
- He gets on all broker’s lists to get offerings to see what things are selling for
- Steps to developing broker relationships
- Get on their lists
- When you see a property you like, sign their Confidentiality Agreements
- Underwrite the deal to make sure you understand the numbers
- Schedule a tour of the property – face-to-face is important
- When you’re walking the property with the broker you can establish a rapport, get a face with the name
- Follow-up with the broker and let him know why you do or don’t like the deal and why
- Make sure you offer specific details why you don’t like the deal
- Let them know you are serious about the deal
- Let them know your buying criteria
- Continue to check-in with them on a regular basis
- His firm has subscriptions to data services like Costar, ALN, Axiometrics. They will partner with brokers to do sub-market searches in a place like Garland (a suburb of Dallas with 250,000 people), looking for properties:
- located north of this street, south of this street
- Built between 1970 and 1990
- 100 units and up
- 10% or more below market
- Then, they will create a list that they can distribute to key brokers who will contact the owners on their behalf
Exit Strategy
- With syndicated deals, you usually need to have a 3-5 year hold at most
Underwriting Deals
- To learn underwriting, listen to podcasts, read books, enroll in mentoring programs underwiting
- Rental properties are a relatively simple business- income minus expenses
- It’s not always easy, however, because there are many nuances
- Easy to find out what kind of rents they can get with the data services (Costar & ALN) or call competitors in the area
- Rent roll will show current rents
- Financials will tell what they are paying historically, expenses wise, then you try to adjust
- Property taxes will likely go up in first year or so
- Data services can give good estimates on construction/upgrade costs, payroll by unit type
- He uses a template by unit type
- First thing he assesses is where the property is located. If it’s in a bad area he won’t waste his time
- Already upgraded? Not interested
- Doesn’t want older (likes 80s-90s)
- How much value?
Networking at Events
- Conferences put on by Marcus & Milchap, mentoring groups and others are a great way to make contacts that will help you create a funnel of good deal flow
- Syndicating events
- Get out and start meeting people
- Many brokers at some of these events
How to Reach Mike
- Old Capital podcast: oldcapitalpodcast.com
- His company website: spiadvisory.com
- eMail: mbecker@spiadvisory.com
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