Mike DeHaan is a real estate investor with a focus on direct-to-seller marketing and discounted deals. He is also the host of the Collecting Keys podcast. In this episode, Mike shares why he considers direct mail his “bread and butter,” his targeting strategy, and why consistency is key when it comes to marketing and branding.
Mike DeHaan | Real Estate Background
- Real estate investor with a focus on direct-to-seller marketing and discounted deals.
- Host of the Collecting Keys podcast.
- Portfolio:
- 48 doors including personal holdings and joint ventures
- LP of 55 doors
- Based in: Spokane, WA
- Say hi to him at:
- Greatest Lesson: The best opportunities come by providing value to people.
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TRANSCRIPT
Slocomb Reed: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Slocomb Reed, and I'm here with Mike DeHaan. Mike is joining us from Spokane, Washington. He is a real estate investor and a podcaster. He's the host of The Collecting Keys Podcast. He has a large residential portfolio, along with some commercial real estate holdings. As an active investor, he has 48 doors, including personal holdings and joint venture deals. He's also an LP on another 55 units. Mike, can you tell us a little bit more about your background and what you're currently focused on?
Mike DeHaan: Yeah, absolutely. So first of all, thanks for having me on. It's good to meet you. So my background I guess is not necessarily real estate related to start; I started as an engineer, and got into real estate almost by accident. I quit my engineering job in 2018, after five years, and basically just decided that I hate it, and I want to do something different. So I quit, dabbled in a bunch of different things, started learning about business, entrepreneurship, wealth, all of the general things that allow you to live a more, I guess free and fulfilling life, and real estate ended up being I guess the tool that was going to provide me the lifestyle that I wanted.
So I started in residential, which is where I feel most people start; started by going to meetups and ended up flipping houses by partnering with people that were just local to the area, that had a little bit more money and experience than I had, whereas I had more time, because I was unemployed, and I was driving for Uber and working at a gym as my main source of income at the time... And I started flipping houses, and then after doing that a few times, I decided that I wanted to get better deals, so I started an off-market investing company, and basically became a wholesaler.
So we ran as a residential wholesaler strictly for the first couple of years, and then as that started to grow, we started to scale into learning to find larger assets through our direct to seller marketing methods. So I guess I'd say I was a wholesaler, but during that period of time I flipped houses, I bought a lot of rentals... That's when I bought most of my portfolios over the last couple of years since I've been doing that. And then now over the past about year and a bit, we've scaled that as well to starting to look for larger assets, finding mobile home parks, different kinds of multifamily assets, all of which we're finding off market.
For the most part, we are still wholesaling a lot of them, especially over the past little bit, because it was so easy to do so, and we could make pretty significant money, because there was such a demand for properties... But right now, my focus is on being a direct to seller marketer, as much as an investor.
Slocomb Reed: Nice. So Mike, you and I have some sort of similar stories here, at least in the trajectory of our investing. I started as a house hacker; never got us involved in flipping as it sounds like you did, but I have we flipped a handful of houses... As an investor primarily, I consider myself a buy and hold guy, but I did take wholesaling very seriously for a while, and did a significant number of deals.
We're recording at the beginning of 2023. I'm planning soon to get back into direct to seller marketing. I want to be more focused on apartments though. So let me ask you - you said you're doing a lot of direct to seller marketing for larger assets. When you say larger assets, tell me a little more about that. What do you mean?
Mike DeHaan: Larger assets primarily meaning larger than residential properties. So we've found that kind of the sweet spot for direct to seller marketing in terms of response rates is the eight to 30-unit range. So not like larger, larger like the 100 unit up apartment complexes, but good sort of range where there's still a lot of properties that are owned by mom and pops. A lot of them are sort of like legacy properties from smaller time investors, and they haven't all been snatched up by institutional money yet. But that sort of size range, whether they're mobile home parks, they're apartments, even like triple net stuff, that same sort of, I would say price range that you would typically find like an eight to 30 unit apartment complex, triple net industrial seems to respond really well, because you have the same type of owner... And ultimately, with marketing, that's what it comes down to, as opposed to the asset type, is the customer that you're marketing to. You can figure out who's going to respond best to your marketing, and your pitch, and the type of assets that they own, and reverse-engineer, I guess, the investment strategies around that. Because from our experience, that's where we found some of the best deals, with the best margins, has been in that eight to 30-unit size and price range.
Slocomb Reed: I have a lot of friends who are wholesalers or direct to seller marketers in Cincinnati, as well as my own activity... I want to ask, because I know it's very different now than it was even just six months or 12 months ago - when it comes to getting direct to seller for those larger assets, eight to 30 unit apartment buildings and similar valued properties and other commercial asset classes - what's working right now? What's actually getting you in front of sellers?
Mike DeHaan: Our bread and butter is direct mail. Just tried and true old school direct mail. I think that what's important with direct mail is that it needs to be something that stands out. And what we have found is a lot of the sellers that we work with, the things that they value are someone that has a good reputation, as well as the experience of feeling like they are establishing a relationship with somebody, as opposed to someone that's super-corporate, or someone that is really slick and quick on the sales process.
So I think where a lot of people tend to fail in direct mail, is that they will go and they will try to keep their direct mail super-cheap, because they're worried about their marketing costs, or they will do things like "We can close really easily. We're not gonna do a lot of due diligence", all that sort of stuff. But the typical multifamily and commercial off market sellers that we deal with - they don't really care about any of that. So what we do is we send higher-quality mail. We usually send handwritten letters [unintelligible 00:07:25.16] for YouTube, and we try to make things that stand out. So these are some recent stuff that we sent, that has Christmas decorations, and all written with a pen... So we'll send those out, and then everything points to our website and our brand, as well as Google reviews and other things that we have out on the internet about us. So when they get that higher-quality letter, and they go and they look us up, they can immediately know that we are more credible than a lot of other people that are fly by night investors that are out there... And also too because they can instantly see videos from us, they can see photos from us, they feel like they have a better relationship than a lot of the other investors out there.
One of the things too that we find that really helps out is we try to keep things casual, especially in a lot of the markets that we work in that I would say are not East Coast market or bigger cities, they're smaller, smaller markets; they don't want to work with the rich guy in a suit. They want to work with a person that feels like they can have a relationship with, and they can have friendship with. So we really try to lean on us as individuals, as opposed to us as professionals, if that makes sense. And that is a better seller experience.
Slocomb Reed: That makes a lot of sense. Tried and true direct mail. I'm not surprised to hear you say that. Can I ask what other marketing mediums you have tried?
Mike DeHaan: Yeah, so we've tried everything; especially last year, we did a ton of cold calling, we did a ton of texting and all sorts of things, because we were trying to do mass volume, and that's what a lot of other people were doing at the time... We've completely stopped cold calling; we still do texting on a limited basis, particularly to, I would say like wider-range lists. So just people that are strictly high equity, or people that don't necessarily have a pattern of wanting to sell in the immediate future, just because it does save the marketing dollars.
But outside of that, we've also done some PPC and some different paid ads, and those sort of things... But what we find is the best is the direct mail combined with retargeted online advertising as well. So that's a big thing I would add to that, is we combine a couple of mediums, so like the SMS and a direct mail, force them to our website to get that brand awareness, and then after they go and visit our website, they get retargeted through all of the online ads that we run, instead of just blindly spending a ton of money on online ads and hoping that someone wherever we want to buy sees the properties.
Slocomb Reed: So your online ad spend is specific to IP addresses, I imagine, that have visited your website.
Mike DeHaan: Exactly, yep. So they visit our website, and then we have a Facebook Pixel set up so they get retargeted with social media ads through their own social media. And then also we have Google retargeting setup. So it's kind of like that situation where if you've ever looked at buying some sort of widget online, and then the next thing you know, you're on a news website and you see like a little side call that's an advertisement for that thing you were just looking at - we do that same thing. So we become kind of omnipotent once they have entered our sphere.
Slocomb Reed: Mike, as an apartment owner-operator, who is willing to and usually most interested in buying highly distressed deals, I have a property management company, I have the bandwidth to go in and do a heavy lift, to add significant value to a property... That eight to 30-unit space is where I believe, and a lot of investors I know across the country believe you find the best opportunities for those types of deals, specifically because of the owner that you're talking about, the mom and pop who is not sophisticated, who has been taking the easy road, sometimes for decades, letting rents fall below market, letting the property fall behind on regular maintenance - those two things often come hand in hand. I will never say this out loud to a seller, but part of that model is I'm going to charge less rent, so that you don't complain when things are broken, because you'd have to pay significantly more rent if you're gonna go places where everything is fixed. But those kinds of properties work well for me, and I love the amount of appreciation that I can force in them.
So in that perspective, having done some deep value-add deals in that eight to 30-unit space, very intrigued by what you're doing. Not at all interested in Spokane, Washington, so I wouldn't consider myself your competition. But for those of our listeners who are also active investors, who are in that space, who are interested in direct to seller marketing, and to me, tell me about your budget. And I will say the follow-up question was going to be "What is the resulting deal flow from that?"
Mike DeHaan: It 40k to 50k a month that we spend on marketing for everything, and that gets us the seven to eight residential deals, and usually the one to two larger deals across all the markets. So one of the reasons we expanded out into these different markets was we found that the sweet spot for target area size is about a half million people. So everywhere that we go, once we've done our market research and we've decided we want to drop into a market, we try to narrow down the demographic area into about half a million people total population size, and then we typically budget 5000 to 7000 per market that we're going to spend there.
Slocomb Reed: Per month.
Mike DeHaan: Per month correct. And we've found that with that it is enough for us to get like the low-hanging fruit in most markets, and it keeps our cost per deal at 3000 to 3500 on average throughout the year. And in a lot of places, at least in our experience, as you start to increase that budget locally, the cost per deal gets more and more expensive, so we decided a couple of years ago that instead of always trying to monopolize the market and squeeze more out of it, we would just go with a broader range, and we would start with getting the easier 80%, instead of trying to spend twice as much money to get that more difficult 20%. And because we do it with such intensive focus on brand, and with such repetition of exposure to them, it works out pretty well for us, while still being able to manage the actual cost per deal appropriately.
Break: [00:13:46.09]
Slocomb Reed: Mike, I want to make sure I'm hearing you correctly - what you're saying is that in a targeted area with a population of around a half a million people, you have learned that $5,000 to $7,000 a month, resulting in $3,000 to $3,500 per deal is the sweet spot, and that there are diminishing returns for marketing dollars spent after that.
So instead of dealing with diminishing returns, you find the market you want to operate in, you find the best ways to spend that $5,000 to $7,000, which is almost always direct mail, leading people into your funnel online. And then instead of spending more money in a market, you find other markets where it makes sense to spend $5,000 to $7,000 a month looking for those deals.
Mike DeHaan: Yep, that's correct. And when it comes to the markets as well, we're not in the core of any large metros. So we're not like in Dallas, for example, which is 12 million people or something crazy, however big the whole metro, the DFW area is. We go to sort of like key markets, and we will go to a tertiary town around it that's smaller, so our competition is significantly reduced. And that allows us to stand out a little bit more. So we're not competing with every single person that decided that they want to invest in Chicago; we'll go to one of the smaller towns outside of it, or smaller demographic areas, that's about a half million people, and we will target that exclusively.
Slocomb Reed: Why is that what you do? Is it because you are experiencing less competition there than you would in the heart of Dallas Fort Worth?
Mike DeHaan: Exactly. It all comes down to competition. And what we typically look for when we look at these markets is a history of investor presents. So we'll go on just generalist providers, and look for how many cash purchases by LLCs have occurred in the area, or how many LLC transactions have happened in the area... And then Facebook groups and things like that to sort of see if people are talking about those areas. We sort of cross-compare that with "Sell my property [unintelligible 00:16:50.29] Fairfield, Illinois, for example, to just see if any of these small properties have places that are being directly targeted by other off market investors. And if we don't come up with anything, then we will launch there; we typically do a one or two-month trial to sort of see what the response looks like.
Something that's pretty remarkable that we've found is a lot of the places that we go - I would say that the first month is a little bit interesting, because the response rates tends to be lower. By the second and third month, we start to get people reaching out to us that we realize have never talked to another off market investor before, just because they're far enough away from the general area that no one's necessarily marketing their heavily. And then they get a legitimate piece of marketing material that points them to a legitimate company, and it piques their interest, and we ended up having almost no competition.
And the thing that's crazy too, talking about competition with other investors and things like that, for people listening to this show - there are towns like this all over the United States. And the thing is, is they are not the towns that you ever hear about on these podcasts, or on Bigger Pockets, or anything like that. You actually have to go through and find them. And it does take work, but you'd be amazed at what you can dig up when you really dive into it. And also too, if you find good deals - because we're mostly a wholesale model... If you have a good deal in a town that is two hours away from Chicago, for example, but it's the town with some sort of industry, it's surprisingly easy to sell. And a lot of people, they think that if it's not in like a large, massively growing area, that it's not as [unintelligible 00:18:20.23] but it's just not the case. You just have to basically get a better deal, and make sure it's like somewhere that is growing [unintelligible 00:18:29.03] and isn't dying. But there's places like this all over the country.
Slocomb Reed: In those kinds of places there's an expectation that cap rates are going to be higher anyways.
Mike DeHaan: Exactly. Yep. All the time.
Slocomb Reed: Awesome. Well, Mike, are you ready for the best ever lightning round?
Mike DeHaan: Yeah, let's do it.
Slocomb Reed: What is the best ever book you've recently read?
Mike DeHaan: For me right now it's been Traction. It's kind of a cliche one for business owners, but as we have started to scale, Traction has been a game-changer for keeping our business organized... Especially as we've dropped into all these different markets, having our processes, organization figured out has been super-important. And because I cowboyed this business when I started it a few years ago, a lot of it was fly-by-night, shoot-from-the-hip sort of thing, and when we started scaling, that was going to bite us... So Traction has been really important for us over the last year.
Slocomb Reed: That makes a lot of sense. What is your best ever way to get back?
Mike DeHaan: But I'm a big supporter of anything that revolves around youth activities, especially here locally. I think that's something that if you look at just the way that society has gone, and more and more people are having kids, and keep learning, something we're doing well and others aren't - the lack of children to be able to do activities, especially in like the lower income spectrum, is a big issue. So me and my wife, we always try to give back, whether it's sponsoring a kids soccer team from like a lower income area, or supporting some of the leagues and things like that that they are creating, that are meant for kids with lower income. I think that's really important for development of the country, and the younger people that aren't going to have the opportunities that honestly a lot of us that are a little bit older - and I say that, I'm in my early 30s, we kind of took that for granted; a lot of people aren't going to be able to do that now. So we like to get back in that way.
Slocomb Reed: That's awesome. I'm in complete agreement there. Mike, specific to your commercial real estate investing residential five plus units and the other asset classes, what is the biggest mistake you've made, and the best of our lesson that resulted from it?
Mike DeHaan: The biggest mistake that we made was actually with the first larger assets that we bought, first commercial size asset, which was an eight unit where - I think a lot of people made this mistake over the last couple of years, but we grossly overestimated what the expected cap rate was going to be when we went to exit it... Because it was a style of property that was slightly less desirable, just because of the age and the specific location... And we did not look at the micro demographics of the location that we bought this property.
So essentially, there was properties across the river that were more A class, that had much higher value because of the neighborhood they were in, and the tax situation in those zones. And the one that we had, we assumed would be the same, and we were excited about the price compared to the ones across the river, and we ended up having an exit on it of - I think it was about 30% less than what we were expecting.
So we were expecting to make about $200,000, and we ended up, after it was all said and done - and there was like some other things too, with the [unintelligible 00:21:30.22] we made about 60k. So we still came out okay, but it was a big waste of time and effort if you look at everything that went into it, over what our capital could have been spent on in the time that took us to do that.
Slocomb Reed: A mistake that a lot of investors make for sure, and that's one of the lessons to be learned. That said, Mike, what is your best ever advice?
Mike DeHaan: Best ever advice I would give you is to be consistent in whatever you do, especially if you're going to do any form of marketing, or branding. I think the biggest thing that a lot of people do when they form any business is they will try to jump around and do a bunch of different kinds of marketing, and not actually give anything the amount of nurturing that it needs to be successful.
You'll see that with brands as well. There's so many people that have small businesses that try to rebrand every three to four months, because they aren't rich yet. You need to commit, get the brand history, commit to your marketing, and just do it consistently for a long period of time. And instead of always changing it, you've got to just evaluate, refine, and repeat it. Just like everything else, it all takes practice. So just don't get the shiny object syndrome when you're looking at everything.
Slocomb Reed: Where can people get in touch with you?
Mike DeHaan: If you go and listen to my podcast, The Collecting Keys Real Estate Investing Podcast; you can send me an email if you want, which is Mike [at] collectingkeyspodcast.com. You can also go to collectingkeyspodcast.com and we have a free five-step guide there for how you can start generating off market leads. So it's at collectingkeyspodcast.com/free And then if you go and get that guide, you'll immediately be in my sphere, and I'll reach out to you that way as well.
Slocomb Reed: Those links are available in the show notes. Mike, thank you. Best Ever listeners, thank you as well. If you've gained value from this conversation on successful direct to seller marketing for commercial real estate, please do subscribe to our show, leave us a five star review and share this episode with a friend who you know will be interested in our conversation today. Thank you, and have a best ever day.
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