On this episode of the Investing for Freedom Podcast, Mike talks to Mike Hananel, an expert in the real estate investment field. Mike talks us through his background, and he predicts that 2020 is the start to the biggest shock to the economy that we’ve seen since the Great Depression.
“I tried everything at one time or another, but I just kept coming back to apartments as the number one thing you can invest in.”
HIGHLIGHTS:
0:00 – Intro
1:49 – Mike’s parents, his mentor and his wife had the biggest impact on him in his life
4:49 – Mike’s says his ability to reinvent himself has had the greatest impact on his success
7:05 – Mike’s biggest setback was when raised $2.5 million from 27 investors and everything went wrong, but he never gave up
13:27 – People mostly ask Mike about investing and the markets
15:23 – Mike would actually recommend people not to buy right now, and sometimes talks himself out of a deal
19:25 – Mike started in cosmetics after getting a job from the UCLA job board, and eventually left the company as the COO
24:13 – Mike had the opportunity to start an internet company, for which they got VC funding, a year later they sold the company to Estée Lauder
28:15 – Mike realized he’s not a corporate guy
30:26 – After his rent was raised twice, Mike decided it was time to become the landlord rather than the tenant and he bought his first property
33:35 – Mike started a consultancy company which he still has to this day
34:49 – Mike looked at many ways to invest, but always came back to real estate and apartments
39:41 – The frequent new laws in California will chase landlords out, which is good for Mike
42:12 – Mike is a realist, and everything Mike does is in preparation of the next economic downturn
43:17 – This recession will be the greatest shock to our society, based on Mike’s knowledge of cycles
44:08 – Mike doesn’t listen to the news, but listens to economists he trusts
45:37 – Mike owns a management company in LA, where he shows people how do the work themselves
49:42 – You only have to be right more than you’re not right in real estate. It’s easy to get emotionally charged up with optimism, but the numbers won’t lie
FULL TRANSCRIPTION:
Mike Ayala: Thank you for joining me on the investing for freedom podcast. I am super excited about the show we have in front of you today. I’ve got Mike Hananel on the podcast and I’ve had the privilege of getting to know Mike through gobundance and I’ll be honest. My mind was blown at the last event that we just got back from at Breckinridge. Just listening to Mike talk on a panel called Cassius trash, which is kind of what inspired my last little podcast rant, but there’s a few people in my life. Robert Kiyosaki being one of them, Ed Griffin, who I’ve had the privilege of spending some time with at dinner and on the real estate guys cruise over the last few years that have really just changed my way of thinking and next to you know, them too. And probably Jim Rickards as well. Mike Hananel is probably really been an advocate around some of the things that I agree with. And so I’m excited to have him on the show. So Mike, I appreciate you carving out the time and being here for us.
Mike Hananel: Absolutely happy to do it. Thanks Mike.
Mike Ayala: So stay tuned because we’re going to get into some really interesting stuff, but you know, we’ve got to do the thing. We’ve got to get to know Mike Hananel a little bit here. So Mike who’s had the greatest impact on your life?
Mike Hananel: Well, I mean, I would say probably my parents formed me at a very young age, so I would say they had a huge impact, but professionally I would say I had a mentor who was really like my first real boss at my first real job back when I was in college. Her name is Saundra Love and she was my boss, but also my mentor. She taught me so much about business and how to operate in business. She also showed me what vision means and what it means to have a vision. She had a vision of creating a cologne, because I was in the cosmetics industry back then. And the cologne was for Michael Jordan, which at that time in the mid-nineties was, you know, while he was, you know, at the peak of his basketball career. So he was pretty busy, but yet she did not give up on her dream for five years of wanting to do a cologne. And for five years he said, no. And his manager, David Fox said no, and she just never took no for an answer and just kept pursuing it and kept pursuing it. And eventually after five years one day we got a visit from Michael when he was shooting his Warner brothers picture Face Jam with all the loony Toon characters. And we got a call that he was coming over to see us in the office. And my boss Saundra was so excited and jumping for joy. Oh my God, Michael is on his way, I’m like Michael! Michael Jordan! Oh my God. It’s so, it was just an amazing moment after five years of really I was the guy behind the scenes in charge of operations, like getting things done, getting samples made, getting new concepts developed. But she showed me what it means to have a vision. And no matter what the world out there tells you, you’re singularly focused on hitting that vision no matter what. And I learned so much not only from that but also just the way in which she treated people, the way in which she showed love and compassion in business. And you know, especially nowadays capitalism sort of has, seems to have an ugly tone to it though. The media is portraying it, but actually most of the capitalists that I know or people in business that I know tend to be loving, compassionate, giving people and she was a prime example of that. So for me in business, I would say it had to be Saundra, but then of course I can’t leave out my wife who also had a profound impact on me and we have two beautiful boys. So, you know, since, Saundra and those days, you know, I would say lifelong impact my wife by far, the biggest impact in so many ways. She’s a rock star as well in business. And she’s also a visionary and a marketing genius, still in the cosmetics industry, which is where I met her. So there you go. I gave you a few people, but I try to focus it on one.
Mike Ayala: No, I like it. I like it. There’s just a lot of good stuff in there. I had no idea you were came from the cosmetics industry. That’s cool.
Mike Hananel: Yeah, that was my background. Yeah.
Mike Ayala: We might circle back to that, if you could narrow it down to one thing that has had the greatest impact on your success, what do you think that would be?
Mike Hananel: I would say it’s my ability to reinvent myself. I feel like many times in my life, I’m like a Caterpillar turning into a butterfly at different stages and in different aspects of my life. But I’m always somebody who’s searching for growth and development, personal development. I’m obviously with you involving GoBundance, which is a huge, been huge for my personal development, but, you know, even things like Tony Robbins and just any kind of chance to learn and grow. I feel like I’ve probably been able to reinvent myself many different times in my career, my personal life and my spiritual life. And that’s what has certainly made, I think my life interesting, but also made me always sort of excited about the next butterfly that I might become. I don’t know what it will be. And often I don’t, it’s not things that I necessarily plan, but just sort of how your life just goes. That ability to see the world sort of with new eyes each time. I think allows me to grow and evolve and, you know, and it’s created a lot of success in my life, in different areas of my life, but it’s something I think is pretty unique.
Mike Ayala: I love that. A lot of times I talk at investing for freedom, I try to keep it simple, but there’s just kind of a five-part formula that I talked through. What do you really want? Why do you want it? What are you going to do to get it? Measure results and then the last part is adjust. And this is where I start to lose people a lot of times because people get so focused on. And I think a lot of this is our training, you know, go to school, go to college, get good grades, get a job, you know, spend the rest of your life working for, we don’t give ourselves permission to change. And I think that’s so important. The ability to reinvent yourself. I love hearing you say that we might unpackage that some more, but so many times I have people come back to me and talk about that adjust part. Well, we’re not supposed to just set our goals aside and this and that. Well, I agree with that until you decide that you’ve changed what you want to do in life or your outcome or whatever, and you’re in charge of that. So I love that. That’s pretty powerful. What was your greatest setback and what’d you learn from it?
Mike Hananel: Well, I mean, as you know, as an entrepreneur, you are going to have a lot of setbacks over in time. I’d say one of my biggest one was when I put myself out there in sort of the biggest way at that point in my career when I did a huge real estate syndication in Buffalo, New York, and I live in Los Angeles and I raised you know $2.5 million from 27 different investors for a large piece of the deal is 387 apartments in Buffalo, New York that we acquired all at one time. So I put myself way out of my comfort zone. And then for the next five years, everything, and anything that could possibly go wrong, owning apartments happened to me. I mean, things from like SWAT team raids to, you know, fires, multiple fires, murders, rapes you know, I mean, anything horrible that you could think of that humans can do seem to have happened in my apartment buildings in Buffalo, those first five years. I mean, I had just inherited a portfolio of properties that came with some of the most interesting people I’ve ever come across, certainly on planet earth. And so, you know, just when you didn’t take it could get any worse, it kept getting worse. There were definitely times where I wanted to throw in the towel and I was like, all right, Buffalo, you just don’t want me here. I’m from LA. I get it. I’m an outsider. You don’t want me here. And you know, I almost, there were times where I really wanted to give up, you know, it was that bad. But my wife actually, I still have it here. She sent me this one time when I was out in Buffalo for two weeks, it’s a paperweight, but it says never, never, never quit by Winston Churchill quote in there at the bottom Winston Churchill. So obviously if he had ever quit, we might all be speaking German. I probably wouldn’t even be alive. But the idea that no matter what, and so given the support and love of my wife and we had two young kids at the time, she’s like, you got to just stay in Buffalo, just keep doing it. Don’t quit. And luckily, you know, I did that, it took about five years of not quitting. I literally had entire, like a four drawer filing cabinet in my office. I just labeled it hurdle number one, hurdle number two. And I ended up with, you know, dozens and dozens of hurdles, whether there were lawsuits or fires or insurance claims, or like I said, just about everything horrible you can imagine one after the next and I just kept plowing through it. That was certainly some of the biggest step back because I was, you know, personally on the hook for $8.3 million on the loan. So I personally guaranteed that. So it was a matter of life and death. Like if it didn’t work out, you know, they’re going to come from my house, my car, you know, everything else. And so no matter, you know, pretty much had to make it work, but it was a pretty major setback and it was a pretty low and dark time, certainly at times. But you know, I made it through and I’m certainly stronger for it. Like they say, what doesn’t kill you makes you stronger. And it’s certainly true.
Mike Ayala: You know, I’ve talked to so many people that you know, I think a lot of times, even now there’s so many syndicators. I mean, you’ve been at it for a while, but over the last, you know, five years, 10 years it’s become like the new thing to do. And I started syndicating during that time too. So I’m not putting myself where you’re at even, but I think so many people think that it’s just going to be this easy road and you know, it’s that three feet from gold conversation and the fact that you plowed through that is pretty impressive. So now today, and I don’t want to miss question number four, but would you say that that experience is, I mean, you’ve got a property management company now, you’re deep and multifamily, which we’ll get into more, but if you hadn’t plowed through that first one, would you have continued on?
Mike Hananel: No. I mean, if, you know, there was points where I was ready to just walk away and to be done, you know, and just say, yeah, I got my ass handed to me and that was it. Of course the fact that I didn’t and I plowed through it, I just kept looking at this paperweight, you know, and just remembering my wife and my kids back at home while I was in fucking frigid Buffalo, which was, you know, like negative 30 degrees at time. And of course my car got broken into, and then they stole my driver’s license and I was supposed to fly home after two weeks in Buffalo. And I couldn’t fly home. I mean, literally like just anything and everything you can imagine horrible just kept happening. But if I hadn’t been through all of those things, I wouldn’t have the confidence I have today to do the business that I did. So it was funny. And I grew up in Los Angeles, which is a very large city. It’s the largest in terms of rental multifamily housing in the United States. It’s a primarily a rental market. It’s a very expensive market. I mean, obviously New York City’s expensive, San Francisco as well, but we have more units here and it’s spread out over a huge area. And so there’s a lot of opportunity here, but it was always expensive. Even back when prices were lower relative to other markets, it’s always been expensive. And so for a new guy starting out in multifamily, it was very hard to penetrate. I mean, I did do a few deals. I started in real estate back in 2002 and I did a few deals and that is what launched me to do my bigger deal in Buffalo and sort of keep growing. But I never probably would have had the confidence to be a significant player. I mean, I’m not huge or anything, but like, you know, a decent size player here in Los Angeles without having the Buffalo experience. So it definitely gave me more confidence that if I can go through that, there’s nothing you can throw at me here in LA that I haven’t already been through or worse. And so, yeah, it definitely fueled my personal growth, my professional growth. And like I said, it’s given me the confidence to do what I do in a very difficult, expensive market where you have a lot of big institutional money chasing deals. And so I found a way to be that sort of nimble smaller player and pick up the 12 unit or the eight unit or the little deals that the bigger guys don’t care about as much. And just find my little niche. So, yeah, it’s definitely fueled my career. And there’s no question about it.
Mike Ayala: Awesome. What is the piece of advice you find yourself sharing the most?
Mike Hananel: You know, people often ask me about investments and investing. And so I’m often talk, that’s what I talk about the most. Because what I know about the most in terms of it’s my passion, it’s what I love to do. I read about what’s going on in the markets and all markets, you know, obviously real estate, but also even just staying aware of banking and finance, cause that obviously has a huge impact on real estate. So understanding what’s happening and banking and Federal Reserve, you mentioned, you know, G Edward Griffin. I got the pleasure of meeting him as well. Also one of my idols as well, and got him to sign my book, the creature from Jekyll Island, of course, that he’s famous for. And so, you know, constantly learning about markets and staying in touch with the markets is what I enjoy. It’s what I’m passionate about. It’s what people ask me about the most. So, you know, lately with what’s going on with Covid and the beginning of, you know, what I believe will be the greatest depression. I think this will be far worse than people are realizing. I believe also it’ll turn into the greatest opportunities, but the biggest advice I’m giving to people these days is don’t be too premature jumping into anything right now. Cause if you just look at the last recession, 2008, you know, till 11, let’s say the best opportunities for buying were really like in 2011, it took about three years until it really bottomed out and so if this is the same or worse than that one, you know, it should be another three years probably till the best deals. It could be even longer because now the fed and the government is printing all this money, unlike the last time where they did print money, but not at the scale and the level of the printing now. So that could actually delay the inevitable of this, you know, downward pressure in markets, even though I’m in real estate and I make a living selling and managing apartment buildings for clients, you know, I’m not a very good salesman because my advice is don’t buy something right now. You know, I’d love to, earn a commission, but I don’t ever earn a commission at the expense of what’s right. You know, I always feel that you got to do what’s right for people. And I tell people what I would do. Now it doesn’t mean everyone agrees with me. I might tell people don’t buy it. And they’re like, well, that’s nice, Mike, thanks for advice, but we’re going to buy anyway. Okay. I’ll write the offer. You know what I mean, like I will always, you know, be a good service provider and provide the service people want. But if you ask my opinion, I’m also going to be very honest. And sometimes I talk myself out of a deal and that’s fine. I’m in it for the long haul. I’m not in it for the one off deal. Really my broker’s business is a way to feed my client’s investment business. And I look at it purely from an investment perspective. So it doesn’t matter if I do a deal or don’t do a deal. What does matter is that I give at least my opinion and then I feel good. Like I can sleep at night. I told you whether I would do the deal or not, now sometimes I am wrong and they’ll find a deal and it turns out okay. But sometimes aren’t right and I’m not one to ever go back and say, well, you see, I told you so, but at least I feel better that I did say something. I did let them know my thought about it, because I do think anyone who’s buying right now in real estate is going to have a problem. I don’t expect that the upward trend we’re seeing is going to continue forever and in fact a lot of markets real estate prices are going up again still right now, or even more so now. But it’s in my view, temporary. What I am advising people to do is to invest in gold and silver. I think that’s your best investment. If you asked me, where do I put my money right now? There’s no better investment than silver. And second to silver, I would say gold. And that’s where I’m putting my money. Every time those prices dip, I buy a little bit more and in my view, that’ll protect my other investments if there is a big downturn like I’m expecting, but it also gives me the opportunity for liquidity, if, and when the opportunities come around, which I think they will in a couple of years I’ll be ready. Because I expect gold and silver prices should be much higher by then. And then I can liquidate gold and buy real estate, hard asset for hard assets. So I’m a huge believer in hard assets. And you know, one of the things I advise people is to, but I don’t really give financial advice. I like to just tell people what I do and what I do is, I always try to rebalance every quarter. I look at my net worth if I’m trying to always rebalance to ensure that at least two thirds of my net worth is always in hard assets. And hard assets are obviously real estate, gold, silver. I mean, there’s others, but those are the primary ones that I focused on. And then paper assets are cash in the bank, you know, or even a hundred dollar bills sitting in your safe or what under your mattress or wherever you keep it. That’s still a pay for assets, stocks, bonds. Those are all paper assets. So a lot of people have maybe a house, but it’s really their house. And that may not even be an investment. It’s really just a place to live. And all their other investments are in stocks and bonds and they think they’re diversified. So what I try to say is you’re really not diversified. You’re still all paper assets, you know, get more of that in a hard assets. And then I think you’re more diversified. So that’s the advice I give lately.
Mike Ayala: I love it. And this is why I wanted to have you on the show. Like, obviously there’s so much to unpackage there. But let’s rewind a little bit because the thing that I heard, you’re a real estate guy. And this is what I love about having conversations with guys like you because you are in the industry, you’re a real estate guy. And so I want to package that a little bit first. So let’s just go into we heard the Buffalo story, but obviously you started in cosmetics. Just kind of bring us fast forward to your business where you’re at today. Just give us kind of the 30,000 foot view on how you went from cosmetics to real estate and what brought you to today.
Mike Hananel: Sure. So when I was at UCLA, which is where I went to college, like I said, I’m from Los Angeles. So I grew up here. I went to school here, I needed a job. And I went to the job board at UCLA and there’s this ad for, I couldn’t even pronounce it at the time. It’s Bijan, fragrances, it is Bijan. And I was like, is that [21:58 inaudible]? How do you say that? I didn’t even know, it is Bijan fragrances. And so all I knew it was at that time when minimum wage was like, I’m aging myself here, $4.75 cents an hour you know, they were paying $7 and I was like, wow, that’s amazing. What do I got to do for seven bucks? And all I had to do was answer the 800 number and take orders for people buying perfume over the phone from magazine ads that they were placing. So that’s how I got started. And over the years while I was at that company, because it was a small company when I started in the 1987 is when I started there while I was, it was part time. Then I graduated UCLA in 92 and I kept working there back in the early nineties. We had another big recession, a lot of college kids didn’t think they were going to have a job kind of like today. Weren’t sure what jobs were even going to be available, if any. And so I was just lucky that I had a job. So I sort of fell into the cosmetics industry by accident. And apparently it wasn’t an intention. But because like I mentioned earlier, my boss, Saundra was such an amazing mentor and she challenged me. I’m obviously a learner. I’m always someone who is interested in learning new things. So as I would start in answering the 800 line, then I wanted to learn, well, what happens after I placed the order? How does your order go out? Well it’s packed and picked and packed and shipped and we’re going to, you know, we’re going to build our own warehouse. Cause we’re a growing company. I was like, oh, what can I be involved in that? And sure, come out and help us figure out where we want to put the warehouse, which was in Corona, California. And then as we grew from 12 people in the company to, you know, by the time I left, which was 12 years later and the Michael Jordan cologne thing was a part of that journey. You know, we had gone to we were a $200 million a year revenue company. We had 130 employees. So even though I wasn’t an owner of Bijan fragrances, I was there at the early stages. And because I was very curious and always watching and learning everything. And because they had a great boss who allowed me the opportunity, you know, she was like, well, why don’t you go work in the warehouse for a few months? So I actually drove the forklift and I loaded the pallets and I unloaded the truck and I shrink wrap the pallets and I picked and packed orders. And I really loved and enjoyed the process of doing all aspects of the business. So I totally understood what it took to get it done. Over the years that I was there I kept getting promoted. Eventually I left as the chief operating officer and vice president of operations overseeing the operations of the entire business. But it’s only because I got to keep learning each step of the way, even for a while, I hated it. But my boss was like, you should go out and work in sales behind the counter at Macy’s department store selling fragrances. I was like, oh nah, no, no, no, I don’t want to do that. She’s like, well, it’s the only way you’re going to really know what it’s like to be a sales personnel on the front lines. When you’re bitching about picking a packing orders or this problem in operations. Now you’ll have an understanding of what it’s like when you’re standing in front of the customer and the pump doesn’t work or whatever the problem, you know what I mean? And so she was really smart and saying, you know, go work in sales, go work, I even worked, I worked with the international division and we rolled out the fragrance in San Andres Colombia, which was amazing as a college student, I actually had to get permission from my professors to take off and go to Columbia. Because it was during finals and I had to reorganize all my finals. So I was like, it’s a once in a life opportunity. I’m going to go to Columbia. You know I mean, this was exciting stuff as a college kid. So I didn’t really expect to be there that long, but like I said, because of those opportunities and then of course she came up with the Michael Jordan idea and then we blew that up. Now that was my first kind of entrepreneurial experience because the owner of Bijan fragrances was smart and it was him and Bijan was one of the owners and his partner Dar who was a real estate guy. Interestingly enough, he would always talk to me in analogies about real estate. You see when I built this condo project and we had a price out windows, you know, and he would teach me about negotiating price through real estate examples, even though we were in the cosmetic space. So that was sort of my first intro, a little bit to real estate from a guy who owned, he actually was the largest privately owned real estate developer in Beverly Hills, he owns half of Rodale drive. They still own half of Rodale drive from the Rodale collection mall, which is where our office is were to Santa Monica, which is some of the most real estate, expensive real estate in the world. And so eventually I had the opportunity to start an internet company because my secret girlfriend who’s now my wife, because I met her at work. So she was head of marketing. I was head of operations and our boss, Saundra, who I mentioned was our mentor and her mentor as well. I’m not sure if she knew that we were dating, but we certainly didn’t tell her, but she also was pretty smart and so she probably had a sense. But she was very, we were all very discrete about it and sort of went on for years. And then we worked on the Michael Jordan club project. And then when we did that project, we have the opportunity to actually own some shares, like 10% of the company or something like that, something tiny. And so I felt like now I know what it feels like to own a company and to be an entrepreneur, although it’s not really the same thing, cause I have no control, no voting rights, you know, it didn’t really mean anything to me, but at least it made me feel like I had some ownership in the Michael Jordan cologne thing. So that’s sort of what launched us into entrepreneurship. And then in 1999, my wife had a business plan that she had developed with a friend of hers, for a TV show in the cosmetics industry. And then that was now the internet era of 1999 at the beginning of like, you know, massive internet tech boom. And so her friend who was living in San Francisco at the time, knew someone at CSFB bank credit Suisse first, Boston, and basically was saying you know, why don’t you turn your TV show idea into an internet idea. Maybe we can get funding for it. And we’re like, okay. I didn’t really even know what the internet was exactly at that time. I knew that I had this AOL account and they sent you a disc in the mail. I mean, I know I’m dating myself again here, but they sent you this disc in the mail, you put it in your computer, you got to plug in your phone line. And then it makes all these weird noises and you’re like chatting with girls. I was like, well, that’s kind of interesting. I could chat with girls like live in person, but you couldn’t see anybody. Cause the internet connection was really slow of course. And so from there we launched an internet company and we got VC funding, which surprised the hell out of all of us. And so that’s how I left the cosmetics industry and became an entrepreneur. We raised $4.7 million with two Silicon Valley lead investors. If you ever watch the show, Silicon Valley going to raise capital is exactly like they portrayed in that show. You know, it’s just, it’s really funny. All these different characters, one guy is always on his back then Blackberry, no time to talk. Well, what’s the point? What’s the, you know, just get to the [28:54 inaudible]. 30,000 foot like, what are you talking about? You know, okay, I got to go, you know, and those, and that’s how you try to raise money. It was a crazy time, but because we were coming from the cosmetics industry, we were experts in that industry. We didn’t really know much about technology or the internet. They’re like, all right, we’re going to hire a CTO. We’re going to bring in some tech support, but at least you guys have an understanding of this, of the cosmetics industry and how to, and how to market to the consumer. So that’s what led us in our entrepreneurial journey. My girlfriend at the time now wife and a third partner got together and we started this www.gloss.com was the name of it. A year later we sold the company to Estee Lauder companies, which is the largest cosmetics company in the United States. You know, Estee Lauder owns like 50 different brands. So when you go into, well, if you did go into a department store, I think they’re all closed now. But when there were department stores and you walked in, you know, most of those first things you see in the cosmetics counters, you know, more than half of them were owned by Estee Lauder. Because they’re all these different brands, you know, Clinique and Bobby Brown and [30:05 inaudible] cosmetics on and on and on. They’re all Estee Lauder brands. So by selling our company to Estee Lauder in the paramedics industry, that means you’re like, you’ve made it. You’re like at the number one. I actually moved to New York City. Our offices were on the 41st floor of the GM building, overlooking central park. Like, you know, I felt like, wow, I was, I had made it like, this is it right. And for me it was very disillusioning. Because it struck me very quickly that I’m not a corporate guy. I can’t work in a big company. I can’t work at the government because these types of places forced you to pigeonhole you into a little box and I never fit into any box, whatever box there ever was. I never fit into any of them. I might’ve been a little bit in this box, a little bit in that box. And so it drove me nuts because we couldn’t make decisions. I was used to being an entrepreneur, making decisions in a small company, we make a decision and we implement it within five minutes. You know, here, you deliberate over decision for two years before you even make a decision. And it just, I just, I couldn’t take it. So that’s what’s and my like, well, what am I going to do with the rest of my life? Because now I had already made it to the top and there was nowhere else to go. But maybe down in the cosmetics industry. I never, I realized I never chosen to be in that industry. And so after two years with Estee Lauder, I moved back to LA during all of that, actually before the internet thing I started, I did buy my first piece of real estate. I didn’t quite know what I was doing. All I knew was, I was a tenant in an apartment building that was not under rent control. And I didn’t really understand about rent control back then. And my apartment was $695 a month. And then after a year they raised me to $750, which I thought was kind of a big increase. But then a year later they raised me to $850 and I was like, wait a minute. How is that even possible? I mean, these are small numbers nowadays, right. But back then, that was like, you know, that seemed like a lot of money. So of course there wasn’t any internet. This was in the mid-nineties. So I’m like, I got to figure this out. So I went to the library and I asked librarian, how can I look up local laws, regulations? My building raised my rent. Are they allowed to do that? How do I look the laws up on this kind of thing? And she’s like, wow, there’s, you know, LA has rent control and here’s all the stuff you can read about rent control. And I started reading all these things on the microfilm and all this, you know, like just researching this. And I was like, wait a minute. So if the building was built so 1978 or before then they cannot raise your rent except for what the city tells you. But if it was built after 1978, they can raise the rent whentever you want. I was like, man, I need to be the landlord. And not the tenant. Like that was just the moment where I decided I have no idea what I was even saying to myself or thinking or why, you know, like, I didn’t know anything about it, but I just knew like, if they can do that to me, then I want to be them. Like, that’s just, that’s all I knew. And that was the seed that sort of got planted in my brain in 1998. But then it wasn’t really until 2002 that I actually started thinking more about it. So in 1998, by the way, I did buy my first property, I got out of the apartment that I was in. And I bought a fourplex and I moved into one of the units. And then within six months, one of my tenants moved out, which I was really concerned about. Cause they didn’t really have any money left to fix it up. Luckily it was in good enough shape I was able to clean it and paint it myself. And then I was able to raise the rent because they had this thing called West side rentals, which not online back then, but it was like a newspaper thing. And you get this thing and just like people from the West side of LA read it. And my building wasn’t really on the West side per se, but it was sort of West enough that it was like, maybe I can get the rents they’re getting all the way in Santa Monica. You know, I thought, I don’t know, I’ll try it. So I put a ridiculously high rent, not thinking I would get it. And I got it. And the rent went from like $600 bucks a month to $950. I didn’t think $950 was possible, you know back in 1998. But because the rent went up that much. Now I was living rent free. Like the three tenants in my fourplex paid all my mortgage, my taxes, my insurance. I was literally living in my two bedroom apartment for free. And if I wasn’t married with kids, I’d probably still be living there. It’s like free is pretty good. It’s easy to get comfortable, and I think if I didn’t have my wife, I would have gotten pretty complacent. I would not be anywhere near where I am in my life now, if it wasn’t for my wife, she’s definitely someone who pushes me. But what’s interesting is that that seed was planted. And then 2002 came along, trying to figure out what to do with my life. And I’m thinking maybe I should sell my little fourplex and like trade it up for a bigger property. I didn’t quite know about 1031 exchanges and any of that stuff. I did however remember that I played poker with a guy eight years before this and that this guy was some hot shot, real estate multifamily expert. That’s all I remember. Like he was really full of himself, knew everything about apartments. And he was, he just left this imprint, but I couldn’t remember his name. So I called my friend. Hey, you remember that guy we played poker with and knew about apartments. Do you remember his name? He said, yeah, here’s his name, here’s his number. I called him up. He shows up at my fourplex in his red target Porsche convertible, blasting the music with the top down. And he’s like, Oh, is this the four points I’m going to list? I’m like, well I mean, I haven’t decided I’m going to sell it, but I am thinking about, you know, maybe I should sell it. Maybe I should get a bigger building, you know, like how do I, what do I do? How do I do that? And so that’s what really started me on the journey. At that time like I said, I left the cosmetics industry. I started a consulting company in the interim and figure out kind of whatever I want to do with my life. I knew my experience had been in growing business. Having been at Bijan and then the Michael Jordan thing and now the internet thing. And so I had a few entrepreneurial successes under my belt. So I leveraged that and created strategic growth consulting services, which I actually still have to this day, although my wife does most of the consulting work now for it. We help mostly small to medium sized companies grow you know putting systems into place, putting in a three year plan, five year plan and helping them to implement the plan. So while I was doing consulting and now this guy’s listing my fourplex and helping me exchange, I ended up doing a 1031 exchange into an 11 unit building. He started to talk to me about getting involved in the business, in real estate. And I was like, no, I don’t want to get into sales or do any of that kind of stuff. I’m just looking as an investor. I’m just thinking, and that time I was also just exploring all the different things you can invest in. So I looked at stocks, I looked at bonds, I looked at oil and gas. I looked at real estate. I was reading books on stock investing and the Warren buffet way and the Peter Lynch books and things like and during those years I ended up coming to the conclusion, which was kind of an interesting for me to circle back that of all the things one can invest in. And of course this was over a period of years, but I was trying and dabbling in all these different things. And I never could figure the stock thing out because it seemed to be something completely out of my control. Other people in Wall Street are doing things and that’s affecting my net worth and so I kept coming back to real estate and then I even explored within real estate. Is it like house flipping? Is it apartment buildings? Is it hotels? Is it commercial, other types of commercial assets? And I really did a lot of like research. I’m very, I don’t know, I’m very research based. I do a lot of reading and a lot of studying. I spent a lot of time in my head. Of course now I’m working on getting more back into my body and my spiritual side, which is a whole different, you know, I’m reinventing self in that area. But for years before all of this I lived in my head and yeah, you know, just constantly reading and studying and learning and trying to figure things out. I kept coming back to Apartments, it is like the number one thing you could invest in of everything. And like I said, I tried everything and anything at one time or another, I’ve certainly lost money on a bunch of different investments. It didn’t work out. But I just kept coming back to apartments. The funny thing about that is that when I was a kid, when I was 10 years old, my mother, for some reason who had no business experience, who really had never actually even really worked, she was more like a housewife back then you know, in the sixties, seventies. And she came up with this idea in 1978, that they should buy an apartment building. And my dad didn’t quite understand why or what we were doing this for, but kind of had this gut feeling like, you know, we should do this, but they didn’t have enough money. So they borrowed the money for the down payment from my dad’s parents. And then they bought their first apartment building, which I still, my sister and I now have inherited it. We still own it to this day. That one seven unit apartment building is what carried my mom the rest of her life. My, parents ended up buying one more building. They got divorced when I was 13 years old and they each got one building and they pretty much lived the rest of their lives on those, one building each, which is like crazy. Now of course, LA the rents were really high. By that point they had paid off the mortgage. And I remember thinking as a kid, well, if these apartment buildings worked out so well for them, why didn’t they buy more of them? Like why did they just buy one? And so now here I am years later after all of my stint in the cosmetics industry and I’ve come to the conclusion that my mom was a genius, even though at the time I hated it because that man is 10, 11, 12 year old kid. Every time there was a vacancy, we had to go over there, had to scrub the toilets, paint the apartment, change the locks, do all this stuff cause they couldn’t afford to hire anybody. And so, you know, we did everything ourselves, which is why I hated it and why I thought I would never be in this business growing up. And now here I am in the multifamily business. So very interesting how life comes around full circle, but I had to come to that conclusion on my own, with a lot of research and a lot of studying. And I truly firmly believe for the average person. The number one way to build wealth is to create a business and build a business. There’s no question about it, but that’s hard. And not everyone has the skillset. You have to be able to lead people, manage people, inspire people. That’s a very difficult skill. It means you have to work on yourself to get there. So if you can’t build a business to create wealth, I think the number two best way to build wealth is let’s say you make a lot of money at your job. You have a high paying job. You’re an executive at a big company, whatever. Then the second best way to build wealth is invested in real estate. And in all the places you can invest in real estate, to me, multifamily is the most accessible to an investor. You know, it’s very hard to start out and buy a shopping center or an industrial building. But it’s not so hard to buy a duplex or a fourplex or a six unit or whatever and sort of figure that out and little by little, you can really build wealth. But you know, due to so many different reasons. I mean, it’s actually in my book that I haven’t published, but I did write a draft of a book about investing in multifamily about the five ways in which you make money investing in real estate. And there’s really no other investment where you can make money and build wealth as easily and quickly as in real estate. And it’s all entirely based on the Fiat currency system that exists in the world today. Maybe if that system changes one day, that will change real estate. But as long as the Fiat currency system exists there really is no better way because they’re boosting the system in your favor. And so, you know, that’s how, once I made that determination, I went full speed into learning property management, learning the business. I eventually got my broker’s license and I’ve made a career out of it and that’s why I plan to do the rest of my life. I love it. It’s interesting. It’s fun. It’s difficult. It’s challenging. And especially in LA and California, now there are new laws, literally every day about what you can do or can’t do certainly a moratorium on evictions of course, and all kinds of new laws. So I actually think it’s going to chase a lot of landlords out of California and certainly out of Los Angeles which is good for me. Cause I’ll be the only one left or one of the few let’s say left. And I’ll be able to pick up the pieces of what’s left in this market in a few years. So that’s my grand strategy of how I got to where today. Sorry, it was a little long.
Mike Ayala: No, I love it. And obviously for the listeners, we’re going to make this a two part series. I’m glad that you shared all that. And again, there’s just a ton of value and wisdom there. But I really wanted you to share that because some of the stuff that we’re going to get into, you do love real estate and you’re a real estate investor and you’re an advocate of business and you’re an advocate of wealth building. But on the other side of that we’re in some interesting times and a lot of times, you know, we get in our real estate investing circles, we get in our investing circles and everybody’s an opportunist. Like we’re constantly talking about how great everything’s going to be. And literally just even this last week in Breckenridge, I was having some conversations. I lean more toward the camp. I’m still looking for opportunity. And I think there is opportunity, but it’s getting harder and harder. And right now, if I was a new investor and I’ve been kind of putting the brakes on because while I want people to go out and experience what we’ve experienced in life, we need to be double and triple and quadruple careful of investing right now and where we put our money. And so the cash is trash and the cash is King Panel. All of that stuff. That’s really why I wanted to have you on because you are an opportunist. You are an optimist. You are, I don’t want to speak for you, but you’re a capitalist, you’re a dreamer at your core, but you’re saying right now, be careful. So a couple more questions. And then we’re going to segment into probably episode two. You have a property management company right now. Give us kind of the overview. What is the property management company look like? Where are you at high level on, you know, investment? What do you manage? Don’t need specifics, but I just want to give people some context because some of the next conversation parts that we’re going to get into, I really want people to understand that you’re not a doomsdayer, you believe in opportunity, right?
Mike Hananel: A hundred percent. It’s funny. It’s a fine line because I feel like I am a realist. But and I love the quote you know, prepare for the worst, hope for the best, but prepare for the worst. And so I always everything, every investment decision I made, everything I do in business is always in preparation for the next downturn. There’s always going to be another downturn. Of course, now we’re in one. And this one’s a doozy. This one, I think, will be the biggest one. Anybody alive today has experienced maybe with the exception of the great depression. If there are people who live through the great depression, I mean, they’d have to be a hundred years old or 90 years old nowadays. So there’s some people around, they might remember the great depression. Probably not, even if you’re 90, that means you were just born and during the great depression, you probably don’t remember it as a baby, but most people living today do not know what a great depression really looks like or feels like. And I believe that we’re the very early stages of one right now. So to me, this will be the greatest shock our society and the world has ever experienced for pretty much everyone alive on earth today. So that’s a pretty big statement. And I come to that conclusion from many, many years of studying cycles. You know, I’ve read all of Harry [45:44 inaudible] books about cycles and he’s a real doom and gloomier. And he’s been saying, Gold’s going to go down to $700 for years. And I didn’t believe him, which is why I invested in gold. So even though, you know, I listened to certain people that doesn’t mean I believe everything they say, or I agree with everything they say, but my philosophy has always been taken every different angle, every point of view that you can on a particular topic you’re interested in and then make your own conclusions to make your own decisions using your own critical thinking mind, which unfortunately is very much lost in America today. Our media does all the thinking for most people. I don’t even really watch the news. I haven’t more than most of my life actually, but certainly after 9/11, I pretty much turned off the news and really never turned it back on until Covid hit.
And I made the mistake of turning it back on for two weeks and I got really sick. I actually got, Covid, got really sick. And then I realized, you know, this is actually only making me more sick and I turned it all back off again and I’m done, you know, I get enough alerts to know what’s going on in the world, but I certainly don’t watch the news media. I listen to economists who I trust. People Like you mentioned James Rickards, he’s a great source. I’ve read all his books. Another guy I like is Mike Maloney. I’m always taking in information and then I’m making my own conclusions about it. This is a very dangerous time for new investors especially, because and you’re right. We get caught up in the real estate industry where it’s always great. It’s always great. And I’ve always been the one to say, well, I think another downturn is coming and I’m usually a little early, you know, and always said, I’d rather be a year or two too early than one day too late. Because the minute that starts, the market starts going down quickly. Now, unless you get ahead of it and lower your asking price, let’s say, if you’re selling an asset ahead of it you know, you’re going to be chasing that market down for quite a long time. And some people just keep chasing it down and then they may end up losing the property. So it can be a very dangerous time. My business in LA right now. So we’re a property management company managing around 250 units. We’re not a huge company. Remember LA real estate, the average cost per unit is $250,000 a door. You know, so we’re managing a very sizable portfolio of real estate. I own an interest in probably about a third or so of those units or maybe slightly more. And then the rest are third party property management. And these are clients where, you know, some of them were brand new investors and I sort of walked them through the process. I help them. What I like to do is teach people how to fish, right? And not do the fishing for them, but show them how to. So I’ll show people how to underwrite a deal, how to look at the numbers objectively and how to assess if it’s a good deal or not a good deal. Once I’ve taught you how to do this. And some people are better than others with numbers and spreadsheets. It’s not that complicated. Anybody could figure it out if you focus on it. I know it’s harder for some people than other people. For me, the numbers sort of dance in my head and like, they are like magic. I love numbers. And so, and of course with leverage and what you can do with real estate, the possibilities are very exciting. So I love to run the numbers in my head, but I like to teach my clients how to do this. And then I just set them up on my MLS feed and for what they’re looking for. And I let them go to work and analyze deal after deal. And every deal is going to be bad and every deal is not going to cash flow. And every deal is not going to hit their criteria. And then one day they’re like, Oh my God, I think I found a great deal. And then they’ll send me, Mike, what do you think about this? You know, those are the emails I love or those phone calls I love because it shows that they’ve been paying attention. They’re looking at it, because if I do it for them, they’re really not an investor. You know what I mean? I want people to become an investor if, especially if they’re buying it with their money, it’s their property, it’s their deal. It is not my property, I’m going to help you. I’m going to manage it for you and we’ll do a great job. But at the end of the day, you’re responsible for the, you know, I sold a client a building recently, a fourplex, and then Covid hit, you know, I mean, before Covid I could’ve told you exactly what the numbers were going to be. Well now, you know, they had three out of their four tenants not paying. Now the good news is luckily we were lucky, they all moved out. I mean, they could have just stayed there and not pay that, which it would have been horrible, but luckily they moved out and now we’ve turned them all over and it’s cash flowing, which is great. But you know, it was six months of things not going the way they were planning to go. But those are the people I like to work with because then they’re in it for the long haul. And usually they want to buy multiple properties. And after we do a good job on managing this property and hopefully bringing the value out of it, then when it’s time for them to sell it, I’ll get that listing. I’ll help them sell it. And then I’ll help them through a 1031 into their bigger, the next property, which will be their bigger property and sort of keep growing. I’ve got clients I’ve been working with for years who have been, you know, exchanging, exchanging, and just keep building it up. Those are people I like to work with and they’re likeminded people and they call me and I give them my advice, always staying on the cutting edge of what’s happening in the markets and what’s happening certainly in the legal world that relates directly to multifamily. And there’s a lot always happening in LA and in California in general. So we stay on top of that for our clients. And then we give them the updates. We let them know what’s going on. But that’s really, that’s the nut basically of what I do. I just like, I just love, you know, I love the opportunity of looking at a deal, running a deal. And then walking through a building for me is also really fun. I don’t know. I just, I really like it. I always see the, like you said, I am an optimist. My normal stance is optimism. You wouldn’t do any investing if you weren’t an optimist, because you would always be too afraid to pull the trigger. You have to be an optimist to make even one investment because you have to think it’s going to, something’s great is going to happen with it. Or you wouldn’t put up your money. You’re not always right. You only have to be right more times than you’re not, by the way, you don’t have to always be right to get rich in real estate. You just have to be right more than you’re not right. It’s not that hard.
Mike Ayala: I’ll never forget when I joined the real estate guys mastermind, maybe you’re familiar with the real estate guys radio show. But anyway, I joined their mastermind and part of the application process, they asked the question, like, what is your greatest weakness as an investor? And I said, I’m the eternal optimist. And I realized that about myself as an early business owner/investor you know, what makes us successful and good investors, etc., is our optimism. But it’s also a double edged sword because when we go into everything, thinking through that lens of optimism, you know, we kind of have to learn the hard way. And like you said, we just have to be right more times than we’re wrong. But I’ve learned to temper that optimism. And I try to replace that word with opportunistic, right? I’m an opportunist. And so because I can buy my own bullshit if you will through that.
Mike Hananel: We all can. I mean, it’s so easy to get emotionally charged up with your optimism. So that’s where the numbers come in because the numbers never lie. And in my view, I mean, you can certainly manipulate numbers to tell a story if you want to, but if you’re being objective and just looking at the numbers, the numbers won’t lie. So that’s your back to basics, back to logic and back to, you know, your critical mind making a decision versus your emotional life, Oh my God, this is so exciting. I think this could be a huge winner, right? I mean, you get so caught up into what the potential is for a deal that you, I’ve been right there with you where I’ve gotten so close. And then, you know, luckily I did my due diligence and I backed out, but like, you know, of the deals where I got, I was, I knew I was too emotionally involved and not making the best decision. The one good thing about real estate, if you wait long enough and it could be, you know, in this case now you might have to wait years cause it’s going to go down and it’s going to go up again. You know, if you wait long enough, real estate, time always heals all wounds in real estate, but you got to be able to wait long enough. And sometimes people can’t make it through a downturn. If you’ve over leveraged yourself right now, you’re going to struggle in the next couple of years. You know, cash flow is King. You know, I don’t think cash is King, but cash flow is him because in a downturn, even if your rents have to drop, if you have enough cash flow and I always stress tests my deals, you know, if rents dropped by 20%, am I still making money? If they dropped by 40%, you know, am I making money? Am I breaking even, am I losing money, you know, and somewhere in there should be your break even. If your breakeven is, you know, if it drops 10%, you’re losing money, you’re probably going to not do so well in the next couple of years. So you got to really, you know, make sure you know, where the numbers are and the longer you’re in a bull market, which this was the longest bull market we’ve had in decades, maybe ever, I don’t know, but like 10, 11 year old bull market. The longer the bull market, the closer you are to the end of the bull market, which is a bear market, right? So, you got to get more and more conservative in your underwriting and expect higher and higher cash flow the closer you are to the end of it. But that’s harder to do, like you said, the deals are fewer and farther between. Most people jumping in now are buying at ridiculously high valuations, extremely low cap rates. And that’s very dangerous in my view because in a couple of years they may lose those properties.
Mike Ayala: I think this is a great place for us to segment into episode two. So a couple things takeaways that I heard from Mike, I mean, this is just a phenomenal, phenomenal story here. The number one way to build wealth is to build a business. The number two best way to build wealth is through real estate. So I wanted to just kind of set this up the next episode, which you guys do not want to miss. We’re going to get behind the lens or get into Mike’s brain on, you know, what he really thinks is happening coming. And as he mentioned in this episode, he’s very studious when it comes to this, I don’t feel that Mike is just flippantly throwing out his opinions and ideas. I think he is an expert in this field. And so you don’t want to miss the next episode, but Mike, for now, if people want to find you, what’s the best way for them to get in touch with you and guys, I will say this. I mean, obviously Mike’s a busy guy as he shared, you know, he can help you in real estate, but I don’t think Mike’s a coach. I don’t think he has necessarily a real estate 101 investing program. So if you’re interested in, you know, truly looking at real estate go ahead and reach out to Mike. But you know, other than that, what’s the best place for people to find you Mike?
Mike Hananel: Yeah, I mean, my website is www.strategicgrowthre.com, RE as in real estate, www.strategicgrowthre.com. You can email me Mike, mike@strategicgrowthre.com. And I have some videos on my website and it give you, I mean, it’s kind of, I haven’t updated my website recently. But you know, it gives you a sense of who we are, what we do. Yeah, I mean, I always enjoy talking about real estate and I certainly don’t mind you know, having conversations with people around it. But like you said, I don’t have a formal coaching program at this point. I thought maybe in the future, I might develop that, especially if I get my act together and get my book done you know, then from there, I think it can lead into a potential education or coaching program, something like that. But yeah, it’s a great business. I like talking about it. But like you said, it’s difficult to start right now, but it’s definitely not difficult to start learning right now. In fact, learning right now and being paying attention right now is the best opportunity. Because you’re going to see how markets will evolve. You know, if what you and I are projecting comes true, and there’s a difference in valuations a year from now, or two years from now, you’re going to recognize that because you’re looking and you’re paying attention. So, learning and jumping in from an educational standpoint right now is extremely beneficial. Just don’t get too overzealous and too impatient to want to jump in too soon until you really see where the markets are headed. But yeah, I think we’re definitely in for some really interesting opportunities in the next few years, for sure.
Mike Ayala: I love what Mike just said. And you know, we’ve been talking about this for the last couple months, if you’ve got a $1,000 or $5,000, or even if you don’t have any money, you know, probably the best place to start is really changing your mindset, educating yourself. And that’s a blanket statement that I think exists no matter what period of time we’re in, but even more so now, because it is dangerous to just jump in right now without the education piece. So stay tune for episode number two, where again, we’re going to get into the mind of Mike and I think it’s just going to be a very enlightening conversation. Thanks for being on the show, Mike.
Mike Hananel: All right. Thank you. No problem. It’s fun.
FIND | MIKE HANANEL
Website | http://strategicgrowthre.com/
Email | mike@strategicgrowthre.com
