If you want to raise capital in real estate, you need to network. That means going to events or at least letting people know what you’re doing. You can even find a partner to work with if you’re struggling. Join Sam Wilson as he sits down with multifamily real estate investor, Mike Roeder. Mike is the co-founder of a real estate private equity firm, Granite Towers Equity Group. He is also a general partner in 1,414 units and over $150,000,000+ of assets across five states. Listen in and learn how he raised so much capital over the years. Start networking and partnering up today!
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Raising Capital In Multifamily Real Estate With Mike Roeder
Mike Roeder is based in Minneapolis, Minnesota. He transitioned from single-family investments to multifamily in 2015. Thus far, they’ve taken down 1,600 units in over $150 million of assets. He’s also the Cofounder of Granite Towers Equity Group. They’re a real estate private equity firm. Mike, welcome to the show.
Thanks so much for having me on Sam. I appreciate it.
The pleasure’s mine. The same three questions I ask every guest who comes to the show. Can you quickly tell us where did you start, where are you now and how did you get there?
Where I started was in the single-family space. I house hacked my first rental property. We rented out three out of the four bedrooms. My now-wife was my girlfriend back then. We lived in the fourth bedroom. We enjoyed the cashflow in that deal, so we picked up a few more single-family rentals. Along the way, I had a good friend that was investing in apartments. He was buying anywhere from duplexes up to 24 units.
We came together and said, “Let’s buy a couple of deals together and let’s see how it goes.” We bought a 20 and an 8-unit together and decided that we loved apartments. We wanted to scale, so we started Granite Towers Equity Group a few years ago. It was off to the races with syndication doing bigger projects and raising capital for passive investors.
A common sticking point, if you will for investors, is finding the right partners. This is a team sport, so it sounds like you guys had a very natural progression for that. Can you walk us through that?
We did. I feel very fortunate because I didn’t have to try hard to find the right partner. We knew each other ever since middle school. We both had certain strengths that forged together very well. I feel like we got lucky but for those people out there that are looking for partners. I would say, do your due diligence, get to know the person because when you jump into a deal together, you’re probably going to be married to that person for the next 4 or 5 or maybe 10 years. You got to make sure that you jive well. You have strengths that coordinate with one another. You’re going to be able to enjoy working with that person for the next 3 to 5, 7, 10 years.
That’s true because this isn’t a one-deal business. You’re building a team. Have you guys added anybody else to the partnership since then?
We have. We have a couple of employees. We have a full-time accountant/CFO that works for us. We also have a full-time assistant. We have an intern working for us now and we are bringing on a full-time asset manager. Building out the team as we go.
Talk to us about why you are bringing on a full-time asset manager.
When you start out in the multifamily space, you can get up to 5, maybe 10 properties where you’re asset managing those deals yourself. Once you get past that 7 to 10 deal range and this is my opinion, you start to get a little bit stretched thin. You have your weekly calls on all of the deals. You need to make sure that all your CapEx projects are going as planned. You need to be visiting the properties. You need to stay up on the financials. You need to add team members as you approach that 7 to 10 deal range. That’s what we’ve done. We’ve gotten to a certain point and now we feel like that person is needed in our business surrounding them.
Tell me, when you say staying up on the financials, is that something your CFO does or is that something your asset manager does?
Stay away from getting into specific markets that are really dependent on one industry.
Our CFO makes sure that everything’s coded correctly in the books, that the property management company is doing everything correctly. However, we do look over the monthly financials as well and scan over them, making sure that everything’s going as planned, making sure that we’re hitting our proforma numbers. That’s something that the asset manager is going to take over once they come on board.
Has your CFO or your soon-to-be asset manager position, have you found things from the property management side that looked out of whack? If so, what did you do to correct those?
I would say the biggest item that we find on a monthly basis is certain CapEx projects are maybe put under the expense category. It’s affecting your NOI, which is affecting your value. You want to make sure that all of your CapEx projects are coating below the line, below the NOI. That way, it’s not affecting your value. That’s a big thing. We’ve also found certain expenses that should have been allocated to a different property or a different team. They allocated it to our property. We were able to back those out. There are always little nuances that you can find in the financials. You need to make sure to pay close attention to those.
I would say so. How does that work? When they come to you for capital expenditures, is there a dollar amount over which they have to get things approved? How does that work in that process?
Typically, we have a $500 to $1,000 maximum and they’ll have to come to us for approval. That’s written right into the property management agreement. When you’re signing up with a third-party manager, make sure you understand that property management agreement, front to back. Maybe even have your legal team look over it before you sign that because that’s important.
On property management topic, do you have the same property manager across all of your assets or are you working with multiple teams?
We’re working with multiple teams. We’re in a few different markets. We invest in Nashville, Dallas-Fort Worth and we have some assets up in the Midwest, Minnesota, Wisconsin, close to where I live. We have several different teams. We like to go into a market and find a company that does well in that market and sub-market that has quite a few assets, that has a team built out and the right amount of properties under their belt to properly manage our deals, so we do have several different teams.
One of the two things I think that we all need in this business is deals and money. Without one or the other, you’re not in business. You’ve raised quite a bit of capital for these opportunities. Talk to us about the capital raising journey and maybe some of the struggles you’ve had with it, as well as some of the things that you have found that made you successful.
We started out small. The first deal that we syndicated was a 45-unit project. We raised about $575,000. It went very quickly. We had been letting people know, “This is what we’re doing. We joined some investor groups down in Dallas-Fort Worth.” We had been networking like crazy to build out our database. That one went quick, then we went up to a $2 million raise. Now, we’ve been doing deals where we raise $8 to $16 million on a single deal. It’s been a natural progression over a four-year period or so. I would say a couple of tips. Networking at real estate events, that’s been huge for us. Also, reaching out and letting people know what you do. Your friends, your family and your colleagues. Bring up that conversation. Talk to them a little bit about what you do.
You’re not necessarily asking for money but you’re telling them, “This is what we’re doing. This is what the returns look like. This is what our typical project looks like.” A couple of other good avenues, CPA firms. Our CPA refers quite a bit of business over to us. That’s a great avenue. Your legal team might have a lot of good connections. Your bankers, your lenders, there are all these different connections that you have when you’re doing a multifamily project. Each one of those connections might have additional connections that they can refer over you.
What have been some of the struggles you’ve had around capital raising and how have you overcome them?
Truthfully, we haven’t had a lot of struggles with capital raising. I think we went at the right pace where we didn’t go for something too big right out of the gates. We did structure one deal as a ten-year hold. We typically do a five-year hold, so our investors are very used to that. We structured it as a ten-year hold and we didn’t get a lot of interest.
We switched it over to five-year hold. It worked well that way, too. I would say that was our biggest struggle. All of a sudden realizing, “People aren’t interested in this long-term hold.” I’m sure some people do it that way and that’s great. I liked the longer-term holds but our investors were used to that shorter 3 to 5-year hold period.
It is interesting how you have to prep because I finished a call with somebody about this about how you have to prep your investors. In the predictability in what it is that you put out and when you put it out, I think is as important as anything else that goes into the deal. For you, putting out five-year deals and all of a sudden, it’s a ten-year deal. You’re going, “What? This is different. Maybe I’m not looking at a ten-year deal before. That seems like a long time.” Has there been any bad advice that you’ve received in the scaling process that you said, “I don’t know about that,” or maybe advice you took and then found out that it was bad?
We picked up one deal that was very dependent on a certain industry. It was in an oil market. We’d got some advice that, “Oil is on the way up.” We looked at the stats behind it, what was going on, where we were in the cycle. We picked up that deal and that’s been our only deal that’s been struggling since COVID hit. I would say that advice of getting into a specific market when it’s dependent on one industry. I would stay away from that going forward.
It didn’t matter. I think of what it is. I’ve heard that for military towns, where the military base can pick up and leave. Suddenly you’ve got tumbleweeds going, “Okay.” I, too, have participated in some of that oil business. Not on investment for me but as a passive investor. I have seen some of the struggles that have gone along with being heavily dependent upon one particular sector. What’s one of the biggest challenges you feel like you are facing in your business now?
I feel like we are able to locate deals. That is always our problem is, “We want to find the right amount of deals to buy per year. How can we do that? How can we keep the deal flow up?” I feel like we’ve finally jumped over that hurdle where we have strong enough relationships with these brokers. We know the markets well, so when we’re ready to buy another deal, we can typically find it quickly. Other issues, I would say finding enough time in the day to get to everything that you want to get to. When you’re building a business, typically, if your business is doing well, you’re going to run into that situation. No matter how many people you add, you still feel behind at the end of the day. That’s probably the biggest issue.
How do you plan on overcoming that?
I would say continuing to add people to our team. Leverage other people’s time and try to become more efficient. Adding additional systems. I was looking into Monday.com, which is a platform where you can sort tasks so to your team members and whatnot and stay a little bit more organized. I would say continuing to use technology to become more efficient as well.
The problem I think a lot of us face is that there’s such a learning curve to those technologies that sometimes on the front end, the difficulty of getting your systems and your processes into the tech takes more time and the pressing, urgent item you got to get done now. It’s like, at some point, you got to give but it’s always that balancing act.
It’s such a tough thing to do. It falls back on The E-Myth by Michael Gerber. It’s like, you want to work on your business, not in your business. As you said, you have so many different tasks that they need to get done. They are prioritized and you do those, then you don’t have much time leftover to systematize stuff. It’s tough.
When we fall into that entrepreneurial trap of mistaking activity for progress, it’s like, “We’re frenetic activity but did we make any progress? I’m not quite sure.” That’s a pain point that we all certainly struggle with. I know I struggle with it at the end of the day. Is there anything else outside of more processes and more people that you’re doing personally to make sure that you’re maximizing your time during the day?
I would say time blocking. We’ve been trying to do that more. Like we were talking about implementing systems. It’s always on the back burner, “I want to do this now.” You get caught up in other things but if you time block, an hour or two and say, “This is what I’m doing at this time. Nothing else is going to take priority over that.” That helps to make sure that you get those tasks or those items done.
You said it. That’s a huge thing. I’ve been doing that myself as well. When it comes time to a particular task, even turning my phone off. What’s one piece of advice or maybe the best advice you feel like you’ve ever received from a mentor in the industry?
Find enough time in the day to get to everything that you want to get to.
I would say copying the process of someone that’s already done what you want to do and they’ve been extremely successful at it. That’s what Dan and I did when we decided, “We’re going to deal with other people’s money and we’re going to syndicate deals.” We found a mentor that did exactly what we wanted to do had thousands of units and replicated what they did. I would say that’s the best advice I ever got. If I want to follow that advice, I’d probably be at maybe 30% or 40% of where I’m at now.
What does success mean to you and how would you define it?
Success to me, first off, having financial freedom and flexibility with time. Financial freedom, I want to be able to do what I want to do, whenever and not have to worry about the funds. Time flexibility, I want to be able to go on vacations with my family or go to a sporting event or whatnot and still have my business running in the background and not feel like I’m extremely overwhelmed. The third thing is spending a significant amount of time with my family. We have two girls. We want to make sure that we’re raising them right and enjoying the time while they’re young.
Mike, let’s jump here into the final four questions. What is one tool or resource you find you can’t live without?
Truthfully, I’ll give you two. Gmail is a fantastic tool. The Calendar and Google Drive. Everything that Google has implemented, like Google Forms, we take advantage of that. Those tools are phenomenal in this environment.
If you could help our audiences avoid one mistake in real estate, what would it be and how would you avoid it?
I have already talked a little bit about the markets. I would say another thing is to make sure that you’re coming in well-capitalized on these deals. Make sure that you have a significant amount of renovation dollars. If you think it’s going to be a million dollars, you’re going to have to stick to the project. Maybe budget for $1.2 million because there are always items that pop up, especially on older deals. If you’re buying a ‘60s or ‘70s year built deal. That would be a recommendation of mine.
You can always give the money back if you raised it in equity.
That’s right.
It’s hard going back to the well.
That’s right. A capital call, we’ve never had to do one but I can’t imagine that it’s a fun situation to have to go back out to your investors and say, “We need more money.”
When it comes to investing in the world, what’s one thing you’re doing now to make the world a better place?
We donate a portion of all of our profits at Granite Towers Equity Group, and we split it in between a couple of organizations, Operation Underground Railroad, a company that’s teamed up a little bit with Tony Robbins. They helped and/or reduced sex slavery amongst children. It’s very dear to our hearts, Every Meal, which is a company that fills food gaps. When kids go home from school and they don’t have food in the evenings or the weekends, it helps bring food to those children at the end of the day of school or on a Friday. It fills their backpack full of food if they need it. That way, they’re not hungry on the weekends. We love doing that.
Mike, if our audience wants to get in touch with you, what is the best way to do that?
There are a couple of different ways. I would say, first off, if you visit our website, which is GraniteTowersEquityGroup.com, we have a Contact Us page on that website. Also, there’s an eBook about passive investing. You can download that as well. Otherwise, you can certainly email me. My email address is Mike@GraniteTowersEquityGroup.com.
Mike, thank you so much. I do appreciate it.
I appreciate you having me on, Sam. Thanks again.
Important Links:
- Granite Towers Equity Group
- Monday.com
- The E-Myth
- Operation Underground Railroad
- Every Meal
- Contact Us
- eBook – 4 Steps To Successful Passive Investing
- Mike@GraniteTowersEquityGroup.com
- https://Calendly.com/mikeroeder/15min
About Mike Roeder
Michael was a high net worth top sales producer for a Fortune 500 company for over a decade. Michael transitioned from single-family investments to multifamily in 2015 and is a general partner in 1,414 units and over $150,000,000+ of assets across 5 states including TX, MN, WI, AL, and NM. He is also a passive investor in over 2,220 units. He is the co-founder of Granite Towers Equity Group, a real estate private equity firm.
Michael and his business partner Dan focus on acquiring and asset managing multi-family projects across the nation. He is also the co-host of the Keeping It Real Estate Show and author of 4 Steps to Successful Passive Investing.
