Insider Secrets Podcast Episode #95
Guest: Michael Mikhail
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Forbes Magazine selected Michael for the class of 2021 for “The Next 1000,” which showcases those who are redefining what it means to build and run a business today. Stratton Equities was also honored by the NJ Biz, New Jersey’s leading business journal, as one of their Top 250 Privately Held Companies for 2021.
“Michael Mikhail is the Founder and CEO of Stratton Equities, the nation’s leading hard money and NON-QM lender to national real estate investors, with the largest variety of mortgage loans and programs under one roof.
Having launched Stratton Equities in early 2017, Michael has always been an entrepreneur and innovator in the real estate market, purchasing his first home at 19 utilizing hard money.
A serial entrepreneur with foresight for business opportunities, Michael had a slew of small businesses before launching Stratton Equities. One of his most prolific ventures was a car wash connected to a gym he was affiliated with in Florida between 2001-2002.
Michael officially joined the mortgage industry in 2003 and decided to travel to explore his options globally.
After traveling to 19 countries in 5 years, Michael knew two things; he wanted to start his own business and launch it in the United States. He knew that moving back to the states was the best place he could start something small and grow it into something infinite.
In 2017, Michael noticed how the mortgage industry had transformed after the regulations presented from 2008-2012 and knew it was time to set out something on his own, thus creating Stratton Equities.
Under Michael’s leadership, Stratton Equities has grown into one of the biggest leaders in the Mortgage and Real Estate industry across genres and platforms.”
The nature of the beast in business, you have to get some tough skin and you got to be aggressive and you got to stand your ground.
I hate the weekends. Everybody knows me. I dread the weekend. I wake up a little later in the weekend and be like six.
You can never have a business stay stagnant. A business has to keep evolving as it’s moving forward. Once you’re stagnant, you’re at the beginning of the end.
Believe it or not, that was the true defining moment that got me to work as hard as I did, which was wanting to get that girl back. And this company wouldn’t be here if it wasn’t for her.
Anything I spend, cars, houses, cigars, whatever it is, I’m always wanting to get a deal. I don’t reduce the quality of what I buy. I buy the same thing. I just buy it at a discount.
Ever wonder why Steve jobs wear the same thing every single day? It’s called decision fatigue. You have to limit and minimize the amount of useless things you decide on a day.
Most sales places don’t train you. They just throw you to the wind, which obviously doesn’t work. And you have a very low retention rate and a very high turnover.
If people aren’t happy. And if people don’t feel that they’re successful and productive, they’re not going to stay there. So we have extremely minimal turnover, which is great.
“When I started this company. I started with literally no money, so I couldn’t afford anybody to take advantage of me” – Michael
“I wasn’t a good employee, I wasn’t a good student, which made me always need to venture out to do my own thing” – Michael
“I always had a vision of the business to expand. I just didn’t know how to expand. I didn’t know how to grow a business with layers. And I didn’t learn that until recently” – Michael
“I’m lucky that when I started one of the couples of years ago now I had some mentors that were in the business that helped me build the foundation” – Michael
“I had a girlfriend with literally no money. And 2017 was the end of the rope because love only goes so far without money” – Michael
“I wanted that girl back so bad that I said to myself, I’m going to change my life. I’m going to do whatever the hell I got to do to be the man that I have to be to make more money than I can count, and I’m going to get that girl back” – Michael
“I had a hard time with a lot of things and having a company and having people under me made me a lot more patient, a lot more understanding, as I said, we’re huge into training” – Michael
“I used to go to Mercedes, BMW, and Porsche and negotiate $200,000 cars just to hone my skills in negotiation” – Michael
“We get 300 leads a day and that number is going to double in a couple of months. They funnel through a dialer system that dialer system calls and revise and leave voicemails and sends out emails” – Michael
“I started this company with a borrowed thousand dollars on a credit card from my mother literally. And I still own a hundred percent of the company cause I’ve never taken any outside financing” – Michael
[01:05] Intro to show and today’s guest, Michael Mikhail.
[04:22] One word that describes Michael personally and professionally.
[05:52] Michael’s backstory and how it all came together for him.
[09:32] Defining moment in Michael’s life.
[15:42] Talking about Stratton Equities and what they do.
[17:25] Is all your money hard money?
[20:35] Michael’s favorite asset class.
[26:27] How do you make high-stress decisions?
[28:15] Types of technology and resources Michael uses in his business.
[31:23] What do you think your biggest lead generation tool is right now?
[34:24] Favorite tourist attraction.
[35:09] Best book you’ve ever read?
Kristen: [00:00:00] Welcome to this edition of Insider Secrets, the weekly podcast that turns real estate investing goals into reality. Each show we interview guests who are seasoned real estate professionals, actively closing and managing real estate deals. Mike is the founder of My Core Intentions and would like to help you make your real estate investing dreams a reality.
Mike coaches you to buy investment real estate, creating short-term cash flow and long-term wealth. Your host and real estate coach. Mike Morawski has more than 30 years of real estate investing and property management experience. Here’s your host, Mike.
Mike: Hey everybody. Welcome back it’s Mike, your host of Insider Secrets in this another great episode. I’m joined today by Michael Mikhail. Mike with Stratton Equities. Hey Michael, would you please tell our guests a couple of things that they’re going to hear on today’s show?
Michael: Absolutely. It’s going to be a success, it’s going to be entrepreneurship, mortgage lending, [00:01:00] and real estate investing.
Mike: And you are going to have to listen in to hear the rest. See you inside.
Hey everybody. Welcome back. It is Mike, your host of Insider Secrets, and I am excited today about today’s show. But before we get to the show, what I want to talk to you about is your intentions. And I want you to think through, I know every week we talk about what your intention are. What are you trying to accomplish?
Here’s what I’d like to ask you. Did you get up this morning and did you take some time to have that hour power for yourself? Did you take some time to really intentionally plan out your day, what you wanted to accomplish today? Number of sales appointments, maybe it was how you were going to eat today. Maybe it was who you are going to touch today and how you were going to affect somebody else’s life.
What are those intentions? Because until we designed those intentions in our life, and until we start to implement them in our life, we’ll stay stagnant. We’ll stay in the same place and most times back up a little bit. So [00:02:00] I want you to really think about that. My goal is always to empower you to help uplift you and help you move to the next level. I want you to use sound real estate investing principles, property management principles, and live a well-balanced lifestyle. And those are really key and important intentions for me to help you grow forward.
So one thing I ask is please go off to social media, wherever you hang out. Like us, love us, subscribe to us on YouTube, where you’ll get relevant content every day, all the time. And we bring some of the best guests to a platform for you to learn from. And that’s my goal is for you to learn. So let me jump in, today’s guest. I’m excited to be joined today by Michael Mikhail. Michael, you want to say hi.
Michael: How are you? How’s everybody. That was a great intro by the way. I definitely liked that intro of yours.
Mike: Thanks. I appreciate that. Let me just tell the listeners a little bit about you now. Michael is the founder and CEO of Stratton Equities. The nation’s leading hard money and non-qualified money lender to [00:03:00] national real estate investors with the largest variety of mortgage loans and programs under one roof.
Hey, Michael launched Stratton Equities in early 2017 and has been an entrepreneur and an innovator in the real estate market pursuing his first home at 19 utilizing hard money. A serial entrepreneur with foresight for business opportunities, Michael has a slew of small businesses prior to starting Stratton Equities. One of his most prolific ventures was a car wash connected to a gym he was affiliated within Florida. And that was between 2001 and 2002?
Mike: Michael’s done a ton of traveling, traveled 19 countries in five years. He knows a few things. I can’t wait till we get to the bonus round in this and ask a few questions about restaurants and favorite food and things like that.
Michael, welcome to the show. I’m glad that you’re here today. It’s a pleasure to meet you. And I always say that I love to [00:04:00] bring quality to the table for my listeners to learn from. Let’s start here. You know what I always like to ask my guests, how do you describe yourself? How would you describe yourself personally and professionally? I always ask most guests to tell me in one word, but, if you can do it in one word or if you can do it in three, just tell us how do you see yourself as an entrepreneur?
Michael: The word I’m going to use might be taken the wrong way, but I would use aggressive.
I take business. It’s a battle. And I say it every single day. If you want to really get into business, you got to be ready to get into battle. Because I know, everybody’s going to try to take their piece of flesh. Everybody gonna want to work with, this is my opinion in business.
It’s not easy. You have to have some really tough skin, I’ll give you an example. I just scale dealing with court proposals all day and people trying to overcharge you and just the nature of the beast in business, you have to get some tough skin and you gotta be aggressive and you gotta stand your ground.
And that was the stance I took my whole entire life and I took even more so when I started this company. I started with literally no money, so I [00:05:00] couldn’t afford anybody to take advantage of me.
Mike: Yeah. Interesting. It’s funny, as a serial entrepreneur and I think you, and I share that in common is we wind up our starting companies on a shoestring. And trying to build things out from nothing. And then look where you end up and I think it’s all a result of what you said, being aggressive. And Michael, I’m a hundred episodes into this show and at a hundred episodes, nobody’s ever used the word aggressive. So I appreciate that.
I always tell people, it’s very rare if somebody uses the same word twice. So it just goes to show you what the American or world language and vocabulary is. So Michael, based on your achievements we told that you’ve been a really successful entrepreneur what could you take where could you take us back to in the beginning? Tell your story, talk to us a little bit about how it all started, how it all came together for you?
Michael: That’s going back a long way. I remember in high school, I wasn’t a good employee, I wasn’t a good student, which made me always need to [00:06:00] venture out to do my own thing. It was just always my own thing. School wasn’t my thing. I didn’t go to college. I wanted to sock businesses and I remember I was in high school. This was the mid-nineties. I used to have parents and teachers literally bring knives to school. And I’d sharper knives for 50 cents.
This is when you used to be able to do that. Now you can’t do that, obviously in the school. But, I always figured out ways. I even started a knife sharpening business when I was, at that age and I landscaped. So I used to sharpen the axes and all the tools for all the landscapers and the neighbors and whatnot. I always had a vision of business to expand.
I just didn’t know how to expand. I didn’t know how to grow a business with layers. And I didn’t really learn that through until recently. I knew the concept of starting a business, but not really how to scale. And you have to learn how to scale. And recently learned how to scale, to be honest with you which is why we are where we are now.
Mike: It’s interesting you said, you didn’t know how to expand. What do you think happened around that to help [00:07:00] you learn how to expand to help you go to that next level?
Michael: I tell people, you have to have a phenomenal CPA and most of them really don’t know how to do much more than file your taxes. That is not what you need. You have to have a team, took me a long time to find the right attorneys, the right people, the right surroundings. I’m lucky that when I started one of the couple of years ago now I had some mentors that were in the business that helped me build the foundation.
And within I think, 12 months passed my mentors on where their companies were. And it was just hard work. Like I tell, people aren’t willing to sacrifice. And I’m glad we’re having this, I want to get it out. People don’t know what I mean when I say sacrifice. When I tell you, I did nothing 18 hours a day, seven days a week besides focus on making money and growing the company. That means I didn’t watch any TV. I didn’t have a TV. I didn’t go out. I did nothing. I tell you nothing. I woke up, showered, had coffee, and whatever time it was. Now I get up at 3 34. I used to get up a little later back then I used to get to [00:08:00] work probably 07, 07:16, 07:30 till night, work, went to sleep, and did it again. That doesn’t mean going on vacation and hanging out with your friends and watching sports. That means nothing besides work.
Mike: And is that kinda your lifestyle today?
Michael: It still is. I hate the weekends. Everybody knows me. I dread the weekend. I wake up a little later in the weekend and be like six. I’m just naturally, I don’t set an alarm clock. I just wake up today. I got up at 03:30. So I’m so excited to get to work on Monday mornings that I have a hard time sleeping, to be honest to you. And I do a lot of my thinking in the office.
I have two offices here. I do a lot of thinking in the morning and get my coffee. I walk around. I’m constantly thinking nonstop on what we have to do, what we have to tweak, what we have to fix. What can we expand? What can we do better? You can never have a business stay stagnant. A business has to keep evolving as it’s moving forward. Once you’re stagnant, you’re at the beginning of the end. And I truly believe that. You have to tweak and hone and evolve a business or you’re at the beginning of the end.
Mike: Got it. [00:09:00] Yep. Makes a lot of sense. That’s for sure. And I like what you said is you have to keep evolving because as soon as you get stagnant, it’s the same thing when we look at what where we’re going to syndicate an apartment operating and we look at a market if the market’s population growth is sitting flat and some guys will say, oh, it’s been the same thing for eight years. It’s moving backward. You just don’t see it.
Michael: If you’re not moving forward, you’re moving backwards.
Mike: Yeah, absolutely. So talk about a defining moment in your career. What’s been a defining moment in your career?
Michael: Career or my life?
Mike: Either way.
Michael: I’m going to tell you something that I’ve never told in a podcast, I’ve probably gone to a hundred of them. Which is, my PR manager wants me to be a little bit more open, and show my soft side a little bit, which I’m going to do.
When I was literally dead broken homeless. And it’s funny when I say homeless people have this image of me, like pushing a cart on the street. No, I was literally like couch surfing, whoever would let me sleep with them on a couch in different countries, Australia, Southeast Asia, Dubai, it was, Lucy just dead broke.
But somehow, I had a girlfriend, which will never happen [00:10:00] now. But I had a girlfriend with literally no money. And 2017 was the end of the rope because love only goes so far without money. And we broke up, she left me and I wanted that girl back so bad that I said to myself, I’m going to change my life.
I’m going to do whatever the hell I got to do to be the man that I have to be to make more money than I can count, and I’m going to get that girl back. And believe it or not, that was the true defining moment that got me to work as hard as I did, was wanting to get that girl back. And this company wouldn’t be here if it wasn’t for her. And I’ve never admitted that.
Mike: You guys back together?
Michael: No, she’s 8,000 miles away right now. And to be very honest, we spoke, very proud of me where I am. I put a lot of credit to her for where I am because of her. But even to be honest with you, I just don’t even have the time to have a serious relationship. My focus is my company. My focus is my staff. I love my staff, [00:11:00] huge into training and helping them out. It’s just not the right time for me.
Mike: Yeah, no, I get it. You know what, you said something very interesting and I want to backpedal on that and you said to be the man that I have to become. And I think that’s a really important statement that people need to pick up because I always teach people if we’re going to grow professionally, we have to grow personally. When you’re working on growing personally, what’s that look like for you in your life? What are you working on?
Michael: I wasn’t good at that when I was younger and that heavily affected my business life because I had a hard time just dealing and coping and a hard time understanding people’s views. I had a hard time with a lot of things and having a company and having people under me made me a lot more patient, a lot more understanding, as I said, we’re huge into training.
I love constantly training and evolving, with our staff. It took a lot. And that’s something which I also talk about is the evolving of personally myself internally and changing my [00:12:00] habits and changing the way I deal with people and the way I talk to people. Like it took a lot of inner work that also correlated with my business life. Because in business, you’re dealing with people and if nobody wants to work with you then you got a problem.
Mike: The other thing that you said that I thought was really key was team. I don’t believe any of us do any of this without a good team around us.
Michael: You can’t grow without a team.
Mike: Yeah. And it’s amazing when you could get stuck as an entrepreneur in that growth period. But as soon as you add a team member, frees up that time and frees up that space to allow you to go do other things.
Michael: If you are lucky enough to hire good team members, good people. Everybody here, that’s what they have to do. We all go and the same as me, we go above and beyond for the company. People love the company. A good example I had one of our loan officers, our processor texted him this weekend couldn’t get a hold of him. I got worried. I got involved, I call but turns out he just left his phone in his parents’ house, but I truly got [00:13:00] worried that he was okay.
And I was actually going to send somebody to his house today if he didn’t show up. But he showed up and he just lost his cell phone in his parents’ house. And my point is I’m very engaged with everybody. And I always say without them, I wouldn’t be where I am. So I treat them like my family.
Mike: Where do you think was your the big thing in your life that you said, Hey, I’m going to be an entrepreneur. Cause I think that you’re not born an entrepreneur. I know I wasn’t. I didn’t grow up in a family where it was entrepreneurs, but what do you think happened to you in your own life for that shift to occur?
Michael: I can tell you that, I’m Lebanese, I was raised in Beirut. Every Lebanese guy’s an entrepreneur. I don’t know one that isn’t. They’re always self-employed, they own something, they own real estate. Something, I don’t know a single Lebanese male that isn’t an entrepreneur or something.
It’s just in our blood, Lebanon was a center of banking in the middle east before that it was a center of trade. When all the trade came from the west, it came in through a port to Lebanon, which is what helped us learn how to negotiate, which I will talk about. If you want to be in business, you better learn [00:14:00] how to negotiate. Which I love to do. My background and my heritage is actually a big part of the success that I have today.
Mike: So what’s that look like for you when you’re negotiating?
Michael: I’ll give you an example. I was dead broke when I was younger like dead broke. And I remember I was 18, 19, 20 years old, and I have a dollar in the bank. I used to go to Mercedes, BMW, and Porsche and negotiate $200,000 cars just to hone my skills in negotiation. Like literally, I just love doing it. I actually thought of it years ago, literally starting a company where people just reach out.
I’ve literally negotiated things, even my landlord and his building. I negotiated when I helped him with one of his real estate deals. I just love doing it as even thought about which obviously it’s not scalable. I’m not going to deal with a company where if you need to negotiate something, you reached out to me, I’ll do the negotiation for you, charge you a fee, and just hand it back to you.
Again, it’s in the blood, we love to negotiate everything. And I literally negotiate every dollar I spend. Probably the only [00:15:00] thing that don’t negotiate is I like very high-end restaurants. Obviously, I’m not gonna negotiate in a restaurant, but anything I spend, cars, houses, cigars, whatever it is, I’m always wanting to get a deal. I don’t reduce the quality of what I buy. I buy the same thing. I just buy it at a discount.
Mike: Yeah. I probably should get a little hack from you about how to negotiate cigars.
Michael: I’m not kidding. My retail cigar is about 5,000 a month. I probably get that for a 40% off of that. 3000 a month on cigars.
Mike: That’s crazy. Good for you though. So do you do any investing yourself or tell us a little bit about Stratton Equities and what you guys do?
Michael: I used to, right now is at the time. Heavily inflated market I buy when the market is down. I don’t want to use the C word I’ll use the word down when the market is down. So 2008, 2009, and 2010 was a perfect time to obviously invest. I have another real estate investment company called StrattonEquities which is [00:16:00] dormant at this time. So focusing on Stratton equities a hundred percent right now and growing the company. 2022 is a hundred percent about growth.
I’m looking to double the size of the company by the end of 2022, and more than double our volume and revenue. We are a nationwide private money lender. So we focus on real estate investment financing. Companies like mine exists because in 2008, 2009, and 2010 with the heavy regulations that came into the mortgage market, it was very difficult to invest in the real estate with regular QM loans and agency loans.
So my world came about in 2011, 2012 is when we came about, I didn’t own a company back then, but that’s when this world emerged because of the heavy regulations that came about. Our programs was I created most of them were designed for Lucy investors who make it very conducive and much easier for investors to secure financing than going to a bank or credit union or the traditional routes. Like I’ll give you an example, a friend of mine back last year, he started wanting to buy a two-family home down the Jersey shore. So he goes to your [00:17:00] local places and stuff, and they open them 70 LTV in a two-family. Those are agencies or agency QM loans, same thing. Those are the guidelines, 70 LTV.
He came to us. We did the loan at 85 LTV. So if you are a new investor, you much rather put down 15%, obviously, you still have closing costs, reserves, et cetera, et cetera than I’m putting down 30% and eating up loud your capital common sense.
Mike: Is all your money, hard money?
Michael: No, actually hard money is a small thing that we do. So I wrote one of the articles, hard money to post fixing flip. People don’t know what hard money is. That hard money loan when I got my first property at 19, my rate was 24%. So hard money was, there was no institutional financing. This is institutional financing now.
Mike: 24% is cute. You’re from New Jersey. You get that?
Michael: I do but that property was actually in Florida and hard money 20 years ago was literally, you have to find a guy that [00:18:00] generally in his sixties or seventies, they had a ton of cash that just wanted to lend people money. That was where hard money came from just individuals that had cash, they wanted to put it out on the street. Obviously, you can’t scale a business like that. 20 years later it got institutionalized into where we have now money comes from hedge funds and it comes from large insurance companies, et cetera, et cetera. And it’s been institutionalized and the rates have dropped tremendously.
Our rates start at 4.375 but that’s for a term loan. But again, no W2’s, no tax returns, no pay stubs. We don’t look at that. We don’t care what the borrower’s debt servicing. It’s the property that has the debt service because the property they’re investing in properties. So they’re supposed to be cash flowing and the property has to than we actually have programs where the property doesn’t have a debt service, believe it or not. The properties is what we’re looking at the income, not the borrower and owner-occupied property that you live in, your job, your income is paying for that property cause you can’t rent it out.
So yes, it makes sense to look at the borrower’s [00:19:00] income because then on borrower’s incomes they’re gonna pay for the property, not on investment in commercial. It’s supposed to be a third party rented out, which is sourcing the income.
Mike: So talk about this comment. You made this comment, you said private money or lender. So do you do equity? Do you do? Okay so talk about that a little bit.
Michael: Yeah. So it’s all debt I don’t do any equity deals. We get requests for that constantly, but we don’t do any equity deals. You’re not looking to get partnered with anybody. So it’s strictly we can go maximum on a bridge loan is 90 LTV, but that’s a fix and flip. Term loans, max 80, 85 LTV, which is significantly higher than our competitors. Most of them are in the seventies. Rates are probably some of the lows in the industry from what I’ve seen. And we just have an amazing system everything’s here was tweaked and honed.
We have a tremendous amount of technology and software. Nothing is done manually. Like nobody even uploads documents manually, it’s all done through a portal. Everything is done through technology, even getting borrowers’ monthly bank statements, it’s done by technology. [00:20:00] So everything is done by software and technology that we have which pushes the process along. That makes it easier for my loan officers. A and also for the borrowers.
Mike: All right. So let’s talk about this real quick. Let me ask this question. Do you have a favorite asset class?
Michael: To invest in or to lender?
Mike: To lender.
Michael: So it’s the same thing to invest in multi-family.
Mike: Yeah. It’s the sexy thing right now, right? So now, if I say your company would invest, whether I was doing a two-unit or a hundred units?
Michael: Again, we have guidelines like everywhere else, asset classes and guidelines. We have requirements on the borrower obviously. But yes we can go from one unit actually. So a single family, we have phenomenal programs for that all the way up to a hundred units. Retail, industrial, warehouse we don’t do hospitality. In March, I am hiring some more backend staff after that. I’m going to be expanding [00:21:00] some more programs.
Some things that we just haven’t done or don’t do some asset classes that we don’t do. Like we don’t do hospitality. We don’t do assisted living. We don’t do large loan amounts. Generally, we stay what’s called small balance under 5 million. Going to be expanding on larger loan amounts. So going to be a lot of programs and I’m really looking to expand in the next two months.
Mike: So let me run a model by you. So I have a new model that we’re looking at really focusing on and it is small multifamily in high rent growth, high population growth markets. Let’s just call it Tampa, Florida, close to the beach where I can go buy a 10, 12, 20 unit deal. So I want to be under 20 units that has been owned and operated by a mom and pop. Rundown. Rents are low, they’ve made friends and they don’t raise rent, a lot of deferred maintenance. I want to be able to go in and put a ton of cap X into it. Re-engineer the [00:22:00] property, re-tenant the property, and be in and out in 14 months. How does a model like that work in your lending guidelines?
Michael: That’s similar to what my other company Stratton Realty does, except I buy things. I love buying heavily distressed properties, and I know how to find them. So same thing, buy heavily distressed property you’re buying them 40, 50% off-market, which is heavily distressed getting in there, doing what you got to do. I made an out in six months they’re in and out within six months. Get it fully rented at high rents and long-term leases, and then sell that property to end investors for cap rate. I don’t care about the cap rate and I don’t care about rent. I only care about chunks of equity. I simply don’t care about rent.
Mike: Can I return to you and see out that model?
Michael: To lend for me or for?
Mike: For your investment purposes.
Michael: So to to lend on it, it’s generally one-to-one. We’re not looking for, one to three. When it comes to me investing in it again, I care about that I’m [00:23:00] buying it significantly under market value. So if I look at a property today and it’s listed for $300,000, I want to buy that for $160,000 to $180,000.
Mike: So tell me this, tell me how Stratton equities look at this. Okay. Where I’m going to buy a 10 unit for $3 million and I’m going to put 800 in and I got closing costs. I’m all in the deal for about 2.9 or I’m sorry 3.9. Are you looking at just the purchase price of it or are you looking at the capital improvements also that I’m going to put into the property?
Michael: Going in, I always tell people if you can do a term loan and do the rehab out of your pocket, Better off for you and it’s cheaper, right? Fixing flip rehab loans are for people that don’t have the liquidity to do the rehab out of pocket. A the costs in a fix and flip or a rehab or a higher than a term loan, the rates are significantly higher than a term loan. There are some benefits on the writing because you don’t look at the property [00:24:00] generally debt servicing at time of acquisition. You can look at it after. If you can buy the property in a term loan and buy out the prepay, your rates are lower, your costs are lower, and then you do the rehab out of pocket. That’s what I do. It’s a much better deal for the investor than going down the rehab option. But if people go down the rehab option because they don’t have the liquidity to do both at one time.
Mike: So let’s talk about that. So what kind of terms am I looking at in a deal where I have to finance the purchase and the rehab. Can you do 85% LTV on that all in?
Michael: So I tell you what we do not do in this company. We don’t just throw out numbers. Let me give you an example. People, we might get a hundred emails a day. I’m not kidding. Can you do this? Can you do that? No, we don’t probe loans via email. We don’t just throw out quick numbers. We have a complete intake because there’s so much information that we have to get.
So we have to make a complete intake on the borrower location. People don’t realize that [00:25:00] location is huge. There’s some locations where even if the borrower and the property fit the high LTV on lending that location just due to crime rate or due to population or due to multiple things, now your max at 75 or 80 argument’s sake. So we don’t just throw out numbers to anybody. We don’t just throw out term sheets to anybody. We have by far the highest conversion. When a loan comes in, we don’t try to sell mortgages. We turn people down. We literally disqualify scenarios, every other mortgage company I have ever seen.
Application, they throw it into underwriting, and then the underwriter and the processor see if they can get somebody approved. Here if you don’t have an 85, 90% chance of that loan getting approved, we don’t even take it on. We’re just way too busy and I’m not going to lie to people and have people pay for our appraisals and grabbed all these docs.
And then you submit it into underwriting. It wastes their time and wastewastes my company’s time. It wastes everybody else’s time. Our loan officers go through the most [00:26:00] extensive training I’ve seen anybody go through this business. They are taught from day one. You’re not convincing people. You’re not selling people. People are going to talk to you. You’re literally gonna try to disqualify them to see that how does this deal not work? Not the 1% chance that it might work. It’s the other way around.
Mike: Yeah, get it. Hey, listen, you’re in a business that is high stress. You’re gonna probably have decisions that you need to make on a daily basis. How do you make high-stress decisions?
Michael: Great question. And it’s called decision fatigue. So all the billionaires use it, or most of the billionaires use it. Ever wonder why Steve jobs wear the same thing every single day? It’s called decision fatigue. You have to limit and minimize the number of useless things you decide on a day.
So you can focus your mental energy no matter who you are, you have X amount of mental energy, so you can focus your mental energy on what matters. I’ll give an example right [00:27:00] before this podcast, I got a proposal from somebody for tour, for a lot of marketing we’re going to do. I didn’t read it. Because that will then take some of my mental energy away that I need for this podcast.
So I allocate what’s important, when it’s important, what’s going to make me money, and things that don’t matter that aren’t making me money. I simply don’t do. I don’t do anything that doesn’t, if it doesn’t make me money or bring me happiness, I simply don’t do it.
Michael: You are gonna have to spend your mental energy on what’s going to give you an ROI.
Mike: I liked what you said about bringing you happiness. I was just on a call before this, with my partner in the property management business. And he said, man, we had a couple of VA’s quit. And he said, man, we just got to take some pressure off me. And he goes, I’m running everything right now. I said, fine. I said, we can do that. It becomes down to how do you make those choices and decisions and at least have the clarity that you have to just say, Hey, I’m not going to read this right now. I don’t need to look at this because it’s going to take my mental energy. So good for you.
[00:28:00] Hey talk about resources that you like, whether it’s CRM software, talk about types of technology and resources that you like right now in the marketplace. What helps you be more efficient in your business?
Michael: I’m very big on human capital, training the right people. I’ve been in the business in 2003 worked for numerous mortgage companies. The only one that ever trained me and there’s only two weeks of training was the first one I worked for in 2003, my early twenties. Most sales places don’t train you. They just throw you to the wind, which obviously doesn’t work. And you have a very low retention rate and a very high turnover. If people aren’t happy. And if people don’t feel that they’re successful and productive, they’re not going to stay there. So we have extremely minimal turnover, which is great.
Software we honestly, my IT guy handles that we use so many softwares, I can’t think about it all. When I started this company, we literally had a paper lead that would come in. I print it out. I pick up my cell phone. It’s just four or [00:29:00] five years ago and I’d call leads. Now we have complete technology, complete dialer system, all the leads funnel.
We get a to 300 leads a day and that number is going to double in a couple of months. They funnel through a dialer system that dialer system calls and revise and leave voicemails and sends out emails. So it keeps my sales team extremely productive. So the dialer system has helped tremendously.
Mike: But that was pretty you slipped that comment in there. That’s going to double in a couple of, in a little bit. When you said that what went through your mind? Why is that going to double for you in the next little bit of time? Things about this company that nobody else does?
Michael: This is our ability to generate leads. I didn’t mention is my loan officers don’t do any self gen, so they’re not knocking on doors and dealing with realtors and going. When I started, 2017, my God, man, I was here, I was there every night I was at a networking event and a real estate event and weekends, and I was on LinkedIn all day trying to make contacts.
And when I really kicked it off in 2018, I [00:30:00] started to generate, find a way to generate. But at the time it was just me. It was literally, it was me, it was a laptop and a friend of mine who was actually sitting in my office last week, gave me free office space in his massive mortgage company in 2018, and I just had a desk and a laptop and a website, but I learned how to generate massive amounts of very quality we will have bought a lead. It’s all inbound leads.
Right now we’re roughly about 200 a day, two to two 50. As the sales team grows, I have to increase my obviously leads so that we can be the sales team. So I’m going to be looking to double the sales team in the next less than a year. So I’ll have to virtually double my leads.
The big thing is like one of my sales managers, who has been with me for about two years, we have so much repeat business that he’s virtually off offer leads right now. He might call like a couple of leads over here and there. And he’s so busy on repeat business and brokers that bring him deals and all the referrals that come to him from [00:31:00] all the leads and business that he’s done over the past two years, that he’s off of leads.
So there’s this ratio, and this timeline that when loan officers are here long enough, which is generally like a year and a half to year, mark, even after a year, they heavily slow down on leads. There’s so much business coming back to them, but once they pass a year and a half, two-year mark, they’re like 95% off of leads.
Mike: Interesting. What do you think your biggest lead generation tool is right now?
Michael: I will tell you I started on email marketing. Everybody says they get Stratton Equities emails. Literally, everybody gets our emails. We have massive email lists that I grew over the years, but when I started, again, I had no money.
I started this company with a borrowed thousand dollars on a credit card from my mother literally. And I still own a hundred percent of the company cause I’ve never taken any outside financing. So email marketing was always used for us. I’m a very big believer in email marketing. ROI wise, email marketing is our best for the amount of leads that we get, for what it [00:32:00] costs, for the amount of time that it takes. Of course, I need to do Google ads, your Facebook, LinkedIn, Instagram, YouTube, as we are starting Youtube in March. A lot of programmatic work with a lot of different companies.
We’re starting with the Miami Herald this March. Cause I want to focus on Florida because I love Florida. So we’re going to start more heavily advertising within Florida, our top five states are Florida, New York, New Jersey, Pennsylvania, Georgia, and Texas 5, 6 states. Heavily focusing in those states as well.
Mike: Awesome. Last question really is what pitfalls do you see in the market today? So if you were talking to a brand new investor going into marketplace today. What pitfalls do you see out there that you would caution?
Michael: Rates are skyrocketing. So I’m sure, they’ve went up just last week, so rates are going up. It’s funny, owner-occupied QM rates like a year ago were like the high one, 2%. If you go on Google right now and you type in 30 year fixed mortgage rates today, they’re virtually four and a half [00:33:00] percent. They’ve over doubled. So rates are going up. Obviously the fix and flip market took a major hit because a fix and flip rehab loan, the math only works if you’re buying a property significantly under market value.
The math doesn’t work if you buy it even at market value, especially not over-market value. End users, people buying a home to live in spending 50, 60, $70,000 over market right now, the same thing with cars. I’m a huge car guy. I can’t buy cars right now. So everything is so even watches are insanely overpriced. Which is going to correct itself, right? Especially like talking about cars, you buy a car, a hundred thousand dollars over retail. When that market corrects you are so underwater, you’re never going to be able to move that car because cars depreciate like a rock out of hell in the first place.
So now buying $120,000 over sticker, you’re done. You’re done with that. So when it comes to a real estate investor, It’s very hard, which is why Stratton Realty. [00:34:00] I totally put the whole company on hold right now because I’m not buying something $50,000 over market.
Mike: Yeah. I get that for sure. Hey, so let’s wind this down a little bit. And what I always like to do is ask a couple of bonus questions here and lighten things up a little bit. Michael, you’ve been in all over the world. It sounds like in a lot of different countries, what’s the best tourist attraction you’ve ever seen?
Michael: I’m not a tourist attraction person. I like to go to places where I’m literally with the people that live there. And one of my favorite places was actually Sri Lanka. I love Sri Lanka amazing place. I haven’t been there in some time, but can’t wait to go back. Beautiful food, beautiful culture, beautiful country, beautiful people. I ate a full meal for a $1.25. Went through the most expensive at the time, like lounge in all the Sri Lanka it was in Colombo. The capital was called like 41 something. And I’m a big Johnny blue guy. I lived the [00:35:00] Johnny blue all night. My girlfriend, who I told you about drank, drank, we ate, my whole bill was 75 bucks.
Mike: Wow. Awesome. Have to check that out. What’s the best book you’ve ever read?
Michael: You’re going to laugh. Oh my God. It’s by Michael Gerber.
Mike: The E Myth.
Michael: Thank you. The E Myth is a great book, Michael Gerber.
Mike: Yeah, love that book. That was the turning point in my life.
Michael: And I call people to read that book.
Mike: Hey, Michael. Thanks for being here today. I appreciate you, man. You’re world of energy and knowledge. How do people get ahold of Stratton Equity if they want to pick your brain or talk to you guys about funding?
Michael: strattonequities.com. Everything is there. You can reach out to us. You can call us, you can email us. So strattonequities.com.
Mike: Thank you. Thank you for being here today. I appreciate it. We’ll make sure that we have that information in the show notes so people can reach out and get ahold of you. Hey everybody. Thanks for being here. We had another great episode look forward to seeing everybody next week. Have a great week.
Kristen: Thank you, [00:36:00] Mike, and thank you for joining us for another great episode of Insider Secrets. As always, Insider Secrets is brought to you by My Core Intentions. Wherever you hang out on social media, you will find Mike and My Core Intentions, please and follow us to get the most up-to-date real estate investing trends.
Visit mycoreintentions.com, where you can get expert coaching on all things, real estate investing, and property management. If you’re looking to become an expert, Mike’s coaching will help you scale your real estate investment business. We’re looking forward to having you back again next week for more Insider Secrets.