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Show Summary
In this episode of the Real Estate Pros podcast, host Erika speaks with Mike Hills, a managing broker at Atlas Real Estate, about his journey in real estate, current market opportunities, and the importance of educating residents on homeownership. Mike shares insights on finding financially distressed properties, understanding risk in investments, and lessons learned from past failures. He also discusses the Uplift program, which aims to help residents transition from renting to owning homes, fostering a cycle of financial independence.
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Investor Fuel Show Transcript:
Mike Hills (00:00)
you know, we all go to our high school counselors and your high school counselor says, do what you love.And forgive me for this, but I like to drink and gamble. ⁓ when I was a younger man before I was married, I had a business partner. He and I owned two liquor stores in the Denver metro area, and we’re building a casino in Blackhawk.
long story short, the casino project cost me both the liquor stores and my best friend. And one piece of advice I would give to anybody listening, when you go talk to somebody and you’re going to invest your money either with them or alongside them or they’re going to sell you something, ask them when they have failed. And I don’t just mean, you know, where something hasn’t gone right. I mean,
utter abject failure and that’s what the casino project was and I essentially had to restart my life at that point.
Erika (02:20)
Hey everyone, welcome to the Real Estate Pros podcast. I’m your host, Erika. Today, I’m excited to be chatting with Mike Hills. He’s been making serious moves as an investor and as a managing broker for Atlas Real Estate. Mike, it’s awesome to have you here.Mike Hills (02:38)
Erika, thank you for having me. I appreciate you having me on today.Erika (02:42)
Yeah, this is gonna be great. So Mike, first off, let’s dive in for our listeners who may not be familiar with your world. Can you tell us more? How did you get in the real estate? What was that journey like?Mike Hills (02:57)
Well, so a little bit, a little backup. So at Atlas, we manage right at 5,700 rental units. So I am our managing broker in nine states. So operational in what we call the rodeo region.Of those 5,700 units, we own just under 2,000 of them in a joint venture with a hedge fund out of San Francisco. And then personally, I own 50 some rental units in three states in Colorado, primarily Arizona, secondarily, and then I still have one property in Northern California where I grew up. So been doing this a long time. The way frankly, I got into it was I can get more detailed if you want, but I thought, Hey, the word landlord’s been around for a thousand years because he who owned the land.
is the Lord. So I just figured I would buy real estate and I’ve been doing it for 20 some years and you know right now it’s not very easy because the world is hard but owning real estate I believe is the way to wealth.
Erika (03:53)
Yeah, yeah, absolutely. ⁓ When you were starting off, Mike, what would you say was instrumental for your growth in the real estate world?Mike Hills (04:03)
So my best friend growing up, I grew up in Sacramento across the street, his dad, Bob, and I’ve told this story many times, was a landlord. And I would say he was an intentional landlord, but he was what I would refer to in today’s world almost as an accidental landlord. And when I say that, what happened is somebody would pass away and he and his siblings would inherit the house, so he would buy those people out and over time, acquired six, eight, nine rental units, something to that effect. And again, I was in my mid-teens, so I was paying attention, but not really.paying attention. By the time I was in college, Bob sold off all those properties. He self-managed, which is a headache and the world’s made it even harder to self-manage. But what he did is he sold these properties off and when it was all said and done, he had purchased his own land, general contract, or GC’d his own house, built it the way he wanted it. And when it was all said and done, had, I don’t know, half a million, million dollars in cash in the bank, owned his land, owned his house outright. And I looked at that and said, man, if he did that,
Kind of unintentionally if I start when I’m young
I bet I can really build something fun.
So I graduated from college June 9th, 2001, bought my first house, closed on it September 1st, 2001. So less than 90 days after, and we can get into the lending, but for those of you that are old like me, my first house I bought with what’s called a stated income loan, which just simply means you state how much money you make and they give you a loan, which is ridiculous and that’s actually what led to the GFC or one of the factors that led to the GFC, the great financial crisis in 2008. Thankfully for me,
I put all my stuff on 30 year fixed rate notes because I didn’t know any better So I actually became a house hacker before Millennials made up the term house hacking I moved into my house to my buddies moving in with me my family was like cool. Good job son American dream bought your first house Well, I only lived there for like a little less than two years bought another place moved in turned the first one into a rental and they’re like dude What are you doing? I was like, I’m gonna buy rental properties ⁓ and it’s funny because fast forward
That was roughly 2003, 2004, something like that. Fast forward by the early teens, 2012, 2013, 2014, my family had given me trouble because I was a landlord. They all started buying real estate that I helped them buy because they realized like, wow, there is something to this thing. So that’s my origin story, if you will, Erika.
Erika (07:13)
I love it. then to fast forward more into today, Mike, with the markets that you’re in, can you tell us more about them and what kind of opportunities you’re seeing there that investors should be aware of?Mike Hills (07:27)
Sure, so as a personally, I think I said I own in California, Arizona and California ⁓ as an investment company and a property manager we buy in buy and manage in ⁓ Colorado both sides of Kansas City, so Kansas, Missouri ⁓ Arizona Nevada, so Las Vegas Salt Lake City, Utah and Boise, Idaho were operational but haven’t purchased anything in Atlanta, Georgia in three cities in Texas So we are and then we’re licensed in other states were licensed, North Carolina floor⁓ coming soon as Indiana and Ohio haven’t opened those markets yet. So we’re doing this actively all across the place where we are finding opportunities really hard to buy and make the numbers work. rates are hard, etc, etc. And if you know what I’m talking about, cap rates, it’s just that’s the metric by which investors buy real estate for your listeners. Cap rates are really hard. Interest rates are high. Expenses, taxes and insurance, everything is up. So it’s really, really hard to make numbers pencil. In other words, find deals that work. What we are actively buying
And I’m actually in the process with our company of raising a fund. It’s Atlas Real Estate’s first funds We’re calling it fund one and what this is this is an open fund to our to accredited investors But to generally our clients family and friends and what we’re finding where we’re finding success is in what’s called Financially distressed real estate when you say distressed real estate most investors know that that is something that is distressed meaning in their minds It is beat up it needs money put into it in order to fix it up and flip it or fix it up and rent it and
hold it and then sell it for some future cost. For profit, which is exactly what it is. What we’re buying is financially distressed real estate. So really new products, stuff that’s built in 2022, 2023, or even newer. We’re working on a deal right now that’s been out of the ground, completely done construction, literally for less than 12 months. But what happened is if you think back any builder in today’s world, they’ve likely, if they live in a major metro area, and this particular project that I’m talking about was built
in ⁓ Weeridge, which is just a suburb of Denver. And what this is, this guy’s been working on this for four or five or six years. Why? Because that’s how long it takes to acquire land, get through entitlements, get through the permitting process, build and then take it to market. Well, five years ago, the interest rate environment was really good. Today, really not so good. And we all know how hard the world is. So this guy is upside down or over his skis. His project cost all in is a little over $12 million. We’re under contract to buy it for
million dollars. So that means this guy’s gonna he’s upside down three million bucks. Why is he willing to do that? Because it satisfies his PG or personal guarantee.
And what happens is these local and regional builders they’re just upside down because they cannot sell their products because the world is hard. So they need somebody to come in and he’s not happy about it but he’s gonna be able to at least walk away and not risk the rest of his financial life. The lender is gonna be happy about it and we’re gonna be happy about it because we’re buying it at what’s
to is 25 % below replacement cost. Meaning that we get to buy it for cheaper than it would cost to build. So we’ll sit on it, we’ll rent it, and at some future point we’ll turn around and sell it. And because they’re individually platted units, we have what’s known as exit optionality on the back end. We could sell it to a fund, we could sell it to an aggregator, or we could sell it to the retail American homebuyer. So that’s what we’re doing and hopefully Erika that answers your question. That’s where we’re seeing real opportunities.
opportunity.
Erika (11:33)
Yeah, when it comes to finding those financially distressed properties, are you using tools or system or are you leveraging your network? How are you finding them?Mike Hills (11:45)
It’s great question. So a little bit of everything. So we have a team and a staff that actually is actively selling property management services. So we leverage that. We leverage brokers, both on the retail side and the commercial side. We leverage our owners that hear about deals. I mean, we’ve been doing this now a long time. So, you know, at in the regions that we’re in, people generally know our name. And if they don’t, they know projects that we’ve done before. So it’s just, it’s a lot of word of mouth, but we have a ground game around these⁓ that is it’s hit or miss so we underwrite a lot of deals and then there’s deals that were like nope nope nope or we like to be what we refer to as a quick no but a long yes if that makes sense
Erika (12:29)
Yeah, yeah, absolutely playing the long game there. there, you know, when you’re looking at these deals, what would you say are some of the, you know, the non-negotiable red flags that make you say a quick no?Mike Hills (12:44)
Math. So in the end, I think I’m a really cool guy. In the end, I’m just a big math dork. And this is all math. speaking to cap rates, we’re going in on this one project at a 6.2 cap.which is unheard of. cannot find that right now. So it’s all the math. is what’s the deal look like? What are the projected rents? What’s the debt picture look like? What’s the purchase price? And then all that we can fill in all the details after that. But those are some of the non-negotiables. It is all about purchase price. ⁓
availability, time, and then how it’s built. So, you when you’re buying brand new product, having some sort of warranty is really, really important because you don’t want to assume the risk of the builder warranty on their specialty states like Colorado.
It’s very unfavorable to the builder. So those are some of the non-negotiables and it’s just patience. I don’t like to work with jerks either. I like to work with nice people that I can, know, if we’re willing, if I’m willing to go have a beer with you and vice versa, I want to work with you. If I’m not, because I can’t stand you, then I don’t want work with you. How’s that?
Erika (13:49)
Yep, totally makes sense there, Mike. Now, when we were chatting earlier, you were talking about risk there and how important that is to you when it comes to making a decision that, you know, taking on the right amount of risk. For you, how do you, you know, analyze that in a deal?Mike Hills (14:11)
Okay, so this is a hard one. So risk is one of those…Risk is different. So how about this? Now I’m married and I have 4 kids and I actually have something to lose. So I don’t want to risk my portfolio for a hasty, a quick or a bad decision. When I bought my first house when I was 22 and I literally had a negative net worth. Why? Because I had student loans from the college I went to. I went to the University of Denver so go Pios. You know, it’s one of those things that at that point, I didn’t have anything to lose. So who cares about risk? Today, very very different.
So one of the things when we’re actively looking at these deals, first question for us is do we have a personal guarantee or not? Personal guarantee meaning that if the deal goes sideways, are we risking our personal assets or is this a non-recourse loan? Non-recourse, when meaning the bank, if it goes sideways, simply takes back over the asset, not comes after us personally. So it is about risk and then you get in again to the deal specifics. Where’s the deal? What is the deal? Who’s buying it?
⁓
Who’s underwritten it? What are the rents? How much do we know about the area? Etc, etc. But on the high level, it’s what is the risk and what does it very, very real look like? If one of you approached me and said, hey Mike, I want to put X amount of dollars into this deal or any deal. First question I would say is, or first thing I would say is, hey, understand that you may lose everything. How does that make you feel? And then we have a very real conversation about risk and consequences. Because what happens is when you’re young,
you think everything’s gonna be gold and everything’s gonna work. And then as you get a little older and you learn you’re like, ooh, that was a real risk that I didn’t see coming. So I gotta be ready for that. So that’s how it changes.
Erika (16:42)
Absolutely. There’s a lot you have to think about when you decide to take on a risk there. this kind of transitions great into my next question, Mike, because between being an investor, ⁓ managing the real estate, having property management, I’m sure things have gone sideways at one point. Maybe you completely had the pivot on a deal. Maybe.You know, I had to do a situation with a tenant. Can you share one of those challenging moments on your journey and what you learned from it?
Mike Hills (17:17)
challenging moments. ⁓ There’s been a lot. How about this? I got a good one. This is a big one. So, ⁓you know, we all go to our high school counselors and your high school counselor says, do what you love.
And forgive me for this, but I like to drink and gamble. ⁓ when I was a younger man before I was married, I had a business partner. He and I owned two liquor stores in the Denver metro area, and we’re building a casino in Blackhawk. If you know Colorado, if you know Denver, it’s just a suburb 40 minutes away from the city, and it’s where gaming was ⁓ allowed. Think Indian casino, but not really an Indian casino. That’s just not the way it works in Colorado. But for those listening, that’s kind of what it looks like.
Well, we did this before the GFC, before the Great Financial Crisis in 2008.
And long story short, the casino project cost me both the liquor stores and my best friend. And it sucks because I was the best man in his wedding. We could be in the same room today. We talk occasionally every now and then, but we’re no longer best friends. And one piece of advice I would give to anybody listening, when you go talk to somebody and you’re going to invest your money either with them or alongside them or they’re going to sell you something, ask them when they have failed. And I don’t just mean, you know, where something hasn’t gone right. I mean,
utter abject failure and that’s what the casino project was and I essentially had to restart my life at that point.
What was interesting, I joined Atlas after coming out of that giant mess. I’ve been in Atlas just under 13 years now because I also had rental properties. I had the house my wife and I lived in. I had four rental properties. I was able to protect that from the casino and the liquor store fiasco but I failed and I was looking for
something to do and this is roughly 2012, 2011, 2012 and I was like oh my gosh I hung on too long that was the thing with with that project I should have walked away sooner and I didn’t because I thought it was gonna work it didn’t work and it was really really painful and then then post-mortem going back and looking in the eye and be like who did what?
What did I do wrong? How can I grow from this and do something better in the future? And sometimes you just get pinched by the economy. Like we thought it was going great. And then when the world collapsed in 2008, man, if the world hadn’t collapsed, maybe I’d be still in the liquor store business and own casinos. I don’t know. But I’m a happier guy now. But man, it was painful for a couple years. So I think that answers your question, Erika. But it was a…
That’s not something that we shared in our prep for this call, but man, that was a very, very real painful time for a couple years.
Erika (19:58)
Yeah. Yeah. Well, you know, you’re, on the other side of that. Now you have a lot of exciting things going on. Can you, can you share, know, what’s on the horizon for you and what you’re excited about, Mike?Mike Hills (20:12)
Yeah, so there’s three things that I love to do. First and foremost, I would say, I’m going to brag about our company a little bit. We built a program called the Uplift program. And what this is, we have a team that teaches our residents to buy real estate. So we call this the virtual cycle. So it’s team uplift, but it’s the virtuous cycle. And if you’re listening and you own real estate today, you fit somewhere in here. And if you’re renting, you also fit somewhere in here. And notice the language that I use. don’t say we are tenants. I say ourresidents. Because we take our residents and we teach them how to be homeowners. So, when they move, hopefully what they rent from us is the last place they ever rent. They move, they buy their own house. When they live in their own house, hopefully someday they learn how to be investors. And then they move to be investors and it starts that virtuous cycle over. From resident to owner, from owner to investor and then their investment starts the virtuous cycle over. Now, we’ve had owners come to us and say, I don’t want you teaching my
my residence how to buy real estate. Guess what? I don’t think I want you as a client then. Because if you look at the stats, home ownership is the baseline for marriages staying together. Financial independence, college, all of these things in our society. And if we can teach our people, and I don’t say our people, ⁓ just our employees or just our residents. If we can teach humans how to own real estate, it raises the tide everywhere.
The tide raises all ships. And I love that we’re doing this. And it’s so much fun to talk to the humans that rent our properties and they think,
They say these things, I’ve never thought I could own a house and we can teach them how to buy real estate. Just makes it awesome. And it’s such a fun thing and I love that we do that. So I would say that’s what excites me, number one. Number two, on the ownership side, I love the fact that we’re doing our first fund, that we’re buying these financially distressed deals. have this deal that we just won on our contract on. This closes in, I don’t know, maybe six weeks. Love that we’re doing this because it’s fun again. There’s actually deals out there to do. You know, we’ve been on the sidelines for a couple years now.
because the world’s just been really hard. So I think that’s really fun. And then I just like teaching and talking not just to our agents. We have roughly 60, 65, 1099 real estate agents who work for us, but also our employees and our property managers. And I tell them every time I get a chance to talk to them as a company, if you are…
If you work at Atlas, whether you’re 1099 or you’re an employee and you are not trying or learning how to buy real estate, you’re letting the best this company has go by you. If you just work at it as a job, it’s fine, have a job. But if you let us teach you and come alongside you and show you how to buy and own real estate, man, that’s the best that we can offer and I’m really excited about that. So those are the three things.
Erika (23:09)
Yeah, wow, you have a lot going on there. I have to go back asking about how you educate your tenants. I’m just curious, is that a part kind of the screening process that you’re looking for people who eventually want to become homeowners or is that more of whoever, you know, ends up coming through the door, so to speak, that you’re offering that education to them?Mike Hills (23:33)
So the truth is that as landlords, we can’t say no, depends on which state you manage in. But if people can qualify, they have the right to rent the house. So no, on the front side, on the application side, no, that’s not something that we even talk about. Once they become residents, yeah, we’re absolutely trying to educate them. And if you think about it, if somebody’s paying rent and they’re renting a single family home, and it depends on the market, obviously this is market specific rent in Denver’s higher than Phoenix’s, lower than Utah.You know, etc, etc, but if somebody’s paying anywhere from 2600 to 3600 or 3800 or $4400 a month in rent, man, they can probably afford to buy a house. So what we do is we come alongside these people and just say, hey, it’s open invite, it’s free, cost zero dollars. And if they want to come alongside us and have us work with them, it just makes sense. And what we’ve learned on the property management side, when our residents, when they join this uplift program, what actually happens is they’re better residents.
They pay their rent on time better and faster and more consistently. They take care of the house better They communicate with our property management team just a little bit better because it’s more we see them more than just a paycheck we see them as the human that they are and We know that if they do this, it’s good for you good for me good for everything and it’s one of the core values of inner company
Erika (24:59)
is is really cool. I love how you’re you’re helping people while scaling your company at the same time. Mike, if someone reaching out today wants to connect.best way for them to reach you.
Mike Hills (25:15)
They email me. ⁓ mean, I don’t know if I want to give my cell phone. So I won’t start with my cell phone because you know that…I just don’t want to, but my email address is michael at realatlas.com. The company is Atlas Real Estate. Our website is realatlas.com. It’s M-I-C-H-A-E-L at R-E-A-L-A-T-L-A-S dot com. Just like it sounds. Michael at realatlas.com. I check my email frequently. But yeah, anytime anybody wants to talk, can. Heck, if you want to join our team, depends on the market. If you’re in Bangor, Maine, we’re not going to Maine anytime soon, so don’t call me. ⁓
But ⁓ if you want to join, great. And if you want to learn more, whether it’s about the deals that we’re doing or how we invest, please, anytime. I love teaching and I love humans.
Erika (26:09)
Again, Mike, thanks for coming on the show. I appreciate your time, story, perspective. What you’re doing in this space is really inspirational.Mike Hills (26:17)
Awesome. Thank you, Erika. I appreciate you. Thanks for having me on.Erika (26:21)
And for our listeners today, if you got value from this episode, make sure that you’re subscribed to the Real Estate Pros podcast. We’ve got more conversations lined up with experts like Mike, who are out there building fantastic real estate businesses. We’ll see you on the next episode.Mike Hills (26:38)
Thanks everyone.
