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Dan Handford is a returning guest, who was in episode JF1609. Dan is an experienced businessman who went into syndication and in under 24 months created a portfolio valued over $220mil. He shares how he was able to put together a strong team of three total partners. In this episode, you see why it’s important to network and find mentors to help you grow at a fast pace. 

Dan Handford Real Estate Background:

 

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“In any business that I’ve started, it has never been just one thing that has helped us take off. It’s always been a multi-level approach.” – Dan Handford

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 where 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. Looking forward to the call today.

Joe Fairless: I am too, and I’m glad you’re doing great. A little bit about Dan – he’s one of the managing partners with passiveinvesting.com, which is a national passive apartment investing firm based in the Carolinas. He’s led a successful apartment syndication company to acquire over 2,000 units, with a portfolio values over 222 million dollars in under 24 months. If you recognize Dan’s name, well, it’s like that you’re a loyal Best Ever listener, because he was on the show, interviewed in episode 1609. That’s is approximately about a year ago or so, so there’s some updates that we wanna talk about, and lessons learned from those updates… Because clearly, Dan and his team have been busy. Based in Columbia, South Carolina.

With that being said, Dan, do you wanna give the Best Ever listeners a refresher of your background, and then we’ll go right into it?

Dan Handford: Sure. I know we’ve got a lot to cover in a short amount of time, so I’ll keep it brief, and if they want more of an expanded version, they can go listen to that other episode. My background has been primarily in business and starting businesses from scratch, and just learning to delegate certain tasks to other people to be able to grow to the point where I can take what they call the Warren Buffett position, where I can check in with the CEOs and the people who are running those organizations.

I have a group of medical clinics here, non-surgical orthopedic medical clinics in South Carolina that I started from scratch, and I have good team running those for me, with about 50 employees. Then I have another company that sells all types of skeletons and skulls and brains and hearts called ShopAnatomical.com. They’re all plastic models, so don’t worry, Joe, I’m not gonna ask for your eyeball or anything.

That business started in the last recession in 2007-2008, and continued to grow year over year, and sort of allowed me to be able to start my first practice [unintelligible [00:02:50].12] debt-free. My background is actually in chiropractic, so I started as a chiropractor first, and then morphed into opening these medical clinics, and now I have these clinics debt-free as well because of that earlier business. Obviously, with that you have to pay a lot of money in taxes when you start to make some money… So multifamily was that ticket for me, to be able to help me from a tax standpoint. Then also from starting my own syndication business, being able to increase my revenue at the same time, helping other people reduce their taxes, as well as myself, and having a very big benefit from that.

Joe Fairless: You and your team are the lead general partners on that portfolio valued at over 220 million dollars, is that correct?

Dan Handford: Yeah, so to break it down a  little bit, when we first started the company, to kind of build our credibility and to build our track record we actually helped and co-GPed and co-sponsored with some other groups on the first couple of deals. Then after we started building that track record and experience, we started closing our own deals. So of that 220 million dollar portfolio, about 120 million of that is our own projects, and the rest is with other co-GPs.

Joe Fairless: So 120 million of your own projects in under 24 months is phenomenal. Let’s talk about what got you all to this point. What would you say are some components that allowed you all to get to this point in this period of time?

Dan Handford: I’ll kind of answer this in not an easy way… Because I had people ask us, “You have this group, passiveinvesting.com, and you have this large syndication stuff going on, you seem like you’ve got a lot of success… What do you do to build this up? Is there one magic thing that you’ve done?” and any business that I’ve started, there’s never been just one thing. It’s always been this multi-modal approach to marketing, it’s been a multi-modal approach to actually growing and scaling, and one of my biggest strengths is being able to have an overall strategy and a vision for the future, and being able to put certain pieces of the puzzle in place.

Obviously, being able to do that from other businesses, and taking that into this business was a big benefit for me and our group as a whole, but I don’t think it’s a secret, Joe – you are my mentor as well in the multifamily space, so I’ve modeled a lot of things that we do after your success that you’ve had, and it’s been for me great, because it’s helped me reduce our learning curve in this space.

The very first property we acquired was 130 units, and the value of that property was over nine million dollars. That particular property, personally, it was my first acquisition into any type of real estate outside of my own home. So for us, I don’t think that we could have done something like that if we didn’t have somebody like you to be able to help us and guide us along that entire process…

And you know that we’re on calls all the time, discussing things, and earlier on it was more like 2-3 times a week we were on a call, and now it’s more like on an as-needed basis. Then I also have some regularly-scheduled calls with you as well on a monthly basis… But really [unintelligible [00:05:38].17] of having a mentor and then be able to match that with being able to implement systems and procedures and processes has been a big benefit… And then also the flexibility of being able to go full-time, full-bore into this business and not have to maintain a secondary job or a corporate job has been a big benefit for us as well.

Joe Fairless: Okay, so three things that I heard – vision for where you’re headed (1), modeling others (2), with access to those models, and then (3) being able to focus on it full-time. And as you said, I have the benefit of having seen you go from where you were in real estate to where you are now, so… There are some things I’ve noticed, and I just wanna ask you about maybe one or two of them.

One would be the team that you currently have, and the strengths that everyone brings to the team. So can you talk about passiveinvesting.com and how you and your partners interact or complement each other on certain strengths that each of you have?

Dan Handford: Sure. So I have two podcasts. One is a multifamily podcast which is called Multifamily Investor Nation, and I have another one which is more entrepreneurial related called Tough Decisions for Entrepreneurs. And on that Tough Decisions for Entrepreneurs podcast one of the things we ask about is what are some of the tough decisions that people have had to make in business? The number one thing we always hear from people is about partnerships. And one of the biggest reasons why partnerships fail is because there’s a misalignment of interests and desires, and they’re overstepping each other too much.

When you’re creating a partnership, you have to be able to find, like you  mentioned earlier, these complementary traits that allow you to be able to succeed together… But what’s also important is that each person, even with those complementary traits, needs to understand and know what the inner workings are of that other person’s role is, and responsibility, so that they can see that the decisions that they make – how that impacts the other person.

And then also, we have investors that will ask us, they’ll say “What happens if one of you dies, or gets in a car accident, or something like that? Can the other ones take over?” and the answer is yes, we can. Would there be a lot more things and responsibilities that we have to take over? Absolutely. But the biggest thing that we did, or that I kind of formulated in the very beginning was this partnership that we have.

One of my partners – his name is Brandon Abbott, and he actually goes to my church here in Columbia, South Carolina. He’s married, he’s got four girls, and I’m married and I have four children, and our families are really close, and go to the same church, at the same private school together, and things like that… And I had a conversation with him one day about what I was doing, and then  his background fit really well with what I was needing… And I wasn’t necessarily looking for him. I never asked him to join us, but three or four weeks later he called me up and he said “Listen, I’m tired of what I’m doing. I love what you’re doing. Can I join you?” And of course, I’m like “Well, I can’t pay you anything, because there’s no revenue coming in right now, but if you wanna be one of my partners, then let’s try to formulate a partnership there.” And he’s like “I’m all in.” So he quits his job, and he’s with us full-time.

Joe Fairless: What was his background that you said was needed at the time?

Dan Handford: Sure. His background was in construction management, and then for the last 6-7 years he’s been working with some of the larger insurance companies as an independent adjuster for lost claims. So that really fit with us, because I don’t have a lot of background in that. So when I go look at a property, I don’t have that major benefit of being able to throw a drone up in the air, and a roof, and see if we have to replace a roof, what’s gonna cost us, and be able to create a lot of those — we call it our pre-LOI inspection. So he kind of goes in ahead of time, before we even put an offer on something, and sees what are gonna be some of those major cap ex items that we might need to look at and to consider.

Then he’s also helping to put together the cap ex budget for the renovation plan, and then he’s also working very closely with the property management companies to make sure that they’re actually performing based on those budgets.

Joe Fairless: Okay.

Dan Handford: And then the third partner that we have is Danny Randazzo. His background is as a financial analyst. He used to work for one of the top financial consulting firms in the country. At the time, he was working full-time with that group, and he was looking to make a switch and a transition. He is also one of your mentors, and that’s how him and I got connected and got to meet up.

He’s located in Charleston, South Carolina, so it’s about 1,5-hour drive, not too long. So Brandon and I took a trip down there; we actually were looking at a property and wanted to get his opinion on some stuff… And he started to see some of the things that we were doing… And he actually reached out to me and said “Hey, would you be interested in me joining your group?” and I’m like “Absolutely! I need somebody that’s really strong in finance, and underwriting, and due diligence, and asset management.” So he fits that role very well.

So we have this triad partnership where he’s managing and doing the financial underwriting and modeling and asset management and financial due diligence, and working with the attorneys and the lenders and all that kind of good stuff… And then we have Brandon doing all of the acquisitions and broker relations, and cap ex budgeting and modeling and monitoring the properties. And my role is primarily from an investor relations and an overall marketing strategy, as well as from an overall operations standpoint as well, because of the success that I’ve had in some of these other businesses, trying to put a lot of these systems and procedures and processes in place; it’s been a very big strength of mine.

Joe Fairless: What responsibilities have changed or evolved from when you all initially created the structure, to what it looks like today?

Dan Handford: Honestly, from the three different roles it’s been fairly consistent. One thing that we have made some decisions to change on is — our goal with the group is not to try to create another full-time job for ourselves, which right now that’s what we’ve created. So we’re actually in the process now of hiring people that can actually start to delegate a lot of these tasks to, and still be the managing partners, [unintelligible [00:11:24].09] but the higher-level decisions about when to buy, when to sell, a lot of these major decisions… But the day-to-day operations we can turn over to a full-time analyst and a full-time asset manager, and also put in place a full-time marketing person and investor relations part. So going into 2020, that’s kind of our goal.

We’ve already hired our full-time marketing director, and already hired a full-time investor relations person that’s helping me and my assistant… So right now we’re in the process of doing interviews, and in the first quarter of next year, Q1 and Q2 2020 we’re gonna be hiring our first full-time asset manager, and then later on the year we’ll hopefully be hiring another one of those as we continue to grow and scale, if it’s needed, and then also a full-time analyst.

Joe Fairless: What’s the full-time investor relations person do?

Dan Handford: The full-time investor relations person works very closely with me. So whenever we have a project and a deal that we’re actually in the process of raising funds for, she is actually very closely with the investors. She’s local. So this one position that if you’re gonna do virtual — I prefer it to be local, at least in the United States, I mean. I wouldn’t want that person to be over in the Philippines and having access to a lot of the financial information that we get from investors on these documents.

She manages the process of making sure all the PPM documents are signed, and the information on those documents is accurate and correct, and then she also makes sure that all the wires come in from all the funds, she notifies the investors as soon as possible whenever they come in… And we’re very good about a wire comes in, within an hour of us receiving it we’re sending a message back to the investor, so that they can be at ease that we’ve actually received their funds.

When we’re in the process of raising funds for a particular project, she’s very busy. And then in between projects we have various tasks that we have her doing, as far as updating records, calling in and getting status updates from investors… So when we do a first distribution on the property, reaching out to those investors, “Did you receive your distributions?” things like that.

And then also, as you know, we are in a project, there’s things about updating ACH, and entity transfers, and things like that that go inside of each one of these projects. She’s pretty much handling all of that piece of it.

My primary role is to have a lot of these investor conversations and these investor communications with these investors on the frontend, and then also while they’re in the project if they have any questions, I’m that person as well.

Joe Fairless: You have three business partners in PassiveInvesting.com. How many business partners with an organization would be too many?

Dan Handford: Hm… It’s a good question. I would say it depends. Are we talking about any organization, or this type of an organization?

Joe Fairless: Yeah, let’s go this type. Good clarification.

Dan Handford: In this type of an organization I really feel like three is probably a good number, except for maybe one other position; maybe if you had another position where you have like a vertically-integrated property management company, and you can have another person that’s managing that piece of it. Or if you parceled off the asset management piece and you had another person in there from an asset management perspective… But I think three is a good number, and I think it’s good from the perspective of investors as well.

One thing that I’ve seen with some operators – this doesn’t happen all the time, but I’m sure you’ve probably heard of these stories as well, Joe, where an investor has put money into a project, six months down the road they can’t get a hold of the operator; they just like fall off the face of the Earth. It doesn’t happen very often, but I’ve seen that lately… And it’s usually a one-off operator, and it’s just them; there’s nobody else.

To me, I do passive investments myself. I’m actually in 19 different syndications right now, and with eight different operators, and I make sure that there’s not just one person in the partnership. I  like to see at least two, but three is my preference, because if something happens with one, there’s still somebody else there to take over the business if something happens to them.

Also, if I can’t get a hold of one, I’m pretty sure I’m gonna get a hold of the other ones. So for me it’s a mitigation standpoint as well, from  a passive investor standpoint, too.

Joe Fairless: You’re in 19 syndications, with 18 different operators as a passive investor… Think about the last deal that you came across for passive-investing in, but you did not invest in it. Why did you not invest in it?

Dan Handford: It’s the market. One of the biggest things that I look for is the market… And I have a subscription to certain data analytics that I use for our syndication group, that allows me to look up some of my passive investments and verify different things and stuff like that… But the biggest thing I look at is the market.

So even if I like an operator, if I don’t like the market they’re going into, then I’m not gonna follow them in that market. So I don’t really care how good that operator is, I’m a   big believer in the market dynamics as well. So that would be one of the biggest things I do not invest in.

But a couple other things that I would say is preferred returns… I won’t invest in a deal unless it has preferred returns, because to me there’s a big alignment of interest when you have those preferred returns. That’s how we treat our investors with our deals as well – we have those preferred returns, and we wanna make sure we treat our investors very well, because we don’t wanna just do one deal with them. We wanna be doing multiple deals for many years, and continue to produce these legacy wealth assets and plays, so that we can grow together.

I think the more you treat your investors that way, the more they’re willing to refer their friends, and the more they’re willing to invest with you on multiple projects. So those are just a couple of things – the market, looking for preferred returns… I actually do like the 70/30 splits, because when you have to start to go down below 70/30, to go 80/20 or 90/10 on some of your equity splits, the deal to me is not strong enough. It’s a weaker deal, which is  why they have to give up some more of that equity in order to do that. So to me, I like to have that 70/30 split, I like to have those preferred returns in there, and I also like to have monthly distributions. There’s a few of them I’m in as quarterly. but I prefer to have those monthly distributions as well.

Joe Fairless: What’s something that hasn’t gone right during the last 12 months of business?

Dan Handford: It’s a good question. I’ve had a few investors ask me this question, so I can answer it very quickly here. One thing that we did on a property is we underwrote for — I don’t know the exact figure; I’m gonna say a $200 rent bump. It was gonna cost about $10,000 a unit, to renovate the unit to get that rent bump. I’m just giving you general numbers, not exact.

So we went in, bought the property, had projections, had return numbers out there, and renovated the first two units at 10k/unit, and come to find out we could not achieve that rent bump. And the nice thing is we only renovated two units. So we’re not gonna just go in  and renovate 30% of the units before we figure out if we’re gonna achieve the rent bumps.

The reason why we balanced the rent bumps with the property management companies in the market, and doing a comp analysis [00:18:00].13] and it was one of those properties I was kind of on the fence of class B, class C area… So we just didn’t do a very good job of really scaling that number down. But what we were able to do to mitigate that is that we only did two units, so it wasn’t a major hit as far as the cap ex funds and the cap ex budget.

What we were able to do is to kind of reset and go “Okay, what can we do to reduce the renovation budget to still achieve the returns for the investors if we have to lower the rent increase?” So we were able to go in there and reduce the renovation budget, even though we had to reduce the rents, but we were still gonna be able to achieve and surpass the original projections that we had on that particular property, based on the projections that we have now.

Joe Fairless: Basically, you have the same ratio, it’s just different dollar amounts.

Dan Handford: Correct.

Joe Fairless: Do you remember what you did – one or two things – to reduce the expenses, like go from granite to something else?

Dan Handford: Yeah, so there was a wall in the kitchen area that we decided just to leave up, even though [00:18:56].16] we decided to reduce that… And then we also went from stainless steel to black appliances, and then from granite to Formica.

Joe Fairless: Got it. That’ll do it.

Dan Handford: So those are the main things. Yup, it will.

Joe Fairless: You have, as you mentioned in the beginning, some very successful entrepreneurial ventures – the medical clinics, the online business, you’ve got the syndication business… Have you had an entrepreneurial venture that has not made money and  you abandoned it and then you moved on to something else?

Dan Handford: I haven’t had an actual venture do that, but absolutely in my practice that I have – my medical clinics – and even in my other businesses, I’ve done certain things that we thought were gonna make money, but we tried them, they didn’t work, and we stopped. We didn’t necessarily lose a bunch of money, but we were constantly monitoring and putting KPIs in place and kind of checking those metrics and making the decision of if it’s not working, let’s just stop early instead of just trying to continue to bleed this thing.

So really the biggest lesson that we’ve learned there is just making sure that you’re measuring and monitoring everything that you’re doing, so that you can pivot sooner rather than later. When we started to expand from one clinic to four clinics, we started to open up new clinics and at the time we were only looking at our numbers on a quarterly basis… And if you know anything about data analytics, if you’re looking at it on a quarterly basis it is actually a retrospective analysis, and by that time it’s usually too late to pivot to make any impact on that quarter. Usually, it’s hard. You never can make that change.

So for us, we started to do monthly data analytics on our clinics, and then once we started to go to that third clinic and fourth clinic, even monthly wasn’t enough, so we started doing weekly and daily analytics, to make sure we can make those decisions quicker and faster, instead of waiting until we’ve already lost a lot of revenue and we can’t make it back up, because the time has already gone past.

Joe Fairless: Based on your experience, what’s your best real estate investing advice ever?

Dan Handford: Learn to delegate. Because one of the things that I learned early on in my entrepreneurial journey is that I had to learn how to delegate things that I knew I could do — because I have a flaw, that I feel like I can do everything better than anybody else. And yes, I understand it’s a flaw. A lot of entrepreneurs have that flaw… But you have to come to the realization of your flaws in order to fix them.

So I had to sit back early on in my entrepreneurial journey and owning businesses and say “Even though I know I can still do it better than anybody else, if I can find people that are really solid and really strong, and they can do it at 80% to 85% the level that I can do it, then I’m happy to turn it over to them, train them, get them to start to do it. Then I don’t have to do it, and I can focus on things that I’m better at, and  continue to grow the companies.”

Joe Fairless: You mentioned you’re hiring a decent amount of people for your company… What’s the good place to find those qualified applicants?

Dan Handford: Sure. For a general marketing person, things like that, non-real-estate-related, I usually a lot of times find them on Indeed. It’s kind of my go-to place right now, Indeed.com. Virtual assistants I’ve found on Upwork.com, and then from a commercial real estate standpoint we’ve been using the SelectLeaders.com platform for that.

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

Dan Handford: Let’s do it.

Joe Fairless: First, a quick word from our Best Ever partners.

Break: [00:22:01].28] to [00:22:52].06]

Joe Fairless: Best ever resource you use in your business to keep you up to date with industry trends?

Dan Handford: CoStar.

Joe Fairless: Best ever way you like to give back to  the community.

Dan Handford: I’m actually starting a non-profit myself, that will help to improve the quality of Christian private education across the country.

Joe Fairless: What’s the best ever deal you’ve done?

Dan Handford: Best ever deal that I’ve done, in real estate – I would probably say it’s our most recent deal. We did a deal that was a pretty large deal; it was our largest one to date. It was a 51,5 million dollar acquisition. We’ve only been into it for about two months at this point, but it was really nice to be able to get an appraisal back in the process of the due diligence in that particular acquisition, and be able to have almost two million dollars of increase in the value from the actual appraisal, to where we are when we actually acquired the property.

Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?

Dan Handford: Sure, thanks Joe. They can go to our website, passiveinvesting.com.  You can also shoot me an email if you have any questions for me, or if you wanna jump on a phone call and have a discussion… You can shoot me an email at dan [at] passiveinvesting.com.

Joe Fairless: Dan, I enjoyed it. I hope you have a best ever day, and we’re gonna talk to you again soon.

Dan Handford: Thanks, Joe.

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