Worried about his future as a W2 worker and wanting to take more control of his future, Dan started looking into real estate. He started with a flip, then another, and made money on both of his flips. Now with a child, he has moved into multifamily rental properties, still successfully making money there too. A fantastic episode to learn from, especially for the newer investor or completely new investor that needs to hear a newer investor success story. Dan is living proof that with the right mindset and education, you can start investing in real estate and be successful from the beginning. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Best Ever Tweet:
Dan Plant Real Estate Background:
-Flipped two houses for good profit, but when son was born 2015, moved into multi family rental properties
-Just closed on first triplex Goal is to have $50k/yr cash flow within 5 years
-Still currently holds Corporate Environmental Manager at Metal Technologies
-Chemistry B.A. and MBA in 2006
-Based in Fort Wayne, Indiana
-Say hi to him at dplant13@gmail.com
-Best Ever Book: The Real Book of Real Estate
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TRANSCRIPTION
Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Dan Plant. How are you doing, Dan?
Dan Plant: Great. How are you doing, Joe?
Joe Fairless: I’m doing well, nice to have you on the show. A little bit about Dan – he has flipped two houses for a good profit, and we’ll get some specifics on that… Then, during the second flip, guess what happened? Him and his wife had a kid, and as a result of having the kid, he has shifted his focus from more active fix and flipping to more passive investing, and they just closed on their first triplex.
Now their goal is to have $50,000 a year cashflow within five years. He still currently has a job as a corporate environmental manager. He’s got a BA in chemistry and an MBA. He’s based in Fort Wayne, Indiana; I was just telling him before we started recording, a good friend of mine and his wife and kids just move to Fort Wayne… So we’ve got that in common. With that being said, Dan, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Dan Plant: Yeah, no problem. Basically, I did the normal path through high school and college; I went to Indiana University Bloomington to pursue chemistry. I was actually thinking pre-med; I got about two years into that and realized I wanted nothing to do with that. But it was too late to switch majors, so I basically closed it out, with the plan of getting an MBA afterwards to not limit myself for careers in the future. So I did that…
In the meantime, my wife and I got married, and I have been married for seven years now. I started working for a company that does cycling outfit in Northern Indiana here. I was a plant manager for a couple years; good job, but it was basically at the top of the totem pole unless I wanted to take ownership and buy into the company, and that really wasn’t in my plan. So I started looking for another job, and found what I currently do, which is basically a regulatory manager for a large iron foundry company out in Northern Indiana here.
In this whole time since 2007 — I was not in the game, so to speak, in 2007, but I saw what happened, and hopefully everybody that didn’t have their eyes closed was seeing what was happening… Not only with real estate, but also just the overall economy. I just felt like there’s no way to trust a W2 job at a corporation; not that they’re bad people, not that they don’t plan on being there forever, but we saw General Motors, the biggest company in the world at one time, going into bankruptcy… And I just started thinking, I’ve gotta get a side game; kind of like your Uber commercials, your side hustle going on.
So we started looking at this flipping houses. We did one… Would you like me to go into it now?
Joe Fairless: Yeah, absolutely. Please do.
Dan Plant: Okay. We did one – it was kind of a secondary type deal. It was a foreclosure. A company out of Florida, that [unintelligible [00:04:10].02] throughout the country. Bought it, slapped some lipstick on it, put it back on the market for 5k or 10k more than what they had bought it, just to get in and out of there in a couple months and make a little money… So we bought it from them.
I think $40,000 was the purchase price, and obviously, we leveraged this. It was a commercial loan; it was not a 30-year fixed or anything, because when we’re flipping, the goal is to have it for such a little amount of time that having a little bit higher interest rate on a commercial loan, because you don’t wanna have to jump through all the hoops that you do for 30-year-loans that are gonna go into secondaries.
Joe Fairless: What do you mean by a commercial loan? Like a portfolio lender?
Dan Plant: A local credit union.
Joe Fairless: Okay.
Dan Plant: So I wanna say that the terms were — and this has been four years ago now, so I’m trying to be as exact as I can… But the loan officer there has been really good to work with. There was a 5-year 20-year amort on them, and you’re in the low to mid 5%, so higher than the 30-year… But the fact that you can call a guy, say “Hey, we’ve got this project” and they trust you enough to say “Okay, we’ll do it”, assuming that appraisals prove out, and everything like that. It’s just worth the time savings, to me at least.
Joe Fairless: Okay.
Dan Plant: And at 25%. We go in, we do that, put in maybe $20,000 into it, turn around and sell it for $80,000, I believe… So at the end of the day, after taxes – it’s kind of back of the napkin stuff here; I apologize, I don’t have our actual accounting stuff up – it was about a 50% profit after tax. So I’m thinking, “Well, I’m not gonna get rich doing this, but it’s a pretty sweet deal.” But as a novice investor and a mistake that I made, we decided that it was time for us to build a house to live in, which side-tracks just based on not just the money you’re putting down, it’s the time involved, and then also I work a full-time job.
So about two years went on; there was nothing more, just keeping my eye on the MLS and LoopNet and some of these other websites you go to. One popped up – it was another foreclosure in Huntertown, Indiana, with is just a little suburb to Fort Wayne. It’s got a great school system, so people really wanna live there. I bought that for 35k, put 20k-25k in it, we sold it for 78k.
Joe Fairless: You bought it for how much? 25k?
Dan Plant: 35k.
Joe Fairless: Oh, 35k.
Dan Plant: Yeah.
Joe Fairless: Okay.
Dan Plant: Same structure as the other one – a small loan, a 5-year 20-year amortization loan… So basically after-tax profits, we’re looking at about 50% again. We haven’t paid the taxes on that one yet, we just sold it earlier this year.
Joe Fairless: Yeah, and just so I’m getting the numbers right… You said you bought it for 35k, you said you put in about 20k – is that right?
Dan Plant: Yes.
Joe Fairless: And what did you sell it for?
Dan Plant: 78k.
Joe Fairless: Okay, 78k.
Dan Plant: And the profit is based on my cash in, not necessarily the purchase price; I leveraged. So it did really well again. I think my wife and I have kind of gotten an nose for these properties. This area is — I don’t know if there’s half a million people that live in the [unintelligible [00:07:20].24] It’s a good market, but it’s not a market where every day you can wake up and go find a deal like this. Perhaps they’re out there, but working a full-time job we just weren’t seeing a lot of them come across the standard channels… As well as we had our baby boy, and I said “This is it, we’ve gotta switch the gameplan”, so here we are today.
Joe Fairless: I wanna talk about what you’re doing today, but before we do that, let’s talk about how you were able to make your money back plus 50% (about) on each of the two flips. What would you say that you did well that allowed you to make that type of profit on the deals? Because they were your first two, so that’s really starting strong.
Dan Plant: I’ll be honest, I’m glad you asked that. I think it’s something that for a fairly young guy (34) – I don’t wanna preach, but one thing that I really believe in is that you have to think critically about stuff, really no matter part of life you’re in. And some of the things I’d do would be — obviously, I did a lot of research. A lot of reading books – the standard books that everybody talks about, just learning the ins and outs; trying to learn the metrics, to figure it out… But the big kind of really basic thing that has really helped me out the most is just question everything. When you bring in somebody to put flooring in and they give you a price that’s, say, $5,000, but in your mind you thought it would be closer to $2,000, you say “Wait a minute. I’m not a carpenter, but something’s funny here”, and have another quote come in, or utilize buddies that maybe — if you have a plumbing job coming in, I don’t mean cheap Charlie it, but utilize his expertise if you’re getting outside quotes, or if you’re gonna have him do it. Just utilize what you have available to you, and think critically.
If something seems funny, even if you’re a virgin to this, chances are it is funny; there’s something odd, so… That’s really what I attribute it to. That might be kind of a simplistic answer, but I don’t believe it has to be difficult, and that’s really what’s helped me.
I just think by doing it that way and really thinking critically about it, I’ve been able to learn real quick certain aspects of it. “Okay, this old house [unintelligible [00:09:29].06] I’m gonna have to have somebody come in and fix it.”
In the past, an electrician could have come in and said “I need 50k for this”, and I might have been a deer in the headlights, saying “Okay, who am I to argue?” Well, now I know that’s way off base, and I can feel much more comfortable when I’m calling an electrician to look at it, and I don’t have to spend as much time this time around, because I kind of have a basis. I’m not recommending you try to become an expert in electrical issues and plumbing and carpenting and all that, but you go through it once, kind of really deep, and get into the weeds, and then from there it increases your comfort level and you can make better decisions.
Joe Fairless: Are you taking notes, like physically taking notes when you are doing the Q&A sessions?
Dan Plant: I do. I have a book that I keep with me all the time; it’s just a little book with a strapper on it that I can keep on me and just draw out little notes day to day… And I will, in there. “Probably this plumber is more expensive, but he’s gonna give me the Cadillac of water heaters, so maybe that’s worth it.” I’ll make notes like that, but I do not have a standardized spreadsheet or process. A lot of it is just in my head an in this notebook.
Joe Fairless: Now let’s talk about how you’ve shifted gears with the triplex and more passive investing. Are you managing the triplex?
Dan Plant: I am.
Joe Fairless: Okay, alright. So we’ll use the term “loosely passive.” It’s less active… How about we say that? [laughs]
Dan Plant: I agree with that.
Joe Fairless: Yeah, I bet. So let’s hear about the triplex. Tell us the numbers, and maybe why you agree with that statement.
Dan Plant: Okay. Well, the thought was kind of always to go into rentals. I shouldn’t say “always”, but we knew the hours in the day were gonna get tight once we had our boy, so it was kind of in the back of my head when I was finishing off that flip.
We got to the end of the summer 2016, and we put it on the market, knowing that it was kind of a bad time… Towards the end of the summer, the end of the buying season, plus with the election coming up; our realtor was saying they weren’t seeing a lot of action. People were just kind of waiting to see what played out. So we weren’t getting a lot of decent offers (let’s put it that way) on the house for maybe a month or two. I said, “Let’s pull back, re-tranch here. I’m gonna rent it out till next spring, when the market is hot again. Hopefully we don’t see the market correction that we all think is coming in the meantime.”
I suppose we were lucky – we found a really good renter that was building their house; it was a very wealthy couple that was building a dream home out in the country and just needed somewhere to live in the meantime, because their old house had sold. So those are about the easiest tenants in history. So I’m thinking “Man, this is easy. Let’s just parlay this place. We’ll sell it, take profit, buy a triplex/fourplex, something like that, that we can feel comfortable to buy it off at this early stage in the game.”
So we did that. I found a triplex in another suburb of Fort Wayne called Columbia City. That kind of blue-collar type community. We were really trying to stay away from downtown Fort Waybe area. It’s a really nice area, a lot of improvements going on down there – sports arenas, new apartment complexes, stuff like that. But the areas that are hot are really hot, and the areas that are not hot are fairly — I don’t wanna be derogatory to anybody, but kind of slummy areas… As well as I have kind of mentor that has some properties there and he said that he has a hack of a time getting bad tenants out. Just a more (I suppose) liberal court set up there.
Anyway, that’s why we were kind of focusing on the suburbs, but this property – I believe they wanted 75k, we offered lowball – and not lowball to be rude, but lowball what we thought the value was – at 65k. They countered at 70k, we took it, and [unintelligible [00:13:02].05] things that come up in the inspection. I said, “Hey, this is gonna cost me some money. I hate to retrade on my first deal; I know it was just a little deal, but this means real money to us.” So we got back down to the 65k that we originally wanted.
All the tenants were inherited. Two great tenants, and one tenant that we’re dealing with this hairy situation, but they’re there and they’re paying.
Joe Fairless: What’s the situation?
Dan Plant: They didn’t have an active contract with the seller, like the other two did. So what I did is I took our contract that we had a lawyer help us with, we took it to the two people that already had an active contract and I said “Look, there’s no deposit, because I got the deposit from the old owner for you guys. We’re not raising your rent for the first year” – I was very clear about stuff, and they were happy with that, and they just signed it, so basically it was like “Let’s just take it from where it was”, and with a couple new stipulations in our contract. But the people that did not have an active contract, I took it to them and said “You guys need a deposit, you need to do the application process…”
Joe Fairless: Background check, that sort of thing?
Dan Plant: Yeah, credit background and all that. Well, they don’t have the money to do that, because it costs $25, $35 a person to do that. It’s just been kind of battle like that. But every month they pay their rent, so I’m kind of at the point where I’m like “Does it make sense to boot them so you can get somebody in there that you’re more comfortable with, or do I really wanna make waves right now?” It’s a little more difficult with these guys, but they’re paying their rent. I’m just kind of in an inner battle trying to decide which way to go.
Joe Fairless: What are you leaning towards?
Dan Plant: I was leaning towards letting them stay in. I kind of got comfortable with them, had no problem with it; I was a little upset about the way it was going, but I don’t pretend to know where they are in their life and what their situation is, so I was gonna try to be lenient. But then I went out there to do some work on the exterior, and I had to knock on the door to get an extension cord in that front door… Two people were sleeping in there on the floor that I’d never seen before… It was very what you would expect to see in a D class area, and this is anything but that, so I’m really leaning towards getting them out of there. I just have to make sure I do it appropriately, because this will be our first time doing that. I don’t wanna just go in there, guns blazing and say “Get the hell out of my house.” So I’m just working through that right now.
Joe Fairless: And what are the total rents?
Dan Plant: That’s another side point why I haven’t wanted to boot these guys for sure yet – they take care of the lawn; that was the deal we made. They like working in the yard, so I said “Well, you’ll knock $30 off your monthly rent”, which is way cheaper than if I got a landscaper do it… But I believe I’m at about $1,280/month total rent for that place. I’ll say $1,250, because I did take $30 off for them to take care of the property’s exterior.
Two units are responsible for their electric, most of their utilities; one unit I pay everything, because the water heater is electric and it supplies water to all the units, so I couldn’t have him paying for everybody’s hot water and the electricity for it.
We are in the process of having natural gas hooked up to the house, so I can get the water heater on natural gas instead of [unintelligible [00:16:07].26] We’re just gonna bite that off, say “Okay, it’s gonna be $100/month for natural guess, BUT I’m sorry tenant number one, but now you’ve gotta pay for your own utilities like everybody else.” That will be about a $3,600/year shot in the arm. There’s a lot of ifs in there, but that’s the plan right now.
Joe Fairless: Yeah, it might be a rocky road to get there, but eventually there will be some pavement.
Dan Plant: Absolutely. I don’t pretend that the tenant is just gonna say “Oh, okay. And I’ll keep my same rent.” So there’s gonna be [unintelligible [00:16:37].25], but we’ll work through it, I think.
So that one kind of simmered down, and we are on contract for an additional duplex in another suburb of Fort Wayne called Auburn. It’s actually where I work, so it makes it much easier to keep an eye on this property. This one, we got a beautiful deal on it. I don’t know if we have time or we’re kind of running long here…
Joe Fairless: Yeah, let’s talk about it real quick. Just the high-level numbers and how you found it.
Dan Plant: Okay. Driving. My wife’s a teacher, so in the summer she’s not working; her and my son come and we have lunch sometimes, go to the park, in Auburn. We were driving to the park – she came by and picked me up, and we were driving over there, and I saw a for-sale-by-owner sign. I mean, I don’t wanna bite anything off right now… We just did this triplex; I need to let this settle.
But then my curiosity got the best of me and I called it. The guy wanted 65k. I went and looked at it. I said “Man, there’s a lot of work, I can’t give you more than 40k. I don’t wanna be rude, so I’m just gonna step back.” And he said “I’ll tell you what, I’ll do 45k. I redid some numbers and I said “Okay, we’ll do it.”
Our buggy that we’re always trying to hit is – depending on the class of the area; we try to stick in the B area – I want about 25k-30k a unit once it’s rent-ready. So since this was gonna have some additional cash infusion needed, this one was the knob-and-tube issue with electric and some other water damage and what not, but I think it must have scared the other people off.
This one does not have tenants, it’s gonna be kind of a gut job, but since we did the flips in the past, I’m pretty comfortable that we can dial in the numbers fairly close. This area is really kind of a regentrifying area; there’s a lot of money being poured in that little town called Auburn, so I’m really excited about this one. We should be closing in about 2-3 weeks.
Joe Fairless: And you found it just driving by.
Dan Plant: Just driving by. It’s amazing how little things like that happen. It’s something as simple as the kid riding his bike, kicking that sign over, and I never would have seen this place… But we did, and here we are.
Joe Fairless: What is your best real estate investing advice ever?
Dan Plant: A lot of people give this 30,000-foot “be nice to people” type – and I totally agree with that, but I’m new to this and I’m really young to be giving overarching advice like that, so I thought I’d just say, for new investors, make sure you’re budgeting for property management and cap-ex. Period.
Everybody knows about maintenance taxes etc., but that property management – even if you’re gonna property manage it yourself, like I am now… I have no idea what the statistics are, but I have to imagine you’re gonna find out, like I do, that that’s not what you wanna do going forward. I may be wrong, a lot of people may be the opposite, but that way it’s already budgeted in there, and at the end of the year if you still haven’t hired anybody to do it and you do it on your own, you’ve got a sweet little 10% (whatever dollar is there) in the pocket that you can use for the next place, or take your wife out, take your kids out… Because don’t kid yourself, this takes time away from your family to do this stuff. I just think that that would be my nuts and bolts type of advice.
Joe Fairless: With your cap-ex projection, what do you allocate for it when you’re buying something? How do you do that?
Dan Plant: I was doing 8%…
Joe Fairless: 8% of what?
Dan Plant: Of total gross rents. That would be based on if it was 100% occupied, I’d take out [unintelligible [00:19:46].03] after that aspect, because if I’ve gotta replace a roof, it’s gonna cost the same whether there’s two tenants in a triplex or all three are there. That doesn’t magically create money, but it helps me be prepared.
I really use 8% across the board cap-ex, maintenance, project manager… I would almost suggest going to 10%, especially in our market where costs are pretty cheap. A project manager here admittedly is cheaper than in California, but not as much cheaper as our property is. So you’ve gotta make up for that.
Joe Fairless: Are you ready for the Best Ever Lightning Round?
Dan Plant: Let’s do it.
Joe Fairless: Alright, let’s do it! First, a quick word from our Best Ever partners.
Break: [00:20:26].16] to [00:21:29].19]
Joe Fairless: Best ever book you’ve read?
Dan Plant: It is called The Real Book Of Real Estate, by Robert Kiyosaki. A lot of people give the Rich Dad, Poor Dad… That one kind of reinforced something that was in me; I always wanted to make money with my money, so yeah, it was a good book, but this Real Book Of Real Estate – I believe it was just a free book that I found online – he brought together his Rich Dad advisors (plenty of them) and they each do a short chapter on their expertise, and really a couple lights went off in my head that “Man, a simpleton like me can make money at this.”
Joe Fairless: What’s the best ever deal you’ve done so far?
Dan Plant: Both of those flips really worked out pretty even. I would say the second one, because it was much quicker when I turned it. I completed the flip process – the renovations – in 4-5 months, even though it took about nine months to sell, since we waited… But the other we sat on for at least a year, going through the work, and then marketing it, and dealing with some [unintelligible [00:22:23].17]
Joe Fairless: What’s a mistake you’ve made on a transaction?
Dan Plant: It all ties back to the not budgeting appropriately for cap-ex and property management, in that triplex. I budgeted for it, but not as much as I should have. We’re still gonna make great money on it, but not the home run that I was hoping.
Joe Fairless: And how can the Best Ever listeners get in touch with you?
Dan Plant: Again, it’s pretty simple – I’m on Bigger Pockets, as well as just an e-mail: dplant13@gmail.com, and I’m also on LinkedIn. E-mail is the best way.
Joe Fairless: Alright. Well, Dan, thank you for being on the show. Thanks for talking about how you’ve done your evolution based on, well, family priorities, and wanting to spend more time with your family, so instead of doing the fix and flip stuff, you’ve now transitioned into the not as active investing with triplexes and multifamily properties… How you’re finding deals just driving around, and then also how you’re able to have success on the first two fix and flips when you were doing them, and one thing you would attribute that to is questioning everything, get to know the process; there are no or very few stupid questions. I think if you ask the same question five times in a row, then it’s a stupid question… But other than that, there are no stupid questions.
Thanks for being on the show, thanks for walking us through this, thanks for giving specific examples of properties. I hope you have a best ever day, Dan, and we’ll talk to you soon.
Dan Plant: Great. Thank you very much, Joe.
