How To Invest And Increase Your Income The Smart Way With Dan Handford

CGT 21 | Invest The Smart Way

There are times when simply working hard doesn’t cut it. You need to start working smart as well. Invest in smart ways by thinking outside the box and leveraging your finances carefully. Dan Handford, a Managing Partner at PassiveInvesting.com, joins this episode to share their methods and strategies in investing and making sure their investors are happy. He talks about the technicalities you need to look out for when doing a 1031 exchange, and points out the people you need to be approaching to help you through the process. Learn how to get correct and effective knowledge in the industry to ensure you make the decisions that will give you success, and cement your future.

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How To Invest And Increase Your Income The Smart Way With Dan Handford

I’m excited about our next guest. Many individuals, entrepreneurs and business owners, they struggle with finding value-add multifamily properties to invest in or to get educated and get into a network of people who are like-minded individuals, who are going into passive investing maybe the first time or growing their network. Our guest has a successful background in starting multiple seven-figure businesses from scratch, including PassiveInvesting.com, where they have bought over $200 million in multifamily properties. He’s also the Founder of Multifamily Investor Nation. I personally have been in attendance for two of these events.

The first class was some of the best educators in America on exactly that multifamily and passive investing with commercial real estate. There are about 9,000 members in that group. He also co-hosts a couple of podcasts with his wife, Dennae. They’re out of South Carolina. One of the podcasts is called Tough Decisions For Entrepreneurs, which is a great podcast on how to persevere and how to work through tough decisions as you’re growing your business. The other one is the Multifamily Investor Nation again, where he’s spreading the message of multifamily investing. Please welcome our next guest, Dan Handford.

Brett, thank you so much for having me. I’m looking forward to sharing with your audience.

Thanks for being on the show. Give our readers a little bit about your story and your focus.

I’ll go back a little bit and give you the high-level specifics of it. I am located in Columbia, South Carolina. I started out in the beginning with my first businesses while I was in school. I was in my doctoral program at Life University in Atlanta, Georgia to get a degree in chiropractic. While I was there, all the students needed some form of a spine model to be able to learn and educate themselves about the spine. I was able to source one for a fairly low price. A lot of the students were trying to find it. In the bookstore, they were selling it for $190. I heard all these students complaining. I went and sourced the manufacturer. I found a distributor of that manufacturer who sold it to me for $65.

I wasn’t trying to make a bunch of money. I was trying to help out the students. If I can make a few bucks, then great. I sold it for $69.95. Keep it below the $70 mark. Also, they included free shipping with that. I was making roughly $5 a spine. I went out, excited, had order forms. I wanted to make sure I had money up front. I didn’t want to have a bunch of IOUs from a bunch of college students. I made sure I had money up front and built that out and went in front of each one of the classes and announced that I was selling these spines. I sold 80 of them in the first week. That was money upfront, in hand.

I was excited. I was sitting there thinking, “I wonder if I can find the manufacturer of this item?” I went and found the manufacturer, cut out the middleman, the distributor and went directly to the manufacturer. I got that spine model for $42.48. I’ll never forget that number because it was exciting to go from a couple of hundred to several thousand dollars in profit. That opened me up to be able to start my first real successful business called ShopAnatomical.com. It’s still in existence. I still own it 100%. I have a good team that runs that. It has been a seven-figure a year business.

From that, when I got out of chiropractic college, I still did complete it. I started my first chiropractic office debt-free by the profits that I was making off of that business. What I found earlier on though, even though I was working for myself, I still found that I was trading time for dollars. I wasn’t able to increase my income because I could only see so many patients in an hour. I started hiring on some chiropractors to start to work alongside me, so I didn’t have to do all the day-to-day work every day, then started to hire on another type of provider, the medical doctors and nurse practitioners to come work inside of our clinics. We have what is called integrated clinics. We have MD/DC clinic.

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I wanted to expand the clinics. I ended up taking out all the chiropractic services in our offices and only focus on the medical services. We do a special niche in medicine, its non-surgical orthopedics and sports medicine. We focus on regenerative medicines, a lot of prolotherapy, PRP, stem cell, that kind of thing. We took out the chiropractic to build referral networks with outside chiropractors and outside providers. We reach more people for chiropractic than we did before because we went from one clinic to four clinics in an eighteen-month period of time.

I tell you all this story because after I opened up those clinics, we were doing well and there was a lot of cash coming in. Guess what? We had a lot of money that we had to pay in taxes. Writing six-figure checks was not fun and doing that on a quarterly basis. When you own your own business, you have to do that quarterly. Not only do you have to give a painful signature once a year, it’s four times a year that you get that. I was writing those large checks and I was sick and tired of it and decided to start doing some investing in real estate and step away from my business.

We still have those four clinics. My wife and I both own it 100%. Each one of those clinics produces some revenue for us that we invest inside of the real estate. I have about 50 employees in that company and a good CEO that runs things. I like to tell people that I’m playing the Warren Buffett role in that particular business as well as the Shop Anatomical business and then started a company called PassiveInvesting.com, where we’re bringing multiple people that have cash who want to be able to invest inside of these large apartments. Our group buys large $20 million plus apartment complexes in strong, stable blue-chip company markets.

It went from medical background, even before that, selling books to college students to save a buck and to cutting out the middleman to being a chiropractor to pivoting to a more holistic approach to medicine and multiple things, to scaling that business and then going, “I’ve had too much success. I have some taxes that I’m throwing money out the window. Is there a better way to defer or to eliminate or to reduce my taxes into real estate?” which led you to PassiveInvesting.com. Lots of success there, you buy $20 million deals. You’ve done over $200 million deals. Before we get to some of the nuts and bolts of that, I want to learn about Dan growing up. In particular, what gifts were you given? How did that shape how you help others?

As I was growing up, people always ask me, “How long have you been an entrepreneur?” I can’t even remember a day that I wasn’t an entrepreneur, have some itch about me. I don’t remember this part, but my mom always tells me that I started to negotiate when I came out of the womb because the doctor was trying to figure out which cheek to slap first and I was negotiating which one, that kind of thing. I’ve always had my interests in other biz, going door-to-door sales. I remember mowing lawns and doing pressure cleaning and selling candy bars door-to-door. Even when I got a little bit older selling Cutco knives door-to-door and all those types of things, trying to have this itch when I always do something with the gift that I was given.

At that time, I didn’t know exactly what my true gifts were, which things have shifted a little bit. Growing up, my true gift was being able to take something and present it to somebody and getting them to understand that they needed that. Sales was my gift. As I’ve grown throughout the years, I’ve learned that my gift is communication, being able to take an idea and simplify it in a form that makes sense to them and they can understand it. Being able to break things down for them and being able to manage people and then put in systems and procedures and processes in place, which is what you need to have as a great leader and a visionary and a company.

Growing up, you were always either the negotiator or entrepreneur or thinking outside the box, hustling, finding a way to earn a dollar. You moved that into your success as you grew up as a communicator, an educator, salesperson, which at the heart of it is a consultant who teaches and educates good salespeople, which you absolutely are. Especially the way you do the podcasts and the way you do Multifamily Investor Nation, you have a heart of educating, which is great. Dan, what’s the most rewarding part about what you do? You’re an educator. You’re passive investing and you have these businesses where you’re employing people and helping out, you’re helping with health. You have a diverse set of services that are impacting people in different ways. Some of them for their health and medical, some of them for investing in future and retirement and getting their time back instead of trading time for dollars. Maybe share some of the top couple things that you find rewards out of.

It’s hard to break it down because there are multiple levels on several different areas that I do have an impact with what I’ve been able to create. A lot of the things that I’ve been able to create, I couldn’t have done it without the people that are behind me. I have a lot of people that ask me, “How do you get everything done every day? You’re only one person.” I’m like, “I’m not one person.” I’ve learned earlier on that I needed to hire people and delegate certain tasks so I can focus on my highest and best use of my time and the skills and gifts that I have. A lot of entrepreneurs and business owners are like this. My biggest flaw is that I think that I can do everything better than everybody else. Years ago, when I finally came to the conclusion that even though I can do everything better than everybody else, you have to admit your flaws. I’ve admitted that. That is one of my flaws and faults. Instead of trying to get over that, I’ve learned that if I can hire somebody that can do it and I don’t have to do it, it allows me to be able to do other things that I’m better suited for.

CGT 21 | Invest The Smart Way

Invest The Smart Way: There are a lot of moving pieces in a 1031 exchange, that’s why you want to make sure you get a good 1031 intermediary that can help you through that process.

 

Even if that person does an 80% to 85% level that I can do it, it’s still better to allow them to do it so I can focus on other things that allow me to grow and I also have a family. I’m married. I have four children. I have a nine-year-old girl, a seven-year-old boy, a three-year-old girl and a one-year-old girl. I have a busy household as well. I have to balance my time in the business, but I also balance my time with the family as well. Not just with the children but also with my wife. It’s hard to break down and say, “This is the one thing that I feel like I have the greatest impact on or had the major change.” There are so many different levels. If I was to say, the PassiveInvesting.com, as my reason for getting into it was for the tax benefits of it, but if you look back to why there are those tax benefits there, it’s what I like to call a legacy play. I want to continue to invest this into these different types of large apartments to reduce my liability or my downside risk and have that capital preservation to be in a recession-resistant investment and then allow those investments to continue to grow over time.

Since we’re taking depreciation on these assets and we’re offsetting other income, we’re going to be having a reduction in the basis in that property. When we do sell it, there’s going to be that capital gain. If we can continue to 1031 exchange that into the next asset and the next asset until I die, then that goes down to my children and the basis resets to the current value of the property, which is what I call the legacy play because you’re not paying any capital gains on that at all. You’re living off of the cashflows from that investment. For me, one of the things that I enjoy is explaining that concept to a lot of people, to a lot of investors that are in our projects. Them having a light bulb moment going off and realizing that they’re not just investing for themselves, they’re investing for multiple generations down the line. They can have this type of legacy play.

In summary for the readers, if you own real estate long enough and as long as you continue to 1031 and not take what’s called actual receipt, you can defer it using a 1031 exchange. Eventually, we’re all going to die at some point. The government still has what’s called an unlimited stepped up basis at this point. Let’s imagine you bought a deal for $1 million today and in twenty years, you turn that into $20 million over multiple 1031 exchanges. When you die, your heirs will get a stepped-up basis at $20 million, meaning there’s no gain. They could cash out and walk away capital gains tax free and that also includes the depreciation recapture as well, which is powerful. Walk us through maybe little nuts and bolts here, Dan, with how you’ve gone about structuring your deals and how you implement the 1031 exchanges. In other words, are you letting people 1031 into your deals and then you’re 1031 going out? What’s the entity structure with your partners in the way you do this? This is with accredited investors as well.

It depends on who is coming into the project. When you’re talking about a 1031 exchange, interestingly enough, the accredited investor statute doesn’t apply. Even if somebody is not accredited and they have 1031 money because they’re a direct owner into the business, there is no statute that states that they have to be accredited. There is that option for somebody who is selling a property or some sort of asset that is in real estate and they want to 1031 exchange that into one of our properties, we do that. Also, when we are exiting a property and we’re selling it, we’re going to be 1031 it into another property as well. From a structure standpoint, when it comes to how we’re putting these deals together, we do a fairly straightforward equity split structure. We’re doing a 7% or 8% preferred return with a 70/30 split, 70% of that being for the investors and 30% for the sponsorship team.

I’m doing these because I want to invest myself. We always invest alongside of our investors at least 10% of the initial equity that’s required. We’re investing alongside of our investors. We do them on a five-year hold projection. We’re looking for nice, high quality, not the highest quality but high-quality B class and/or A minus assets and great growing strong markets. For example, one of our properties that we closed on was in Raleigh, North Carolina. It was our largest one. It was a $51.5 million project. We’ve raised right at $14 million in under two weeks to be able to acquire that from our investors. We closed that one at the end of October of 2019. We do our distributions right away. We only get into an asset if they can start our distributions after a full month of operation.

What’s the projected return there over the 5 to 7-year hold? Is there an IRR goal that you’re looking to hit?

Every deal is going to be a little bit different, but most of our investments are going to be anywhere between about 15% to 17% IRR on a five-year hold time frame. As far as an annualized return, it’s going to be somewhere between about 18% to 20% annualized return. From a multiple equity standpoint, it’s usually 1.9 to 2X multiple on that five-year hold timeframe.

That’s not even including the depreciation, which is going to offset that income. Maybe call that gravy on top of all those returns, which is going to lower your overall tax burden. Would you walk through a little bit of that for the readers as well?

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The level of the increase in the IRR when you try to bake into the depreciation depends on everybody’s tax classification. If someone is on the lower end of the tax classification, it will be a little lower IRR increase. If they’re on the high end and they’re able to offset a lot more of their income, it can more than double that IRR because they’re able to keep more of that money that they’re making, not just in the property but that depreciation that they get in the property can offset other types of income. I’m not a tax professional. I would encourage anybody reading to make sure they get that advice. There are definitely some ways to be able to offset passive income but also other capital gains that you have, depending on your classification.

Once you sell this deal, let’s say you bought a $51 million. It’s worth $62 million in 5 to 7 years. How do you defer the capital gains taxes? What’s your strategy there? Are you guys doing 1031? What do you typically do once the deal is done there?

We would 1031 exchange the proceeds from that sale into another property. We can’t guarantee that we can 1031 because, as you know, there’s timeframes that are in place and things like that. You have to identify the property that you’re going to be moving within a certain time frame. You have a certain time frame to be able to invest that money once you’ve closed on that property that it’s in. There are a lot of moving pieces and parts, that’s why you want to make sure you get a good custodian to build and manage that piece of it. An intermediary is what they’re called, 1031 intermediary, that can help you through that process.

Do you guys use any cost segregation too, Dan, in the accelerated depreciation to get any additional tax savings when you’re in your deals?

Absolutely. That’s one of the things that we do on every single one of our assets. For those of your readers that might not know what that is, it’s a study that we hire an outside engineer firm to come in and they piecemeal the property down to the sheetrock on the studs and the appliances and the cabinets. We’re able to accelerate instead of waiting on these multifamily assets, the standard depreciation schedule is 27.5 years. With this cost segregation study, we can front load for the first 5 to 15 years to pay on items in the property. We can front load that depreciation to those first five years, which allows us to build and increase the paper losses for our investors in the projects because those losses from that depreciation, we allow them to pass through to our investors based on their equity position in the project.

That’s one of the best ways to create and preserve more wealth is having tax write offs, tax deductions and/or tax deferral. Cost segregation is one of the most powerful ways to do this. Thank you for sharing that. I consider you a real estate adviser, a wealth advisor. Part of the show is bringing on some of the best wealth advisors. The traditional wealth advisors, stocks and bonds, mutual funds, especially with the changes of some of the laws people learning more about investment and real estate, it’s opening up another world of a wealth advisor who can help exactly what you’re talking about with buying multifamily value-add, opportunities with predictable cashflows, opportunities to do force depreciation and get all the depreciation write off and the key is deferring that capital gains tax. The other part of this too has to do with leverage. The ability to take $14 million raised and buy a $51 million deal, which you get the full depreciation on that 51 million even though you only put $14 million in. This idea of leverage, can you speak about that as a way to create and preserve more wealth, Dan?

There are a lot of people that get caught up in what I would call the Dave Ramsey effect of trying to pay down a property or pay something down to the point where they don’t owe anything on it, which might feel good to have no debt on a property. I usually feel good when I can make money or improve my financial position by what I do. There are a lot of people that if they could use some leverage like that, then they can increase their profits from either that depreciation but also from being able to use that money and invest it in other places. My church is one that falls into this trap and many churches across the country do where they have these mortgage burning ceremonies. I saw one on Facebook. One of my friends on Facebook, their church paid off their mortgage. It’s a nice $20 million property and they have no debt on it.

I look at that and shake my head and go, “If I were in that position, I would leverage that and invest the money from the leverage to be able to grow that even more and improve that property and grow the actual church itself.” Most of the time, we get caught up and try to pay something off as fast as we can, but you can leverage it and using what I like to call smart leverage. You’re not going to try to do where a lot of people were doing in 2007 and 2008 where the banks were given 90%, 95% leverage and then you get caught with a debt service issue where you can’t pay your mortgage payments. The bank comes and takes it back. If you can be smart about it, 70%, 75% leverage, then you have that sweet spot of not being worried about trying to lose that capital.

CGT 21 | Invest The Smart Way

Invest The Smart Way: When deciding to invest, always make sure you’re talking to somebody that has enough money to make the decision that you need to make.

 

When our group does an underwriting or an analysis on a property from the financials perspective, we always are stress testing things and doing sensitivity analysis. That property we talked about in Raleigh, we had to get down to 67% occupancy in order to not pay our debt. That property has been online since 2004. Historically, the lowest occupancy that it has ever been was back in 2008 and it was at 93%. When you look at that, there’s a lot of protection when it comes to these large multifamily assets. When there is a downturn or correction or crash and people can’t buy houses, what are they doing? They always need a place to live. They stay and they’ve rent longer. That’s what allows for that capital preservation and allows this to be a recession-resistant type of an investment as well.

Smart debt, risky debt, dumb debt, as long as you’re not taking on too much debt. The actual asset you’re investing in is in a diversified type of deal like an apartment complex, which has lots of units in a location which has a good population and probably good job growth and all of the key things. Especially if you look at the track record of the property, it only went down to 93% and one of the worst economies in the US has faced. At 67%, you’re not going to be able to pay your debt service, so you’ve got a lot of cushions there for you not to be able to pay off the debt. That being said, are you guys taking interest only loans or you’re doing fully amortized? Do you have a plan to pay off some of that? What’s your typical strategy with how long your loans go for? When they come due, what do you plan on doing?

It depends on the projects. Every project will be a little bit different depending on the business plan. All of ours are going to have some form of a value-add component where we’re doing some renovations on the property, whether it be interior renovations or exterior renovations. A lot of that is going to depend on what we’re doing with the property. Because we’re doing those renovations, we want to try to have between about a 3 to 5-year interest-only period to give us that extra cushion. Also, it gives us extra cashflow to be able to distribute to investors.

Whenever you’re doing renovations, you usually have a little bit of a higher vacancy in the property because you’re trying to turn over the units. Your cashflow might be a little bit tight. That’s why you want that interest-only period there so that you can have the interest-only payments on the debt. It’s usually amortized over a 25 to 30-year schedule with a balloon payment in five years or maybe ten years, depending if you’re using agency versus a Fannie Mae or Freddie Mac large loan or a bridge lender of some sort.

You’re going to add value. You’re going to increase the occupancy. You’re going to raise the rents hopefully and perhaps refinance it year 4, 5 or 6 with an even bigger cash distribution and then you keep doing the same thing. Is that maybe what you would do there? At what point do you say, “Let’s sell this one,” versus, “Let’s refinance and keep it?”

It’s a moving process at all times because whenever we finish the value-add play, the renovations might take 12 to 24 months to complete. Once those are completed and the property has been leased back up, that’s the maximum point in time of the return for an investor. We either want to refinance at that point and return some of that initial capital to investors and hold on to it for a couple more years until you want to sell it or we’ll look at it and say, “We’re at the two-year mark now of holding this asset. What can we get for this property if we sold it today?” If we can go ahead and sell it at that moment and go ahead and return the money to investors plus their return and we can exceed those investor returns, instead of waiting the full five-year projection, we’ll go ahead and do that. We can 1031 the profits from that into the next asset, which would be an even larger asset because we have a larger capital gain there. We can continue to do that from one asset to the next.

Question on this little nuance. Within two years, if you’ve done some accelerated depreciation where you’ve segmented certain things to 5, 7, 10 years and especially for the five-year stuff, which are some of the bigger chunks, are you getting hit with that recapture? Are you still able to 1031 that into the next deal?

You can 1031 out into the next deal and that’s what makes it nice. Every deal you go into, if we go from one deal and we sell it in 2 or 3 years, whatever the case may be and we’ve taken some depreciation, when we go into the next asset, the depreciation in that new asset resets. We get another five years of depreciation in the next asset. That’s one of the nice things about that is you can continue to take that and continue to 1031 exchange it and there’s no recapture until you take possession of those proceeds.

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Dan, we’ve had this bull market run for years. At what point do you say, “The prices are too much. We don’t want a 1031. It’s a good time to sell and either A, pay the tax or B, not sell at all and hold on and continue to cashflow?” How do you determine that?

As the managers of these properties ourselves, as the main operator or the syndicator, the sponsor, those are the decisions that we have to make on a regular basis with these types of assets. It’s hard when you’re trying to have 35 to possibly 100 plus investors in a project. When you’re doing some of these assets, we can’t just have a consensus from all the investors and ask everybody what they want to do. Whenever an investor invests in our projects, they’re giving us the full control to make those decisions on that particular investment. I can’t think of any reason unless there’s something crazy going on or something weird politically or something like that as to why I would not want to do a 1031 exchange, unless I couldn’t find an asset that works. You might have to take the hit. There’s going to be an ability to find that next asset and 1031 exchange that money into it.

If you look back at the last several years, the economists have been talking about some sort of a downturn, a correction or something to the economy since 2015. Several people have been sitting on the sidelines and doing nothing. Those people are now wishing that they didn’t because if they would have invested in 2015, 2016 and 2017 and sold assets in 2018 and 2019. In 2020, they would be doing well. For me, it’s hard sometimes to look at it this way. Whenever you look at any type of underwriting modeling, it’s always based on the current market conditions. It’s hard to get into what’s called speculation where you’re speculating what’s going to happen. You have to invest based on what you currently know. I’m personally in eighteen different passive syndications myself. I’ve invested myself into other operators, not just us.

When I look at return projections, I always look at things and I say, “If I invest in this XYZ property with this particular operator and they’re projecting that they’re going to get me a 15% return, but they only give me a 7% or 8% return, would I still be happy if it was in the middle of a recession?” Hands down, every day, I would say yes because anybody else, if you’d ask them that lost money in the 2007 and 2008 crash, if you told them they could have taken that money and invested it in these types of multifamily assets and preserve their capital but then still made 7% or 8%, they would do it, hands down. As a matter of fact, those people would be happy to reserve their capital because a lot of those people lost a lot of their capital that they had saved up.

These types of assets, because of the recession, it allows us to be able to still preserve the capital and produce a solid return, even if there is some sort of a change in the market conditions. The key thing about the underwriting and financial analyzing on these types of deals is that you have to make sure that you have a conservative underwriter doing these projects because I’ve seen some deals where they’re tight. There is no room for error. If there is some sort of correction or downturn, they could get caught. They might lose any money, but instead of 15%, they might get 2% or 3%. We do our underwriting. We have a lot of different room for error and pushing those deals to make sure that if there is some market correction, we could still produce a nice return for our investors.

To that point, a lot of times, you can simplify it in a lot of ways and say, “Where would you like your money instead? What’s the opportunity cost?” In other words, if it’s not in multifamily investing or mobile home parks or senior housing or commercial real estate, passive income with all the depreciation offset with all the cost to build. In California alone, it’s expensive to build. You look at the demographics and you go, “People need a place to live,” where’s a safer place for your money? If you look at that standpoint, hands down, commercial real estate becomes the clear choice for the best risk adjusted rate of return. That being said, some of the wealth advisers you work with whether they be realtors, financial advisors, commercial real estate brokers, syndicators like yourself, business brokers, how are they leveraging your educational platform, your investing platform to grow their business and help their clients who are looking for ways to get a better return on their investments?

One of the biggest challenges with any type of financial advisor or planner is that there is not a lot of incentive for them to recommend these types of investments to their clients. A lot of times, they are not recommended to their clients. We have a few of them that do. What changed it for them and moved the needle for them is they invested themselves, their own money inside of an investment like this first so they can talk firsthand to their clients about the types of returns that they’re getting. A lot of times, your financial advisors have a hard time thinking outside of the box about these types of investments. One of the number one reasons why is because they’re trained to do stocks and bonds and mutual and all these different types of diversified investments outside of real estate, more inside a hedge fund or something like that’s publicly traded instead of doing this.

I want to say this politely but they’ve never, for themselves, had the ability to be able to invest in these types of assets. I had a good friend of mine who’s invested in every single one of the properties that we’ve put together and he’s happy that he did. One of the things that he came to me in the beginning is, he said, “I talked to my financial advisor about these and they told me not to do it. They didn’t know a lot about it. I also talked to my CPA and they didn’t know a lot about it. They told me to keep it in the stock market and make my 7% or 8% that I was getting in the stock market and that’s it.” I told him, I said, “The problem is that you’re talking to somebody that doesn’t have enough money to make the decision that you need to make.”

CGT 21 | Invest The Smart Way

Invest The Smart Way: Put yourself in other people’s shoes and try to see things from their perspective. That’s something that can help you in many different areas and aspects of business.

 

If a person like a CPA and they don’t have the money to be able to make decisions for themselves about where they’re going to put their money, it’s hard for you to go to them for advice when you start to have money to invest for them to make those proper decisions outside of what they’re trained in some sort of curriculum or program or schooling. I always encourage people to continue to seek out somebody who has money to the level that they do, that they’re giving them the proper advice based on where they are in their life because everybody’s going to be different in their lives. I feel like it’s a jaded thinking when you start to think about putting inside of some sort of stock, risk-adjusted portfolio, instead of trying to diversify inside of real estate.

All of my investments, I have none in the stock market, not one. Every single one of them, because I believe in it so much, is inside of the multifamily real estate investments. I have my businesses and there’s investable income and those things, but as far as stocks and bonds and mutual, I don’t do any of that stuff. All of mine is put inside of multifamily real estate because I feel like it has the best risk-adjusted benefit for me from a return standpoint, from the returns of the investments, but also from the depreciation.

If you’re looking to do something, find someone who’s already done it, who’s been there and who’s in it. It’s understandable for some of the traditional wealth advisers if they’re not investing in commercial real estate or haven’t had success themselves. We’re not surrounded with clients who have success doing that. They would be uncomfortable or not sure or be cautious about it. That doesn’t necessarily mean the investments don’t work. If you’re careful on where and how you’re receiving your advice and look at the evidence of, “What’s the track record of the sponsor? What’s the track record of the property? What is the business plan?” that’s the approach I’d take when I invest in commercial real estate property with partners or with people who are passive investors.

Trust the properties, I have to invest in myself and if the numbers make sense and if you trust the sponsor and their track record, then I’m thinking it could be a great investment opportunity. Let’s get into our last question here. With all of the challenges in either the economy or perceived challenges in the economy and news and negativity, lots of noise out there in the business world. As a business professional, as a commercial real estate operator, how do you stay centered in your values and how do you keep from becoming discouraged? How do you stay encouraged? How do you make sure that you’re operating as a leader in your business or in your family? What are some of the steps or habits that you’ve implemented to make sure that, “I’m not going to be discouraged because I have these things in place?”

One of the biggest things that helps me to stay focused and trying to stay encouraged to continue to move forward is my family. I have a wife and four children. One of the things that I would say is one of my daily habits is I sit down and have a cup of coffee with my wife in the morning before the kids wake up. We sit down and we talk about we’re going to do through the day and the week. I bounce ideas off of her and she bounces ideas off of me. We like to have that time before we even get our day started. The days that we wake up and sometimes don’t have the time to do that, I can see that it affects the rest of my day. That’s one thing that I try to do on a regular basis to be able to keep that focus.

I would say that as far as core values are concerned and staying the same true to those, I try to put myself in other people’s shoes and try to see things from their perspective. That’s something that helped me in many different areas and aspects of business because I want to make sure that I’m treating people the way I want to be treated. I feel like whenever you put yourself in their shoes, you can see it from somebody else’s perspective. Not only do I do that from our investors or from our customers or patients and other businesses that I have, but I also do that when we start to make decisions on how we’re going to do things.

There are two different litmus tests that I do to make sure that we’re doing things the right way when it comes to implementing a new idea or moving forward in a different strategy or something like that and I call it the newspaper test. Some of you may have heard of this before. I pretend that anything that we’re getting ready to do, whatever we do, if we can put it into a headline and the front page of the New York Times, would people read that and go, “That makes sense. I understand that,” or would they look at that headline and go, “I don’t want to be a part of that company. I want to be a part of that person?” That’s one test that we do. Another one which is similar to that is I call it the conference room test. You’re sitting in a conference room and somebody’s coming and asking you how you do a certain thing, whether that new thing you’re going to implement or try to do.

You lay it out on the table for them. Across the table from you is some sort of investigator. For my clinics, it was always like a Medicare fraud investigator that I was pretending that I was talking to or in this business, a securities attorney or a securities investigator coming in and investigating how we’re doing things. If I can explain it to them and I can see them going, “That makes sense. The story makes sense,” then I feel like it’s okay to move forward. If I tell the story and I feel like they would sit across a table, cross their arms and look at me and go, “I don’t think that’s good.” We don’t do it. Those are a few little tips that I do on a regular basis and those litmus tests I use day in and day out on about every decision that we make, to make sure that the decisions that we do make are being made for the right reasons.

Version one is always better than version none. Start and do something. Click To Tweet

As we get our own space, we tell ourselves the story, we’re close to the details that it makes sense to us but from the outside perspective, you would want to say, “If I’m in their shoes, how am I steering this?” If there are any red flags, it’s how to make sure that we’re not stepping over certain areas that could harm our investors or partners or brand or integrity. Dan, I want to thank you for being on the show. Where can our readers find you? Any last thoughts?

If you’re interested in jumping on a phone call with me or have some further questions with me, you can certainly shoot me over an email at Dan@PassiveInvesting.com. You can also visit our website and find more information about us at PassiveInvesting.com. There’s an investor forum there. If you’re interested in jumping on a call with us to discuss your investment goals and see if our group is the right fit, we’d love to have the opportunity to be able to do that with you.

Anything that you want to say to encourage the business professionals reading our discussion?

The biggest thing from a takeaway point that I would say is a lot of times when you start to learn about a lot of these new strategies for investments, you could start to get overwhelmed. You get this paralysis by analysis in place. A lot of times, it can be overwhelming. One of the things that I always recommend is starting out and doing something. If you’re going to write anything down from this entire podcast, version one is always better than version none. That doesn’t mean you stop at version one. That’s the reason why you have an iPhone 11 because there are different versions that come out all the time. If they never created the iPhone 1, there would never be an iPhone 11. You have to think about that and go, “I need to start and do something.” Start with that version one of whatever you’re going to do to continue to implement things and improve things so you can get to that version 2.0.

Dan, thank you for being on the podcast. Also, I want to thank the readers for reading another episode of the show where we believe most high net worth individuals and those who help them struggle with clarifying their capital gains tax deferral options. Hopefully, you learned a little bit about how to invest in passive or active commercial real estate and with Dan’s overview of multifamily investing as well as depreciation offset, cost seg, and the 1031 exchange. These are great ways to create and preserve your wealth. Make sure to reach out to Dan. He can help you with that. Until next time. Remember, not having a clear plan is the enemy and using a proven tax deferral strategy is the best way to grow your wealth.

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About Dan Handford

CGT 21 | Invest The Smart WayDan and his wife, Dennae, along with their 4 children (3 girls and a boy) and standard poodle, reside and work in Columbia, SC.

Dan Handford is one of the managing partners with PassiveInvesting.com which is a national passive apartment investing firm based on the Carolinas. He has led his apartment syndication company to acquire 2,000+ units with a portfolio valued over $220mil in just under 24 months.

He is also a passive apartment investor himself in 4,500+ units in 21 different syndication investments located across the Southeast USA and Texas.

Prior to getting started investing in real estate, Dan had an extensive background in starting multiple seven-figure businesses from scratch including a large group of non-surgical orthopedic medical clinics located in South Carolina.

Dan is also the founder of the Multifamily Investor Nation (#MFIN) where he provides free multifamily education to a nationwide group of over 26,000 members. The #MFIN has 50+ meetup groups across the country that meets on the first Monday of every month.

He also has one of the most popular apartment investing podcasts on iTunes called “Multifamily Investor Nation” where he only interviews active multifamily investors that have closed a deal in the last 12 months. There is no fluff on this multifamily podcast and only getting down to the nuts and bolts of deal sources, financing, structuring, investor relations, closing, due diligence, etc. Go to www.MFINPodcast.com to subscribe.

 

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