For the last 14 years, Simplified Real Estate Investments Founder and CEO Joe Danza has focused on cash flow. After getting his start as a buy-and-hold investor, he and his team are continuing to see returns from those investments, allowing them to branch out into different asset classes while Joe also works two W-2 jobs. In this episode, Joe discusses getting into real estate in the midst of a market crash and how trust is the key factor when it comes to vetting operators and establishing self-management in a market at a distance.
What to Look for When Vetting General Partners
When vetting GPs, Joe prioritizes trust and integrity above all else. This is established through multiple conversations with both the GP and others who have participated in their deals. He looks for people who have come out on top after tough times like the Great Recession and the pandemic.
Joe says they also need to demonstrate that the property is able to generate revenue without the upside. He and his team conduct stress tests, in which they’re primarily focused on vacancy rates to determine how many units can go down or go unpaid before the property is in trouble. Conservative underwriting is often key in ensuring a deal will be able to weather a storm, Joe says.
Top Tips for Establishing Self-Management in a Market at a Distance
First, Joe says, you have to do the research. Understand the economic drivers that are in that market, the legislation, and how the property will generate revenue. Next, you need to find the right team, or as Joe calls it, the dream team. Ask other operators you’ve established relationships with in the market for referrals. Because Joe and his team invest in markets they’re often unable to drive to, they’ve been ripped off more than once. Now, they primarily rely on performance-based referrals from trusted sources and conduct thorough background checks.
The Biggest Mistake He’s Made
Once again, it all comes down to trust. Joe and his team have paid dearly in the past after entrusting people without conducting thorough due diligence beforehand. “That’s why when we hire, it’s through our network of folks,” he says. “Because we’ve been burned. And it’s the lessons of hard knocks, but we’re learning from them and we continue to move forward.”
Joseph Danza | Real Estate Background
- Founder and CEO of Simplified Real Estate Investments LLC, which invests in multiple real estate asset classes including residential, vacation rentals, and multifamily investment properties.
- LP of:
- 168 units in Joplin, MO
- 113 units in Columbia, SC
- LP of:
- Based in: Northern Virginia/Washington, D.C.
- Say hi to him at:
- Instagram: @josephdanzaofficial
- https://multifamilyconference.ca/ Promo Code: JOE10
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Slocomb Reed: Best Ever listeners, welcome to The Best Real Estate Investing Advice Ever Show. I'm Slocomb Reed and I'm here with Joe Danza. Joe is joining us from the Washington DC area. He's the founder and CEO of Simplified Real Estate Investments LLC, which invests in single-family residential and commercial multifamily, including vacation rentals. Currently, primarily involved as a limited partner in multiple syndications, breaking into the general partnership space as well now. Joe, can you start us off with a little more about your background or what you're currently focused on?
Joe Danza: Yeah, thanks for having me. My background has been really about cash flow for the last 14 years; we've been in real estate for the last 14 years. It's about multiple streams of income as we weather the different cycles of the market. We're jumping into the multifamily space because we see the value and all the benefits that we can reap from the cost segregations and things like that.
Slocomb Reed: Awesome. Based on my notes here, Joe, you started out as a buy-and-hold-with-your-own-money investor. Have you gone full-time into real estate investing?
Joe Danza: I'm still doing my W2 job, and so I'm really busy. But we still hold all of our buy-and-holds, and they're like infinite returns today. We've been able to pull all of our money out, they've been some amazing investments that have allowed us to jump into different spaces, and to really leverage the different assets in real estate.
Slocomb Reed: Yeah, this market has been good to a lot of people in a lot of ways, Joe. I can tell similar stories and I know a lot of my friends can, too. You started 14 years ago; 14 years ago now is 2008. Is that pre-crash or post-crash?
Joe Danza: It is during the crash that we started. Our first property that was going to be a flip ended up becoming our BRRRR before they were even called BRRRRs. We still own that property today, and we've gotten 100% of our money out of that investment. It's pretty neat to watch everything come full cycle.
Slocomb Reed: Gotcha. Yeah. '08 was a very interesting time to get into real estate investing for sure. With those investments, as you're able to pull out capital and scale through that, what is it that intrigued you about being a limited partner in apartment syndications? Was it simply remaining passive in those investments, so they weren't taking as much of your time, because you already had a rental portfolio and you still had a job?
Joe Danza: Actually, with our rental portfolio that we own today, we have so much revenue that's generated, so we actually take advantage of the cost segregation. That's primarily our focus, just because we're looking for ways to pay less tax, and multifamily proves to be that solution for us. Again, it's like infinite returns as well. We invest money into the deals, sometimes we'll get two or three times our money back, but it's really for those tax benefits. And again, it's also for passive purposes, too. It just allows us to free up our time as well.
Slocomb Reed: Gotcha. Given your real estate experience before becoming a limited partner, when you were looking to get into syndication deals, and you said it was for the cost segregation, for tax purposes, because of the revenue you were already generating, how were you vetting general partners to invest with? You are capable of looking behind the curtain in a lot of ways; how were you qualifying operators?
Joe Danza: That's a great question. We look at a lot of people's track record, and then it's really about, "Can we trust you?" Everybody can run a deal well, or at least the proforma looks great on paper, but we're looking to see, "Are you trustworthy? Do you have integrity? Can we trust you at the end of the day?" Because when things get rocky, because everything gets rocky, everything is cyclical in real estate, and we want to make sure that when things get rocky, you're transparent and you're honest with us. Because it's our revenue and this company supports a lot of people, so we're relying on people when we invest funds, that we're going to get a return on our money.
Slocomb Reed: Trust is essential. Thinking about vetting operators, how do you quantify trust?
Joe Danza: I don't know if you can really truly quantify it. I think it's about having multiple conversations with them and talking to folks who have participated in their deals. I think it's just really looking at "Have they been through a couple of market cycles?" Those are just a couple of things that we use to like build trust with our operators.
Slocomb Reed: A couple of market cycles - does that mean to you that you need to know these people have been investing since the '90s?
Joe Danza: Yeah. We're looking for people who've been around, who understand the market. 2008, was very tough, we lived the market in 2008, and we've lived what COVID did to the market as well. So we're looking for operators who've been able to weather it, regardless of whether the markets booming or whether the markets going down. They need to be able to operate and their properties need to be able to generate revenue, regardless of the cycle.
Slocomb Reed: Gotcha. So vetting operators on trust and their experience through multiple market cycles. Given your experience of '08 - and it sounds like you want to make sure you're prepared in the event that 2008 happens again - how does that impact the way that you underwrite the deals that are shared with you? Do you have any benchmarks that you're looking to hit particularly in the event of a hypothetical recession?
Joe Danza: Yeah. When we typically underwrite the deals, we're looking to make sure that the rents are going up or the expense ratios make sense. We're looking at the potential income. We're looking at a lot of different things to make sure that the property is going to perform; we're not just relying on upside alone. They've got to show that the property is able to generate revenue without the upside. We're also looking at stress-testing, we look at a lot of different things when it comes to making sure that the property is going to produce, regardless of the cycle.
Some of the deals that were invested in - COVID hit, and they were able to take a 30%-40% haircut and we were still able to get our dividends through quarterly or monthly. Those are the types of deals that we really look for, if there is enough room, or I like to call it runway.
Slocomb Reed: Gotcha. There are a couple of things that come to mind in what you've said so far, Joe. First of all, the 30%-40% haircut in COVID - what do you mean by that? That collections were down by 30%-40% for the operators you invested with?
Joe Danza: Yes. Some properties struggled, but because the deal was underwritten very conservatively, they were able to weather the storm well, and they had enough in reserves. Those are the types of things that we look for as well. What do the reserves look like? When rent collection goes down, are you able to offset it with other revenue in the property coming in?
Slocomb Reed: Gotcha. You talked about stress test - what are the key factors in your stress test, Joe? You've mentioned reserves, you've mentioned what happens if collections or rent rates decrease. What else are you looking at?
Joe Danza: We're looking at vacancy rates... It's primarily vacancies; like, how many units can go down or not pay before the property is in trouble? We're really looking at that very closely. Obviously, now, the market has taken off so everything is booming. Stress testing, we still look at, but it's one of those things that we keep in the back of our minds.
Slocomb Reed: Gotcha. To make sure that we're on the same page, Joe, now that you're getting involved in general partnerships, are you doing that primarily as a capital raiser?
Joe Danza: As capital raising and underwriting; we will go out and search for deals too. It's looking at multiple angles as we jump into the general partnership areas.
Slocomb Reed: Gotcha. Can you tell us what markets you're currently invested in?
Joe Danza: We're primarily in the Sunbelt states for the syndication deals. And then our portfolio, we span from New York, all the way down to the Carolinas, and we're out in the Midwest as well. We're pretty spread out well and that's part of our strategy is diversification making sure that we're not heavily invested in one market should things change with landlord laws or if something happens in that market specifically.
Slocomb Reed: You've got your fingers and a lot of cookie jars; you might have more cookie jars than fingers. Thinking about that, and thinking about the experience of COVID and the haircut that some of your deals took, considering the markets that you want to invest in, Joe, or the markets that you're willing to consider, from operators who bring you deals when they're raising capital, how much are you looking into the way that the localities within those markets handled COVID?
Joe Danza: Typically, when we look at these markets, we're looking at -- I like to call them the market drivers. Like GDP, we're looking at jobs, we're looking at different types of revenue that exist in the market, we're looking at a variety of things to make sure that there's going to be job growth, and there are going to be opportunities in those markets for those buildings to perform and to do well. That applies to all of our rental portfolios across the board. It's making sure that we're not going into depressed markets or markets that are struggling; it's making sure that there are multiple revenue streams in that market that makes sense, and that's going to spur the growth.
Slocomb Reed: Let me ask this question with much more conventional phrasing... Taking out of account the last couple of years and what COVID has done to real estate investing, how much of an emphasis are you placing on investing in areas where the legislation is more landlord-friendly?
Joe Danza: It plays a big deal. Some of our properties are still in New York and we lived that through COVID. That's where we saw some of our haircuts taken...
Slocomb Reed: That makes sense, yeah.
Joe Danza: Yeah. That's why we look at a lot of legislation. We make sure that the properties that we're investing in or that we're purchasing - they're in states that are landlord-friendly. They're not so much focused on the tenant, but more so on making sure that we have a fair shake, instead of long moratoriums of not having to pay rent.
Slocomb Reed: Yeah, I get that. I'm based in Cincinnati, Joe. In my experience, how apartments, how assets weathered the eviction moratorium had a lot to do with how active and how involved the ownership was in management. Let me put it this way; all of the owner-operators that I know - none of us had rent collection issues in early 2020. It was the investors who were not local, who hired the big box property management company for whom their 20, 50, 80 units just were not a priority, for a property management company managing multiple thousands of doors... Those are the guys who took haircuts much larger than 30% or 40%, some of them 80%, in a very landlord-friendly state like Ohio.
Now, you're involved in a couple of syndications now as an LP; talking about your portfolio that you own individually, Joe, it sounds like it's pretty spread out. How many different markets are you in?
Joe Danza: We're in about five different markets, and we purposely did that. Again, it's for diversification purposes. Legislation changes, things change.
Slocomb Reed: What are those five markets?
Joe Danza: South Carolina, North Carolina, New York, Missouri, and then Florida as well.
Slocomb Reed: North and South Carolina, New York, Missouri, and Florida. You self-manage all of that, right? That's a joke you don't have to answer. But please give me the answer that you wanted to.
Joe Danza: So we have teams. My company is all about multiple streams of income, so we have our own property management company. We have some local teams on the ground that help us manage the properties.
Slocomb Reed: How large are these properties?
Joe Danza: They vary. They could be 10-15 units and they're managed by local folks on the ground that are very invested in these properties. We spend a lot of time vetting them, and they do quite well.
Break: [00:15:38] - [00:17:24]
Slocomb Reed: Out of those markets, which market has the fewest units, and how many units is it?
Joe Danza: I would say the New York market. We've purposely been divesting of New York, it's been a little rough. We have probably about five or six left in that market.
Slocomb Reed: Of course. And you're divesting from New York, so let's talk about one of the other ones.
Joe Danza: A market that we're heavily invested in is in the Carolinas. It's landlord-friendly, very easy to work with tenants; we're doing a lot of vacation rentals in that space as well. It's just another lucrative market that we're in. We're taking those profits and we're reinvesting those into multifamily as well.
Slocomb Reed: Yeah. The question is where do you have the fewest units, with the exception of markets you're getting out of? What I'm getting at, Joe - I'll go ahead and say, from an operational perspective, the fewer units or the lower your gross revenue, the more difficult it is to self-manage, especially from a distance. You said you have your own teams on the ground; how are you managing a boots-on-the-ground management team for a small portfolio? How are you handling that?
Joe Danza: Again, this goes back to what I talked about with the syndications. It's about trust. We're vetting the teams that we have on the ground, and then we're meeting with them throughout the month. Zoom is a great tool. We're sitting, we're going through the financials together, we're walking through the properties, which ones are turning, which ones are full, we're going through all of that data every single month. Then we also do surprise visits out to the properties, too; so it's about fostering the trust and empowering them to do the jobs that they need to do on the ground. Then we just kind of fall in and see how things are going when we show up.
Slocomb Reed: Joe, let's get into the numbers of one of those situations. You're in Missouri; how many units do you have in Missouri?
Joe Danza: 84 units out there.
Slocomb Reed: Gotcha. In one MSA?
Joe Danza: In one MSA.
Slocomb Reed: How many properties is that?
Joe Danza: I think that's about six properties.
Slocomb Reed: Six properties, 84 doors in one metro area. Then the Carolinas, what do the numbers look like there?
Joe Danza: The Carolinas vary, just because we've got the vacation rentals out there, but we have about over 200 units in the Carolinas.
Slocomb Reed: Okay, how many different MSAs is that?
Joe Danza: That's over three MSAs.
Slocomb Reed: Gotcha. It sounds like each location in which you're investing has enough critical mass that you can hire people to work for you full-time.
Joe Danza: Absolutely. That's the only way it works. We've got those property managers on the ground, taking care of things, while we provide... It's really asset management is what we provide, the oversight, but we also do have that core functionality with the property management side of things, too.
Slocomb Reed: Joe, I know a lot of real estate investors who are somewhere between intrigued by jumping into a new market, to fully intent on getting into a new market. Maybe a second or a third market, that is at a sufficient distance from them, that they could not personally manage the properties; they'd have to build a new team in that new location. The vast majority of real estate investors who invest in multiple markets do not self-manage, because of the distance. What are your top tips for establishing self-management in a market at a distance?
Joe Danza: Number one, do the research. Make sure you understand the economic drivers that are in that market, make sure you understand the legislation, make sure you understand how is the revenue is going to be generated for this property, does it make sense, and the expenses to go with it. Every market is going to be different so it's really about doing that research. Then it's really about finding the right team. I like to call it the dream team. People that have the skillsets that you need, but also that you can trust. We've been burned, so it's all about trust for us.
Those really are the two big things. It's about doing the research and having the dream team. Because you can't be everywhere, you can't travel out to all the properties all the time, you've got to have the right boots on the ground, taking care of things, so the wheels keep going with or without you. That's something that we've really perfected over the years, is just getting the dream team, vetting, and making sure that if I get hit by a bus tomorrow, the bus keeps going. So it's been quite the experience or the ride.
Slocomb Reed: Gotcha. Talk me through your step-by-step process of building a dream team. Let's say Boise, Idaho. You're going to invest in Boise; outside of the market fundamentals of why and the economic drivers in this legislation. Let's just say, for the sake of example, that you like Boise, and you're going to start investing in Boise. First of all, I assume your first acquisition needs to be of a size or of a scale that you would be able to handle or afford. I assume your first acquisition in Boise needs to be large enough to justify on-site management.
Joe Danza: It is. It's about making sure that we find the right team, and it's about making sure that the deal itself makes sense. It's got to be large enough that the margins have to make sense, because you've got to pay folks to do the work.
Slocomb Reed: Yeah. Let's assume, Joe, that you have that, you have the margins. Talk us through the steps of how you find the people.
Joe Danza: It goes back to your research. It's finding out who's good in the market, it's asking other operators who's reliable, who's dependable, who knows their job, and ultimately, who's trustworthy. I can't go back more times again about trust, I can't say how many times we've been ripped off because we were investing in markets that we're not able to drive to. It's about making sure you can trust them at the end of the day, that they have the right skillsets.
Sometimes we have overlooked the right skill sets to make sure that we get the folks that we can trust. We're doing references, we're doing background checks, and we're making sure that the folks that we hire on the ground are the right ones. And it depends on the property. We may need maintenance folks, we may need leasing consultants... It just depends on what we're investing in that market where we're building that team. It could be cleaners, for all that we know; it just depends on the asset.
Slocomb Reed: Let's say you find the asset, you identify the pieces that you need to put together, the people you need to have on your dream team. It sounds like when it's time to start hiring the right people, people that you know, that you can trust, the first thing that you do is go to other operators in that market and you ask them for recommendations?
Joe Danza: Absolutely. Why reinvent the wheel, when you can ask for the cream of the crop? It's building those relationships in that marketplace. A lot of the markets that we're going into, we're networking with folks, we're networking with operators, we're networking with property managers, we're networking with a lot of different folks to make sure that we're building the team that we need prior to entering that market.
Slocomb Reed: Let's say you've done your networking; you have been given recommendations that you followed. Are you also doing general job postings? Are you on Indeed looking for people in that market?
Joe Danza: Everybody on our team today has been through word-of-mouth and referrals. Typically, everybody's resume is going to look great, everybody's going to interview for the most part well. We're looking for referrals based off their performance, and we're looking for examples, and references; that's kind of what we're looking for. Everybody on the team that we've hired today is strictly from referrals, which has been pretty amazing. We've been very fortunate. The ones that we took off Indeed or off some of the hiring boards, those are the ones that we've had to fire, because they just didn't check out later on.
Slocomb Reed: I'll say, at least within maintenance and rehab, that's been my experience as well. Everyone who's currently working for me, was word of mouth referrals. The people that I've hired off of online job boards are the people who haven't panned out. Some of them being great, high integrity people who do good work, who just I wasn't the right fit for... The people I've hired who have been a good fit have all been word of mouth. What does your process look like for vetting people after you've received these referrals?
Joe Danza: It's really about asking about their experience. Tell me a little bit about what you've done, tell me how you would turn a property if it's distressed, or walk us through it. It's really past experience, and give us some examples of your success stories. That's really it, because we're really taking the referrals from people that we trust. We just don't go ask for referrals from people that we just met. It's through our relationships, through our networks that we're asking people that we can trust. Trust is everything in this business. It's a small community; even though there are thousands and thousands of investors out there, it's a small community, and word gets around very quickly. That's why we use our network really, primarily, for vetting everybody.
Slocomb Reed: That makes sense. Thinking about my own experience, I don't hand over the keys to the kingdom to anyone who hasn't already performed a small task. Specific to maintenance personnel who will be entering occupied apartments, a part of the interview process is to spend a day with me that is paid on a 1099 basis. Spend a day with me handling maintenance issues in apartments, giving me the opportunity to see them in action, interacting with my tenants, for... Well, sometimes it's a half-day, I want to watch them interact.
I want to give them small jobs before I entrust to them large jobs where my exposure will be greater, especially when occupied apartments and interaction with the tenants is involved. Do you have something similar where you vet people by giving them lower-level responsibilities first and then letting them grow into the role, or are you finding that with these referrals, you're hiring people that you can give the full breadth of their job responsibilities to them on day one?
Joe Danza: It depends on the job that they're being hired for. We're definitely giving them bits and pieces to see how they'll handle the stress, and then others, it's like, "Here's everything, good luck." They take it on and they are rockstars. We make sure that we compensate them well, because they are going above and beyond, and they are taking care of our most expensive assets.
Slocomb Reed: Gotcha. Time for a segue, Joe. Are you ready for our Best Ever lightning round?
Joe Danza: Yeah, absolutely.
Slocomb Reed: What is the Best Ever book you've recently read?
Joe Danza: I would say Deep Work by Cal Newport.
Slocomb Reed: Awesome. Cal Newport is great. What is your Best Ever way to give back?
Joe Danza: We host an ADPI meet-up in the DC area. We're focused on helping our...
Slocomb Reed: ADPI?
Joe Danza: Active-Duty Passive Income. We host a meet-up there and it's just about educating our service members. I've been in the army so it's all about giving back to them and giving them the tools that they need to be successful.
Slocomb Reed: Gotcha. That's awesome. As a real estate investor, what's the biggest mistake you've made and the Best Ever lesson that came from it?
Joe Danza: I think the biggest mistake we've ever made is we've entrusted folks without doing the necessary due diligence, and we paid for it dearly. That's why when we do our referrals or when we hire folks, it's usually through our network of folks. It's because we've been burned. It's the lessons of hard knocks, but we're learning from them and we continue to move forward.
Slocomb Reed: Awesome. What's your Best Ever advice?
Joe Danza: I would say keep going, things are difficult. We've been through some very, very difficult moments from the time we started. If we had stopped, we would not be where we're at today, where we have a big portfolio and it's a great time to be in real estate. I just would encourage anyone to keep going, never stop and never quit.
Slocomb Reed: Where can people get in touch with you?
Joe Danza: They can reach out to me at simplifiedrei.com. Check out our website, we have a free giveaway for your listeners. It's our cash flow guide that they can listen to. The other thing that I'd like to offer your listeners is -- one of my business partners, Seth Ferguson, he's hosting the multifamily conference located in Toronto, Canada, on the 14th and 15th of May. I've got a promo code Joe10, and you guys can get 10% off; your listeners get 10% off.
Slocomb Reed: Awesome. Links to those websites will be included in the show notes for this episode. Joe, thank you. Best Ever listeners, thank you as well for tuning in. If you've gotten value from this episode and this conversation on the value of trust in commercial real estate investing, please subscribe to our show, leave us a five-star review and share this episode with a friend, someone you know who we can add value to in this conversation. Thank you and have a Best Ever day.
Joe Danza: Thanks for having me.
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