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Global Investors Podcast
GI44: Medical Clinics to Over $200 Million in Apartment Syndications with Dan Handford
April 22, 2020
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Dan Handford is one of the managing partners with PassiveInvesting.com which is a national passive apartment investing firm based on the Carolinas. He has led his apartment syndication company to acquire 2,000+ units with a portfolio valued over $220mil in just under 24 months.

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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 Dan Handford. Dan is a managing partner of PassiveInvesting.com, an apartment investing firm based in the Carolinas. He has led his apartment syndication company to acquire over 2,000 units with a portfolio valued over $220 million in just under 24 months. He is a passive investor in over 4,500 units, spread over 21 different syndications and provides free education through his network of over 50 meetups spread across the US and his podcast named Multifamily Investor Nation.

Dan
How to be here, Charles, looking forward to providing some value to your audience here.

Charles
Okay, awesome. Thank you. Yeah. So can you give us a little background on yourself prior to starting your, your current business?

Dan
Sure, sure. So I guess it kind of all started back in when I was in chiropractic college. So when I was in college, I’m a chiropractor by trade. And a lot of people know that but a chiropractor by trade. And when I was going through chiropractic college, all of those students obviously need to learn about the skeletal system, especially the spine, the spine itself. And so I heard a lot of students complaining about the spine models being overly priced. And so they were charging in the bookstore that time 189.95. And so I started doing some research and found a distributor online at the time, that was selling it for a little bit cheaper than that. So I actually called the distributor up and said, Hey, if I can get an order of 20 of these spines together, and it was the exact same spine in the bookstore, you know, what could you get it to me for that said, $65. And so I was just thinking now To sell for $5 more and make a little bit of, you know, a little bit of money. And so I ended up selling it for 6995. And of course, these are college students. So I didn’t want to be having any IO use or anything like that. So I had them, you know, pay me up front with cash, check, PayPal, whatever they could. And then I was able to sell 80 of them in the first week. And I went home in class by class and just sold them from the front of the room and sold 80 of them with cash up front the first week. And so I was like, I wonder if I can get rid of the distributor and go straight to the manufacturer. And so that’s what I did. I found the manufacturer went straight to the manufacturer, got that spine model for $42 and 48 cents, including the shipping and of course went from just a little bit of money to a nice little little chunk of change in that in those first and then the next two weeks later sold another 40 and from there it opened me up to start my really first successful business that I still have today, called shoppingatomics.com will resell all types of skeletons and skulls and brains and hearts and plastic anatomy models for and doctors offices and universities across the country and around the world. So it’s a business that continues to do seven figures of revenue. And I have a good team that actually runs that for me, which when that company when I first started in chiropractic college and started that company, it actually grew to a point where it allowed me to start my first practice when I got out a debt free, and so I didn’t have to take any loans. And then even to this day, I now have four clinics that are now actually medical clinics, not chiropractic. We actually do a specific type of, of procedures, a lot of injection based procedures and for arthritis treatments as well. Some sports injuries, do a lot of Regenerative Medicine like prolotherapy PRP stem cell, and from the the revenues that we were making off of that, obviously, we were having to pay, you know, a large amount of money to the government in taxes, over six figures. And so we just decided that we wanted to try to find a way to reduce our taxable liability. That’s what kind of led me into the real estate side of things diving into multifamily and wanting to go large right out of the gate.

Charles
So you chose real estate, your i vesting vehicle, mostly for the passive income and then also for tax benefits.

Dan
Correct.

Charles
Okay, awesome. So what were your first couple real estate investments that you made? Were they passive in other deals? Or did you start off active? And so yeah,

Dan
So outside of my primary residence, which I don’t know, I know, it’s a real estate investment. But, you know, I don’t really think of it as like a real estate investment because you know, people buy houses all the time, right. But anything outside of my primary residence that I started doing LP or passive investing in apartments, and that’s when I first got started with and even to this day, all but one of my investments is and at an apartment complex.

Charles
Oh, wow. Okay. Yep. So

Dan
I started out as a passive investor, then started to syndicate our co syndicate with other operators for two or three deals, and then started to do my own deals. And then since then, I’ve been doing all my own projects.

Charles
So where are you guys focus right now your focus, obviously, you’re based in Carolina. So that probably is your primary focus. Where else are you guys looking?

Charles
Yeah, so I’m actually located myself and one of our other partners is located here in Columbia, South Carolina. And one of our other partners is located in Charleston. We actually don’t, oddly enough invest in Columbia, South Carolina, there’s just not a lot of economic drivers that really create some stability in this market. So there’s really four primary markets in the Carolinas that we’re looking for. The first one is going to be in Charlotte, North Carolina, and then Raleigh, North Carolina, the whole Raleigh Durham, Chapel Hill kind of triangle area. And on the south side is in Greenville, South Carolina and in Charleston, South Carolina,

Charles
Charleston, Okay. So what are the main factors your team looks for one underwriting a potential deal?

Dan
Well, the biggest thing that we’re looking for from the very beginning is is you know, can we achieve the business plan that that we’re trying to achieve on that property. And there’s a lot of things within the underwriting that can be changed or modified to make sure that we actually hit those those numbers. So obviously, you know, from from a high level, the return metrics are definitely something that we’re looking for. So It’s there’s two different types of assets that are that our group is looking for. The first one is going to be a B plus asset with some value, add a component to it, usually built between about 1995 to 2005, give or take a couple years. And then also a Class A asset, which has at least five years old, and has a very stable, you know, a history of financial history from when it came online. And so depending on which one we’re choosing, obviously, the return metrics are a little bit different as far as our targets as well as the whole time frame. So most of our assets, though, are usually between five to seven years old and are anywhere between about a 13 14% on the low end for those look for those higher end class assets, upwards to about about a 15-16% on the on the nice B plus assets.

Charles
Okay. What is your role at passive investing mainly?

Dan
So I’m primarily, we are all I’ll tell you all three of our partners are kind of, you know, separated in our duties. So we don’t have a lot of overlap. There are there is some overlap, but One of the things that I always that I’ve always learned from business in general and seen a lot of partnerships fail, is that you have to have some very clear delineated duties for each one of the partners. If each one of the partners are doing the same thing, a lot of times there’s a lot of overlap, and it creates conflict. And that’s when a lot of times these partnerships fall out. And so when we saw that set out to kind of find the partners for this for our group, we wanted to make sure we had people that were specific for each one of these roles. So my primary role is on Investor Relations, and marketing as well as on the overall strategic objectives of the group. And then we have our second partner, which is branded Abbot and his goal and role is really around acquisitions and construction management because kind of what his background is. So he works with the brokers a lot as well as the property managers and making sure that we’re hitting the targets and the budgets that we’re looking for, as far as when we’re doing our renovations. And then our third partner is Danny Randazzo and his his background is as a financial analyst, and so he of course does all of our things. Finance piece. He does all the financial due diligence, the financial underwriting works with the attorneys and the lenders and the like.

Charles
So when you’re focusing on Investor Relations and Marketing for your firm, what are some of the some of the activities that you you’re dealing with? Obviously, you have your whole education portion of your business with your podcast and everything like that. What are the rules? Are you taking on our activities? Are you taking on a passive investing? That kind of builds the brand, so for other syndicators that are building their brand right now?

Dan
Sure, sure. So there’s two sides of like you mentioned, there’s the multifamily investor nation group, where I have the MFA in podcast and I also have the MFA and weekly webinars that we do got a YouTube channel, we have all that stuff going on, that is really geared towards, you know, trying to educate other syndicators on how to do what we’re doing and how to do syndication in general because there are a lot of people that you know, think that they want to do syndication and then they find out about it. They’re like, Oh, man, there’s a lot of work here. You have my money, you do it right. And then the other side of it is is there’s a lot of options. To syndicators that have 401 K’s or IRAs that they cannot invest that in their own projects. And so because they know who I am, and I’ve taught them some things, they actually have invested in art projects as well. So it kind of goes both ways when it comes to that. But you know, as far as you know, the sure what the rest of your question was. repeat your question again.

Charles
I was just seeing exactly the different avenues you guys take.

Charles
Oh, yes, yeah. So, yeah, so I’m back on track now. Sorry, a little bit of a sidetrack there. Sorry about that, Charles. So you know, kind of that’s kind of what we’re doing from the MFA and the multifamily investor nation side of things. And then from passive investing calm, I have another assistant on that side that helps me from the investor relations piece. And he actually focuses on any of the investor updates that have to happen as far as you know, if an investor wants to update their distribution forms or transfer entities or, you know, we’re right where we’re raising funds for a project. She’s making sure that PP ends are signed and filled out properly and all the distribution information gets put into our portal. And you know, all that kind of good stuff as well. And then of course, we have a whole education arm for our own investors as well. I’ll kind of swing over here for those of you who are watching this thing live, you can kind of see, we actually put together these things right here, which is, this is our March 2020 newsletter, it’s a nice magazine that kind of goes out or newsletter that goes out to the investors, we do an investor interview. And then we also give them information inside of here, and then include things for the family, like a little word search on the back. And we also include a coloring page for the family as well. And that goes out there on a monthly basis. So we’re creating content for that. And then of course, when we have a project, we’re also putting together you can kind of see this on a high level. This is a project that we put together for our most recent deal. And basically just you know, it’s a 70 page, you know, investor packet or offering memorandum we put together and that goes out to all of our investors as well. So there’s a lot of things on the back end is going in from the education side, but also every investor we talked to we we have that comes through our website we talked to like me personally, I talk to each one of them and discuss their investment goals and see if they’re the right fit for us as well.

Charles
So we see you guys, we’re looking at B plus assets, A assets. What is the other specs that you’re looking for? How many doors Do you guys focus on? What are some of the things that you’re not looking for? That you would pass on?

Dan
Yeah, so I mean, we don’t really have a pert we don’t really have a door count that we’re minimum at. Ours is more of $1 amount. So we’re our minimum is 20 million in acquisition. So inevitably, you’re going to be pretty much over 100 units, probably over 200 units, depending on where you’re at. But, you know, our, our minimum is 20 million acquisitions. I mean, you know, before the whole COVID-19 thing happened, we had seven ello eyes out ranging from 35 million upwards to 72 million. So just obviously, when COVID hit a lot of those deals, kind of were put on hold and you know, things like that. So it just, it just depends but as far as you know, where, what what’s the what, where we’re actually looking Looking at for the rich for that for those deals, you know, we’re, we’re trying to find deals that make sense for our investors, which is one of the reasons why we pivoted in 2020. To go towards more of the higher end class they asked as because we had a lot of our investors that said, Hey, you know, we want to look for, we want to get away from C, because we think that’s a little more a little bit more risky right now, which if you ever do it, which if you look at across the entire spectrum of investments, anytime you see an investment and investment has a high return, what also comes with that high risk, right? And so you can see that same thing as you go down the asset classes. Class A, Class C has, you know, World Class D, if you want to go down there that far has a really high risk and really high return. But obviously, because of that high risk, it’s, you know, could potentially not work. Same thing with C class. It’s a very high risk, high reward. And you have your B class which is more of a kind of your moderate risk, moderate return. And then you have your a class which is low risk, low returns, they want to have this kind of nice diversified portfolio which right now, if you’re in B plus a class assets you’re not doing as bad as right now. And you’re going to start seeing some of these C class assets and these blue collar workers that are losing their jobs right now. And, you know, we’re on furlough because of this COVID-19. We don’t know what the impact is going to be, because this is the day before April 1, right? I mean, tomorrow. So we’ll, we’ll see what actually happens over the next couple of weeks.

Charles
So that transition to my next question, so how is your firm handling COVID right now the crisis? And I mean, obviously, we have no idea what’s really going to happen. Everybody can just speculate on, you know, per what their renter, you know, what the renter job allocation is, and stuff like this, but how are you guys handling it now? Before anything really hits the fan?

Dan
Sure, sure. So we’re prepared, right, that’s one of the biggest things we’re trying to do right now. You know, March runs came in, you know, as usual, this April 1 is really going to when the rents are supposed to be coming due when they’re gonna be, you know, showing us you know, on which one of these assets or we’d have more, you know, renters are going to be impacted the most. But before this even happens, obviously, from the property The management side of things, we’re making sure that you know, right now all of our amenities are shut down. We’re practicing social distancing, and we’re having extra cleaning and precautions and things like that. And we’re we have, we’re still doing, you know, on site tours on some of our assets, but obviously doing that using masks and gloves and all this kind of stuff as well. I mean, just just today I was having lunch with one of our partners, Brian actually he said actually one of our properties you know, early this week signed, signed up to more leases, right. So leases are still happening right now it’s just a little bit slower as far as the volume is concerned. But the other thing from a you know, renters perspective and making sure their rent payments are due, there’s really kind of three things number one, we’re making sure that you know, the rent the actual residents know that there is some assistance available for them so they’ve lost their job, there’s unemployment benefits available and where to actually go get those and obviously talking about the stimulus package and setting up payment arrangements for them if necessary. And in the for those people who were planning on leaving, going ahead and having them stay and maintain occupancy during this time, and maybe extending them out 369 months of their lease on a month on a monthly on the same rate as they were before. So we can maintain that occupancy and not being as aggressive on the rent premiums right now. And then the second thing, of course, that we’re looking for, we’re looking to do is for the property, our property itself, because we have on site management there, we’re looking for the payment, the payroll protection program with the SBA, which is going to allow us to build up, you know, offset some of the some of the downsides of what has happened with the COVID-19. And then, of course, there’s also the disaster relief Loan Program, which allows us to be able to take advantage of some of those opportunities as well. So a lot of different things that we’re doing and moving parts and making sure that the property will continue to be able to be able to sustain itself through a third is a little bit of a hiccup.

Charles
Yeah, we’re doing the same things. They’re letting all of our tenants know about the the government programs, whether that state, local, federal, you know, disinfecting your common areas, we’re doing our elevators you know, door handles twice a day. Just kind of just Just kind of getting in front of it as much as possible and trying to minimize disruptions with any type of with any type of rent that’s coming in. But we were chatting about a little prior, before start recording, but is it any way of possibly underwriting? Obviously, you guys had seven ello eyes out. So is there any way of possibly underwriting this? Are you guys putting all of your acquisitions on hold for 90-120 days? Or what? How is how do you guys go back now? And when you speak to Danny and stuff, like how are you guys even looking at stuff or pushing stuff off?

Dan
Sure, sure. So I would say the majority of the assets that we were looking at, we kind of pushed off because of the unknown, but depending on the acquisition, and then the asset, you know, there are we are still acquiring right now. So we have a deal right now that’s under contract that we’re we’re moving forward with actually closing it, probably in the middle to the end of May. Right. And, but obviously, when we put that deal together, we kind of knew that this stuff was coming along the line. So our rent, rent premiums are not very high like that over the next 12 months, I think it’s like $9. And it’s taken us 12 months to do that. So but deals that we were underwriting before that had a large heavy cap x, which that one doesn’t. But the ones that did have a low at large heavy cap x, where you’re trying to achieve those rent premiums over the next 12 to 15 months, and you’re renovating those interiors, and doing some updates on the amenities, those are gonna have to be pushed out, right, anybody who’s underwriting the deal right now, cannot underwrite that anything is gonna get done in probably the next three to four months. So to be able to, you know, underwrite for you originally projecting, you know, 12 months, it’s going to be at least 15 to 18 months before you can renovate those units and achieve the stabilization that you’re looking for with those rent premiums. So there’s, there’s ways to underwrite it, or that but the biggest factor that’s very hard to underwrite right now is the debt market. Because there’s so many so much volatile volatility right now on the debt that you don’t really know where your rates going to come in. So being able to stress test your underwriting model on the high that the best case in the worst case scenario and kind of coming up with somewhere in the middle is the best way right now to actually under these types of assets.

Charles
Yeah, the other thing too is when you’re talking about debt is the possible pending, like Fannie Freddie reserve requirements that I hear coming out where it’s now you know, you’re putting I was reading one year of debt and then one year of actually your maintenance and repairs, which used to be just like 250 unit or something per year or whatever. So that’s gonna be something that’s gonna possibly drag down returns, and then there’s also going to just be, you know, much larger raises. So,

Dan
Yeah, I mean, it really depends on the size of the deal. And it depends on where that asset is located. And because I know for Freddie and Fannie on their their small balance programs where they’re putting this on the most right, but when you in it also depends on your leverage point. So if you get below a certain leverage point, then a lot of times these reserves won’t be in play anyway. But obviously, the lower you have on your, your lower your lower your lower, you haven’t your leverage, the more equity you got a raise and of course, equity is going to be a little more costly than dead is when it comes to paying your investors. higher premium than you would an actual lender.

Charles
The Freddie small balance that’s one to eight or one to 7 million. Is that what that is?

Dan
Correct, Yep.

Charles
Something like that. Okay, so definitely not even deals that you guys are going to be working with. But for your smaller investors, that’s going to be something that which makes perfect sense. There’s not more volatility in the smaller deal versus something where you’re having hundred hundred 50 units plus, so you had a number of new and existing investors. So what are some common mistakes you see with new investors obviously COVID put aside just in your in your normal real estate career

Dan
Yeah, I think that one of the one of the biggest mistakes that I see is somebody trying to do this without having some form of a mentor ahead of time, because I can tell you right now that I wouldn’t have been able to put our group together and, you know, we wouldn’t be able to, you know, acquire over 200 million in assets and under 24 months if we didn’t have a good solid mentor beside us that was helping us and kind of building our credibility and then outside of that being able to code up with some Other people on our first couple of deals, to really kind of get our feet wet again builds credibility, not just with our investors, but building credibility with the sellers and the brokers and building that track record before we put down our first deal. And the first deal our group put together by ourselves was 130 unit property 8.9 million. And since then, we’ve just continued to grow. And our most recent deal that we closed on at the end of 2019 was a large 51 and a half million dollar acquisition. We raised 14 million in just under two weeks.

Charles
And did you guys co sponsor that with anybody? Or is that just completely

Dan
It’s just our it’s our Yeah.

Charles
That’s awesome. That’s fantastic. What how did you guys How did you meet your partners?

Dan
So Danny is actually my mentors, mentee so that we both have mentees or mentors. That’s how we met. And he of course, he’s only about an hour and a half away from me. And so we drove and met and then Brandon actually goes to my church. So him and I go to the same church together. He’s got a wife and four girls and I got a wife and three girls and a boy and our my wife and eyes Oh This girl has his youngest daughters, their best friends. So they, they kind of they have a lot of things in common as far as the church and school and things like that. But he started hearing about some of the stuff that I was doing and wanted to be wanted to actually come and join us. So he came and joined because his, his skill set was perfect for what we were looking for. And I feel like really, with our triad approach, our group is really solidify with that approach.

Charles
Yeah, your skill set definitely matches up. It’s so great how that is where you have someone that specialized in every different portion, so you’re not overlapping. So which is which is an awesome thing to have, especially when syndicating or doing any type of business that you have that so yeah. How can people learn more about you and your business?

Dan
Sure, sure. The best way to for people to find out about us is just to go to our website PassiveInvesting.com. There’s a little form on there. If you’re interested in joining us as a passive investor, you can click on the passive investor club form. And like I said earlier, I’ll jump on a phone call with you, my assistant will reach out to you and I will schedule a call so we can discuss your investment goals to see if we’re the right fit for you. Then if you’re interested in some, you know training on multifamily, you can go to MultifamilyInvestorNation.com or go to www.MFINPodcast.com to go subscribe to our podcast, which is all about multifamily. And we only interview people who are actively closing deals. So if you have to have to close a deal in the last 12 months in order to be on our podcast, we dive deep into those deals by how they found them, how they acquired them, how they work with the lenders, and the what have came out during due diligence and also how they work with the investors and about the equity splits where and how to get in a lot of the nitty gritty on these deals.

Charles
Awesome. Well, I’ll put all the links to that in the show notes. So thank you very much for being on the show today, Dan, and look forward to connecting with you in the future.

Dan
Awesome. Thank you so much, Charles. Appreciate it.

Charles
Talk to you soon.

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 30 minutes strategy call with me at schedulecharles.com. That’s schedulecharles.com. Thank you.

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Announcer
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of harborside partners incorporated exclusively.

Links and Contact Information Mentioned In The Episode:

About Dan Handford

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

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

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

Dan is also the founder of the MultifamilyInvestorNation.com (#MFIN) where he provides free multifamily education to a nationwide group of over 25,000 members. The #MFIN has 50+ meetup groups across the country that meets on the first Monday of every month.

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

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