JF1722: First Deal Was In Russia, Now Provides Investor Funds For Over $300 Million In Real Estate with Mike Krieg

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Mike’s real estate career started off a little unusual compared to most, as his first deal was in Russia. After that deal, Mike started buying duplexes and small multi’s in Texas. He wanted to get out of the landlord life, so he sold half of his portfolio. Now Mike is raising capital for deals, and has helped investors acquire over 3,800 multifamily and self storage units. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Real estate investing is a relationship business” – Mike Krieg

 

Mike Krieg Real Estate Background:

  • Co-founder of Steeple Rock Partners, LLC
  • Has been investing in real estate for 14 years
  • Has helped provide investor funds to purchase 3,800 apartment and self storage units worth $300M
  • Based in Austin, Texas
  • Say hi to him at https://www.steeplerockpartners.com/
  • Best Ever Book: Think and Grow Rich

 


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TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Mike Krieg. How are you doing, Mike?

Mike Krieg: Doing well, thanks Joe.

Joe Fairless: Well, I’m glad to hear it, and you’re welcome. A little bit about Mike – he is the co-founder of Steeple Rock Partners. He’s been investing in real estate for 14 years. He’s helped provide investor funds to purchase 3,800 apartment units and self-storage units worth over 300 million dollars. Based in Austin, Texas. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Mike Krieg: Yeah, I am in Austin, married, three kids. In addition to real estate, I am also an executive director of a non-profit (and the founder) called Storyline. With that we train and mentor young leaders from more than 25 countries around the world, so it’s a big passion of mine.

Primarily, with Steeple Rock Partners on the real estate side we raise capital for deals that we like, that our partners are personally investing in, so we invest alongside of our investors… And we primarily operate with multifamily apartments, self-storage and mobile home parks.

Joe Fairless: You’ve been investing for 14 years… What did you start out doing?

Mike Krieg: My very first purchase was actually in Russia. I had never bought anything before that. I was out of college, probably three years out of college, and bought a place in Russia, and 2,5 years later I sold it and we did really well. That’s a whole story I could tell you; we probably don’t have time for that.

Joe Fairless: Give us the cliff notes version. Anything worth saying can be said in a couple minutes, so what’s the cliff notes?

Mike Krieg: We were gonna be there for five years. My wife and I moved over there and we were mentoring college kids in one of the major cities over there, and we decided “You know what, the rents over here are going up $100/month, from $700 to $800…”, it was crazy the inflation… But all these things were selling for about 50k, 60k, 70k, and there were no taxes, so we just thought “What if we could buy one of these, and even if the market crashed and we lost 50% of our value, we would still come out ahead relative to renting?”

So we did all the research, and interviewed a bunch of folks… We had a bunch of American business folks that said “Hey, do not do this. The mafia is here. They take businesses. They’ll come in with AK47’s and force you to sign over your business”, or whatever… But what we realized was a lot of the Americans had never done it. There was a French business guy who had done it, so we followed his lead.

We raised some capital. We couldn’t borrow anything from the Russian bank; the rates were about 20% plus. So we raised capital in the U.S, wired it in and bought our flat. It was incredible. So that was my first purchase ever, and I had no idea how to do it in the U.S, so I came back here, and with all the costs associated with it — I was pretty bummed, because I literally paid $500 to an attorney in Russia to close it, and that was all of my closing costs.  So yeah, you can imagine the disappointment when I came back here and bought my first house in Austin.

Joe Fairless: You sold it and made a profit?

Mike Krieg: I did. We bought it during those years when oil was going up quite  a bit. They introduced the mortgage market for real estate during the time that we were owners, so it went up about 2.3x. It was a nice profit. Plus some of the loans I got were very low-interest loans. We had a few friends who gave us 0% interest loans. I think the effective right on the total loan amount was like 2.2%. So we paid off that loan pretty quickly.

Joe Fairless: That was the deal in Russia, and then you got back… Then what were some of your next purchases?

Mike Krieg: We came back to Austin and I bought my home here, and eventually we ended up turning that home into a rental property. I think that was probably the more difficult step, and really kind of when we shifted into becoming real estate investors, having a property, managing a tenant, going over there trying to figure out “Hey, do I fix that fan, or do I hire someone to do it? What kinds of things can I fix myself?”

We moved really about ten minutes away from the property, so there were quite a few things that we could do ourselves… But it was a pretty expensive property, it was a nice property. Then after that we refinanced it a couple of times and we bought other properties, primarily in San Antonio, Austin. Even back 7-8 years ago it wasn’t exactly a great cashflow market, so we went down in San Antonio [unintelligible [00:05:21].23] started buying duplexes, and houses, and things like that.

I kind of focused more on the nicer properties, so my portfolio wasn’t huge, but I really wanted to get nicer tenants, nicer properties. I was a landlord, and over time what happens, obviously – that becomes a part-time job. Some weeks it feels like a full-time job, and while it’s great building equity and it’s a great way to build a financial foundation, you realize that it doesn’t scale well. I know you’ve heard this and everybody talks about this, and a lot of our investors mention this as well – at some point you begin to think about commercial.

That’s when I began to think about “Hey, how do I invest in multifamily apartments?” I sold that portfolio and been investing alongside of our investors in bigger deals.

Joe Fairless: How much did you make when selling half the portfolio?

Mike Krieg: How much equity have I pulled out?

Joe Fairless: Yeah.

Mike Krieg: About a quarter million.

Joe Fairless: And when you say “pull out”, those are refinances, or did you actually sell them?

Mike Krieg: We sold… I had a property that I bought that was giving me a lot of trouble…

Joe Fairless: Which one?

Mike Krieg: It was a triplex in San Antonio. I didn’t like that experience; it was a mistake that I had made. Not a great market. That’s one of the lessons that I learned – when you buy something, you really wanna pay attention to the market. It was an earlier purchase, and I had a lot of issues with tenants, so I sold that one. Then I sold our very first one, which is our single-family house.

Joe Fairless: How much did you buy the triplex for and how much did you sell it for?

Mike Krieg: I bought the triplex literally off Craigslist.

Joe Fairless: Oh, wow…!

Mike Krieg: Yeah… And this is, again, where you’ve gotta be careful. Just because the numbers make sense does not mean you should be in that deal. The numbers were amazing, but the market was tough. I bought it for 130k, and it was an interesting deal because it was a seller finance, and the seller thought he could take the note and go into the secondary market and sell that, and get pretty much dollar for dollar with it. Once he realized he couldn’t do that, he came back to me and he shaved 10k off the price. So really I got it for 115k, and I ended up selling it for about 160k.

Joe Fairless: So you made money on that deal.

Mike Krieg: I did make money on it.

Joe Fairless: How much did you put into it? I guess I should have asked that question.

Mike Krieg: Yeah, I’ve put about 15k into it.

Joe Fairless: Okay. So you were all-in around 130k, and you sold it for about 20k-30k more than that.

Mike Krieg: Yeah. And it was cash-flowing, it was producing pretty well. But again, with the amount of time I was spending with it, I didn’t think it was worth it.

Joe Fairless: Instead of selling it, why not keep it and do a cash-out refinance, and then put a property management team in place?

Mike Krieg: Yeah, I just didn’t wanna deal with it. This is what we’ve found here – there are certain properties that property management companies just don’t wanna touch, and there’s certain areas that they don’t wanna deal with, because they see what kind of tenant is in there. So this was a difficult property even for them, and the very first year I bought it/owned it we did have property management on it, and they actually fired me. They called me at the end of the year and said “Yeah, we don’t wanna do this anymore.” [laughter] I’m like, “Oh, no… This is terrible!”

So I ended up dealing with it for another 2,5-3 years, and I just decided “You know what, this is just time to sell. We’re gonna let go of this and move on”, so that’s what we did.

Joe Fairless: That single-family house – what did you buy it for and how much did you put into it, and what did you sell it for?

Mike Krieg: Bought it for 274k, sold it for 412k. What we put into it — we lived in that house; that was our primary home for about 4,5 years, so I’m not exactly sure what we’ve put into it. It was…

Joe Fairless: Not much?

Mike Krieg: Not a whole lot.

Joe Fairless: Okay. I assume that the appreciation that you mentioned, almost 150k – is that just “Congratulations, you bought in the right market at the right time?”

Mike Krieg: Yes, that’s right.

Joe Fairless: Okay, cool.

Mike Krieg: Austin has been growing pretty significantly, pretty robustly for quite a while. At the time we bought – it was 2008 – I thought “274k? You’ve gotta be kidding me.” This thing was a 2,000 sq. ft. 3/2 house. We had two kids, and I’m thinking “This is nuts.” We needed to be buying something that’s about 50k less, but you know, it’s a  school district, it’s South-West Austin, it’s a great part of town, and now 400k was probably a good deal for that house. It’s all relative.

Joe Fairless: So you took that money and you started investing in what?

Mike Krieg: We began investing in larger deals, apartment communities, apartment complexes. We got a new opportunity in San Antonio to start. My partner and I at Steeple Rock Partners – basically, we began a private investment company and team up with several operators; obviously with you, and Dave Thomson, and other folks, and started investing… And also some self-storage deals. We like storage for a lot of reasons.

For me personally, it really began with “Hey, this is gonna make sense for me.” I can be truly passive, having underwritten several deals. Initially, we were gonna buy our own deals, and we were underwriting 20 and 30 and 40-unit deals here in Texas… And decided that space, about 100 units, is just not a space we wanna be in. It’s a little bit more difficult, the scale; you’re paying the same legal costs for something like that that you would for 200+ unit deals. So we didn’t like that space, and we just decided we didn’t wanna invest in that middle ground… So we just teamed up. Commercial real estate is a team sport, and we decided that’s the way we wanna go.

It really began with “Hey, this is something we wanna invest in”, and every deal – we look at it that way. “This is where I wanna put my capital, this is how I wanna develop passive income.” I’ve got friends and family and others who are interested in this as well, and over time that group of investors grows steadily over time. That’s how we’ve been operating.

Joe Fairless: Tell us a deal that hasn’t gone according to plan.

Mike Krieg: So far in commercial I would say we haven’t had that experience yet. We haven’t seen something go sideways at all. The deals that I’ve done, something that didn’t go to plan — I think I would probably have to go back to residential landlording days for that, and it’d probably be the triplex that we talked about. I had tenants getting pulled over by the police because there’s a drug house next door; I had sex acts being performed on the back lawn, and tenants calling me saying “Hey, what’s going on here?” Terrible things like that. Again, at the end of the day I made money on it, but that’s not the kind of business I want.

I did however get pretty involved with the community there and got pretty involved with the police department. We ended up cleaning the house out, which was quite an interesting experience, and it kind of feels good to think you’re kind of cleaning up a street. But it wasn’t exactly what I had planned to do. [laughter]

Joe Fairless: “I was gonna make some monthly cashflow…”

Mike Krieg: I don’t want them making monthly cashflow on my property like that.

Joe Fairless: [laughs]

Mike Krieg: But anyway, I had a deal, too — I had a contractor who was gonna do a wholesale deal, or something. He was working with me on this triplex and I gave him 3k, and he just completely disappeared. I never saw him again. I was like, “Okay, well, we need to be more careful about some of these guys.” That was a ways back; some of those early birds are healthy for you, and you realize “You know what – I’m never gonna do that again.” And thankfully, that was 3k here, and a couple hundred bucks over there… So yeah, I’m thankful to have learned some of those lessons early.

Joe Fairless: On that $3,000 contractor thing, not to put salt on wounds, but what gave you the confidence to give him $3,000 up front?

Mike Krieg: Well, we had done some work together. He had done several projects on time, and he was very faithful, and he did good work for me on about 3-4 different projects. He was also a friend of my brother. My brother actually introduced me to him. I found out later my brother didn’t really know him that well… He had known him, I guess, just from the restaurant that he used to own… But we had some history, and everything. I guess I just didn’t know him long enough. Sometimes I think it’s just time, when you begin to see a person’s character, and you begin to see some of the things they’re dealing with in their life.

I think part of it is he had some life challenges. He had a wife who was going through some sickness, and stuff like that. I can see where a person like that can kind of decide “Mike’s doing well, I’m not. This is gonna be fine.” I think he just sort of justified that, kind of  a thing… So I’ve forgiven him. We obviously don’t do business together anymore, and I tried to reach out to the guy and say “Hey, listen, I understand. You’re going through something difficult, and I forgive you”, but he hasn’t gotten back in contact.

Some of that stuff happens, and you learn from it, and in the future really getting basic things like a W-9 from someone — I did not do that in his case. And those are things that when you’re starting out in business you don’t think about; maybe nobody tells you this, but those are things that are very important, and you need to be getting information on the people you work with.

Joe Fairless: Yeah… It brings up such a good point. When we get a referral from someone, just simply asking them “Hey, how well do you know this person?” Because I am guilty of referring people to others, who I don’t know very well. I may or may not have done business with them, or maybe they’re just someone who I’ve heard of, and perhaps whenever I give referrals I should also qualify “Hey, here’s someone who I’ve heard about, but I personally haven’t worked with them.” And then on the flipside, if I’m given referrals, just to ask a follow-up question, “How well do you know the person again?” I think that brings up something that would be very helpful for everyone.

Mike Krieg: Oh, yeah. I had a contractor I was working with, and on Bigger Pockets somebody asked me “Hey, who’s a good contractor?” and I actually put his name in a forum post…

Joe Fairless: Oh, no…

Mike Krieg: And it’s terrible, because what happened was he did a couple of really great projects for me, and then [unintelligible [00:15:38].04] kind of flaked out. And I’ve been getting e-mails for about a year and a half… “Hey, who is this guy? Can I have his contact?” So I have to continually go in there and say “Hey listen, he flaked out. I can’t recommend this guy. I’m sorry.” So I have to continue to do this… But that post is on there for eternity. So hey, if you’re a Bigger Pockets person and you’re hearing this, don’t e-mail me about Carlos, because it’s [unintelligible [00:16:00].29]

Joe Fairless: Well, you could post on that at the very bottom and say “Hey, I no longer recommend this gentleman.”

Mike Krieg: Yeah, you’re right. I can go find that–

Joe Fairless: That way it’ll stop– or discontinue most of the messages. I had a similar experience… I worked with someone who consulted me on apartment investing when I got started, and I was complimentary of the person on Bigger Pockets at the time, but shortly thereafter I realized I should not be complimentary of the person… So then I went in and I updated it, and I didn’t bash the person, but I just simply said “I can’t recommend this person any longer”, and that has not stopped the messages about that person, but it decreased the amount of messages I get about the person.

Mike Krieg: That’s good advice. I’ll have to follow up on that. That’s great.

Joe Fairless: What is your best real estate investing advice ever?

Mike Krieg: I think real estate investing is a relationship business, so I think for me if you serve other people the way you wanna be served, if you put the interest of others above your own, I think you’ll do well. Sometimes that means not doing something that is in your interest, because it’s not in the interest of somebody else’s… But I think for me that applies to a tenant, or a resident, investors that you’re bringing into a deal… That’s just age-old advice that I think goes a very long way.

Joe Fairless: Do you currently have a full-time job?

Mike Krieg: Yeah, I am working as the executive director for a non-profit, Storyline… So I’m really kind of two-timing it.

Joe Fairless: Yup. And the reason why I ask – I was wondering how the skills you use in that position have helped you in your real estate career.

Mike Krieg: I think that’s it… I really think that being in the non-profit world — it’s all about people, and our entire organization, the whole purpose of it is to build young leaders and to build people. So when we have investors, it’s not just about getting people into a deal, we really want to get to know and build a team and build a community around our people. I have a desire to have relationships with our investors and with our investor community, and get to know them, and had just wonderful visits over dinner, and lunches, and coffees, and getting to know them and their families… We’re all a team, and everybody’s accomplishing something, and real estate is really just a means to a greater purpose that we have. I don’t think it’s about a number, I don’t think it’s about some net worth amount… It’s really a means to an end – who are the people that are in your life and in your community and in your family that you’re called to serve? I think that’s really what it’s about.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Mike Krieg: Yeah.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:18:46].28] to [00:19:53].07]

Joe Fairless: Best ever book you’ve recently read?

Mike Krieg: I like Napoleon Hill’s Think and Grow Rich. I know it’s primarily about building wealth, however I do think that there’s lots of stuff in there, whatever goal you have in life. It could be just simply being a better father, being a better husband. I think there’s a lot of stuff in there that is super-useful for anybody. I love that book.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Mike Krieg: Not paying attention to the market or the submarket.

Joe Fairless: And will you elaborate on that? I guess the San Antonio deal, the triplex, right?

Mike Krieg: Yeah, it just wasn’t changing fast enough. It was an area that was close to downtown, but… Assuming it’s gonna change a lot faster than it actually did.

Joe Fairless: Best ever deal you’ve done?

Mike Krieg: I would say probably my Russia deal.

Joe Fairless: Best ever way you like to give back?

Mike Krieg: Again, I’d say through the organization that we’ve founded, Storyline, and mentoring young leaders around the world.

Joe Fairless: How can the best ever listeners learn more about what you’re doing?

Mike Krieg: You can contact me at mike@steeplerockpartners.com, or on my Bigger Pockets.

Joe Fairless: Mike, thank you for being on the show, talking about the Russia deal, the triplex in an area that was very challenging, and what you did as a result of that to get it to be the best situation possible. And then the single-family home, buying in a very good, appreciating market, as well as how you’ve evolved your approach to multifamily, as well as self-storage, and the contractor thing, too. It’s a good referral story, where we’ve got to make sure when we get referrals to ask them how well do they know these people. Because they might think they’re doing us a favor for giving us referrals, but in reality it might turn out to be the opposite of a favor, because they might not know the person well, and then we’re gonna get in some trouble.

Thanks for being on the show. I hope you have a best ever day, I enjoyed our conversation, and we’ll talk to you again soon.

Mike Krieg: Thanks, Joe.

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