March 18, 2019

JF1658: Own 75 Units While Working On 6 Fix & Flips with Daniel Kwak

Daniel and his parents immigrated to the United States in 1999, they faced tough times growing up as the family struggled financially. Daniel bought his first deal specifically for his parents and their retirement at the age of 22. Now he’s scaled his business to owning 75 units and is also fixing and flipping multiple properties at the same time. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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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, Daniel Kwak. How are you doing, Daniel?

Daniel Kwak: What’s going on, Joe?

Joe Fairless: I’m looking forward to our conversation. A little bit about Daniel – he started investing at 20 years old; he owns 75 units and has raised over 20 million dollars, and he’s currently doing six fix and flips. Based in Aurora, Illinois. With that being said, Daniel, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Daniel Kwak: Yeah, absolutely. I’m a Gemini, which means basically that’s everything you need to know about me…

Joe Fairless: [laughs] I am too, by the way.

Daniel Kwak: Are you really? When’s your birthday?

Joe Fairless: May 25th.

Daniel Kwak: Okay, got. My birthday is June 11th, and my girlfriend and I actually have the exact same birthday, we’re just one year apart… So it’s pretty cool ; that’s what happened, but… That’s awesome, man. But yeah, long story short, the number one thing about me is I’m a father of Christ. That’s the number one thing that I always tell people. And secondly, I am a real estate investor. I started when I was 20, like you mentioned already, and I’m actually an immigrant to this country; I actually came over in December 8th of 1999. I was five years old, I was this chunky little Asian kid. If you’ve ever seen the movie Up! that’s exactly what I look like; the little boy scout. Ironically, my dad had the exact haircut and glasses as the older dude. But you look at us, and we’re like the cast of Up! It’s pretty wild.

But obviously, for your listeners, immigrant life is not easy. My older brother and I have memories of sleeping in the car some nights, because our family couldn’t afford to pay the heat bill… Man, it was tough. Most nights we didn’t have dinner, and that was probably describing the first about five or six years of us being in this country… So I definitely had that growing up, and seeing that growing up, of just “no matter what, you make it happen.” That immigrant mentality.

Even when I was a kid, sleeping in the backseat of the car, my eyes would be closed and my parents must have thought that I was sleeping, because they would just talk about the financial hardship that our family was in. I remember a lot of times I would listen, as I was just in the backseat, eyes closed, just pretending to be asleep, my mom would whisper over to my dad “Hey, what are we gonna do about tomorrow? What are we gonna do about this, what are we gonna do about that?” and the one question that always came up from my mom to my dad was “Hey, honey, how are we gonna retire? What are we gonna do?” and I made it my goal to do something about that. I asked God in that moment, I was just like “Won’t you just provide for us?” That’s exactly what my dad said every single time, he said “It’s okay, the Lord will provide.”

The first deal my brother and I ever did – and I have an older brother named Sam, and we were in this business together. Him and I are a phenomenal team, we’re a dynamic duo… But the first deal I ever did – I was 22 years old, and we bought a rental portfolio for my parents’ retirement account. So it actually served as their retirement, the first deal we ever did. Pastors don’t make that much; I think combined my parents have never made more than $35,000 a year – combined, ever. So for us to do that, it was such an emotional thing…

Joe Fairless: Oh, I bet.

Daniel Kwak: And at the end of the day, wasn’t that why we were in this game, why we were in this business…?

Joe Fairless: So that was the first deal, and it ended up helping your parents have retirement income… How old are you now?

Daniel Kwak: I’m young, 24 years old right now.

Joe Fairless: 24 years old. You said your first deal was 22?

Daniel Kwak: 22, yeah. So I spent the first two years learning. I’m sure you get this a lot, and I’m sure you relate to this as well, but when I first got started in real estate, I was never really hungry to do a deal; I was just focused on learning. I was like, “Wow, this is a whole new world that I never even knew”, and I’ve gotta give credit to my older brother; my brother actually is the one who introduced me to entrepreneurship. If he hadn’t introduced me to entrepreneurship, I would probably be dressed up as the kid from Up! and make money going to parties, and getting played as like a Cosplay actor… [laughs] Yeah, he introduced me to entrepreneurship, and that was my very first deal – a portfolio of single-family houses in Central Illinois.

Joe Fairless: So that was the first deal… How did you all pay for that deal?

Daniel Kwak: Obviously, I was broke, so fast-forward to when I’m 20, I still remember to this day looking down at my phone – I had negative $187.65 in my bank account.

Joe Fairless: At what age?

Daniel Kwak: At 20. When the number is negative, they actually turn it red. I didn’t know this, but they turn it red… And I remember calling the bank — obviously, I’m not gonna say the name of the bank, but I called them and I remember I was in tears; I was like, “Please, I’m just a poor college kid; you’ve gotta help me out. There’s gotta be something I can do.” And then on the other line, I think they said something along the lines of “Oh, I’m sorry, we can’t do anything”, or I just heard “click!”, and then I didn’t hear anything.

I was on my drive home, and it was an hour and a half, and I remember just weeping that entire time. So I had negative $187.65. I had a couple maxed out credit cards. My credit was in the dumps, and my brother and I actually at one point found ourselves eating out of a dumpster. It was at Dunkin’ Donuts, and we were just like, “Man, if we go at exactly [8:15]…”, that’s when they throw out donuts that weren’t eaten.

I actually learned how to raise capital, and that was kind of referring to my older point of the first two years – I just focused on learning. I fell in love with the process of learning this real estate investing game, which is also another reason why I love being on this podcast right now, because I can’t wait to see what I can learn from you, Joe. So I just kind of fell in love with this game, and just learning every bits and pieces. I found out you can do deals with other people’s money, and I got really good at providing other people value. Once I started doing that, people wanted to work with me. So that deal – I raised the money…

Joe Fairless: How much did you raise?

Daniel Kwak: It was owner financing, so I raised only about 10% of the entire deal, which I think came out to about $17,000-$18,000.

Joe Fairless: So it was one property?

Daniel Kwak: No, it was four single-family houses.

Joe Fairless: Okay, four single-family houses, you did owner financing, you raised $17,000 approximately, and that cashflow was the cashflow that helped your parents have some cash for whenever they retire?

Daniel Kwak: Yeah, absolutely. I’m actually selling that portfolio right now as we speak, because I’m actually having their income come from different apartment complexes I own now, which — now I’m more in love with apartment complexes than I was… But a lot of my units that I own currently are apartments. So I transferred in terms of how they get their money into other portfolios.

Joe Fairless: Sure. So the first deal you raised $17,000. How many people?

Daniel Kwak: It was just one.

Joe Fairless: One person. How did you meet that person?

Daniel Kwak: It was actually warm market.

Joe Fairless: It was what?

Daniel Kwak: Warm market. You know, like people you know already.

Joe Fairless: Oh, I hadn’t heard of — warren market? I hadn’t heard of it…

Daniel Kwak: Oh, sorry, warm market.

Joe Fairless: Oh, I haven’t heard that term before. Okay.

Daniel Kwak: Yeah, so that’s a sales word, I guess you could say; it’s more of sales lingo. But yeah, I always say warm market. Contact the people that you already know, that are your friends and whatnot, because it’s good training wheels for you to be able to raise capital. So that’s who I started with.

Joe Fairless: I just googled that search, “warm market.” You taught me something new. I’d never heard of that.

Daniel Kwak: [laughs] That’s awesome.

Joe Fairless: But specifically, how did you meet this person?

Daniel Kwak: It was actually a friend of my dad’s. My dad’s a pastor, and this guy was also a pastor… And my Korean is a little off, so my brother actually was the one who had that conversation with him, because his Korean is a little bit better than mine. Well, a lot better than mine. And that first deal, honestly, gave us enough credibility for me to go out to a lot of other lenders and start having conversations.

Joe Fairless: So you raised $17,000 on that first deal. This was two years ago, correct?

Daniel Kwak: Yeah.

Joe Fairless: And then how many deals have you done since then?

Daniel Kwak: I did a 36-unit, a 24-unit, and then a four-unit, and then an eight-unit… So I would say in terms of multifamily we’ve done about six deals. In terms of fix and flips we did two. We did them in Illinois, and I didn’t like the Illinois market that much. I would say probably after doing some apartment complexes I started learning about interest rates, and monetary policy, and I became a really geeky, macro economical nerd, and I got really into that, so we’re actually doing deals now across the country, where it actually makes more sense, where it’s more economically viable. So I’d say we probably did around 19-20 deals total in our career.

Joe Fairless: Wow. So when I was reading your bio, it says you’ve raised over 10 million dollars… 10 million dollars at 35% down, that’s 28 million dollars worth of property, so what deals did you raise the big chunk of that 10 million into?

Daniel Kwak: I’d say a lot of our deals that we did were seller financing, because the more I got into microeconomics, I learned that right now it’s probably not the best thing, especially for the average investor, to go to an institution. Obviously, with rising rates and the way monetary policy works and how that affects reserve requirements and whatnot… So I learned if I wanna keep myself safe and I wanna be able to control the terms and not overpay – because I will just meet seller after seller after seller, and I remember I was on a kick for I think about 18-19 weeks in a row; I met with 4-5 different sellers a week, just negotiating on properties… And even myself, in 2018, I had about 1,600 deals sent to me, whether it was from virtual assistants, whether it was from me looking at them myself… 1,600 deals I looked at, and I only made offers on 12. And I actually went after about eight. Because I was just extremely conservative. So I knew I had to do seller-financing, or I had to do contract for deed, not only to set myself up for a low fixed rate, but at the same time be protected to the point where I can have second layer of financing if I need it.

For some of these deals I only raised 10%, 15% down. I had an eight-unit I bought no money down, because I was able to add value to the seller in different ways besides just the down payment.

Joe Fairless: Okay. Yeah, we’ll talk about that… Just for my own clarification, when you mentioned that you’ve raised ten million dollars, you’re grouping that raise into owner financing that you’re receiving from the owner. Is that correct? So it’s not necessarily private investors, it’s also owners who are financing the carry. Is that how you’re defining it?

Daniel Kwak: No, I’m defining it as like the down payment also. When I do owner financing, obviously, they still want me to have some skin in the game.

Joe Fairless: Okay.

Daniel Kwak: I’ve done some owner financing deals where we had to raise a  little bit more than the traditional 20, so I group that in there as well. And also obviously for my fix and flips, too.

Joe Fairless: Okay, so in two years you’ve raised over ten million, correct?

Daniel Kwak: Yeah.

Joe Fairless: Okay, so where is the chunk of that money? What deal did a chunk of that money go to? Because when I hear 36 units, 24 units, 4 units, 8 units, I’m thinking, “Well, that’s not ten million in equity”, so where is the ten million in equity? What deals did that go into?

Daniel Kwak: I would say mainly probably my apartment complexes, and also in terms of the money raised, probably a lot of our fix and flips, because obviously we do everything cash with our fix and flips. We’re not financing any of that. So I would say probably the two biggest ones would probably be my 36-unit that I bought with using bank money (institutional funds) and then also the fix and flips.

Joe Fairless: Okay. So let’s talk about the 36-unit, because we’ve got a bunch of multifamily investors who are listening to this. How much did you raise for the 36-unit?

Daniel Kwak: Well, for the 36-unit we didn’t have to raise that much, because our purchase price was 1.6 million dollars, so we only really had to raise about 350k.

Joe Fairless: 350k.

Daniel Kwak: Yeah.

Joe Fairless: Okay, so help me understand – you raised ten million dollars in two years, and you said the largest amount of the raise went to the 36-unit and your fix and flips, but the 36-unit was $350,000, so there’s a gap of 9.5 million dollars… So where is the 9.5 — I just wanna learn in what deal, where did the 9.5 million dollars–

Daniel Kwak: Honestly, my biggest problem right now, Joe, is I have people on a waiting list, I have investors that are ready and I just can’t find a deal, to be quite frank.

Joe Fairless: Okay, so the ten million dollars that you mentioned you raised, it’s not money that you’ve actually put into deals, it’s money that’s been verbally committed, but you haven’t put into deals.

Daniel Kwak: Yeah, I would say so.

Joe Fairless: Got it. I was like, “Wait a second, this math isn’t working.” Okay.

Daniel Kwak: [laughs] Right.

Joe Fairless: So you have investor interest of ten million, and you could bring that into deals when you find the deals.

Daniel Kwak: Yeah, that’s exactly right.

Joe Fairless: Okay, cool. So let’s talk about the 36-unit. You brought $350,000 worth of equity to that deal… You said you did bank financing – how did you find it?

Daniel Kwak: Well, I actually had a partner of mine who also is a property manager and he had an old friend who actually owned it himself; so I got connected with the property manager, and we sat down and we said “Hey listen, we should work together. I have something to offer, you have something to offer…” So he ended up having a friend who ownes that 36-unit and quite coincidentally I think about a couple months later his friend called him up and said “Hey listen, I wanna sell my building. Let’s talk.” Originally, I obviously tried to go for contract for deed, but his needs and the value that he wanted to be created from us wasn’t towards that direction. So we ended up just going with bank financing. That’s how we found it. I guess through warm market, right? The new lingo we just learned.

Joe Fairless: [laughs] Yeah, you taught me that. So the 36 units – you’re based in Aurora, Illinois… Where is this located?

Daniel Kwak: Aurora, Illinois — I would say about 40 minutes West of downtown Chicago.

Joe Fairless: So  this 36-unit is located where you are located, in Aurora?

Daniel Kwak: It’s actually in a small town called Plano, Illinois. It’s actually about 20 minutes further West from where I live.

Joe Fairless: Okay. And what’s the business plan for the 36-unit?

Daniel Kwak: We’re actually doing some value-add stuff right now, just because our understanding and our philosophy right now – and especially last year when we did the deal – was the rates are going up, can’t lie about that one, and we often know how rates will affect the value of apartment complexes. So what we did is we decided to actually do some value-add, and we raised the rents about $300 on half the units right now, and we’re looking to raise another $300 on the other half.

Based on my math and just kind of adding that forced appreciation and seeing how that’s gonna turn out, we actually saw that it was gonna raise the value by about 1.1 million. So it’s gonna kick that NOI up a little bit more than what I thought actually when I first came into the deal. So I’m really excited to see what that valuation is gonna be like. But of course, the offset to that is the fact that I’m actually not taking any cashflow from that 36, just for the sake of making sure that value-add strategy is more sustainable than others, so to speak.

Joe Fairless: You mentioned something earlier that sounds very impressive, and that’s you had 4-5 meetings with sellers, so owners of properties, a week, for about — and it was very specific, 19 weeks in a row…

Daniel Kwak: Yeah.

Joe Fairless: Did you have a quantifiable goal that you were looking to achieve, and that’s why you were tracking the 19 weeks in a row of meeting a certain number of sellers in a week?

Daniel Kwak: Yeah, that was about five months, and that was about the summer of 2017 was when I had those meetings. My goal, honestly, I just wanted to get as many units as possible. I was definitely a little bit more flashy back then in terms of number… Because I was 22 and I was single at the time, and I just imagined and visualized me walking into a party and being like, “Yeah, I’ve got this many units, I’ve got that many units…” But no, I honestly just learned a ton about negotiating and just adding value to even sellers.

I did have a quantifiable goal – I wanted 250 units by the end of 2017, and I ended up getting 75.

Joe Fairless: And the ways you were getting the meetings with the sellers were – what?

Daniel Kwak: We fired on all cylinders. We did mailing campaigns… And thankfully, I have a brother who’s very technologically gifted, so I would say he’s more stereotypically Asian than I am… Because obviously, you heard earlier, I’m pretty bad at math, so… [laughs] But anyways, we fired on all cylinders – with the mailing campaigns, with networking events… And what I used to do, actually, was every week for about three hours a day (and I was doing this three times a week), I would literally go out and drive, and just anytime I saw a “For Rent” sign, I would just call it and asked if they wanted to sell.

So every time I went out it was about 3-4 hours, and what I would do the night before is I would plan my route, like a mailman. I would literally go to Google Earth, or I would literally just google “apartment buildings in Lockport, Illinois”, and I would just get a list. I learned if I find one apartment, chances are there’s other apartments around it. So anything from five units to a 78-unit complex, a 96-unit complex… And I would just drive around and calling the signs, and if I didn’t call then, I would still write down the address, and then I would go to the tax assessor’s office on the online website and I would figure out who the owners were, and then I would literally just google their name, find their phone number, and I would just call them. I got cussed out at a couple times, too…

Joe Fairless: Of course. Hey, that’s part of it, though.

Daniel Kwak: That’s part of the game, right.

Joe Fairless: And for the ones that you got cussed out at, I think we know how that conversation went, but for the ones that didn’t cuss you out, how did the conversation go?

Daniel Kwak: It was interesting. Obviously, at first we all suck; I literally can still remember my hand was shaking. I was like, “Oh my gosh, this is super-scary.” I was nervous even before this podcast, because I know myself and a lot of my friends idolize you, by the way… So I was shaking on the phone, like “H-hi, m-my name is…” They were like, “Sure, what’s your offer?” And I’m like “Oh, I haven’t quite thought of that.” [laughter] So I would get in the habit, and I had a couple mentors who were helping me at the time, and I was asking them “What do I say?” and they were like, “Well, simple – just what you do. You obviously wanna get them onto the phone, you wanna get information, so just ask them for a profit and loss statement…” And what I got in the habit of doing was asking people for their Schedule E’s or Form 8825’s. Because I found out with profit and loss statements, especially the first six months of me actually looking at deals, I found out there wasn’t a whole lot of integrity with a lot of profit and loss statements.

Joe Fairless: Imagine that.

Daniel Kwak: I know, right? Exactly. Humans…

Joe Fairless: Yeah.

Daniel Kwak: So I had an accountant at the time who said “Listen, why don’t you ask for their Schedule E? Ask for the Schedule E, because that’s the IRS tax form for showing expenses on a real estate property.” So I got in the habit of asking for their Schedule E and Form 8825 based on how they hold their property, and I just became a detective. I got really good at looking at that Schedule E and figuring out “Okay, what’s the story…?”

So first I got the Schedule E, second, I looked at it, “What’s the story?”, third, I used that information to see what value I could provide for them. So the next time I met with them or I was on the phone, I knew what questions to ask, because I already had that piece of information and I was able to draw out “What’s the story here?” And the fifth, I actually added  that solution and I added value, and I was able to formulate offers based on what they were telling me; not what I thought I wanted for the building, but based on what they wanted for the  building.

Joe Fairless: What is your best real estate investing advice ever?

Daniel Kwak: Best real estate investing advice ever… So I had a bunch of people come up to me — because I’m sure you do the same, but I travel the country  a lot and I train… And I had a bunch of 18,19-year-old kids – they were girls – that came up to me, and I think I was in Minnesota at the time… They came up to me and were like “Daniel, how do I raise money? How do I do deals?” And I literally kind of just told them, “Listen, the best advice I can give you is the fact right there, what you just asked me. The advice is in the question you asked me”, which that’s the case, 99% of the time. I said “You’re just asking “How do I?” How do I do this, how do I do that, how do I raise this?” That’s honestly the best advice I could give you – just replace that word I with adding value.

I can formulate that probably with a story my pastor told me. And I don’t mean to make this religious or biblical, but this is just kind of who I am and I’m just being raw right now… He said, “Hey listen, there’s a beautiful scene in the Scripture where Jesus has this realization that God puts everything under His authority.” So it’s just almost like you’re the most powerful being on this Earth. And it just goes to show you, in that passage, where the very next thing he does is he actually does the thing that was reserved for the lowest-ranking servant, and he actually starts to wash his disciple’s feet.

I heard that story very young in my life, my dad being a pastor, and that was just one of those things that stuck with me. I’m sure, Joe, in your entrepreneurial journey you had things where your mentors told you, and it just stuck with you. Am I right?

Joe Fairless: Yeah, absolutely.

Daniel Kwak: That was something that stuck with me ever since I was eight or nine years old. And just the fact that the most powerful being, Jesus (and He still is, I guess), show to do exactly that. It was just beyond comprehension. So for me, that’s always my goal. My goal is always “How do I add value?” The same thing on this podcast, “How do I add value to your listeners?” And of course, I’m gonna ask you to be on my podcast, so you can add value to my listeners, right? So that’s exactly the best advice I could probably give in real estate investing.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Daniel Kwak: Yes, sir.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:24:21].29] to [00:25:19].15]

Joe Fairless: Okay, best ever book you’ve recently read?

Daniel Kwak: Best ever book I’ve recently re-read was Think and Grow Rich. But I read it for the sixth time. Oh, I’m sorry – Pitch Anything. That book is phenomenal. If you wanna learn how to raise capital like a wizard, Pitch Anything by Oren Klaff – such a phenomenal book. My favorite book on raising money.

Joe Fairless: And if you search “oren klaff joe fairless” you’ll hear — I’ve actually interviewed him twice on this show.

Daniel Kwak: No way!

Joe Fairless: Best ever deal you’ve done?

Daniel Kwak: Best ever deal I did was probably that eight-unit where I bought no money down, because I was actually able to help the seller from losing money, and I was actually able to give my investors the largest return.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Daniel Kwak: I trusted somebody without a contract. That’s probably the worst. I lost a couple million on that one.

Joe Fairless: A couple million?

Daniel Kwak: Yeah, in terms of capital that I actually raised and had verbally committed, and now it’s just gone.

Joe Fairless: But no one actually lost–

Daniel Kwak: No, no one lost it, but man, the guy just didn’t want anything to do with me, and it hurt me, because I’m the big relationship guy, and… Man, that for me still hurts. So yeah, I trusted somebody without a contract.

Joe Fairless: What’s the best ever way you like to give back?

Daniel Kwak: The best ever way I like to give back is what I’m doing right now, honestly – podcast, trainings, videos on YouTube.

Joe Fairless: And how can the Best Ever listeners learn more about what you’ve got going on?

Daniel Kwak: Look up on YouTube “the Kwak Brothers.” My brother definitely posts more stuff on there. We’ve just hit 34,000 subscribers, so I’m super-pumped. I know that’s not a whole lot to a lot of people listening, but I’m really excited, because that means that 34,000 that we’re serving, and metaphorically wash their feet.

Joe Fairless: Well, Daniel, thank you so much for being on the show, talking about how you and your brother have gotten to where you’re at with the 75 units, and the focus on seller financing or owner financing, the first deal, where you raised 17k from a friend of your dad, and then how you’ve built from there… And how you’ve found the deals, I found that most interesting – with just hustle and determination, quite frankly. Having those meetings, and then also being savvy based on what you’ve learned through your studies and how you approach business and life.

Thanks again for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Daniel Kwak: It’s been a pleasure and honor, sir.

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