June 8, 2021

JF2471: Double the Cash Flow with Creativity with Dan Odabashian

Coming from an online poker career to asking friends and family for funding for a syndication deal, getting creative is nothing new for Dan Odabashian. Dan learned to leverage relationships and go from traditional thinking to looking into alternative asset classes, trying to scale from day 1. He explains how an RV park and campground doubles the cash flow of a mobile home park and how he turned a historic old brewery into a 75-unit luxury apartment community.

Dan Odabashian Real Estate Background:

  • Full-time real estate investor
  • 10 years of real estate experience
  • Portfolio ranges from small multi-units to large substantial development projects
  • Based in Albany, NY
  • Say hi to him at: dan@newscotlanddevelopment.com
  • Best Ever Book: Raising Capital For Real Estate

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Ash Patel: Hello Best Ever listeners. Welcome to the Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Dan Odabashian. Dan is joining us from Albany, New York. He’s a full-time real estate investor with 10 years of experience. His portfolio consists of small multi-units to large development projects. One of Dan’s projects consisted of a 15-million-dollar historic renovation of an old brewery to a 75-unit luxury apartment community. Dan, how are you today?

Dan Odabashian: I’m great. Thanks for having me.

Ash Patel: Well, thanks for joining us. Before we get started, can you tell us a little bit more about your background and what you’re focused on now?

Dan Odabashian:  Sure. I started out in real estate as an investor, much like many others, investing in smaller two, three-family properties. I quickly realized it was something that I wanted to pursue on a larger scale and also quickly realized that I couldn’t manage all the properties by myself. Long story short, I basically scaled my personal investment portfolio along with a property management company. We currently have about 20 million in assets under management, consists of mostly multifamily residential, a few one-off commercial properties here and there. That’s the daily grind, along with some other bigger development and new construction projects I have come along over the years and also currently pursuing.

Ash Patel: Dan, we just went from zero to 100? Hold on, did you start out…

Dan Odabashian: It’s the high-level overview.

Ash Patel: Did you start out as a full-time real estate investor?

Dan Odabashian: More or less. Actually, it’s an interesting story. I was a finance accounting major in college at NYU Stern School of Business. I got a great education there, I graduated in 2005, which was just about as good a time as any to be jumping into a finance job with bonuses they were handing out, and the economy in the state it was… And I just decided to pursue an online poker career. I was making some decent money my senior year of college and didn’t really feel like working 80 to 100 hours a week as a junior analyst on Wall Street. I did quite well with that for a solid three or four years, and took some of that money and invested. That’s how I got started investing in real estate. That’s where the money came from initially.

Ash Patel: A wild story. So you’re analyzing poker hands instead of balance sheets.

Dan Odabashian: Yeah, it was more or less the same thing as day trading. It’s all math, high volume, a lot of hands, and playing percentages.

Ash Patel: So when you got into real estate, I’m sure your goal was to go big. It wasn’t just to get some passive income on the side.

Dan Odabashian: Correct. So like I said, dipped my toe, bought a couple of two families, and then realize that’s for the birds, at least in my opinion. Just with all the problems that can come up with having that many roofs and heating systems, and just from a global standpoint as to what I wanted to do. Buying 10 units and 20 units made a lot more sense. But at that point, we’re talking about –at least in our market here in Albany– one to $2 million deals. I didn’t quite have the money to take those down at the time, so that’s how I pretty much got into syndicating out deals with friends and family. The management company was a natural fit as a) a huge advantage to recruiting investors, because that’s their first question, “Who’s managing this operationally?” You’re looking at him. And b) the second stream of income. So kind of a win-win scenario, in my opinion.

Ash Patel: Dan, was that a difficult sell to your friends and family? Because you’re coming off of a poker career for three years, and all of a sudden you want to take their money and invest in real estate? I’m a little skeptical.

Dan Odabashian: I think at that point, people had seen how well I was doing. I come from a pretty conservative background. My father was a physician, my sister who was the oldest went into the same field. Needless to say, he wasn’t too happy about the education that he had paid for from one of the best finance schools in the country, going towards online poker. But I actually sat him down one day early on, showed him everything, explained it to him, and his mind was blown. I basically said, “I’m using the same skills that I just learned, just applying them in a different way.” I think he kind of looked at me in a different manner after that day, not as like a little kid that he had to watch out for anymore. To answer your question, yeah, I think maybe a little bit of skepticism. But in general, even today, I think it’s all about the way you present the investment to somebody and not scattered, not haphazard, not like I’m shooting at the hip or anything. I had a business plan and it was well written and well presented.

Ash Patel: Scenes from the movie Boiler Room just came to me.

Dan Odabashian: That’s one of my favorites.

Ash Patel: With the conversation that you were having with your dad. I totally envision that. What was your first indication? What was that deal? What did it look like?

Dan Odabashian: The first one was a six unit. I actually just bought a personal residence and chatting up the owner across the street who was constantly over there, painting the porch, fixing the place, really took care of it. He had owned the property for I think, 20 or 30 years, used it to put his children through college. I told him, “Hey, when you’re ready to sell, come to me and we’ll make a deal.” He did just that thing, and I talked him into some pretty decent owner financing. I got the rest of the money from a couple of family members, and we were off to the races.

Ash Patel: Was that set up as a joint venture or was that a true syndication with GPS and LPs?

Dan Odabashian: Great question. That one was actually more of a joint venture. The other members were just partners on that deal. That was really my first partnership of any sort in real estate. Up until then, I’d been doing everything on my own and started managing properties for third parties on my own. That kind of led to me realizing that this can be done in a bit more of a professional streamlined way, whereas the investor’s risk is reduced a little bit and my share of sourcing the deals and all the upfront work is compensated for properly on the back end.

Ash Patel: Dan, a follow-up question to that. If one of our Best Ever listeners have some real estate experience and they’re looking to take on multiple partners on their next deal… Would you recommend setting up a syndication or just doing the joint venture for the first deal, if they don’t have hopes of continuing to go big in syndications?

Dan Odabashian: I may recommend a joint venture in that case, for the sole reason of it’s just a cleaner transaction. Everybody knows what everybody’s getting, everybody has a set percentage, you’re true partners with the people that you’re getting to invest in the project. So that would be my recommendation.

Ash Patel: Got it. Thank you.

Break: [00:07:41][00:09:43]

Ash Patel: Okay, so now you’ve got your first syndication and you still have this big picture in your mind that you’re chasing. How do we get to the top? What’s next?

Dan Odabashian:  Well, I thought six units was a huge deal and it was going to move the needle a bit on the scale. I was like “I’ve got to go bigger.” So I started seeking out 10, 15, 20 unit deals, and then in back to back years did a couple of 20 unit deals, separate deals. Those had more of a syndication, passive investor model to them. We actually still hold those two deals to this day and they’re doing great, so everybody’s happy, even through COVID.

Ash Patel: How do you go about spreading the word of what you’re doing and attracting new investors?

Dan Odabashian:  Really just leveraging my network. Once I realized it was going to work with direct family members and extremely close friends who have an inherent trust in me, I started branching out to more, I don’t want to say one-off people, but more acquaintances than anything. People you’d consider a warm lead and you have some personal connection to, and they just have that first level of trust already. It’s not like you’re going in there cold, trying to get somebody to fork over some cash for a deal that they don’t know you from Peter or Paul. I think it’s about getting out there, leveraging those acquaintance relationships, having lunch with people, explaining what you’re doing, and how it’s going to benefit them, most importantly. That’s what everybody wants to know, is what’s in it for me.

From there, we’ve been doing more cold outreach through social media advertising, more so for specific asset classes, not to jump ahead too much. I’ve been setting up Zoom calls and investor calls with people all over the country. Primarily that just started this year, so I’m starting to get into the weeds on that a little bit.

Ash Patel: Let’s dive into that. You said, asset classes. What other classes have you gone into? Because you’ve taken around the 10, 15, 20 units. What else is there?

Dan Odabashian: So you referenced the big construction project I did. I did a couple other smaller ones, those were also multifamily, and then those were in the last two or three years. But last year or two, especially in our market, it just became extremely competitive for multifamily apartment buildings. Back when I was doing those first syndication deals we spoke about, we were picking up apartments at 50k to 60k a unit. Anything that comes on the market right now is a minimum of 80, 90, 100, and we’re talking about a couple of years. The capital region, Albany area isn’t a high growth appreciation market. It was almost like we’ve got to go back to the drawing board, but we’re about to close on 20 units probably next week; it was a great deal we found off-market. It’s just becoming increasingly more difficult to source those deals. It’s almost just like a natural progression into diversification, and we’re almost forced to do it.

One thing that’s been a hot asset class and talked about a lot is mobile home parks and self-storage units. We started looking at those and modeling those deals out, and they look great. So we’re like, “Okay, let’s go start prospecting for these types of deals.” It turns out we’re a little late to the party, when you see some of these big equity groups just scooping up mobile home parks. I saw one that got picked up in Valdez, Alaska a couple of months ago, and it just seems like it happened so quickly from our research.

So it seems like we’re on the right track and coincidentally, in a few of these prospecting calls, we use a few different types of software to mine data and it’s not always 100% correct or effective, but it’s effective enough. A few of these prospecting calls turned into, “Oh, hey. We are not a mobile home park. Sorry.” I said, “Well, what are you?” They said, “We’re a seasonal RV park and campground.” We said, “Well, that’s interesting. Tell us more about that.”

Ash Patel: Tell me more.

Dan Odabashian: Yeah. So it turns out that it’s a very similar model to mobile home parks, just with more of a seasonal and hospitality component, at least in the Northeast region where the weather doesn’t really allow for year-round access and camping, so to speak. We really like what we heard, we started looking at the models for that, and the cash flow numbers are double from what an apartment building would be. We said, “Okay, we really need to start pursuing this.” So we built a real list of RV park campgrounds, started calling around, and we hit a few ones that look pretty attractive. Currently, we have one under contract and I think we’re sending an LOI out on one probably today or tomorrow that we looked at yesterday, and then a few other big ones in the hopper.

Ash Patel: What are the cap rates on a seasonal RV park?

Dan Odabashian: Great question. That’s what was really attractive to us about that asset class, was we weren’t seeing really anything under nine or 10, more so closer to 10, and the really good ones were 11 to 12. Apartments we’re looking at seven, eight on a decent deal. Just the cash flow component alone made it super attractive to us, because our model doesn’t allow us to buy five and six caps with raising most of the capital that’s going into the deal; there’s got to be enough meat on the bone to pay out the investors and then also have something left over for ourselves.

Ash Patel: Dan, seasonal RV park versus around. What’s the difference and which one’s more attractive?

Dan Odabashian:  We haven’t really dived into modeling out your round just quite yet. I would assume, just from what I know about the seasonal, they act very similarly to mobile home parks. The big difference is really the seasonal component makes it more like a vacation for people. What you see is a lot of these RV parks have a very high percentage of seasonal renters, people who just pay an upfront fee. Typically, we’ve been seeing 1500 to 3500 depending on the park and the location, for essentially a six-month period, early May until late September. And that’s a great thing, because they pay all the money upfront, and in the form of multiple deposits, starting with campers will pay their deposit for the next year in August of the previous year when they’re gearing up to leave for the season. So not only are you getting advanced cash flow for next year in the previous year, but you’re getting all the money upfront, so there’s no chasing around tenants, there are no evictions; everybody’s happy campers, as we like to say.

Ash Patel: And you’re essentially closed in the winter.

Dan Odabashian: Yeah, a lot of the zoning and the way that these are taxed by municipalities, it’s a much lower tax rate if you’re only open six months a year. And also, there are factors that play in for water testing and things of that nature. So it’s a much less stringent process if you’re only a seasonal property.

Ash Patel: So we could deep dive into that industry, but I’m dying to hear about your brewery turned into luxury apartments. How did that come about?

Dan Odabashian: Well, I had taken on a pretty large management portfolio. I think it was up to about 200 to 250 units. That was one investor group, multiple buildings, but all concentrated in one of Albany’s best residential neighborhoods for downtown living. The group had taken down a 90-unit apartment building that coincidentally was also an old brewery. These units had extremely small studio apartments. I think it was 78 Studios and 12 one-bedrooms, and the studios average is probably three or 400 square feet. There were some 200 square-foot studios, but extremely desirable housing because of its location. You can walk to all of the state capitol buildings, a lot of the hospitals, medical school, and law schools close by. So we fixed up most of the apartments and we were attracting the young professional crowd, the millennial crowd, the students who graduated from college or graduated from their three-bedroom apartment and sharing a refrigerator that just wanted their own space for an affordable price.

The opportunity came about — to be honest with you, I don’t even remember how it came about, because we’re just talking to brokers and people in the industry every day. But it got floated across our desk and it was an old 60,000 square foot, it was the stable of the old brewery, and then two garage type structures that were used for bottling and storage historically. The property was then for the last 50 to 60 years in between that, first an oil distribution company and propane, and then currently it was a propane distribution company. They would drive their trucks in and out of the garages, they had their office in the big old stable which was three stories, and it was just not a great fit for them as a company to have propane trucks driving through a nice residential neighborhood and upsetting neighbors in the wee hours of the morning.

Break: [00:18:51][00:19:27]

Ash Patel: You know, none of this sounds like luxury apartments. To me, it’s going to be an environmental issue because there are oil trucks in and out of there. I’m dying to know what your mindset was and how you transitioned that into luxury apartments?

Dan Odabashian: The first factor was the history of the building and it was eligible for historic tax credits. That was a given. The second factor was, was the city going to be on our side, was the neighborhood going to be on our side because those are big hurdles if you don’t have the support of the municipality and more importantly, the people who live around it. To take an industrial site like that out of a great residential neighborhood was a pretty easy sell. The third was the environmental, which we started researching. New York State has a Brownfield Program that would give us additional credits, but requires quite a bit of environmental testing. We started doing said environmental testing in the main garage areas and really all over the site.

Ash Patel: This is after you purchased the building?

Dan Odabashian: No, this is when we are in contract. We negotiated a pretty long due diligence period. The owner had been in and out of contract on this a couple of times.

Ash Patel: I can’t imagine why. [laughs]

Dan Odabashian: Right. They were still operating their entire business out of these buildings. So he was just waiting for the point in time when he could say, “Okay, time to find myself another property.” So on the back end of the deal, in the back of his head, he’s thinking, “Well, I’m going to need some time too, because I need to move this whole business somewhere.” So we negotiated a nice due diligence period so we could get the historic tax credit set up, all the environmental testing done, and apply for this Brownfield Program where we’re going to get all these extra credits. We did about, I believe it was like 50 or $75,000 in environmental testing and found absolutely nothing.

Ash Patel: So that’s a win.

Dan Odabashian: Yeah, the only thing we found was a gigantic void in one of the floors of the garage. When they were drilling, one of the drill beds just dropped and they stuck with tape measure down there, 14 feet. We said, “Well, what the heck is this?” We hired a confined space expert to jackhammer out a hole and then we went down with oxygen tanks and all types of equipment. It turns out that after talking to the Albany historian a little bit and reviewing some old insurance maps, where they clearly labeled everything as to what the use was because that’s how they used to know, it was all handwritten and they have all these on file. It said cold storage and the ceilings are perfectly vaulted. We get down this cave-like structure, and the ceilings are perfectly vaulted, clearly built that way. We go “Yep, that’s where they stored the beer to keep it cold, because there’s no refrigeration in 1870.”

A pretty interesting story on that front. It turns out the site was completely clean, which didn’t kill the deal or anything, because the Brownfield credits are really there to support the financial need for the cleanup, so there’ll be no additional costs for cleanup. We marched on there and the equity raising for that project was pretty difficult, because as I referenced before, we’re just buying active apartment buildings and it was easy for people to wrap their head around buying something that’s cash flowing from day one. But you factor in all these historic tax credits and all that nonsense, people are just like, “Can we just do some more of these great apartment deals?” It was a little difficult to raise the funds, but we got it done, raised almost 2 million bucks, and it was a great project.

Ash Patel: Hold on. One, did you have to fill the hole, the void?

Dan Odabashian:  No, because it was it was completely structurally sound.

Ash Patel: Okay, so how do you pitch an investor on turning an old industrial building into luxury apartments? Do you have plans drawn up, you had performance done, the whole nine, or was it just pitching them on the dream?

Dan Odabashian:  Oh, no. It was a pretty expansive pro forma. The historic tax credits make the project pretty interesting, because essentially what they do is fund the equity for the project. But you receive that equity when you complete construction and get your certificates of occupancy for the units. Essentially, what you have to do between the time you close construction financing and the time you receive that historic tax credit equity money is bridge the gap. Really, we were able to repay all the investor money back within, I believe, it was 24 months between the construction financing closing and the tax credit equity funding.

Ash Patel: What percentage of the project at the tax credits cover?

Dan Odabashian:  As far as the equity?

Ash Patel: Yes.

Dan Odabashian:  It covered the full equity slug, which was about 25%, and then we got the other 75% bank financing.

Ash Patel: Where does that project stand today?

Dan Odabashian: Fully occupied, fully stabilized. A year ago, we flipped out of the construction financing into a nice agency loan, permanent financing at 3.4% interest rate for 15 or 20 years and got a little cash out on that refinance as well.

Ash Patel:  Dan, my guess is you’re looking for another crazy project.

Dan Odabashian: You guessed wrong. [laughs]

Ash Patel: The RV parks and the multi-families isn’t going to excite you as this one will. So what’s next? What’s the next crazy project?

Dan Odabashian: Well, the events I just described lasted about five years.

Ash Patel: So you’re in recovery mode?

Dan Odabashian: More or less, with a few fun things in between. But for me, the store projects are pretty satisfying in the sense of, it’s not ground-up construction and it’s extremely challenging, which, I don’t know, I like challenges. I gave up a pretty nice salary when I was a young kid to risk it all in online poker. So A, I like challenges, B, it’s extremely fulfilling to restore an old building, and I certainly didn’t understand that until I took this project on. So definitely hungry for more. We looked at a smaller one last week, a very similar project, and actually looking at another one today. It’s funny, a few just kind of came up out of – I don’t want to say out of anywhere, but it’s just funny. One kind of finishes and then the next ones come along.

Ash Patel: Dan, what’s your best real estate investing advice ever?

Dan Odabashian: Think big, scale from day one.

Ash Patel: Which you did. Dan, are you ready for the lightning round?

Dan Odabashian: Sure.

Ash Patel: Dan, what’s the Best Ever book you’ve recently read?

Dan Odabashian:  That would probably have to be Hunter Thompson’s Raising Capital for Real Estate. It’s a good model, kind of breaks things down in a simple way for capital raising.

Ash Patel: What was your biggest takeaway from that book?

Dan Odabashian: Just the process. You may think you have it all figured out and you know a lot of people have money, but that doesn’t mean they’re going to give it to you to invest. So just the process that you have to lay out to raise capital. It’s like a whole other business model aside from your day-to-day real estate activity.

Ash Patel: Dan, what’s the Best Ever way you like to give back?

Dan Odabashian: I do donate money to a lot of different local organizations. But the best way I like to give back is definitely donating time with local organizations. I think it’s really important to be actively engaged in the communities that you’re owning and acquiring properties in. Especially in smaller cities like Albany, you need business leaders to step up on the community level. I think the real estate industry’s knowledge and skillsets are kind of naturally translated into that.

Ash Patel: Dan, how can the Best Ever listeners reach out to you?

Dan Odabashian: Email is great, dan@newscotlanddevelopment.com. Our website is newscotlanddev.com. Our Instagram is @ScotlandCapital.

Ash Patel: Dan, thank you for your time today. Thank you for sharing this amazing journey of graduating from the Stern School of Business, going into online poker, having that Boiler Room conversation with your dad, o starting out with a pretty traditional real estate portfolio, but knowing the whole time you want to go big, and then just finding these alternative asset classes that bring in great returns. Thank you for sharing all of that today and have a Best Ever day.

Dan Odabashian: Thanks, Ash.

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