Working Capital The Real Estate Podcast
Real Estate Syndications with Michael Blank|EP22
Oct 7, 2020
In This Episode
Michael Blank is a leading authority on apartment building investing in the United States. He’s passionate about helping others become financially free in 3-5 years by investing in apartment building deals with a special focus on raising money. Through his investment company, he controls over $30 million in performing multifamily assets all over the United States and has raised over $8M. In addition to his own investing activities, he’s helped students purchase over 2,000 units valued at over $87M through his unique “Deal Desk” and training programs. He’s the author of the best-selling book “Financial Freedom with Real Estate Investing” and the host of the popular “Apartment Building Investing” podcast.
In this episode, we talked about his journey in real estate, from house flipping to apartment investing, his thoughts on syndication, he also discussed the process of how to raise money, finding the right properties and eventually achieve financial freedom through real estate investing even if you’re a new investor.
- “In fact, you don’t need prior real estate experience, and you don’t need your own money. Because it’s relatively easy to overcome both of them.”
- “Even people with money will eventually run out of money. Therefore, the art of raising money is really allows you to be a true entrepreneur, allowing you to create something from nothing.”
- “I think there’s always an opportunity regardless of what’s going on, you have to have your eyes open.”
Resources and Links:
Welcome to the Working Capital The Real Estate Podcast my name’s Jesse Fragale. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you’re looking at your first investment or raising your first fund joined me and let’s build that portfolio one square foot at a time. All right, ladies and gentlemen, I have the pleasure of having Michael Blank on the podcast today. For those of you that don’t know who Michael is, he’s a leading authority on Apartment Building Investing in the United States. He’s passionate about helping others become financially free in three to five years, by investing in a partner deals to date through his Investing company, Nighthawk equity, he controls over 64 million in multifamily assets.
In addition to his own investing activities. He’s helped students purchase over 5,000 units valued at over 215 million through his content and training programs. And I’m a bit of a fan boy here. How’s it going, Michael, how you doing Jesse is a great to be here and thanks for having me. Thanks so much for coming at you for coming on the podcast like we were talking about before M everybody in the real estate seems to have like superheroes, some origin story where they started in real estate, how they broke in and ultimately why real estate loves to talk to you about what yours was and how that journey a journey was for you. I’m a slow learner, Jesse. I gotta kind of consider a smile self, the trap of crash test dummy. You have financial freedom because when I read Richard, I poured out in 2004, it really threw me for a loop.
Michael (1m 28s):
Cause I thought it was a pretty smart guy, had it all figured it out. And a, you know, my entire financial plan was all predicated on how much you can stuff into the bank. Maybe how much salary you make. And so I, so My, I eventually quit my job because I had a bunch of money from a software IPO. I have a software background and I decided I’m going to parlay my IPO millions into a app into a passive income. My big idea though, was restaurants. And this is only because that was surrounded by people who were, you know, franchisees and their like, Oh, you hire a guy and they run everything. And you just sit back and count the passive income passive as personally passive.
Michael (2m 8s):
Now, long story short didn’t work out though when the recession changed my plans and subsequently lost my IPO, millions at it, a couple of hundred thousand dollars on top of debt on top of that, almost lost my house and then clawed my way out with real estate. And like so many people, when they think real estate investing, they think single family house landlording flipping wholesale. I’m going to be in my case, it was flipping so, and so this is where I also discovered the art of raising money because it didn’t have any. And so I started raising money to do house flips that we flipped about three dozen and in three years. And it was, it was fabulous that it really allowed me to get out of the, to get out of the whole that I was in M the problem is that it wasn’t really financial freedom.
Michael (2m 48s):
It really wasn’t what I had hoped. It was a very active, active job and exciting, but very active, you know, I can’t take 30 days off or in which I, you know, do with my family. Can’t I can’t that. So I kind of accidentally got into apartment buildings first. And let me say this. I started learning about a part of billings in 2006 back and day when I was doing everything at the same time, I quit my job. So I, I actually started sending out letters and making phone calls for that nine months. It got really close to a deal when I kind of pull back, ah, and, and decided I was going to pursue the, the, the restaurant route as misguided as it was, but accidentally got into an apartment building. One of my wholesalers brought to me and kind of like, Oh, I dusted off the old stuff and analyze. I was like, Oh, so I finally got into that.
Michael (3m 28s):
It was a nightmare. Let me tell you that first deal was a nightmare. Eventually a quiet it down and stabilize in and got really boring. So I lost the real interest. And so I notice that this Apartment, we wanted to send me mailbox money while I was flipping houses. And I was like, man, I should just do more that and less of this. And that’s kinda when it started shifting around. And that’s when I started blogging about all of the bigger pockets. And in other people started asking, well, how do we raise money? How do we put deals together? And today we have an educational platform that teaches people how to raise money, to buy apartment buildings so that they become financially free.
Jesse (4m 2s):
Gotcha. So you know what, that’s not dissimilar from some of the guests that have come on, that they’ve started in kind of the, the flipping worlds. And, you know, you said, it’s great. It’s interesting. You can make a lot of money. And one thing I think that’s great about is that you make large lump sums of money. You have the IPO, but for most people, that’s, that’s not a typical way to create Capital and it looks like you parlayed that. So I remember, you know, this is, again, going years back, you know, you had some, some content out and it talked about the, kind of the move from single family home into multi res, ah, and you know, just Because you have a few single family properties, all of a sudden, you know, you have credibility for the multifamily side.
Jesse (4m 42s):
Maybe you could talk about a little bit about how that, that step, that if you do have a few investment properties, you want to be moving into the multi residential side, you know, holding syndication, you know, aside for now. But if you wanted to take that step, we, you know, what would you say to those types of investors?
Michael (4m 59s):
I was so surprised. Jesse how a little credit I got for my house flipping day’s. I called the broker and they were like, yeah. Michael but the apartment’s have you done it. I was like, alright, I haven’t, but look, it all the houses I flipped and they’re like, yeah, Tommy, again, we’ve you’ve done a deal. Like that was the kind of reaction I was like, huh? I was shocked. Yeah. And when, you know, when I talk about financial freedom and not Apartment is a number of when to do that, people kind of nod their head and then they go, yes, but I don’t have the Experience and I don’t have the money. I don’t have the experience. And so in their mind, you, this is what it does is the narrative. It goes, I don’t know if the Experience will, let me get it. So let me landlord or flip for five to 10 years, and then I’ll take the money I make and I will then invest it in apartments.
Michael (5m 40s):
And that’s not a bad plan. And it’s better than the average person who invests in the stock market and hopes to retire at 65. But it is unnecessary. You would, in fact, you don’t need prior real estate experience and you don’t need your own money because it’s relatively easy to overcome both of them. And, and therefore, if you so choose, you can bypass a single family house. Investing lemme just say people who are listening, watching this, if they’re a single family house Investing and they got a good thing going, don’t put a bullet and it right now, what kind of like, you wouldn’t quit your job tomorrow. You would maybe start this up on a side and see how it goes and possibly transition over it. But the thinking typically is that multifamily investing is an advanced strategy
Jesse (6m 19s):
That will take decades to get to. Yeah, for sure. And the one thing that’s coming up again, and again, just given the fact prior to everything that’s been going around, just been going on right now was the fact that, you know, there are markets that people are in that they just think it’s, it’s not only is it an unattainable in a way in an 18 hour Citi, you know, a, a, a periphery city, but you have these very expensive city’s do you have, if it’s a very expensive real estate, what is it, what is your advice for, for M investors when they’re trying to find assets and they think that they can afford it, Because you and I both know that the first thing, you know, the first time somebody hears a multi residential price, 5 million, 10 million To it could be to million and it just pulls them so far out of their comfort zone.
Jesse (7m 4s):
That exactly like you said, they think that it’s a 20 year plan where oftentimes it doesn’t have to be.
Michael (7m 10s):
I had my big aha moment when I was flipping houses. And I, I bet like this was like, In right after the recession and in the retail market, he was trying to recover it. This was in the, in the Washington DC area. And I was like, man, I gotta, I gotta get me something that you can buy a house for 85, put 35 in and sell it for one 85. I’m like, dude, I need to get me this. The problem is I didn’t have any money. It was all of the, it wasn’t lost yet, but it was all deploying in the restaurants. Yep. And my big aha moment was when someone said all along, you have $50,000 and I was like, you will. And I realized that you could do something regardless of your financial situation. And Even people with money will eventually run out of money. And therefore the art of raising money is that it’s really allows you to be a true entrepreneurial, allowing you to create something from nothing.
Michael (7m 56s):
And raising money is an example of that by pooling together resources, from, from private investors who are dying to, to find a stable return and cashflow and tax advantage, which you’re not getting into an, a stock market, there are like, Oh, really, you have those things. And it’s legal. And Therefore, you know, you get 10 guys and gals together and investing whatever five to $50,000 each, and now you have $500,000 to buy up $2 million building With and it’s amazing. So you start small, anything start at 50,000, 200,000. Doesn’t matter, by the time you’re done, you’re raising millions of dollars in a matter of days and you’re buying 20, $30 million.
Jesse (8m 31s):
Yeah. So, I mean, that’s a good segue into syndication. You know, we talked a little bit before the show, a, you know, a lot of people, even in our space, they have kind of a superficial understanding of what a syndication is, but maybe not kind of a thorough understanding of, of the, the basic kind of structure of the syndication and who the players are. And, you know, you hear stuff in, you know, in the news or you hear on YouTube by raise of a hundred million, 200, 500, then it almost starts stops losing meaning for people that haven’t even taken down their first apartment building. So maybe you could talk about, you know, simply what is syndication is. And Y if you believe this is true, why you think its if not the best model, but one of the best platforms to invest in apartment buildings.
Michael (9m 15s):
Yeah. Syndication really is, is The is the activity of pooling resources from multiple individuals together. And that could be monetary, but also could be sweat equity or operations, right? So, you know, you have five investors putting in $50,000 and they are passive investors. Sometimes we refer to him as limited partners. So it is not necessarily correct, but let’s call them limited partners. It’s limited because their exposure is limited only to Mount of money to invest. And they want to invest because they want to be passive investors. They don’t want to be active investors. And then they are the active investors. They are all sometimes called the operators or sponsors. And those that are people who are doing all the work. So those are the two part is really, and the active investors or sponsors or operators or finding a deal, their closing, the deal, their signing, the loan docs.
Michael (9m 57s):
There are managing the Deal hopefully doing a good job in their selling it for a profit down there on the road. So the partnership is perfect because a lot of these passive investors want to be passive. They’re, you know, high income earners, they’re busy, their attorneys, doctors, and they don’t have a lot of time, but they have money. What, what are you going to do with that money? Well, people are scratching head around the stock market, the goal isn’t there? Anything else? A yes there is. And it’s Syndications and they’re, there are a wonderful Because they’re much more stable there. Actually the return has higher than the stock. Mark believer, not in the risk profile is much more attractive than any other investment out on the planet. Plus you get cashflow and the tax benefits or at this point with the bonus appreciation and probably the most tax advantage investment on, on the planet.
Michael (10m 38s):
So what wa syndicators have his, they have, they have, what is arguably the best investment vehicle on the planet? The only reason that everyone’s doing it as people, just not everybody knows about it, right? So people aren’t investing in the stock market, I’ve always done it. They’re a financial advisor, tells them to do it. There are a CPA, their mom, their dog. And so when you come to him with something like a Syndications, it sounds complicated in a confused mind, says no. So we collect the, we have to educate investors about what Syndications are, first of all, they’re legal, why they’re a good and how they work.
Jesse (11m 8s):
So in terms of just for context and you know, correct me if I’m wrong, I think the last time I checked the private placement or private equity market size of something like 4 trillion in the United States, which, you know, out of a 20 trillion at GDP as quite a substantial part of the market. That’s the thing that I caught that in that stat that I found interesting was I was talking to a sponsor and they were saying that the majority of those deals are happening around the two to two to $3 million Mark in that kind of blew my mind that you think these are all just unachievable $500 million deals, but he was, I’m also an attorney. And he was basically saying, this is the, this is where I in my sandbox where I play it. So let’s do two things, sir, let’s take from the GP or the sponsor’s point of view.
Jesse (11m 52s):
And then we’ll go into the passive point of view. So if I am say you bought a couple apartment buildings and now you want to start getting more. Capital like you said, its only a matter of time before you, before you run out at Capital. You know, what are you tell that person is about getting the credibility to move into the Syndications space. As a se, a general partner are a sponsor.
Michael (12m 14s):
You know the first thing you, you have to do a regardless of where you’re calling brokers to talk and vestors, there’s two things you, you have to, you have to educate yourself. That’s number one, you have to sound like, you know what you’re talking about? It’s like when you pick up the game of golf, if you go sailing, right? If you use stupid words, people treat you like an idiot because you don’t know what you’re talking about. So you have to use a few words, you know, and its the same thing. With With multifamily investor have to educate yourself. So you use the right words and then number two, you have to build a team. And this is a little different than a single family house Investing space, especially on a smaller scale. It’s Because kind of you and you and you and there’s your team and with multifamily investing and you know, if it’s just you, it’s going to be a problem. And so on the team, the two players that you need on the team, a M immediately as a property manager and a lender.
Michael (12m 60s):
And you need both, not just for buying apartments of managing, but you need them to buy. They’re actually acquire prop the actual property. But more importantly in the beginning it lends credibility to yourself, right? So if you are a calling a broker or investor and say, Oh I’m working with property management company XYZ to manage 3000 units in Atlanta and have a lender, she’s done 500 billion of whatever and having the sec attorney in my CPA and have an advisor on, on board. And if people are like, Oh my gosh, this guy is super serious. Right. And it takes away that objection. Oh well you’ve never done a deal before it, like, it doesn’t have to come up because while you are a property manager has done deals before your SSC attorney has done deals before that it can’t all be new. It can’t all be knew.
Michael (13m 40s):
Right? Yeah. So, so it, and if people are willing to work with you, then obviously you’re doing something, right? So if it goes a long way and this is what I’m saying, this is why five or 10 years of a single family house activity while a great is unnecessary because you can assemble a team in 30 days, you can educate yourself a, to a reasonable level and 30 day, if not, it doesn’t make you a guru. Okay? But that’s not, what’s acquired is required at, you have a minimum on a scale and a minimum of confidence as you approach people. And so it’s the same thing, true with a with investors and you know, people say, Oh I don’t, I don’t like to take money from people, especially friends and family. Oh, I don’t want to do that. Oh, that’s dumb. That’s who, you know, it’s your sphere of influence. The difference is that you’re not trying to sell anything, your case.
Michael (14m 22s):
It’s not like a cold calling people. And you’re trying to manipulate them into Investing with you. All your doing is you’re sharing your enthusiasm about this new found thing that has been there for a long time, but you just discovered it. So it’s new to you, you know, like you’re not gonna believe I’m getting into apartment buildings. M man, these returns are from investors or greater between 10 and 15%. You get cashflow. You don’t even actually hardly pay any taxes on it. And you just share your excitement with people. Then he said, well, do you know anyone? And there like a MI or Oh my brother or dad or my, you know, my boss. And so you’re, you’re just sharing your enthusiasm, have what you just discovered. And the people who were interested in that are going to wanna find out more than people who are interested at the one’s, who have money to invest in, have typically done.
Michael (15m 4s):
A stock market are in, are scratching their head. People who don’t have money are not going to care. Okay. People who are arrogant about the stock market, that’s the only way they’re not going to care either. Okay. That’s fine. You guys going to move on, but it’s really about sharing your enthusiasm with people and then you begin to attract people. And it’s The I talk about the law, the first Deal all the time when you do your first deal, this second and third follow in rapid, almost on automatic succession. That’s the same thing with investors. Once you get your first verbal commitment, they’ll go. Yeah. How do you find me a deal like that? I’ll do 50,000. All of a sudden you’re a confidence level goes way up and in your second and third become much easier. And so that’s how you start to process of, of raising money. So from that,
Jesse (15m 45s):
You know, one of the things that, you know, one of the reasons I wanna have you on was talking about demystifying. Some of these things that people talk about when you actually engage in that process, you know, you hear private placement memorandum, you hear tie up the Deal first and then find the money you. So in terms of the actual, a chronology of getting the investor, finding the deal or finding the deal and bring in the investor, you know, what is the way that you approach it? You know, I know just going online, if you’ve done this a, you know, a few times in how you sequence that, but maybe you can talk about that in talk a little bit about that, that Deal PAC that, you know, I don’t know how many years ago, the first time you did that was, but a, maybe you could talk us through that process. Yeah. Right.
Michael (16m 24s):
Skirting around in the chicken egg problem and go something like this, Hey
Jesse (16m 26s):
Deal under contract. And I got 45 days to close. Right.
Michael (16m 30s):
Is that enough time for me to raise money? That’s true. That’s going to be stressful. People do it. I don’t recommend it. Danielle, the ones that I don’t have a dealer on a contract, so I can’t raise money. Yep. Also true. They’re like it can’t be done and be like, well, okay, well hold on, hold it. Hold on. Hold on. <inaudible> you mentioned this Deal packet called a sample Deal package. The sample deal package is a tool. That’s a conversation piece and it’s really an investor package on a deal that you don’t know. Okay. Now you tell your investors. But the point is you get a real deal from a broker. And these, you know, the marketing package sometimes or a really awesome, they have their financials in their to have about the market. So you used all that information. Ah, and, and you present it to your investors and you explain it to them. And you said, here are the returns, the, of the risks, here’s the process.
Michael (17m 13s):
And then they start asking you big, high level questions. Like, well, why should I invest in multifamily? Why should I invest with you? They ask all these big questions that might take an hour to answer. Or maybe even some people require even more. And so you do that with a sample Deal package and you give them that this Deal packs. OK, well, here’s a sample Deal packets. If I had that, if this were a real, I give you something that looks substantially like this, look at it over a call me the next few days and ask your questions. And so they’re asking the big questions and to be quiet, they get comfortable. The idea they have comfortable with reading is an investor packages. So that let’s say three months later, you’re get a live deal and you do have 45 minutes to close. And now things move really quickly follow up your investors. I hope that States not 45 minutes, 45 days that we really fast.
Michael (17m 57s):
That will be a new record in any way, 45 days. Thank you for them from four to five days. And now you call your investors and you say, Hey, remember that? Deal why get a live one. Great. Send me the Deal package. You send an Deal package. That looks a lot like the other one. And now they’re not asking you big questions. Like, well, why should I invest in multifamily? And what are the risks? Oh, what should I invest with you? What’s your team like he already got an out of eight. Now that might be asking your specific questions about the, this deal, what you can answer probably in short order. And now you can get a verbal commitment. Ah, you can now make use of that verbal commitment you’ve got before. And so people who follow this process now can magically raise $250,000 in three days because it did all the work upfront. And that is a much, much more stress free way to raise capital.
Michael (18m 38s):
Jesse (18m 38s):
A couple of questions on that. And I love that you’re talking about this because you hear so many people online talk about Syndications. They never really go through the nuts and bolts of it. So say you do have that Deal let’s say you have, ah, you know, you’ve got a rockstar agent. They have given you 60 days, the close on this thing, you Fred. And from that point of the first question is when you get those verbal commitment. So you say basically a have a deal very, very soon. You know, if I find a deal similar to this, would he be interested in this? Deal they ask the questions, you kind of air, air that stuff out. You find that actual Deal first of all, on from your experience, how many of those original yesses, you know, turn it into a, you know, may be the next one. You know, I’m sure there’s some sort of percentage that falls off.
Jesse (19m 18s):
And then secondly, when you actually have a deal and you do go back to these investors and you go to get those commitments, at what point are you actually changing hands in terms of the C the Capitol, is it going into an escrow account? How does that, you know, the actual deal itself progressed to, to close it.
Michael (19m 36s):
Great questions. Okay. So, so when you get these verbal commitments, it depends on, on how intuitive you are about, about the, yes. You’re getting from investors. He doesn’t think people don’t like saying no. So think of it. They want to say yes. Oh yes. I’m in. And then when it sounded the raise money. No, one’s In well, Because you have happy years on. And when they told you, yes, you took that as a yes. When in fact it was a no. So you have to add some, some questions about how serious that yes. Is. You might ask questions. Well, what kind of where’s the money coming from you? You have to sell the house or your, or child or car to get it Or is this liquid, right? Is that in your IRA? And you have to ask them a qualifying questions. You have to give them permission to say no. Oh, it sounds like it’s probably not 40.
Michael (20m 17s):
It is that. Am I right about that? Oh yeah. You’re right. It’s not, it’s not really right for me. So if you ever to have to qualify, you got to take your happier is off a little bit. Sometimes I go a step beyond and have them sign a letter of intent to invest. Oh, Jesse is a great guy. If he finds it right. Deal on vests with them. Meaningless piece, right?
Jesse (20m 33s):
Paper. Yeah. A nonbinding LOI. Yeah,
Michael (20m 36s):
But it ain’t, no, it gets a woman and all that. I’m not, I’m not prepared to sign you up, find anything right now. So you can qualify now. So when you have a first deal here, here’s what happens. You get a first deal and you got it under contract. You wanna get an, a, a contract. And if a and at that point you wanna start to capital raising process. Here’s what happens. You have a communication with your investors and you try to get what’s called soft commits. There’s this is essentially another verbal or somehow written verbal is typically a of hay. Yes. M. I’m still, In. I’m interested in 50,000, 75, a hundred, a thousand. Right? So you get your soft commits. And typically you want to get about, you know, 25 to 50% more soft commits, then the money you actually need, because some of those people won’t actually come, come through for various different reasons.
Michael (21m 18s):
I mean, some of it is, most of it is timing related, right? So you get these soft commits and M, and once you have the soft commits, while this is going on, while you’re having conversations with your investors, a you then contract the M, the attorney, a draft, what you call the PPMS or a private placement memorandum and the legal documents. Now, typically you don’t want to do that until you’re darn sure that you’re gonna close on this deal, which typically happens after the property inspection comes back clean. You’re like, okay, as far as I can tell, it’s a green light. And at that point you can start spending money and not before it cause the attorney costs money. So while your, while you, while you’re talking about with the investors and your answering questions about the Deal, the attorney is now working on the PPM and the legal docs, and then once their done, you send those legal docs to your investors.
Michael (22m 6s):
They review and signed them. And once they sign them, they wire the money into an escrow account. So you want this, all of this stuff happening obviously before closing, but that’s really it. And then once the money is in the escrow account, the a M you just wait for, for closing. So the, the closing itself is, is a, is a relative nonevent. You spend most of your time during closing, dealing with a lender, filling out all their stuff on their, and then when they go away, you’re gonna spend, you know, the rest of the time, you know, hurting your, your investor or your cat’s to, to close it. Because, you know, inevitabley half of them can open an email are use a fax machine are scan or no, how to read a text message. So you’re chasing some investors, some of them are vacation, you know?
Michael (22m 47s):
And so you’re just making sure that everybody’s following the process
Jesse (22m 50s):
On that note. You, you, you mentioned the PPM and other legal documents. Could you just clarify my understanding of the PPM is that the liability document, it’s basically everything that could go wrong, that you’re signing for it, but his, that is that done in conjunction with what you often hear as a subscription agreement, or is it, is it the same document?
Michael (23m 9s):
There’s three documents. There’s the operating agreement. The Auburn agreement was really the heart of everything. Cause the operating agreement governs how the general partners, the sponsor’s to whatever we want to call them at governance. What concision is Dave? They, they can make a and what require a vote of the limited partner. So it has voting rights in it. It has a profit distributions. It has various different. That is the actual company agreement. And that PBM includes the, the, the, the operating agreement, which is why it’s so dag-gone long. And then in, it includes profile on the, on all of the members of the general partners, who they are, what deals they have done a possible tax consequences and risks of the deal. So it is in that sense, it’s a, it’s a disclosure document required by the sec.
Michael (23m 52s):
Now the operating agreement has to be, and there’s a, there’s a third one. That’s a subscription agreement. As a subscription agreement is essentially a questionnaire that it does. It, it questions the investor about their ability to invest. Are they accredited? Are they, non-accredited a, and it also that’s when they actually write down a, what I want to, I want to invest 50,000, a hundred thousand, whatever that that is. They have to sign that and they have to sign the operating agreement. The private placement memorandum does not have to be signed. It is for informational purposes only. And it’s probably because it’s so long, no one wants to read that kind of stuff. But anyway, one should of course read that everything isn’t disclosed and also fees that the sponsors are going to charge or in their Mmm. How decisions are made. Like I said, so those are the three documents. And you just have to know enough to know that you don’t really have to know much on that because your sec attorney handles all those things.
Michael (24m 37s):
When you call your sec attorney, let’s say your property inspection comes back clean. Okay. We’re a go for, for closing. You call your us to see attorney, and they’ll ask me a bunch of questions, Sandra, in your contract, send me everything on your partner’s. Ah, how do you want a structure, the Deal and, and those to ask you a bunch of questions, then they go away in and do a bunch of stuff. And a few days later, they come back and they drown you on paper. And then you have to read it for, you know, for accuracy. So what I’m saying is a lot of people go, Oh, that sounds complicated. Yeah. But it’s not your job to come up with that stuff. They’ll interview you don’t extract information from you, and then they’ll create the legal documents for it. You know, the reason I asked it is actually met with, ah, just a friend, who’s a lawyer downtown here. And he was talking about how oftentimes the investor’s, the sponsor’s that he has is that he doesn’t, he no longer creates the PPM aside from just kind of changing a few items.
Michael (25m 22s):
He is, he was talking about the subscription and the operating agreement, but he was talking about the private placement memorandum. The first time you do it for a new client, he was sitting is kind of like the big a extraction, but I’ve heard differing opinions on this. So I’d love to get your thoughts on, you know, that process. And maybe also, I know it’s hard to estimate cost. It’s obviously dependent on the Deal, but that is, that oftentimes are in this money that the investor is putting in before actually receiving money from others. So yeah. How, what are your thoughts on that kind of the lawyer, the lawyer component and in those kinds of documents? Yeah. Well, I can’t speak to how many, a templates lawyers, if you, as it seems like they keep her using the same dangled thing over and over, and they still charge the same price.
Michael (26m 3s):
So I don’t know, you know, I, so there’s definitely boiler plate. Those particulars will vary from deal to deal. And so that will vary, but yes, clearly they’re using some kind of, you know, template builder on their end to come up with the same thing, but different. So I can’t speak to that. The cost is simply to be in 10 and $20,000 for that. And a, and you build out of course, into the Deal and you get that back at closing, if you close, this is why I keep saying in the due diligence slash closing process, you went to defer spending money as much as possible. I have a conversation really to be with someone who lost 23,000 on the, on a deal that it didn’t close. When I went, I kind of ask them about it. He made all these mistakes where he ordered the appraisal right away, a property.
Michael (26m 43s):
He hadn’t even seen the property yet, and he wants to get it done fast and he’s spending all this money, but then he, I don’t know, Cameron, what did he say? He wasn’t able to raise the money at the end of the day. He just wasn’t ready for it. And so why is he spending all his money? Or, you know, the discover some foundation issues or water issues or whatever, black mold, I don’t know. You know, so the point is you want to the first spending money as much as possible. So hiring your attorney comes down the road. And in your, when your, at retaining the attorney, you are 98%, you know, sure that you’re going to close, unless something wacky happens with a loan, that’s the only thing. And so, yeah, you want it. So the probability is a very high, they get your going to get that money back at closing. They’ll having said that, that this definitely is a risk.
Michael (27m 24s):
If the deal does not close, that’s why it’s called risk. Capital right. And that’s why whoever puts up the risk capital is literally at risk. A and so whoever does that should get some kind of equity for putting that up if it’s not yourself, but maybe an, an investor.
Jesse (27m 36s):
Got it. So I want to talk a little bit about kind of, you know, what your doing in raising capital, but before I do the last question on Syndications I would have is when you are actually closing in our example here, are you typically trying to put, put in a say in a number of company are an LLC that you can assign to some future company, or is it, you know, the company you put in is, is the one you’re tying your hands to a just, you know, I’ve gotten a few questions through email a on the podcast that actually asked a little bit about that, that component of it.
Michael (28m 3s):
Yeah. It’s so funny because first of all, your attorney will advise you on all these things and I’m not an attorney, but you know, it’s funny, you, you bind your ratify contracts with, you know, entity TBD and people sign it. This is a binding contract. No, it’s not, that’s weird, but it’s done all the time. Jesse so I don’t really, or it uses the entity that you use To, you know, that he was on your business card, you know, you know, you know, Michael, Blank, Investing LLC, well, actually, maybe own the assets or maybe I do. And so I, but the point is you’re always creating a new entity for our apartment buildings. So it had a contract always has to be assignable is not because I want to wholesale it. No one really does that. Or a very few people will do that is not so that you can wholesale, but we can assign it to another, another entity.
Michael (28m 45s):
That’s the way.
Jesse (28m 46s):
Yeah. So wait, and, you know, we do that on the brokerage side all the time. Ah, we have seen a couple large Apartment assignments or a whole sales, but yeah, very, very rare for that to happen. So Michael, let’s, M, we’ve got about 10 minutes here. I know you got another, another thing to get to, I’d like to talk a little bit about the Nighthawk equity, basically kinda the raising capital, but also in addition to that, I want to talk a little bit about how you add value to others that are getting involved in real estate. I know that you have training programs. I mean, the reason we’re talking right now is that I found you online somewhere and it was like, this guy seems to know what he’s talking about,
Michael (29m 21s):
But you can apply it in a variety of different ways. We, we add value to whoever your audience is, right? So we have really two main audiences who are interested in financial freedom of the real estate. Those are your active investors, right? These are people who wanna find deals, raise the money. And then there’s these passive investors. And they want the same thing, which has financial freedom. It’s just that in the vehicle is a same shift that the strategy is different. The passive investor wants to invest money and they want to generate cashflow in wealth and tax benefits. So they can eventually replace and cover their expenses. And the active investor does it the same way, except that they’re willing to work for it and get sweat equity for, for, for doing that. So the way that you know, that we add value to those is that we’ll, you try to educate them about what they want to know. So if your interested about passing Investing well, I’m probably not going to give you blog articles and YouTube videos on how to find deals or analyze deals or raise money because you don’t care it.
Michael (30m 8s):
However, I’m going to share with you, how are you going to use your IRA to invest how you should analyze investment opportunities that you shouldn’t compare to the returns from one to another, an answer, various questions like we’re doing here on the investment process that is now adding value to them. So With and so doing M I as a syndicator who in trying to raise capital and be able to attract more people, more investors that come to me because I’m, and I’m adding value and maybe they’re attracted to my brand, my message about financial freedom. Like, Oh yeah, that’s what I want. So they download something or something for free, and then I provide value to them. And this is what we teach. And the new platform builder framework as well is actually, there’s actually a thing.
Michael (30m 49s):
If you wanted to, if you want a raise more capital, how, how do you do that? You attract the right investor and by developing your brand, and you’re your own story. And you are what we call your ideal, a investor, which has also called your avatar. And then you speak to them, write you, speak to them through various content, through blog posts, video, podcasts, books, whatever, whatever the case may be. And you know what to say to them, because you know, your ideal avatar, you know, a what they want, do you know what they’re afraid of? Ah, you know, what their questions are. And so you speak to them through your content, therefore on of course adding value in, so doing building trust with them. And when you have built trust with them, you can ask them to do something and the general platform Building where you going to ask them to buy something or a register, something, a, read, something in the capital-raising word, you going to ask them to do something else.
Michael (31m 36s):
I’m going to ask them to join your investment club, which entails them filling out a short questionnaire and a scheduled call with you. Because you have to have a preexisting substantive relationship with him too, by by sec laws. And so how do you do that? Well, do you do, this is one the way to do it. So if you want to get the, know these people, and the way you do is you ask them, are you enjoy going to have my content? Great. Well, why don’t you join the club? And, you know, you have a conversation with me once there in, at that point, you can then present them with live deals. Cause they have now told you that I’m interested in live deals. So, and, and, and then you have a live deal and you do a live webinar. Ah, you have a soft commit form and some automations behind it. And so you automate the process.
Michael (32m 17s):
And so doing, you can literally raise millions in just a matter of days, we just raised 7.8 million and 24 hours, and others are doing the same thing as well as all due to the, to the power is a platform. And you can use it for raising capital and you can use it to sell online courses or Or fill rooms or sell books. The platform building process has always the same. It was just that the nuance is based on how using it, the content you’re using M are a little bit different, but the principles in the automations behind it, or always the same.
Jesse (32m 46s):
So the platform, just a couple words on when you say platform, what you mean as opposed to, you know, maybe what somebody thinks they they’re hearing. Yeah. Platform for me is basically
Michael (32m 56s):
You use for a marketing and sales in influencing people. And so that’s what we’re talking about lot of times is historically when he has a platform and let people think about software platforms, you know, maybe, and I know that, and maybe, you know that, but most people don’t even what a platform is it maybe a stage or something. And that’s more, it’s more like a stage your building, a stage in your plan and, and your putting the right audience in the seats. And then you’re delivering the message that is relevant to them, where the benefits are clear to them. And once they start nodding their head, because they learned something, you can then ask them to do something in this case for capital-raising. We going to ask them to invest with us. And so doing, they get a benefit which has cashflow wealth creation, a tax benefits. You get the benefit of raising capital, and that means you can then grow your own real estate business.
Jesse (33m 40s):
Gotcha. All right. Michael we have just a few questions we typically like to end with, we ask everybody on the show, if you’re ready for those born ready. All right. So first of all, just in you’re a real estate kind of career journey, whatever you want to call it. Were there mentors that, that you had had in the past that really kind of made you what you are today or kinda put you in the space that you’re in and really excelled what you’re doing currently?
Michael (34m 6s):
So today I have lots of mentors either in person or virtual mentors, but back in the day, I didn’t, that was my main mistake. I didn’t have a mental from a restaurant business that didn’t have an idea, have a mentor for the house, flipping business. I didn’t have a mentor for my apartment, building a business and had I had those things, I would have avoided the major mistakes and accelerated the results specifically around the restaurant as well. So now I try to get a mentor for various different parts of my life, depending on what I’m trying to do. You know, it could be a, it could be a business coach, or it could be a health coach or, or a spiritual coach. And not all of them are paid coaches. Lot of them are, you know, in books and, and Podcast right. You, you, you come in to someone that you really enjoy it.
Michael (34m 48s):
You really resonate with, you just consume all of their, all of the content. So a and then, you know, I’m, I’m in a couple of masterminds, just like I teach everybody else to get into mastery. You need a peer group that you don’t just need a mentor very important. You also need a peer group as well.
Jesse (35m 1s):
Okay. Well, you are clearly cheating. Cause the next question is what are some of the favorite books that you’ve had? You mentioned Robert Kiyosaki at the top of the hour. Are there any other books that really kind of helped you through through the process?
Michael (35m 13s):
And there’s a couple of books. I’ve one of the people I really enjoy his hell L rod. He spoke at our deal-maker live conference last year, a really great guy. M, he’s got two great books and miracle morning, which I really enjoyed and implemented several years ago. I know you’re going to ask me about the best habit. That’s the one a day. And then number two was this newer book miracle equation, which I really enjoy because it kind of stands goalsetting on his head. I really enjoy that. Also the Gary Keller book, the one thing you put them together, and it’s a very powerful, a way to accomplish things that are actually really important to you. Okay. Well, the To, I’ve kind of, I’d love for a master’s in business and Bloomberg. Ah, and that is something that you are pessimistic about right now.
Michael (35m 54s):
And something that you’re optimistic about right now, is that a pessimists? This is my mother. Are you going to see it? I knew right away. I really am not to pick the wrong word. I I am, I am an optimistic realist. God, that’s kind of what I am. So, ah, you know, back in the day when I got in the restaurant business that I had my giant happiers on and nothing could possibly go wrong. So I’m personally signing, you know, personally guaranteed leases in the, in the millions. Oh yeah. That’s what the flaw clause. Right. And who cares about that? Alright. You know, and so I’m a little more cautious now, so I, I’m not pessimistic at all. I think there’s always an opportunity regardless of what’s going on yourself to have your eyes open. Okay. And my personal favorite, just being a car guy, what was Michael Blank his first car? Oh my God.
Michael (36m 34s):
My first car, he could model, it was some kind of Ford hatchback. It was awful. And I, I had like, someone rear ended me on the New Jersey turnpike going up there and that was the end of the end of that. But at least I had a car. This was in college. Right. So, Hey shoot. It gave me some on a Freedom. I think we all have the awful part in common, but Hey, your 16 and yet the wheels. That’s right. Michael thank you so much for coming on. What I’d love to do is just for you to talk to our listeners and say where they can reach you aside from just typing Michael Blank and Google and that, is there any, is there any space that, that is preferable Or yeah, the website is The Michael Blank that’s bla in CAE, the Michael Blanco’s there can only be one, oddly enough. There’s more than me, but there’s only one.
Michael (37m 14s):
All right. So the Michael Michael Blank. He has trouble does whatever that I don’t know. So that we have a lot of free resources out there. We have the blog, we have a YouTube channel. We have the Apartment Building Investing Podcast ah, and then if people are ready to In we have the book Financial Freedom with Real Estate Investing the yellow book here. That’s on Amazon financial freedom is a real estate. And then if they’re ready to invest, we have some online courses called the ultimate guide to buying apartments. We have a mentorship program where you can work one on one with people. We have the platform build or a program where people can learn how to build his platform, raising capital as well. So try to have something for everyone who is interested in financial freedom with real estate. There’s a gentleman. My guests today has been Michael Blank Mike, thanks for coming on the show.
Michael (37m 55s):
Pleasure Jesse and thanks for having me on Favor, listening to the Working Capital Podcast. My goal is to help individuals break into real estate investing as well as educate Experience investors. If you enjoyed the show, please share with a friend subscribe and give us a rating on iTunes. It really helps us. If you have any questions, want to learn more or likely to cover a specific topic on the show, please reach out to me via firstname.lastname@example.org. My name is Jesse Fragale and I’ll see you back here for the next episode. Or the Working Capital The Real Estate Podcast.