Full transcript below:
Announcer: Welcome to the Global Investors Podcast, a show that focuses on helping foreign investors enter the lucrative US real estate market. Host, Charles Carillo, combined decades of real estate investing experience with a professional background in international banking to interview experts in all areas of US real estate investing. Now here’s your host, Charles Carillo.
Charles: Welcome to another episode of the Global Investors Podcast. I’m your host Charles Carillo. Today we have Danny Randazzo. Danny is an author, entrepreneur real estate investor, host of a real estate mastermind and national speaker. He’s a managing partner at PassiveInvesting.com LLC , which has a portfolio value of over 220 million and their firm has acquired over 2000 units. So thank you so much for being on the show, Danny.
Danny: Charles, happy to be here and talk about real estate investing. I love it. So just excited to see how I can add some value.
Charles: Yeah, that’s great. So give us a little background on yourself prior to starting your current real estate company.
Danny: Yeah, so my background, I got started kind of in the business world doing some financial consulting. So I worked for one of the big four actually work for Accenture and Deloitte consulting for about nearly a decade and started to learn how businesses operate and function and at the same time, had the grueling nine to five schedule of on top of that also traveling around the country to see my clients. And with that I kind of looked future, looked into the future and saw, you know, what a partner does at some of these firms and how often they are on the road and away from home. And I thought to myself, that’s not the lifestyle that I want to have and you know, through the evolution family with that and you know, my wife didn’t really support that lifestyle either of always being away. And so we made the decision to kind of pack everything up, relocate from San Francisco, California to Charleston, South Carolina to build the life that we wanted to have. So we took control of our destiny and really changed our environment. The environment in the Bay area is not super conducive to cashflow investing or value add investing. It’s super competitive, you need deep pockets to get started. And we looked around the country and identified Charleston as the place to go to and very quickly we put our money where our mouth was. So we wanted to be real estate investors first and foremost and prove the concept before bringing any passive investors into the business. And so we bought a $1 million commercial office building right the bat because it met our goals and everything I do and say, and I think it’s so important for, you know, the global investor listeners is to figure out your goals and everything should be about what your goals are when you’re getting started. And so our goal was to have an investment that cash flowed $5,000 a month. And that’s what we found. We kind of filtered out all of the single family stuff cause that was not going to produce the cashflow that we wanted to build and have to slowly and methodically replace that W2 income. And eventually, you know, I did replace my W2 income. I quit my job. I’m a full time real estate investor now and all we do is focus on multifamily assets because it’s the most scalable and it is one of the best asset classes where you can physically do the work or oversee the people, right? I’m not strapping on a tool belt, but we’ll oversee the people who are improving the interiors of the units or improving the exterior’s, creating a better environment where people are willing to pay more in rent. Thus we can push the net operating income, the NOI on an asset and have it be more valuable because of our hard work, not I’m based on a comp or what an appraiser things, but because the income is generated and it’s worth more from that. So the multifamily assets is all we look at now and it’s really only value add opportunities because of what I just said, us being able to put in the work to create value, create equity and generate returns for us and our investors. And so we’re always investors first and foremost. That’s the hat we wear when we look at and evaluate deals. Because we, we want to be aligned and have the same goals as our investors. So it all comes back to that goal strategy. And so that’s what we’re kind of up to today.
Charles: Yeah, it’s always good to have that alignment of interest with your investors. With your first property, the commercial property, do you still own that today?
Danny: Still own it today. Yep. And just let it cash flow.
Charles: How many times do you have there?
Danny: We have one a school rents out three units and then we have three other individual tenants, so four tenants out of six total offices. And my strategy with that asset was to buy it, get the entire property fully occupied. We bought it with one vacancy, so we bought it at a discount, did the hard work, filled the space up and refiled the property. I think around the 18 month Mark of ownership and actually pulled out all of the initial 200 that we invested in it. So we own that. The on it and it is, is basically infinity. We have no money into it. But I always evaluate assets not only just on like ROI, but ROE so return on equity, right? If you buy a property, like we’ve seen this a lot in the Denver market where if you bought a property in 2015 for a hundred grand, it may be worth 500,000 today. And you know, your 20% down, five years ago it was making a decent return. But now you’ve got all of this equity built up in the property and your return could be, you know, maybe less than like 3 or 4% on an annual basis, which, you know, it’s time to maybe rethink your strategy from an investment standpoint or repurpose that equity and capital into something different.
Charles: Yeah, it’s a, do you find it much harder to rent out those commercial, those commercial units? Space versus multifamily?
Danny: Okay. Yes. It’s just a different it’s a different tenant class that you work with. So if you have a commercial building I would typically budget maybe three to six months to fill a vacancy. And that’s because companies move slowly and once you get it filled up, they typically want to stay there for longer duration. So you may have 3, 5, 10 year leases with four or five year extension options. And so once you get them in, I feel like the hard work is kind of done then you just need to have good customer service and take care of them and make sure you’re, you’re responsive to their needs, which are, you know, this many a month compared to multifamily where you’ve got a bunch of requests. But your pool of residents is so much greater or tenants on a multifamily side and they tend to turn over quicker. So
Charles: Yeah, that’s what I found too. I have one property, it’s a mixed use property. It’s got some commercial in there and it’s smaller, but it takes the right tenant. But once you find the right one in there, it will at least 36 months, longer, 48 months that you’ll have them in there at least usually five years plus depending on the type of space it is. It sounds like you have some really solid tenants in there, but I’m getting back to multifamily and going forward with your purchases. What did you do after that million dollar purchase? You added some value to it. You got your money out within a year and a half. What were your subsequent purchases?
Danny: We did another commercial deal a month or two after closing that first one. And you know, I was so eager to close that first deal kind of on our own. It was just my wife and I. And the, the reason for that was to really build our proof of concept, to have the credibility. When you’re talking to potential investors that you know, the real estate market, Hey, I’m actually invested in this market. I have this property and it’s doing this return, you know, is it something that you may be interested if another opportunity comes up? So shortly thereafter we got into another commercial building. I brought a couple of kind of friends and family into that deal and slowly started to build up that real estate experience or resume, if you will, with a variety of deals in there. So when I speak to someone about real estate, I typically tell them I’ve done almost all types of real estate investment opportunities that are out there with the exception. I’ve never owned a mobile home park, but I’ve done a short sale. I’ve done, I bought properties through foreclosure. We’ve bought distressed assets directly from owners. We have done commercial property, we’ve done multifamily property. And that experience has really allowed me to see value add multifamily. Going back to what I said earlier, it’s one of the best investments to have some scalability, with scalability comes security and you have the ability to force appreciation when you buy a value add deal.
Charles: Yeah, no, it’s definitely, it’s definitely true. It’s it’s such a powerful asset class within real estate. So with PassiveInvesting.com LLC what what’s a typical business plan? What are your, what do you look for when you’re vetting a deal and you know, just go walk us through kind of how that works.
Danny: Yeah, we, we are very strict in our criteria. So we have about seven markets in the Southeast US. We look at Jacksonville and Orlando, Florida, Charleston and Greenville, South Carolina, Raleigh and Charlotte, North Carolina, and then the Atlanta MSA. And even within those markets we are very strict and having kind of A to B plus areas and within those excellent areas where people love living, we want to buy a B class asset. So maybe it’s, you know, 20 years old, maybe, maybe 30 built in the 90s or newer where we can go in and easily see a proven business model. So all of the markets that we invest in, you know, there’s a ton of multifamily properties within a mile or three mile radius. And we like that. What that means is we can evaluate a business plan. For instance, what we look for when vetting a deal is what’s going on specifically in the market, but also within that sub-market. Kind of that one three mile radius of our property to make sure that economic fundamentals, job growth, population growth, annual household income, projected rent growth, all of these economic factors are good. And once we qualify that, then we’ll look at the competition and say, okay, there’s a 1990 property. It’s delight kind asset. It’s a very similar comp to our target asset. They are currently renovating units, putting new granite, new countertops, a new flooring, new appliances in, and they’re getting $150 rent premium. If we buy our asset, we should be able to get conservatively $125 premium because we’re very identical. People are driving on the same road. And so that’s kind of how we vet a deal first to qualify it and say, okay, is there a proven business plan? Because we don’t want to go into a market and be a market leader, right? We just kind of want to follow what’s going on and what’s working in that market. Real estate is a slow investment, right? It’s a longer duration investment and we want to make sure that the absorption, meaning the potential residents in the area will absorb and rent our renovated units when we’re doing a value add property. And so with that approach, we’re always conservative. And what we try to do from an income assumption perspective, so if I was saying the competition is renting at $150 premium, we may be conservative and saying that we’re just going to get $125 premium. And that basically puts us in, you know, third or fourth or fifth position in terms of price per square foot when you look at like kind of assets in the market. So we like to be conservative and the reason for that is if we’re just a little bit more affordable than the competition, we’re going to always be able to maintain our occupants. The goal that we want to have for each asset. And so what that allows us to do is, again, because we’re investors first, we want to have monthly cashflow. And so having good occupancy allows us to produce cashflow and have monthly returns. For our investors on a monthly basis because we’re buying a well maintained well occupied property where we can renovate units as they become vacant and execute that business plan.
Charles: Yeah, no, that’s that’s one of the things we find is finding the apples to apples comparison on the comps because you can look on whatever you’re looking on, a partner and Zillow, Craigslist, whatever it is. Oh, there’s a bunch of two ones. Well that doesn’t really happen. It has to be close to, it sometimes has to be in the same neighborhood. And because if you have a weird property location and you’re like, Oh, it’s a mile away, well a mile can make a big difference.
Danny: Huge difference.
Charles: What side of the road you’re on if you’re going, if people are commuting all this type of stuff. So really figuring out and finding those comps, that’s when you really have an idea of is this a good deal or if this is going to work, that’s what in, you know, in our experience how we do it. So what are some of the red flags that you’ll see with a potential purchase? Where you might sideline it or you might have to put into a little bit more in depth funder writing before moving to the next step.
Danny: Yeah. One of the first red flags that we would have is from a physical location perspective. So as you said, a mile down the road or the different side of the street can make a significant difference. And so we always will go out and do a physical walk through of the property. And you know, grant Cardone is famous for saying it’s all about the feel when you get there and it makes a huge difference. So does it feel good? Do people look happy in the area? You know, is it well maintained around there? Are there things within walking distance that are closed? Right? Everybody wants to walk down the street to whole foods or at least jump in the car and be there in five minutes. And so we, we value a lot on that feel. And if we get to a property, and you know, it might be a very nice asset, but directly across the street is an eyesore property. And then down the street there’s a vacant building, like that may be a red flag for us. And so if it doesn’t pass our field tests, we would kick it out. Another red flag would be from that comp perspective, if we’re not able to add enough value to a deal, if we can’t get the hundred and $25 rent premium and maybe the rent premium is only $65, like that may not work for our business model. And so from a financial perspective we kick out a lot of deals. If, you know, the broker may tell you, Oh, it’s $150 rent premium, but then you do your own research and you realize that it’s maybe 75 and it ruins your business model. So that would be another red flag to kick a deal out. And then I would say thirdly, you know, if the seller is trying to hide something we, we buy from institutional sellers. And so it’s, it’s all professionals. There’s not, there’s not a lot of times where that happens and you know, we of course do all of our proper third party inspections and you know, lender diligence and appraisals and environmental studies and what else from a construction standpoint we’ll do surveys and all of those fun third party reports that that cost a pretty penny when you’re looking at a closing statement. But you know what that does, it allows us to bring the professionals in and really get down to the nitty gritty and make sure that it’s the, the deal that we expect to be buying.
Charles: Yeah. You’re all dealing with 150 unit plus complex. Is that correct? Right. Okay. Yeah. So with that, it’s going to be much more professional than getting someone that’s running stuff through Excel. I’m in pop situation stuff on paper still. Yeah. Yeah. I mean we look at, that’s a smaller stuff that comes in, but even, I mean, we were reviewing a 45 unit and they were doing their accounting on a, all the accounting was done on the bank statements. It was crazy. It’s amazing how it goes. But that’s where you have to really double check what you’re doing. And you, yeah, we’re going to make it a deal. You might not, but the thing is that it’s not as professional where you’re having all your bills, they keep all their expenses, the rent rolls are updated, everything is, you know, I’s are dotted, T’s are crossed. So when you’re speaking to new, you know, you do a lot of speaking engagements and I saw you speak once before and when speaking to new investors, what do you suggest for them when they’re starting out?
Danny: Number one, you have to define what your goal is. So I see it a lot where investors will struggle. They’ll just say, I want to, I want to investment, I need an investment property. And it’s like, what are you looking for first and what’s your goal? So that’ll help you to find your criteria. If you’re looking for an asset that’s bet generates a lot of cashflow, you know, that may be a different asset to invest in as opposed to something that’s maybe a mix of value add and less cashflow. So defining the goal is, is number one, and you should be able to define that goal. In a couple of hours, right? Sit down, turn the technology off and truly think about what is important to you, to your life situation and what type of investment is going to bridge that gap, what is the right thing for you? And then second to that, number two, you just have to get started. So there’s a lot of people out there who will say, there’s no good deals or you know, I need to find a partner first. I need to get an LLC set up. No, define your goal, figure out what asset class you’re going after and then go and buy something as quickly as you can. Because I think getting started is going to be what teaches you and it helps you get over that hurdle. So then you can go out and find deal number two and so on and so forth.
Charles: You get the momentum going and you’re always going to make mistakes. But it’s one thing is a [inaudible]. I, I keep a list of different mistakes I’ve made with real estate and stuff. You would never do again. Stuff mistakes you made. I mean, imagine you have that written down or not where you’re like, well, I’ll never, I’ll never buy this type of property again or this ass or this, you know, this unit mix or whatever it might be. And I’m not that you’ve lost money on it, but maybe you didn’t exceed your expectations or meet your expectations. And that’s very important when you’re, when definitely when you’re dealing with investors money what are some of the things you would say to to avoid other than just sitting in your hands and kind of pushing everything back. What do you see from other new investors that come in? I mean, I know obviously being educated and there’s so many different avenues with real estate, you can make money in wholesaling. You, you know, has, we’re talking about investing passively and investing actively for longterm. What else do you see people do that are mistakes and maybe they come to you afterwards and they’ve said something to you for like new investors.
Danny: You know, one mistake I think that a lot of people make is, again, taking too long to get started. So have a true look at your, your goals in your current situation. And so, you know, I hear a lot of people that say, I want to be a multifamily syndicator. I want to buy 150 unit apartment communities. If you have no real estate experience, right? Smart investors should never invest with you if you have zero experience and you want to go out and buy one massive deal. So from that point you need to understand where you’re at. You need to get started and getting started before you buy an asset. It could mean networking, finding someone with experience that you could work alongside or work for to build that experience. Also, you know, doing large multifamily deals, it takes money of your own, right? We have alignment of interests. I personally invest in every single deal as well as my business partners that our investors invest in too. So that alignment of interest is important. And if you have zero money starting out, you know, maybe you need to start wholesaling a couple of deals to get the rhythm right. It’s going to help you identify a good deal because someone should buy it for more than you get it under contract for. And I think there’s a lot of ways that you can get started. So again, it really comes back to what’s your goal and what do you need to do to bridge that gap. So if your goal is to buy a property with cash flow, you know, do you have money to do that? If you don’t, how do you build relationships? How do you start to accrue? Yeah, that equity nest eggs, you can get started.
Danny: Yeah, I think that’s, the proof of concept as you did it. When you’re with your commercial property, where you invest it with your own money, you, you solidified, you know, the value add, you got your money back out, you went through the whole business plan pretty much with that property. And now you can show it to investors that you have experience, but you know what you’re doing. I think the other thing too is the lack of money, which, whether it’s with syndicating, you’re not just going to come out. There’s tons of money up front the to put down. With all those reports you’re talking about all the inspections, extremely expensive, the earnest money that has to go hard, all this kind of stuff. The other thing too is if someone’s not even syndicating or just buying a property and they’re just having issues putting together the down payment, it’s a recipe for disaster because without the reserves you know, it’s just a mess. It’s going to go back to the bank because you just, whatever HVAC is going to go wrong, sometimes going to break something, you need to have the reserve that go into it. So it’s really having that, you know, you gotta have the money and you’ve got to have, when you start taking investors’ money, I think it’s, you’ve got to really have a experience with your own money prior and
Danny: Couldn’t agree more.
Charles: Yeah. So you’re also an author and mentor. So tell us about, tell us a little bit about that.
Danny: Yeah. So in in my free time, I like to write children’s books and it’s all focused on money and financial lessons. So I’ve got a series out there, it’s called the wealth lessons for kids. I’ve written two books so far. They’re both available on Amazon. The first book is called the boy who lost his wallet. And it goes through the lesson of the importance of taking responsibility. I truly believe that every person out there is responsible for their own financial situation. Whether you’re five years old or 50 years old, it’s your responsibility to handle and track your money, right? You need to know how much income you’re making, how much your monthly expenses are, and manage the both of them so you can ultimately save money every month. And put that money back to work for you. Don’t spend it on silly consumer items, but having money work for you is the way to financial freedom. It’s the way to living a comfortable life where you’re not worried about your finances on a regular basis. The second book is Danny and the ice cream and it’s a, it’s just a basic book on how to kinda count and spend your money when you do that. And so I really target, you know, the young people of the world with these books. And so parents and aunts and uncles and grandparents can have fun with the young people and also teach them valuable life lessons that I learned through my personal experiences. And so I documented them in those books. And then from a mentoring perspective, you know, I just work with people in my community on an informal basis to help them get started and help them achieve their financial goals and investment goals and help people, you know, figure out how to put their money to work for them so they can live the abundant life that they deserve.
Charles: Yeah, that’s great. It’s so important that people have to get personal finances in line because I speak to people and you know, you can’t manage a business money or especially not investors money, if you’re, you know, if you can’t get your personal finances in line, it’s so important before taking the next step into investing into anything. So how can people learn more about you, Danny and your business?
Danny: Yeah, well if you’re interested in investing passively and multifamily real estate, go to our website, PassiveInvesting.com and then if you want to check out what I’ve been working on or some of my books or podcasts or blogs, just go to dannyrandazzo.com and you can get all of the information there to stay up to date with what I’ve been working on.
Charles: Okay, great. I’ll put all those links in the bottom of the video and on the podcast. So I want to thank you today for being on the show and let’s touch base soon.
Danny: Charles, that sounds great. Thank you so much for having me on today.
Charles: Thank you. Bye bye.
Charles: Hi guys, this is Charles from the Global Investors Podcast. I hope you enjoyed the show. If you’re interested in investing in real estate and you don’t know where to begin, set up a free 15 minute strategy call with me at schedulecharles.com. That’s schedulecharles.com.
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Links and Contact Information Mentioned In The Episode:
About Danny Randazzo
Danny is an author, entrepreneur, host of a real estate mastermind, national speaker, and volunteer with The First Tee.
He has over half a decade of professional experience working as a financial consultant.
He advised multi-billion dollar companies and helped them achieve results in areas that include improved revenue performance, increased profit margin, and enhanced technology utilization.
His passion for financial freedom started when he was five years old running small businesses to make extra money. In high school, he read real estate books and studied finance to understand the power of owning assets.
His commercial real estate knowledge (from books) gave him and Caitlin the courage to buy their first investment property, which was a $1,000,000 building.
Within the company, Danny is focused on asset management, building relationships, investment analysis, planning, and all things finance.