RG 285 – People, Deals, and Risks: What Every Private Investor Needs to Know with Michael Episcope

Private Investor Needs to Know with Michael Episcope

Managing risks is always going to be one of the toughest parts of real estate investing. Thankfully, we have risk management and value creation expert Michael Episcope with us today to shed some light on how you can prevent all of your cards from toppling over.

Michael Episcope is the Principal and Co-Founder of OriginInvestments, a private equity real estate firm that serves high net worth individuals, family offices, and wealth management firms. With his co-founder David Scherer, he created Origin to provide the same caliber of service, terms, and results that were exclusive to only large institutions before.

To date, Origin has over $600 million in assets under management and works with more than 400 investment partners. Michael, David, and their team found a way to scale in the individual market and created a wonderful product out of it.

In this episode, we talk about how Origin came to be since its birth in 2007; the hits and misses Michael and David came across; how they applied their risk management skills in investing; as well as how they are managing their deals in the middle of a frothy COVID market, among many other interesting touchpoints.


Key Takeaways

  • You are going to make mistakes, but you have to fall forward.

  •  The things that you don’t do are equally important as the things you do.

  • The people that you decide to work with can influence your success in the long run.

  • When the fundamentals don’t make sense, walk away.

  • Bet on people, not deals. Everything revolves around the people.

  • Don’t cross-collateralize.

Be Bold, Be Brave and Go Give Life a Crack!

Listen to Podcast

Podcast Transcript

Reed Goossens (00:00):

Good. Hey guys. Now, before we dive into today’s show, I want you to let you know that some of you may be aware that over the past eight years, I have built a substantial multifamily real estate portfolio here in the US worth over half a billion dollars. And in that time, my passive investors have received fantastic double-digit returns. And now you too can invest directly into my deals for as little as $50,000. So if you’re an interested investor, head over to [inaudible] dot com to find out more that’s Reed goossens.com. Now back into the show

Speaker 2 (00:39):


Michael Episcope (00:40):

So just be careful what you believe, right? Like everybody has a model that forecasts out 2, 3, 4, 5 years, but I’ll tell you this right now, every model is wrong. We’ve never, ever in the history of our firm and nobody can go on this show and say, they’ve ever modeled correctly the next five years, right? You may wonder like this and you get to the end point in different ways. But every single one of our deals, we underwrite to kind of doubling our equity over five-year period. And none of them have done that. Some of them have been one, five X. Some of them have been three X. Some of them had been five X even, you know? And so you just have to be careful about falling for the financials and you really have to step out and look at the fundamentals of the market and saying, Hey, this doesn’t make sense, right? Because things that don’t make sense, walk away, stay in cash, invest in something else, play another day, or finding another place for your money. And that’s kind of what we’re doing today.

Speaker 4 (01:46):

Welcome to investing in the US a podcast for real estate investors, business owners, and aspiring entrepreneurs looking to break into the US market join Reed As he interviews go-getters risk-takers and the best in the business about their journey towards financial freedom and the sheer joy of creating something from nothing.

Reed Goossens (02:06):

Good day, good day a ladies and gentlemen, and welcome to another cracking edition of investing in the US podcast from Los Angeles. I’m your host Reed Goossens good as always every with us on the show. Now, I’m glad that you’ve all tuned into learn from my incredible guests and each and every one of them are the cream of the crop here in the United States. When it comes to real estate, investing, business, investing, and entrepreneurship, each show, I try and tease out their incredible stories of how they have successfully created the businesses here in the US how they’ve created financial freedom, massive amounts of cashflow, and ultimately create extraordinary lives for themselves and their families life by design. As I like to say, hopefully these guests will inspire all of my cracking listeners, which are you guys to get off the couch and go and take massive amounts of action.

Reed Goossens (02:53):

If these guys can do it. So can you now, as you know, I’m all about sharing the knowledge with my loyal listeners, which is you guys, and there’s absolutely no BS on this show, just straight into the nuts and bolts. Now, if you do like to show the easiest way to give back is to give us a review on iTunes, and you can follow me on Facebook and Twitter by searching at Reed Goossens. You can find the show, every podcast on iTunes, SoundCloud, Stitcher, and Google play, but you can also find these episodes up on my YouTube channel. So head over to Reed goossens.com, click on the video link, and it’ll take you to the video recordings of these podcasts, and you can see my ugly mug or the beautiful faces of my guests each and every week. All right, enough of me let’s get cracking and into today’s

Speaker 2 (03:37):


Reed Goossens (03:39):

Turn the show. I have the pleasure of speaking with Michael Episcope. Michael is the principal of origin investments. Co-chairs the investment committee and overseas investor relations, marketing and company operations. Now origin is in the top 1% of real estate, north American based fund managers. And Michael brings over 25 years of investment and risk management experience to the company. And he believes that calculated risk-taking in inefficient markets is the key to building wealth. He regularly contributes to Forbes, entrepreneur and HuffPost, and as well as frequently speaks on stage and on many investment podcasts across this awesome country, I’m really pumped and excited to have him on the show today, as he’s incredible knowledge with us, but enough, that of may let’s get him out of here. Get him Michael, welcome to the show. Hayden, thanks

Michael Episcope (04:23):

For having me reed

Reed Goossens (04:24):

Mate. Uh, we’ll talk a little bit offline and I was prepping you for this question, but I ask all my guests when they come on, the show is rewind the clock. And tell me how you made your first ever dollar as a kid.

Michael Episcope (04:34):

I have to think about that for a second even was you’re saying, I mean, it’s somewhere between snow shoveling and probably mowing lawns, but I’m going to say snow shoveling because that the barrier century that were really, really small. And I grew up in Chicago and Chicago area, I should say the suburbs Chicago, and, you know, back in the eighties, we had a lot of snow and, um, I think it was just kind of in my DNA. I always wanted to work, make money and it was restless. Um, and so when we had a snow day, my friend and I just kind of looked at each other, we’re probably like 10 years old and we grabbed her shovels and just went door to door and he took one side of the street. I took the other. And when we got somebody on the line, I mean, we would charge I think, five to $7, you know, for a driveway and the sidewalk.

Michael Episcope (05:20):

And that was a lot of money back then, um, you know, especially for a 10 old kid and it was great. And, you know, back then, I mean, we, we would go out from eight in the morning and not come home till eight at night. I’m not even sure if we ate lunch. Um, and sometimes we would clear like a hundred dollars each and it was just fantastic, you know? And so a lot of that money went into our BMX bikes and other places that we wanted to spend it. But, um, yeah, that was, that was probably, you know, if I think back, you know, just my, my first work experience, if you will, were really went out and it was more than $1, but, um, you know, that was definitely kind of set the stage for later on

Reed Goossens (05:56):

Hardworking blue collar work ethic, right? Getting on, getting on the tools and shoveling away at a young age, produces, uh, some pretty, pretty awesome results. I know I grew up with my self as well from a young age, just, you know, not coming from a massive wealthy family and pretty, pretty middle of the road and just had to make my own dollar firm. As soon as I was 13 years of age, I think I was down the local cafe trying to get a job mopping

Michael Episcope (06:16):

Floors, so awesome stuff. Um, talk, talk about your background and your upbringing in Chicago. You went to university, you will get into your story of starting origin investments in a bit, but what’s, what’s the, the early days of, of Michael in your background in terms of your getting involved in real estate. Uh, yeah, if you want to go way back. I mean, I was probably 12, 13, 14 years old when I, um, was working with my grandfather. He was buying buildings through tax sales in the 1970s in Chicago. That was when, you know, the west side, the south side of Chicago, everything was on sale and buildings were literally, you could buy them for paying the taxes. It was nothing. And so he was, um, you know, he built a portfolio. He was in real estate. I would go there and, uh, help him when I was younger.

Michael Episcope (07:03):

He put me to work, uh, turned me loose with a screwdriver. And we used to go into other buildings and salvaged doors and locks and, um, all kinds of stuff because when you’re running real estate, especially at that level, I mean, that was class C minus less. Um, it was really rough stuff, but you couldn’t afford to go and buy things from the local hardware store. You actually had to go to these, um, buildings that were being demolished. And so when I was younger, that was my summer job. And we used to go there and it was kind of eye opening because we would go into these office buildings for example, and we would take off the hinges and the door knobs and the electrical outlets and things like that. And have this five gallon bucket that if you went to the hardware store, it probably costs you $250 for all this stuff.

Michael Episcope (07:45):

And the guy would be like, yeah, give me a five bucks for that. And five bucks for that. And it was just, but that’s, and then we stored all this stuff in these buildings and we had to change the lock set. He reached into that. That was his inventory. And it really taught me at a, at a young age, how to, you know, like create value and pinch pennies and watch the expenses and, and run a building. Now, now we don’t do things of that nature. We’re not in a class C we’re more on the class eight side because in life you have to figure out what you want to do and what you don’t want to do. And I think that, you know, some of that taught me that I wanted to work, but I didn’t necessarily want to be in that particular area, you know, as real estate.

Michael Episcope (08:21):

So that’s how I got my early, um, you know, just kind of, uh, you know, vibe for real estate or fixed for real estate. And then it kinda, it came back full circle. So my first career was in commodities trading. I ended up, um, uh, starting in that business at the young age of 19 years old. I was going to school at the time, DePaul university, and I just fell in love with it. And then a summer job. And I said, yeah, I’m going to stay down here. And I pushed all my classes tonight. I worked, um, you know, just burn the CA the candle at both ends making a work cause I really wanted to work, but I also wanted to fulfill my obligation to go to college and graduate, you know, from my parents and stuff. And, and it was really, uh, it was a great time because I was studying finance and economics at DePaul.

Michael Episcope (09:09):

And I was learning about how, how the world, especially through commodities, like behave to what was happening in the economics of the world. And, and those were the financial markets. So it was kind of a cool time in a city to learn about those things. And then I got an opportunity to trade. Finally, when I, um, when I was about 27 years old, January 1st, 1997, um, that was the, the beginning of my trading career. And I traded for about nine years and put a really, um, you know, kind of hard nine years in, um, I say hard meaning I worked hard. It wasn’t hard. I mean, trading actually was something that came very easy to me and I ended up, um, you know, my, my risk profile changed at the end of that. Right. I had set out to make X, I made 10 X of what I set out to at the end, when, you know, I started, I was single when I was done, I was married.

Michael Episcope (09:59):

I had two kids, I had another one on the way. I said, you know what I’m done? Right. I’ve accomplished enough in this stage. I want to go on to something else. I was too young though. I was 35, maybe 36 at that time, um, left the business and said, what do I want to do? And real estate then just kind of crept up into my system again, you know, I said, well, this is what I want to do because the next phase of my life was really about, okay, I’m asset rich, but now how do I create income? How do I grow my assets? And in all too many times, I mean, I have, you know, I think like so many people, a fear of failure and what financial freedom and all that. So I didn’t want to be one of these people. Whoever said I used to be rich, right?

Michael Episcope (10:39):

So I really made a concerted effort. I went back to school again. I went to DePaul, I got my master’s in real estate. I connected with my partner during that same period. We started origin investments in 2007. And, you know, it was one of the best things I ever did. And the reason why we started it was number one, there was a void in the market and we just, we just couldn’t find, um, anybody who would be as good of storage with our money as we would be. And we wanted to create an institutional real estate platform or all the qualities of an institutional real, real estate platform, but for us, for people like us, and then that’s what we did. And that was always the vision. Now I will tell you, in 2007, we had no business plan. We had no vision. We were just two guys running around trying to invest our money in great deals.

Michael Episcope (11:30):

And then that sort of organically, um, when the deals were maybe a little bit too big, and we went out to friends and family, and it started growing and went from two people to eight investors, to 10 to 20, to 30 to 50 to today, we have more than 2000 and we’ve come a long way from the beginning where it was, you know, two guys buying real estate. So we have a team of 35 we’re in Chicago. We have five offices around the country. We have roughly around 10,000 multifamily units, um, either in the development stage or built and under our management. So it’s, it’s been a, a fantastic run and we operate, um, I think we’re on our seventh fund now. And I’m, I’m really proud that we have consistently all our returns have been in the top decile of performance, if not better.

Michael Episcope (12:20):

Right. Um, and so as a manager, prequel just came out and ranked us as a top decile manager. And actually, I think we fall in like the top 2% when they’re looking, you know, our rank, I think is 15 out of like 1800 managers. And it’s not because one fond hit it out of the park. It’s because of the consistency across our funds, top decile, top decile, top core tile, top decile. So, you know, I, I feel like we’ve lived our mission and stay true to who we are. And we’re not one of these firms that had started with the individual in the high net worth and then went to the institutions and the 20, $30 million, we found a way to scale in the individual market and still produce a great product.

Reed Goossens (13:02):

That’s, that’s a incredible, incredible journey. My friend, uh, I, when you, when you said to two guys, two guys go on a pizza place, right. You know, starting, starting a real estate company, but growing that seems like it’s been a extremely intense journey. Where, what was that first deal like? Because so many listeners on this show, I interview a lot of big CEOs. I just need to be viewed Mark Hamilton from Hamilton Xanax out of San Francisco, like talking about those guys start. And he also like yourself had to start in the mid two thousands. How, how beneficial was it in and around the 2008 crash to be starting it in that, in that era?

Michael Episcope (13:41):

Well, it was really beneficial, but you have to remember my partner and I didn’t have a re we didn’t have, you know, for one the luggage and the baggage that a lot of people had coming into 2008. So that was a huge benefit. We also didn’t have the same pedigrees as people had been in the market for 10, 15 years. So by the time I got into real estate, I was 37 years old and we were sort of figuring it out and we didn’t have the advantage of hindsight. So we made a lot of mistakes along the way. I mean, not, I’m not going to say we made investing mistakes, but at that time, like even when you made an investment in sake, it was, it was the difference between, okay, maybe you should have made two or three X on your money and you only made like 1.1 X or 1.2 X, you know?

Michael Episcope (14:25):

And so that was sort of the birth of our platform and the learning stage. And, and trust me, there’s a lot of stuff I wish we would have done differently. And I wish I had the knowledge today back then, because instead of this have taken 14 years, this would have probably taken four years. Right. And we would have been where we are back in 2012 and not 2021. So, um, but a lot of, you know, a lot of learnings from that, um, you know, we, we’re growing, we’re building a team, we were trying to figure it out. We didn’t have a coherent plan and it just sort of came together. And we just, you know, at every stage we just tried to make good decisions, right. Good decisions around our capital treat the investor well, um, you know, and, and do the things that we knew would help us in the long run.

Michael Episcope (15:07):

And I think that’s one thing that we’ve always done well is looked out at the horizon and said, look, what do we want to be when we grow up, how is this going to impact us in the future? And, you know, you can’t get so excited about mistakes that happen today or get so down on yourself. And you have to remember, there was just along the journey where you are mistakes and failures happen and you, you have to fail forward and just continually go and understand like investing, um, you know, it’s, you’re going to make mistakes and that’s okay. Right. But the, the outliers on the upside, and that’s the interesting thing about it all is as long as you don’t make the big ones along the way. Right. And there’s some things that you can do. And I’ve studied a lot of different individuals and companies.

Michael Episcope (15:50):

And, you know, I would say that one thing, my partner and I are really good at is risk management and just looking at, okay, well, how do other people go broke? Right? What don’t we want to do? Because the things you don’t do are equally as important as the things that you do too. Right. And, and talking to people over that time. And you look at people who come out of oh seven and oh eight and oh nine. Um, you know, a lot of people went bust because they guaranteed bank loans. I don’t need guaranteed bank loans. I don’t want to do that. My partner doesn’t do that. We just don’t do it. Like, like it’s a line in the sand and our team knows that cross collateralizing assets, right? The banks all want you, well, Hey, you know, we’re going to put the steel in your portfolio.

Michael Episcope (16:27):

Can we have a security interest on your other assets? The answer is no, rather pay more on that side, because what happens when you’re running a fund or a portfolio, and you start guaranteeing assets as individuals and cross collateralizing, you’ve created a house of cards and you’ve exposed yourself to exponential risk. And what a lot of people don’t understand is that when that happens and you’re in a fund, you’re actually taking more risks than you are in an individual than in an individual deal. Because when one card falls, they all fall. And there’s plenty of investors who I spoke to on the, on the back end of 2000 8, 9, 10, who were in these bonds who, you know, ended up, um, just, they blew up and they lost all their money. And I was just like, what do you mean? You lost all your money. How do you lose all of your money in a fund?

Michael Episcope (17:12):

If you have 20 deals in there and 10 of them go broke, 10 of them still have value. Well, that’s the answer is that, you know, these managers were just taking outsize risks with other people’s money. And by the way, that’s what drove us to origin. Because I had been in those deals before. And I was like, look, if this is the best that’s out there, and this is what people are doing with my capital, I can do a better job. And my partner. And that’s why, like all of these things that you learn and these little secrets, you know, that nobody teaches you about it. You learn the hard way, but then you do them right the next time.

Reed Goossens (17:44):

Right. I want to say in full those people listening out there, did you hear Michael didn’t get started doing 37 years of age. I talked to a lot of people on this show who are young guys, and I was actually having a coffee today with someone who’s a kid he’s 24. He’s stressing out that doesn’t got his first deal done. I was like, dude, you’re 24. Relax. Like, you’re going to be just fine. So I just want to say that that’s, that’s, that’s freaking awesome. You didn’t start the company tool, you know, in your mid thirties and you’re crushing it today. I also want, think that the big you, right? The big mistakes in a fund, and I I’ve done individual deals, you know, I’ve got about 3000 units today. I’ve never done the fund model yet. We’ve just done boot, bootstrap by bootstrap. But, but hearing that and listening to you say don’t cross collateralize is so important. What are the major tips in a piece of advice? Do you have for people in the sense of trying to build a foundation of non-risk always at risk adjustment or risk management, what other sort of tips, maybe two or three more that you would give to people listening to the show?

Michael Episcope (18:41):

People bet on people not deals. Um, you know, there’s so many of these platforms out there today that, um, are just pushing deals in front of people, one after the other, after the other. And I think all too often that, um, you know, that there’s this propensity to build your own portfolio, do deal, do a deal, do a deal, and you’re spreading the risk and that’s fine. And you can build a portfolio and there’s inherent advantages, disadvantages and all that. But when you’re all of a sudden, you know, doing this with 15 other sponsors, and you’re assuming that somebody else has done the due diligence, you’re exposing yourself to more risk and headache than you think. And you know, if you’re in this business long enough, you realize, and you understand that it’s about the people, right? And I will, in any of my investments, take a little bit lower of a return or forecast to return, to be in a deal with a really good sponsor, because things will go wrong.

Michael Episcope (19:34):

And when they go wrong, people behave differently. And when you’re all of a sudden in a deal with 20 sponsors, right, somebody in there maybe one or two or three are going to behave, you know, like you’ve increased your risk of bad behavior. Whereas if you find somebody who’s really good, just go deep with them in a lot of different deals. Right. And so that’s what I, I try to, um, you know, tell people when they’re getting into real estate, that you have to be careful about how you build your own portfolio, but, but bet on people it’s like any other business out there, right. Don’t focus on the real estate so much as the individuals who are behind it, how, what kind of risks they’re taking? Is there alignment in the deal? What is their track record? What are some things that they’ve done in the past that maybe they didn’t need to do, right? That were that speak to their character and how they’re going to behave going forward.

Speaker 2 (20:28):


Reed Goossens (20:29):

For those of you who are interested in staying up to date with all the latest happenings in my business, or to learn more about passively investing directly into my multifamily value, add deals, then head over to [inaudible] dot com and sign up for my monthly newsletter. By signing up, you’ll automatically be notified about my new up-and-coming investment opportunities. You’ll be able to stay up to date with all the latest real estate news here in the United States, and much, much more. So head over to Reedgoossens.com and sign up today. Now back into the show. I love that it’s, it’s so important. And I mean, when I first started raise my first a hundred thousand dollars, it was actually got nothing to do with the deal and everything to do with the trust in the person. And so many people, when you are starting in the syndication world or raising money, what ever it is, the deal comes second.

Reed Goossens (21:20):

It’s it’s you as the human being first, that, that, that is important when you’re asking for that capital or people that are, that are trusting you. So I love that. Um, pivoting in that a little bit, you mentioned you’re at you’re, you’re across five different, you have 35 and the team of five different offices across the country. What are you seeing in today’s market? Like obviously I’m at the coalface as well, digging away in certain markets. How w any, any sort of parallels to PR history? Cause it seems very frothy coming out of cars and, and, and pricing right now is absolutely through the roof.

Michael Episcope (21:52):

So I, I agree our strategy. We have three strategies. We build, we buy and we land in that middle strategy of buying. We’re doing zero in that. I would say our strategy today is build, sell, and land, and that’s what we’re doing. And that’s how we’re protecting our capital because the market right now, I mean, I’ve said this so many times and anybody seen me before, they’ve heard me say this, but in the value add market, it doesn’t make sense to us today. We’re a product that’s 10 years old is trading for replacement costs or 10, 20, 30% above it. And if we can build brand new for the same price and then have a development margin on top of that, um, I’d much rather build, it’s actually a lower risk proposition to get into the market. And just, you know, like when people think about this, if you’re buying a brand new multi in that, not a brand, sorry, a ten-year-old multi-family property that requires a value add, right?

Michael Episcope (22:42):

First value add, and you’re paying two 20 a unit, you need $15,000. And now your basis is 2 35. And your exit assumption is, you know, 280,000, wouldn’t you rather just build brand new for 210,000 a unit. And those are the economics. So, so there’s so much demand right now because there’s the fundamentals favor, the housing market. There’s a huge shortage on the, for sale side, which is keeping people in the rental side and the demographics. Now, the next generation is moving up and the generation right now, the millennials are sort of trapped in the renter. So you have this, um, almost perfect storm of housing that’s going on, where housing prices are going up and rental prices are going up because there’s such a shortage on all ends. At some point that is going to rectify itself, right? These imbalances can happen forever. So just be careful what you believe, right?

Michael Episcope (23:36):

Like everybody has a model that forecasts out 2, 3, 4, 5 years, but I’ll tell you this right now, every model is wrong. We’ve never, ever in the history of our firm and nobody can go on this show and say, they’ve ever modeled correctly the next five years. Right? You may wonder like this and you get to the end point in different ways. But every single one of our deals, we underwrite to kind of doubling our equity over five-year period. And none of them have done that. Some of them have been one, five X. Some of them have been three X. Some of them had been five X even, you know? And so you just have to be careful about falling for the financials and you really have to step out and look at the fundamentals of the market and saying, Hey, this doesn’t make sense, right? Because things that don’t make sense, walk away, stay in cash, invest in something else, play another day, or finding another place for your money. And that’s kind of what we’re doing today.

Reed Goossens (24:29):

Will you, do you think there will be a retraction of, of costs or sorry, uh, pricing. Cause you mentioned price per pound. And I taught, I’ve talked a couple of times on the show about the obsolescence of these existing non C class buildings that I’m seeing in Phoenix trade for over two 20 a door, right. You’re already at replacement costs, which is just nuts to me. And so, you know, my rule of thumb is you’ve got to increase the value of that asset by 50%, right? So you’ve got box eight to 200K a door. You go sell that in five years time for a mid-teen IRR to your investors about 300K door. And do you believe in that? Right. And that backs into rent growth. And so what are your thoughts on, on, on these obsolescent assets trading at that to try and achieve these bigger premiums versus in the secondary market like Phoenix versus where say you’re in Chicago, I’m in LA I know evaluated property in Torrance to 120 units is going for over 450K a door for an 80 for an eighties product. Yeah.

Michael Episcope (25:22):

Yeah. And in some markets, right where there’s true barriers to entry, you might be able to justify that if it’s truly your replaceable real estate. But, um, you know, there, there tends to be this propensity as the market, um, you know, is in these periods of calm that people continue to reach out on the risk spectrum to get yield. And, and, you know, in, in 2012, 13, around that time, everybody was trying to buy up the really high quality assets, right. And then they moved to the B assets and now they’re moving to the CS is to try to get the yield. So I will tell you right now that, um, if there’s a recession and there could be in the next two years, I’m not trying to forecast one. But what happens in a recession is that the lowest end of the demographic segregation, right?

Michael Episcope (26:07):

They tend to have the highest unemployment. And those are the people who are, um, renting in the class C apartments. So you have a disproportionate amount of people who are, um, who are unemployed in class C and what happens is they empty out, right? You start getting bad debt, you get higher vacancy. And I’ve seen, you know, a lot of people on that side, they claim, oh, well these are more workforce housing. These are, that’s not true at all. Like in 2000 8, 9, 10, we were buying stuff in Atlanta. I mean, class C housing at that time for $12,000 a door, right stuff that was $80,000 a door two years before, right. Where your class a, that is more your rent or by choice people who have college degrees, people who have, um, just a lot of discretionary income, good credit, they’re not likely to get laid off.

Michael Episcope (26:55):

Right. So you’re still going to suffer. It’s just the magnitude by which you suffer along that spectrum. But that’s kind of what I, what I see going on. And you mentioned, you know, class C going from two 20, I scratched my head. Now your earlier question is, am I predicting a price reduction or some, you know, something happening? Um, there’s two ways that this can come back to balance. Number one is yes, you can go into recession and all this stuff can come back into balance. And the second way is that you just have replacement costs that goes to the moon and just continues to go and escalate. So instead of you know, that, that project that you’re talking about, that class C a two 20 will have brand new, um, construction costs, you $500,000, a unit than two 20, doesn’t look that bad. Right?

Michael Episcope (27:41):

And so that’s one way that you can get out of this, but what will happen is that those properties will have a Nemic growth because they’re just being overpaid for. And that’s why, like when we’re looking at ground up development, if replacement cost does go to 500,000, I’m using extremes, right. $500,000 per unit when you’re in brand new product, right. That you’re delivering today. And the new replacement cost is 30, 40% higher. Your building is going to be worth that much more at delivery. Right. So we think that that’s the place that, you know, is the greatest risk adjusted, um, place for capital today. Where are you going to get the highest risk adjusted returns? Um, you know, that’s, that’s my opinion though, right? Is, is you can either have a recession which brings it back to balance, or you can have, you know, just replacement cost running up. I’m sure there’s other ways too, but those are the ones that come to mind and

Reed Goossens (28:31):

What markets are you hunting right now?

Michael Episcope (28:33):

So, um, I can name them, but, um, they’re the easiest way Sunbelt think of that. Um, in south low tax states, Southeast Texas Southwest, um, you know, we’re looking for business friendly, climate friendly states, um, secondary cities. So the Denver’s the Phoenix and Charlotte Nashville’s of the world. So, and they’ve really like, we’ve benefited a lot in our previous funds because we were located in those markets through COVID. We had no idea what was happening in COVID. And then we came out the other side and it’s like having a gift. So in all of those funds, we’re selling more real estate into today’s market than we have in the last seven or eight years combined.

Reed Goossens (29:13):

That’s that’s incredible. And what, what’s the what’s next five years got in store for origin coming out of, out of post COVID. And we’ve talked a lot about COVID on this show, but, but what, what are your, what’s your envisaging envisaging, as you’d say, with the, with the, with the buy sell lend model or, you know, so to speak.

Michael Episcope (29:31):

So when we think about the growth of origin, we want to create products that really span the spectrum, regardless because we have 2000 investors and everybody has, um, a different, uh, a different goal in there. You know, the reason why they want to get into real estate, whether it’s income or whether it’s growth or growth and income and something in between. So we’ve created products that cater to those needs. And so we really, we’re not, we’re only growing within those funds and growing operations and personnel and making sure that we can continue to deliver the same value that we have, you know, for the next five years that we have for the last 10, 12 years at the firm. And so that just means that we’re hiring the right people that were using technology to make us more efficient, constantly improving our processes, looking where to pick up the pennies, the nickels, the diamond, you know, w um, it’s really been an evolution for us because if you look back, even at our previous funds were far different today than we were three years ago, five years ago, 10 years ago, and 10 years ago, we were agnostic about, um, asset class, right?

Michael Episcope (30:37):

We did everything cause that was the market, right? You put money into something, whether it was student housing or retail or industrial, you’re going to make money. And so today’s world though capital is far more of a commodity, and it really takes operational expertise to compete. And you have to understand, um, block by block when you’re looking at real estate, but you also have to understand the nuts and bolts, the pennies, the nickels, the dimes, how to save on insurance and personnel and all and taxes and all the things that go into the equation, because the margins are really, really low on real estate. And you have to be able to compete at that margin. And it’s not the same as it was, you know, like in the past, I think going forward, it’s all going to be about specialization and expert, um, operational expertise.

Reed Goossens (31:24):

One thing you mentioned earlier was technology. What data are you using in order to keep you guys at the forefront to making the right investment decisions, given your history in 10,000 units, I’m sure you’d have to be using data internally to make that better investment decision in the future.

Michael Episcope (31:40):

And in fact, um, if you think about the way real estate is modeled growth is one of the most important variables that you have to get, right? Put it in any model will work if you put enough growth into the equation. Right? And so one of the things over, that’s been a real pain point for us, as we always, um, leased external data to the groups that are out there, they provide you with growth rates and markets, and it was always a black box. Well, how do they do this? We were never comfortable. They never backed tests. They never shared information. And so what we did about two years ago is we hired two data scientists from the university of Chicago to come in and help us with this problem. We said, look, we don’t believe that this is a really, this is a good product that we’re leasing, right?

Michael Episcope (32:22):

And this is such a fundamentally important part of our business that we want to build something. And so we’ve been working on something for two years and it’s really an econometric model that forecast growth rate by analyzing data from over 5 million pieces of data from over a hundred sources that are aggregated in each and every market. And I will tell you, I’m unquestionably, it’s way more accurate and a much better tool than anything we could have rented. So for us, it’s, it’s a huge, uh, resource, um, you know, for our team, looking at new markets, where do we want to be growth rates and we’re forecasting them because as you know, you know, you look at these markets and generally, you know, a responsible growth rate to put in to a deal is maybe two and a half to 5%, right? At the most that you would ever do.

Michael Episcope (33:08):

I don’t think we’ve ever. I see if I see over three and a half in a model, I’m basically killing the deal because we want multiple ways to win. Well, our model was successful at forecasting, the growth rate in Phoenix. And we looked at it when it was doing this a year ago. And we’re like, look, the model is broken. There’s no way Phoenix is going to grow. You know, at the high teens like this doesn’t work and we’re looking at models and we’re constantly evaluating, well, sure enough, you look at what happened in Austin. You look at the happen in Phoenix and for us, right. It’s been really difficult for us in the past to compete because I would consider us more as a value buyer than a momentum buyer. And you get some people who go in there and they’re like, look, I’m going to, you know, I just want to be in this Phoenix market and I’m gonna plug in 6% and make this deal work and forget about it. Right. That’s not how we are. Right. So, you know, for years past, it’s been a challenge for us to compete in these markets. But if we can get in there early and we can build in those markets and capture some of those growth rates, we’re in a fantastic position because those are properties that will build at a great basis. And we’ll just enjoy that rent growth going forward.

Reed Goossens (34:15):

I love it. Absolutely love it. I think it’s so important to be using that data and, and, and looking at your history and track record to help you make better decisions. And even for young opera like myself, that is the vision, right? That’s what I want to achieve is using that data to make better decisions in the future and bringing in the right people to help you make that like Amanda with a spreadsheet, but I ain’t no data science scientist. So bringing the right people in is key and goes back to your point earlier of investing in the right people. So really, really awesome. And thank you for sharing that. Um, Mike, we’re coming into the show and at the end of every show, I’d like to dive into the top five investing tips. You ready to get into it?

Michael Episcope (34:50):

Shoot. There we go.

Reed Goossens (34:53):

Question number one is what’s your daily habit that you practice to keep on track towards the goals?

Michael Episcope (35:01):

Oh God, I’ve gotten asked this question before, you know, I, I don’t, I mean, look, I work out, I take care of myself. I eat, well, I, I read, you know what I can, I stay on top of my team, but my, you know, my role in my business has changed a lot over the years. So when David and I started this business, we were in the trenches. We were the ones finding the deals, evaluating the deals, um, running the deals. And, and so we built a lot of infrastructure and I have 35. Um, we, I should say not I, but we have 35 team members now spread across the country. And really what I’m doing now is just managing great people, mentoring them, making sure that they have opportunities in front of them. So, um, I’m thinking more strategically about the company is how do we grow it?

Michael Episcope (35:43):

How do we give great opportunities for the people internally? How do we continue to, um, deliver, you know, the same product to our investors and adhere to our mission. So, you know, when you’re an entrepreneur and you own your business, there’s like, there’s not a day that you’re not working. There’s not a minute that you’re not working. There’s not something that you’re thinking of. And my partner and I, you know, we’re constantly on, you know, the bat phone. Like if I have an idea, I’m calling him. If he’s got an idea, calls me, we’re texting back and forth, and this has just been an iterative process over the years, you know, but there’s, there’s not, it’s just, I would call it an obsession almost, you know? And so, um, is there a daily habit? I think it’s just, you know, being driven to succeed and not being afraid to fail and not giving up or just moving forward.

Reed Goossens (36:29):

I love it that you saw it right. Being in the trenches in the, in the early stages, in instilled and ingrained in you a DNA that you do want to be curious about the next thing and being a good leader and about evolving as that leader for your team, because your team might be successful unless you’ll, they’re rocking up every day showing it how it’s done. So, so awesome stuff. Uh, question number two is who is the most influential person in your business or in your career to date?

Michael Episcope (36:58):

That’s a good question. Um, you know, I’ve had a lot of people who have kind of come and gone. I mean, I started with my grandfather and he would have been somebody who was very influential in bringing me into real estate. I mean, certainly my father has taught me a lot of great lessons about, um, just business and I’ll never forget one of the things he told me when I was younger. Um, he had an opportunity to work he’s in that the, um, uh, the law he’s a lawyer. And, um, he had an opportunity to work with somebody who’s the most prestigious attorney here in Chicago. And he did very well for himself. And I, and I, I said, well, why did you leave him? And he said, well, he offered me too much money. And I said, what? That doesn’t make sense. And it didn’t at the time.

Michael Episcope (37:39):

And then he’s like, look, he said, I was working for somebody who I thought was really smart and I respected them and he made me an offer. And I said, if I take that, I’ll never leave and I’ll never go off on my own and I’ll never do this. And so, you know, when I heard that, I sort of like it, it made my, you know, just, it gave me shivers because I’m like, that’s so important because he always knew he wanted to be an entrepreneur. So my advice to anybody out there is before, you know, especially bet on yourself, early on in your career, before you get so comfortable that you can’t do it, or you can’t afford to take that risk. And I thought that was a great lesson that he taught me during that time. And then there have been other people who’ve really, I’m indebted to, um, you know, from my trading days and for my real estate career and everything it’s stuff. And I can name dozens of them, but I don’t think there’s, there’s one single person, you know, categorically. I, I try to observe the world and take in what I can and respect people’s opinions. I listen, and I hear, and I take in so many anecdotes and just try to use those in my life. Yeah,

Reed Goossens (38:41):

That’s awesome. I think it’s, it’s a good, it’s a good reminder for all of us to consistently bet on ourselves. Right. That’s because if you can’t bet on yourself, then who can you bet on there’s no, one’s going to walk through your front door and handle your dreams on a platter. And I think kudos to your grandfather for doing that because so many people would take that easy way of just getting paid more and getting a cushy life and never been, never met the unfulfilled potential. I think that’s an awesome way. And it sounds like you’re very much driven by the same thing.

Michael Episcope (39:08):

It was, you know, I, I was lucky that my, um, I was a broker down in Chicago mercantile exchange, and I’m lucky my boss didn’t pay me too much because it was an easy decision for me to go and trade. And, but I use that, you know, that, that, um, that story that my dad told me to make that decision, I’m like, look before my boss does pay me too much. Like I better, I better go after this right now. And it was the single best thing I ever did. And I thank him, you know, to this day for being cheap and not paying me a lot. So we’re still friends and, you know, I can, I can talk to him like that. I’m like that guy, he didn’t pay me more. So I would’ve never thought off on my own. That’s all.

Reed Goossens (39:42):

Yeah. My question, the question is what’s the most influential tool in your business and a tool could be a journal, a phone, or it could be a piece of software that you can’t run your business without. What is it,

Michael Episcope (39:53):

Uh, top of my head Excel, you know, and I hate to say that because real estate is not done on Excel. Um, you know, it’s more than that. It’s a physical asset. You got to go visit the property. Um, but a lot of what we do in this world, I just, I don’t even understand how people in a ran real estate firms without Excel. So I wish, you know, if I’m thinking about it, I mean, we’re building more technology in house now, and that’s becoming much more important as we grow. And we, we integrate all the different departments amongst one another. I mean, you know, your, your phone communication is key, but you know, these are all just tools to give you better, um, information, right? And so like, even when we’re using Excel, Excel is just corroborating. What you, it’s only as good as the inputs that you put into Excel and it just corroborates maybe, or helps you vet things out that you weren’t thinking of, um, along the way.

Michael Episcope (40:49):

And it can really help you, um, make important decisions that, you know, 30 years ago it would have been much more difficult, but that’s why 30 years ago, cap rates were 10% and they weren’t 4%. Right. So it’s a really important model, but it’s used everywhere, uh, you know, across our business, um, in virtually every department. So for managing the company to the cap table, evaluating deals, doing that. So, you know, that was one thing when I, um, went, got my masters in real estate, I just became an Excel master in everything I did in that thing was just up and down, you know, learning the tools. And, and because, you know, when you’re, when you’re at my level, you have to understand the inputs, you know, and if I’m going to open up an Excel model, I want to know where to go and where to look and understand it. And, you know, conceptually things have to make sense. So a lot of times I’m like this doesn’t add up, you know, and guys are, what are you talking about? I’m like, this doesn’t make sense. I’m looking at the numbers here on top line and sure enough, they’re going into, you know, page 19, you know, to find the air. And they’re like, oh, it doesn’t. I’m like, yeah, it does. So you have to understand things at a very conceptual level. So you can also understand things, that detail level

Reed Goossens (41:55):

That’s so true. And, and amen. And because I, I couldn’t agree more with you. And so many people buy these Excel spreadsheets online and try and go and do this multi-family business. And all the numbers are turning green. And you’re like, no, that’s not. You need to understand why the 10th grade, so, and being at a high level 50,000 foot and go, why is that telling me this answer? And do I believe in that? Yeah,

Michael Episcope (42:17):

I would say the opposite too. There’s sometimes you have to shut the Excel off and say, look, I know it’s not telling me, but this is a great deal. Right. And that’s what I was talking about before is that we think that we can forecast with accuracy, but we had, and I, and I bring this up all the time because people are like, oh, we can’t pay another dollar. We can’t be two more dollars. I’m like, it’s great real estate. We need like $500,000 is not going to make a difference. And when we go back and look at our history, there are deals that we had the same conversation on because we believe that we’re right. And these Excel models, and you look back and you go, you know, that $20 million deal we bought, we could have actually paid $30 million for that deal and done great because that’s how well it did, you know, in hindsight.

Michael Episcope (42:58):

Right? So you, you have to take yourself out of that. And I love it. You know, like sometimes people get caught up too much in these tools. Like I like, um, you know, ways or Google maps and you will literally have people following a map and going around the block. And I tell my kids is too. I’m like, look up every now and then, right? I mean, where are you going? Cause they will just, they will literally just circle the block 10 times until they realize that the map is not working, you know? And so just interesting love,

Reed Goossens (43:27):

Final question for you. I want to get you out of here is where can people reach you to continue the conversation they want to be in your sphere? There are find a little bit more about what you do, where do they go?

Michael Episcope (43:34):

That’s an easy one, origininvestments.com. They can go there. We make it really easy for people to interface with us. We, um, you can interface with somebody right there on the website, or maybe you can just email investorrelations@origininvestments.com. So thank you.

Reed Goossens (43:51):

Awesome stuff. Well, might look, I want to thank you so much for jumping on the show today. Zuora reflect some of the things that I took away from today’s show. I think what you, what you hit on before is understand your, your XL model is only as good as your inputs. That’s the first I’ve always been up being a former engineer. I’m, I’m, uh, I’m a pretty good Excel jockey. Uh, that’s been the first one investing in good people. And then looking at your value, being a value buyer versus a momentum buyer. I think that’s really important. I see a lot of, you know, young syndicators like myself, getting a bit of momentum behind them and, and, and just seemed like they’re running too quickly in, in a market where you, we don’t have the gray hair being that younger, mid 30 year old, I’m 35, who I’m gonna age myself here that is important to look to people like yourself to understand that where the value is.

Reed Goossens (44:34):

And I do believe what the last step you made is sometimes you do have to turn the Excel spreadsheet off because it’s just a good piece of real estate that you believe in for the longterm. So I really want to thank you again for taking, taking the time out of your day. Do I leave anything out in that wrap up now? That was great. We had thank you for having me awesome stuff, Mike. Well, look, enjoy the rest of your week and we will catch up very, very soon. You tell. Well, they have another cracking episode jam pack with some incredible advice from Michael. Please head over to origininvestments.com, please check out everything they do over there. I checked out their website before. Very, very cool stuff. What they got going on across the country. And I’m going to thank you all for tuning into this episode. We can do this all again next week. Remember if you do like this show, please give the show a five star review on iTunes. And if you want to reach out to me, head over to Reedgoossens.com again, be bold, be brave and go give life a crack.

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