How To Build Wealth Through Multifamily Cycles And Smart Development

I  sit down with Mike Kron to trace how a real estate lawyer turns into an operator who helps grow a portfolio from roughly 2,500 units to more than 14,000 units across major growth markets.  I  dig into cycles, development mistakes, tenant-first management during COVID, and why strategy matters more than hype. 

• Getting started with a small apartment building and learning operations fast 
• Moving from real estate law to the owner side of the table 
• Using 1031 exchanges to trade into higher-quality multifamily in Texas and Arizona 
• Becoming an “accidental developer” and building a team that catches costly errors 
• Refusing to assume boom-time rent growth is a new normal 
• Choosing between long-term holds and cycle-driven plays 
• Avoiding over-leverage and treating cash flow as the foundation 
• Handling COVID uncertainty by communicating early and working out payment plans 
• Building a net lease strategy around high-credit, Amazon-resistant tenants 
• Using cost segregation and bonus depreciation to improve after-tax returns 
• Saying focused and taking one step at a time and accepting that you cannot rush experience 

To get in contact with Mike Kron
 Website is guardianlease.com. Email Mike at mike@guardian-advisory.com. 

Transcript

Welcome And Mike’s Track Record

SPEAKER_00 0:36

Hey, hi hey, everybody. Welcome to another episode of the Professor's Real Estate Investing Podcast. I'm with Mike Cron. How are you doing, Mike?

SPEAKER_03 0:47

Doing well, Tony. Good to be with you.

SPEAKER_00 0:51

Good to be with you, too. Let's talk about Mike today. Mike, he's a seasoned real estate investor executive with over $3 billion in property transactions and a portfolio exceeding over 14,000 multifamily units across the major growth markets like Arizona and Texas. Mike, now he leads the Guardian's Adversary net lease investment strategy, offering accredited investors access to diverse income producing properties leads to nationally credited rated credit rated tenants. And I am so glad to have you on today, Mike. I know we've had some technical difficulties, but we're back on now. So I'm loving it that we can do this interview right now. So Mike, let's do it. Take let's take let's go back to the beginning. What got you started in real estate investing?

SPEAKER_02 1:45

You know, it's funny. My dad was in the the real estate business. I mean, he was a lawyer, he's a real estate lawyer. When I was young, he went to work for his father. They owned a supermarket chain, and he did all the real estate work for the supermarket chain. And you know, fast forward to college, we decided to buy an apartment building in Ann Arbor, Michigan. Big Michigan guy. You know, we bought a little six-unit building. I didn't know the first thing about running a building, running real estate. And you sort of learn things very quickly when you need to get things done. So, you know, we ran that building all through, all through school. Loved what I was doing. And, you know, a friend and I, he was a general contractor, his father was, and he had learned

First Deals And Early Lessons

SPEAKER_02 2:38

the trades. He said, hey, we should buy some houses and fix them up. Again, I mean, he knew he knew a lot about how to fix them up. I knew about how to buy them and position them. So he and I went to work. We bought three buildings over in Nipsilanti, which eastern Michigan's home neighbor to neighbor to Ann Arbor, fixed them up. That was fun. We didn't make a lot of money, but we had a good time doing it. And there were a lot of late nights sitting there, having a couple beers, sanding floors, you know, doing all the fun stuff that you get to do. Uh, and just found that I really enjoyed being in the real estate world. At the same time, I was going to law school. I knew I wanted to be a real estate lawyer, probably following in my dad's footsteps. And, you know, that's what I did. Moved out to LA, practiced law for a half dozen years, getting my feet wet, getting to understand what was going on in the real estate world. You know, I did financing work, I did purchase and sale work for big office buildings and apartments and hotels. I did land use work, learned how the zoning process worked. And the most important thing that I learned was that I didn't want to be a lawyer, I wanted to be on the other side of the table. And, you know, at the time, my then father-in-law was getting bigger. He had about 2,2500 units in California, a little bit in Texas. And, you know, he said, Mike, I'd like you to come work for me. Because the bank started to ask me questions like, what happens if I get hit by a bus? And I need somebody else in the office, you know, to help me manage this and run it and learn the business. And it was a perfect opportunity for me. It just was, it came at the right time and it at the right moment. And he was, you know, in the apartment business. And you know, that was 33 years ago. You know, from there, he didn't know anything about how to do a 1031 exchange. So we owned a lot of property in California and some of the wonderful hotspots, San Bernardino and Cerritos and other places that Hawthorne, the places I didn't really want to go with without protection.

SPEAKER_01 4:58

Yes.

SPEAKER_02 4:59

But, you know, we we ran them and we we did a pretty good job. And but I taught him, I said, said, look, you know, we're buying all these great properties in Texas, and we were starting to get into the Arizona market. I said, let's get rid of this stuff and let's funnel the money into things that are class A projects, stuff we're gonna really like that are gonna survive the next 20 years, because where we are, I mean, the thing about apartments, they're great when they're brand new, but they start depreciating not just the tax depreciation, but they start sliding down the scale from A plus to A to B plus to B to B minus. And eventually, you know, if you don't pay attention, you own some C properties, you know, maybe in good areas, but in other areas you might not want. So we said, look, we can take these assets in California. We can we've got some good gains built up in them. Let's sell them, let's trade them, let's start buying some really good quality assets in Texas and Arizona. And that's that's really what we did. I mean, that was he had started to get into Texas in the late 80s when you could pretty much shoot a cannon through Texas and not hit anything. People don't remember that now. I mean, now it's like, what are you talking about? Texas is this major so no, there were there were days back there where you wanted tenants in the apartment to take over the utility bills. Forget the rent. Just just so I don't have to pay utilities. Please come at lease my apartment for two or three months free, and and then we'll talk about rent. You know, that was back in the late 80s. Now it's now it's booming. So we started, you know, we started, he started to go down there and we just accelerated the process. Yeah, then we got into the Arizona market, which has worked out very, very well for us. And you know, the the other thing that we started to do was develop property, and we were sort of almost accidental developers. We owned a parcel, and I know that sounds funny, but it really is true. We owned a 230-unit apartment complex in North Dallas, and we owned a 20-acre parcel right next to it. And we kept trying to sell the parcel, and there was always a problem. There were some cross-easement issues and other things, and finally we just said, well, why don't we just build more units here? And it's like, okay, well, go figure it out. I don't know how to develop. So I went down to Dallas, I talked to my counsel down there, and I said, Look, do you got anybody here who does construction work? Because we're gonna launch into this process, and I need somebody who knows a little bit more about it than I do. I hadn't done much construction work in my legal practice. And he introduced me to their senior counsel who did that. And the first thing he did, he says, I'm gonna do you a favor. He goes, There's somebody you need to meet, and you need to hire them. He's just back from he was down in the in the Bahamas, I think, doing some deals down there. He was just back. He said, This guy knows everything. He knows how to build tall buildings, he knows how to build apartments. You'll do yourself a favor if you hire him. So I said, All right, we'll set up a meeting. We ended up meeting, you know, 20 years later, he and I had developed, you know, 3,000 units together. You know, he's since passed away, but we became very good friends. He taught me everything I know about how to develop apartments. And you know, we started with that project, and the really funny part about it is we hired this architect who was all over the magazines, was a self-promoter. He's the guy that would call you from the airplane phone just to say, hey, I'm on an airplane, and you know, I'm a big guy. And I gave the plans to this guy we hired, and he put them in a system. He came back, he said, Mike, you have a problem. I said, Well, what's that? He goes, the four corners of the buildings don't meet. The dimensions are off. I said, Excuse me. He said, Yeah. He goes, if you build this, you're gonna end up with gaps that the architect left in there. I said, All right, what do we do? He goes, first thing we do is fire him and find another architect. I said, Yeah, that's that's pretty obvious. And and we did, and that was my that was literally my first foray into developing. You know, now we're 4,000 units down the road, and you know, we have a team, and we still hire outside firms to help us with the because I just figure, you know what, you can always know a lot, but it never hurts to buy some expertise. There's there's always people who will know more than you do. And you know, you know, you're talking about things that you convey to other people that are starting out. There's no matter how much you know, there's always somebody who knows more. And if you're willing to put aside your ego and listen a little and get some advice, you can learn a lot along the way. So he and I used to have these conversations and he'd be grumbling about somebody who did something on some job site and didn't know this or that. And I said, Well, Mark, I don't know that either. He goes, Yeah, but when I tell you something, you remember it. He said, I don't have to tell you twice. Yeah, okay, there's there's that. So now we have, you know, now we have a good time.

Leaving Law For The Owner Side

SPEAKER_02 10:38

Literally, uh in recent times, most of our growth has come from development. 760 units in Gilbert right now, which is a mini-city. We're getting ready to go before council to or plan commission to get another 560 unit complex approved through design review. You know, to me, it's just that's the really fun part about real estate. Because I can look back and say, hey, when I'm gone, the project that I built will still be there. And people can go back, who built that, and they'll say, well, Mike, Mike Crone was the guy, the the developer that uh in the family were the ones that did that. And that to me is fun.

SPEAKER_00 11:26

That's that's great. I love everything that you said right there, and especially with the the ego part. Nowadays people's egos get in the way. And they said like the hidden gem for for people to do, and especially what you're talking about learning, sometimes it is good to be quiet. Sometimes it's just good just to listen.

SPEAKER_02 11:45

The 80-20 rule is it live strong and healthy.

SPEAKER_00 11:49

Yes, it does. Very true. So you didn't want to be a lawyer, but you got into real estate. What when it comes to lines of real estate, what was your the first biggest misconception? Was there a misconception about real estate before you got into it?

SPEAKER_03 12:09

Yeah, I had a pretty good sense of what was going on.

SPEAKER_02 12:13

You know, the the the biggest thing that you learn is that you're never gonna outsmart the market. Uh I listen to pitches all day long, and you know, I hope I don't make the same mistake when I'm making pitches for my real estate fund, but the market is going to dictate what happens. You can manage really, really well into a down market, and you're still gonna lose money. You you you may minimize your losses, but you're not gonna fight, you know. And I I don't have to look back any further than the last five or six years. When we came not out of COVID, when we got into COVID and everything that was happening, 21, 22, and 23 were the two full years, the best years I've ever seen in the multifamily in 33 years. Rents were going up, and and it was a it was a compound problem because nobody wanted to move during COVID because we were all afraid to go out. And now I understand that. So tenants stayed, but there's still new tenants moving into areas. So the supply was constrained, and it's just simple economics. When you have little supply and and a lot of demand, prices are going to go up, and and that's what we saw. But to think that that was the new normal was just fool's fool's play. Because the next couple of years, we've been down 5%. Now we've been down off some all-time highs, but the market has begun to adjust. We're suddenly starting to see some equilibrium. But you know, for me to tell you, oh yeah, I can do that every year, and I've heard that pitch. Guys saying, oh yeah, I'm I model 20% rent growth every year. Come on, that's not gonna happen. And in if you buy that, you know, good luck. Better to look around and see what's happened. I mean, I have a lot of it, I've been around a few years. I have gray hair to prove I've been around a few years. That's that wisdom. Yeah, you know, it I've seen a lot of cycles. And, you know, the you know, what do they say? The past doesn't repeat itself, but it often rhymes. You see similar things happening all the time. And you really need to pay attention to those as much as anything else. And, you know, I'll add to that, and this is true of guys starting out or guys that have been in the business for a long time. You need to decide whether you're buying on a cycle or you're buying long term because they're two very different models of how you look at the world. The multi, the family office that I run, we buy long term. We have stuff that we owned when I started there 33 years ago. Now, that may not be the right decisions. You know, I have to defer sometimes to the the desires of the patriarch of the family, but you know, we have owned things for a long time. I'm not as worried about cycles when that happens. Because I know that we're gonna work out of that cycle, and I'm gonna see rent growth after rent, you know, rent decreases. And usually I'm gonna come out better than I did when I started in the cycle. And we just weather it. As long as you don't over-leverage or put yourself too far out on the edge to where you can lose everything, you can weather a lot of cycles. I mean, we always laugh. I said, you know, we shake the money tree. Cash flow is king. If you build up cash flow and you're willing to redeploy it and put off some personal consumption while you do that, you can keep building portfolios. So we would look for the downtimes. I mean, it may be part luck, and I never underestimate the role that luck plays in your success. I mean, sometimes you just fall into the right moment in the cycle. But we oftentimes will start development projects when things look bleak, either because the economy's gone down and nobody wants to build, or this last project that we're building right now, we've delivered about a third of the 750 doors. Everybody said we were crazy because no, Phoenix, it's in Gilbert, Arizona. Said Phoenix is overbuilt. You don't want to be there. That's that's crazy. I said, it's not gonna be overbuilt forever. I said, and based on how I look at the development cycle and where all the projects are, and we did our research. I said, 18 months into this project, that oversupply is gonna stop hitting the market. Then you've got some lease up and the other things, but nobody's building. Everybody's

Accidental Development And Hiring Experts

SPEAKER_02 17:28

afraid of that. So two years from now, we're gonna be the only new game in town. We'll be in a perfect position. Yes, I have to weather some uncomfortable times up front, but at the end of the day, I think we're gonna be in a much, much better position. And, you know, we ended up subcontractors are an interesting breed. I love them. But they got fat, rich, and happy during the go-go years of 21-22 and thought that you know their world was safe for the next two decades. And they suddenly realized the difference between projects that have been on the drawing board and projects that are actually being built. And when we started, the market had sort of slowed down significantly. And you know, all the private equity guys' interest rates went up. Private equity guys couldn't make the numbers work anymore. And I understand it. I mean, that's a different model. Uh, I deal with that on the other side, not my private equity side. But they couldn't, they couldn't make the model work. So all of a sudden the projects weren't getting built. And where we might have had, you know, two, maybe three subcontractors bidding each trade on this job. This one we had five or six. And they were throwing, well, this is what we can do for you. You know, they saw it, it was a big project, so they saw themselves being busy for two or three years and they could keep their manpower, which was important to them. But things changed. So I don't ever get caught up, you know, on that side with the cycles. Now, my private equity side, my guardian fund is entirely different. I'm buying an asset class that I think is enduring. I mean, we're buying high credit tenants, names everybody knows 7E11, CVS, O'Reilly Auto, Auto Zone, Starbucks, Sherwood and Williams, Tractor Supply. You know, those guys are going to be around. We've we've done our homework there also. But I'm buying it now because, you know, I don't want to hold, I want to hold it for three to five years, because I see us being at a point in the cycle where interest rates are elevated. And I think they're coming down. I think everybody feels that they're coming. We don't know how fast, but I think they're coming down over the next year, year and a half. And we'll see some cap rate compression. And, you know, in addition to being able to offer people a five to six and a half percent coupon, which is nice, solid, you know, you don't have to worry about it because they're triple net tenants or double net. We think there's a pretty good upside. But that's a project that I'm specifically looking at the cycle. I'm very attuned to what's going on, which is the exact opposite, I mean, of what we do on the family office side. But for a new investor, you need to decide what that is. What are you looking to accomplish? You know, are you going to let your project grow, refinance it, take money out, and build more? Or are you looking to buy something at a good price and maybe sell it for more and trade into something bigger? I've, you know, going through the ranks from our apartment building at Arbor up to an office building island in San Antonio now, I've done that. I mean, that's it's it you really need to pick your lane, and that's how you can guide what your decisions are going to be.

SPEAKER_00 22:05

Very true. There's so many things to say. I I first off, I I love how a lot of people have, if you have investments, you got to think of your, like you said, your strategy. I love it that you have an exit plan because you want to know like you need three to five years or whatever amount of years to have an exit plan to improve or whatever your your agenda or your goal is gonna be. And that's gonna pick your brain because I always talk about people keep on talking to me about Tony, is the interest rate ever going to be like the times of COVID? And I said, in our lifetime, never. I said that was that was just a fluke that happened. Like that that right there. I wanted to ask you when that happened, what was your mind thinking? Like, okay, basically, I tell people the world was shut down completely. Factories, people weren't even driving, everything was shut down. What would what was your mindset with real estate when it came to that part where it was just uncertainty?

SPEAKER_02 23:06

Yeah, it's that was, I mean, for everybody that was challenging. There there were so many things that we had to deal with. Every municipality had their own rules as to what you could and couldn't do. I mean, I had to write a letter for my employees to carry around because as is in the apartment world, we were essential. So, but they had to carry in Dallas, they had to carry a letter around to show the police officer that yes, they could go to work.

unknown 23:34

I mean.

SPEAKER_02 23:34

I mean, it got that crazy with things, and we really didn't know what was going to happen. You know, the first thing that we realized was that our tenants were going to have a problem. Some of them, not all of them. A lot of people were working, but you know, we're we're home to white-collar workers, we're home to blue-collar workers, we're home to everybody. And a lot of people ended up struggling. So we went to, we went to our tenants. Anytime somebody was late, the first thing we said was, hey, are you okay? Do you have a problem? If you got a problem, come talk to us. If you need to pay us a couple, you know, a couple of installments, you know, we can we can be flexible with you because we know that you're you know, you're suffering as well. And let's figure out, I want to keep you in the building. I don't want to kick you out of your home. Let's let's figure out how to work this out. And we did with a a large number of people.

SPEAKER_03 24:33

It's just the right thing to do.

SPEAKER_02 24:39

What I didn't expect and suddenly came to pass was that at least in Texas and Arizona, everybody's paying their rent. I mean, some of them had to, you know, manage it a little bit, but they were they were by and large paying the rent and they weren't leaving. You know, it suddenly went from, oh my God, are you know, we're gonna lose 30% of our tenants, to this is crazy. And that was, you know, the 21-22 cycle just went nuts. But you know, we had to develop all kinds of new procedures, how we would show an apartment, you know, to maintain social distancing, to try to keep our team safe, you know, unlock the door, let them walk in. You stand in the doorway, let them talk to you from inside. You know, open the windows in the units you're showing so people can feel comfortable, you know, putting putting all the sterilizer in the offices, where you know all of the nine yards that we all went through and would just as soon forget now, we had to deal with as a management. But, you know, we have a great team, and we really do. And they were troopers and they got through it, and you know, we we took care of them and our

Cycles, Leverage, And Cash Flow Reality

SPEAKER_02 26:03

tenants, and I feel pretty good about having been able to do that during what was, you know, obviously a very difficult time for everybody.

SPEAKER_00 26:13

I love that, Mike, what you said too, because you understand you understood the tenants' positions and especially in that time period, because I know it's the uncertainty of is is the tenants gonna pay rent. But at least they could come to you and they can be like, hey, this is what this is, they can talk to you one-on-one, because I view like communication as key, especially in something like that. That tenant's never gonna want to leave there because they know the fact that if if there's a hardship, they can come to you and talk to you about the about the situation. Because you never want to you never want to let one good tenant or any good tenants leave.

SPEAKER_03 26:52

Sure. No, absolutely.

SPEAKER_02 26:54

Now you know, I I had a different sort of situation with my medical office building. You know, a lot of the doctors and dentists and others were were impacted. And, you know, there we had to have some more difficult conversations. You know, still alone as difficult in the sense of financially for me as a building owner, but you know, I respected what was going on in their businesses, and I said, look, let's just talk about this. I'm not kicking you out of the building because you can't pay rent. Let's figure out how we're gonna, you know, I gotta keep the lights on and the water running for you. You know, you need to run your business, but everything is cut back. Let's figure out what we can do here to make things work. And and, you know, a lot of them, thankfully, knock out of the wood, were able to were able to pay their rent and still see their patients and run their businesses. Others had a little more problem, and we just worked out payment schedules and you know what they could do under the circumstances. And, you know, everybody had to figure out how to manage it. It it you know, every business suffered this. It wasn't just real estate. I mean, everybody suffered, and you just have to figure out how to work through it. And, you know, from doing that, I had some very enduring tenants who, you know, now won't leave the building because they knew and Mike looked after us.

SPEAKER_00 28:24

Yes. Yes, exactly, right there. That's it, right there. That's that's the part that I really love. Is the it's especially in this time period where there's so much uncertainty. But Mike, I already know, I can already feel by your vibes and your energy, you're a good person, especially probably what you did right there, because that was an unprecedented time right there, right there for everyone. Uh the whole world. The whole world.

SPEAKER_02 28:48

Well, with without a doubt. I mean, you know, but you know, here's the here's the thing. And you know, you mentioned something earlier, and it did trigger a thought in my mind. And I always real estate will always come with uncertainty. And if you're going to get into real estate, you need to understand that going in, that not all times are wine and roses. There's there's times that you are wondering whether how you're going to make the mortgage payment, depending on what you're doing. But if you're committed, you know, if you do your research and you're committed to what you want to do, you often have to jump before you're ready to jump. Because I always tell people, I said, you know, if you're early, it's the old adage, if you're early, you're on time. If you're on time, you're late. And getting into real estate, if you wait for the perfect moments, they're gone. You're never going to find it. You sort of have to do your research, do your due diligence, and jump maybe a little before you're ready to jump. But that's when the dollar, that's when the best dollars are made in real estate. When you turn out to be right and your conviction was correct that, yeah, I think this market's going to go in this direction. I want to be in it. I'm going to get in now, even though it might not look rosy.

SPEAKER_00 30:19

Yeah, and that's I was talking to you before we started. Like in that part right there, that's that mindset right there. Like jump before you're supposed to. Because if you jump when you're when you want to, you just got sometimes just dive right in.

SPEAKER_02 30:35

Yeah. And you know what? Look, if if that scares you, maybe you need to buy treasury bonds and just put your money away and and be comfortable. Because, you know, there's areas of real estate that are more rocky than others. I mean, the single tenant stuff that I'm doing with my private fund, that's not really those tenants are going to be around, they pay their rent, they rarely ever leave. You're going to get a coupon. It's pretty safe. And there's a lot of things you can do. And that's for some people, that's great. I mean, there's a lot of people who are older who have, you know, sold the they they built the they built up their little real estate empire, and they're getting older, they don't want to manage it anymore, and they just say, hey, you know what? I'm going to buy something that's mailbox money. My kids getting taken over when I'm done. They don't have to worry about it. And that's great. And, you know, you can make a decent amount of money there too. I think we can. I mean, I'm obviously trying to raise $100 million for that very concept. But, you know, there's other areas that are a lot more risky. I mean, I bought my office building when it was 26% occupied. And that was right before the great financial crisis. I bought it in 2006. Wow. Yep. I got, and actually, I'm in the middle of selling it right now. I it's finally time to move on. And I want to put more money into the single tenant stuff because I think the timing right now is really good. But, you know, I bought it at 26%. I got it all the way up to about 34, 35% when that hit and had to survive that. But I knew, you know, there was a, again, it was a location. It was a beautiful location in San Antonio. I knew they were developing the freeway, and ours was going to be the first exit off the 281-410 connector for any of your Texas folk. I knew the mall across the street was getting renovated and was going to be a brand new mall. And I just said, this is the place to be. I'll tough this out for a while and tough it out was I mean at 34%, we were scratching, but I was making the mortgage payments. And you know, I remember during that whole thing, my lender calling me and saying, Well, Mike, uh, you know, technically you're in default because you're not 80% occupied. This was a couple years after I bought it, and I said, Yeah. Uh he said, Well, what are you gonna do? I said, Well, are you getting a mortgage payment every month? He goes, Yeah. I said, You worried about getting it? He said, No. I said, then what are we talking about? Exactly. He said, Yeah, he goes, you know what, we got bigger problems than than guys paying their paying their loan that are a little behind schedule on leasing it up. I said, Yeah, let's let's let's talk at renewal.

SPEAKER_01 33:38

Right, exactly.

COVID Operations And Tenant Trust

SPEAKER_01 33:39

Right. That's a great way. If you if it's getting paid, why are we talking? Yeah, and and they've been my lender for on that building for 20 years. Oh, that's beautiful. That's great. Yeah, that's a great story right there.

SPEAKER_02 33:50

Yeah.

SPEAKER_00 33:52

Wow. Uh so for someone hearing about the garden adversary for the first time, what exactly would they expect for from that right there?

SPEAKER_02 34:04

Sure. We're we I I launched this. I wanted to start my own private equity group and private real estate, you know, equity real estate related stuff. I think ultimately there may be there will be a possibility for me to merge the multifamily portfolio into another fund. But I wanted to start developing my reputation and doing that. So we launched this installed on buying these single tenant at least retail properties with high credit tenants. I wanted to do something that was going to be as safe as it can be in the real estate market, where I knew I could produce a coupon for my investors every paid every quarter. And I thought we could have a pretty good entry point. I actually wanted to start this two years ago, three years ago. But the Federal Reserve had other ideas and started raising interest rates, and I just said, no, I can't do this. If I do this, I'm gonna be upside down in a heartbeat, and that's gonna be the end of that concept. So we launched it. We we bought our first three properties. Now we're out raising money. You know, we're looking to buy, as I said, all those credit tenants all across the Sun Belt, the southwest, southeast, up through the central Midwest and mountain regions, pretty much staying out of the West Coast and Northeast. I like growing demographic markets. You know, we picked all the tenants have now two things in common. They had one thing in common for sure, beyond being credit tenants, is that they were all relatively Amazon resistant businesses. I didn't want to fight the 800-pound gorilla in the room. And, you know, they all ended up turning out to be COVID-proof businesses as well. They all were open, survived, did their thing, you know, were providing necessary services and goods to the communities. And we looked at it as being, you know, a nice coupon for people to collect with a pretty good upside and with the one big, beautiful bill, some pretty darn good tax advantages, you know, while the while the fund's operating. So we, you know, we're we're looking to raise the money. We feel that we can buy 70 to 80 stores across the country. And once we do that, we're a target for some of the bigger players. You know, I know Blue All has a bad name right now in the private credit world, but they also do what we're doing. You know, agree Realty and some of the others are doing what we do, but they can't buy single stores like we can. You know, I have a team that goes out and that's what they do. They look for stores to buy. The bigger firms need to write three and four hundred million dollar checks, not three million dollar checks. So once we're bigger, we feel that we're a pretty good takeout target for them. That's that's a whole different strategy, but you know, I've been following this market for 10 years. The gentleman that runs Guardian Advisory, which is my brokerage, it's our basically our acquisition department, he's been doing this for 20 plus years and knows the market very, very well. And we just think that the timing is absolutely right at this moment for this kind of a this kind of an asset class. And if the worst thing that happens is the investors get a nice five to six and a half percent coupon that looks pretty much tax-free, that's not so bad either.

SPEAKER_00 37:33

You're right. I was just gonna write this down. The two things that is vital, especially when it comes to real estate, is location and taxes. Because the next question I was gonna ask you was uh what's gonna be a tax question. How do tax advantages like depreciation enhance the overall return profile for investors?

SPEAKER_02 37:55

You know, we we don't blend it in because I don't want I I always thought that was a confusing way to look at it because no two investors are in the exact same position. Some people need passive losses, some people don't, some people can use them, some people can't. I was on a call the other day with a guy that or in a meeting that he said, hey, it was with one of the big investment banks, he said, Hey, do you have anything that has passive income? Because I have all kinds of passive losses, and I now need some income to offset that. And that was the first time I'd ever heard that. And I said, Well, okay. But, you know, in essence, what happens is we we do a cost segregation study on the asset, so we separate all the component parts, we're able to take a lot of bonus depreciation right up front. And what I tell people last year, 24 was the first year that we opened, and a $250,000 investor that year would have gotten a K1 with a $140,000 tax loss based on the bonus depreciation at the time. And that was only 60% bonus depreciation. I expect that number to be far larger

Net Lease Strategy With Credit Tenants

SPEAKER_02 39:09

now. What that ends up doing is during the life of the fund, the cash flow, if you just take the depreciation from our fund and apply it to the income from our fund, it looks like those are essentially tax-free returns. So that five to six percent looks more like a seven and a half to nine percent return when you factor in the taxes. Everybody needs to understand this, and I am not a tax advisor, and I am not giving tax advice, but when you sell, there is recapture, and you do get it back, and you need to, you know, you need to deal with at that point. But the recapture rate is generally lower than what the income tax rate would have been. So you get a little bit of benefit along the way. But you know, for a lot of people, it just helps. And and for people that have a lot of passive income and need that, you know, I'm in that situation, I can use that depreciation right away. You know, yeah, I'll pay tax on the on the dividends or coupons later on, but I'd rather save taxes today than wait for tomorrow to save them. Time value of money is always works.

SPEAKER_00 40:26

That's true. Very true. So looking back into your career with what advice would you give somebody who wanted to build like a large-scale investment platform like yours, what what would what advice would you give them? Because you I mean, you started you've started a great endeavor right here.

SPEAKER_02 40:45

Yeah, I you know what, you you really have to take one step at a time. And uh you you you can't rush experience. And you know, it's one thing to be investing your own money. And if you lose it, you feel really bad, but nobody's calling you on the phone saying, What did you do? You lose somebody else's money, that's a different story. So you gotta build up your experience, you know. It and growth doesn't come fast in the beginning. It takes time. You have to you gotta dive in. I mean, that's the first thing you need to do. And once you dive in, you know, it takes a little time to let cycles run and let an asset appreciate to where you can sell it and buy something bigger or refinance it and buy something else and and grow. But once you do that, you know, every step of the way, it moves a little more quickly because you've built up size. You know, you're if you're compounding your returns, if you're reinvesting the money that you're making rather than spending it on you know fancy cars and you know vacations and other things, you know, you can do that too. But if you put money back in the business, eventually you have a much bigger pot. And and that starts growing exponentially. And that's really, you know, somebody asked me once, how'd you get from 2,500 to 14,000? One step at a time. And and I never looked at it while I was doing it as oh my god, I need to get here. And I I saw something on on a podcast once that the guy was adamant, I agree with him. Never set targets for yourself. He goes, Because when you set targets, they're they become limiting, or you get attached to the target and think you need to get there to, you know, it's almost like when a stock goes down and you feel like you got to get back to where it was to get your money out. Well, no, you might want to just sell that stock. The same thing holds true in real estate. Look at what's going on, use your judgment, and sell it when it's appropriate to sell it or refinance it when it's appropriate to refinance it. Just because I set a target doesn't mean that that's the number I'm gonna hit. And as we went from you know 2,500 units to 14,000, I never really felt like, oh wow, this is a bigger deal, and now I need to be more careful. I was always careful of what

Depreciation Benefits And Scaling Advice

SPEAKER_02 43:28

I did. The only difference now is that there's an extra zero attached to the numbers that I'm playing with in investing rather than you know, where I might have been 10 or 15 or 20 years ago. You know, getting into the private equity world, that was a learning experience for me. I mean, I have a lot of real estate skills, but I've never been out raising money. I've never had to. It's always been family money. And that I've had to learn a whole different skill set. Look, I'm sitting on your podcast, you know, talking, talking to you because this is you know, stuff you need to get out there and be more visible, and you can't hide in your office and and just look at numbers. But you know, I love doing it. I love I love meeting guys like you and and talking and hopefully conveying some knowledge to you know the people that are younger than I am.

SPEAKER_00 44:22

Great. I love it, Mike. I I even wrote some stuff down. Information, knowledge is key to me. Wherever I the knowledge that comes to me, I love giving it to other people because that's the only way people are gonna grow. And especially when you said can't rush experience, from you so especially from that, you went from 2,500 doors to 14,000 doors. You was never worried about the money, you never restricted yourself. I need to be at a plateau. Because when you I say people, when you do that, you're kind of restricting yourself because right, you hit that plateau. What's next? Yeah, but exactly. So I just love everything that you said in this podcast. Your experiences speak, I mean, abundantly about everything, especially with it's the little gems with real estate. It's very time consuming. If you want to be in real estate, you need to study as much as you can. Get get a get a mentor. Hang around like minded people who deal with real estate. You can't hang with somebody that doesn't deal with real estate because they're not in the same channel you are. So it's good to hang around like minded people, do research, study. I mean, there's there's a lot that you said that is uh definitely it it accepts. Expands the mind even further.

SPEAKER_02 45:37

Well, good. I hope I hope I was able to help some people out there who are looking to get into the real estate world.

SPEAKER_00 45:42

And what's what's the best way for people to get in contact with you?

SPEAKER_02 45:47

The our website is guardian at least.com. Feel free to go that direction. Or I'm happy to happy to have people email me. I answer all my emails personally. And that's Mike at guardian-advisory.com.

SPEAKER_00 46:02

Okay. I'll definitely put that in the show notes for every for everyone to if they want to get a hold of you. Very vital podcast for people out there who want to get into real estate investing. Mike is just a gym information. I really enjoyed this podcast with you, Mike. And any last words?

SPEAKER_02 46:22

Not a one. Tony, it was great. It was great talking with you.

SPEAKER_00 46:25

Okay, yes. I'm glad we got together. We connected on this one right here. I've learned a lot. So everybody out there, thank you for joining the Professors Real Estate Investing podcast, listening in and to watching. Thank you very much.

SPEAKER_03 46:36

And y'all have a blessed day.

How To Reach Mike And Closing

SPEAKER_03 46:44

Now my mouse doesn't want to work.

SPEAKER_01 46:48

Hey, that's not things. At least it waited until we were done. Exactly, right? At least it waited until we're done. Hold on. There he goes. I I can cut all of it. It's all fine.