The Wisconsin Investor
Each week, we bring you interviews with some of Wisconsin's top real estate investors who share their tips, tricks, and strategies that you can implement right away. This show is dedicated to helping Wisconsin real estate investors elevate their game. Along with interviews, I'll also dive into hot topics in solo episodes and feature experts from various real estate sectors across Wisconsin.
The Wisconsin Investor
Hotel Hustle: From $23 to Hospitality Empire
In this enlightening episode, we dive deep into the remarkable journey of Mark Pomeranke, a pioneering force in the hotel industry. Starting from a meager $23 credit balance, Mark embarked on an ambitious path in hotel development amidst the tumultuous period of the financial crisis. His innovative approach led to the establishment of a hospitality brand that flourished by focusing on small towns overlooked by larger chains.
Mark reveals how he creatively navigated funding challenges through Tax Increment Financing (TIF) and the significance of building strong relationships with community banks and local stakeholders. This episode encapsulates the essence of resilience and resourcefulness in the face of adversity. Through Mark's story, we explore vital lessons in entrepreneurship, community engagement, and tapping into latent opportunities within your region.
Listeners can expect ample insights on how to leverage local resources effectively while understanding the importance of community investment. This episode encourages aspiring investors to maintain a perspective that goes beyond simple profit margins, aiming to create lasting positive impacts in the communities they serve. If you’re inspired to explore the world of real estate development or want to gain perspectives on overcoming challenges, tune in to this episode filled with actionable advice and insightful narratives. Share your thoughts and experiences with us by reaching out, and as always, subscribe to stay updated on future insights!
To connect with Mark, call 920-312-4444 or email markpomeranke@gmail.com
Hey everybody, we are here with another episode of the Wisconsin Investor Podcast and I'm super excited for today. We've got a very unique guest today, I would say at least unique background, different from anybody we've interviewed so far, so I'm super excited. I'll introduce him in a second. Before I do that, I just want to do a little commercial for Wisconsin Discount Properties, who sponsors the show, and I like to feature a deal of the week that maybe you're on our list, maybe you're not, but just to share a little bit about maybe something you missed out on and maybe it'll motivate you to get in the game if you're not currently.
Speaker 1:So the deal I'm going to talk about today was a property we had out maybe a month or two ago in Oshkosh. It's a mobile home, so not the sexiest of properties out there. No-transcript count maintenance and CapEx and some of those other things. So call it net net 300 bucks after we factor all that stuff in, but a nice little one. Throw it in the portfolio. We're burying this thing, so we paid cash. We're going to fix it up a little bit, do some things and then refinance out of it, have an infinite return on our cash and let that thing spit off 300 bucks a month, so we're excited about that. If you're looking for deals like that, or maybe mobile homes aren't your thing, hop on our buyers list. We have deals every Monday. Hit your inbox at 6 am Central time and offers are due Thursday at one o'clock. Go to wisconsindiscountpropertiescom, put your info in and start getting deals sent to you daily. All right, let's get into the episode. I am super excited. I have Mark Pomeranke. Did I say that right?
Speaker 2:You said it right.
Speaker 1:Mark joining us from Arizona today. How's the weather down there today, brother?
Speaker 2:Well, you know it's better than Wisconsin. We're going to be in the seventies today, so it's going to be fine by the time this airs.
Speaker 1:Hopefully we'll be getting close to that, so excited for that. Well, mark, I got a chance to meet you at the REI success meeting in green Bay and just from having a little bit of conversation with you, I said, dude, I got to have this guy on. You're a faith-based guy like myself, which I appreciate, so you know. So I know you come from a great place where your heart is when you're doing business and what you're doing, which is important, I think. Whether you're faith-based or not, I think integrity is a huge thing in this industry and giving everybody a good name. But also your background was really interesting. Why don't you tell everybody a little bit about your background in real estate and how you got started and what you got started into?
Speaker 2:Sure, as Corey said, it's certainly a different, a different topic than you've had before, but I actually started a, a hotel chain, a local Wisconsin based chain. Cobblestone Hotels was a co-founder of that brand, sold it, or sold my share, in 2017. But we our first property was actually in Clintonville, wisconsin, yep, and that was we opened in January of 08 was our first property was actually in Clintonville, wisconsin. We opened in January of 2008 was our first property. So we came up with the idea in 2007. Everything was exciting and money was easy at the time and then the financial crisis hit. But we basically grew it. When I sold, we had about 83 properties, I believe, and I mean now they have like 150, 160, something like that. So it's really growing.
Speaker 2:But we started out, my business partner and myself. We actually came up with the idea on an 8 hour car drive and we're like you know, nobody is hitting little, small little towns developing new properties. You have the little mom pop properties, but nothing. You know nobody is hitting little, small little towns developing new properties. You have the little mom-pop properties, but nothing like a major brand. So we came back to the office, kind of ran some numbers, tried to figure out gee, can we make something make sense?
Speaker 2:And I first came up with 20 room properties. Well, 20 didn't make any sense, but once I got to like 30 rooms or so it started to make some sense when I made it kind of a public private partnership with tax increment financing and a variety of local incentives with the communities. So, needless to say, we we basically started in Clintonville and from there it just kind of zoomed all over the country. We got phone calls from everywhere and we were building 10 to 15 properties a year. So it's kind of interesting. I believe we were the second largest hotel builder in the country for many years and, not knowing a thing about construction, when I started I didn't know the difference between Soffit and Fascia. I still don't.
Speaker 2:Exactly Me neither, but I know how to pass the test.
Speaker 1:Or get somebody who knows right knows right.
Speaker 2:Yeah, that's absolutely that's we. We certainly were blessed with, you know, just a phenomenal uh group of uh group of subs, as well as as uh, uh staff and things like that. Just awesome, you know, very blessed.
Speaker 1:That's that's all I can say there are so many ways, like I already know this, this one's probably going to go a little longer, because I have so many things I want to ask you about. I want to go back to the financial crisis, though, because I still hear this. I've been in real estate since 2016. And back then, everybody was doom and gloom. Right, they wanted to be the next person to predict the next crash. Right? That's what I kept hearing over and over and over again. Well, you went through a crash and you were building a business, a startup, from ground up. What were, like how, what were the challenges then? And like, how did you guys get through it to continue to grow with this new business model?
Speaker 2:Well, I tell you, we, we, we looked at each other my business partner me and said, you know, I think we're done, we're finished and we're like. Then, then I'm like, oh, we're not done. So we kept at it and, quite, quite frankly, we, we um it it. In some cases it was a blessing because we were able to recruit just the most phenomenal talent, because they didn't have any other work, and we, basically the key is finding a need and finding a want. And well, the bottom line is, all these little small towns all over the country have a need for some lodging. It's just that nobody, you know, projects were too small, the big players didn't want to play there, and so so it was. We were kind of, in a way, recession proof, because there is so many of these little markets when, when times are good, people don't want to travel and go to those markets, but when they're hungry, they'll go anywhere. And so so we, we were able to take, take, you know, basically grow through that adversity. But I'll tell you how we actually uh, started, or I mean, I should say we, we first it was going to be my business partner about brian and myself. We were just going to own all the properties. We were going to basically go into town. We're going to get the, the tiff district or tiff financing, um, you know, some financial incentive, and then basically use the local bank there and do the deal and own them 50-50. Well, that worked until we got to Bloomfield Iowa. We were on property number six and Bloomfield Iowa is the Davis County Bank which is now the Success Bank. We were on the way there. We just received $420,000, uh, upfront TIF, uh financing, and we were there to sign our, sign, our construction and, you know, loan. I was on the way there, I was probably about an hour out and I get a call from the banker and he's like Mark, I got some bad news. I said what's the problem? He's like, well, we, um, we're a small bank, as you know, but we just got two car dealerships back and we can't do any more commercial loans. We, we are, we're toast and we're like, great, he goes, but we really want to, you know, have a, have a property in our, in our, in our town. And uh, we're.
Speaker 2:So we put our thinking caps on and said, well, how can we accomplish this? So we kind of worked it backwards and try to figure out. Well, you know what, what amount of money would the bank be able to lend on? And just worked it backwards and and Darren was the was the banker's name. And Darren got on the phone. He's like you know what, I'm going to start calling all my people that are, you know, kind of the heavy hitters in the county, in the small town there. Okay, and he just started calling and seeing if people would contribute. So he kind of put an investment group together. Okay, I mean, he was calling the Amish, he was calling everybody.
Speaker 2:It was amazing, wow, and literally that was the platform that really catapulted our success throughout the country. We basically, from there, we put together a little private partnership. So every property that we developed was a different ownership group, a different bank. So I literally had relationships with 60, 70, 80 banks in my time there and it just literally took off all over the country at that point. Um, at the time is, if you recall, the AG markets and the energy markets were fairly strong. Well, so we went to North Dakota and we, we did deals all throughout North Dakota for both of the AG areas as well as the oil areas.
Speaker 2:Okay, um, but again down in texas, we, we were all over the country. We actually our farthest west was idaho, farthest south was texas, farthest north was north dakota and farthest east was pennsylvania, so any of those states in between there we were doing deals and uh, and today they're still doing deals there. That that's amazing. But yeah, it was interesting what can be accomplished. You know and I really have to give a lot of the credit, well, obviously, to my Lord and Savior, I mean, all of it is a blessing. But the community banks, I mean they really, you know, that is what I would say really helped our, helped our growth. It's because, you know, they weren't the big Wells Fargo's of the world, they don't care, and they would, they weren't doing it. But the local community banks, they, they care, and that's that's what I recommend people get relationship with your local community bank, yeah, that's that's as I teach.
Speaker 1:I have a course on the birth, on the birth strategy, and I have a whole section in there just about building relationships with community banks, because it's so important and some I didn't realize this down in where you are in Phoenix area right now, currently there's not a lot of community banks down there. It's very much difficult. It's very difficult to find. You have to use a lot of private lenders in that neck of the woods, right? So it's very difficult to find. You have to use a lot of private lenders in that neck of the woods, right, so it's very. You know, we're very blessed here in wisconsin that we have a very strong community bank. Uh, culture and environment for people who are looking to to invest whether that's in hotels, development, um, community projects, like they take a lot of pride in helping develop the communities and and infusing the capital that's needed to do some of those things. So I love that.
Speaker 1:That's how you guys went and that was your strategy to do that. Another thing I heard there, mark, too, is you know, a lot of times we get hit with adversity, right, like it's like oh man, you guys could have, huh, maybe we got to think of a different way to do this, and you just creatively problem solved and bam, it was magic sauce. You needed that bank to deny you guys. Right, like to create this whole model, which is fascinating.
Speaker 1:So the the two things there what could? What could be viewed from the outside as oh man, that's a terrible time to start in the hotel business, which is what I thought. I'm like wow, you guys started in 08. That's a terrible time. Actually, it was a blessing for you. And then the same thing with this bank because of 08 and what was happening. Another one that would have been for a lot of people would have stopped them in their tracks or had them fold shop. One that would have been for a lot of people would have stopped them in their tracks or had them fold shop. You guys took that adversity and just got creative of how to still make something work.
Speaker 2:It wasn't a question of if it's going to work is how do we make it? Work.
Speaker 1:That's outstanding. I love it. Well, I've got a million different ways to go. I want to go into TIFFs. Okay, sure, we can go into TIFFs for a minute. I think for a lot of people out there who are newer. I would love to do a development deal just because let's do one together.
Speaker 2:There we go, it sounds, it sounds exciting and it sounds like fun and I know Tiff.
Speaker 1:I've been in now and around enough of these that I understand what Tiff is. Can you explain to people what is Tiff? How do you go about getting it? What's the? What do you look for If you're looking to do a development project like? Talk a little bit about that.
Speaker 2:Certainly. Well, tif is basically a tax increment finance district or it's a TID, the tax increment district, or whatever. Every state's a little bit different. Tif is in, I believe, 48 states. Now in Arizona they don't allow TIFs. That's one state, so I've never done one here because they don't have it.
Speaker 2:But in Wisconsin I mean throughout the Midwest, they're. You know, they're in most states and that's how things get done and basically how it works is they freeze. They set up a district and they freeze the tax that is currently being produced in that area and anything that, the growth of the tax. So if you create new structures and things like that, then you can basically utilize that increment in revenue. So let's say, a whole area created $100,000 in property tax, but after you put in new buildings it's 200,000. Well, the 100,000 difference between the 100 to 200 can be utilized as financial incentives. Basically.
Speaker 2:And the nice thing about it is there's two ways you can do TIFFs. One is a pay-go-TIFF it's called, where basically they don't give you the money up front but what they do is they give you all that increment back every year as you pay your property tax. So it's a little. I guess cities say it's less risk to them because I guess they don't have to pay or whatever. They don't have any obligations out there. The other way is where the city will go and say well, gee, we're going to have this extra hundred grand coming in for the next forever. They can go use their muni, bonds or financing sources which they're able to get money a lot cheaper than a private developer can, and basically take the revenue from that to pay off the bonds as you pay the taxes. The nice thing about the taxes is, as you know, taxes are in first position on top of financing, so they're before a bank loan. If you don't pay the bank, the taxes are still going to be on there, and if the bank foreclosed on you, they have to pay that property tax back. So it's really it's kind of a risk-free deal for the city. It gets a lot of debate or a lot of what do you call it heated conversation over well, gee, you're giving these developers all this money.
Speaker 2:Well, yes and no, it's how things are created and, quite honestly, that's literally how we started our company. The little backstory here is I was working as a hotel manager for many years and I'm like you know, I really want to do my own thing and I had saved a little bit of money not a lot, but then I also had built up about two years, I think about 70 grand of credit cards and I said you know what? I'm not working for a paycheck, I am going to go make this happen. I was literally down to my last $23 of available credit on my credit card before we hit our first deal, and so the whole company I mean, which I created, hundreds of millions of dollars worth of stuff, started with my business partner Head, a Heloc, I think, the land we bought in Clintonville.
Speaker 2:Now again, I may be off by a few numbers here, but in Clintonville we bought our first site just under $47,000. And that's what we used his money for two weeks. Two weeks is what we used his money for before we got the money from the city to pay him back. That's literally what started the whole company. That is so cool. Well, again, all glory to God. I mean. There's no way that we could pull this off without his blessing.
Speaker 1:That's amazing. So that first Clintonville deal. Let's break this down for a second. Sure, so you have 47 000. You already had the wheels in motion. I imagine how long was the process that you guys had to go through to get the tiff money and like start this whole thing and and go through that before you had that injection of capital there to pay back that helac you know it took about.
Speaker 2:Uh, let's see here we we came up with the idea, if I remember right, in january, january of 07 or February 07. I think that was when our trip we went and met with the city Interesting story with the city. I actually the first city, I was actually Brilliant, wisconsin. We met with Brilliant. When I came back to the office like the next day, we called Brilliant up and met with the mayor and the city manager and and explained what we were gonna do and at a time they had, I know they had been searching for a you know a 60, 70 room property and it's just like, not really it's not big enough to support that and but if they could get it, good for them, yeah. Uh. So we explained it to them. They just seem like, oh, I think we're gonna hold out until we get one of those properties and I kind of saying, well, between me and you, they're going to be holding out for a while, but no problem.
Speaker 2:The next day I called Lisa, the city manager up at Clintonville. I went up to meet her and kind of explained to Lisa what our intentions were. And it's so funny, she gets up, she goes and closes her door to the meeting room. She says, okay, this stays in this room Because if the mayor finds out that we had hotel developers in my office and you don't build a hotel in Clintonville, it's going to break his heart. That's been his whole oh you hit the jackpot there.
Speaker 2:It was like literally, it was kind of a joke, it's like that was the thing, wow. So basically we had such support. It was the most amazing time and shout out to Lisa she was just, she was awesome, going to help and get through the process with the council and everything. We, we, we actually met with the council. We got, I remember right back then I think it was like $240,000 of upfront and I think we got a hundred thousand dollar like a revolving loan fund type of thing, and they approved it.
Speaker 2:They gave us a standing ovation. It was the most amazing thing. We walked out of that room. I looked at my business partner, Brian. I said did you see what just happened there? We just went, they gave us our down payment and we got a standing ovation. I said I love rural America.
Speaker 1:I love small town America. They're giving you $300 and some grand and they're clapping for you as you walk out the door. That's incredible.
Speaker 2:And they were just so full of joy and just blessed that we would come and do something in their community. That's awesome, and it's just endless stories like this throughout the country. I mean I've got.
Speaker 1:I grew up in Pulaski. Is there one in Pulaski?
Speaker 2:Yeah, there is one in Pulaski, I think.
Speaker 1:I know some people that invested in that one.
Speaker 2:So yeah, I think Al Al Moran was. Al was one of the leaders in that deal, okay in the gas station convenience store. There's some other stuff around there. Okay, very cool, but uh, yeah, so.
Speaker 1:So the financing piece of this then. So you get this, let's call it 300 000. You got some of it revolving, some of the cash up front, so then does the bank count that towards down payment?
Speaker 2:yes, they do. Yep, they do. Yeah, actually, and it was funny is because in, uh, in clintonville, the project at the time I think the total was $1.6 million was the build and stuff like that. So you know they contributed, you know 300 and some thousand, but we originally got approved by. It was a dairyman's bank, if I remember, right back in Clintonville, which they're not there anymore. It's changed hands a few times now I think it's actually being first or something like that, but so it was a great bank. They allowed it. It was back in the easy times. That was the good news right before the financial crisis there Handing out like candy in a branch?
Speaker 1:Absolutely yes.
Speaker 2:Because, basically, once we developed it, we got an appraisal. Once we developed it, we got an appraisal. It was appraised I don't know over 2 million bucks. And so so they they actually they said well, we'll do this deal, we'll get you an SBA loan, we'll do the TIF, you know whatever, and we'll make it happen. And, quite honestly, at the end we didn't even do the SBA loan on that property because they were like well, the appraisal came good enough, we can do conventional, even though I had nothing. I mean literally no money.
Speaker 1:You guys had no money into this deal and so they gave you, so 1.6 was going to be the cost, right? Yeah, matthew 20 of that is about 3.2 320 yeah, three or three, three, twenty three so I had enough of that. That was all tiff money, correct? Yep, so you guys are burying hotels we were burying hotels.
Speaker 2:Brand new build hotels.
Speaker 1:We were adding value.
Speaker 2:That's what we're doing.
Speaker 1:Man is that now, for I know you're out of the, you've sold out and all that stuff, but I imagine you're probably still keep up with the hotel industry. If I had to guess a little absolutely still. Is that still a viable option for somebody out there, or is that? Is that ship kind of sailed now?
Speaker 2:well, it depends. The key is to having the. The municipality really wants your property, okay, project, that's, that's the thing. They, they, they have some what do you call it? Some flexibility. If it's something that really is on their list, okay. And and a hotel provides a lot of economic impact for a community. Okay, I mean back in the day when I first started, every guest that you had stay in your town instead of going down the road and staying at a different community. You generate about $160 a night in revenue between the hotel stay them, going out to eat at their local restaurant, buying a t-shirt, buying some gas, whatever. There was an economic impact that was quite substantial. And the reality is we didn't, we weren't a strain on like the school systems or anything like that, because we didn't, you know, it wasn't like we were adding housing and that had to, or whatever you know, so it wasn't.
Speaker 1:So the services, even though the tax, they weren't going to be recognizing that tax increase for many years.
Speaker 2:It was whenever they did know.
Speaker 1:It's kind of like gravy on top for them. There's an additional, yeah, a whole lot of servicing they have to do. So that makes a lot of sense, yeah, and that makes me wonder I wonder why so many municipalities are so anti Airbnb. You know I get it from like your, your housing perspective thing, but it seems like with any any economic impact. Plus, they're getting hotel tax in a lot of these towns now too, true, based on those stays you would think they'd be more receptive to that, but there's a lot of lobbyists in the hotel industry probably going out.
Speaker 2:Well, I've been. I've been to some of these town board meetings.
Speaker 1:Arguments against that are just you know you get a couple loud people and just you know, if the Airbnb owners don't show up, nobody else is there to hear them. So that, what are these planning commissions going to do? You know they're going to keep the thing. So wow, okay. So that helps me completely understand the tax initiative. So somebody out there, let's say they wanted to do a single family development, or maybe they wanted to do multifamily development, or they want to do, you know, a strip mall or something like that you mentioned having the town really want that project. How does somebody go about finding that information? Like Clintonville, how did you know to go to Clintonville? Like, what was your research on that? Or how did you?
Speaker 2:figure that out. It was interesting. So when I came up with the idea, I'm like I'm going to hit towns that have some population to them, they have a good industrial base or you know, good room demand generators, um, but they're not big enough where they're going to get a big hotel. So that's, that was kind of my, my market study. That's how I I looked at, or looked at, towns originally, and obviously cobblestone is now built in the big cities and things like that.
Speaker 2:But but when we started that's what we were. We were rural, america, small town, and actually if, if you remember and I don't know, do you remember like the elko stores, elko duckwell, um, like they were kind of like the pomida, that type of thing. Okay, we really followed them. I looked at their, their um, uh, their what, what they basically looked to to figure out what store, what location to put stores is usually county seats and it usually was with a trade area less than 16 000 people, because at 16 000 walmart came in is what it was. So they kind of filled that niche and we kind of were the same thing, really that's yeah yeah, so.
Speaker 2:So I mean, our, our typical competition was ma and pa, you know, little up, you know 10, 20 room, little drive up type of motel thing, that's literally in most of the towns. That's what these properties were. So we filled an inch. I mean, we basically, when we came up with this idea, we went to all the big hotel brands and they're like like, no, we're not interested, we, we don't want a 30 room property or you know, 40 room property, we want 70, 80 rooms, that type of thing. Yeah, they scale it.
Speaker 2:So what we basically did is we took all the good elements from all the big brands and put in a small box. That's what we did. And uh, so, and so we ended up eventually franchising. And uh, so, so we, we integrated because I'm like well, how do I make a living? Why I do that? Build my brand, I need to make a living. Well, construction. So that's what we did. We became the GCs and developers of them. That gave us our today money so as we could build the long-term brand as well as ownership all over the country.
Speaker 1:That is so cool. There's a lot we could go into there as well Franchising and all that stuff too. Talk about the. I want to go back to that. I'm still curious on somebody out there because we've had some land that we've put out to the buyers list, right, we think it's a great development opportunity just from what we can see. But we're learning there's a lot more that goes into, you know, getting things approved and just the processes and wetlands and all that kind of stuff. So like, where does somebody start? They got a, they got a friend or family member who's got you know 30, 40 acres they want to sell. And you know a little rural America town. How do they go about figuring out? Like, what does this town want or do they could just call? Is it as simple as just call the city it?
Speaker 2:is there. Yeah, actually the the the best thing is to contact, like, the city manager and the economic development person either they have one in the city or in the county or that type of thing um, kind of gives you an idea of what they're looking for. A lot of times they'll do a market study the city will like for housing study and what their future like, a future plan of how the city is going to look or something like that. And I believe I actually I may be right, I may be wrong on this one, but I think the cities have to like create their master plan every so many years of what the land use is and all that stuff. So it's getting in line with there.
Speaker 2:And here's another little tidbit that I found over the communities I've dealt with In many cases locals have a hard time doing it because there's a lot of politics and a lot of like what should I say? Just just a different mindset of people where they're like well, we don't want to, uh, we don't want john johnny to get that, that incentive to do this, because I didn't like johnny john was mean at me in high school or whatever like right or or I dated his wife, or whatever you know.
Speaker 2:There's things like that where I could come in from the outside negotiate the deal. Johnny may come in and be an investor with me it was like it was, it was, it was the craziest thing. Oh, I bet that makes a lot of sense again.
Speaker 1:I grew up in pulaski 3 000 people, I get it. There's a lot of small town politics and everybody knows everybody and everybody knows everybody's dirty laundry from 30, 40 years ago, so I get that Well that that helps a lot more, cause I think that's one thing we, you know, we've struggled with is just understanding what does the town want. Now, is the TIF part of that? Like, if you call them up, they'll say, yeah, we have TIF money for X, y, z or how does that? Is that something they then go apply to get TIF money from somewhere?
Speaker 2:Yes, and no, some districts are already established so you can kind of like join in there. Otherwise, if they have capacity, they may be able to create a new district. Now there is a limitation, and again my mind's not with it anymore. There's a certain amount of tax base that you can have in a TIF district. I mean, you can't put the whole city in a TIF district because they obviously need to operate the city. But state law and things like that Okay.
Speaker 1:And then they'll designate hey, we want to see XYZ type of development here, so we're going to hold out our TIF money until we get like Brilliant's case they're 60 or 70 unit hotel or whatever the case is Okay.
Speaker 2:Yeah, just so you know, brilliant was property number three.
Speaker 1:Was there really? You had a building there, oh that's awesome.
Speaker 2:They literally, after they saw us, they came back to us and we built there.
Speaker 1:That's hilarious. Oh, I love it.
Speaker 2:Mark, they're great people over there. They were awesome to deal with. But but again they they in their eye. They thought of a water park they were gonna have and all this other stuff and we're like it doesn't make sense I like the vision.
Speaker 1:I like the vision, though I mean great visionaries. They're brilliant. It sounds like they have some aspirations, so that's great they're.
Speaker 2:They're progressive brilliance and great town. I mean there's all. There's more, if I recall. I think there's more jobs in that town than there is people just with like errands and all these other, all the different industries that are in there. Yeah, that's great.
Speaker 1:We've wholesaled a few deals there and in fact this week whoever's on our buyers list won't get this until several weeks later. But we have a really nice big house in Brilliant that is out to the list and I'm always a big fan. I'm like our properties. Whoever ends up buying them from us ends up doing really well there. They sell really quick if you're flipping, because people need housing there to work at errands and all these other places, and it's a good location between Appleton and Green Bay.
Speaker 1:You know centrally located a little bit there. So let's talk about banks. So you've dealt with 60 to 70 community banks dealt with 60 to 70 community banks? Yeah, absolutely yeah. What are some of the things? So somebody out here right now they're listening to this they've maybe done a few deals, maybe they've never used a community bank before. What are the things that somebody should do to set themselves up for success working with community banks and what are some things they should be looking for out of their bank?
Speaker 2:Yeah, Well, I guess first of all I actually go and I research the banks before I go to the town to get an idea if they actually have the capacity to do the project and how you can do. That is a real quick rule of thumb. On it. They can basically usually lend about 10 to 15 percent of their equity. Is what they can do. So if you look in the banks, say it's a $200 million bank of deposits and they have $30 million in equity, their lending limit is probably about $3 million. Is what they are. And again, I may be off a little bit, but it's a general rule. You don't want to go to a bank where, if you're trying to get a $3 million loan and their deposits are $ million in there and their uh capital is 6 million, they're not going to be able to do that because they're going to be able to about 10 to 15%, you said, of there.
Speaker 2:Yeah, yep, roughly is what they uh, and just for the audience, so they understand the legal lending limit.
Speaker 1:Can you talk a little bit about what that means? Just for in in third grade cram forever.
Speaker 2:Sure Uh. Their legal lending limit is the amount, the maximum amount they can can have to one borrower. So it can be you know one big project, or it could be you know 20 different homes, or whatever. There's a certain level where the bank's like you have too much money with one one borrower.
Speaker 1:That's how it works and they can participate with other banks, if you go, they can right, so they can kind of like I don't know works Right. But they can join up and kind of pass that over to somebody else and I don't know how they work it.
Speaker 2:But yeah, it's just kind of like a fractional, like we do in private lending, but we put a few people together and you know you own 25% of that loan or whatever that type of thing. They do it on the bank side but with the FDIC and the whole regulations, that's the only way a small bank does loans. Now there's another way a small bank can do loans and that's if you get an SBA loan or if you get a USDA loan, which USDA is another popular option, especially in the smaller markets. Usually, if you have a town of less than well, ideally less than 25,000 people, usda is usually an option. Sometimes they'll go up to 50,000. And I really like it's a. It's a longer process, but it's it's a, it's a good program to get things done.
Speaker 1:So that's 90% of Wisconsin Exactly.
Speaker 2:Yeah, yeah, no, absolutely, you know you're not. You're not going to do it in aon or in Green Bay or in the town, but again, in small towns of less than 25,000, it's potentially an option to do the USDA, especially for hotels, because they have the business and industry portion of the USDA Tourism what it is, and tourism is one of the industries.
Speaker 1:Okay, and what's the benefit of the?
Speaker 2:USDA loan for a borrower, it's to be able to go to a bank that's a small bank and actually be able to do the loan, because all they have to do is like a USDA up to $5 million. They guarantee the bank that they'll cover 80% of the loss oh, if there's loss on it. So the bank only needs to. Actually, when they're doing a $5 million loan that's backed by USDA, it's really they're only doing a million dollar loan, so it opens up so many more banks to be able to do your deal.
Speaker 1:The risk is so much less Correct. Yeah, otherwise it's the opposite. Otherwise, they're normally up to 80%. Yeah, yeah, yeah, yeah, yep.
Speaker 2:Yep, yeah, so so it's a. It's a great great deal for a small bank to be able to kind of play with the bigger boys. This is what it is. So on the residential side, do you have people use the USDA for their a hundred percent loan for buying a home?
Speaker 1:We don't deal a lot with retail buyers. You work with a lot of agents, though that probably do, but we deal more so with investors who are going to end up flipping it or whatever the case is. So we have bought a couple. We had a multifamily property that we wholesaled to somebody else and the process was over two years to get it through the USDA's red tape. So I'm a little leery about USDA for that reason.
Speaker 1:There was a lot of you know, you, you might get the better financing with some of these, but they sink your teeth in with some other stuff. As far as trying to offload this thing, he had to get these voucher. The owner had to get vouchers from the tenants and had to go through this whole make sure he you know he didn't discriminate, and there was just all this red tape that had to go on in order to act, for him to be able to sell his own property you know which was. He couldn't even just pay him off. I mean, I think the loan on it from USDA was only down. It was down to like $7,000 or something so small and he, like he, could have easily just stroked a check and said I'll pay you off. But in order to get a payoff he off, he had to go through this whole process and it literally took us two years for him to finally be able to sell his eight unit property. So it was.
Speaker 1:I learned quite a few things about USDA at that point, as far as on the backside of it, so I'm not as familiar with on the front end as far as borrowing from them, but I, you know, I probably would tend to try to find other options for that reason if there's a lot of red tape on the back end but I can see what what you're saying where if you're in development and your plans are just to develop this thing and continue to keep it for the foreseeable future, you know it's a great option to open you up to a lot of other lenders. If you're running into some brick walls is that kind of similar with SBA, then Is that what they typically do as well Is?
Speaker 2:it. Yeah, s sba. There's really two different ways that they have the 7a program, which is basically a direct loan, so you can go to you know any, practically any bank um, and they can do the loan and usda back, or sba backs it. You know um, and they'll back what is up to 90 on some of those loans. So so it's a. It's a good deal um.
Speaker 2:Then there's another thing where you use the uh cdc, the community development corporations like wbd is a big one in Wisconsin, wisconsin business development where basically how it works is, let's say, you're going to do a project that's we'll call it a million dollars. So a million dollars, what you'll do is you'll find a bank that will lend 500,000 in the first mortgage, hundred thousand in the first mortgage. Then you'll, then you'll uh do the sba 504 portion for the, for the regular, you know, between three to four hundred thousand that you get from them and then the equity is the. It's the difference, um is how it works. So it it gives you the ability to have, you know, 20, 20 year fixed money on the sba portion portion which is because they basically sell the bonds is what they do and people buy them and things like that. Wow.
Speaker 1:So then are you locked in? Are there some pretty big prepayment penalties if you were to refinance at a certain point, and that kind of thing.
Speaker 2:Yeah, and an SBA. It's basically it's a sliding scale, so you have a penalty if you do it. It's basically it goes down by 10 each year. So so if your interest let's say was was a hundred grand worth of interest, you're, if you paid them off right away, you're gonna pay a hundred thousand dollar penalty. Okay, the next year you're gonna pay 90. The next year you're gonna pay 80, 70, 60. So after 10 years that there won't be one. But it's the sunsets, yeah, yeah, okay cool.
Speaker 1:Well, that's awesome. I mean, this is I'm learning so much right now, mark, because these have always been like dark spots in my brain of like how do people do these big developments and get this money and then they're into it with no money and then you're actually creating money that you didn't have by the equity that you create when you do a new project, if you do it right and you don't overrun costs and things.
Speaker 1:So it's's a great way. Plus you're getting cashflow. There's just so many things. My brain is just going crazy right now. So many ideas, so many ideas going back to. I just want to circle back and then we'll we'll start to wrap this mark. Going back to you, we kind of got off on some of these other loan programs, which is great, but what are some of the keys you found to building successful relationships with these local banks? Like what was your approach to making sure you know you were able to get, you know financing or you know, keep the relationship with them for for the projects again, I go back to the cities, the city managers, the economic development, basically when I would come into or in, the mayors and things like that I would.
Speaker 2:When I go into a town, they basically those three people or whatever, would invite the local lenders or the local bankers to the meeting. We get them all excited and figure out which one wants to, you know, be the lead on this thing, play ball, and then they direct me through all the people basically it's depositors or people, their clients, as partners in the deal. So then, so we really that's I literally have in my my, you know, until I sold, I think I probably have about 800 partners, uh, that are basically accredited partners throughout the country wow, that's amazing.
Speaker 1:and what was there? What their? I guess you know if you can't talk about this stuff because of confidentiality, please just let me know. But, like, when you're going out and you had these private folks right, what was? What was the allure for them? I mean, was there a certain interest rate you were able to offer? Was it an equity percentage, like what was the? What was the offer to these private folks?
Speaker 2:the. What was the offer to these private folks? Well, basically they were equity um members, so we didn't. We didn't offer them anything. They, they literally did it because they wanted for their community, they wanted to um. You know, basically it helps their community when they have family and friends coming to town they want to have a place to stay, or if they have local businesses or industry, they want to build house their visitors that way. And the other thing is just one of those.
Speaker 2:A lot of my investors were the same people that would give money to, like a community center, things like that, where they really they did it for their community and they want to be able to drive by and tell their friends yeah, I own, you know, 10% of that, or I own whatever that type of thing. So it's kind of a pride, ego, pride, whatever type of thing. So it's, it's kind of a pride, ego, pride, whatever type of thing. And they're just proud. They just love, you know, they love their community. They think their community is the best.
Speaker 2:When I go into a town I say I don't know if this thing's going to work or not, but I'll tell you how I know it's going to work is if we raise enough money here to make it happen, then then it's, it's going to work. And what we did do is figured out that that our properties performed so much better when we had that local investment group, because there's so many salespeople out there that say, hey, you need to stay at my hotel, you know whatever. And so we, we position yourself really well, you know, with each community.
Speaker 1:That makes a lot of sense. You got a lot of. Then you got a lot of brand advocates out there, constantly, word of mouth and all over the place. That's amazing, and I'm just thinking about that right now. I live in Door County and I know there's a project up here. One of our friends is trying to get done and she had approached us about investing in it and stuff like that and it's just for us at the time it's just probably not a great fit, but that's kind of where I was steering her too.
Speaker 1:I think you're going to need to target people who are more interested in and really not necessarily the return on capital or any kind of interest rate percentage, but maybe just a percent ownership of it that want to see this project get developed and want to say that they were a part of it and be able to do it that way, which is, I think, the approach she's taking, which is going to be super cool. She can get it to go through it, but but no, that's good, that's awesome, mark. Well, man, I, I have so many more things. We could probably sit here for hours and hours and hours talking all this stuff, and so I appreciate all of your time Mark. We always end with a fun question Now, favorite Wisconsin tradition or place to visit.
Speaker 2:I actually have two, two of them all right. Uh well, the fish fries and and the supper clubs. That's what I, that's what I love about wisconsin that I miss out when I'm out here in arizona.
Speaker 2:I split my time between arizona and and appleton, so it's uh, you get your fill when you come into town oh yeah, I go to the beehive off of uh highway 76 out I don't know if you know where that's at. I do Like, okay. I like to be high for my fish fry, okay, and I like the Black Otter Supper Club in Hortonville oh, I've heard, I've never been. I've never been.
Speaker 1:I've heard there you go, folks listening to this, if you're coming into town for the draft or something. Maybe you're not from around here. You got to go check out these two spots Mark's mentioning and if you're flying in Appleton, boom. Easy enough, right. You bet Mark are you going to be coming to the draft?
Speaker 2:I am actually going to be in Arizona. That time I was just looking at my calendar. I'm like you know I don't think I'm going to be there. I have all my trips planned out now through May because I fly back and forth all the time, but those particular days I'm actually in Arizona.
Speaker 1:We'll miss you, you'll be with us in spirit, Mark, Okay, If somebody wants to pick your brain more about this stuff or I know you also do some lending too maybe before we wrap here, Do you want to just talk a little bit about you don't have to get into specifics, but anything you want to mention about what you're looking for out of a borrower as far as anybody who would need funds.
Speaker 2:Yeah, again, it's all relationship. I lend to people. I know that type of thing. So it's not. I don't usually just take random. We develop a relationship, first I have to know you, but then it's. We're pretty flexible depending on what it is. If we're just we're part equity and part, you know, part debt, or we're all debt, or if the other thing I like doing is actually like some transactional uh funding or double closings, um, okay, those are nice and again, in many cases I'll do 100 of what we need for that uh, because it's literally only for the day. Yeah, um, but, uh, but other than that, most of my, I like to uh get to know more uh fix and flippers or people that are looking for the the shorter term money things like six months.
Speaker 1:About a six month, yeah, typically what you're looking for maximum typically.
Speaker 2:I mean obviously we can, we can look at the deal and figure it out, but uh, except for my development project.
Speaker 1:I'm bringing in more, then we're gonna have a little longer deal there. We'll have to figure that out well there, cory.
Speaker 2:Well, I'll help you out. I'll show you how to go through those steps. Awesome, perfect, it's fun. What I really like to do is that, as well as help and try to go through the millions and millions of dollars worth of mistakes that I've made, that I can eliminate, we'll have you back on for another episode of just how many millions of dollars you've lost over the years of mistakes.
Speaker 1:Correct Mistakes yeah for sure.
Speaker 2:Literally. That's why how I started so many companies is just because of I'm like well gee, I started an import company because I lost like a hundred and some thousand dollars on an order of granite. No-transcript.
Speaker 1:There's so much wealth of information, Mark. So, mark, if somebody wants to get some more info from you, what's the best way for them to get ahold of you?
Speaker 2:Well, I know I'm old, but I'm not on social media at this point. Everybody's been trying to tell me to get on social media, don't do it.
Speaker 1:Everybody's getting off social media. Now Realize it's bad for the brain.
Speaker 2:The best thing is to call me actually 920-312-4444. 920-312-4444. Or you can just send me an email, too, about markpomeranke at gmailcom. It's M-A-R--k and then my last name p-o-m-e-r-e-n-k-e at gmailcom, and if you want to meet we can know. When I'm in in, uh, in wisconsin, we can sit out and see how we can help you out things like that or anywhere in the country actually. So yeah, it sounds like you get around or if you're in arizona again, I spend half the year here.
Speaker 1:Go meet at a cobblestone somewhere and then it's over and off, right. Well, this is great, and if anybody missed his information, if you have my contact, you can hit me up on. I'm on Facebook. I don't go on it very often, but I'm on there so you can Facebook message me, or you can reach out to us at wisconsindiscountpropertiescom. Feel free to contact us and just say, hey, listen to your Mark episode. We want to get his contact info. We'll ship that over to you. That being said, if anybody out there is listening to this and you're out of state and you want to invest in Wisconsin, or you're in Wisconsin and you want to start your real estate investing journey, we would love to have that conversation with you. Again, go to the website wisconsindiscountpropertiescom, put your info in and myself, reese Connor, somebody from our team, will reach out to you and try to see if we can help you get started in your journey here in this great state we love was called Wisconsin. So, mark, any final, any final words for the audience before we depart here today.
Speaker 2:Just don't think small, think big. That's my thing, it's there's no, if you're going to think, you might as well think big. I love that. That's my.
Speaker 1:I see you did that. It went from $23 on your credit card to a hotel franchise. So you know you know most.
Speaker 2:Most people start out with a, you know, a small little fix and flip or something like that. I said why don't I just build a hotel? Just go right to Before we do wrap.
Speaker 1:I think this is the best ending we've ever had, mark, because anybody who's sticking around I think that's the best advice I could hear. It's like sometimes people's faces are like, oh, I got to do this little, you know. I hear like, hey, what's your buy box? And I'm like, oh, I want to start at like something around a hundred thousand or whatever. Just rip the bandaid, just get something that's going to make money and go for it.
Speaker 2:Right, yes.
Speaker 1:Awesome, mark. Well, thanks again, man, for your time and your expertise, and I would love to have you back on here again in the future, so I know you brought a lot of value today. I know this was a completely different topic, but I know there's a lot of stuff people are going to take away from this episode, so I got a feeling this will be one of the top downloaded episodes as we go forward here. So again, appreciate you, mark, and appreciate all you guys for listening. Please share the show to get some value out of this.
