Episode #02 : Overcoming Debt to Creating A Real Estate Portfolio
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In this episode of The Richer Geek podcast, I’m introducing you to my husband, Mike Stohler! Mike is co-founder and managing partner at Gateway Private Equity Group, our real estate investment firm that has included hotel, multifamily, and residential properties. A proud Navy veteran and previous commercial airline pilot, Mike also has several years’ experience managing large apartment complexes for a developer in the Midwest.
If you’ve ever thought about investing in real estate but didn’t know where to start, Mike is here to help walk us through how to get started the RIGHT way.
In this episode, we chat about…
Where we went wrong in our first attempt at real estate investing
The critical step Mike took that helped catapult us to a successful business reboot
Why Mike and I choose to self-manage our properties rather than using an outside property management group
The key tools and resources we use to run our business and keep it profitable
We also dive into the directions we’re taking our business next!
Mike’s Top Tips
Never own the real estate in your name – minimize your liability by putting everything in the right type of legal entity.
Form a team you can trust, including a very good CPA and bookkeeper who know real estate.
Find a good contract attorney who can write up your contracts for you.
Locate a reliable handyman you can trust to do good work at reasonable rates.
Network, network, network – wherever you are, sign up for the real estate networking group in your area. Every class is invaluable, especially when you’re starting out.
Resources:
Real Estate Investing forums, blogs and connections: https://www.biggerpockets.com
Information on 1031 Exchange
Commercial real estate loans
Bookkeeping software: Quickbooks
Property management software: Buildium
Business phone service: Phone.com
“Which type of real estate investor should you be?” Quiz
**Some of the above may be affiliate links,
+ Read the transcript
Welcome back to the Richer Geek podcast today. I have my amazing husband, Mike Stohler with me and my partner in crime, who really handles all the operations behind our real estate portfolio.
Hello.
Thank you for joining. And we're going to kind of just jump in, I wanted to share a little bit of our background and our story. It actually starts with us not having a lot of money, reading personal finance books, and I came across Rich Dad, Poor Dad. It's a book by Robert Kiyosaki. If you haven't read that book, it is about finding ways to make your money work for you. And specifically, there's a lot of focus around either owning a business or real estate investing. I was super excited about real estate investing, and I signed us up for a seminar and we came back super gung ho
I'm going to kind of ask some Mike some questions around that time. What that led led us to do and how that helped us evolve into the portfolio that we have today. So,
first, tell us a little bit, Mike about how we found the properties oe actually you found them when we got back to where we were living?
Yeah, it's a great question. We were so so gung ho that we didn't really think about it, think about the properties. We just wanted properties, right? So we got back to our small town, and I actually found a real estate director that was in charge of the small college that was in our town, and, you know, they're not in the business of real estate so he was eager to get rid of them. I was eager to buy so we actually got seller financing who was fantastic. It was so fantastic that I forgot everything else that we taught that we were taught in the seminar and we just bought them and how did we buy and we get over poor we didn't have any down payment. So I go and buy four, five properties down payment on the credit cards, and now we have homes. Yay!
And I know we were we were super thrilled because we thought Oh, here's a way we can invest in real estate. We have no money, but we can take advances on our credit cards and it'll be okay because we're doing what we're supposed to be doing. But here's the thing. What did we miss about that whole process?
Well, besides everything. The only thing we did right? Was we thought about we thought outside of the box in buying these homes seller financing. We didn't have to go to a bank we put the credit the down payment on the credit cards. But that was it. What did we miss? Well,I don't know how to be a landlord.
Man, I wish I would have looked at those homes and of time, because some of them weren't close to 50-60 years old needed new roofs, needed new plumbing, needed everything. Couldn't get tenants in them. Bad areas.The neighborhood just like, I don't want to go in that neighborhood. But Wow, I now own a house in that neighborhood. So I have to and now I'm going to be up on the roof and replacing a roof. So we did miss a lot. Where we went wrong was we jumped in without the proper knowledge and it's always good to jump in.
But you need to do your homework, don't you?
Yeah. It's such a great. I love how you talk about you know, we jumped in we were we were gung ho we did not. We were not too much into the analysis paralysis. We just went
Correct. Yeah, yeah, we definitely jumped in. And when you don't have mentors, when you don't have people to walk you through it, you can make mistakes. And we definitely made some mistakes.
So those mistakes, nine months in, we realized, Hey, this is not working. This is not successful at all. Now we're even more in debt. Tell the audience here How did we solve our challenge at that point?
Well, we sold our challenge by giving the homes back. That haunts me every day my life right now. It's one of those things if I only knew now, what I knew then why did we give them back? Why did we do anything? Try to do anything but we panicked.
We were in debt. We wanted to get out of the business. And so we gave them back. And, yeah, we gave them back. And we also had to sell our house we were living in and move in with my parents and get, you know, work to get out of debt. But then the other piece was, we decided that we needed to learn the business.
Correct. And, you know, we both know that real estate was the thing to do. But we learned our lesson the hard way. But the great thing is we didn't wallow in you know, the fact that we had to sell a thing where we're in debt, we decided to learn about, you know, the things that those areas that we we didn't know. So actually I quit my job and went to work with the Property Management Group, one of the largest in the state they owned and managed their own property. So I figured, let me learn, let me go in manage 500 units, 600 unit, you know, whatever, and learn how the successful people learn and do the business. How do they manage being a landlord, you know, the paperwork, every aspect of the business, and it was extremely invaluable and greatest thing I ever did.
Yeah, I would agree. It gave you such a foundation and a confidence as we went back into real estate investing again. So, so we fast forward to when we started again. So you you went to work for the property management company, we didn't do anything for a while. Share a bit about the first three properties. You know, basically you're talking about Carol and the two locations at Pearson.
So yeah, what we did is we got the confidence back to say, you know what, let's get back into it, you know, we need to do this again. And it was great. We moved out to Phoenix. We're no longer in small town, Indiana, and we bought a fourplex. And I knew that wasn't going to be a long term goal. So, you know, I kind of fixed it up. I think we held it for a year or so and decided to sell it. And but we didn't want to sell and get the capital gains. So we did what's called a 1031 exchange. And we bought from a fourplex, we bought a sevenplex. And we had it for a year, year and a half. That was a fantastic property.
And again, fixed it up, did some things to it, made a cash flow. We had some alternative cash flow in there. It waswas a had a laundry room so that was the first one we had coin operated laundry room. So did my weekend, count the quarters?
Okay, and it was great because it was the first property that we had had the alternative income of being a coin operated laundry room and it made, you know, couple hundred dollars a month and that paid or, you know, utility bill on it. So that was good. have fixed it up, got it going cash flow increased everything that did a 1031 sold it.
And then we bought 28 unit. Yeah, so we just kept going up, up and up and up. And the 28 unit was we held it for about three years. Because it really needed I got it at a good price. But we basically it was one of those longer term - we had to kick well i think 21 out of 28 people out and completely redo it so it took a little bit longer and but again fixed it up and held it for three three and a half years sold it and on we went it was it was a fantastic so I took all that knowledge again you know it's something that I could not have ever done and where we are now with without the mentorship without learning all the knowledge getting that invaluable knowledge from my work for the Property Management Group. I took all of that plus joining some clubs and and some real estate things and getting some mentors. Only after that was I confident because you know love it is confidence.
Once I got that confidence, I knew this. I know how to do this, I knew how to take a four Plex to a seven Plex to 28 Plex and do it properly. And then became an exciting career. And during the middle of that time, I was actually for the very first time able to quit my job. And you know what, let's do this full time. And it was good.
Tell our audience a little bit about why we self manage because what you're describing, there's a lot of using your background and your experience. But when we when we bought that first four Plex, you were still working, and you were you were busy, and I was busy working. And we had property management handling that four Plex, which was kind of our first time working with property management that wasn't us.
So yeah, yeah. And I guess the great thing having my background experience in property management. So through the four Plex, the seven Plex, and then the beginning part of the 28 Plex. We had a property management group. And what happened was, I was an airline pilot and then got injured on the job. So I was on some disability, so I had some time at home. And that's when I was really looking at the numbers at the 28 Plex. And I was like, these guys are nickel and diamond us to death. I know what this is like, I've been there. Why are they doing this? So what happened? It was not making a lot of money wasn't doing what he needed to do, because the Property Management Group, that that's not their job.
So I fired them and said, You know what, if I could take all my knowledge and what I was taught, I can really turn this 20 unit around. So I used all that experience and kick everybody out and repositioned it and remarketed.
Because the thing that I think when you self managing Property Management Group, they don't have the, what you call the hunger, you know, they only through the ownership they have I had the..
Well, can I can I jump in because I think what you're trying to say is, it is not the property management company, it's not their job to make your property profitable. It is their job to take calls from residents to make sure that the property is maintained that issues are dealt with, because they are not looking at the same thing that an owner is. First of all, you cannot just be hands off and say, oh, I've got a property manager, you have to manage a manager just like in the technology world. If you outsource certain parts of your environment, you can't just let that go. You have to oversee it. And you have to understand that the outsourcer does not necessarily have the same objectives that you do. Some property management can be good . In future episodes will cover you know, how do you make that work?
Because if you're working full time and you can't quit your job, then it makes sense. You would need property management, but you can't be hands off. And I think what you're describing is, we just found that the property wasn't profitable because they weren't focused on the kinds of things you were focused on.
Well, correct, because the owner of the property management group, they have two different objectives. The best scenario for the owner is to have 100% occupied, have everyone happy and no turnover. Well, that's not the property managers objectives because they don't make any money.
Property Management, they they like things to break, sort of because they have to go out and then they hire people and they get a percentage of this, they get a percentage that they want six month leases, because they get money every time something turns over. So the objective is different. And I realized that because, you know, in the past, back in Indiana, I was working, the property manager group that was working for was also the owner.
And so the ideas were different. So this was the first time that I dealt with a property management group that did not have an ownership stake or an equity stake in the property. It was very eye opening. And I knew that the only way that I could turn this property around was to control it myself and to invest the time and effort.
Such a great point. Can you share a little bit about how we came to learn about the hotel business and actually move into owning a hotel? You know, the relationships, the networking, those pieces?
Yeah, so the greatest part in real estate investing is the networking. Getting to know people don't just own a four Plex or own some homes and not do anything outside of the network you could get outside of that.
So moving forward into the 28 unit, we had that for 3 and a half years. And we sold it. And we bought a 50 unit. And that was one of the greatest properties I've ever seen. It was just fantastic. Cash flowed. I was able to take it, you know, a great salary. And it was the first time that I could actually sit there and say, you know, I'm going to hire an onsite manager so that I don't have to be there every day. And it worked out wonderfully.
So, you know, we hired a onsite manager, and it's like, Yay, now I only have to go to the property once a month, you know, we're going up into the big times, you know, so you're thinking, and that's what you want to do is be able to kind of pass on, and delegate. Well, the real estate agent that sold us the 50 unit, wanted to introduce me through the some of the networking with people that friend of a friend, some guy that had been in the hotel industry for at that time, about 15 years. And he wanted to know if I was ever interested in hotels, well, never thought about, you know, it's more business more commercial, but very intriguing. And of course, I want to network I want to talk to anybody and everybody that deals with all the different types - I want to learn. So I sat down with this broker and this gentleman that has owned the hotels and we started talking started networking and I was extremely intrigued with the hospitality business so much that we decided to buy the hotel, but we created an operations group to bring him in.
And remember when I talked about property management, and not owning, you know, the property manager group that owned the asset or didn't own the asset. So I decided to make this person that has all the experience - I don't know hotels, right. So we decided make him an actual equity partner so that he getspaid based on how things work. We want them to have skin in the game, have a reason for the hotel to do well. And it's worked out. Fantastic.
And it's interesting because we've had people say to us, oh, you're like their real life monopoly. We went from a four Plex was like one house technically, you know, kind of like a small house and then, you know, houses into a hotel. And it is interesting how it worked out. It was just like you said, a matter of an opportunity and diversification, which it's interesting because you talked about the real estate agent that you were working with introduced you to the hotel operator, with 15 years experience, who are some of the other members of our team that we rely on to help us in our real estate investing business?
Yeah, so the most important thing you can ever do that I tell all the people that we speak with - the people that are wanting to get into real estate investing.
Number one, you have to form a team that you can trust. And that team is not just a real estate agent or the broker that's going to find you the property. You have to have a very good CPA and bookkeeper that knows real estate. And let me be clear this not every CPA knows real estate. We had a CPA for many years that didn't know what a real estate professional was. And we're losing money on our taxes because we didn't know that. So find a CPA that knows real estate.
Number two. I always say never owned the real estate in your name. Why it's you know, it's all liability. So we always put everything in entities. So that's the second person is find someone. Don't go to Legal Zoom Don't you know i'm not i'm not saying don't do it, but I'm saying don't do it. Okay, find an entity attorney or lawyer that knows the area knows the state specific laws so that they can write up the entities for you know, the one contracts, Attorney contracts between if you have partners if you have a husband, wife, any type of team that if there's more than one person, know an attorney that can write up your contracts for you.
Next part is networking. Go to many many many. There's asria that you know, here in Arizona, there's different type of Rios and different states. Type in real estate networking group in your state, wherever you are, sign up and go to those because every class is invaluable, especially when you're beginning
Network network network number two, or number, you know, five or six. Find someone that can help you marketing. How are you going to market your property? How are you going, especially if you have single family homes, and you're going to do renting or rent to own whatever it is, find someone that knows how to market. Most important. One of the other most important ones is handymen.
That's huge.
That is huge - in my gut, you know, especially, you know, when we go back to property management groups, it's not their money, right? So they're going to, they don't care who they call, plumbing issue happens. It's a $10 job and they're going to hire, they're just going to go here's routerrooter, here's whoever, and I get these $300 bills, $500 bills, on a $25 O ring fix. They don't care
A o ring is what?
It's it's something you buy Lowes for a quarter and it takes an hour to put in. And we could charge $150 $200 because it's expensive or it's on the weekend. And it's just, I want to say if any of you know what a diverter is, so anyway, if you could go into a showerand you turn it on, you turn it off, you turn it, you know, the shower, inside of that is what's called a diverter and that diverter was bad that delivers a $60 piece should cost maybe 200-$250 to fix. I got a bill for $700 to do. And that's when I was like, that's it. You know, I was like I was getting ready to throw things. They're fired. You're fired. Everyone's fired. I'm not paying $750 and I actually threatened.
Anyway, I get the bill reduced, and it was it ended up working out, but never used them again.
No. So it sounds like I mean, you've talked about the importance of building a team. And these are all people that we rely on pretty heavily and we tend to we go back to the same folks over and over again, who've helped us with entity structure, contracts, lawyers, all of those folks.
And we have people that know that, here's the reduced costs because they're the only person that we're going to call. And we have all these units so they know how it works. And they give us a much reduced cost because they know that we're going to call them every single time.
Yeah, good point. So can you share a little bit of what we are working on now?
Sure. So well, we're doing a couple things. We own several single family homes. and we don't do rentals on those. We do what's called lease options, but we can get those into that in detail later. And there's a reason why we do that instead of renting. And what we're doing is - I love the hospitality so we're thinking about doing more hotels. And we're going to start bringing on investors. We have a lot of friends and family, different people that we know networking groups, they're saying - they see what we're doing. And they're asking us, how is that how are you doing it and can we get in on it, how can we be involved in it. And most of our the people that we talked to are busy professionals, they don't have the time. They know that it's important so we're starting to get into some different deals where we're bringing in investors, and we're giving people equity positions, and I'm really excited about it. And we're starting to get into coaching.
And so we're excited. There's a lot of great things happening.
Yeah, that's it. It's been an interesting journey and really cool to see the progression, just applying what we've learned and the opportunities in the marketplace and how we've been able to network and meet different people. And through that, you know, continue to grow our business.
Real Estate can be fun, and we're having fun right now.
We are absolutely. I wanted to list out a few resources for our listeners a couple of things that we we didn't exactly always give the names as we talked about today, a little bit about our business but a few things.
One, if you're not on bigger pockets and you're interested in real estate investing, I would encourage you to sign up for an account on that particular site. There's a ton of forums, there are blogs, there are podcast, there's a lot of great information very real estate specific.
It's also kind of like the LinkedIn of real estate investing. So I recommend you check out bigger pockets.com. The other pieces in our show notes will have the details around a 1031 exchange, which Mike mentioned, that is how you're able to roll over the profits from a sale of a property as well as the depreciation benefit that you receive which is kind of tax piece we we can cover in the future. But 1031 exchange we'll have details around that in the show notes.
Couple of other things we we've always worked with commercial banks for most of our properties because once you get past four units in a multi family type of situation, you are absolutely into a commercial loan then so we'll have some information there.
We also use QuickBooks to manage the bookkeeping part of our business. And then we work with our CPA to really kind of do the bookkeeping ongoing. But QuickBooks is that particular program. We also use building them. building them is a property management software. It's pretty cool because Mike is really communicating to our residents that they can go into the portal and they can see the status of their payments and that type of thing.
I mean, it's really, it's really great because you can actually build the property website. You can build a little tenant website, you can communicate with your tenants, you can do lease renewals, you can do everything on one, shop for property management. It's a great, great tool.
It is pretty it is pretty cool. Couple of other things we use a service from phone.com. What's cool about this is we leverage it for when residents need to call in for support or have a question or something like that they call into specific numbers but the other thing is that we're finding more and more residents prefer to text so phone.com lets us text them on our personal cell phones yet disguised as not disgusied but I should say mast as our you know our company our property management company number so it's pretty cool because you can you only have to have one device and now you're able to keep track of residents
Yeah, yeah, yeah, so don't give out your personal phone number. use phone.com for that. we've also built our own websites. We have a website for just our overall private equity investment company which is gatewaype.com. And then we have websites very specific for our residents, which are when we're, we make videos of the properties that are available, etc.
And then finally, one other resource I want to list out and mention for you is that we have a quiz on our Richer Geek Podcast website, which is therichergeek.com, which is around what kind of real estate investors should you be?
The thing about real estate investing is Mike already on this call, he's talked about a lot of different niches, there are so many more that we don't even cover here. Plus, there are so many other ways to invest where you're not necessarily actively involved. And there's a lot of - basically a lot of options. So we created this quiz to say, Hey, you know, how much time do you have? How much money do you have? What are you really looking to get out of this? And if you take that I think there's maybe just seven questions. It's not too big of a deal. Then it'll give you a results and some options and will continue to provide information and resources for you.
So I think that is it for today. Thank you for joining. Thanks Mike for coming on.
Well, we'll have more. We'll have more episodes with Mike on as well as continuing to have guests. Thank you for joining!
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ABOUT NICHOLE AND MIKE
Mike Stohler is the founder of Gateway Private Equity Group, a real estate investment firm whose portfolio has included a hotel, multifamily, and residential properties. Mike is a Navy Veteran and previous commercial Airline Pilot. Between apartment complexes, houses, and their hotel, Mike has owned or operated over 1300 units. When Nichole and Mike first started in real estate investing in 1999, they lacked experience and failed. Through committed action to learn, grow their skills, and help others, they have created immense change in their business and lives.