· Dave Hall's Journey Into The Real Estate World [0:03:00]
· One Can Make As Much Money Doing Easy Flips [0:06:34]
· How And Where To Find Profitable Deals: The Process [0:09:03]
· Your Network Is Your Net Worth [0:12:46]
· For A Novice Investor, Should You Get Into Flips Or Into Rentals? [0:18:42]
· Let's Talk About Tax Benefits [0:22:05]
· Things That Dave Wished He Knows Then What He Knows Now [0:27:03]
· Here Are The Numbers On Some Of The Deals [0:29:32]
· Advice To Would-be Investors [0:32:21]
Welcome to the Financial MD Show. This is the only podcast designed specifically for residents and young physicians to help you become educated on financial planning for physicians and avoid many of the common financial mistakes doctors make. Your hosts, Jon and Trevor, explore a different topic with each episode. Jon Solitro is a financial planner and certified financial education instructor. He’s been working with young physicians for the better part of the decade and lectures to graduate medical programs around the country. Dr. Trevor Smith is a board-certified ophthalmologist with a full-time practice and he has learned the ins and outs first-hand what it takes to make smart financial decisions as a young physician. And now here are your hosts, Jon and Trevor.
Jon: Welcome everybody to the Financial MD Show. This episode is a little different. Dr. Trevor Smith is not joining us today. He's a super busy guy with a lot of fun exciting things going on. But today, we have the pleasure of hearing firsthand answers to some questions that a lot of you have – a lot of you asked me directly or through social media or comment or whatever – real estate investing. We see a ton of articles about that from different bloggers whether it's White Coat Investor or Physician on FIRE or any of those wonderful guys. It's a huge topic when it comes to physicians and financial planning and the reason is physicians are quickly reaching limits on things like 401(k)s or backdoor Roths or any of those things that we typically do recommend and then it becomes the question in two parts: Number one, where else can I put my money that's tax-advantaged and going to grow and be a good investment, and number two, in addition, or just on its own, the question of where can I generate passive income; that's again, especially in the FIRE Movement of becoming financially independent and retiring early. Passive income is always the question. So I thought a little treat for you guys would be to bring in someone I know well; somebody I trust that could give us some real answers and firsthand experience and you'll get to peek under the hood, so to speak, and see how is a real estate investment made and not in a huge syndicated end yet as far as like Fundrise or some of those things, but let's look at a local real estate investor that's putting together deals offering to investors. Some of our clients at Financial MD have looked at and you'll be able to maybe get some answers; maybe it creates more questions, but that's okay. That's what we're here for. So, again, full disclosure: This is not a financial recommendation or personal advice. We can talk about that individually, but this is purely for informational purposes only, but let's jump into it. My guest today is Dave Hall with Achieve Real Estate. How is it going, my man?
Dave: Good, thanks for having me.
Jon: Yeah, absolutely. Well, I'm excited because this is something I love to talk about…something I'm involved in…and you and I have had several conversations about it and we've known each other for, I mean, really, 20, 25 years anyway; probably, if we were to really go back. But I've seen you grow and I've seen you start from scratch and grow, I think, even though you may not recognize it, a pretty legitimate successful real estate empire. So, you know, as you look back over the last seven or eight years, I'm sure you see that now but along the journey it's not necessarily easy to see, so as opposed to I mean, yesterday, I guess, Dave, tell our listeners what we are, what you do, and kind of a snapshot of your business today.
Dave Hall's Journey Into The Real Estate World [0:03:00]
Dave: Yeah, so Dave Hall, based in Lansing, Michigan; born and raised here, and I read a book called Rich Dad Poor Dad when I was in high school and it made me decide to go into real estate full-time. So this was right around the 2008 crash when I graduated and wanted to flip houses; not the best time for flipping, so I bought some properties and renovated them but couldn't sell them so I rented them and that was kind of what I was doing for a while part-time, and then over a few years, I had accumulated some rental properties and the market was getting stronger so I decided to get back into flipping and started selling some as well as keeping some. And so pretty much for the last 15 years, that's what I've been doing. I buy properties. I started off using my own money in traditional financing which moved at a much slower pace and so I pivoted to using hard money which is, you know, higher interest loans, more risk to the lender, and therefore, you have a higher payout but it allows investors to move quickly in and out of flips or to get loans that they might not otherwise be able to get. And then over the last couple of years, I've been using primarily private funding from individuals; sometimes from their IRA, sometimes just from their savings account and they fund the purchase and the renovations of the properties that I'm doing, and then once they're renovated, I pay to refinance after we have a renter in there and pay the investor off or I sell it and then pay the investor off with the sale and, again, that caused me to pivot again because now I'm realizing that I can't get to where I want to get to by buying, you know, a duplex here or a single family there. So we did 12 flips last year just to kind of talk about numbers, but that is still too slow of a pace and so I'm pivoting now into apartments and multi-family deals. I'm, you know, toying with some other different commercial assets but that's kind of where I'm pivoting to since I've built a bit of a track record using private money to put that money into smaller deals and some of those same investors now to pivot into bigger deals. For example, last Friday, we closed on a 15-unit. I was able to raise the down payment from a private local investor that I met here in Lansing and so we bought the property. We renovated. The investor gets cash flow each month and they're a limited partner so they're not involved in the day-to-day. They just wired their funds at closing. We operate it here with my team and send them their check each month and it seems to be a win-win relationship. So that's kind of where I started and where I'm at and then that's kind of where I think the future of my company is going.
Jon: Okay. So you said it was Rich Dad Poor Dad that got you into this and we'll put a link to that in the show notes and probably most of you have heard of this book. I read it; I think I was in high school when I read it as well and probably no coincidence that Dave and I are both business owners now, but you decided real estate was a thing. You got into it in 2008. Flips weren't really happening. You got under renting and so would you say that, you know, the growth of your business has not only been in the number but in the size of the deals, the properties, that you're looking at; the investors, the money that you're looking for…all that kind of stuff?
Dave: Yeah. I mean with each deal each year, you know, I'm getting sharper and more specific in what I'm looking for. You know, I think a lot of people when they jump into flipping, they've watched a few shows and they think that "let's buy a house and gut it down to the studs and put it all back together," and that's great for, you know, social media or for a T.V. show but not good for reality.
One Can Make As Much Money Doing Easy Flips [0:06:34]
So I actually started doing the big heavy flips like that and quickly found out that you can make as much money doing an easy flip which is more of a paint and carpet and cabinets rather than gutting the whole thing. So I started off doing the heavy flips and then now I pass on the heavy flips just because I can do…there's enough opportunity out there to not have to do such a heavy flip on each project in order to do the scale that we're trying to do. We try to stick to lighter flips, but yeah, I mean, we've done it all and I just am realizing now there are easier ways to do the same thing.
Jon: Yup, okay. Can you give us a breakdown of your business today? Maybe some numbers in terms of properties, deal sizes lately…that kind of thing?
Dave: Oh, yeah, so we just tipped over a million dollars of private funds borrowed from private investors so that's kind of a milestone but we have about, let's see, I think 85 rental units that we own in our own portfolio. We have a management company that manages those as well as some properties for other investors, and then we're licensed agents as well so we do a fair share of, you know, helping clients buy and sell as well as invest. If they want to buy a rental property, if they want to buy their own flip, or sell their primary, we help with all of those things as well. So over the last maybe three years, I think we've done, let's see, maybe 30 million dollars worth of real estate transactions on the brokerage side, and then over the last year, I think we probably bought and sold 40 units in and out of our portfolio because it's constantly…sometimes a really good deal comes up that we'll buy and we don't want to necessarily hold it but because of circumstances we have to hold it for a little while. Typically, that means we're buying from a tired landlord who has bad tenants so we buy always from sellers that have some sort of motivation or a problem you can fix. So if it's a tenant, for example, we buy the property, we help the tenants relocate if necessary, fix the property up, and then once it's cash flowing positively, we can put it back out on the market and sell it. So, we're constantly evaluating our portfolio and figuring out, you know, which properties we can get rid of and roll the money into something bigger and better and which ones we want to hold as kind of a long-term generational plan for my family and for our business.
Jon: So, tell us about how you find these deals. I think everybody wonders…okay, seems like you're finding profitable things. How do you find that and how has that process evolved over the last, you know, 10 years of you when you started to where you are today of how you identify these and get more efficient at that?
How And Where To Find Profitable Deals: The Process [0:09:03]
Dave: Yeah, so that was the tricky part. In 2008, everything was a deal, you know…everything…and there was a lot of opportunity. But through the years, I mean it's kind of difficult; the average person thinks that you start on the MLS which is…I mean, there are good deals on the MLS where I just bought one…I'm closing on one in 10 days that I found on the MLS, so there are still good deals, but the MLS is where all the competition is and so off the MLS and not buy through agents and try to buy off-market or go direct to the seller – that's a really good option. So for a while, I was doing what's called wholesaling and for anyone that's not familiar with that, that is where you market to find some sort of motivation. So, typically, you buy a list, maybe it's a landlord who's owned a property in a different state or maybe it's…you know. I mean, there are all sorts of…you know. You can send a list to recent divorce couples. You can send letters to recently deceased people to probate. There are lots of different lists you can mail...so wholesaling is you find a motivated seller, you get the property under contract, and then you sell that property or that contract to someone else. So, you find the deal, let's say, for 25,000 and then you find an investor that wants to flip that house for 30 and buy it from you for 30,000 so the wholesaler makes that 5,000 dollars in between. And so that works; there's a lot of people doing that as a full-time business, but it's very transactional. So as soon as you do all the work, you find the deal, you close it, you get paid, and then you got to start over. So, I'm familiar with wholesaling and we've done it and we still do some marketing to direct to sellers but we've pivoted probably last year and now we buy it from wholesalers instead of being the wholesaler, so we're paying these out to other people to bring us deals. But because of the volume that we do, we're able to sometimes get first dibs on some of those deals because they know that we can close and we can close quickly. So a lot of my deals come from wholesalers. They'll get a deal under contract, they'll send it to me, I can evaluate it, and then if I think it's a good deal, I'll send it out to my investors list to see if anyone wants to fund it, anyone who wants to get it…from the investor goes forward with it…the due diligence process is inspecting it and coming up with our quotes and if everything works out, we've typically can close rather quickly just a couple of weeks after sending it out to our investor list.
Jon: So you've kind of established these relationships with wholesalers to be able to find ones you trust, ones you know who are good at finding the deals, and that's kind of, in a sense, they're finding the deals for you a lot of the time now.
Dave: Yeah, and also intentionally, I established myself as an expert in my mark by leading our local real estate investors group, so we have a Facebook group which about 2500 members, and then we have a couple of monthly meetings that I lead and so kind of by being the face of that organization, a lot of new wholesalers and new investors will come and they don't know where else to pitch a deal or to, you know, who else to partner with so they come to me and then I can kind of get first dibs on some of those deals that way as well.
Jon: Okay. Is the investing group open to anyone or the public?
Dave: Yeah, it's free. We meet monthly and there's a Facebook group which is where I share all the events. Yeah, it's free to join. If anyone's interested in real estate, it's a really good spot to get in and just where you can read posts from other people. You can get recommendations for contractors and plumbers and that type of thing as well as, you know, just read through other people's experiences and stories on what's working and what's not.
Jon: Yeah, great, okay. Well, we'll put a link to that if that's all right in the show notes and people can follow up and dig deeper into that if they want to. Where do you feel like in addition to experience or School of Hard Knocks, let's say, where have you learned the most and gotten some of your education on doing this and getting better at this?
Your Network Is Your Net Worth [0:12:46]
Dave: Yeah, so over the last couple of years, everyone's heard, I think, that your network is your net worth and so by leading the group, I started to network a lot and get really good relationships and to be more intentional about that, I joined a couple of national groups over the last couple of years that we meet quarterly all around the country and because we're not necessarily in competition because we're not in the same market, there's a lot of opportunity to share resources and what's working/what's not working. So I go to these groups, I meet these people, and I can come to intimate what they're doing, you know, what's working for them in their market, here in my market, so that's been beneficial and so then I joined multiple of those groups and that's where I'm starting to grow and realize how easy it can be to put a deal together that I thought was once complicated. For example, the apartment deal I just bought, it seemed really complicated upfront but once I talked to, you know, my attorney and my bookkeeper and my accountant, and everyone were on the same page and we had the team kind of rowing in the right direction, everything kind of fell into place and that deal was an off-market deal as well that I got from my networking group. A private individual connected me with the seller and he was getting ready to sell but hadn't listed yet so I was able to buy that one, put the money together from an investor for my group, and you know, have it all come together. So from these national mastermind groups, I think it has really accelerated my growth over the last couple of years which allowed me to go from, you know, 40 units two years ago to 70 units last year so by the end of this year, we should be over 100.
Jon: Okay. So I think this is a good point to point out that someone may look at this individual incident and say, "Oh, you got lucky; good deal they connected you before I put on the market," this and that, but you would probably trace it back and say, "I didn't get lucky…I put the work in to get these connections," took the time to build this network, not knowing what it would produce but knowing it would…it should…and more just a numbers game, I would say, of growing that network and stuff just happens, right?
Dave: Yeah, it only took me 10 years to be an overnight success, you know; it's how people see, but yeah. I mean, things are definitely rolling quickly now but just exactly as you said, it took a really long time to get. There are lots of trial and error. I remember the first time I was raising money from a guy I worked with and neither one of us knew what we were doing, you know. Do we call an attorney? Do we call an accountant? Do you just give me the money there? Like how does all of this work? And we just kind of fumbled through it, you know. He trusted me and I trusted the deal and it worked out really well and he's funded five of my deals since then, but I mean, the first couple were really, really rocky and now things seem to be going smoother but it's only because things were so rough in the beginning.
Jon: Yeah, that's going to happen. You got to expect that. I think a lot of our listeners, being that they're physicians, understand that process that there's not an overnight success. You know, they go through four years of undergrad, four years of med school, three plus years of residency before they start making any decent money and tempting for people to look at doctors and be like – dang, must be nice, you know, how to just start making that – and like, well, it certainly takes a good investment of time on their end and money. I mean, our average physician has like 250 to 300,000 dollars in student loan debt. So, everything's an investment, right?
Dave: Yeah, absolutely, and it's tempting I think to once you find a little bit of that success to try to, you know, live up to a certain standard or level where people, I think, that really build a generational wealth are probably the people that you're talking to or the people that are being intentional from the beginning about their investments and diversifying and, you know, trying to not get too comfortable in a certain lifestyle too soon without putting, you know, planting some seeds early. Actually, real estate, the houses I bought back in 2008, they have gone up in value, you know; some five or six times what I paid for them and it wasn't because I was a genius and bought at the right time, it's what everyone says – in real estate is that you don't wait and buy real estate, you buy real estate and wait and, you know, over time, it always works out.
Jon: That's true, yeah, and I think that's great. I've heard that same thing with real estate, with land, with whatever – always appreciates – and that's exactly a point that our listeners can take too. One of the things that we find with physicians is they get out of training, they get into practice, and they start making the six figures and they want to keep up with the doctors around them that they're not working with and have a decent, you know, nice house and a doctor house and a doctor car and trips and all that stuff and they may make a decent income now but it's getting blown on stuff and they're not doing the smart things with the money that they should. They're not starting to save early. They're not paying off debt. They're not getting into some of these things that long term will make them look successful or do the things that they want to do but you wouldn't believe how many doctors I've met with that are 50, 55 years old and really have nothing to show for it because they've gotten this lifestyle. We call it lifestyle creep where your income goes up and your lifestyle kind of goes up to keep up with it and as your income goes up a little bit, your lifestyle kind of creeps along with it.
Dave: Yeah, exactly, and before you know it, you look up and as you said, you don't have much set aside, and even if the money you have set aside is substantial, in order to maintain your current lifestyle, what's the current rate of inflation, you know, most people, I think, are not saving enough in which one reason I would say is that it typically rides the wave of inflation and, you know, you can get your debt essentially eliminated by inflation as long as your interest rate is less than the inflation rate, and so by buying property or aligning your interests with inflation and real estate, you kind of ride that wave and it can work out really well.
Jon: Yeah. So a lot of novice investors that want to get into real estate are asking the question – should I get into flips or should I get into rentals? I mean, what would you say to somebody?
For A Novice Investor, Should You Get Into Flips Or Into Rentals? [0:18:42]
Dave: I get that question sometimes as well and some of my investors are, you know, high-income earners and so I think that there's the appeal of doing a flip because it looks so fun on T.V. and it can't work out.
Jon: The numbers say in six months, I can, you know, get 20 percent.
Dave: Yeah, exactly, but if you really pencil it out the stress and the hours involved with doing the flip, if that's not, you know, your main skill set, I think that it probably makes more sense to do investments either with a partner that's more experienced with flips or to do rentals because rentals they don't produce a ton of income initially but it's that appreciation where you really see the long-term gains when it comes to real estate. So a lot of the high-income earners I see that jump into flipping are disappointed and, you know, if you're making 200 bucks an hour as a doctor, let's say, and then you get into a flip and you make 20,000 dollars but it took you six months and it took you, you know, hundreds of hours to put all the pieces together, you're making money but you're losing money when it comes to your highest and best use and so if you can double down on, you know, maybe work overtime hours or something if that's really the case at your higher wage…that's your highest and best use…and then roll that extra money into something else whether it's putting it with an experienced operator or just putting 20 percent down on a rental property and hiring a property manager, that's probably going to keep you saner and make it easier to scale a portfolio rather than be in the nitty-gritty and in the day-to-day operations of running a business on the side.
Jon: Yeah, that's good and that's interesting because the question that I ask in any of our financial planning conversations are goals-based questions – when do you want to achieve this…how much do you want...which, you know, long-term, let's say. We always think long-term – sure, that makes sense. They know that. When we ask the questions, you know that this is a long-term investment – yep, got it…you know. The stock market might be 10 percent a year, give or take, that's great – that'll get us to our goals if we save this much – but then when it comes down to the nitty-gritty, "Oh, you know, I only made this…it took me this much or this rental I got is only cash flowing this." I'm like, "Hold on, we said long-term" – and that's a lot of what it takes is coming back to that conversation of – we know in our heads this is long-term and it should be but in our gut, we don't...you know, we want it to be cash flowing, very profitable short-term, but as you said, that's not the way that wealth is created especially not generational wealth in a long-term legacy. Our example, you know, as we got into it a year and a half ago with getting our first quadplex is, you know, is it profitable right now? Yeah. I mean, we put some stuff into it that we're paying off right now. We're slowly raising the rents that we think is a reasonable rate and that kind of thing, but I'm not looking for it to like pay my personal expenses right now for me and we can talk about this a little bit. For our high-income earners, I was looking for something that was more tax-advantaged investing, you know, Roth IRA, that's nice but you can only do 6500 a year there; 401(k)s…those things...but real estate has so many advantages to it I say and I know you would say. Talk to me about that when you're talking to somebody and in your experience…I know you're not obviously a CPA or financial planner…but when you talk about some of the tax benefits or other benefits of doing real estate investing, what does that look like to you?
Let's Talk About Tax Benefits [0:22:05]
Dave: Yes, so the tax benefits, so I have a lot of investors that are using their IRA, a self-directed IRA, to interested fields and so that money can continue to grow, you know, tax-free if they lend me out of their IRA and I do a deal and then pay it back into the IRA, so that's one way to get typically above-average returns. You know, I can't promise…nothing certain but our investors have definitely seen above-average returns on the deals that they've done with us, and then same with larger deals and typically for high-income earners, if you can somehow figure out how to become an active real estate professional. So, for a lot of them, it's their spouse who gets licensed but I think there's a minimum hour amount that you have to do each year in order to be considered active. By being active, you can take active losses as well, and so on the larger apartment syndication deals, there's a large amount of depreciation that we can take which is just a phantom expense against your income, and so if you can be considered active in a partnership for apartment syndication, there are some really large tax advantages that you can get that can drastically eliminate what you're paying in taxes from your ordinary income.
Jon: Yeah, that's huge. In fact, this year, and the last year too, we've been talking to our clients about bonus depreciation with short-term rentals and a lot of them want to get into that because they want to get their own lake house but they don't have time to use it a lot. They wonder if they can make money on it – sure – but we talked about something called bonus depreciation which we can get into a little bit here, but probably, we've got some more resources on it. Essentially, as Dave said, if you're an active participant which for our clients, again, it's usually a spouse – the non-doctor spouse – in our case, in short-term rentals, they're managing the property. So they're handling any updates, remodel upgrades. They're then handling the marketing, getting people in and out in the turnover, you know, remotely because it's probably an up north property or something but that allows them to take that depreciation that they take and with bonus depreciation in terms of short-term rentals, you can take 60, 70 percent of the depreciable value of that in the first year against their doctor salary as well which is huge. I don't know where else you can find something like that.
Dave: Yeah, that is a huge tax-advantaged, but again, you want to align your interests with what the government is wanting you to do, you know, so they get taxes to people to do exactly what they want done and so that, you know, the tax law is not rules. It's a kind of guidance on this is how you can save the most money.
Jon: Yeah, that's a good way to look at it.
Dave: That they point to say, you know, if you don't want to pay your taxes, we need real estate managed by private individuals so please buy real estate and we'll give you a tax advantage to do so. So, you know, why not take advantage of that?
Jon: Yeah, absolutely. Then on that note, solar firms…you want to build solar firms apparently is what the government is saying right now.
Dave: Yeah, not everything the government says it makes sense in the long run but by all means…I mean, I see people that are making money on those even in the short term. It's just a matter of in the way of politics and the economy and trying to figure out where there's an opportunity, you know. So you mentioned some rentals, I think that 2024, you know, whether we're in a recession or not, I think things are going to probably…and I say this because I've been studying the Orlando market pretty heavily because we want to pass some rentals there and bookings have dropped, I think, 30 percent in the Orlando market.
Jon: Yeah, we've got to wait for the housing crisis to come down with that, right?
Dave: Exactly, yeah. So if someone bought last year a short-term rental based on current income and now there's a drop, there might be some motivation there. So, economists are saying that maybe in 2025 things will get better and so that means there may be an opportunity in this season to buy from, again, motivated sellers that might have overpaid or maybe their life changed now...they don't need the property anymore. So it's just a matter of kind of staying aware of the real estate market, and you know, microeconomics and macroeconomics of what's happening and then trying to find opportunities with whatever's happening, you know, and anytime you can buy something whether you overpay or not, I think the market will make that correction for you, long-term, but you can align yourself with what's happening and try to take advantage of and you're really helping someone else out of their problem, you know. If they overpay for a property or if they need to sell quickly for whatever reason, being able to offer them an opportunity to sell when they need to make sense and then if you can get a discount price for helping them in that area, it can be a win-win situation and then as the economy continues to ebb and flow…as it continues to go up overall…I think that's where, you know, real estate is really profitable.
Jon: Yeah, it makes sense. So when you look back at the years you've grown in this as you've grown your business, what are one or two things that you would say to yourself when you were getting started that you know now that you wish you knew then?
Things That Dave Wished He Knows Then What He Knows Now [0:27:03]
Dave: Probably, some of the lessons that I learned that were harder, I probably could have avoided had I, you know, been more aware or even just followed my gut on some things, I had the idea of doing all the work myself in the beginning and that was a great learning experience but it was probably something I could have leapfrogged by hiring contractors at the beginning. And, yes, you pay more and you make less but the difference at the time was doing, you know, one flip a year and making, let's say, 20,000 compared to doing three flips a year and making 15 each, you know. So I'm making less with each deal but as I'm able to scale, I can make less on each deal and still make more overall. That was a big lesson learned and so now I have crews that do all of my work and I'm not involved…I'm not swinging the hammer, as they say, anymore which allows me to spend more time networking and finding better deals. And then the other thing is just the power of networking and aligning yourself with other individuals. So now that I have some private lenders and that's primarily how I'm using, I'm able to move much faster than my competition. We're able to get in and out of deals and it just makes everything easier when you're dealing with individuals compared to institutions. You know, most people think I'll go to a bank; put down 20 percent. I have to wait for an appraisal…have to wait for a bank committee…and the banks, as we saw the last six months, you know, their interest rates shot up from probably 3 percent to 7 percent. I was just looking at that. Actually, the average mortgage rate for 2022, this says 3.2. I don't know if it's accurate or not, but compared to 2023 which is 3 or 7.5, so they doubled. And so if you were solely banking on a mortgage to have your numbers make sense, you might be in trouble, but now that I'm using private money, I'm able to pay higher interest but because I'm able to move faster and I can avoid some of the appraisals and bank fees and origination fees and other things that go into using an institution, I'm able to, you know, gaining a lot of momentum and able to do more deals and like I said even if we're making less on each deal, because of the volume that we're doing, things are working out, and then as we do deals, more deals tend to flow to us and we're getting sharper and better on that each deal that we do and so I think had I leverage other people's time at the beginning and other people's money from the beginning, I think I'd be a lot farther than I am now. But, you know, I'm learning those lessons every day.
Jon: Yeah. So can you give our listeners an idea knowing it's not guaranteed and knowing it's not every deal, what are some numbers someone could expect or that you might be projecting on recent deals?
Here Are The Numbers On Some Of The Deals [0:29:32]
Dave: Yeah, so typically, the pitches that we have three options for investors that partner with us so they can be in a second position for a smaller loan amount. So, for example, let's say, we're buying a property for 100,000 dollars. We'll raise probably 25,000 for a deal like that. It will be in second position to a hard money lender that's giving us 90 percent of the purchase price as well as the renovation funds, so money from the private investor would cover the down payment, would cover some of the closing costs as well as some of the holding costs while the project is underway, and for those deals, we typically pay out around 12 percent, and then if they want to be in first position, we can do those same picks and flip type of deals. So for the 100,000-dollar deal, we would offer 10 percent and we can either offer 8 percent cash flow each month with two extra points paid at the end or we can just have it all accumulate. We offer both options. Mainly, if it's an IRA, it becomes kind of a pain to do the monthly payment thing so we offer both options but that's to be in first position. So, it's a slightly lower interest payment but it's because there's less risk because you're in first position compared to being in second position.
Jon: Got you.
Dave: Then the third option is our apartment syndication deals and that's a 50,000-dollar minimum and that's where we pool people together or people's money together and then use that as a down payment into a larger asset and those who get equity positions typically or a debt position depending on what the investor wants so that position, again, we can offer cash flow or have it accumulate and those are typically 10 to 12 percent deals, or for equity, there's typically less cash flow but a bigger payout at the end since the equity partner gets to take advantage of some of the appreciation as well as the principal pay down, so the apartment deals are a 2- to 7-year hold. I typically write in an extension option to go further if necessary. A lot of syndicators got in trouble over the last year as interest rates shot up faster than they ever have and exit a property and all of a sudden no one wants to buy it because interest rates are high, you're kind of in a bad situation, so we put in the option to extend a couple of years just to try to get, you know, take advantage of the market depending on what's happening, but those are the three options. So a smaller loan in second position at around 12 percent; a bigger loan typically 80 to 150,000 in a 10 percent; or the apartment syndication model which is a 50,000-dollar minimum but those payouts can be, you know, they're projected to be…cash flow anywhere between 6 and 10 percent, and then overall, internal rate of return is as high as 15 to 20 percent.
Jon: Okay, great. Yeah, that helps. Any advice you would give to investors looking to be an investor...take that step…not necessarily be active but to get connected with somebody like you…what advice would you give the investor as they're looking into this?
Advice To Would-be Investors [0:32:21]
Dave: I would probably say, you know, there are tons of free resources out there. So reading Rich Dad Poor Dad kind of sets the pace for understanding the power of passive income so I would start there. There's a website and a group called BiggerPockets which has a podcast. They have forums online. All your questions can be answered as far as the different types of real estate investing there. And then I would say get involved, you know. Go to your local real estate meeting. Join… there are some BiggerPockets webinars that are free. You can get a lot of free information, and then just evaluate your risk threshold and then invest wherever that lands you. So, for some people, that means you want to start small and buy. you know, a duplex with 20 percent down and hiring a manager; that's a really good way to start. I have a lot of clients that do that. Other times, just invest in someone else. I'd be careful with some of the apartment syndicators that are doing larger deals or some well-known people that take really high fees when it comes to apartment syndication so they might buy mediocre deals because they're good at raising money. So they can raise a lot of money and promise a higher return and it ends up not being as good because they took all their fees upfront. They don't really care. Just because the person is well-known and I would say that really that syndication and see what the fees and things are going to be, we don't charge any fees currently on any of our apartment deals. We want a win for us to be a win for our investors so I would just read the fine print, but those are things that you start to question and learn more about, the more knowledgeable you are, you know. Knowledge is power.
Jon: Okay. Yeah, that's awesome. Anything else you would add that I didn't ask?
Dave: Not that I can think about; just that most of the doctors that I've talked to are hands-on type of people and I would say that it's good to be hands-on if you want to maintain control of your investment but at the same time, you don't want to hold on so tight that it is taken away from your highest and best use. As you said earlier, you spent a lot of money and a lot of time to get to where you are and get the income that you have so don't take a step backward. I mean, unless you love it and you really want to flip houses for a living or something but I think so many people spending more of their time on a smaller investment thinking it's, you know, somehow going to be a good…it's going to be better than what they're doing…and it turned out to not be and so better baby step, I think, would be to maybe give up some of that control, endorse to someone else that's doing it in the beginning and then once you might figure out that you hate, you know, owning duplexes or that you love flipping or you like just being a limited partner and sitting back and watching cash flow come in on syndication. But, you know, I would try to maybe dabble in a bunch of different things or research a lot and figure out what fits your personality best because everybody's different.
Jon: Yes, and that I found. As a financial planner, I've come across enough physician do-it-yourselfers that I know right offhand like, hey, man, this is probably not something you should be doing yourself but if you're going to stick with it then I can't help you. Like there's a lot of commonality and personalities with a lot of physicians – not all – but a lot of them are kind of a know-it-all when it comes to a lot of things – and ortho surgeons, I'm talking to you. There's a feeling and a little bit of experience that because they do know so much about a particular topic, that contends some of our weaknesses that can bleed over in other things – oh, I'm probably going to be good at real estate and finances too – and – no, not the same thing at all. We're not…you know. Dave and I aren't going into our kitchen and fixing our elbow fracture. We're going to go find a specialist for that who's good at that and trained at that and that's just smart and it'll cost more for sure but the end result is going to be better at the end. So we've experienced the same thing here for sure, Dave. I'm sure lawyers and CPAs have in every industry. So, what Dave is saying in a nice way, I'm going to say it in a straightforward Financial MD way: Guys, don't try to do this yourself. You think you do because you read the articles and you read the books and you watched enough videos or podcasts but it's not. I've met one or two doctors who are doing it themselves and doing well because they came from either construction background or experience like that but, by and large, 99 percent of you, it may be a good idea to get into this but not to do it on your own. You don't know what you're doing and you're going to risk too much and it's going to cost you too much to get good at this. Not saying you can't, but to do it, I will just say it's not worth your time.
Dave: Yeah, it's comical the amount of apartments indicators that I network with that, say, you know, we got a really good deal. We knew it was good because it was owned by this doctor who didn't know what he was doing, you know.
Jon: So many of that.
Dave: Yeah, I mean it makes sense. You think you hire a manager and everything's going to go smoothly but the day-to-day stuff that it's what you don't know, you don't know that comes up and when you're dealing with larger assets, like you said, I would definitely partner with somebody.
Jon: Yeah. Doing well in one thing doesn't mean you'll do well in every other thing so you guys know I love you but I'm going to speak the truth to you here just from our own experience. So ask for help; if you have to learn the hard way, go for it, but I don't recommend it. Well, Dave, how can people get a hold of you if they want to know more or get in on some of these deals?
Dave: Oh, yeah, so we're putting a website together. I don't think it's live right now, but hopefully, it will be next week. Investwithdave.com is where we are looking for investors or they can feel free to email me. My email is firstname.lastname@example.org.
Jon: Okay, fantastic. Well, this has been great. I love talking about this stuff. I love hanging out with you and digging into these ideas and goals and just seeing this stuff happen and it always challenges me to think long-term, to settle down a bit, but also to get up and dream bigger as well, so it's a good balance and I think you're doing great things. So, thanks for taking the time to be on and educating us a little bit more.
Dave: Yeah, absolutely. Thanks for having me and I look forward to our future conversation.
Jon: Yeah, me too.
Thanks for joining us for another Financial MD Show. Be sure to head over to financialmd.com to get more in-depth resources on financial tips for physicians and don’t forget to join the Financial MD community group on Facebook, where physicians at all stages of their career gather to share tips and get ideas on achieving true financial success. We’ll see you next time.
The Financial MD Show is for informational purposes only and is not an offer to invest. It is not financial, tax, or legal advice. Be sure to seek financial, legal, or tax professionals when making any financial decisions. Before investing, you should make sure that any investment strategy or investment meets your individual investment needs, goals, and objectives. Financial MD makes no claims or guarantees to individual investment performance. All investing involves the risk of loss as well as the potential for gain.
Resources and Links:
· The White Coat Investor – https://www.whitecoatinvestor.com/
· Physician on FIRE – https://www.physicianonfire.com/
· What Does It Mean to be Pre-Tax or Tax-Advantaged? –
· The Story of Rich Dad Poor Dad – https://www.richdad.com/about/rich-dad
· Hard Money Loan – https://www.investopedia.com/terms/h/hard_money_loan.asp
· The Importance of Real Estate Limited Partnerships –
· MLS Listings, Real Estate Property Listings – https://www.mls.com/
· Wholesale Real Estate: A Beginner's Guide –
· Porter Gale: Why Your Connections Are Worth More Than Money –
· What Is Lifestyle Creep? – https://www.ramseysolutions.com/budgeting/lifestyle-creep
· Highest And Best Use – https://www.timbertax.org/getstarted/appraisal/bestuse/
· Phantom Income: Definition and Risks –
· Bonus Depreciation: Overview and FAQs –
· What Is a Loan Origination Fee And Is It Negotiable? –
· Equity Position Definition – https://www.lawinsider.com/dictionary/equity-position
· How To Determine The Debt Position Of A Company –
· BiggerPockets: Create and Build Wealth With Real Estate Investing –
· Lansing Real Estate Investors FB Group Page –
· Dave Hall's Investment Website: Invest With Dave – https://investwithdave.com/
· Dave Hall's Email Address – email@example.com
Financial MD Website – https://www.financialmd.co/
· Financial MD YouTube page –
· Financial MD Facebook community – https://www.facebook.com/FinancialMD/
· Financial MD TikTok – https://www.tiktok.com/@financialmd
· Financial MD Instagram – https://www.instagram.com/financial.md/
· Financial MD Twitter – https://twitter.com/financialmd2
· Financial MD LinkedIn –
· Financial MD App – https://apps.apple.com/us/app/financialmd/id1507757039
· Financial MD Apple Podcast –