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Show Summary
In this conversation, Michael Margarella shares his journey into real estate investing, sparked by a desire to better manage his finances. He discusses how he discovered the BiggerPockets podcast, which opened his eyes to the potential of real estate as an investment vehicle. His enthusiasm for learning and diving into the world of real estate is evident as he reflects on his experiences and insights.
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Investor Fuel Show Transcript:
Michael Margarella (00:00)
we like the Midwest in that it’s steady, it’s consistent. You know, we call ityou know, maybe a bit of a boring market. You’re not going to see some of the huge swings that you’re going to see in some of the more it markets like, you know, your, Austin, Scottsdale places in Florida. And of course those are great markets and people have done really well there. But for us, the Midwest, it’s just a bit more predictable. know generally we’re going to see two to 3 % rent growth and we’re not going to see big swings up, but we’re also not going to see big swings down.
Michelle Kesil (02:05)
Hey, everybody. Welcome to the Real Estate Pros podcast. I’m your host, Michelle Kesil And today I’m joined by someone I’m looking forward to chatting with. Michael Margarella who has been making serious moves, is like a co-founder of Next Play Investments, a private equity company. So excited to have you on the show today, Michael.Michael Margarella (02:28)
Yeah, I appreciate it. Thank you for having me.Michelle Kesil (02:30)
Of course, I think our listeners are really going to take something away from how you’re approaching value add multifamily properties in the Midwest.Michael Margarella (02:39)
For sure, yeah, we’re excited to dive into it and happy to provide some background about what we do.Michelle Kesil (02:46)
Yeah, let’s do it. Would love for you to start us off with sharing a little bit more about what you’re up to these days.Michael Margarella (02:53)
For sure. So as you mentioned, we mainly target assets in the Midwest. So our focus is on multifamily properties, mainly between 50 and 150 units or so, mainly BEC class value-add assets. ⁓ And so we’re doing our best to stay active here despite some of the economic hiccups that we’ve been seeing recently. And we try our best to keep our pulse on the market.and move ahead.
Michelle Kesil (03:23)
Yeah, absolutely. What got you started with this business? How did you discover to create it?Michael Margarella (03:29)
Yeah, for sure. So ⁓ I was, I guess we’ll rewind pre COVID here. was a high W two earner living in New York and it was right around new years and everybody’s making resolutions, of course. And one of the things that was on my mind was just trying to figure out how to better allocate ⁓ some of my savings, some of my funds, things of that nature. And so I was just scrolling through the podcast app on my phone andjust looking for sort of money management type podcasts and just trying to pick up some tips there. And I just happened to stumble across BiggerPockets and I wasn’t necessarily looking for a real estate podcast, but I listened to one episode of BiggerPockets, which was a bur episode and it just made so much sense to me. Everything just clicked in my head and I just couldn’t understand why everybody doesn’t invest in real estate. So.
Really from that moment, I just went pedal to the metal on real estate and just dove in and started to learn as much as I could and did that probably for the better part of a year. ⁓ at that point, I was looking to start a little smaller, right? I was looking to do kind of the whole bigger pockets birthing, right? Pick up a couple of rentals and refinance them. And I chose Indianapolis to start as a market and
We picked up a few residential properties. did some fix and flips and things of that nature. And then the business started to evolve a bit. I just started to realize that aside from return on investment, I wasn’t pleased with my return on time for picking up some of those Midwest properties. A lot of those trade between, you know, 100 and $200,000 and, you know, you might be looking at a fairly modest monthly cash flow. So I felt like
my time could be a bit better utilized on something a bit larger so that’s when we segued into commercial real estate and multi-family and ⁓ we’ve been doing that for about five years or so.
Michelle Kesil (05:29)
Awesome. Yeah, that’s really cool that you just listened to the right information and took action on it.Michael Margarella (06:25)
Yeah, that is the challenge. think you hit the nail on the head, right? ⁓ Education is always key, of course, but taking action is just as important. ⁓ you know, like I said, I was doing a lot of due diligence for the better part of a year and there were certainly some analysis paralysis in there. And ⁓ I think, you know, what I learned was as soon as you pick up, you know, your first property or ⁓ your next property, whatever the case may be.Michelle Kesil (06:42)
Yeah.Michael Margarella (06:53)
you start to build out some processes and systems and everything just gets a little easier and everything just gets less daunting, right? ⁓ The whole, wow, who’s going to inspect my house? Who’s going to manage that house? Once you do it once or twice, you already have the people in place, you have the systems in place, ⁓ you know maybe some of the pitfalls to look out for. So it gets easier once you take that first jump, but it is a little hard to make the leap.Michelle Kesil (07:18)
Yeah, I hear you. What have been some of the keys that have allowed your business to be able to grow and to run smoothly?Michael Margarella (07:26)
⁓ So, I mean, there’s a few different things we could unpack there. ⁓ I’d say, you know, for us, we are private equity based, so we do work with quite a bit of ⁓ investor money. And so one of the things that we like to say, I don’t know so much if it differentiates us, but ⁓we like the Midwest in that it’s steady, it’s consistent. You know, we call it
you know, maybe a bit of a boring market. You’re not going to see some of the huge swings that you’re going to see in some of the more it markets like, you know, your, Austin, Scottsdale places in Florida. And of course those are great markets and people have done really well there. But for us, the Midwest, it’s just a bit more predictable. know generally we’re going to see two to 3 % rent growth and we’re not going to see big swings up, but we’re also not going to see big swings down.
So that makes it a lot easier for us to project returns for investors. And I think investors have appreciated that and ⁓ maybe just a bit more margin of safety, I’d say, in some of the projects that we’re doing. And that kind of flows into our strategy too, where we’re not really doing new developments or anything super risky. We’re more, as I mentioned, just doing BEC class value add and mainly trying to purchase things that are already.
somewhat stabilized where we could come in and optimize operations, maybe increase occupancy a bit and ⁓ decrease expenses and just add some value there. So, ⁓ we try our best not to buy on pro forma and to just work with what we have in front of us.
Michelle Kesil (09:07)
Yeah, absolutely. Sounds like a good strategy that works well for you.Michael Margarella (09:11)
Yeah, and like I said, mean, everybody’s different. There’s certainly a lot of opportunity in some of the other markets I mentioned, but just for us and our partner base, ⁓ we try to focus on things that are a bit more steady and consistent. We try to see value where others don’t. So one example of that is we started to buy light tech properties, which is ⁓ low income housing tax credit properties. And we kind of stumbled into that.a few years ago where we were presented an opportunity, didn’t immediately understand that it was a light tech property when we were underwriting it. And we liked the opportunity quite a bit. And as we dove into it a bit more, we did learn that it was light tech and ⁓ kind of what we were speaking about earlier. We had no idea what that was and it was a bit daunting to us, but ⁓ we found the right people to guide us through that process, the right legal context and whatnot. We did end up moving forward on that property, which
we still own today and we’ve since picked up four or five additional light tech properties. And I think for a lot of investors out there, deal flows obviously very difficult to come by nowadays. And I think some folks might just shy away from projects like that because it’s light tech and because they’re not familiar with the process or it’s intimidating. I think that ⁓ seeing value maybe where others don’t, I think that’s also been something that we’ve been able to.
to be pretty good at and and that’s it that’s part just a bit
Michelle Kesil (10:41)
Yeah, awesome. Sounds like a really good opportunity for you.Michael Margarella (11:20)
Yeah, and like anything else, ⁓ it’s management dependent, right? So ⁓ we do our best ⁓ once we hopefully purchase right to manage it the best we can and provide, you know, ⁓ safe and ⁓ reliable housing for our residents. And usually that results in a ⁓ stronger bottom line for us as well.Michelle Kesil (11:24)
sure.Yeah. So how are you collaborating with investors on your projects?
Michael Margarella (11:49)
Yeah, we do our best to stay in touch with our investor base. So ⁓ just as part of our normal business, we’ll of course ⁓ be active on social media channels. We’ll send a monthly newsletter as well. ⁓ But existing investors that are part of our projects, we will update those folks on a monthly or quarterly basis depending on the project. ⁓ We even work with some.⁓ aspiring investors who are interested in learning more about real estate and maybe interested in doing what we’re doing someday. So we’ve had several folks ⁓ join the team as investors, mainly because of that reason. And obviously the return on investment is ⁓ part of the analysis as well. ⁓ so we’ll have them join property management calls occasionally and we’ll provide them with kind of a behind the scenes look and in sort of a mentoring light.
Some of our investors who are, as I mentioned, aspiring to maybe purchase multifamily one day, they’ve appreciated that opportunity.
Michelle Kesil (12:55)
Yeah, amazing. Is there a sort of criteria that investors need to have in order to partner with you?Michael Margarella (13:01)
⁓ For us, we’re longer term minded for sure. So, and this kind of flows into our business strategy of purchasing in the Midwest and trying to reduce risk as best we can. We’re typically not doing short term projects of one to two or three year turnarounds and looking to reposition an asset that quickly. Whereas I know some other operators are a bit more on that mindset. And of course, if you…If you hit that business plan, your IRR and your return metrics are going to go through the roof. But for us, we’re more on a 5 to 10 year hold horizon, which is probably a bit longer than some other groups out there. So that’s always the first thing or one of first things we tell investors is, you know, this is the hold period and you just have to be comfortable ⁓ with holding for that amount of time ⁓ if the business plan calls for it. Now, of course, we have sold assets in that two year timeframe because
everything is for sale at the right price and ⁓ if somebody is looking to purchase at a price you just can’t say no for, well then you then sometimes you have to sell. But ⁓ that’s something we tell investors and then I would just say no like and trust. So I always tell folks when they’re thinking about investing with us, you know, you should know, like and trust us. ⁓ But us as operators, we want to also know, like and trust our investors because at the end of the day, we want to be able to sleep at night and
We want to know who we’re partnering with. So for us, that’s important. So we work a lot with ⁓ repeat investors and referrals from existing investors. And we really value those relationships.
Michelle Kesil (14:38)
Yeah, definitely. What are you most focused on solving or scaling to next in your business? ⁓Michael Margarella (15:25)
Yeah, I would say deal flow is something that’s been a challenge with the economy ⁓ recently and just interest rate fluctuations. There’s a lot of folks who maybe want to be sellers but aren’t quite sellers yet. So that’s been a challenge for us and we do our best on a daily and weekly basis to move the ball forward on that with broker relationships and just widening our deal funnel as best we can.And for us, you know, we do our best to stay active despite the economy. So there’s some folks who have been sitting on the sidelines at certain points in the past few years and we’ve been able to stay fairly active throughout and just kind of keep our channels open. Just let everybody know that we’re in the game. We’re still in the game and we haven’t, you know, put our pencils down or anything like that. So ⁓ I’d say that’s certainly an opportunity is just to keep plowing ahead regardless of.
of what the economy gives you and obviously you to make adjustments based on the economy, whether that’s underwriting adjustments or management adjustments based on where things are headed, but staying active I think is key.
Michelle Kesil (16:32)
Yeah, definitely. Where do you kind of see your business heading to? Do you have any goals for the type of growth that you’d like to have?Michael Margarella (16:43)
Yeah, we’d love to keep scaling. As I mentioned, we’re mainly targeting 50 to 150 units nowadays and we’re closing on a 138 unit complex next week actually. So we’re excited about that. And I’d say for us, ⁓ next steps will probably be going slightly larger, maybe expanding that buy box a bit and then entering new markets. So we’re currently in Indiana, Kentucky and Ohio for the most part. And we’vewe’ve kind of kicked around the idea of expanding into Missouri and some other markets ⁓ just as we’re getting more comfortable with where we’re currently operating and we feel like we have operations in a really solid spot there and we’re comfortable enough to consider branching out. So I’d say for us that’s probably what’s on the horizon.
Michelle Kesil (17:32)
Yeah, sounds exciting.Michael Margarella (17:34)
Yeah, for sure. We’re looking forward to it.Michelle Kesil (17:36)
What are some of the challenges that you’ve experienced as you’ve grown your business and how did you overcome them?Michael Margarella (17:43)
Yeah, I’d probably go back to the economy there. ⁓ So there’s been lots of fluctuations the past few years and just ensuring that you’re insulating the business as best you can ⁓ through that uncertainty. So, ⁓ you know, we try to mitigate it as best we can during underwriting and purchasing right and having conservative assumptions. But, you know, of course, you hear everybody say that and it really comes down to putting pen to paper and actually doing it. ⁓ So we like to think we do.pretty good job of that. ⁓ like I said, just trying to stay active despite some of the uncertainty. I think that that’s a key there. ⁓ So we do our best to keep the ball moving forward.
Michelle Kesil (18:23)
Yeah, amazing. What do you feel are some of the strategies that have allowed your business to grow?Michael Margarella (18:31)
Yeah, I’d say, ⁓ you know, just focusing on working with people we know, like and trust, as I mentioned earlier, you know, we certainly have it’s ⁓ the jockey, not the horse type mentality where, of course, you know, the projects we purchase are important. ⁓ But for us, it’s the people that are actually managing them and operating them that are most important. So that, of course, is us and it’s our property management team.⁓ It’s our vendor team as well. So those relationships are super important. We wouldn’t be able to operate our business without those relationships and ⁓ knowing, you know, who you could turn to when certain things come up is ⁓ super important. So ⁓ we do our best to keep relationships as strong as possible and that’s something that we’re always focused on and we’re always strategizing regardless of where we are.
are at in the business.
Michelle Kesil (19:30)
Yeah, relationships are everything in the space.Michael Margarella (19:33)
Theysure are. Yeah. And, you know, we touched a bit on referrals earlier and that’s not just with investors, right? That’s with brokers even. So ⁓ obviously you get more credibility as you close additional projects and those brokers are going to send you additional deals and word kind of gets around how you handle your business while you’re under contract. Are you a group that retrades a whole bunch or you a group that, you know, gives sellers and brokers a lot of heartache during
Michelle Kesil (19:41)
Yes.Michael Margarella (20:01)
due diligence or you’re an easier to work with buyer, right? And so we’re always kind of thinking about the next transaction. during due diligence, you know, ⁓ we usually don’t retrade, right? And we’ve only done it in an extreme circumstance on one occasion, right? And so ⁓ for us, like always thinking about the future and always thinking kind of one or two moves ahead is ⁓ something that I think is super important.Michelle Kesil (20:27)
Definitely. You mentioned capital raising is one of the main things that you guys work on. Do you have any specific ways that you have found work best for you?Michael Margarella (20:37)
Yeah, for sure. So I think many folks are looking for alternatives to the stock market or bonds nowadays. ⁓ So it’s really just getting in front of those people and it’s becoming known as sort of the real estate guy, right? Like, as I mentioned earlier, I I hadn’t even thought about investing in real estate when I was trying to figure out what to do with with my funds. And I think there’s a lot of people out there whoeverybody kind of wants to invest in real estate, but nobody really knows where to start. And sometimes it’s just not front of mind. So I’d say doing your best to position yourself as, you know, a subject matter expert on real estate, such that people reach out to you, ⁓ I think is a big key. And, you know, you could do that via ⁓ social media, via email campaigns, just talking about real estate, going to networking events and networking events that sometimes aren’t even real estate related, right? Just…
investment type events or community events, B &I groups, things like that. And just talking about real estate and being the real estate guy, I think gives you an edge there. And I think ⁓ that kind of allows you to become a magnet where ⁓ people are coming to you. ⁓ And once people do come to you, I think what is very important is ensuring that you’re not pitching anything, right? Because you’re not trying to sell anything. think ⁓ for us, our mindset is we’re
providing an opportunity and the opportunity is an investment, it’s an alternative to the stock market for example. So just having investors ⁓ understand that I think is key.
Michelle Kesil (22:09)
Yeah, definitely one of the key things. So before we wrap up here, if someone wants to reach out, connect, learn more, where can people find you?Michael Margarella (22:18)
Yeah, please visit our website nextplayinvestments.com and all of our contact information is there and we’d be happy to connect.Michelle Kesil (22:25)
Perfect, well, I appreciate your time, your story, and your perspective. Thank you for being here. Of course. And for those listeners that are tuning in, if you got value from this, make sure you’ve subscribed. We’ve got more conversations with operators like Michael who are building real businesses. We’ll see you on the next episode.Michael Margarella (22:30)
Thanks for having me.
