[00:00:00] Kristen: Welcome to this week’s edition of Insider Secrets. The show that turns multifamily investing into reality. Each show we interview guests who are seasoned professionals, actively closing and managing real estate deals. Your host Mike Moraski has more than 30 years of multifamily, real estate investing and property management expense.

Mike is the founder of My Core Intentions. And he’s been involved in over $285 million of transactions. Focuses on helping you create short term cashflow and long-term wealth. Here’s your host, Mike.

Mike: Hey, welcome back everybody. And I’m Mike, I am your host of Insider Secrets. Insider Secrets is brought to you by My Core Intentions. And hey, before I get started today, let me just ask if you would just do a couple of favors [00:01:00] for me, if you’d go out and follow me on Instagram and Twitter, Facebook, whatever social media platform you’re on.

If you would follow me there and follow My Core Intentions also. LinkedIn, as well as on YouTube, if you subscribe and to the podcast channels. So I just asked for a little bit of support and help. Help us grow a little bit and get some more recognition. I appreciate that. And I hope today that I fill in some blanks for you.

We left off the other day where I was talking about the beginning of my story. And I got to the point where I talked about building my syndication company, my boutique private equity firm. I always had want to be in the apartment business. And I went out in 2005, I did my first deal. I put that little ad in the newspaper, all it said was, real estate investors wanted, and my phone rang off the hook for a few days. I was able to raise a couple hundred thousand dollars on my first syndication, was an [00:02:00] 11 unit deal in Chicago. But what occurred to me was that people wanted to know more about investing.

I had been teaching about real estate investing in my real estate practice. Most of my business was investors, but I knew that if we could scale this and it could be on a bigger . So what I did was I started raising money. Over the next 30 months, I raised $18 million. I bought $60 million worth of real estate. It was 4,000 apartments in five different states. I grew a property management company that would be managing 7,500 units. That was the 4,000 we own and 3,500 for third party.

And then the market changed. 2008 came around. I remember I was sitting having lunch with my CFO and we knew things were starting to get tough, but the news happened at beyond in the restaurant we were in, and we were watching people carry boxes and boxes out of Lehman brothers by the dozens. And I looked at him across the table and I said, we’re in big [00:03:00] trouble. Aren’t we? He said, yeah, we’re in big trouble. And it wasn’t much longer that everything started doing ravel.

We had Lehman brothers that went out, bear stern that went out. We had AIG that faltered and went out. We had lenders like Countrywide just totally go bankrupt, Washington mutual go out of business. There were companies like Taylor being Whitaker that were doing bad notes and bad deals, all of this caught up. There was the paper that they were writing loans on B and C deals. They were trying to wrap it all up, sell it on wall street and it backfired. And as a result of this, the whole world went into a frenzy.

I’ve seen corrections in the marketplace before. I saw the real estate market correct 10% and recessions that lasted 17 or 18 months. I never saw anything that was going to last seven years or eight years. I think there’s still people recovering from 2008. But then there were people who made a ton of money, again, if you’re in the right [00:04:00] place at the right time sometimes.

But listen, along the way, I made a lot of mistakes. And I realized what those are today. And as a result of realizing what those are today, as I move forward and I do some apartment opportunities again, and some apartments indications again, those same challenges will not come up because I’ve know what to watch for. It’s things like, I was over leveraged what property they were throwing money at us at that point loans and we were buying property at 10 and 15% down. And the problem with that is when you buy property at 10 and 15% down and your loan to value is 85 to 90%. You have nowhere to go with the market falters, you can’t pay your bills. And we were going on the fact that we thought the market would continue to rise.

Even though the residential market fell, and there was problems in the residential market, I still thought that the commercial market would grow. I thought that there would be safety in the multi-family and there [00:05:00] was, if you had enough equity, I overpaid for properties. So I paid a little bit more than what I should have paid for properties.

The other piece is that I grew way too fast. Just in 2007, I closed 17 real estate apartment complexes. And that was about 2,700 units. We didn’t stabilize anything along the way. We just kept running and running. It was like, we were just eating this elephant more than one bite at a time.

So what happened as a result of that, I found myself in a place where I was like balancing on two legs of a chair, and that was very unstable. There was no way that we were going to hold up. So property values decreased and they decreased because NOI your net operating income faltered. I had a property manager call me one morning and this was 2009, the beginning of 2009. And she was in tears and I was like, Jen, what’s wrong? [00:06:00] And she said, listen, I have 32 moving trucks in the parking lot this morning. I don’t have a scheduled move out for 45 days. So that didn’t just happen in one case. But it happened across the board and a number of complexes.

The problem was that when I bought that complex, I bought that particular deal in a market that the market was rated number one city in the country to raise a family. But it was backed by the car industry. So you had all of these little companies in town that were making car parts. They made NABS for the radio. They made dashboards. They made beating for the seats and the Springs and the fill for car seats. All of these businesses when the market got hit and the car industry and the transportation industry took such a hit, it caused these businesses to falter and go out of business. Half of the main street in town was shuttered, and it’s just amazing to me how this happens.

And as a result of this, what the side [00:07:00] effect is to the stakeholders, not your shareholders in a business, but the stakeholders. And when I talk about stakeholders, I talk about the community, right? The small businesses in the area, the living in the area, the real estate in the area, the grocery stores and gas stations. When that happens, everything starts to disperse. So the market drops out about 40%. My property values drop about 40%. My occupancy goes from the low 90% range low to mid nineties, drop down to the low seventies. How are you supposed to pay your bills? We don’t have the cash coming in now.

Not all my properties were like that. I did a number of them that were really still healthy and still good. But what happened was that these ones that were bad that were going towards foreclosure, that there were problems. I couldn’t go to my investors. I didn’t want to tell my investors that there was a problem that there was an issue that maybe I messed up and maybe I didn’t mess up, [00:08:00] but maybe because of the market crashed. I didn’t know how to mitigate the market. So what happened was I started to move money between companies. Now

I talked to my attorney and I talked to my accountant and they said, it’s okay as long as you have a note saying that you’re going to put the money back. Now my belief was that the market was going to correct maybe 10% and that during that correction and it bounced back in 17 or 18 months, that didn’t happen, we all saw that. So as the market continued to falter, I’m moving money back and forth between companies not disclosing it to my investors and they’re in that lies the problem. Now with a couple of the other issues that were going on at that time was I had my head buried in the sink. I really wasn’t paying attention to the key performance indicators.

I wasn’t really paying attention to the numbers and to what people around me were telling me. I had people tell me [00:09:00] that they didn’t trust what was going on and some of the people around me and I didn’t believe it. I tell a story that I was out to dinner with my wife, my ex partner and his wife one night for dinner. And, I never talked to my wife about business, which was a problem in itself. I should have shared some information more so than just saying, Hey, we brought another investor in or closed another apartment complex today, but I should have shared deeper with her.

And what happened was on the way home from dinner that night, she said, I don’t really trust you. And what did I do as a good husband I said, Hey honey, I have this under control, don’t worry about it. I really didn’t have it under control. So what happened was as a result of those issues and those problems about a week later, my attorney said to me, I don’t know what’s going on, but I don’t like some of the things that are happening.

So here I have people in my life that are close to me that are my close advisors that are in my inner circle. [00:10:00] That are telling me they don’t trust something that’s going on or they don’t trust somebody. And I’m not listening to them. How many times in our own life do we not pay attention to other people around us or a voice around us that’s telling us something that we should listen to. I’d urge you today, if something like that’s going on that you pay attention because it’s very important.

So here’s what happened. In all of these challenges overpaid for property over leveraged, didn’t raise enough money, had my documents written where I couldn’t go back to my investors and ask for a capital call. That was a big problem in itself. People around me telling me they don’t trust my partner. They don’t trust some of the things that are going on. I’m not paying attention. I’m not watching the numbers, the reports I’m getting. I’m just skimming over a mat, really looking deep into them. And boom, all of a sudden, I find myself facing a wire fraud and mail fraud charges and wound up fighting it for about two years and wound up pleading [00:11:00] guilty and being sentenced to 10 years in federal prison.

Now, I don’t tell you that to tell you that I failed because I don’t think I fail because what happens after that is really that story of redemption and the things that happen. But I want you to know that I went from a place of having great things in my life of having really good success to all of a sudden, not having anything left and being put away for a number of years in federal prison, the success and the loss is devastating.

But not only that, when I went to prison, I was gone for probably about 30 days and my wife and I had talked about it and we were going to hang in there and get through it. But after about 30 days, she said she was leaving. And when that happened, that was really like the bottom. That was the worst anything could ever get. And, I don’t know if you’ve ever been a bottom in your life when you get [00:12:00] there, you all of a sudden realize that the only place you can go is up. So what I like to do when I come back I share with you how I started to come back from that and the things that happen because the loss, the devastation, everything that went on and much less the stress from the time that we realized that our company was in so much trouble until the time of ultimately being sentenced to that prison term was very difficult and a very difficult time. And then when you go to prison, it’s very dark, despairing, you wonder how you got there. You wonder here’s what I equate it to. I equate it to the fact that you died and you watched your life go on in front of you, that everybody just continued on, but you had stopped.

Kristen: Thank you, Mike, and thank you for joining [00:13:00] us for another great episode of Insider Secrets. As always, Insider Secrets is brought to you by My Core Intentions. Join us on social media and visit mycoreintentions.com where you can get expert coaching on all things, multifamily investing and property management.

We’re looking forward to having you back again next week for more Insider Secrets.