YouSaid · the spoken record

Dan Handford

lines on the record: 49
first: 2022-05-15
most recent: 2022-05-15
sittings or episodes: 1
sources: podcast

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“Yes, I really do appreciate you inviting me on and being able to share this information and looking forward to coming back on and sharing some more insights later on as well.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“The offerings that are available to you. And if you go to our website, you could also go there and look at this Mariner Grove asset and sort of the details on it. It's under our current offerings tab on the website. So you can see more details on this particular offering. Luckily to fill out pretty soon, but if you go there and it's not available, then make sure you sign up for our list. And it'll be apprised of some of the future offerings that we have available coming up.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“Sure, sure. So if you're interested in kind of checking out the conference or whatever, it's very easy. Just go to mfincon. M-fin stands for multifamily investor nation. So MFINCon.com. It's the multifamily investor nation convention. It's in Charlotte, June 23rd, 24th, and 25th, just coming up pretty soon next month. So we'd love to have you go check that event out and we look forward to seeing you there and meeting you in person and shaking your hand. If you want to follow me more, you can go to my LinkedIn. So you can actually just go to link with Dan.com. That'll bring you straight over to my LinkedIn profile. You can link with me there and connect with me further. And then if you want to follow us more for it with our passive investing.com group, you can go to our website, passiveinvesting.com on the top right hand corner of the page is a blue button that says join the passive investor club. If you click that button, fill out the form. One of our investor relations team members will reach out to you, discuss your investment goals to see if our group is the right fit for you. And that way you'll be apprised of us.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“Is going to, this Marin Growth property is going to do really, really well. And the owners of this property right now, we've purchased multiple assets from them in the past. They're a great group. They take care of their assets. And so we're not worried about any major deferred maintenance that's going to cause any major issues with the property. Of course, it's only a 2016 vintage asset. So we're not worried about water main breaks or anything like that happening on the property or having to replace the roof during our tenure or anything like that. So it's a great quality asset that's going to continue to cash flow. continue to do really well. It's going to have a great exit for us and our investors and those that join us.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“Really helps the story, right? Because there's a lot of industry that comes in from that, which allows us to be able to see that there's a lot of growth that's happening in that market. There's a lot of growth that's going to continue to happen in that market, especially with this type of an asset, especially with some of the colleges and the universities that are there. There's a lot of growth that's going to happen in that market. And so it's poised for a lot of continued growth, even though it's already had some growth, it's poised for some continued growth because number one, it's a great market, right? As far as being in Savannah and the temperature is great, the weather is nice. It's on the coast there. I would say that it's one of those types of markets that in the beginning we looked at it and then as we continue to follow it and monitor it, we knew that we wanted to be in that market. So we've been looking at assets, even right now, there's another asset that we're investing vital on in that market that we are hoping to get. It's not awarded to us yet, but another sister property to Mariner Grove, but this property.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“Except for maybe Jockey. I'm going to work on him a little bit. His mindset is more around the leadership aspects of what we're doing. But Barbara Corcrane and Shaq both have a large portfolio in real estate. So we're going to really dive into their investment strategies and give opportunities for our investor to rub shoulders with them to be able to talk with him a little bit. But going back to your question about selecting the market of Savannah, right? So one of the things that we look for is we want to make sure that we have markets that have significant population growth. We want to make sure we have markets that have significant job growth, right? And we also want to see markets that have stabilized by some form of industry, right? So we want to see, especially like publicly traded companies, right? So those blue chip corporations are really what provide some stability in a market. And so we look for markets that have that. Of course, being the largest port on the east coast.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“Just to kind of tag a little bit in there about the MFI income that you mentioned coming up in Charlotte in June. Not only do we have Shaq, but we also have Jocko Walink. So Jocko is the author of extreme ownership and the dichotomy of leadership. He's a former U.S. Navy SEAL. And so we're excited to have him there. A lot of people know who he is and look great to have shared this with him. And of course, we have Barbara Corcran coming in as well from Shark Tank. So it's really exciting. It's going to be a great event. There's a lot of excitement coming around that event. And we've been doing a virtual event for our multifamily investigation group for quite some time, even before COVID. We were one of the first, or if not the first group in multifamily, to do an event that was virtual. And we've done almost, I think, like seven or eight in virtual multi-family investor nation events. And then now we decided that our group is big enough or they wanted to do a live in-person event. And of course, we wanted to do it with a bang. And so that's why you have these great celebrity speakers that each one of them have a story around.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“Our team could grow with the portfolio, and right now we're sitting at about 39, 40 full time team members that are working full-time with passiveinvesting.com is because we know that we have to continue to hire people to be able to support the growth and the trajectory that we're on so we can make sure we can protect the investments for our investors, but also, again, for our own investments because our goal is to grow our wealth as well as our investors' wealth and our family's wealth together, right? We can only do that if we continue to have that direct alignment of interest.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“Finance and accounting and stuff like that, but are pretty easy to kind of share, right? But when I say you share, it doesn't mean you just have the same one or two people when you had multifamily manage that side of things. When you add on additional asset classes, you got to hire more team members to work in that account, right? And so as we continue to grow, we're able to grow that way. And one of the things from the very beginning that Danny Bryan myself decided on early on is that each one of these assets that we acquire, we charge an asset management fee, right? Usually between about 1% to 2% to be able to manage those assets. And we basically told ourselves from the very beginning that we are not going to take those asset management fees and put them in our own pockets as partners. We're going to take those management fees and we're going to put them into our passiveinvesting.com LLC operating account. It's going to be there to support the growth of our team because we know that more and more assets that we close and we acquire, of course, those fees also go up month after month after month, right? And so as those grow.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“Spending those clinics, we learned that even in this business with passiveinvesting.com, if we want to add on a new asset class, so when we were just multifamily, we said, you know what, we get a lot of feedback from our investors. I think we want us to be able to provide them with some opportunities to invest in some self-storage assets. We actually set out to find a self-storage team that could help us be able to manage that business unit so that we don't take our focus off of the primary and the core aspects of what we're doing with multifamily. So we hired on a team to manage that particular asset class. And then as we started to branch out into hotels and express car washes, we again hired on a team just for those different, we call them kind of business units, if you will, those business units to be able to manage those so that we have this diversification of our team members across the board. Now, there are certain things that you can share across the asset classes.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“During that growth period, which allows us to be able to expand into the third and the fourth location successfully without having any dramatic impact on the first two locations. And so what we decided is that, you know what? In order to grow and expand these clinics, we have to hire on ahead of time and actually put these people in some training, and this is just some trainers so that when we hire, when we open up this next location, we already have another core team that can support that location. So as we started to grow these clinics, that's what we learned. And then also we learned that we can't monitor the numbers on a quarterly basis anymore. We have to monitor the numbers on a daily basis to be able to make sure we can shift and pivot as necessary. And so being able to set those KPIs and watch them on a regular basis like that allows us to make those pivots and those changes a lot faster instead of waiting until there is already a major problem in place, right? And so we learned a lot about that going through there. And so because of the learning curve that we had.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“Like it. I really enjoy investing with you, and but I'm concerned, like I'm concerned that you're growing way too fast. Maybe you're spreading yourself too thin with too many alternative asset classes. And so I'll kind of share with you a story from I actually owned four non-surgical orthopedic medical clinics. And when we were growing those clinics, one of the challenges that we saw is when we actually grew to the second location, we went from one location to the second location. We ended up taking our entire core solid team from the primary location, the first location, and moving them to this new location. Because my thought was, I don't want that new location to fail. So I'm going to give them its best opportunity to be successful. But guess what happened? We took our eyes off of the primary one, right, of the first location, and it really started to suffer. And we didn't notice it until like three or four months down the road. And so there's a lot of things that we learned during that timeframe.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“It's a great question because even our investors, as they continue to see our growth, right now we've acquired just over a billion in assets in our group since 2018 since we came together as passivein.com. And we've seen a significant trajectory of the amount of money and capital we've been able to bring in. And it's all non-institutional capital we've been able to raise. So we raised money from just private high net worth accredited investors. And so I'll give you kind of a trajectory of how we've been. In 2018, we raised $4 million from our investors. In 2019, we raised $32 million during the middle of COVID. We raised $61 million. And then last year, we had a banner year and raised over $196 million from our investors to be able to acquire the assets that we've acquired. And so this year, we're on a great trajectory, even just in the first quarter, we graced over $110 million. So we're on this trajectory. And so we have had investors that have reached out and said, hey, you're growing really fast.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“Now, a good time to sell. And I'll give you a quick example of that recently. One of our assets that we sold last year, I'll also give you an example of one that's being sold right now. It's under contract just this week. We bought it for $51.5 million. So it was an asset out of Raleigh, North Carolina, and we held on to it for two and a half years. And in the BOV last year that we got from the broker, they said that we could sell it for between about $72 to $73 million. And our kind of five-year time horizon in Target to sell that asset was to sell it for about 68 to $69 million. And so, of course, we're looking at that going, wow, we've only hold this thing for two and a half years. We can go ahead and outperform and achieve the returns we had projected in five years and get it done in two and a half years. And so we pull the trigger and decided to go ahead and sell that asset. Once the bid started coming in, we ended up selling it for $79 million. So it was much higher than the BOV.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“Of the things that we always do right now is we're underwriting every deal on a five year hold and time horizon. And the reason why we say five to seven years is because it is possible in five years that it's not the right time to sell. And so we don't want to set up our operating agreements and our offerings to the point where we are forced to sell at any point in time because if there is an economic recession and there's a downturn in five years from now, we don't want to be forced to sell in that environment. So the investors in these operating agreements give us the flexibility to make the right decisions for them of when to actually sell the asset. And so what we do to make sure we're always trying to figure out when is the right time to sell every year that we're in the deal in each one of these offerings, we get a BOV, which is a broker opinion of value, which allows us to determine what can we sell this property for right now in the current environment. And then once we get that analysis back, we can determine is right.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“Unit for one year. And self store is renting it for 30 days. In hotels, they're renting it for one day. And express car washes are renting it for five minutes, right? So we can actually pivot a lot faster in a lot of these ones that are even outside of multifamily. So if the market starts to shift and change, we can adjust pricing to mitigate some of that risk and some of these asset classes very quickly. It can pivot a lot faster. And so those are kind of the four primary assets we have right now. And as we continue to grow and expand, we will expand into some other asset classes like industrial and small warehouses and medical office building, assets that we know that can do really well at any time of economic recession and also cash flow very well as well.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“You did the IPO, right? Or even DD, right? If you put your eggs in the Didi stock, it's really tanked right now. But anyway, so you want to create that diversification in your portfolio, right? So same thing in a real estate portfolio as a passive portfolio. You want to make sure that you have some diversification. Obviously, you want to have a diversification of markets within the same asset and also asset classes within the same asset. But you also want to have a diversification in the type of assets that you're investing in. So right now, like I said, we have the multifamily assets that we have. We have the self-storage assets. We have our express car washes and our hotels. Every single one of them actually has a different risk and return profile. And what's interesting is if you look at it from the ability to be able to shift and pivot quickly, multifamily, we have a one-year lease agreement, right? They're renting that.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“One of the things, so when we first started passiveinvesting.com, but we made the decision that we wanted to name it passiveinesting.com and not multifamily investing.com or self-storied investing.com because we wanted to leave ourselves open to the opportunity to add additional asset classes as we continue to grow. And so what we have seen over the last couple years is that our investors are starting to request additional assets. So we are the majority of our holdings right now is in multifamily, followed up by self-storage, and then Carl will express car washes, which is a topic that we may get into today, maybe not, and then also hotels, right? And so I'm an asset allocation perspective, it's great to have a diversification. So, you know, for many of you are listening that have a portfolio in the stock market, you're not going to put all of your eggs in one basket, right? You're not going to put all of your eggs in Rivian. If you did, you'd probably be in a bad position right now.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“Into some fixed rate debt. Even fixed rate debt right now is expensive. And the problem with fixed rate debt right now is that the debt coverage service ratio that they need on that fixed rate debt is pretty low. And so based on the current cap rates in the environment right now and the debt service coverage ratio, we're starting to see that the loan to values, the loan to costs are going down. So it's going down to 50, 55% on some of the.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“That are going to be distributed to investors in the short term, but they're still not going to be, you know, the property is still not going to be in a position where it can't meet the debt service, right? We'll still be able to meet the debt service. We'll still be able to produce great solid returns for investors on the full cycle end of the deal. It's just in the short term, because of that shifting of the debt market and where it's going to be, it's going to change. It's the nice thing and also the bad thing about floating rate debt, right? Because with floating rate debt and a great economy when the interest rates are kind of on the low end, right, we get the benefit, right? And then as the Fed starts to try to shift their policies or whatever, they start to increase the rates, we kind of get the brunt end of it, right? But then again, once they start to shift them back down, we get the nice benefit of it. That's the nice thing about the floating rate. So it should hopefully equalize over the life of the deal. But right now, we are starting to shift to start to see that sometimes it's better to.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“Will continue to rise. And a lot of the economists are saying it is going to continue to rise, but RISE is going to continue to rise in this environment. And what's going to happen is that the cash flows of the property will be reduced. And so investors have to expect that if interest rates do rise, there is going to be some cash flow fluctuation. So it's going to affect some of our projections. But the thing is, is that we can't when we underwrite, we can't speculate, right? We have never speculated with our underwriting. It's always been what's happening in the current environment and can we plan for the speculative side of things, right? We don't underwrite for it. So when I mean that we plan for it, we talked earlier about having ample operating reserves, right? So if there is some major shift in the debt market, we have this large increase in the rate and we start and it starts to impact cash flows. The biggest thing that's going to do is they're going to reduce in the short term the actual”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“So, right now, if you know anything about the debt market, interest rate caps are becoming more and more expensive. And so, yes, the lender requires us to buy these interest rate caps because they want to mitigate their risk as well of this increasing interest rate environment. And so, yes, we have been able to purchase that interest rate cap. And what we've done strategically is we bought a short-term interest rate cap over the next two to three years, which allows us to be able to kind of renegotiate the rate for the next two to three years as we're continuing to stay into this particular asset. But it is possible because this is a kind of private loan or bridge loan option that has a five-year kind of 311 option. We do have the option to be able to refinance in two or three years into a fixed rate debt at that time if we want, pull out some capital and return that back to our investors. So there's a lot of different options here, but from a debt perspective, there is risk there right now, right? Because there is some volatility in the market and it is possible that the interest rates.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“Asset and a 5% cap rate market. We buy another asset in an 8% cap rate market. Let's say that they're very similar asset. We spend the same amount of time, energy, and effort on them. We do some renovations on each one. We've increased the net operating income by $100,000. Well, on a 5% cash rate environment, we've increased that net operating income by 100,000. And the value of the property has increased by $2 million. But if we look at that same $100,000 that an 8% cap rate environment, we've only increased the valuation on that particular market properly in an 8% cyber environment by 1.25 million. So you can see that the exits for the same amount of time and energy and effort are much better in a higher quality market has lower cap rates. And that's what we go after with these types of assets.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“Markets, you're now starting to see those edge down to 5, 6, and 7 percent. But what's going to happen when we have some sort of economic correction, if you will, you're going to start to see those cap rates go back up again, right? And then the primary markets and those kind of higher and secondary markets, you're not going to see a major shift. You might see like a 50 to 75, maybe 100 basis point increase in the cap rates. But when you start to go into buy assets at a six, seven, and eight percent and this type of an environment and a tertiary and quaternary market, when you go to sell, you're going to have a harder time because now you're going to be having to sell at a 10, 11, 12 percent, or maybe even 13 or 14%. So those values of those properties are going way down. And so for us, we want to be able to buy assets that are in low cap rate environments to be able to have those higher exit potentials. And to give you kind of an example of those exit potentials and kind of the time and energy and effort that are involved with when it comes to the valuations and the cap rates, if we buy”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“High end secondary markets, where we know there's lots of competition for those types of assets. And some people might be scared sometimes of competition, but we actually look at it as almost like a litmus death. If there's not any competition, we don't want to invest there. And so if you look at cap rates, which is how you value a property, if you look at those cap rates and you say, okay, I want to get a higher cap rate, right? Because a lot of like, you know, gurus and real estate, you know, coaches and stuff like that will tell people, go look for high cap rate of asset. Well, I mean, high cap rate assets are usually in markets that have low competition and the only way they can get investors to go and invest there is to raise the cap rate so that of course again reduces their valuation but also reduces the valuation on the exit as well especially right now in the market where we're in we have very very compressed cap rates right now and even in these markets where you normally would have seen like 10 and 11 and 12 percent cap rates these tertiary and even”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so one of the things that you have to look at when you're buying these properties is the exit, right? And one of the things that the exit is based off of, or really the only thing that is based off of, is the NOI, the net operating income. And so there's two different ways to be able to affect the NOI. One is to go in and prove the property, spend some money to do some renovations and spend those CapEx dollars to improve the property and to get it to a better quality asset that will allow you to be able to charge more. And then the second thing is to reduce expenses. And so that's one of the things that we're really good at is going into a property, seeing what's missing in that property, add value from that perspective, but then also to be able to look at the expenses and see where can we shave off some expenses so it still allows to increase that income. And then the types of assets that we had tried to acquire are in great quality locations, right? So we try to look at assets in primary or at least.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“And the bath plumbing pictures, and having a more modern lighting package inside the property, including maybe even adding some of the ceiling fans. And then one of the things that's really popular right now is increasing or adding the technology to the units. So you have these technology package packages that you can add to the unit, which switch like smart thermostats and things like that that would allow us to be able to increase the rent and achieve rents of premiums of up to a dollar per square foot, which would get us more in line with the competitor set that's around the property.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“A lot of it has to do with location, right? So if you're in a great location and you have maybe a little bit of a lower amenity set, people still might want to drive an extra five or ten minutes, if you will, to be able to get to a location that would allow them to be maybe have a few more amenities on the property. And so for us, we always look at that competitor set and see what are the competitors doing? Why are they able to achieve a little bit higher rents than what we're doing right now? And what can we do on the existing property that would allow us to be able to go in and to be able to improve the property and to be able to maybe make some renovations and so for us, in addition to some of the exterior things like the pool enhancing the pool deck and adding a new dog park with some fencing, it's nicely nice saw it in there and also doing some additional landscaping and replacing a lot of the dead plants that are surrounding the property. We're also going to be updating some of the fitness equipment. And then one of the other things that we're looking at doing on the interior is maybe updating some of the kitchen.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so one of the things that we try to do is we try to buy assets that either are direct from the developer so that you have some opportunity for organic rent growth or we try to buy them from people that we have bought from the past that have good quality assets. And this particular asset is the rents are actually under market. And also the amenity set is undermarket. And so what we're going to do is we're going to go into this asset. And there's also some deferred maintenance. There are some different items that we've noticed that we want to clean up. It's about to improve the property and improve the community. And so being able to do that allows us to be able to look at our competitor set and see what are some of the other cop properties doing from an amenity set that are very attractive. And we can start to add some of those amenity stats to our property, which will allow us to be able to have the opportunity to increase the growth of the rents because we're now starting to be more competitive with the rents that have come in.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“Pretty quick, and then we don't have any more that can go into class A, right? So the large majority, and I'll give you an example. So like actually in Merida Grove deal, which is out in Savannah, Georgia, that deal has the two class shares and it's a 35.3 million dollar capital raise and the total purchase price is close to $100 million. It's $96, $97 million. So it's a large deal. But of that 35.3 million that we're raising for the equity side, only about maybe $3 to $4 million is set aside for Class A. So only about 10% of the capital stack is really there for that Class A stack. And so you can see that being in a beam in a Class A position is a really good thing. It has very, very low risk when you're trying to invest in that. And so when somebody wants those higher cash flows, it's a great opportunity for them to be able to invest in that share class or to get those higher cash flows. And then, of course, again, you are giving up the opportunity for the upside, but they're giving up that opportunity to.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“Return or for them not to be able to get their capital back. They are sitting in that preferential treatment position. And that's why I say as close to a guarantee as we can get is for our preferential treatment in the capital stack. And we do get questions from investors like, why would anybody want to invest in that if you could invest in Class B and get a 7% preferred return and then have the opportunity to get 15, 20, 25% return on these types of investments? And the answer to that is it really just depends on the investor because some investors are more risk averse than others. And so they might want to do a blended approach where they do like 50% in class A and 50% in class B and they have this kind of nice blended return profile on the same investment. And we also have investors that are maybe a little bit older and they don't necessarily really care too much about the appreciation. They want to hire cash flow so they can live off those cash flows during retirement or whatever. And so there's a lot of different dynamics there, but we don't usually have a large portion of our capital stack for Class A. So it usually fills up.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“We started Alfred these two types of share classes several years ago, and it was primarily because we had a subset of investors that wanted to have, I say guaranteed returns, but we can't guarantee returns, as you know. These are investments. So nothing is guaranteed. But when you are in a preferential position in the capital stack and you have a preferred return, so on our class A shares, we typically offer a 9% preferred return. And if they invest more than $250,000 and they get a 10% preferred return, with that preferred return, there's no participation in the upside over and above that. But what they get is they get a preferential treatment in the capital stack and then they also get their capital back before the class to the investors. And it's usually on about 20 to 30 percent of the capital stack. So the deal would have to go really south. I mean, like really, really south from DevNod to get their”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“Investors have the opportunity to make the decision as to whether or not they want to 1031. So if we have, say, 20% of our investors that says, hey, I want to liquidate out, we can liquidate out those investors when we sell that asset. The other 80% can actually move on to the next asset. And so the next asset that we 1031 exchange into is not a choice that the investors have. It is a choice that we choose that next asset and move on. Sometimes we already know in the TDEPs, we can tell the investors which asset we have chosen. So they can decide whether or not they want to 1031 into that asset. But usually at that point in time, most investors don't really have that much concern about it because number one, they trust us because we're always invested alongside of our investors in each one of our assets. They know we have a vested interest to make sure that the next vehicle that we put them into is going to be a great, solid investment. But at the same time, they're not really too concerned about it and everything else I've just said, but also they don't want to pay the capital gain tax on.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so whenever you go to sell the asset, if you do not 1031 exchange and you liquidate out, then you'll be subject of two different types of taxes. You'll have the depreciation recapture tax, and then you'll have the capital gains tax. And so if you have obviously been receiving the distribution depreciation, the negative K1s, if you will, at the end of the year, where you've been able to use some of that depreciation to lower your income, to effectively pay no income tax, then of course when you sell the asset, that's where that depreciation recapture comes in. And they're going to say, okay, you already took a benefit for the last three to five years on this depreciation. Now that you've sold, you've liquidated out and you did not do a 10, 31 exchange, we're going to recapture what we should have captured back when you used that. And so that's why it's powerful to use the 1031 because we want to make sure we can continue to defer that as long as possible. And if we can do that all the way up until we die and pass it over, then the recapture.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“Benefit. So on our assets, well, I'll mention that in just a moment, we kind of see usually on our assets. But the third level of depreciation is bonus depreciation, right? And so anytime of renovations or anything that we're doing on the property in those first 12 months, we can bonus depreciate that. And right now, it's been about 100%, but it's going to go down year over year over the next couple of years, I think like the next year is going to be like maybe 80%. It kind of tapers down. But that bonus appreciation still allows us to front load that to those first several years, which gives us those nice pops of depreciation. And that depreciation is going to offset any of the income that comes off of the property. And so if somebody comes into our assets and they invest.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“Residential properties, including multifamily. So even though multifamily is considered CRE commercial real estate, it actually still is classified as residential in the eyes of the IRS. So you get 27 and a half year straight line depreciation schedule. And then, of course, on the commercial side, it's 39 years. So you can depreciate that just basically take the value of the property minus the land divided by 27.5 or 39. That's how much depreciation you get every single year. But then there's two other additional levels of depreciation that you can obtain, which is accelerated depreciation, and that's where that cost segregation study comes into play where you can actually piecemeal the property down. And in certain parts of the property, you can actually accelerate to the first five to 15 years based on the life expectancy schedule that the IRS gives us based on the items that are in the property. And so what that allows us to do is to really front load a lot of that depreciation to those first five to 15 years, which allows investors to have really high depreciation.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“It comes to the types of assets that we acquire. Obviously, they're large, high quality assets, and they have a lot of depreciation available on them because every single one of our assets, we actually do what's called a cost segregation study. And some of the smaller investors might have heard of that before, but we basically have a asset, we actually have an outside engineer firm come into each one of our assets. The IRS is one that requires us to have the outside engineer firm come in. And they piecemeal the property down to the sheetrocks and the studs and the appliances and the countertops and the flooring and the shingles on the roof. And we can piecemeal the property down to accelerate depreciation. And so instead of, I can say, for example, like in a multifamily offering, like the one in Savannah, Georgia that we're doing right now, this particular one is a multifamily deal. And there's three different levels of depreciation that are available for investors in our offerings. There is straight line depreciation, which is pretty standard, right? It's 27 and a half years for.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“Debt option that's there to be able to make the cost of capital kind of more cohesive and then returns a little bit better for the investors and lower risk.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“You try to sell it earlier, then what you would originally projected. And right now, at the current market and the types of assets that we're buying, the bridge debt seem to have a better terms for us. Now, obviously with the capital markets in a major state of flux at this point in time, we're today sitting on a day where we actually have the Fed going to be probably increasingly the Fed rate by about 50 basis points, right? And so there's a lot of flux that's happening right now and a lot of the floating rates now instead of being based off of LIBOR, they're now being based off of SOFR. And so there's a lot of structure changes there as well. But typically as far as the structure is concerned, if it's an agency debt, you're usually going to have right now a little bit lower loan to value. So it's going to be like 55 to 65% loan to value. When you're using some sort of bridge debt, you're going to see that tick up a little bit, maybe 65, 70. If you're lucky, 75%. But usually works when you try to stay between that 65 to 70 percent range when it comes to a bridge.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“Depends on the market, right? So there's been sometimes there's usually like six to nine to 12 month periods where it kind of changes and shifts based on the debt market out there that's available at the time. So there's been times where we've used agency financing, whether it be Fannie May or Freddie Mac, if we get fixed rate financing that's long-term seven, 10, 12 year terms with usually some interest-only periods for the first three to five to seven years, depending on the asset in the market. Most recently, we've been doing bridge debt. So we're using some of the options that you mentioned. So we've actually used life insurance companies. We've used hedge funds. We've used other private funds. We haven't used any family office money, but it's those in those other institutional level funds that we've obtained our debt from. And they have a floating rate, which is a little more risky, but it also provides the ability to not have any type of prepayment penalties, if you will. that will cause the performance of the property to start to go down.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“Which again, that's just our conservative nature. And when we looked at in the beginning doing this, it reduced the returns for investors for sure because when you have a large operating reserve, you actually have to raise more money. The more money you raise, the lower the return is for all of the investors in the deal. But at the same time, that return only reduced it by about 100 basis points. So 1 percentage point is all it reduced it by. And so for us and our investors, they're like, absolutely, I'll give up 1% of my return profile to mitigate any future risks of capital calls and these types of issues of potentially losing the property or anything like that or the property happen to take loans to support itself. So we actually do that to be able to make sure that we have a much more conservative deal. And yes, we have to bring on more money, but at the end of the day, it allows everyone to be able to sleep well at night. That's that SWAN principle, right? Sleep well at night. And so we have a lot of operating reserves.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“For eight months, right? But the chances of the property going down to zero percent is pretty remote. But if you look back in the last hundred years, all the recessions and economic cycles that have occurred, the recessions don't normally last more than about 15 to 18 months. So as long as you can hold on to that property and continue to support the property for at least 24 months or even 18 months, right? We always plan for 24 months. You can hold on to that asset to the other end and you'll do really, really well. And so for us, even though we have this eight months of operating reserves, we're not going to go down to zero percent, right? And so that eight months of operating reserves will actually get us farther down the road. And when some people say they have 12 months of operating reserves, they really don't have 12 months of operating expenses and to go all the way down to 0% occupancy. They have a certain number that they would say if it drops below 25% occupancy or 30% occupancy, we can continue to support the property for 12 months, right?”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“Money, right? And so we gave a no interest loan to the property and we held on to that note until we ended up selling that asset. We sold that asset for higher than the projections that we had had originally. So it was a great return for our investors as well as us. But that's one of the lessons that we learned early on is that we want to make sure we have plenty of operating reserves. And so what we try to do is we have some groups might say they have 12 months of operating reserves. We're at eight, but with us our operating reserves at eight months is actually if the property goes down to zero percent.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so I would say one of our earlier assets, we didn't have enough operating reserves and we were doing a major renovation on that property. And with not having the major operating reserves off to the side that we could potentially pull, we actually ended up not being able to get to a position where we may have not been able to complete the renovation plan because the renovations went over our budget, right? And so one of the things that we had to do was as the partners actually had to loan the asset money to be able to keep it a better, not keep it afloat, but to be able to pay for the additional renovation so that we can continue to maintain the returns for investors. And so with that particular asset, even though in the offering documents and in the operating agreements we're allowed to charge interest if we loan the property money, we just didn't feel it was prudent to do that because we don't necessarily want to make our investors feel like we're just loaning money to the property to make extra.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“Every deal that we put under contract, we've been able to close. So it's a good track record to have. Of course, it gives us more confidence when we're going out there and putting $3 or $4 million on an asset that's hard in non-refundable day one.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“Well, oddly enough, with our types of acquisitions, we're raising all of our money from contract to close. So earnest money deposit actually has to be submitted within two days after contract signing. And so we don't raise the funds until we get closer to a week or two down the road once we actually get all the documents sent out. We do our webinar to promote the offering. And so we actually use our own personal capital to be able to do that. So we've never had to use outside capital or had to be even more risky and use the offerings of money because you never know. I mean, at the end of the day, it's possible that the offering, you know, the closing might not occur and you have to either eat that earnest money deposit or somehow try to get it back. And so we've been very concerned with that and said, you know, we're just going to put our own neck out there on the line and our partners. We have three managing partners, myself, Daniel Rendazzo and Brandon Abbott. And between the three of us, we put up all of our earnest money deposit. And so far up to this point, we have never lost earnest money. So that's a good thing.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“And then somebody comes in at the last minute and bids it up several million dollars more, and it just doesn't make sense to us at that point.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“The typical 10,000, 20,000 you might see in some of these smaller assets. These are pretty large assets. The earnest money deposit has to be meaningful. And that's one of the ways that we stand out. Then at the end of the day, a lot of it has to do with the purchase price. And so we pass on a lot of deals because when we do our underwriting very conservatively, we have certain metrics that we have to hit that we know that we want to hit as investors. We also know that our investors want to be able to hit as well and we won't be successful in that asset if we can't hit some of those return metrics. And so for us, being able to find assets that hit those return metrics and having a maximum amount that we are willing or able to pay for that asset allows us to having even more challenging time trying to find assets because we pass on a lot of them because the bid on these assets goes way up higher than what we can afford. And a lot of times we'll get into the best and final round and feel like we're going to get awarded the deal.”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT
“Well, I will tell you that it's very challenging. Right now in the market, we're underwriting dozens and dozens of deals every single week. And it's very hard to find deals that actually pencil. And then when we find deals that we feel like pencil, we try to put a great strong offer in and we get to the best in the final round in some of these assets courts. Because our group acquires assets that are in the kind of $20 to $30 million low end range upwards to maybe $100, $110 million. So the types of assets that we're looking at, there's usually a lot of good quality buyers. And so there's a lot of competition and there's a lot of institutional buyers. And so when we're competing with them, we obviously have to do a few things to kind of stand out, maybe have some additional hard money that earns money deposited that goes non-refundable day one and some additional earnest money deposit that goes non-refundable after the due diligence period. And we're talking about significant like seven figures of earnest money deposits. So we're not talking about just putting down, you know,”
2022-05-15 · We Study Billionaires · TIP448: A Way to Hedge Inflation? w/ Dan Handford · IDENTIFIED FROM THE TRANSCRIPT