Surviving Market Changes: Key Insights for Fearless Business Leaders

Brett McCollum (00:00.558)

All right, guys, welcome back to the show. I’m your host, Brett McCollum, and I’m here today with Mike Morawski. Today we’re going to be talking about navigating a changing market. But before we do, guys, at Investor Fuel, we help real estate investors, service providers, and real estate entrepreneurs to 2 to 5x their businesses to allow them to build the businesses they’ve always wanted and live the lives they’ve always dreamed of. Without further ado, Mike, how are you?

Mike Morawski (00:24.901)

Great Brett, how are you man? Good to be here.

Brett McCollum (00:26.658)

Doing good. Good getting to know you a little bit before the show. Got to kind of get a little bit of your story there. And I got to be honest, Mike, I’m really looking forward to this. This is going to be a lot of fun. Before we kind of just start rambling, can you do me a favor? Can you back up rewind some context history? Who is Mike Morawski?

Mike Morawski (00:45.275)

Yeah, sure, Brett. You know, I’ve been in real estate for 30 years. And most of that time, either investing personally or working with investor clients. My background, you know, I had a general contracting business for a number of years. We were building room additions, building about 25 a year. And you know, Brett, like any entrepreneur,

Brett McCollum (00:55.245)

Mm-hmm.

Mike Morawski (01:08.731)

I was stuck in that grind, right? I was doing the marketing, I was doing the sales, I was doing the contracts, I was doing the ordering, the hiring, the firing, the bookkeeping, and still in the field banging nails. And sat up in bed one morning, looked at my wife at the time and said, I can’t do this anymore, and burnt out. And, you know, I had somebody knocking at my door. I was fortunate to buy the company. So I sold my company and thought I’d take a year off.

But Brett, you’re an entrepreneur. know that as an entrepreneur, we never take time off. And so I went right out. I bought myself two duplexes to rehab. And my first stint into real fix and flip stuff for myself went into the, started rehabbing these two duplexes and met a real estate agent along the way.

Brett McCollum (01:42.956)

No such thing.

Mike Morawski (02:03.323)

and he was really successful. At the time, he was making close to three-quarters of a million dollars a year. This is a number of years ago, 30 years ago, that was a lot of money. I went to him and I said, hey, think I’d like to go in this business. He said, I think you’d be great at it. So I did something interesting. I went to him and said, hey, could I shadow you and your team? He said, no, I’m to do one better for you. I’m going to make you a cassette tape. I say that because,

I’m probably dating myself, right? Because I don’t think you could find anything to make a cassette tape on anymore. And so I went and he made me this tape and I listened to it, Brett, over and over and over again. It’s kind of just like this podcast we’re doing. know, people are going to pick some golden nuggets up, but they go back and listen to it a couple of times. They’re going to get a lot more out of it. And that’s exactly what I did. I just listened to that material over and over again. And I went into real estate.

Brett McCollum (02:33.869)

Sure. Yeah.

Mike Morawski (02:59.611)

My first nine months in the real estate business, I sold 78 houses. I went on to build a team selling about 125, 130 houses a year. Did that for about 12, 13 years consecutively. And in 2005, I went in the apartment business and never looked back. Absolutely loved the apartment business. It’s in my blood, it’s my DNA, it’s who I am, you know? And my biggest mission in life is to…

provide safe and secure housing for my tenants. And so that’s what I’ve always tried to do. So we buy value add, convert it, change the operations, change the physical obsolescence of it, and make them operate better. But I went in the apartment business. did my first deal in 2005. It was an 11 unit. And I built a $100 million company over the next 30 months.

Brett McCollum (03:30.263)

Mm-hmm.

Mike Morawski (03:54.651)

We owned 4,000 apartments in five different markets. I had a management company managing 7,500 units, and I had over 100 people working for me. you know, one thing led to another. 2008 shows up, and the world goes to hell in a handbasket, right? By 2010, we had come off of the rails. Now, I always tell people I made five mistakes along the way, and…

Brett McCollum (03:54.797)

Bye.

Brett McCollum (04:05.335)

Thank

Mike Morawski (04:23.163)

The first one was that we grew way too fast as a company. So by 2010, I was off the rails trying to figure out how to balance my company. And I also owned $60 million worth of real estate that was over leveraged. was at 85 % loan to value. And I coach people today, that they should be at 65 % loan to value.

I had no equity in there. I had no play in case something happened. I didn’t pay attention to the details. I was undercapitalized as a business owner, and I didn’t listen to people around me. And all of a sudden, we got wiped out. What I tried to do was I tried to save my company. I had 38 different companies at the time, and I thought, well, what I can do is…

I probably had 12 companies that I should have just let go to foreclosure and a handful of investors get hurt, but I didn’t want anybody to get hurt. So I started to move money from profitable to non-profitable companies trying to keep the whole ship afloat. And my accountant and my attorney both said, it’s okay to do that, just leave a paper trail. When the markets come back, we’ll put everything back. It’s a great plan. Well…

You know, in our defense, we thought it was a recession. You know, a typical recession, bread will last 17 or 18 months. There’ll be a 10 or 12 % correction in the market, and everything is back to normal. Well, 2008, you know, we all know that whole thing lasted seven or eight years with a 47 % correction in the markets. It’s a hard storm to weather.

So I moved money back and forth trying to keep the ship afloat. And one thing I didn’t do was I didn’t tell my investors. So we’re in a business that we’re held at a very high level, a very high transparency level. And we need to communicate with our investors. And I didn’t do that. And as a result of non-disclosure, I wound up getting charged on wire fraud and mail fraud charges and got sentenced to 10 years in federal prison.

Brett McCollum (06:18.733)

Mmm.

Mike Morawski (06:40.123)

So in 2013, simply got wiped out, go to federal prison. And I always tell people, I say, I never flew private. I didn’t have a boat. I didn’t have a big house. I didn’t drive a fancy car. I was the neighborhood baseball coach. I was home every night for dinner. And I got ripped from that to live in a 12 by 12 room with three men I didn’t know nor did I like, wondering what the hell happened in my life.

I was in prison for about three weeks, got served divorce papers by my wife, just wrecked me. About three weeks later, so now I’m in prison, walking around every day, how am gonna get through today, much less 10 years of this? And a guy walks up to me. And you know, Brett, I think we’re all faced with defining moments in our life. And this guy walks up to me and he goes, hey, look.

He said, don’t let these people beat you. All they want to do is take from you everything that you’ve ever known. They can take your business, they can take your money, they can destroy your family, but what they can’t take is who you are and what you’re made of. They can’t take what you have upstairs, your brain, the power. You can go back and build that $100 million company. What you need to do right now is take care of yourself. And I don’t know what it was that day.

boy was like somebody flipped a switch and all of a sudden my world changed. He said come to my class start working out you’ll start to feel better every day. So I took him up on it I started going to the gym every day I started working out and remember I came from running marathons to being 35 pounds overweight I absolutely hated myself and wanted to kill myself but for some reason this day this whatever this guy said to me

changed my destiny. And so I started going to his class. I started working out. I started feeling better. As a result of that, I wound up writing two books in college or in prison. I went to college. I got a bachelor’s degree in theology. I wrote an ethics course. I taught real estate investing, property management, and ethics in prison for six years.

Mike Morawski (09:03.833)

I was on an outreach program, went in the community, I told my story to small business owners and local college students. I met a professor from the University of Minnesota and he and I co-authored a paper together that we got published in the Business Journal of Ethics. Today it gets taught at the collegiate level for forensic accounting and sales and marketing classes. And know, Brett, I thought I’d come home and just go into coaching and training business and teach people how to do multifamily syndications.

Brett McCollum (09:04.012)

Wow.

Mike Morawski (09:33.989)

how to raise capital and not make the mistakes I made. Well, I wound up underwriting a bunch of deals and I found a deal in Florida that I went to two of my coaching clients and said, I think we should do this. And we wound up partnering on that deal. And our securities attorney during the process said, hey, think I can get you approved by the SEC to go back and be an issuer of securities and a sponsor of deals again. And she did.

Brett McCollum (09:37.623)

Mm-hmm.

Mike Morawski (10:02.275)

She went back, got me an approval by the SEC to go back and do what I love to do and what I’m doing today. So, you know, it’s kind of funny how the world is kind of totally transformed, right? And, you know, I tell this story because I think it brings hope and inspiration for people. You know, I’ve had all this great success. I lost everything. And, you know, now it’s the redemption side, right? And rebuilding, so.

Brett McCollum (10:30.453)

Wow. Man, that is a, that’s a lot, Mike. Okay, let’s go back a bit.

2005 really is when you started really getting into the apartment space, is that right? And 30 months is a pretty fast, and I that’s one of your top, your five things that you talk about, but 30 months is, it’s not even the accumulation of property, because I can get my head around that. I can get my head, you know. How does one staff that many people that quickly?

Mike Morawski (10:48.281)

Right.

Mike Morawski (11:12.783)

Yeah. So we were constantly interviewing people. And I had a partner that was an operations guy for a major company in the Chicago market. And I thought he had a good handle around being a COO, right, and operations wise. And we just got too big, too fast for him to handle that influx of business and the influx of cash and the management stuff.

Brett McCollum (11:17.665)

Yeah.

Mike Morawski (11:42.171)

But we hired people and I kind of, I probably overstaffed Brett because I hired people that were talented, that were smarter than me and smarter than him to go to work for us. We had a very high payroll as a result of that. But I also had this vision of where we were gonna go. You know, I’m a big visionary and I see the big picture and I thought I had somebody who was handling the details around me and that wasn’t.

really what was happening. And so, you know, we hired people along the way knowing that we were going to grow to that point. And boy, Brad, if the market wouldn’t have changed, I can’t even imagine where that company would be today. But we did have good staff in place. It’s just that, you know, when 2008 came around and occupancies dropped and interest rates went up and cash flow fell apart,

Brett McCollum (12:27.341)

Right.

Mike Morawski (12:40.335)

It was hard to weather that storm.

Brett McCollum (12:42.433)

Yeah, and what do you notice, okay, I was gonna kinda save this, but I wanna make sure we don’t miss the opportunity for it. From somebody, cause obviously you’ve been through some things that most of us never have, and you see things maybe in a different perspective. So here’s, one thing I wanna say is.

you still get to do what you love, which is amazing by the way. I’m, I won’t, I don’t know if surprised is the right word, maybe it is. That having gone through, know, having gone to prison because of, ultimately the big picture was it’s real estate, but it was just, it wasn’t real estate that got you. There was decisions within real estate, I guess. But you didn’t shy away from it coming back, right? Like you’re still like,

I still love to do this. You’ve learned what not to do, so to speak. what is the correlation in today’s market in 2008 for somebody like yourself that you built a huge portfolio and for the syndicators out there, are you seeing any similarity from what you saw back then to where things are at today?

Mike Morawski (14:00.207)

Yeah, so a couple things. First of all, there’s no geniuses in this business. There’s only market cycles. And you’ve got to look at where you’re at in the market cycle and see where it makes sense. Is there correlations between 2008 and today? There’s some, but there very few. Back then, you had higher interest rates. You had people with no equity.

Brett McCollum (14:06.978)

Yeah.

Mike Morawski (14:27.237)

You were getting mortgages at 125 % of appraised value. You know, they were appraising properties at 125 % of what the value should have been. You were able to get 80-20 loans at the same bank. You know, I mean, was crazy. And you could get a 20 % loan for the down payment and an 80 % loan for the principal payment, and you didn’t have to pay PMI.

Brett McCollum (14:32.321)

Yeah.

Mike Morawski (14:55.739)

So you had a lot of people buying houses and buying real estate that should have never been buying houses or real estate. So you had a lot of this bad paper. We don’t have that today. We don’t have that issue today in the marketplace. You got interest rates that are 2 and 3%. People sitting in their houses. You got a lot of equity in the market. Brett, they’re somewhere north of $20 trillion, or I’m sorry.

$20 billion right now just sitting on the sidelines of capital that people could deploy. I think there’s $2 trillion in IRA money out there. There’s big dollars that are just sitting on the sidelines. Yes, I think that, I think a lot of times what happens is you get a lot of media and a lot of stuff that instills fear in people and people don’t wanna do anything.

because they’re not sure what’s gonna happen. But I firmly believe we’re at the bottom of the market cycle and that you get involved today, you’re gonna have the wind at your back, you’re gonna be at the front of the bull run and there’s gonna be more wealth created in this next market cycle than we saw the last time.

Brett McCollum (16:14.733)

Yeah, yeah, because that’s the reason I ask that is Obviously the differences are stark, you know from the type of loans that are out there and and that sort of thing I guess for me it’s the Rate today’s right because it’s the people that here’s where I found the issue is in syndication the people that bought in 2021 2022 even early 23 before rates went boom back up again And they bought them on adjustable rate mortgages

Today they’re You know, things like that. Inventory is, here in Florida where I live, I mean it’s skyrocketed. You know, 300%, 400%. You know, and I don’t get the same vibe as I do from 2008, but there’s just, I do think we look back over last year and half, two years, and we look back and go, wow, that was significant.

Because there’s a lot of people hurting right now. There’s a lot of people impacted right now and for different reasons. Credit card debt is the highest it’s ever been in history. Economic recession is a big deal. So inflation is a big deal. Cost of materials is a big deal. Tariffs right now are big deal. Things that are causing our day to day functionality. But it’s different.

It’s not 2008, but I wonder if there’s some principles, maybe you walk through from the lessons that you apply to the changing market today.

Mike Morawski (17:52.582)

Yeah, first of all, I’m a fixed rate debt guy. Always have been. One of my best friends in the world, Brett, has been in this business as long as I have. And he and I will get in a discussion about fixed rate versus floating rate. And you know, it’s amazing to me our philosophies, right? He believes floating rate debt, that there’s a place for it. And I say, man, I want to get out of bed every morning and know that my mortgage payment’s the same. Because, you know, I think that’s a

Brett McCollum (17:55.874)

Love that.

Brett McCollum (18:20.162)

Mm-hmm.

Mike Morawski (18:22.011)

Problem today in today’s environment. That’s why there are so many deals that are stressed, you know Fortunately knock on wood just about everything that I own today is below four percent interest And you know, it’s indicative of assumptions and buying distress deals that you know had low interest rates and we were able to go in and assume a bunch of mortgages so, you know, there’s

Brett McCollum (18:47.383)

Mm-hmm.

Mike Morawski (18:50.011)

And it’s fixed rate, know, 10 year debt. So I believe there’s safety in that, right? Even in a good market. Now, you know, there is a place for floating rate debt, especially if you’re doing a quick flip, a two year deal, something you’re gonna be in and out of. It could make sense. But you know, if you’re gonna hold a deal for any period of time, you should be at a fixed rate.

Brett McCollum (19:21.217)

Yeah, I agree with that a lot, and especially all the people I get to talk with and the ones that I’ve talked to privately that are struggling the most, it’s because they’re not on fixed rate. It’s unpredictable. They thought they’d be able to get out in a five year turnaround, and then they’re having to make capital calls and doing this and that, the stress, my gosh, the stress you’re hearing, it’s tough.

When you guys are raising capital in today’s having the lessons that you’ve learned from that 2013 however long, I don’t remember how long that you had went to prison, what are some best practices you would recommend now?

to people in a uncertain market where I don’t know, we think it’s, I do, I agree with you Mike, by the way, I do think we’re kind of at or near the bottom, right? But we don’t know ultimately. know, that’s just, I thought I knew a lot. You know, I thought COVID was gonna be when the recession hit, you know, and then that didn’t happen, you know, and, but that being said, like what are some best practices would you recommend to folks raising capital today?

Mike Morawski (20:20.517)

Right.

Mike Morawski (20:36.495)

Yeah, first of all, your leverage, your loan leverage, you should be at 65 % LTV, right? That’s one of the things that I think that you can find some safety in and that when you can express that to your investor who’s coming in, that can help with that story, right, on how the deal will perform.

I’m finding a lot of investors today that, know, they’ve been in treasuries, they’ve been in traditional stocks and bonds and they’ve seen some profitability in there over the last several months. And they’re having a hard time making the decision to come out of that and go into alternative investments. You know, I think, you when we talk about us being at the bottom here, some of the greatest things that have happened recently that

show that we’re at the bottom is the fluctuation in our stock market, right? And how it’s come down. What happened in China a few weeks back, right? These are things that are indicators that we’re getting to the bottom of this cycle. And so, you know, you can stay put, but then don’t come out when the market falls a little bit more. Just stay put, because it’ll come back. But now’s the time to come out of those traditional investments.

Brett McCollum (21:39.565)

Mm.

Mike Morawski (22:03.011)

and go into some alternative investments because that’s where you’re gonna see some growth. So that’s a conversation I have a lot with investors today. I see people not doing anything because they’re fearful. And one of the biggest conversations I see today is that people don’t invest today because they think there’s gonna be a better deal tomorrow.

Brett McCollum (22:30.573)

Sure.

Mike Morawski (22:32.731)

I think there’s an issue with that because first of all, there’s so many deals today, Brett, that are being traded behind closed doors. Freddie’s calling operators up and saying, hey, listen, we know you have some assets in this market. You’re a good operator. Would you consider taking this over at par? And there’s a lot of trading going on behind doors. Freddie was just out walked one of our properties this past week and

Brett McCollum (22:41.356)

Mmm.

Mike Morawski (23:00.987)

We talked about a couple of other properties in the market that I know that are in trouble. And they said, you’re first on our list for the call when we take these back. So I think there’s a lot of that going on. So the average investor out there who says, I’m not going to invest because there’s going to be a better deal tomorrow, I think they’re going to miss a lot of the big opportunity. Because those better deals are today. And they’re happening right now.

Brett McCollum (23:23.853)

You’re missing out.

Mike Morawski (23:30.587)

we’re gonna see very little inventory that’s distressed come to the market as retail because even now banks are gonna hold property and banks are gonna take these deals back and they’re gonna sit on them because those rules have changed, right? They used to be that a bank wasn’t in the real estate business and had to get those off their balance sheet. Today they can sit on those deals and they can sit in them. Banks are hiring asset management teams today.

to manage those assets for a period of time, knowing that they took this deal back at par, but yet knowing that there’s this much equity in it, call it 30 % equity in the deal, and that in a year from now, they’re gonna be able to sell this deal and they’re gonna make a couple million dollars on the spread. so banks are gonna sit on deals they’re not gonna sell.

Brett McCollum (24:23.968)

Right.

Mike Morawski (24:30.169)

going to trade behind closed doors and we’re going to see very little of that kind of inventory come to them.

Brett McCollum (24:37.613)

Yeah, yeah, and that’ll, to me that’s another reason why we’re not gonna see another 2008, you know, foreclosure crisis, you know, and all that. like, there’s too much equity out there. I’m certainly not an economics genius by any stretch, far from it. just…

Mike Morawski (24:51.184)

Yeah.

Brett McCollum (24:59.981)

I call people like Mike a lot. Like Mike, what do I do? You know, like you’ve been doing this for longer than I have. You know, you’ve been through cycles, you’ve been through things, but man, Mike, we…

Mike Morawski (25:12.303)

Well, Brett, you know what? I don’t mean to cut you off, but I want to say you have a mastermind. there, know, Napoleon Hill says that, you know, there’s more power. Put two minds together, three minds together. When you’re in a group of people and somebody’s got an issue, there’s got to be enough smart people in that room to give enough smart ideas that can help mitigate some of those issues. So that’s really important is I think that you’re networking.

Brett McCollum (25:42.061)

That’s right.

Mike Morawski (25:42.251)

and you’re building relationships with people smarter than you today in the business.

Brett McCollum (25:47.97)

Yeah, yeah, I appreciate you saying that. Yeah, that’s the whole reason why we exist, right? It’s fun to win together. It’s really fun to win with people, right? Like, it’s an exciting period of time to, know, when you’re, hey, we’re all doing it, yay! You know, we certainly have that period.

Mike Morawski (25:59.397)

Right.

Brett McCollum (26:04.449)

but it’s a lot more comforting going through the difficult season, the downturn, the things that are struggling. It’s all more comforting going, you know what, I’m not in it alone. In fact, I’m in it with people that have been through this before and have made it out the other side and they’re telling me what lessons to look out for so I don’t have to make the same ones. But I’ll make a caveat to that though, Mike. If you are fortunate enough to be in a mastermind like that or surrounded by people like that, you have to check your pride at the door and raise your hand and ask for help.

Mike Morawski (26:33.947)

100%.

Brett McCollum (26:36.18)

Mike Morawski (26:37.135)

Hey, can I tell quick story about that? Yeah, because I couldn’t agree with you more. I think that comment is, and your listeners need to listen to that comment because I think we walk into rooms and we put our ego on, our pride, you know what we say. But here’s what happened to me. In the midst of, so this is before 2008, before the crash, before I got in trouble.

Brett McCollum (26:40.297)

Yeah, yeah, go for it.

Mike Morawski (27:07.711)

I had an incident in my business. My partner did something that wasn’t right. And I had never told my wife about business or anything that was going on. And this incident happened on a Wednesday. On Friday night, my wife and I went to dinner with him and his wife. And my wife doesn’t know anything about what happened that week or what happened on Wednesday. You know, told her…

you know, hey, I got a great new investor, or we bought another deal, or good things, right? I never told her anything bad. Well, this incident happens on Wednesday. Friday night, we go to dinner. We’re coming home from dinner, and my wife says to me, hey, I don’t trust him. And I think I’m going to be a good husband at this point, and I’m going to go, honey, I got this under control. Don’t worry about it. When in reality, what I should have said, was tell me more about that.

What do you see that I’m missing, right? But my ego said, I got this under control. Well, five days later, I’m at lunch with my attorney. And my attorney after lunch in the parking lot says to me, hey listen, I just want to tell you, I’m not trusting your partner right now. I’m not sure what’s going on, but there’s some things going on you need to take a look at. What do I say? I say, Bob, don’t worry about it. I got it under control, right?

So two people within five days of this incident happening tell me that they don’t like what’s going on around me and I ignore it because I think I got it under control. That’s your ego, that’s your pride that talks to you. So you’re right, Brett. I think you gotta check that at the door and you gotta listen to people and take that advice.

Brett McCollum (29:00.427)

Yeah, no doubt, I agree. Mike, I wanted to be able to give you an opportunity, because I know pre-show we talked about. You also, I believe you have another book that you’ve recently written, is that correct? Can you tell us more about it?

Mike Morawski (29:11.097)

Yeah, I just wrote a book. Yeah, I wrote, my third book came out. It’s an Amazon bestseller. It’s a multifamily investment secrets, your explosive guide, your guide to explosive wealth and multifamily real estate. You know, I talk a lot in this book about how to do the business, about some steps along the way, some investors that I’ve worked with that have had some serious success.

some ways to build and things to watch out for. You can get it on Amazon or call me directly and I’ll send you a copy. But you go to multifamilyinvestmentsecrets.com and you can see the website there.

Brett McCollum (29:54.925)

Perfect, yeah, we’ll make sure that gets in the show notes too for you guys. Mike, what about yourself? Is there another way to connect with you if people wanted to?

Mike Morawski (30:02.201)

Yeah. So I appreciate that Brett. Yeah. Anywhere that you hang out on social media, you’ll find me, you know, connect with me, Instagram, Facebook, YouTube, LinkedIn. You know, I’m always trying to bring good content, good speakers, good opportunities and other, you know, my podcast, other people that are more experienced than me. So, you know, anywhere on social media or you could reach out to me at Mike.

at mike morowski dot com i love the network i love to learn about you and and see how i can add value to your world so

Brett McCollum (30:40.439)

Yeah, man, that’s great. Thanks for that, Mike. Appreciate you doing this, sharing your story with us, and opening up and telling, that was really great. I appreciate you taking your time to be with us today.

Mike Morawski (30:52.431)

Yeah, I appreciate it, Brett. Thanks for having me on.

Brett McCollum (30:55.406)

And guys, to you as well, thanks so much for spending your time hanging out with us, and we will see each of you guys on the next episode. Take care everybody.