Jumping back after losing everything is easier said than done, but never impossible. Mike Morawski proves how one can regain profits even after going to prison as he looks back on his own rebirth story. He details to Lisa Hylton how his churn-and-burn approach to real estate eventually landed him in prison. Mike breaks down the lessons he learned the hard way and how he regained his real estate career, became an author, and even taught an ethics course. He also presents practical tips on vetting partners and how he applies his experiences in dealing with single-family homes in today’s market.
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Mike Morawski: An Amazing Rebirth Story In Real Estate
I’m excited to have on the show Mike Morawski. Mike is a 30-year real estate investment veteran. He has controlled over $285 million in real estate transactions. He is an entrepreneur, author, real estate trainer, public speaker, and personal coach with strong personal resilience and a deep desire to help others live extraordinary lives. He has coached hundreds of real estate investors to fulfill their dreams. He began as a general contractor in the Northwest suburbs of Chicago with $5 million in annual revenue. He sold his company, took some time off, decided what to do next, and entered the real estate industry as an agent. Fast forward, a lot of different experiences.
I’m excited to have you on the show. I heard your story on another podcast. It touched me a lot. It’s one of those stories that is sobering. It is required for a lot of people who are trying to move quickly and not necessarily thinking about when you’re doing that, sometimes some things can get missed along the way. It’s a great testament to your story of continuing to revive yourself with resilience, coming back and sharing where you have gone, and how you’ve been able to come back to where you are now. With that, I’m excited to have you on the show. Welcome to the show, Mike.
Thanks. I appreciate it. I’m excited to be here. Your energy is contagious. I appreciate that.
Can you share with us how you got started in real estate many years ago?
Thanks for asking. My bio says a lot, but I started out in the general contracting business. Like any entrepreneur, you do everything. I was marketing. I was doing the sales, bookkeeping, scheduling and ordering. I was building room additions. I had a number of guys working for me. I had a lot of equipment and a big office. I had a lot of overhead. I was burning out because I was still banging nails in the field.
I woke up one day and looked at my wife at the time. I said, “I’m done. I can’t do this anymore.” Fortunately, I had somebody knocking at my door who wanted to buy the company. I sold it and took a year off. During that year, I house hacked a couple of houses. This is long before it was sexy or the thing to do. Everybody house hacks now. You live there. You rehab it. You get it right. You then move on to the next one.
We did a couple of those over the year, but I was fortunate enough to meet a real estate agent along the way who was successful. Years ago, Jim Rohn say that success leaves clues. Whether those successes are great and there are great results or you’ve made some mistakes, follow those successes before you. You’ll cut the learning curve. You’ll do things differently. You’ll have an edge over the competition. I went to him and said, “I would like to go into the real estate business.” He encouraged me to do so and said, “You would be great at it.”
I got licensed and went into the business. He made me a cassette tape at the time that I listened to over and over again for 30-plus years. I’m dating myself with a cassette tape. I don’t think you could find anything to make a cassette now, much less listen to one. I went into the real estate business and followed some simple basic fundamentals. I sold 78 houses in the first nine months in the business. I went on to build a team selling 125 listings a year and did that for about twelve years consecutively.
2005 rolled around. I saw the market starting to shift. I knew I would need to do something different. I didn’t know exactly what was going to happen back then, but I see a lot of comparisons now to what was happening back then. I decided to go into the apartment business. I had always wanted to be in the apartment business. When I was in the contracting business, I had done a lot of work for a couple of large apartment syndicators in the Chicago market. I understood that you could raise private equity, marry it with a great real estate deal, and stay in the middle. As long as everything went well, everybody made money.
In 2005, I syndicated my first apartment deal. It was a small eleven-unit property in Chicago. From there, I went out and raised $18 million. I bought $60 million worth of real estate. It was about 4,000 apartments. I built a property management company managing 7,500 units. I built a company pretty close to $100 million in value. I did that in 30 months. I always tell people that the first thing I did wrong was I grew way too fast. I thought I had a great team and the people behind me were keeping things stabilized and getting business plans worked out, and that wasn’t happening.
2008 rolled around. We started to implode because we were so unstable as a company. By 2010, the commercial markets caught up to the residential markets. If you remember, in 2008, we had the worst economic crisis the country has ever seen. Commercial markets went crazy in 2008 and by 2010, there were problems in the commercial space as well. We felt the effects of that as a direct result of what had happened.
Can you talk a little bit about the effects on the commercial space that you saw? I feel it could be similar to now where by and large, multifamily is still moving along nicely for a lot of people. They’re still buying deals, bridge debt, and trying to get a cap. Some people are coming with no caps, which is a little bit crazy. Nonetheless, there’s all of that going on. You can already see that in the single-family home space. You have less velocity going on because the rates are a little bit higher. That has slowed down people purchasing. I was curious about some of the effects that you remembered from that time and maybe drawing how they sort of connect to how they are now.
Do things differently in order to have the edge over the competition. Click To Tweet
A few months ago, I said that I thought that there was going to be a correction. I don’t think you can sustain the price increases that we’re seeing without a correction. You already see things happening in the stock market where there are losses. If you watch the indicators every day, the arrows are pointing down instead of pointing up. You’ve got inflation that’s setting in. Gas prices are $5 a gallon where I’m at. They are probably $7 where you’re at. You’ve got supply chain constraints and it’s taking longer to get products. You can’t buy cars. Pricing and the car industry are out of whack. It’s a lot of the same things that were happening then.
The big thing that happened back in 2010 for us was that we were heavily vested in markets in the Ohio Valley. The Ohio Valley is heavily concentrated on car manufacturing parts. I’ll give you an example. We were in a town in Anderson, Indiana. Most of the businesses in town were these little manufacturing businesses that made parts for the car manufacturers. They made knobs for the radios and dashboards. They made springs and seats for the cars.
As soon as the industry got hit hard, all those businesses went out of business. Those people couldn’t pay their bills anymore. Occupancy in apartments dropped. When the residential industry got hit so bad, I didn’t think that the commercial industry would get affected. My thought was with all these foreclosures, people are going to need a place to live, but nobody could afford it. People moved back home. They doubled up. You couldn’t keep your occupancies up.
Because occupancies dropped, you had to change pricing on your rents to try and keep up with the supply and demand issue. There was less demand for property or for living space that NOIs dropped. That operating income fell out. Do I think that will happen now? I don’t think so. We’re more prepared for what happened back then. We’re going to have a quick turnaround. It will be short-lived this time. My thought last time was that it would be a 17 or 18-month recession like normal with a 10% or 12% correction. It went seven years with a 40% correction in the market. It’s hard to keep up with that.
This took us off of a tangent a little bit, but I want to bring us back to your story. Your story of resilience and the effects of growing very fast, and what you’ve learned about partnerships as a result of that experience. It was a part of that experience that you learned lessons in partnership as well.
What happened was I built this $100 million company and I built it fast. I want your readers to think about these mistakes. I grew way too fast. I was very unstable. I was undercapitalized as a result of that. I couldn’t raise enough money fast enough but then I was over-leveraged. I owned $60 million of real estate at 85% loan to value. I always say, “I don’t know who was worse, me for taking the money or the banks giving it to us.” If you are underwriting multifamily commercial real estate, you shouldn’t be less than 70% loan to value. I tell people that somewhere between 65% and 75% loan to value, you need that equity cushion in there.
The other thing was I didn’t pay attention to details. I had my blinders on so tight that I didn’t see the peripheral vision around me. NOI started to drop out. Markets started to fall apart. We couldn’t pay our bills anymore. I had properties in markets like the Ohio Valley that were not as good as the products that I had in other places like Dallas, Texas. I had a big footprint in Dallas and those properties were running a little bit better.
I started to take money from my good operating properties and move it to companies that were not operating as well. I thought, “This is that recession. It’s short-lived. Let me prop it up and try and save everybody. What I should have done was let 12 or 15 of my deals go to foreclosure. I had 38 different companies. I should have let a dozen of them go to foreclosure and a few investors get hurt, but I didn’t want that to happen. I didn’t want anybody to get hurt.
I thought that by moving money back and forth, I would save the company and all of the assets. My accountant and my attorney both said, “It’s okay to do that. Just leave a paper trail.” It was fine moving money around but here’s what I didn’t do. I didn’t tell my investors. Anytime we raise money from somebody else, we are held to a much higher standard. We have to make sure that our transparency and our disclosure with them are proper. I didn’t do that. For non-disclosure issues, I wound up being charged with wire fraud and mail fraud charges. I got sentenced to ten years in Federal prison.
As the story goes, I go away to prison in 2013. I always tell people that I never flew private. I didn’t have a boat. I didn’t have a big fancy house. I didn’t have a big car. I was the neighborhood baseball coach. I was home every night for dinner. I had a great marriage at the time. I got ripped from that to live in a 12×12 room with three men I didn’t know nor did I like. I was wondering what happened in my life. I’m walking around in prison thinking, “This is awful. It can’t get any worse than this. My life is over,” and then my wife decided to divorce me. When she divorced me, it wrecked me. I was like, “I don’t know how I’m going to get through today, much less ten years.” The joke in prison was, “Take his shoelaces because we think he’s going to hurt himself.”
I always feel that we have these defining moments in our life. We have more than one in a lifetime. You just have to be aware of them and listen to that small voice. One day, I walk into the gym. I always prequalify this and say, “I was not looking to buy anything.” I wasn’t ready to workout or pick up a weight. I had gone from running marathons to being 35 pounds overweight. I hated myself.
This guy walks up to me in the gym and goes, “Don’t let these people beat you. All we want to do is take everything from you you’ve ever known. They can take your business. They can take your money. They can take your real estate. They can destroy your family. What they can’t take is who you are and what you’re made of. They can’t take what helped you build that $100 million company. They can’t take your knowledge and your experience. You’ll get it all back. Come to the gym every day. Start working out. You’ll start to feel better.”
Everyone has defining moments throughout their lives. One just needs to be aware of them and listen to that one small voice. Click To Tweet
I still today don’t know what it was, but it was like somebody flipped the switch. I went and I said, “Okay.” I started going to the gym and working out. I decided to go to college. I got a four-year bachelor’s degree in Theology. I wrote two books. One of them is Exit Plan: Your Complete Guide to Multi-Family Investing and Why You Need an Exit Plan Before You Buy! I would love to give your readers a copy at the end of the show. I wrote a book on property management. I wrote an ethics course. In prison, I taught real estate investing, property management, and ethics for six years. How ironic that a Federal inmate in prison is teaching ethics.
I was on an outreach program. I went into the community. I told my story 40 times to small business owners and local college students, just trying to make an impact. I met a professor from the University of Minnesota. He and I co-authored a paper together that we had published in the Business Journal of Ethics in 2021. It gets taught at the collegiate level for Forensic Accounting and Sales and Marketing classes.
Now I’m home. I’m in the coaching and training business. I teach multifamily investors how to scale their businesses and live a balanced lifestyle. I was approved by the SEC to go back, sponsor deals, and issue security. I’m back sponsoring deals. I’m raising capital on an active deal in Florida that we’re doing. It’s funny how life has come full circle. I won’t say everything is perfect. I have broken relationships with a couple of my daughters. That is heartbreaking to me. I’m still working on mending relationships with people along the way.
I could have let all of that hold me back. I have friends that came home and within two months of being home committed suicide. I didn’t want my past to dictate my future. As hard as it can be every day, I get up and I resiliently try to push forward. I try to make an impact on somebody else’s life. I tell my story because there’s hope and inspiration in it. I want people to understand that you can’t let your past dictate your future. Whether it’s a business mistake, whether it’s a loss of real estate, whether it’s a loss of money in a fund, whether it’s abuse or addiction, don’t let your past define your future. You have the ability to move forward.
At this pivotal point here in the interview, resilience is a theme throughout your life here. For a lot of people, they would not return. I feel as though you’ve taken the bricks that life has thrown at you and come back and built a building with them. You’ve built a business and were able to share your story with other people to help them navigate the terrain.
For me, there are a couple of things that come to mind. The first is for people who are reading this and who are passive investors. Many of the people who tune in to my show are interested in investing passively in commercial real estate deals. What advice would you give to them when they’re thinking about assessing deals, operators, and people in the space, in general, to invest with?
You said, “Talk about partners and sponsors.” It’s important for people to vet the sponsorship team that they’re going to invest with. It’s important for sponsors to vet their partners well. You never know what could happen along the way. I didn’t know that I would be able to go back and raise capital when I came out of prison. I didn’t know that I would be able to go back and do real estate deals. I had a great securities attorney who helped me get approved by the SEC. I adore her for that. That was a big thing. I vetted my partners this time well.
What’s interesting is I don’t have a partner that I consider to be a long-term partner. I wanted my last partner to be a long-term partner. I thought we could build an empire. Some things happened along the way that I got blindsided by. That’s because I didn’t pay attention to the details. I should have been paying attention to some of the things. In 2008, I’m sitting in a title company in Cincinnati, Ohio. I live in Chicago. We’re closing the biggest deal that we had been closing at that point. It was a couple of hundred units and I’m waiting for a wire to come from my office.
It’s a Wednesday afternoon and I can’t find my partner. I’m wondering where he is at. I’m not going to tell this story to throw anybody under the bus, but I want to prove a point here. I thought I knew this guy. We’ve been friends for 25 years. I said, “Come on. Let’s do this. We can blow it off the chart.” I’m sitting in this closing, waiting for this wire to come through and it’s not coming through. I finally get him on the phone and he said, “I don’t know how to tell you this.” I’m like, “What do you mean you don’t know how to tell me what?”
What he did was he moved money from an escrow account into the business operating account and didn’t have the money to wire to close the deal. I was like, “When we went into business, you knew that you don’t do that. That escrow money was specifically earmarked for what it was marked for.” He goes, “I thought I could have had the money back.” He did something that was untrustworthy and out of integrity for our company and our mission. I didn’t see it coming.
What happened was I dry closed. I signed all the paperwork and said, “I can have it funded by Tuesday.” I went home, gave some equity away in the deal, raised the rest of the capital, and got the deal closed by Tuesday. Everything was fine but here’s what happened on Friday. When I was married, I never told my wife about business. She always worried and I didn’t want her to worry. I didn’t want her to be at that place. It was a bad mistake for me.
To any guys here, be transparent with your wives. Let them know what’s going on in your life. Secrets are not a good idea. We go to dinner with my partner and his wife on Friday night that week. Remember, it was Wednesday when this deal happened. She knows nothing about it. We’re coming home from dinner on Friday night. She says to me, “I don’t trust him.” What do I do? I’m going to be a good husband. “Don’t worry, honey. I got this under control. We’re okay. Everything is going to be fine,” when I should have said, “Tell me more about that.”
Do not let your past dictate your future. You have the ability to move forward. Click To Tweet
I’m not paying attention to the details. I’m not listening to people around me. That was fine but fast forward to the following Wednesday, I’m at lunch with my outside legal counsel. We’re leaving for lunch and he says to me, “I want to talk to you about something.” I said, “Okay.” He says, “I see some things going on. I don’t trust your partner and what’s going on. I’m thinking you need to take a closer look.” What do I say? I say, “Bob, don’t worry about it. I got this. It’s okay.”
Again, I’m missing the red flag. I want people to pay attention to that. If you’ve got that inner voice that’s saying, “This isn’t right,” then look into that. When you’re vetting a sponsor, if there’s something that comes up and you’re not sure about it, don’t be sold. If you’re vetting a partner and something comes up and you don’t feel right about it, don’t be sold by that other person. Make sure that you’re doing the right thing.
You can get all the information, but some of it comes down to a head and gut check. If they’re not in sync, it might not be right. I didn’t think I would ever be able to raise capital again. I was on a meetup one day. There were probably about 75 people at this meetup. I’m telling my story. I don’t even know who it was, but somebody in the audience says, “Are you raising capital yet?” I said, “No.”
He said, “Let me know when you are. I won’t invest with anybody other than you because you’ve made all the mistakes already. I know that you won’t go make those again.” It was just that statement that I went, “That’s so true.” I have forged a way here. I have an eBook on my website that people can go grab. It’s 27 MUST ASK Questions for the Passive Real Estate Investor. That’s available for people if they want.
Your experience is a very sobering one for a lot of people. Many people come to scale to move quickly. I don’t want to stand in the way of people moving fast. I just want to encourage people that things like vetting sponsors, vetting people, vetting partners, and taking the time to get to know people are very critical because this is a long-term business. This isn’t just getting rich tomorrow. You’re around for a long time. It’s important to make decisions that you’re going to be comfortable with in the future as well as now. That’s very critical to think about very as well. At this point, is there anything that I didn’t ask you that you think would be good to share with the audience?
I want people to be aware of what’s going on. You should look around at what’s going on in the markets and the economy. There was a news article that came across on a wire that I watch. It said that the foreclosures have spiked. It was 31% in the last 30 days, 81% from where it was in 2021. I’m in Chicago and there have been 3,000 foreclosures filed within the last 30 days. It’s coming. Look at the inflation. Look at the cost of goods, bread and milk, and not just fuel for your car. Look at the slow-down that’s happening. There’s a lot going on that says we’re going to hit a recession if we’re not already in it and be cautious.
Here’s how you offset a recession though. Here’s how you offset the cost of goods. Be invested in products where the cost of that product is going up. Let’s look at multifamily for a minute. We know that we’re still seeing compression in cap rates. Those cap rates are coming down. As a result of cap rates coming down, pricing goes up. Pricing goes up because the net operating income that drives the pricing is going up. Every dollar of net operating income and operator puts to a bottom line, they’re going to twenty times that on the balance sheet for the revenue of the property and on the pricing of the property.
There are markets that won’t happen again. I’m invested in Florida. I’m invested in Texas. Because of those markets, they’re continuing to accelerate. Why? Because the metrics we watch are population growth. How many people are moving to that area? If you’ve got high population growth, it causes job growth. Job growth is caused because companies like Amazon come in. They put in a new fulfillment center and new tech sites.
New businesses have opened. I don’t mean just nail salons and hair salons but real businesses that supply services and goods for people. The household income goes up as a result of that. Those are 3 of the 8 key metrics that we watch to say, “This is a good market to be in.” If you’re invested in a market that has a substantial return like that, it’s going to offset that cost of goods. It gives you the protection of your capital. It gives you a cost, cashflow and long-term wealth, more protective with less risk.
That’s very important to highlight. Many people were fleeing to some of these cheaper markets where they can perhaps buy properties. If you’re dealing with a market that only has one industry or there’s not a lot of population growth expected there, those situations can leave you with properties that aren’t necessarily performing as they should in the face of recessionary issues. At this point, to finish up the interview, I ask all my guests the same three level-up questions. The first is what are you grateful for in your life now?
I am grateful for the people that are around me, the family and business partners that are around me. I’m grateful for the guys in my life that when I came home said, “We believe in you. We think you’re going to knock it out of the park. We want to ride this ride with you.” It’s those people that I’ve buckled up with.
What would you say contributes to your success and continuous growth?
Always maintain strong and strategic relationships in your personal and professional lives. Click To Tweet
There are two things. One is my tenacity. I learned a lot of it years ago. I was in real estate for about three years. I walked into a client’s house and he goes, “Morawski you are so tenacious.” I said graciously, not knowing what it meant, “Thank you.” I went home, grabbed the dictionary and said, “That is me.” I don’t give up. I keep going. I’m like the Duracell bunny. I just keep going. It’s my tenacity, as well as my resilience.
Last but not the least, what do you now know that you wish you knew at the beginning of your journey?
There are a couple of things. When I first got into the business, real estate as a whole, I treated it like a turn-and-burn business. I didn’t treat the relationships like I should have treated them. This is a relationship business. We all need to be like farmers. Plant a seed, water it, and then at some point, the harvest will happen. It could be twenty years down the road, but the harvest will happen.
Build strong strategic relationships in all the areas in your personal life and your business life that you need to have those in and continually water those. Tell everybody what you do. If you’re a real estate investor, tell everybody you’re a real estate investor. You walk into a room and you think automatically people know what you do and they don’t. Have those conversations and strategically build a database. We all need a database where we keep those contacts and that information.
We can put programs in place that keep us in front of people. It’s very important. I wish I would have known that from day one. Get a coach. I wish I got a coach a lot sooner. I have had a personal coach in my life for twenty years. I’m in the coaching and training business. This isn’t a plug for me. Everybody should have a coach in their life regardless of who it is, even if you only meet with them once or twice a month. You need somebody to help you execute your vision and hold you accountable for that.
What would you say is a key habit of yours that has contributed to helping you to continue to show up in your life and execute the things that you want to do in your life?
I have three daily disciplines I practice every day. The first is that I spend time in the Bible with the Lord., I spend a lot of prayer time. That’s where I get my fill because I put that first in my life, and then gratitude. Every day, I write down 3 to 5 things that I’m grateful for. I don’t just say, ”I’m grateful for this.” I feel it. You have to let it soak over you and be grateful for that stuff. This could take you 30 minutes every day. I then go exercise and workout. We all need to keep fit spiritually, mentally, physically, and emotionally. As a result of that, business happens.
It’s so funny because I’ve done a couple of interviews here. I batch my interviews for my show. In the last couple of ones, discipline has been a recurring theme. I can also relate to that personally. Anything in this life, it does take a lot of discipline for you to keep showing up long after you’ve made that commitment and no longer have the high and adrenaline of the yes. Now you need to do the work to make it happen. Mike, if my audience wants to learn more about you, what is the best place they can go to learn more and to even learn more about your book, The Exit Plan?
Thanks for asking, Lisa. First of all, I’m all over social media. Wherever anybody gets their fix, whether it’s LinkedIn, Instagram, Twitter or TikTok, I’m there. You can find me anywhere on social media, Mike Morawski. You could go to my website at MyCoreIntentions.com. If you go to my website and put in MyCoreIntentions.com/Free, you can get any one of those books that I spoke about. They’re free downloads. Grab those. I love to network with people. I love to meet people and see how I can add value to other people’s worlds. Reach out to me by email at Mike@MyCoreIntentions.com and I would be more than happy to connect with you.
It was a pleasure having you on. Thank you so much. I appreciate it.
Thank you. I appreciate the opportunity.
- Mike Morawski
- Exit Plan: Your Complete Guide to Multi-Family Investing and Why You Need an Exit Plan Before You Buy!
- 27 MUST ASK Questions for the Passive Real Estate Investor
- LinkedIn – Mike Morawski
- Instagram – Mike Morawski
- Twitter – Mike Morawski
- TikTok – My Core Intentions
About Mike Morawski
Mike is a 30 plus year real estate investment veteran. He has controlled over $285,000,000 in real estate transactions. Mike is an entrepreneur,
author, real estate trainer, public speaker, and personal coach, with strong personal resilience and a deep desire to help others live an extraordinary
He has coached hundreds of real estate investors to fulfill their dreams. Michael began as a general contractor in the Northwest Suburbs of Chicago with $5 mm in annual revenue. He sold his company and then took some time off to decide what to do next. Michael entered the real estate industry as a sales agent building a team of agents and support staff that produced over $20 mm per year in sales production. In 2005, Michael started a private equity firm, raising $18 mm in private equity and acquired $60mm in multi-family apartments including 4,000 units in five different US markets. As part of the company’s growth, Mike built and developed a property management division that managed 7,500 units.
Mike has always believed that transparency and honesty are central to any successful business and personal life. As a result of the 2008 world economic crisis, Mike let his guard down and let his transparency slip. The impact that had on his company and its real estate holdings left him scrambling to protect the company and its investors.
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