Michael Becker:
… A lot of these deals that we’ve done in the past. One of the deals we’re doing right now is a bridge loan. And the other one is the owner put a 10-year fixed-rate loan on it four years ago. So, about six years approximately or so left on the loan. And he has really large prepay penalties. We’re able to buy the property, assume his mortgage. He avoids a large prepay penalty and he passes about a $2 million savings on a 13, $14 million purchase price on to us. So, we’re the beneficiary of assuming that mortgage we’re going to use his, the loan assumption is like a quasi bridge loan to go do our business plans.
Speaker 2:
Start FM. Now here’s your host, active real estate investor, and entrepreneur Chad Duval.
Chad Duval:
Hey, guys. I ask this question on almost every episode, how do you get started in real estate? I ask it to almost every guest and the most common answer is to try and get a house hack. If you’re a fan of the show you know that I like to refer to house hacking as real estate with training wheels. It’s a great way to get into real estate with a low down payment, and basically live for free. You know, everything sounds awesome. But, a lot of you guys are busy, especially now with everything going on in the world. Everybody knows and spent hours and hours searching for info in multiple places, and listen to podcasts. And most people just don’t have that time. Most people are trying to juggle the kids right now, especially transitioning, and working from home because of COVID, and just trying to keep track of everything, eating, exercise.
Chad Duval:
I know it’s a struggle. I struggle with them too, almost every day. That’s why I reached out to my friends over at House Hacking Success, June, Brad, they’re awesome guys over there. And they’ve become the go-to resource online for everything house hacking. So yeah, I reached out to them this week to try and get you guys a discount on any of their courses that they have over there. So, they were kind enough to give you guys 10% off anything on their website. They do have a lot of free resources, they have a free ebook and a podcast. But, they also have a course that puts everything you need to know about house hacking into a 42 episode course, all video content. Which is really awesome because if you decide to have something on in the background while you’re doing your nine to five at home, and you just pop in one video or a couple videos on your TV in the background. I know I do that every day with a bunch of other resources that I use to continually sharpen my knowledge in the real estate game.
Chad Duval:
So yeah, head over to househackingsuccess.com. Use the discount code Start FM, and you’ll definitely get 10% off anything on the site. If you decide to buy, again, there is plenty of free resources on there. Their podcast is awesome, I was just recently on it. I hope this helps you guys. Use discount code Start FM get 10% off now and enjoy the show.
Chad Duval:
Okay. Michael Becker, welcome to the show.
Michael Becker:
Yeah, thanks for having me on.
Chad Duval:
Yeah, no problem. So, for anybody who’s listening right now and doesn’t know who Michael Becker is, he’s the co-host of the Old Capital Podcast with Paul Peebles. He’s got 10 plus thousand units and manages over 1 billion in assets the last time I checked. But, I’ll let Michael give a little bit more details about that and give anybody who’s listening a little background of who he is, and where he is now.
Michael Becker:
Yeah, that’s right. So yeah, Michael Becker, I’m based in Dallas Texas, I’m a principal of a company called SPI Advisory with my partner, Sean. So, we focus in Texas multi-families. So really, two primary markets, Dallas Fort Worth, which is where I’m based in Austin, which is where my partner is based. The majority of our deals we’ve done and the majority of what we own today is up in Dallas, Fort worth, it’s a bigger market, a little bit more robust. And Austin’s a little tougher nut to crack, it’s a pretty tight market. But, I started my professional career in the banking business and did that for many years, and realized I was on the wrong side of all these loans I was making. And I went out in 2010 or ’11 and started buying some single-family houses, coming out of the great recession. Ended up doing 16 written houses, and realized I wasn’t very scalable. And realized I really wasn’t taken advantage of all I had at my disposal, Chad.
Michael Becker:
So, all the resources and knowledge I generated from being a successful commercial real estate lender that focused on multi-family. So in 2013, my partner, Shawn, and I started our own company, went out, and started doing some deals. And 10 plus thousand units later, we got to sit here. And as you mentioned, I’ve been the co-host of the Old Capital real estate investing podcast for about six years with Paul Peebles. And then the thing I’m most recently excited about is starting a new show. It’s called the Multi-Family Investing Show with Michael Becker. So, it’s a highly produced video show also released in audio format. So, you can find it on YouTube, or iTunes, or Stitcher in various different forms, or our website is www.multifamilyinvestingshow.com. So, I’m really trying to get some pretty high-level guests, guys that have done billions and billions of dollars in transactions, and brokers, and owners, and people I’ve met over the years. So, I definitely appreciate it. Go on to YouTube, or the website and check it out.
Speaker 2:
Perfect. Yeah, no, it’s awesome. I checked out the first couple of episodes there. I think I just watched one with Ken McElroy. It’s a great show, highly recommended. Definitely for investors who listen to the show that are looking for a little higher level real estate strategies, and thought process through everything. But, for our audience, like we’re saying before the show, a lot of them are just sitting on the sidelines trying to get in looking at guys like yourself, and just don’t know where to start. And you started in finance, which is a great advantage for anybody trying to get into syndication and large multi-families. But, you did start small with the 16 houses. Now that you know, what you know now, would you recommend people who haven’t done any deals start small, or do you think that a lot of them should start with the syndication model and just go big from there?
Michael Becker:
I mean, I think everyone’s situation is a little different. But, I mean, the benefit of reflection didn’t need to go through what I did on the little written houses. I mean, it’s beneficial from the standpoint, Chad, that I was an employee and I did a bunch of loans, I had a lot of knowledge. But, it’s one thing having book knowledge, and it’s another thing having see knowledge, and actually doing stuff. So, having the ability to go take a broken property, and fix it up, and lease it out, and refinance it, and add to real-world experience. It was helpful from the standpoint, it got me a lot of confidence on a small scale with the small dollars before it transitioned to the larger dollars. But yeah, if you’re 40, 50 years old and you have some money in the bank, and professional experience. A lot of people I have observed have joined different mentoring clubs. And they have all these different programs that are a lot more prevalent today than there were a decade ago, a lot more podcasts like yours and mine that talk about this that wasn’t so prevalent a decade ago.
Michael Becker:
So, you could really skip a lot of that, and shortcut a lot of it by just joining one of the groups and getting an education, whether through podcasts, through formal education, through joining a group, or partnering up some other people. So, it’s definitely not necessary. But, this is not a no money down type of business. So, if you’re a little bit more limited on your funds, and you need these a little bit more, from that perspective certainly starting a little smaller and scaling up. There’s definitely nothing wrong with that.
Chad Duval:
Yeah. And I love that too. Especially the confidence side of things. I think you got the confidence that comes from starting smaller. The risk of losing money is lower, of course, because you’re using lower dollar figures. But, do you think that having those 16 properties or having that track record combined with your finance background, do you think that gave you the credibility to start doing these syndications? Do you think that you-
Michael Becker:
I mean, it helped maybe a little bit on the first couple. Like you said, going from zero to one is really hard. Doing your first deal is really very hard because you don’t know what you don’t know. And then going from one to two is exponentially easier, it’s probably 10 times easier doing your second deal than your first deal. So, having a little bit of project management background, helped a little bit with the credibility, getting the first money, and do the first deals. But, I don’t know if it was necessarily the reason why they invested with me. It helped my personal confidence one, and then two, it was an unbelievable time to buy these homes. I saw on my last one left, my last written house left.
Michael Becker:
I had some tenants that have been there for nine years, I think, finally moving out. And I paid $72,000 for this house in Mesquite Texas, and we’re having to go fix it up. So, my wife is actually helping me get it fixed up, help and teach her the business a little bit. And I think she awarded herself like $200,000.
Chad Duval:
No.
Michael Becker:
And so, not only did I learned some confidence, I made quite a bit of money, relative to my net worth at the time, by buying these distressed things. And making 30, $40,000 a house when I ultimately sold them a few years later. And used that seed capital as we did our first deals and really blew the company up to where we are today. So, it was also helpful monetarily to turn a dollar into four a few times and that helped along the way. Which is a much more difficult environment today to try to go do something like that than what it was when no one wanted any of this stuff. And you’re seen as crazy trying to buy a written house because everyone just lost all their money in the great recession.
Chad Duval:
Right. Right, exactly. So now, you’re building your confidence through the 16 properties, the smaller deals, then you jump into syndication. So, I wanted to actually dive into two different parts of that. I wanted to define, basically, how syndication works for any of the listeners who aren’t really familiar with that type of investing model. But also, I wanted to, maybe after that, go into how you were able to get the fund, to put together as far as network goes, how you found the people, and that sort of thing? But before we do that, let’s define what your syndication looks like today and how you’re doing those?
Michael Becker:
Yeah. I mean, syndication is simply a fancy way of saying SCC compliant, legal fashion, where you just pull resources together. So, you’re going out and buying large scale property and project. You need, say, $10 million to buy a deal, and the bank’s going to give you a $7.5 million loan, and you need to bring $2.5 million in equity. You might not have that $2.5 million of equity. Maybe you got 100,000 or 200,000 of it that you put in and you get to go get the other 2.3 million from others. So, it’s a fancy way we guys pull your money together to do bigger deals than you do on your own. And typically there’s a lead or a sponsor, which is a common term, or maybe a GP is maybe what you might hear as well.
Michael Becker:
And that’s the person that’s responsible for putting the deal together and running it. And then you’ve got your LPs or your passive investors. And they’re the ones that just put their money at risk, and don’t have any work or responsibility past investing in the deal. And that’s what I, basically, do for a living on a large scale. I’m the sponsor of these transactions. And when you’re starting out… One of the things I heard someone say, which I would steal and use myself now is, Robert Holmes real estate guys actually said this, “The first people that you raise money from. It’s like the three F rules, your friends, family, and fools, right.” So, it’s the people that know you well, and the people that don’t know any better, and they mess with you because you don’t have a track record when you’re starting out. And you’re not the best bet per se on paper. So, you start with people you know closest with you, and quickly run out of those people. And then you’ve got to expand your network, and go from there.
Michael Becker:
And honestly, I find it easier, Chad, to raise money from complete strangers than I do from people that have known you for a long time. Because, you think about it, trying to get your parents, some of them remember you when you’re a jerk little kid and knowing them. So now they’re entrusting you to go buy a multimillion-dollar asset. Sometimes it’s hard to change the perception. Whereas, if I just meet you at some networking event or in some professional capacity, Michael Becker the business professional, nada, not the 12-year-old Michael Becker that did whatever back in the day. So, that’s going through…
Michael Becker:
Obviously, I have the podcast, as we mentioned, that’s a very good source for people to find out a little bit of information about me and reach out. I get a lot of people who reach out off of that. Back when this was a thing, I used to go to conferences and go do speaking events around the country and locally as well, and meet a lot of people that way. So, just consistent effort of getting out, and getting that word over many, many years have led to the database that started small and has grown exponentially. And then we get quite a few referrals where someone that’s invested with me, we did well for them. They’ll tell two or three of their friends and we’ll get people coming in the front door that way as well.
Chad Duval:
Yeah. And from what I’ve heard from multiple syndicators is, once you start with a small network… Is it a high percentage of people that come back and reinvest into the next deal as you successfully exit that first deal? Or is it a constant struggle to keep building that pool of money and-
Michael Becker:
You always got to keep expanding the list and the pools you got to keep getting it bigger and bigger. We definitely have the repeat people. I mean, we’re finishing up a deal right now and it looks like it’s going to be roughly half of people that have previously invested with us and half of people that’ll be new. And that’s, probably, pretty typical, you always have to regenerate. And I find the more we do the deeper the pool gets, and the more you do the bigger it expands, and it’s a little bit different from what you might think, but it’s not really scarce out there.
Michael Becker:
There’s a lot of money floating around the world right now. It’s just a matter of getting attention on you, and what you’re looking to put out there. And you’ve got to come across, obviously, as credible and have a sound business plan, and be able to communicate that effectively to everybody. But, the world’s awash with capital. So, it’s a pretty relatively good time to start raising capital to do deals like this, so. But, constantly always out there, getting your name out there, flying the corporate flag, and trying to attract more and more eyeballs to what we’re doing.
Chad Duval:
Yeah, totally. Now, so that’s the investing side of it. That’s, basically, the down payment of these deals. And then on the flip side of that, you’ve got the debt that you’ve got to put on from banks. Now, what sort of debt are you putting on? What’s your typical debt structure for something like that you’re syndicating, like the one you’re getting ready to close on right now?
Michael Becker:
Yeah. I mean, we’ve done a mixed bag of different debt options anywhere from 10, 12 year fixed rate, Fannie Mae money. That’s where we started our career doing a lot of that type of debt. And then we’ve done a handful of bank bridge loans. We have a handful of life company insurance loans. Recently we’ve done a whole lot of Freddie Mac Floating 10 ten-year loans, typically five years interest only, but they’re just for eight mortgages. And you’ve got flexible prepayment penalties, where if you were to put a 10 year fixed rate on these large commercial mortgages, they come with pretty onerous prepayment penalties. So, a little bit of a mixed bag. And then a lot of these deals that we’ve done in the past.
Michael Becker:
One of the deals we’re doing right now is a bridge loan. And the other one the owner put a 10 year fixed rate loan on it four years ago. So, about six years approximately still left on the loan, and he has a really large prepay penalty. So, we’re able to buy the property and assume his mortgage. He avoids a large prepay penalty and it passes about a $2 million savings on a 13, $14 million purchase price on to us. So, we’re the beneficiary of assuming that mortgage. So, we’re going to use his… The loan assumption is like a quasi bridge loan to go do our business plan. So, a little bit of everything. I think as you get into this space, that’s ,fortunately, my background, but as you get deeper in the space here, you realize there’s not a one size fits all program to debt. You’ve got to match the mass of debt to the business plan or the situation of that particular deal.
Chad Duval:
Yeah, that’s really true. And I feel like that’s how it is in most parts of real estate or in any business. The more you get into it the more you get exposed to the networks, and the different people, and different contractors, and bankers, the more you learn about all these different tools that you can keep adding to your toolbox. And then as you keep looking at deals you have more things to pull from and make things fit according to whatever the deal is. So I love that. So, you guys are big syndicators. Do you guys do any of the property management yourself, or are you guys only doing the financing side of things?
Michael Becker:
We actually outsource property management. We have a third party, a Texas-based company, that manages all our stuff in Dallas, Fort Worth, and Austin, they’re called Value Residential. So, we’re at a third of their business, I want to say, they’ve grown as we’ve grown. And so, they handle the day-to-day, which really the roles, I think, of a management company serves three main functions. You’ve got your HR. So, all the employees are their employees, their expenses pass through to our partnership that owns the property. Hire, fire, manager, give direction to the staff, construction management. So, they do some of the capital projects we have as well as just normal work orders, your leaky faucet, broken stove or whatever it might be. And then the third function really is accounting. So, they collect all the income, pay all the bills, and produce financial statements for us. And then we’ll have a CPA help with the tax returns, they do the property level accounting. So, those are the functions that they serve.
Michael Becker:
And then my company really does what we call asset manage. So, we manage the management company. So, we set off the direction, the business plan, we put the deal together, and hold them to account that we’re tracking the business plan. And if we deviate, why are we deviating? And try to course-correct if we’re going the wrong way, or double down if we’re going the right way. So, we serve more the asset management function more than the property management function.
Chad Duval:
I see. So, did I hear you correctly that you make these property managers like partners in these buildings?
Michael Becker:
No, they do it for a fee. So occasionally, from time to time, the management company has invested capital with us. But, no, they’re a complete third party from us.
Chad Duval:
I got it.
Michael Becker:
They just get a fee of collected revenue, which is pretty standard in customary for the industry.
Chad Duval:
Right, right. Yeah, no. Because I’ve heard other people sometimes make them partners and the thought processes if they’ve got some skin in the game they might manage it better, but.
Michael Becker:
It’s not a bad thesis. I don’t dislike that thesis. But yeah, occasionally they have, but it’s not customary with the deals we’ve done.
Chad Duval:
Right. Right. So, you got all these different pieces working together. What is typically your overall company strategy for… Your exit strategies. Once you get all these pieces in place, get property management in there, they’re cleaning things up, they’re running things properly. How do you guys usually either exit or make your money? Are you making it off of fees, or the upswing, or the upside of the property when you sell it, talk about maybe some of the exit strategies that you guys have?
Michael Becker:
Yeah. I mean, to unpack that a little bit. I mean, there’s a couple of problems to your question. I mean, we’re compensated in a few ways, which is what sponsors are. You get, generally, some sort of fee-based compensation. So, the typical are acquisition fees, and then ongoing asset management fees. So, acquisition fees are earned at the acquisition of the property, successful closing is usually a percentage of the purchase price. And then there’re asset management fees, which is akin to the property management fees. So, the property manager might make 3% of collective revenue paid out monthly, and we’ll typically charge say like 1%. So, it might be 4% of the deal three to them, one to us. And then there’s generally some sort of a carried interest or promote, or recall sponsorship equity.
Michael Becker:
It all means the same thing. So, there’s a split of the deal. So, if there’re distributions paid out most of our deals are typically an 80, 20 split, where 80% goes to the money, 20% goes to the sponsor. And that’s a pretty typical structure. Some other people tend to do maybe a little bit more complicated structures where there tends to be a preferred return with waterfalls pass the preferred return hurdle, where you get maybe a seven or 8% preferred returns. So, the investors get the first 8%. But, after that it goes to a 70, 30 split up to a certain IR hurdle. Then you get above a different IR hurdle then the split might go to 60, 40 or 50, 50 and graduate up. So, you can make this simple, like we have chosen to do, or complicated. I’m not saying one is more correct than the other. It’s just different, different ways.
Michael Becker:
And the capital that we tend to raise, Chad, is your generic high net worth, capitalist private individuals. Most of the people are either are employed and, or maybe sold the business or get a big job that has a lot of commissions so they look to invest passively. So, the more simple the structure tends to work a little bit better for us. I think if you start getting into a bunch of stuff that people don’t understand, they tend to get a little more confused. Where the more complicated structures tend to work when you give them a little bit more of an institutional equity partner, they demand stuff like that. So, not right or wrong, just the way we’ve chosen to do the types of deals that we buy.
Michael Becker:
When we first started out, we just did a lot of workforce housing. So, a lot of C class. So, in Texas things like the 1960s or the 1970s, for the year of construction. Then we graduated a lot of B class, I think only in the 1980s for the year of construction. The last I guess four years or so now we’ve pretty much focused on 8A minus. So, generally, stuff that’s, say, 20 years or younger is the preponderance of what we have. Some of this gets a value-add, some of it we think we’re just buying at a good basis. So, we’re really just focused on buying what we think is at an attractive basis relative to the current market. And depending on what the business plan is, is more of a value-add, you try to buy that maybe on a bridge loan, come in renovate it for two to three years and look to either refinance it or potentially sell it.
Michael Becker:
Or if it’s more of a Class A, just buying at a good basis you might tend to have a little bit longer hold period. Maybe put a little different type of debt on it. So everything is situationally dependent, and we try to match the debt to the business plan. But more and more, we’re trying to buy newer, nicer stuff. And that’s a function of the market too. I mean, the cap rates, which are your unleveraged returns on these deals, for those who might not know that term. They used to be a little bigger spread, where you would have to buy the new stuff on a lower cap rate. Say, eight years ago, when I bought my first deal in Dallas, you could buy a Marine in Class A deal for about a 5 cap.
Michael Becker:
A BDO is about a 6.5 Cap. And a CDL is 8 or 8.5. We’ll fast forward to today, an ADL is a 4.5 Cap. A BDO is 4.75 and a C deals a 5. And if you put a value on the component, you even lower those cap rates further. So, you might be the same or lower cap rate for a C-Class deal that you would have for an A-Class deal. And to me, that doesn’t make as much sense to me. So, we’ve been taking the opportunity to sell older stuff at the same cap rate, and trade into newer, better quality stuff at basically the same or similar cap rates. So, that’s really been the evolution of our focus over the last really four or five years. We’ve been trading that, taking that trade because we think it’s a pretty good trade. And so, our portfolio is much prettier and younger than it used to be.
Chad Duval:
Yeah. So, when you’re saying that you’ve done a lot of trading up into A-class, A-minus properties, what impacts, I’m assuming that’s the most impacted class of properties with COVID and that sort of thing, or has it not? Because I’m assuming a lot of people moved out of those properties into lower-class properties?
Michael Becker:
No. I mean, we still have a handful of the workforce housing stuff, but now it’s the exact opposite of that in my experience.
Chad Duval:
No way. Oh, wow.
Michael Becker:
Because you’re looking at whether delinquency has been relatively held in check, and this is coming from a guy who’s got a perspective in Dallas and Austin, Texas. So, I’m sure every market is different. I know you hear these stories about San Francisco where they’re getting 25, 30% negative lease trade outs, lease over lease and people are fleeing the city. So, that was not the case from my perspective, what I look at. But, for most of the country where there are some delinquency creep and accumulation, it tends to be more in the workforce housing right now. And if you think about it, it makes sense, Chad. Because the people that are most impacted from job loss, or people that physically had to be somewhere to work, those tend to be people that work at restaurants and in hotels and the like. And they tend to live at the older, more affordable apartment complexes. So, their income has been disrupted.
Michael Becker:
Where the people that live at a new Class ADL, can just take their laptop home and work from home, like you and I probably did for the three months I was trapped in my house. So, it’s been a little different. Where if you were to fast forward or go back in time, 12, 13 years ago in the great recession, I think, the B Class really held up better, where the workforce housing guys got hit a little bit more. But they lost their job, they can go down the street and get another job. Mowing yards are serving Starbucks or whatever they were doing. Where this time was a little bit different in the way it impacted people.
Chad Duval:
Right. Yeah. No, that makes sense for that area, but you’re right. Like with the San Francisco’s even here in Boston, I mean, I’m seeing like two and a half to three months rent concessions, and major vacancies and stuff like that. But it’s different here because you’re right, things are locked down here and people are trying to leave the city because there’s not much going on now.
Michael Becker:
I’m going to dinner tonight and you’re sitting inside in the snow, so yeah.
Chad Duval:
Exactly, it’s crazy. It’s absolutely crazy the disparity between each state and city, but.
Michael Becker:
It is. And every time history does repeat itself, but it rhymes, but it’s a little different. And like your perspective is completely different than mine has been. And Massachusetts versus Texas is completely different.
Chad Duval:
Absolutely, definitely. So everything sounds awesome. Everything Michael Becker’s doing with the syndication’s and from the debt and crushing all these deals. Has there been over the years, I know you’ve been at this a long time, that you can speak to like a learning opportunity or a misstep that you wished that you hadn’t done through the process?
Michael Becker:
We were fortunate, we never made any critical life-threatening or deal threatening mistakes, but yeah, for sure made tons of mistakes. The one that is the most prominent to my mind that we made several times that cost tens and tens of millions of dollars that we would have had otherwise. Like I mentioned, earlier in the conversation, how when we first started out, we did a lot of 10-year and 12-year fixed-rate Fannie Mae financing. So, for the listeners, when you take a course of real estate loan, like a Fannie Mae loan. Fannie Mae guarantees a loan and then they actually take the loan, they securitized it. So, I mean, they sell it on the bond market and get some of these big pools, that pension funds, and you ultimately might own through a mutual fund.
Michael Becker:
You don’t realize that some mortgage you’re paying on is paying some bond fund that you’re invested in. And as part of that, they require these large prepayment penalties. They call them yield maintenance, or if it’s a Freddie Mac loan or the CMBS loan is a called fees excelor, they function slightly differently, but the end result’s the same. Where basically if they want to guarantee a constant yield to the bondholder. So back in the day, we thought they are all-time low-interest rates. And we were getting 10-year fixed-rate money at 5%. And we were getting a whole year of interest only. And we thought that was about as good as it’s going to get. And we had just been locked this money in a race we’re going to go up. Well, the exact opposite happened where our rates went down and one year of interest only turned into three years of interest only turned into five years interest only, and getting better and better.
Michael Becker:
So, as we go to look to sell these things, we either have to eat a very large prepayment penalty, which could be millions and millions of dollars on 10, 20, $30 million loan and tens of millions of dollars in pre-pay. Or the next buyer could assume your mortgage at an above-market interest rate with this advertising where they can go get interest only today. So, they would offer you a lower price to purchase a property, to compensate for taking that loan on. So either way, it costs me as the owner a lot of money or our group as owner a lot of money. So, that has been a mistake where we mismatched a little bit, the debt to the business plan. And that costs us. I mean many, many people like me have that exact same story. That’s probably the biggest mistake we made. And I could talk about numerous smaller mistakes we made, but that’s been the most impactful from a monetary standpoint for sure.
Chad Duval:
Yeah. No, that’s crazy. So, what do you think is going to happen if you had to predict, like in the next couple of years, are we going to have the same type of interest rates? Do you think they’re finally going to start raising a little bit or is everything going to pretty much stay the same?
Michael Becker:
I’m a paranoid libertarian in my heart. So, I keep thinking that the system’s going to crash and bring massive inflation and rates are going to go up.
Chad Duval:
That’s what I keep thinking too. But, it hasn’t happened yet.
Michael Becker:
It hasn’t happened, it keeps going lower and lower and lower. And then if you look at our rates relative to like Europe or Japan, I mean, they’ve been negative for the better part of a decade, the first decade. I mean, so you keep saying, “I can’t go lower than they do.” And you listen, it’s hard to fight the fed. If you ever try to go short a stock in the last seven months and tell you how hard it is to fight the fed. And he’s basically said that they’re going to keep rates low. And honestly, it seems like we’re in a doom loop where I don’t know how the hell they’re going to raise rates because they got so much more debt. So they’re going to forget inflation. They’re going to fight inflation with more inflation and for more money and keep these rates low. So, at some point, it’s going to turn, and it might turn quick. So we’re, generally speaking, and taking adjustable rate mortgages, keeping our flexibility as much. I’m not opposed to fixing a mortgage. What I’m opposed to is getting our extremely large prepayment penalty. Because I’ve been stuck on that. I have that battle scar many, many times over. So, if it is a fixed-rate mortgage the fortunate thing about buying nicer quality assets, you got more debt options. Because LifeCo money isn’t really interested in C class, a $5 million loan. They want to get bigger and nicer, better, bigger loans and nicer quality assets.
Michael Becker:
So I have a lot more tools in my debt toolbox today than I did on the first assets I bought. So some of these LifeCo’s will be a little bit more flexible on the prepay. So that is, if you take nothing away from this conversation, if you want to be a professional in this business pay attention to your prepayment penalties. Because that could come back and bite you pretty, pretty terribly. And I’ve seen other people make more grievous mistakes that we made along the way. So just really, really focus on that.
Chad Duval:
Yeah. And it’s so counterintuitive because at least for me and in my age and growing up, I always thought fixed rate was the way to go because usually interest rates always go up. But over the last 10 years, it seems like it’s gone the opposite way. So that’s a really good tip for, like you’re saying-
Michael Becker:
30 years. So, I mean, it was the early ’80s, the high teens. 30s has been an unbelievable time to own bonds because the rates keep going down and your values keep going up. Yeah.
Chad Duval:
Yeah, absolutely. It’s crazy. So I guess, that’s a good place to end the conversation or end the show here. But, I know we had touched on a few places where people can reach you at the beginning of the show. But is there any other places that people can go to find out more about Michael Becker-
Michael Becker:
Yeah. I’ll give two resources. Really the company I run is called SPI advisory. So you could go to our website, which is www.spiadvisory.com. SPI like spiadvisor.com. There’s a contact us form that you can fill that out and always happy to send out a little bit more information about potentially working with us. And then really the main one I want to put out there is a newer show I started it’s called The Multi-Family Investing Show with Michael Becker. So like I said, it’s on YouTube. We’re doing a studio in Dallas it’s extremely highly produced. There’s a lot of audio podcasts like the one you have out there. But I didn’t see anyone do an extremely highly produced show in a studio format. So I have that.
Michael Becker:
And then last out the website, which is www.multifamilyinvestingshow.com or also we released an audio format. So, probably anywhere you hear my voice right now to search for Michael Becker or The Multi-Family Investment Show with Michael Becker, you’ll find it. Then, like I said, I’ve been doing the Old Capital Podcast, I co-host that will Paul Peebles/Shears. So, you can search Old Capital and find that as well. And I think we’re trying to bring some good information out there for people that are either looking to be active or potentially passive and some of the multi-family space. But if you’re not a multi-family nerd, that’s probably not one of the shows for you though.
Chad Duval:
Right. No, but I really love that you’re jumping into the space the way you are, because like you said, I can’t find anything that has some higher level investing stuff for multi-family and highly produced and the stuff that you’re doing. So, it’s really good from what I’ve seen so far. So everybody listening-
Michael Becker:
It’s a lot of work. So, I hope you’ll always like it. Hopefully, we get a joke out because we get 40,000 downloads on Old Capital podcasts a month now and it took a while to get there. So, when we started out you get like dozens and dozens of listeners and eventually grows over time. So, I’m in the early stages of the new shows so it’s a little frustrating not to immediately walk into 40,000 downloads a month. But, we’re working at it and it’s growing every day.
Chad Duval:
Well, I’ll do as much as I can. I’ll try and promote it on Instagram. And everybody listening, go check out Michael’s new show and with that, we will get out of here. So, thanks again, Michael, for coming on the show.
Michael Becker:
I appreciate you having me on, Chad. Thanks. (music).