How Mike Morawski Lost a $100 Million Real Estate Empire, Went to Prison, and Rebuilt in Multifamily

Mike Morawski (00:00)
I always tell people, say, hey, I made five mistakes along the way. I grew way too fast as a company. There’s no need to buy 2,000 units in one year, right? Or more. I was over-leveraged. owned, you know, $60 million of real estate at 85 % loan to value.

Cody Crabb (01:52)
Welcome back to the Real Estate Pros podcast. I’m Cody Crabb with Investor Fuel. Today we’ve got Mike Morawski, a multifamily operator who built a $100 million real estate company, lost everything during the crash, served time, and came out the other side to rebuild and operate thousands of units again. Mike, I am so curious about your story. I cannot wait to get into it. Thank you so much for joining us today.

Mike Morawski (02:16)
Absolutely, thanks for having me, Cody.

Cody Crabb (02:18)
Of course. Well, I mean, let’s get right into it. Tell us about, first of all, kind of maybe a little quick, how did you get into real estate? And then let’s dive into, I mean, first of all, $100 million real estate company. That’s pretty wild by itself. So I’d love to hear the path how you got there.

Mike Morawski (02:35)
Yeah, absolutely. So I’ve been in real estate a little over 30 years, so I didn’t just do that overnight, right? And I feel like I’ve had a couple of careers in real estate, but I got in real estate via the construction business. I had a general contracting business. We were building residential room additions about 25 a year. being an entrepreneur, you do everything. I kind of burned out. Fortunately enough, I sold my company.

Cody Crabb (02:41)
Yeah.

Mike Morawski (03:04)
and went into the real estate business. My first venture in real estate was I bought a couple of two flat buildings in the Chicago market, rehabbed them, met a great real estate agent along the way who was very successful, and wound up following in his footsteps and doing what he did in real estate to create, put a team together that

We sold about 125 houses a year for about 12, 13 years consecutively. In 2005, I saw the market starting to soften and had always wanted to go into the apartment business. And I said, you know, this might be a good time because I think residential is going to have some challenges. So I went out. I bought an apartment building, syndicated my first 11 unit deal.

And over the next 30 months, I bought 4,000 apartments in five US markets and built a property management company managing 7,500 units. We were valued at about $100 million and then 2008 happened.

Cody Crabb (04:11)
The 2008 happened is a very ominous phrase that I hear often on this podcast. So tell us what happened when 2008 happened, what happened?

Mike Morawski (04:17)
Yeah.

Yeah.

Yeah, so we bought a lot of value add properties, which we do today as well. We buy value add, we fix them up, and we create cash flow as a result of them. And we would buy these properties that were 60%, 70 % occupied, go in, turn them around, get them up into the 90 % tile of occupancy and operations. So we would go in and do physical enhancements to them and operational enhancements.

to be able to raise the rents, put a better tenant base in them. And 2008, as people started losing their jobs as a result of the market crash, our occupancies dropped. And because our occupancies dropped, we didn’t have cash flow to pay the bills. And we dropped from mid-90s occupancy across the board to the mid to upper 60 % of occupancy.

just a hard storm to weather. Now we were in several different markets. The worst market we got hit in was the Ohio Valley and some of our Alabama assets at the time. what we tried to do was to keep the whole ship and the whole company afloat. we had 38 different companies at the time. And what we would do is take money that

from companies that were running positively, and we’d move money to companies that were running negatively. Now, Cody, I thought it was a recession, right? I’d been through a few recessions. They last 17 or 18 months. There’s a 10 % or 12 % correction. The markets bounce back. But this thing lasted seven or eight years with a 45 % correction. It was a really hard storm to weather.

So my accountant, my attorney both said, hey, it’s OK to do that. Just leave a paper trail. So we left a paper trail, moved a bunch of money between companies. And the problem was that I didn’t tell my investors. So for non-disclosure, I wound up being charged on wire fraud and mail fraud charges and got sentenced to 10 years in federal prison.

You know, really for some silly mistakes. And

I always tell people, say, hey, I made five mistakes along the way. I grew way too fast as a company. There’s no need to buy 2,000 units in one year, right? Or more. I was over-leveraged. owned, you know, $60 million of real estate at 85 % loan to value.

And in my coaching business today, I teach people that you should not be in real estate

or in a deal unless you’re about 65 % LTV, loan to value. And then I was undercapitalized. So you don’t have 100 people working for me and wondering how I was going to make payroll week to week. And then the fourth mistake I made was that I didn’t pay attention to details. So asset management was not as talked about then as it is today, right?

And I think deals today in today’s market are made and broken at the asset management level. And then the fifth mistake I made was I did not listen to people around me who were smarter than me and said, hey, this isn’t right. I don’t like what I see going on. And I just thought I had everything under control, but I didn’t. So 2013, I wound up going to federal prison on a 10-year prison sentence.

And ⁓ I served about eight years of that time, came home. And most people would think, boy, that would disqualify you from being in the business. But really, Cody, it qualifies me. Because I made these mistakes, and I know what to watch out for in a changing market, right where we’re at right now. And so.

Cody Crabb (09:04)
Hmm.

Mike Morawski (09:05)
You know, while I was gone, I wrote a couple of books. I wrote an ethics course. I taught real estate investing, property management in prison for six years. I went to college. Yeah.

Cody Crabb (09:15)
You know, not to interrupt you, like, there’s

a certain kind of person I feel like that is like, there is no way you were just gonna sit there for like, you know, you seem like the kind of person you’re like, I’m gonna get stuff done, even if I’m in there. Yeah, that’s pretty crazy.

Mike Morawski (09:24)
Yeah.

Yeah.

Well, you know, and it’s funny you say that because, you know, listen, my first six, seven weeks in prison, I hated myself. mean, I went from running marathons to being 35 pounds overweight. I wanted to die. And, you know, I mean, how do you how do you recover from that? And and, know, I had a very smart guy walk up to me one day and said, hey, you know, don’t let these people beat you. All they want to do is take from you everything you’ve ever known.

You’re a smart guy. You can get everything back. Just work on yourself right now. And that’s what I did. I spent the next several years just really working on me. As I said, I wrote a couple books. I taught real estate investing, property management. I went to college. I got a bachelor’s degree in theology. I was on an outreach program. I went into the community and told my story to.

to small business owners and college students, wound up writing a paper that got published in the Business Journal of Ethics that got taught at the collegiate level for a couple of years. And came home, went into coaching and training business, and thought that’s what I was going to do. But I wound up finding through some underwriting processes.

teaching myself again so that I could teach my coaching clients a thorough way of underwriting, I found a deal. And I went to two of my coaching clients at the time and said, think we should do this deal. We did. And along the way, my securities attorney said, hey, think I can get you approved by the SEC to be able to do this legally again.

And she did. She got me an SEC approval to go back and raise capital, be an issuer of securities. And I ⁓ feel like my life’s come full circle, right? And I absolutely love what I do. I have so many people that say, hey, why don’t you do something else? And I go, because I don’t know how to do anything. I mean, what else would I do? This is my life.

Cody Crabb (12:00)
Yeah.

Well, I mean, it

says something that you were stuck for 10 years kind of having to decide what to do, and you still did this. You were like, I’m gonna write, you know what I mean? You were like, I’m gonna teach about it, I’m gonna write about it. It sounds like it’s kinda in your blood, really.

Mike Morawski (12:24)
Yeah, I love what I do. And I love helping people and coaching and teaching people how to do the business and helping them get their first deal done. I love helping people create success. And that’s what we get to do by being good stewards for our investors that invest with us and people that I teach how to get in the business, helping them get their first deal, second deal done. So I love the business.

Cody Crabb (12:54)
Well, so I’d be curious, mean, ethics is not something you typically hear too much about when people are kind of talking about real estate. I’d be curious, like, what is something that people kind of overlook around the world of ethics when they’re kind of starting to invest in real estate? I mean, as a coach and as someone who knows about this a lot and kind of writes about it and things, I’d be curious to know your perspective.

Mike Morawski (13:17)
Yeah, I love that question. we were talking before the show, think I’ve been on between what I’ve done and podcasts I’ve been on, probably 500, nobody’s ever asked that question. So I love that. But what’s funny, and I say this often, is I wrote an ethics course while I was in prison. And I taught ethics for six years. And I always say, how ironic, a federal inmate teaching ethics. Right?

Cody Crabb (13:29)
Awesome.

Yeah.

Yeah,

yeah. Well, it just tells me you really must know what you’re talking about. That’s what it tells me.

Mike Morawski (13:46)
It’s the little.

Yeah,

it’s the little things that people overlook. You know, it’s not the big things, right? You know, picture this. You you’re walking through the park one day, and there’s somebody in front of you. drink a bottle of water. They take the plastic bottle. They throw it at the garbage can. It hits the rim of the garbage can, bounces off, and they leave it lay on the ground. You know? I mean,

Those are simple things, right? When you talk about integrity and you talk about ethics, what’s really important is that you do what you say you’re going to do. And if you can’t, you go back and say, you can’t. And that was my problem early on, was I wasn’t transparent with my investors. We’re in a business when we raise capital from investors that we have to be extremely transparent.

You know, Cody, you give me $100. I’m looked at differently today because I’m investing your money. My job is to be a good steward of that investment. you know, big part of that is being transparent. You know, staying in communication, letting investors know not just when things are good, but when things are bad too.

Cody Crabb (15:49)
think there’s something to be said there because I it should be, I mean we should underline like you, it’s not like you were trying to do something bad. Like this is not you trying to be sneaky and get away with, I mean you were really trying to do the right thing here but it’s kind of, the intention kind of doesn’t matter. I mean because really at the end of it all, know, the result is what kind of matters here. So I think that there’s something to be said for, you know, it doesn’t matter if you thought you were.

The shopping cart returning the shopping cart comes to mind the classic example of the it’s the easiest thing ever But like if you you know is that’s an ethics test. I’ve I always think like you know if you It doesn’t matter if you kind of got close to the return It doesn’t matter if you pushed it to that area or there’s no cars around you can say whatever you want But the cart didn’t give back to the return so

Mike Morawski (16:22)
Yeah, right.

Yeah.

Cody Crabb (16:43)
I think there’s a lot to think about there. I think especially with real estate where you really have a lot to, mean, not just to your own investors, but if you’re going to be a landlord, there’s lots of ethical implications there. If you’re going to be, you’re involved in evicting somebody, there’s a lot of ethical implications there. mean, what kind of things do you see other ethical dilemmas that real estate investors and owners kind of have to deal with?

Mike Morawski (17:10)
Yeah, I see a lot of people that look the other way at things, right? They overlook things. It’s just business. You know, I see how owner-operators treat tenants at times, right? ⁓ You know, it’s a fine line that you walk sometimes. It’s a really fine line. And you know,

Cody Crabb (17:17)
It’s just business. Yeah.

Mm-hmm.

Mike Morawski (17:40)
Cody, if I tell you I’m going to do something, ⁓ I better do it. Even if it’s as simple as I told you I’m going to return the shopping cart. Because I love the saying that it’s not who you are in public, it’s who you are in private. That really matters. Because people don’t see you in public, but they

Cody Crabb (18:03)
Yep.

Mike Morawski (18:10)
Your people see you in public and see you less in private, but they see you in private because it’s really how we behave in public then.

Cody Crabb (18:18)
Yeah, it’s like that whole, you can tell who someone is by how they treat a waiter. We give public, without even realizing it sometimes, we give these little hints about our true nature and who are you when nobody’s watching and things like that. If somebody is, this is a question I’ve actually had for a long time personally, let’s say someone is kind of ethically, I don’t know if owning real estate is okay. Is that ethically like,

Is that even something that we should be doing? I’d be curious to know because it’s you kind of have this deep perspective on both accounts on the ethics side and on the on the on the real estate side.

Mike Morawski (18:59)
So what I’m hearing you say is that there might be somebody out there who thinks it’s not okay to own real estate?

Cody Crabb (19:06)
I’ve heard this as an, I wanted to hear your perspective on it. I’ve heard this as an argument where you’re investing with someone’s life, where someone does business, where they live. I’d be curious to know what response you have to that.

Mike Morawski (19:21)
Well, I think that first of all, we live in a country that we have the ability to buy businesses and own businesses. Owning multifamily is just like buying a gas station or a Dunkin’ Donuts. It’s a business. And in many cases, what we do is we take broken businesses and we make them run better. We make them operate better. What’s the?

What’s the purpose in business? The purpose is to increase income, reduce expenses, and give good service to your customers. So our customers are tenant. We should give good service to our tenant. We bought a deal. And maybe this goes to it a little bit. We bought a deal back in 2024 where when we took over the deal, was a 65-unit deal. There were 80.

work orders that the old owner had not serviced. And it took us probably eight months or so, but we got it down to four. But I think that when a tenant calls you and says, hey, I have a problem, you ethically as a business owner need to take care of that problem for that tenant. I have always been of the opinion that we need to service our tenant.

I had a mission statement forever that said I want to provide safe and secure housing for my tenants, right? Because I think that there’s a lot of single parents in the marketplace. And I know if I was a single parent and my kid was coming home from work, I’d want to know that when my kid walked down the hall of the apartment, went into the apartment, closed the door, that the door locked behind him, that they were safe.

They didn’t have a gang banger chasing them down the hall, somebody trying to sell them drugs or guns. I think ethically, it’s our job as property owners to keep a property that we maybe have all heard the term slumlord, right? And we’ve bought some properties from some slumlords and just people who didn’t care. They just drained the cash out of the property.

Cody Crabb (21:21)
Yeah.

Yeah.

Mike Morawski (21:45)
Ethically, I don’t think that’s how you operate. You can’t operate business like that, much less make it profitable.

Cody Crabb (21:53)
Sure. Well, and then also again, like you said, what are the implications of you as a person that way? that’s kind of what I wanted to get to was I think it’s like you said, I do think there is an ethical and an ethical way to operate. mean, these are some of these people, like you said, the slumlord type people don’t care and they just will. are literally just looking at numbers and literally nothing else. They don’t care about anything else. I think like you said, I think if you do

If you do invest in something like this, you do have a responsibility to keep somebody, to be responsive and to be a good landlord and to be a good steward of the stuff that, yeah. So I think that’s the real, I kind of figured that’s where you would go, but I’m glad to hear you say that, because I feel like that’s something I hear a lot.

Mike Morawski (22:32)
Right. Yeah.

Well,

so here’s kind of another way to look at it, right? I think that there’s two people that are, two groups of people that are involved in any of these assets. You’ve got shareholders and stakeholders. And your shareholders are your investors. know, ethically, I have to worry about the bottom line as the head GP and the operator on a deal.

I have to worry about the bottom line and the returns that my investors are going to get and being a good steward of their invested capital in the deal as a shareholder. But the stakeholder, who’s the stakeholder? Well, the stakeholder is the tenant that lives in the property. And am I giving them a better quality of life in the property that I own? Am I fixing up the property, curb appeal, making it look better?

Because if that property’s in a residential neighborhood, you impact the rest of the neighborhood by doing that. You impact the local business on the corner by having better quality tenants in your property, by increasing the property value. I think, jeez, nobody’s really ever talked about that or asked that question. So ethically, I think it’s your job as an operator, as a business owner, to

to improve the property, make the property run better, and serve your tenants and the neighbors.

Cody Crabb (24:07)
Yeah, yeah, think that’s perfectly said. I think that’s extremely, extremely good point. So as far as, let’s kind of get back to your, what you’re doing. Kind of give me a rundown of where your business looks like today. You you walked back in, you’ve got the, the SEC approval and things. Tell me kind of what, you know, what you’re up to these days.

Mike Morawski (24:29)
Yeah, so I do have a small coaching business. I only work with a select few people on a partnership program where I teach them all the fundamentals of multifamily investing and how to raise capital and how to underwrite and how to buy their first deal. And then we tend to partner with them and help them get that first funding process across the finish line. also, we.

I’m also in a couple of different partnerships where we buy multi-family anywhere between 75 and 250 unit size complexes. And we partner with private investors and we share in the profit. So I really, my focuses are the acquisition, underwriting, due diligence side, where we bring and then raising capital.

Right? So out meeting new investors and nurturing the investors that we currently have hanging around that are thinking about investing in our assets. And, you know, then the asset management piece, right? I mean, I on the phone weekly with our boots on the ground and property management teams that we have around the country that are running those assets.

you know, sure that we’re paying attention to occupancy and repairs and maintenance issues and rent collections and mortgages and taxes being paid and, you know, all the things that go into owning a piece of real estate.

Cody Crabb (26:08)
Yeah. Okay, so let’s say someone loves what they’re hearing right now and they’re like, I want to get involved. Who is the ideal person to reach out to you and work with you and how can they get in touch?

Mike Morawski (26:18)
Yeah, so you know what? And I need to say this, but there’s no geniuses in the real estate business, right? There’s a bunch of guys like me out there, some smarter, some ethical, some not, some not so smart. you have to, you know, for me, the perfect person is somebody who’s been hesitant to get back into the real estate market, real estate cycle right now.

⁓ I think a lot of people have been on the side.

Cody Crabb (26:48)
So back in, just

not to interrupt you, but so back in. So is it someone that’s already kind of maybe done this and kind of pulled away because of the market?

Mike Morawski (26:54)
Yeah, as

a private investor. So I want to just address the private investor side, right? Anybody who’s thinking, hey, I have some capital in my IRA, or I have some equity in my house, or I have some cash sitting in the bank that I’ve been sitting on and haven’t wanted to invest in, I think we’re in the beginning of the next market cycle where we’re going to have a long run. And people who get involved today and have the wind at their back are going to be extremely successful.

And so I want that investor who knows that wealth is created in real estate and multifamily is going to be the golden child asset class again over the next few years to jump back in, to give me a call, and for us to talk about where they’re at financially and where they want to go and see if we’re a fit. We might not be a fit. And they might not be a fit. And that’s OK.

but at least explore the option for yourself.

Cody Crabb (27:54)
Yeah. Okay, so how can they get in touch? What’s the best way to get in touch with you?

Mike Morawski (27:57)
⁓ great. Yeah, I always love direct contact. So you could send me an email at mike, @mikemorawski.com. Send me a direct email or reach out to me on Instagram. I’m actually on all the social media platforms. Instagram is the best place though. Follow me, send me a message there and I will connect. I respond to all my direct messages myself so we can get connected. But I would love to have a conversation with you if you are.

thinking about investing in real estate, or if you’re thinking about being an active investor and you want to get into business and buy your own deals.

Cody Crabb (28:34)
Well, that’s a great offer. Thank you so much for saying that. I would definitely take him up on that if this sounds good to you. ⁓ It’s not too often people will say like, just get in touch and ask me some questions. Like that’s pretty neat. Well, thank you so much for your time today. I really appreciate you spending some time with us today. And thank you listeners for joining us as well. If you liked what you heard today, and I’m sure you did, this was a great episode. Go ahead and like, subscribe, follow, do all the things so that you don’t miss another episode with someone awesome like Mike.

Once again, it’s been a real pleasure and thanks for joining us today.

Mike Morawski (29:04)
Thanks, Cody.