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BiggerPockets Podcast 531: Can’t Find a Deal? Here’s How to “Make a Deal” with Daniel Harvey

BiggerPockets Podcast 531: Can’t Find a Deal? Here’s How to “Make a Deal” with Daniel Harvey

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Real estate zoning allows those with a keen eye, creative mind, and delayed gratification to transform a once-vacant warehouse into a massively profitable multifamily deal. While this isn’t as easy as the simple buy-and-hold strategy of real estate investing, it can generate far more profit, equity, and appreciation than buying a single-family home or even multifamily buildings outright.

J Scott joins David Greene to talk with Dan ‘The Real Estate Man’ Harvey, who has been using this multifamily conversion strategy for years after he realized how many vacant commercial properties were being under-analyzed by investors. The tactic isn’t too complicated: find a commercial property with the right zoning, convert it into multifamily housing, stabilize, refinance, and do it again! Dan says that this strategy is a slight off-shoot of the ever-popular BRRRR strategy, but with FAR more upside.

Even if you know nothing about zoning, construction, or analyzing big deals, Dan will help you navigate how to do your first multifamily conversion in this episode. He even gives a direct callout to anyone who wants to help him and learn from his experience!

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Listen to the Podcast Here

Read the Transcript Here

David:
This is the BiggerPockets Podcast show 531, where we cover owning the zoning, finding a property’s highest and best use, and why you don’t want to ever forget your online passwords with Dan The Real Estate Man One Harvey.

Dan:
Even investors who are not in the Philadelphia area can kind of take away from this strategy is looking at a property and trying to figure out what is the best use for this property and having a more sophisticated view of how they’re looking at properties is, but it’s about having multiple tools and your tool belt.

David:
Welcome to the BiggerPockets Podcast, the show where we teach you how to invest in real estate by bringing on top performers, expert investors, and just plain regular people, where we cover the tactics and mindset that go into being successful in real estate investing and show you that you can do it if you also take consistent action. I am here today with my co-host Brandon Turner. We just got back from BPCON. Brandon, what’s been… Oh, wow, did you shave your beard?

J:
You know if I had a nickel for every time somebody confused me with Brandon Turner, I would have just made my first nickel. Nah, I’m just kidding. I had been growing it out for about three days now. It looks good, doesn’t it?

David:
Oh, it looks amazing-

J:
So amazing.

David:
… Yeah, nice you got to get the top half like Brandon’s got a good balance right between the top and the bottom.

J:
Yeah, and people can’t see me if you’re not on YouTube, but trust me, I’m stroking the beard as we’re doing this whole interview.

David:
Yeah, that’s awesome. So, today I’m here with Jay Scott, BiggerPockets OG, you’ve written The Books on Flipping Housing, The Book on Negotiating, The Book on Estimating Rehab Costs. Is there anything I’m leaving out there?

J:
There’s another one. What’s the other one? Economic Cycles. Yes, the economy. Good one. And I’m here with David Greene, who’s written the books on Building a Real Estate Business as a Real Estate Agent, Building a Real Estate Agent Business, The BRRRR book, Long-Distance Real Estate Investing. Am I missing anything?

David:
No, that’s pretty much it other than the stuff I do outside of investing, but we don’t need to talk about that today. On today’s show, we actually cover a lot of BRRRR stuff. So we get into some creative ideas of how to use the BRRRR method outside of just cosmetic rehabs, which is how most people tend to understand it. Dan Harvey is really one of the front runners at looking at properties, figuring out a way to improve their use and then using BRRRR principles to move forward with executing the deal. And he’s doing it with tremendous results from everything I’ve seen.

J:
Yeah, and here’s the thing I really love about the stuff Dan’s doing. Not only is he doing stuff or teaching stuff that’s useful for people that want to get into the big development and want to do the rezoning from residential to commercial, but he’s doing stuff that can be used by any level investor, whether you’re doing single-family, whether you’re focused on duplexes, whether you’re focused on multifamily or commercial, whatever you’re doing, his style of investing in the niche that he’s found is a way for you to improve and up-level your game.

J:
In fact, what he’s doing is an opportunity for you to add. I like to use the term adding an arrow to your quiver. It’s basically something that you can take and you can learn. And then maybe 95% of your deals, you’re going to be doing your normal deal, but then every once in a while you’re going to come across a deal where you can take the techniques that Dan talks about here. And you can use that to really make yourself a ton of money or a ton more money than you would have made on the deal otherwise.

David:
Yeah, and I think this is extra relevant today, where the methods that we have traditionally used to find deals, which was like, find an area where the seller was in distress, offer less than it’s worth, go fix it up. Those opportunities aren’t out there like they were at one point. There’s a new evolution that we all have to take as real estate investors, where we learned to look at a deal from different eyes and this concept of highest and best use, what is the best way this property could be used? And what would I need to do to get it from where it is now to where it is, is in my mind, the biggest pivot that every real estate investor needs to make, Jay, is that similar to how you see it.

J:
Yeah, absolutely. We all talk about getting to be the absolute best at the thing you do. And we all need to be the best at whatever we’re doing, whether we’re flipping houses or whether we’re building ground up commercial properties, whatever it is. But at the same time, we need to be creative and we need to be able to find different solutions to the same problems that we see every day. Just because you and I are doing the exact same thing and we’re both experts, if one of us is more creative at that thing, we’re going to find solutions that the other doesn’t find and that’s ultimately going to make us more money.

David:
That is a great way to put it. I should have just said that. Finding different solutions to the same problems that we’re facing.

J:
Well, that’s what you get when you get confused for Brandon Turner. You’ve got to come up with those great nuggets.

David:
All right, Jay, that’s all I got. You ready to get into this thing?

J:
Let’s jump in. I want to hear more from Dan The Man, Harvey One.

David:
Dan Harvey, welcome to the BiggerPockets Podcast. How are you today?

J:
I’m doing great. Thanks for having me guys.

David:
Yeah, so apparently you met both Jay and I at a Dave Van Horn event in Philadelphia. And we didn’t remember of course, because that happens all the time. So thank you very much for joining us.

J:
Are you kidding me? I remembered. Dan and I are best friends.

Dan:
Thought you wanted a bus.

J:
David, maybe you have a bad memory, Dave.

David:
I’m the only jerk on this podcast right now. That’s probably true. But I do remember now, Dan, like you jogged my memory and I remember putting a water bottle down in between our chairs and I’m pretty sure you were sitting either right next to me or one person over because I’m remembering now. You have a very strong jaw line that really sticks out, so [crosstalk 00:05:26] for that.

Dan:
Thank you. Look at that. Thank you. I’ll take that.

David:
So Dan, you are doing some pretty incredible and creative stuff in Philadelphia that I love because it really encapsulates that spirit of, if you can’t find a deal, you got to make a deal. You’re not saying, “Oh, it’s too hot. The market’s too hot.” You’re sort of in my mind, one of the front runners, that’s out there taking a new level of creativity and ambition into real estate investing. And I’m really excited to talk to you today to get some insight into what you’re doing. Not just so other people can do what you doing, but what I really hope is that we sort of unlock the key of creativity so that we all start looking at deals in a similar way that you do.

Dan:
Great.

David:
So, why don’t you start off by telling us what type of investing you have traditionally been doing? What problems you encountered and why you’ve switched into this new model?

Dan:
Sure. So, as a bit of a background, prior to real estate investing I worked for a company called SEPTA. That’s our regional transportation authority that is around Philadelphia and the surrounding counties. So, I started investing more seriously around 2010. So, that was shortly after the real estate collapse of like ’08. And so I came in at a time where there was an abundance of bank-owned properties. And so it’s kind of interesting now to kind of look back at it with all my experience now and realize that at that time banks were the wholesalers. There are almost no wholesalers at the time because banks were selling properties at wholesale volumes.

Dan:
So, I’d say for the first three, four years, I only purchased bank-owned the properties and just to give people and an idea of what that market was like, you would have bank-owned properties listed on the MLS. You could go through, visit them, take your time, think about it. And you could make a low-ball offer and still get the property. Now, we all know that’s not going on now, but it was that much inventory of bank-owned properties then. So that’s where I started. I started off in single-family properties because that was just the low-hanging fruit. I eventually moved into buying triplexes. And so that was going really well. And I stumbled into commercial real estate.

Dan:
Funny story is I was rehabbing a triplex and this was about 2014, if my memory serves me right, and this little old lady comes out of her house and she walks over to me and I’m working on a perhaps she’s like, “Do you think you would want to buy my building?” I’m like, “Imagine this happening now.” And this is a five unit building. And I was so accustomed to buying vacant properties and her property was occupied. It was a little bit… It was outside of my comfort zone. I actually almost told her, no. In my mind, I’m like, “Nah, I don’t really want to.” And so that was my first… I did wind up buying that property, but that’s how I got into buying commercial real estate.

J:
So you were buying single-family and then you got into commercial. What is kind of your focus today? So what are you doing differently than 95% of other investors out there that’s making you successful today? Because today’s a really tough time for a lot of us to be finding deals, to be making money, but you’re still doing it. So, what are you doing differently today?

Dan:
Sure, sure. So, what I’m doing differently. So right now everybody knows about the burst system. That’s the low-hanging fruit. And when I started, there was no BRRRR acronym, but that’s what I was doing. So I would buy a property. I would rehab the property. I would stabilize it. I would rent the property and then I would refinance. So, fast forward right now, and everybody is being taught that property. I mean, he’s being taught that strategy and most people are starting at the single-family stage or maybe duplex two, four unit. And in my opinion, what that’s done is it’s driving up the cost of these properties because you have more people utilizing the same strategy and now having more capital because you have a lot more hard money out there, more capital than capital that was out there four to five years ago.

Dan:
So what I realized is I used to be able to buy vacant multi-family properties, no problem. I could buy six unit building vacant. I could buy it bank-owned existing. Around 2017 that started to change, banks stopped selling properties at any discounts, even if they were vacant, even if they have problems, they started selling them at retail and agents were selling the upside. And so I said, “Well, okay, well this doesn’t work anymore. I can’t BRRRR this.” But I realized that there was a lot of old inventory of large properties that had the size where they could be converted into multifamily properties. So I started thinking, well, what if I buy the property before it is a multifamily property? And so that’s what gave birth to the strategy that I’m utilizing now, which is the multifamily conversion strategy.

J:
Can you give us an example, just walk us through one of the deals that you’ve done, where like maybe a simple deal or something on the smaller side where some of our newer investors might be able to look and say, “Ah, now I see what he’s doing. Maybe I can do that myself.”

Dan:
I see, okay. Hmm, a simple deal. I don’t know if any of my deals is simple. I’ll give you a [crosstalk 00:11:32].

J:
Well, if you don’t have simple words, I’ll take a less simple one, big guy.

Dan:
So, I’ll give you one of the first ones that I’ve done. I think that people will understand it as I walk through it. So, I purchased a mixed use building. It was commercial on the first floor and there were two apartments on the top floor. This building was on a mostly residential street. The first floor commercial was probably 4,000 square feet. It went from edge of a lot to the edge of the lot, straight through. You would not be able to find a retail tenant that would want a 4,000 square foot commercial space on this residential block. It just wouldn’t make sense. And you wouldn’t be able to really get the most use out of it and the most income out of it. So what I did was, and this was, again, this was a by right, meaning I didn’t have to get a zone invariance or anything like that. I was able to-

David:
Let me jump in real fast there.

Dan:
Sure.

David:
When you say by right, you mean you didn’t have to go to the city and say, “I’d like the zoning changed.” It was already allowed to be used for the purpose that you wanted it to as well as the purpose it was currently being used for, right?

Dan:
Yes. So, that’s correct. So, when I say by right, again, that means that you don’t have to go and you don’t have to go in front of a zoning board. You don’t have to get a variance, meaning you’re doing something outside of what that zoning code actually does-

David:
Allows for.

Dan:
… Allows for. So, what I did was based on that zoning classification and based on the square footage of the lot, because at least in Philadelphia, the number of units is not based on the building size, but the lot size. I was able to put five apartments in that building by right and one commercial space. So, I subdivided that 4,000 square foot commercial space into three apartments and one commercial space. I purchased that building for $70,000. And see here is the magic of the strategy is because the building had that large commercial space that most investors would not find desirable. They sold it to me for a cheaper price.

Dan:
And so I rehabbed the property. The rehab cost me roughly $250,000. And then the property after I had the five apartments in the one commercial space appraise for $630,000. So, I was able to do a refi cash-out. It was a substantial refi cash-out and then the property still cash flowed well.

J:
Yes. So, I know we hear this term in real estate all the time, highest and best use, highest and best use, figure out what the property is highest and best uses. And that’s basically what you’re doing. You’re making money by buying property that the previous owner or the owner before them, or maybe every owner before them was using for some purpose that made sense to them but wasn’t necessarily the highest and best use. It wasn’t the way to maximize the value and the income and the profit from that property. And what doing is you’re starting from the end, you’re saying, “What is the highest and best use of this property?” And then you’re following the strategy that will bring the property up to that highest and best use so it can make you the most money.

Dan:
That is a very concise way of thinking about it. Absolutely. And this is where even investors who are not in the Philadelphia area can kind of take away from the strategy is looking at a property and trying to figure out, what is the best use for this property, and having a more sophisticated view of how they’re looking at properties is, but it’s about having multiple tools and your tool belt.

David:
So, what I like about what you’re doing is it still the BRRRR method? You are still rehabbing the property, but the listener shouldn’t assume that rehab is always cosmetic. Like Jay said, you’re making the property operate at its highest and best use. Now, if it’s a single-family house, if you make it much prettier, that makes it worth more, that is its highest and best use. But when you’re talking about income producing properties, like what you have, sometimes it may be cosmetic, sometimes it may be a mix of cosmetic and practical. So you’re able to generate more revenue out of this property than somebody else would have, that just looked at it in the sense of, well, this is what it’s being used for now. That’s what I really want people to notice is, this is what real estate investors do is we look at it and say, “Well, this is what it is. I have a vision for what it could be. How do I execute that vision?”

David:
And what you found was this awesome loophole where you didn’t have to go to the city and figure out how to get them to agree to rezone it. It was already allowed to be used for the better purpose. So you avoided all the red tape, red tape that some of the other competition you’re working with avoids the deal because they assume I got to go get a zoning variance. This is going to be horrible. It’s going to be months and months of time before I can even start the rehabilitation. And during that time who’s going to pay for it? And so these properties just sit there with no one using them.

Dan:
Absolutely. And I would add to that, that it’s a niche. It’s a niche strategy, which I like. I like strategies that not everybody necessarily understands or knows. So it gives me a leg up on all of my competitions because I’m able to look at a property and where they may see a single-family property, I see a four unit, I see a five unit. So where they may think that is overpriced, I think it’s priced just right. And so I may be able to pay asking price or maybe even a little bit above asking price because I’m looking at it for what it will be and not what it currently is.

David:
Yes.

J:
Yeah, I was just going to say, “Here’s the thing.” I mean, you call it a niche strategy, but when used correctly, it’s not really niche. So, you may be doing this for a lot of properties, but there’s no reason why David or myself or anybody that’s listening out there, can’t do their kind of their bread and butter. Maybe you flip houses and 95% of the houses you flip are just straight flips or maybe you do rentals. 95% of the deals are straight rentals. Maybe you do multi-family, 95% of the deals are multi-family. But then every once a while you come across this deal where you look at it and you say, “Hey, I could turn that single-family into a duplex. I can turn that that multifamily into a mixed juice. I could turn that shopping mall into a multi-family or a warehouse.” Whatever it is.

J:
And so it doesn’t have to be, hey, I’m going to do what Dan’s doing. I’m going to follow that as my main strategy. This is just another tool in your tool belt, that if you come across the right property at the right time, you have now an additional opportunity that you may not have had before. Is that a good way about it?

Dan:
That is an excellent way. And that’s, again, I mean, as you guys know, that’s how you make money in real estate, being able to analyze the deal multiple ways. And so that way you could even give multiple offers. I mean, if you can get the offer in and you can do it simple flip, and that works for you, fine. If you need to make a higher offer and you turn it into something else, duplex, triplex, quadplex, fine. But you have these different options rather than just walking away from a possibly good deal.

David:
This might be the most important podcast we put out in 2021. And the reason I think that is, with what we’ve seen from COVID, there’s a lot of traditionally commercial properties that are having a very hard time finding tenants because people want to work from home. The workspace itself is changing. And I think what the lazy investor does is go, “Oh, I’m just going to wait and it’s going to be a blood bath. They’re going to have all these vacancies and I’m going to wait for the price to go down really low.” And that’s how they win as they think they got a lower price. But the reality is it’s the creative person that’s going to go and snag that deal and say, “I will repurpose this for what people want real estate to be used for now.”

David:
And we saw like, we work with sort of an experiment in that that didn’t go very well, but it was the front runner in a new way of thinking. And I think Dan, what you’re getting at here is what the listeners of BiggerPockets need to understand is the landscape is changing, but that doesn’t mean it has to be bad. This is opening up all kinds of new opportunities. And you’re one of the first people I know of, that’s doing it at a high level. So, give us an idea into your mind when you look at a property, what’s the angles and what are the steps that you’re taking to figure out what a better use for that property would be?

Dan:
Sure. So, I mean, the first thing that I’m looking at is, well, what is the zoning of this property? How many units will the zoning of this property allow me to put into the property? What sort of income will those units give me based off of the rental income that I’m estimating for each unit, and then what value will I get based off of that income… I mean, I’m going through a lot of steps but this is kinda how I think about it. And then can I be all in to this project at about 65 to 70% of that after-repaired value?

Dan:
So, a lot of this strategy, this is built on BRRRR fundamentals. So if you understand BRRRR, it uses those fundamentals, but this is about marrying those fundamentals with highest and best use as Jay was talking about, but also understanding the zoning codes in your locale, in your local area. So when you marry those, that’s how you’re able to create great opportunities, because I believe you’re probably looking at the deal with much sharper eyes than a lot of other investors.

J:
So, let’s say I find a property and let’s say it’s a, I don’t know, let’s say it’s a six unit property and I’m thinking, okay, I want to know what the highest and best use of this particular property is. It’s on maybe a big lot something, oh, maybe I can get more units, but I don’t know. Or maybe I can put commercial there, but I don’t know. What’s the first step somebody should be taking, or what’s the first question somebody should be asking to determine what is that highest and best use? You mentioned the zoning, where do I get zoning information? Who do I talk to? What do I find it? Where do I find out what a particular zoning code means?

Dan:
Sure. So most cities now have an online presence. Most of them post their zoning for their properties. And most of those tell you exactly what you can do. So, this takes a little late work. So you have to take some time and learn what you can do. You could also just call the city, but it’s probably much easier to just go find it online, take some time and read through it. And then if you have questions about that, then you may want to reach out to a local zoning attorney just to get a clear understanding if it’s not very clear. I will tell you that the zoning rules, at least in Philadelphia is pretty plain English. You don’t need to be a lawyer to understand it.

David:
So, give us an example of what the different Philadelphia designations are and what they mean?

Dan:
Sure. So, they’re two major zoning classifications that are going to allow you to build by right again, which means that you skipped the variance process in the zoning board process is RM-1 and CMX-2. Now, there are other designations, but these are the designations that your average investors are going to find the most of. And the RM-1 designation allows you to build purely residential units by right. And the CMX-2, that is a commercial mixed-use zoning. So, it has a retail component as well, but you’re allowed to build multi-family also.

J:
Yeah. And the zoning can get like, it can get pretty nitty-gritty. I was actually looking at a few months ago with a couple of friends at buying, and this is going to sound crazy to some people, but I grew up in Maryland. This was actually a thing. We were going to buy a snowball stand. And literally the snowball stand was making a million dollars a year in gross income. And tiny little stand on a corner of a very rural area but just did tremendous business and we’re going to buy it.

J:
And the price was a little bit high and we’re thinking, okay, well, look, we’re selling snowballs now what’s to stop us from like selling food and selling tea and selling ice cream. And I mean, there’s so many opportunities that we can basically do to boost the income, make a ton more money and make it worth the purchase price. Well, we looked into the zoning and what we found was there were literally zoning rules that said, “This can be a snowball stand.”

J:
You’re allowed to sell Christmas trees between Halloween and December 31st. But basically, those are the two options. You can sell snowballs or Christmas trees. You can’t sell tea, you can’t sell water, you can’t sell ice cream. And so this kind of blew my mind that like, literally at some point, somebody must have challenged the zoning laws to get this snowball stand grandfathered in or approved or something. So, it just goes to prove that zoning can actually be pretty crazy and complicated. To use the opposite, just the kind of the other extreme. I do a lot of work in Texas. I do multi-family in Texas and in Houston at least, it might be all of Texas, but at least in Houston, there’s essentially no zoning.

J:
So you can go to downtown Houston. George Bush’s farm is in downtown Houston. You can build a strip club next to a high rise, next to a single-family, next to a snowball stand in downtown Houston. And you don’t have to have it approved. And so really the zoning thing is going to be based on where you live and what the laws in your particular area are. And not only can it be confusing, but if you find a good place where the laws are favorable, it probably gives you a lot of opportunity that you might not have another locations.

Dan:
Absolutely. I’m not going to ask how you found out exactly about the strip club part, but.

J:
I’m making that as a joke.

Dan:
I know. I’m just joking-

J:
I assume. I assumed.

Dan:
I’m just… Yeah, so again, a lot of this, it’s going to take a little leg work, but a lot of times that’s where the money is. Is doing some research, finding out how to create the opportunity. So if Texas has that opportunity, then that sounds like a great place to maybe go buy some land or buy a multi-family property and build on it. That’s another actually opportunity I use and I use in Philadelphia, it’s sort of a value play mix where I will buy and existing multi-family.

Dan:
But again, based off of the zoning, let’s say for instance like that building I was just telling you about which was my first commercial building it, when I bought it, it had, it had four apartments and one commercial space, but the zoning allowed for seven apartments. So, I built another apartment thereby increasing the income, thereby increasing the value of the property. So, there’s a lot of ways that these ideas can be utilized. It’s just sort of opening up your mind to these possibilities in, and just being open to looking at things a little bit differently.

David:
So, let’s talk about the deal that we were discussing before we started recording your… You have this vacant land. And I really like what you’re doing is you’re actually finding a way to generate income from the land before you start building. Can you walk us through that deal from how you found it, where it’s at now, to where it’s going?

Dan:
Sure, sure. So, one thing I always talk about is networking. Networking is so crucial to real estate. It’s crucial to business period, but especially real estate. So, I got a lead on this lot. It was from the agent that had enlisted and I went to go look at it. The lot itself is 17,000 square feet. It’s actually half a block. It is a very unique lot. If you could imagine it… And it’s walled all the way around like thick cobblestones or the walls maybe 10, 12 feet high and has a concrete base and it has big doors that open up, kind of like this here. So, the idea when I saw the lot based on the zoning, I realized I could build 44 units there by right. And that’s what I’m actually doing.

Dan:
I’m going through the process. We’re in the final stages now. But while I’m going through the architectural phase, I wanted to find a way to sort of offset my costs. And so I was thinking to myself, well, how can this property be utilized? And David, you actually mentioned something that I thought about first prior to renting it to tow truck company. I thought about having it as an open air event space, where people could have events. It was certainly large enough to have any kind of event that you might’ve wanted. It was very secure because it’s walled in, but then COVID hit.

Dan:
It kind of was like, “Well, it’s not probably not the greatest idea right now.” So that’s when I said, “Okay, well, what else could this be used for?” And I said, oh, well, you can store cars here.” And so I reached out to some automotive shops and found a place that needed somewhere to store their cars while they were waiting to work on them. They also tolled cars too. It was a perfect marriage. It’s really simple. They pay for everything. They cover all the maintenance, shoveling everything and they pay me rent.

David:
And-

J:
That’s awesome.

David:
… while that’s happening, tell me about what you’re doing to prepare for these 44 units. How much detail can you give us of, did you hire an architect? Were you involved in the drawings? How did you find these people that came up with the idea?

Dan:
Mm-hmm (affirmative). Sure. So, yeah, so I hired an architect, kind of went back and forth with which way I wanted to do the project. Another route I could have went was to subdivide that lot to maybe 10 separate lots or 12 maybe, and do 12 triplexes or something like that. But I decided to do one large building. I think it makes more sense. And it created a larger value base, reached out to an architect here that does drawings on that level, larger multi-family projects. Obviously, we first started talking and we talked about how we wanted the property to look and fell, wanted it to somewhat blend in into the neighborhood.

Dan:
It is in the middle of a residential neighborhood. How do we not make it just stick out like a sore thumb? It’s a really established neighborhood, so we didn’t want to go ultra modern. So what we did was try to take some of the features from the homes around it and blended into the property, make it look like it’s been there. Obviously, people will know it hasn’t been, but make it look like it’s been there. And it’s been a fairly time-consuming process. I think we’ve been in this for about over a year, year and a half, but we’re getting close to the end of the process. It’s actually with the city now for the final approval.

J:
That’s awesome. Let me ask you a question. So we had the… And I’m asking because I run into this and I know a lot of other people run into this. I had a property a couple of months ago that I was looking to buy, would require us to change the zoning to get it to the highest and best use. And it was an auction property. So basically I was going to have to commit the day I bought it. I have to put down the full purchase price, not even earnest money, the full purchase price. And then if we don’t get the zoning, well, you’re kind of in a bad spot because you can’t do what you want with it.

J:
So, what do you think about, how do you recommend other people think about when to take a property and go by right? And as David pointed out, when we say the word by right, it’s by not BUI. I know a lot of people were probably thinking buy, like you buy something, but you have the right to do something already. So, when do we go with the by right versus when do you try to change the zoning and go through that whole process, which can be long and risky and time?

Dan:
Sure. I think it depends on the investor. And it’s obviously going to affect the price because if I need less, I’m just going to grab a number. If I need 20 units to actually make this deal work, you don’t know when you go to get a variance and I don’t know if anybody has gone through the variance process, but just so people understand, you have to present your project generally to the community, let them see it and they vote on it. And then you go in front of the zoning board and let them see it.

Dan:
Very rarely I’ve seen are there no or are there no changes. Are the changes in the look? But generally speaking, it’s normally a change in how many units. It’s a change in the density. And so you have to figure out, okay, well, at what point is this not going to make sense? And I guess I would buy it at a price where it’s almost, it is a no brainer. So if I could only, if I’d had to stick to the original zoning limitations, I could still make money or I could at least still get rid of it.

Dan:
So, that’s the way I would look at it. I know there are some investors that are much more risk takers than me, and maybe they have a different way that they look at that. But I feel like only with the by right projects where you know, like I knew going in that I could do 44 units. And I never had to present to anyone. It’s just what I could do. So, I could build my costs around that.

David:
You know one thing I want to know about is with this 44 unit, are you doing all the analysis yourself? Did you run all the numbers and come up with the end result? Did you have a person or a partner or someone that you leveraged that out to? There’s a lot of moving pieces from managing contractors to building this thing, to getting plans approved to the architectural design. How involved were you specifically and on this stuff you weren’t involved in, how did you find the people that were going to help with that?

Dan:
Sure. I believe in having a brain trust. Having people you can reach out to who are smarter than you. This is important. You can’t be great at everything. You have to be honest with yourself. You can’t be great. And quite honestly, I’ve never done a project of this size. So, I reached out to someone who knew how to do this forward and backwards. And I paid them. Here’s what I’m thinking about doing, let’s walk through some exercises, show me some things that I should be thinking about. What are some pieces that I may be missing and I’ve taken courses on underwriting commercial deals, but this is real money at stake. So I don’t want to just be… And this costs are not small. So I want to plug into somebody who knows exactly what to look for. So that’s what I did. I leveraged my relationships and quite frankly, I paid for it. So that way, I mean, I’m getting exactly what I need.

J:
I think you’ve hit on a really important point here that a lot of us, we kind of stick within this one thing we’re good at. I flipped houses forever, and David has done BRRRRs forever and also done flips. But we tend not to venture out of our comfort zone because we feel like we don’t know what we don’t know. And you’re kind of in the situation where anytime you’re looking for highest and best, that means you’re going to be doing something different than what you did on the last project and the project before and the project before, because the highest and best is rarely ever going to be the same thing as it’s not going to be consistent.

J:
And so you have to get really good at basically saying, “I don’t know.” And then going and finding somebody that does know and somebody that you can partner with or somebody you can work with. Can you talk to us about how you, one, how you find those people that may be really good at something you’re not good at? And two, what does that relationship you generally build with them? Is it a partner? Is it a mentor? What should we be thinking about when we need to go into a situation where we’re doing something new for the first time?

Dan:
Yeah, so I think you always should be looking forward. So, I’m building those relationships even before I need them. And I knew at some point I was going to get into doing these larger projects. So, I want to build those relationships early and generally how I’m working, how I’ve worked with people so far is as my mentor, as strictly coaching. Now, there are some people that I would consider partnering with, all depending on their participation in the project, but generally speaking it’s a coaching sort of manner.

Dan:
And then the other thing that I had mentioned earlier, and this comes from networking, how do I meet these people? I network. How do I get in front of people? Thankfully doing things like this, sharing information, bringing volumes of people, you’d be surprised what happens when you bring value first. And it’s something that I speak about all the time when you’re going to these RIA’s, when you’re going to conference, find a way when you meet someone, especially somebody that you may want to work with, don’t ask for it. Don’t ask for something first, give something for is. Find a way that you can be helpful to that person. And I feel that that builds great relationships.

David:
Can you give us some examples of ways either that you, or that maybe when people come to you and they see that you’re making moves and they want to get into your world? It’s easy for us to say, “Yeah, they went the wrong way.” But what are the ways that you wish they would have approached you as specifically as you can so our listeners have some sort of ideas they can work with?

Dan:
Sure. So one thing just keep in mind I’m a human or I’m just not a real estate guy. Come up in and say, “Hello, how are you doing? How are things going?” And I’m sure you guys get it a lot, which is walk up and start unloading their problems. And it’s like, “Hey, I got this property. It’s not going.” You didn’t even introduce yourself. I don’t know your name. It’s a really entitled way to look at things. I have to figure out where you went wrong. And I don’t know you, I got to stop and try to answer your question. So just treat people like their human beings.

Dan:
Realize that every time you approach someone, it’s not going to necessarily work out. I can’t help everybody. You can’t help everybody. That’s just realistic. We run businesses, we have families, we have a regular life. So there’s going to be limitations. And I would say lastly, don’t be cheap. If you people’s time experienced sacrifice failures, like that’s all worth something. Not that everybody’s charging for everything, but it shouldn’t be an expectation that you’re going to do something for me for free. And I don’t know you from anywhere. So I think a lot of it helps.

David:
That’s funny because there’s a problem someone’s been working on for three months and they think you’re going to solve it in three minutes when they come to just say, “Here’s what I got going on.” And that’s the first time meeting them. What about you, Jay? What are ways that you would like people to approach you if they want to get into your world? Or what are some mistakes you see people make?

J:
Yeah. Okay. Thank you. So, absolutely… People need to realize that David you, Dan, you and me, anybody you’re talking to that’s heading in a modicum of success, they have a million people asking them questions. And so what we’re looking for is obviously we like helping people. That’s the reason we’re here. That’s the reason we’re having these discussions, but at the same time, we need help too. And there’s always things that you can be helping us with. When I wanted to get into multi-family couple of years ago, I didn’t just go to somebody and say, “Teach me the business.”

J:
I literally went to the person that I ended up partnering with today. And I said, let me help you. I’m going to give you one year of my time for free. You have access to my network. You have access to my time. You have access to my knowledge. You have access to anything you want that I can provide for one year. All I ask in return is that you teach me the business. You let me shadow you and you let me learn from what you have. Now, a lot of people would probably say, “Well Jay, I’m not an expert. I don’t have a big network. I don’t have a lot of real estate experience.”

J:
But let me tell you something. There are a lot of things you can offer. There’s a guy that I’ve been partnering with for 11 years now, we got started when he called me one day and he said, “I want to fund your deals.” He said, “You don’t need anybody else to fund any of your deals. I’m going to fund your deals. All I ask in return is you let me shadow you and learn from your flipping.” He’s now flipping more houses than I have. He’s flipped like 800 houses. And he’s my partner in everything I do. And it’s because he had something that I found valuable. He had money and he was willing to lend it to me. I’ve had people that have offered to do architecture for me. I’ve had people offer to do marketing for me. I’ve had people offer to do websites for me.

J:
I’ve had people to offer to come and actually do contracting on my jobs for me. Everybody has an area of expertise. Everybody has a skill. Everybody has something of value. I guarantee you there’s not a person out there that doesn’t have something that could be valuable to me. And I’m always happy to provide value in return for value that I received. I don’t keep score. It doesn’t have to be equal, but at least make the effort and prove to me that you’re not just looking to waste my time and take advantage of me. Prove that you want to build a relationship and that you’re willing to give back. And if you can do that, I’m going to be your best friend. I’m going to help you all day, every day.

David:
That is a very good point. The last guy that I hired had reached out and said,” Hey, I don’t know what I want to do, but I just want to be in your world. I want to learn real estate investing.” And I had to be very frank and say, “I can’t guarantee that I can teach you real estate investing. I have a lot of other businesses going on.” It tends to be the people that work in my companies or work for me in some capacity that learned this just by being around. And I think both of you can agree that’s kind of how it works. And so he said, “Okay, no problem.” And we just started sending him little things. Like, we need a spreadsheet made to track this. Boom, I had it back with an hour and a half.

David:
“Hey, we need to find out from the city what the deal is with this thing.” And he was willing to sit on the phone with them for as long as it took. And he had a great attitude. And I realized like, now if I bring him into my world, I know what I’m getting. I’m not getting a flake who just wanted a quick answer and they’re gone. I see where his talent is. I see where he’s not talented. So now I know what projects to avoid getting him involved in. And I actually went and offered him a job.

David:
And now every single time I know what I’m getting. The kid’s awesome. I asked for something, I have it quick. Before I’m even ready for it, he’s bringing it back to me. And I’m actually giving him raises now faster than he could ask for him. To me, that’s like the perfect model that you want to follow. If you want to get in business with Dan, if you want to get to know Jay, that’s the road you take. If you’re like, “Hey, I’ll work for you for free.” And then you ask them to do something and then they disappear. They don’t get back to you. And it’s, “Oh, I’m sorry, I had all these other things going on.”

David:
Well, we know that’s what it’s going to be like if we work with you. So, what I love is that we’re sharing here is there actually are specific things that can be done to make yourself valuable. Don’t say, “I want to be a value.” Saying I want to be a value is not actually valuable. That’s the one. Have you guys noticed that too that that comes up all the time?

J:
What can I do to help?

Dan:
Yeah.

J:
I don’t know. I don’t know you. We’ve never met. I don’t know what you can do to help me. Tell me how you can help me. You know what I do. I don’t know what you do. Tell me how you can help me. So yeah, a 100%, Dave.

Dan:
Obviously, and that puts more pressure on us. And I have to figure out a job for you.

David:
Yes.

Dan:
You see what I do.

David:
And if I pick wrong, it’s going to cost me money.

Dan:
Yeah, yeah.

David:
But Dan, tell me if somebody is in Philadelphia and they do like what you’re doing, what are some examples of ways that people should approach you with what they can offer that would help?

Dan:
Sure. Maybe with tracking down owners, record keeping, see now you’re making me work. I’d say those, oh, maybe like social medias, like social media, sharing things, coming up with ideas, stuff like that would be helpful.

David:
Yeah. What that tells me just from your answer is, you want someone that once you say, “Hey, there’s some opportunity there that we’ll go line up the dominoes for you, so you can just push them over.”

Dan:
That’s it.

David:
They get the contact information of the owner. And then once you’ve got a deal, you need people that can help manage it. Like, “All right, it’s done. The project’s over, who can make sure that the money coming in is being tracked? Who can handle the little maintenance problems that pop up here and there?” So just from your answer, that’s what people need to know is you want help on the front end? That you probably don’t need them to necessarily go find a deal for you, you’ve got that part. You understand it. But once the deal has been found, get me some recon on that. And then once I have a deal, how do I manage it? So there you go. We can tell just from your answers what you’re looking for.

J:
So Dan what should we be looking for in terms of trends? So obviously the economy is changing and the market’s changing and things are a little bit different now than they were a couple of years ago. So, what types of deals are you looking at these days that may not have been available a couple of years ago, but now because of the world changing are starting to become more available?

Dan:
I think that there’s going to be a lot of, unfortunately, smaller landlords is going to probably be getting out of the business. I think COVID was too much to handle. For some people they’re not getting paid for long periods of time. So I think there’s going to be some opportunity there. I’m actually seeing some Philadelphia now where I’m noticing a lot of duplexes and triplexes popping up. I think that is people that are just sort of throwing their hands up. What else? I think there is going to be a lot of opportunity to buy vacant commercial spaces. And like you said, if you could find a good repurpose for them, I think that there’ll be opportunity there as well.

David:
Yeah, I think there’s… I would support that just because I see how many big players are getting into the space. So now we’re seeing hedge funds, we’re seeing venture capital, we’re seeing people that traditionally were not in real estate. And this is my subjective opinion, so people can disagree. But I think a lot of that is due to the inflation that we’ve seen from the government just pumping money into the economy. That money has to find a home and it tends to get into smart people’s hands before it gets into the average Joe’s hands. And those people get that money. And then they go put into real estate.

David:
So, it doesn’t mean that there’s never going to be a space for the smaller investor, but I think in certain markets, we absolutely could see that. If you’re competing with big money in a market that’s expected to have big growth, you better have a lot of reserves because things like COVID can come. And we’ve seen that like the laws will be adapted to favor the tenant over the landlord. And if you don’t… You’re going to get squeezed and you better have a lot of juice inside there or you could get squeezed dry. Would you two agree with that?

Dan:
Absolutely. And most smaller investors don’t have that much capital. I mean, it’s just not how they’re starting out. And unfortunately, I think a lot of them either got pushed out or are going to be pushed out.

David:
Jay, what’s your thought on that?

J:
Yeah, no, I 100% agree. And I think Dan said it perfectly.

David:
All right, Dan, before we let you get out of here, we are going to ask you the same four questions we ask everyone, every week. It is time for our famous four. All right, I will start it off. What is your favorite real estate book?

Dan:
I would say, I know everybody probably says Rich Dad Poor Dad and which is really our real estate book. There’s a book I’m trying to think of what it’s called. It’s a value play book. It’s a multifamily value play book. I can’t think of the name of it. Read it a long time ago, changed my idea of thoughts of buying and selling real estate, where I would… Use to think of just keeping properties for forever. But this showed you the value of buying a multi-family property, bringing up the value, selling it and keep growing. Unfortunately, I can’t think of the name of that book.

J:
Okay. I’m going to take the next question because this is right up my alley, everybody that knows me knows I’m into the business side of things and I love the business side of real estate. What’s your favorite business book that you’ve read whether it’s real estate related or just general business?

Dan:
Ooh. The book… What that thing called? The orange book. Something of a-

J:
Tractioned?

Dan:
No. Something of how not to give a F. That’s what it was called. That’s the name of the book.

David:
Ooh. The Subtle Art of Not Giving a Fuck-

Dan:
The Subtle Art. Yeah, I like that book. I found out a lot of good ideas, the way that he thought about things I thought was very interesting.

David:
All right. What habit or trait are you currently working on developing?

Dan:
Staying committed. I’m constantly working on that, I think. And this business, that’s what separates people who make it from people who do not. It’s not the smartest people. It’s doing things when you absolutely don’t feel like it, when you don’t see the results even when things are going badly at times, because that is a reality. And staying committed to the process.

J:
That’s awesome. Okay. Well, you sort of answered the fourth question. What sets apart successful investors from those who give a failure to ever get started? So I’m going to turn that on its head a little bit and say, what is your best advice for anybody out there that is in the process of getting started? They haven’t made it yet. And they’re trying to climb the first couple of rungs of that ladder. What’s your advice to them?

Dan:
Play the long game. This real estate is a long game business. Unfortunately, sometimes it’s being shown is it’s a quick hit and people are only showing you the upside. They’re not showing you when things don’t go well. Have a long-term plan, stick to that plan. Eventually you will make it as long as you stay consistent and work on that long-term plan, but don’t have an expectation that this year, maybe you’re broke or barely making it, and next year you’re going to be on a yacht and on private jets. I don’t think that that is realistic.

J:
You’ve had some amazing tips and value throughout this entire episode, but let me tell you something, that may have been the single most important thing you said. Real estate is a long game and don’t let anything you’re reading on Facebook or social media try and convince you that you’re going to get rich overnight. Play the long game. I love that.

David:
Yeah, I was going to I second or third that. That’s so, so good. That’s probably the number one piece of advice I give to the clients of the David Greene team when they come to us and they’re analyzing deals and everyone gets into this like, “What’s my year one cashflow going to be.” And that’s as far as they look. And none of us that make money in real estate did it in one year. You own it for a long period of time. And like I often target deals that I know will have a very minimal return in year one, but in years five through 10, I’m going to crush it like kind of like the tortoise that runs the consistent race versus there’s a lot of like Midwest properties that show a strong year one return, and everyone just floods right to those and then year 10, you’re getting exactly the same return that you were in year one because the fundamentals of that market that’s how they work.

David:
So, I want to write a book for BiggerPockets. We’ve been talking about it that sort of involves success in real estate like a cake. And what are the ingredients that go into that cake? And time would be the number one ingredient. Like, you’re playing this for the long game. This is siege warfare. Can you outlast the ups and downs of the different economic cycles and what’s going on? So thank you very much for saying that and everybody who’s listening here, it’s good to get emotionally excited about what we’re hearing Dan talk about and what we’re hearing Jay talk about. Use that to get started, but you can’t rely on that excitement to propel your business. It needs to be that stubborn, consistent tortoise in the race approach.

J:
Awesome. So Dan, for those out there that are listening to this and they’re thinking, I need to find out more about Dan The Real Estate Man. Where can they find out more about you? Where they can they get in touch with you? Where can they connect with you?

Dan:
Sure. On social media, on Instagram, you can follow me @dantherealestateman1. That’s @dantherealestateman1, because I lost the password to dantherealestateman.

J:
I wanted to ask you about that, but okay.

Dan:
That’s what happened.

J:
I love it. Love it.

Dan:
On Facebook it is Dan The Real Estate Man. And my website is dantherealestateman.biz.

J:
Love it, love it, love it.

Dan:
Its cracking up.

David:
To be honest, I’m thinking about all the things in my life that I’ve had a very similar situation like I only got one shoe now because I lost the other shoe and I just never bothered to try to find it. That’s exactly something that I would do. That’s so funny.

J:
I can either find my password or I can reinvent my brand.

Dan:
That’s it, one.

David:
And I would rather reinvent my entire brand than try remember what that damn thing is. All right Dan, Well, this has been excellent. I really appreciate it. Jay, also thank you very much for coming on and tag teaming this with me.

J:
Oh, this was awesome. Thanks for having me. And Dan, you’re amazing. Thank you so much for being here.

Dan:
Thank you guys. Thank you for having me. I appreciate it and look forward to seeing this later on.

David:
This is David Greene for Jay Scott and Dan The Real Estate Man One, signing off.

 

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In This Episode We Cover:

  • Understanding the different types of zoning codes in your area
  • Finding the “best use” of a property and using that to siphon off maximum profit
  • How “By-Right” zoning allows investors to fully capitalize on a property’s best use
  • Calculating future rents and value of a property after a multifamily conversion
  • Combining residential and commercial space to eliminate vacancies on your property
  • Building a team and finding a mentor that will give you the knowledge to grow
  • And So Much More!

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Books from the Show

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