Many entrepreneurs have the issue of writing big fat checks to Uncle Sam every year for income taxes. Dan was in that situation and knew that investing in real estate could help him keep some of his money, and make it earn more money too. We’ll hear more details on the overall benefits of real estate investing, we also get to hear a case study on a 130 unit property that Dan just recently closed on. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Dan Handford Real Estate Background:
- Dan Handford is the founder and current president of five specialty medical clinics located throughout South Carolina
- He has investments in over $125,300,000 worth of real estate and currently has 1,353 apartment units in his portfolio located across the United States
- He is the founder of the Multifamily Investor Nation with 34 groups and 2,300+ members across the World
- He is also the co-host, along with his wife, of the daily podcast called Tough Decisions for Entrepreneurs
- Based in Columbia, SC
- Say hi to him at www.toughdecisions.net and www.handfordcapital.com
- Best Ever Book: The 10X Rule by Grant Cardone
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TRANSCRIPTION
Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.
With us today, Dan Handford. How are you doing, Dan?
Dan Handford: Doing great, Joe. Thanks for having me on.
Joe Fairless: My pleasure, nice to have you on the show. A little bit about Dan – he currently owns several online businesses, as well as five specialty medical clinics in South Carolina, with a business portfolio value at over 16 million dollars. He’s a trusted advisor to physicians across the country, he’s also a founder of Handford Capital, which is a 100+ unit multifamily syndication team. He just had a recent closing, we’ll talk about that… He’s the host of Tough Decisions for Entrepreneurs and Real Estate Investors Podcast. Based in Columbia, South Carolina. His website – toughdecisions.net, you can go check that out. 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 Handford: Sure. As you mentioned in the intro there, I have five specialty medical clinics. They’re non-surgical, orthopedically medical clinics. We do a lot of regenerative medicine, prolotherapy, PRP, stem cell and some sports medicine. We have just about 50 employees now and 50 team members in that particular organization, and earlier this year I stepped away from doing that full-time and moved into multifamily real estate full-time.
I was in multifamily as far as doing research and educating myself for probably a year prior to when I stepped out, so it’s been a good year-and-a-half, two years that I’ve been kind of diving into the multifamily arena, but never really found the time to be able to focus on it until I stepped away to not have to focus on those clinics.
It wasn’t that I just completely ignore the clinics now; I still have a 30,000-foot view and oversight on those clinics, and I have a good CEO in the position there, and also look at financial reports on what I call my “Monday morning reports.” So I have three different departments in the company that sends me those reports, and then I also have a two-hour corporate director meeting once a month with my team, and then I also have – like you had mentioned – a couple other online companies. I’ve had those for a little over ten years now, and those continue to produce a pretty significant cashflow as well.
Joe Fairless: What are the online companies?
Dan Handford: The main one is one called Shop Anatomical, and we sell skeletons and skulls and brains and hearts and anatomical models and various things like that. We also have a company that we sell portable chiropractic tables, and we also have one where we sell chiropractic supplies.
Joe Fairless: Okay. And why move into multifamily when you have these ventures that are doing well?
Dan Handford: I’ll say that the main reason is because of the tax advantages of it. Whenever you’re sitting there, starting to generate some good income for yourself, you start to have to write six-figure checks to the government, which is where my position was, and I was to a point where I was just getting frustrated with that… And I knew that real estate was a way to reduce some of that taxable liability and to be able to have that money start working for you, because of depreciation and various things like that.
So I knew real estate was what I wanted to go do, but I didn’t know for sure which asset class was gonna be the best one. With multifamily, as you know, being able to do cost segregation, and being able to do accelerated depreciation and bonus depreciation, buying cash-flowing properties that the day you close you’re making money, and then at the end of the year showing a loss due to the depreciation, which can offset other gains in other areas… Obviously, I’m not a tax advisor or accountant or an attorney or anything like that, but there’s definitely some advantages to investing and with that depreciation being able to reduce the taxable liability.
Joe Fairless: So you founded Handford Capital, which buys those properties, and you syndicate the deals with your investors… Why found a company and be active, compared to enjoying those tax benefits as a passive investor in deals?
Dan Handford: Well, in my arena I had a coaching business at the same time, and I still do it today, where I coach and mentor other physicians to build clinics like I have done… And because of that, I have a lot of people in my circle that also want to be able to do these types of investments. We’re gonna talk a little bit about this deal we closed in Greenville, South Carolina a little while ago (in December), but I don’t have the ability to just write a check for 2.5 million dollars to take a deal down… But I wanna be able to allow other people that I’ve worked with, and family and friends and various acquaintances to be able to take advantage of these same things that they don’t have the time to do it, because I didn’t have the time to do it. But now that I can step away from my business and it still runs the way I want it to run, it still continues to produce cashflow, and now I can also start another entity… Because I’ll be honest, Joe, I tried to retire; 35 years old, that was how old I was in 2018, and I tried to retire for about a week and a half. I stepped away from the business, everything was going on, it was all passive, and I was doing nothing, and I was bored to tears.
Joe Fairless: Yup.
Dan Handford: Obviously, everybody loves to be able to say, “Oh, I retired early” or whatever, but for me, I’m retired; this is just something that I’m doing to benefit me, and my family, and my friends, and acquaintances, and various things like that… So I don’t have to do what I’m doing; I can stop what I’m doing today and I will be fine, my family will be fine, but it’s a matter of keeping myself busy with something that I feel like is gonna be bigger and better and greater than what I’ve already done, but can also help a lot of other people at the same time.
Joe Fairless: Well, with the deal that you mentioned in South Carolina – tell us about that and what are the details on that one?
Dan Handford: Sure. I really like this deal a lot. I’m originally from Greenville, South Carolina, that’s where I grew up. I drove by this property — not drove, but I’ve been by this property as I was growing up for the first 27 years of my life… So to say that I know this property and I know this market – I know it very, very well. One of our other partners in our group also live there for 15-20 years, somewhere around in there, so we’re very bullish on Greenville and like it a lot. This was a deal that came across our desk and we started doing some research on it, and it was one of those ones that we got very emotionally attached to… And it’s very hard sometimes to stick with your numbers and not try to overinflate your numbers when you’re really passionate about a project. That’s why you sometimes — not sometimes, you should always remove the emotion part of it from the actual decision-making part of it. You have to base it off of logic at the same time.
Joe Fairless: Yup.
Dan Handford: And that is one thing that we did properly on this one. Obviously, we were very emotionally attached to it, but my background in business and being able to remove emotions from things – I have the ability of being able to do that… And it’s also good, because at the time we had just two of us in our group, and so we both balanced each other out and made sure that we didn’t go over our numbers.
This was a 130-unit property in Greenville, South Carolina, and it’s a C-class property in an up-and-coming B-neighborhood. So it’s kind of a C+, B- neighborhood going up, and kind of turning in another direction. When we got this property and started doing the research on it – one of the things we always look at on a property is “What are some hidden value-add pieces to it that not a lot of people are looking at?” Because it’s those hidden value-adds that can really be a game-changer as far as the numbers on a property, and to whether or not a deal can actually make sense.
We were told that on this property if we were gonna be in the best and final that we needed to make sure our offer was between 8.4 and 8.8 million. So we’d gone in and we were like, “Well, the numbers work at 8.8. We don’t wanna go in right at 8.8”, so we went in right at 8.75. So our first offer on it was 8.75, and we were putting $100,000 earnest money deposit down that went hard day one, after signing the PSA.
Joe Fairless: Is that typical in that submarket, non-refundable day one?
Dan Handford: I would say it’s not usually, but in the market the way we are right now, it is.
Joe Fairless: Okay, so you weren’t the only group doing that…
Dan Handford: No, no.
Joe Fairless: Okay.
Dan Handford: I don’t think all the groups that were offering were doing that. It was one of the benefits of us getting into the best and final round… So we put the offer in, a week goes by, we hear back from the broker, we’re in best and final. There’s like 35-40 bids on that property, and we were in the top five, so we had gone into the best and final round on this… And they changed things up on us. Originally, they told us 8.4 to 8.8, and originally the broker said “If you offer 8.8, that gets it done.” So we got the word back that we’re in best and final, and the broker says “New pricing guidance.” [laughs] They’re like, “Now the new pricing guidance is 9.1 million.” So they went up from 8.8 to 9.1, an additional 300k.
Of course, the whole thing about going into best and final, Joe, is for me that I look at these and I go “Is the broker just making me compete with myself? Am I the only one who’s in this position, or are there other people that are actually higher than us, or that would actually offer higher than us?” You don’t ever really know, so you’re kind of playing that psychological game in your head about “Where should we actually put the numbers?” You’d basically have to just go back to your underwriting and run the numbers and run the scenarios and see which number works.
So you have to, again, remove that psychological component and not worry about 1) what the seller paid for it, because they’re gonna make money off of it, otherwise they wouldn’t have bought it to begin with, right? At least hopefully they are… So you can’t just look at that number and you can’t look at “What is somebody else going to possibly do?” You have to look at it and say “What can I do on this property?” and just make your best offer.
So we ran the scenarios back and forth, and ended up putting in a best and final offer at 8.9 million, and still kept the hard money day one at $100,000. Then a couple days went by, and sure enough, we got outbid. I believe it was a publicly-traded REIT that got in front of us, and they were putting up $200,000 earnest money deposit hard day one, and of course, offered $300,000 more than we did, so they obviously got the deal.
Of course, we’re looking back at our numbers the day we hear back from best and final that we didn’t get it, and we’re going, “Let’s see if 9.2 works, or maybe we can increase our hard money… What can we do to make this work?” and that was the emotional piece of it.
My partner at the time – he’s still my partner in these deals – Brandon, and we have another partner with us now as well, but it was just Brandon and me at the time, so we’re going back and forth, going “We could make it work at 9.2″ and blah-blah-blah. We’ll stretch it a little bit, make things a little bit tight, but we could make it work. I wonder if we should go back.”
We both had to step back, take a breather, know the number works really well at 8.9, great returns for investors. We don’t wanna go up from there. Let’s move on to the next property, because there will be other properties that will come along, and we’ll find the next one.
Joe Fairless: Yup.
Dan Handford: So that’s what we did. We basically just washed our hands from that one and moved on to the next deals, and started doing some more property tours, and submitted some more offers. Four weeks later we get a phone call from the broker on that deal… And I knew exactly why he was calling. He was calling on my cell phone; when I saw his name on there, I’m like “I wonder if he’s calling about that deal…” [laughter] And sure enough, I pick up the phone and he’s like “Hey man, the original buyer we offered it to couldn’t get the deal done, so I’ve talked to the sellers, and there’s a couple of people ahead of you that have a little higher bids, but they really feel like you guys have the track record to be able to get the deal done and that you can actually close the deal.”
Joe Fairless: Why did they say they feel like you have the track record, if this was the first deal?
Dan Handford: Well, we had partnered with other groups to be capital-raising partners on other deals. So being able to do that — because when we’re raising capital for other deals, we’re able to jump on the general partnership of those deals and now it’s our deal; we can kind of show brokers, show sellers and other investors that we can close other deals. So that in and of itself I think is what at the end of the day helped us get that deal… Because they saw that we closed 400-500 units already this year, and they’re like, “Well, these guys can get the job done”, and I think that is really what helped set us over the edge and bring us above what the other highest bidders might have been.
I don’t know what [unintelligible [00:13:36].21] of it was. Maybe they didn’t have any hard money, and we did, and even though we were a little bit lower, they felt like we had a better track record, more risks, and they knew we can get it done… So we got the deal. We got the offer, and the LOI signed.
One of the biggest things I was curious about was — I’m a businessman, right? So I have this slant to me of wanting to be a negotiator; I wanna make sure I get the best deal, so that was my biggest question, “Should we pull some string? All the levers are on our side now, because they’re coming back to us. Should we lower our earnest money, or should we lower our offer price?” And we decided not to do that. We decided to just make that broker’s life easy, and being able to make that broker’s life easy, it’ll pay us back down the road and it’ll pay in dividends.
I actually got a phone call from that broker thanking us for the ease of closing this deal… Because they were wanting to get it done within 60 days, and we had never done a full raise before, just ourselves. So of course, we’re going back and forth, wondering if we can get it done in 60 days, and thankfully we were able to negotiate an extension of 30 days if we needed it… But they really didn’t wanna do that.
Joe Fairless: Did you need it?
Dan Handford: No, we didn’t. Oddly enough, about three weeks before closing we get a call from the broker, and the broker is like “Can we push back the closing by another week? Because the seller wants an extra week.” I think it had something to do with their payment date and their pay-off period, and something like that. We basically went back to our lender on the deal and said “Is this something we can do?” and they were like “No, not really. Not unless we have to modify a bunch of stuff, and it’s just gonna be a lot more work on our end.” So we basically had to tell them, “No, we wanna close on that date, December 14th.” Sure enough, they were fine with that, and they just thought they’d ask just in case.
Everything went smoothly, but it was definitely a lot of work to do it, especially being the very first deal that we put together ourselves for our team… But thankfully, we have a good team put together and we were able to raise the amount of money we needed in a period of about 4-5 days. It was about 2.5 million.
Joe Fairless: What are some things you learned from that experience?
Dan Handford: Always have back-up investors. When you get to a point of raising money for a large deal like this, you think “Okay, within 4-5 days we raise 2.5 million”, right? Well, those are all soft commitments, and that doesn’t mean that they’re all gonna fund. I think one of the things that we’re doing moving forward is even though we might have to raise 2.5, we’re gonna set that bar at like 3 million, and make sure that we can have enough people on back-up that if somebody does drop out… Because that was probably one of the most stressful things for us – a week before closing we had one of our investors that was bringing in about 10% of that have a lawsuit against him, so he decided that he didn’t wanna put any money in the deal, but he didn’t tell us until a week before closing. So now we’re stuck with trying to come up with another $250,000 before closing, and it’s seven days before. It puts a little bit of a heat behind you…
We were able to do it. We had the money to close and we had everything done by that time, but it just created a lot of extra angst that we didn’t really need, and if we had some back-up investors, we could just say “Hey, this person dropped out. Do you want in now?” and be able to have that as a back-up I think would be a big step in the right direction to reduce the amount of stress involved in the whole situation.
Joe Fairless: How do you structure your team? You mentioned you’ve got a couple business partners.
Dan Handford: Sure. I’m a big believer in always being out, and networking, and being a part of various groups, because as you start into this business of multifamily syndication, you’re gonna need to have a team around you. And yes, when we talk about teams — some people talk about a team as being “Oh, you need an attorney for this, and an attorney for that, and an accountant, and a broker, and a property management company”, and all those pieces… And yes, you do need all of those, and those are all part of your team, but at the same time, when you start to do these larger deals like this, one of the things that I found is that I can’t do it all. There’s no way that I can always be focusing on raising money, and always be focusing on trying to find the next deal, and always be focusing on the due diligence, and all this kind of stuff that has to happen on the deal we’re closing right now.
It’s a lot of work, and I would say that I could probably do it, but I couldn’t do it as well if I had a team, and I wouldn’t be able to scale. For example, if I’m sitting here trying to do the due diligence, and working with the lender, and working with the attorney, and trying to get a deal closed, I’m gonna be neglecting the fact that I need to continue to look for investors and find more capital, and I’m also not gonna be able to have the time and energy and efforts to be able to find the next deal. So you lose the ability to raise enough capital for that deal or future deals, and you also lose the ability of not being able to find that next deal. So you can’t scale, you can’t get to that next level by scaling as fast as you wanna scale.
My team is built up of three people. I have one gentleman, Danny Randazzo, who is our financial side of things; he’s a former financial analyst, and he loves spreadsheets. I’m not the type of person that likes to sit there and take the T-12 and the rent roll and pull them apart, and piece-meal them and put them in a spreadsheet, but I do like to look at the finished product. So he goes in and does all of that, and then we can actually sit down and have a conversation about the finished product, and then I can pull it apart. That’s kind of what I do with my own businesses now – I get financial reports every week, and I can sit there and look at them, and look at the summaries, and pull them apart, and pick them apart, and find areas of improvement. That’s what his role is – he does the underwriting piece of it.
On this deal in Greenville, South Carolina, the 130-unit one, he was working with the attorneys to get him all the documents for closing, he was working with the seller’s attorney, getting them documents that they need; working with the property management company that we have and looking through all the financials on the property, and doing the financial due diligence side of things… So he was very active in being able to do that.
Also, when we’re doing due diligence in other areas, he’s active in that. And then also the post-closing stuff, the actual asset management, looking at the spreadsheets on a monthly and a weekly basis is really what he’s been doing.
Then our other partner, Brandon Abbott, he works primarily — his background is in construction and property [unintelligible [00:19:43].13] He has a background of being able to do good estimates, and inspections, and various things like that. He kind of does what I like to call our pre-LOI inspection; he can go in and tour the property, and throw a drone up in the air, do 3D modeling of each one of the buildings, see what it’s gonna cost to paint the whole thing if we need to, or replace the facade, or look at the age of the roof, and really be able to get down very granular into what it’s gonna actually cost us to do any of our cap-ex items. So he has that in his background, and he’s right now very active in the Greenville property, trying to get some of that stuff done, because we know that market very well, we know a lot of the contractors there… He used to do construction in that market, so he’s pulling some strings on some of his personal contacts, which has helped us be able to get some better rates on some of the labor, and some of the material, and various things like that.
Then of course myself, I’m primarily in the investor relation side of things. I’ve put together all of the marketing materials for each property that we do, and working on the conference calls. Also, on the investor relation side of things, I’m always looking for additional investors, so I’ve created a platform to be able to do that as well.
Joe Fairless: As you look back on your transition from what you were doing, to now being fully focused on real estate and multifamily in particular, what’s something that has been easier during this transition than what you initially thought it would be?
Dan Handford: I would say that finding investors has actually been the easiest piece. I don’t say that in the fact that it’s like an easy process, but to be able to put yourself in a position of authority, and building credibility, and being able to meet somebody one time and then the next week being able to continue to build that relationship with them, but then being able to talk to you about a deal and then actually put in money…
I’ve had many people that I’ve been communicating with via e-mail, or Facebook, or LinkedIn, and then I do a meetup, and I go and visit with them, and the next deal we have they put $50,000, $100,000 into it, and to me, I looked at that — when I was first starting, I was like, “Man, that’s actually quite easy.” I don’t even have to call them up and explain it to them; they just saw the deal, and committed to it, and wired the money.
Obviously, it’s always a constant process of trying to find investors, but once you find the investors that really trust you, I thought that was actually an easier piece, especially — even some of my close family and friends… Just yesterday or two days ago I was on the phone with an investor that I worked with like ten years ago. And he saw some of the stuff on LinkedIn (since we were connected on LinkedIn) that we were doing with the multifamily investing, and he messaged and said “Hey, what are you doing? I thought you were a chiropractor. You’re not doing that anymore?” So I got on a phone call with him and started talking about it, and he goes, “Man, I’ve got a lot of cash in my account. I have some IRA’s, and 401K’s, and I’ve got stuff in the stock market… I would love to be able to invest with you, so put me on your deal flow list.” I’m like, “Yes, absolutely.”
So that to me has been quite an easy process.
Joe Fairless: What has been harder than you thought it would be?
Dan Handford: I would say a lot of people that I talked to before getting into this space really deep – you go to events and they kind of sell you on the fact that it’s just an easy process. There’s just so many deals out there, and so much cash, and so much this and so much that… It’s easy, you just find the deal and close it. But really, going through the full process, this is a full-time job. There’s a lot of work to get involved with this.
That to me I think was one of the reasons why I really am enjoying having other partners that are helping in other areas, because I don’t have the bandwidth, nor do I want to be able to put the bandwidth towards just doing this full-time. I don’t want to have to do that… Even though right now it’s pretty much a full-time gig that I’m doing, I still feel like I’m in a position where I could and go away for a week or two weeks, or even a month. I could step away and just do nothing. But to be able to have that flexibility and freedom – I think it’s what a lot of people are looking for. So yes, this type of business can provide that to you, but I don’t think you’d be able to do that if it was just you doing all of the deals yourself.
Joe Fairless: Based on your experience, what is your best real estate investing advice ever?
Dan Handford: Always be looking for the next deal and your next investor, because that’s how you’re gonna continue to grow your portfolio, especially in this large multifamily space of 100 units or more. You’ve gotta be looking for that money to be able to put into the deal. And I think that another important key distinction that a lot of investors appreciate about our group is that we don’t just look for other people’s money, we’re putting our own hard-earned money into these deals and into these projects, and they wanna see that. I think that’s probably one of the biggest things – when you start to do this, try to have enough capital that you could put it in yourself, as well.
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Dan Handford: Go!
Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.
Break: [00:24:43].13] to [00:25:31].16]
Joe Fairless: Best ever book you’ve recently read?
Dan Handford: Best ever book that I’ve recently read… I would say that the 10X Rule by Grant Cardone.
Joe Fairless: Best ever deal you’ve done that we have not talked about before? It doesn’t necessarily have to be a real estate deal.
Dan Handford: I would say me paying for a coach that helped me get to the next level.
Joe Fairless: What’s a mistake you’ve made on a transaction?
Dan Handford: Does it have to be real estate related?
Joe Fairless: Let’s do two. The one you’re thinking about, whatever that is, plus a real estate one. So what’s the one you’re thinking about?
Dan Handford: Sure. The one I’m thinking about is where I actually paid $25,000 for a mentor, and ended up only working with him for two weeks, and he basically still stuck it to me and told me I had to continue to pay, I had to be able to fulfill that obligation; and I did, because that’s what I originally told him, but I’m gonna talk to him for like two weeks and that was it. So that was probably my biggest mistake.
Joe Fairless: And what about on a real estate deal?
Dan Handford: As far as real estate, I would say when we were building these medical clinics we were, of course, looking for commercial property, and one of them we signed a lease on that I had a personal guarantee on, and I realized very quickly that I didn’t wanna do that. I don’t do personal guarantees on any of our leases anymore.
Joe Fairless: Best ever way you like to give back to the community?
Dan Handford: Well, I’m very active in our church, and there’s a lot of different activities that happen around our church, so that’s one of the things that from a charity standpoint — I donated quite a bit of money to our church, and various opportunities through our church.
Joe Fairless: And how can the Best Ever listeners learn more about what you’ve got going on and get in touch with you?
Dan Handford: You can go to our website, HandfordCapital.com and find out more information about our group. If you wanna join us, be one of our investor partners, just reach out to me. We also have a group called Multifamily Investor Nation; you can go to multifamilyinvestornation.com and find out more information about that as well.
Joe Fairless: Well, Dan, thank you so much for talking about the transition you’ve made, and the focus on multifamily, and the deal that you did, and the lessons learned on that one… I hear fairly frequently people missing out on deals, but then 3, 4, 5 weeks later they get a call from the broker, being awarded the deal. So there’s certainly opportunities to still be awarded the deal if we don’t initially get it, plus the lesson learned with the investors and having investors on back-up, as well as just your overall approach to really focusing on your strong suit, and having the right team members around you, who like to do what they like to do, and complement your skillsets.
Thanks again for being on the show. I hope you have a best ever day, and we’ll talk to you soon.
Dan Handford: You too.
