Best Real Estate Investing Advice Ever Show Podcast

JF1189: Starting Small Leads To Quick Success & Bigger Success with Dan Lesniak

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Dan is a real estate broker, developer, and author who got started by selling other condos in the building he was living in. According to him, that was a key part to his success, by starting small and building a reputation, he was able to leverage and scale to more places, doing more business quicker than had he started by going bigger. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Daniel Lesniak Real Estate Background:

  • Real Estate Broker, Developer and Author – ‎Optime Realty
  • Author of The HyperLocal HyperFast Real Estate Agent- provides detailed strategy
  • Made $500k gross in his first year as real estate agent
  • Helped hundreds of buyers and sellers complete over $250 million in sales
  • Based in Washington, D.C.
  • Say hi to him at www.hyperlocalhyperfastbook.com  
  • Best Ever Book: Awaken The Giant Within

 


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TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any fluff. With us today, Dan Lesniak. How are you doing, Dan?

Dan Lesniak: Great! How are you doing, Joe?

Joe Fairless: I am doing great as well, thanks for asking me and thanks for being on the show. A little bit about Dan – he is a real estate broker, developer and author. His company is Orange Line Living. He is the author of The HyperLocal HyperFast Real Estate Agent. He made $500,000 gross in his first year as a real estate agent, and he is based in Arlington, Virginia. With that being said, Dan, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Dan Lesniak: Sure. Just real quickly, I started off in real estate about five years ago, and I had a great first year right off the gate. I did about 22 million in sales, 26 transactions, and shortly after that I started to form a team. Eventually, I met my wife through real estate. She also had a team, so we combined the two teams into one that we co-run with a couple different brands.

Right now we’ve got our own brokerage, we’ve got about 36 people, and we sell about 350 homes a year, so that’s a big focus of ours, of course.

The second thing we focus on is development deals. My wife has a background in new construction sales, that she did before she got in a general brokerage, and as a part of our general brokerage strategy, she’s helped a lot of custom builders do infill deals in our area. We’ve got a whole program here that’s generating lots for builders.

A couple years ago we started to realize we should become partners in some of these deals with the builders, put our own money and get our own loans and raise our own money from investors… So we’ve expanded, started to do that… We typically do 4-6 homes a year; they’re usually complete teardowns, and new construction.

That’s been going well, and of course, as you mentioned, the book came out a couple months ago and it’s been doing well; it talks about my first year in real estate, and some of the strategies I use to grow so quickly in the area… So that’s a little bit of a background of where I’ve been and what we’re doing now.

Joe Fairless: We’ve got a lot to talk about, and I’m looking forward to digging into the details… Let’s start with probably the area that you get asked most frequently, but it’s for good reason… Your first year, grossing $500,000, and 22 million dollars in sales, 36 transactions – what are the strategies that you used to grow so quickly and do that?

Dan Lesniak: The biggest overarching principle was to really focus on a process I call STP, which is Segmentation, Targeting and Positioning. Segmenting is how you divide the market up; basically, how are you gonna cut this pie that we call the market? Target is which of the segments are you gonna go after, and positioning is how are you gonna position yourself to that segment, as the person that can create value for them, and ideally the most value.

When you’re thinking about the focus you wanna have, the segment you wanna go after, it’s important to make it small enough that you can have an impact. The smaller it is, the smaller the market piece you’re going after, the easier it is to have an impact. Your energy, your time, your marketing dollars are gonna go further if they’re concentrated amongst fewer people. So it’s important to do that, and important to pick a segment that has a cohesive profile, so that you can send a marketing message that will really appeal to them.

That being said, it is possible to take a segment that’s too small. If you own 100% market share of a segment that produces four or five transactions a year, that’s not gonna be a very good business. It’s gotta be a big enough market share that if you were to become the [unintelligible [00:05:08].07] agent in that segment, that you’d be able to have a good business off it. But I feel like most agents, especially when they’re starting out, they try to go after too big of an area, or too widespread of an area. The typical strategy is they go after their sphere of influence (SOI) and that’s gonna be a very diverse, both economically, socially, geographic group. So you’re missing out on a lot of benefits there.

In my case, I decided to basically go after the buildings that I lived in at the time. It only had about 200 homes, so I started to get a few of the sales in there, and then kind of spread out into other adjacent buildings and houses.

Joe Fairless: Going after the sales and the buildings you were living in… So you were living in a condo building?

Dan Lesniak: Correct. Yeah, I was living in a condo building. It was about three or four years old at the time, so it was about the point where people are starting to outgrow their condo, so turnover was starting to happen. But yeah, initially I just really focused on 182 condos that I thought would be coming up for resale soon. I got a few clients there, and luckily, most of the people selling there were looking to move into adjacent condo or townhouse communities, so that kind of just helped me naturally spread from one building to all the buildings around the one metro stop, and then to the next metro stop, and so forth.

So it really all started with having a narrow geographic focus and specific target, and all of my marketing was positioned and directed to those people.

Joe Fairless: You have provided insights that I’ve seen Tim Ferriss talk about, John Lee Dumas on Entrepreneur On Fire – his recap of 1,000 interviews that he did with entrepreneurs, he mentioned the same thing you mentioned there, smart… It is smart, but I didn’t mean to say smart — the smaller the market piece, the easier it is to have an impact. That is initially counter-intuitive to a lot of people, myself included, because when you get started you wanna reach everyone; you wanna grow your business to reach as many people as possible, but the reality is if you start with a very specific group in mind, deliver on those expectations or exceed their expectations, then you can grow and evolve from there. Is that what you did?

Dan Lesniak: Yeah, I started out there, I probably  in that first year got close to 50% of the market share in that building. Then if you do open houses there, you’re getting directional signs, you start mailing about those success stories to adjacent areas, and now you’ve got sellers that are looking to move into bigger townhomes or bigger condos, so you can go to those areas and tell them “Hey, I’ve got the buyers…”

By starting small and really just trying to get one, two, three, four sales in that first building, I was able to have some quick success that I was able to leverage into more success.

Joe Fairless: Let’s talk about development deals. As a real estate agent and now broker, you have evolved your business, which I compare to a fix and flipper evolving their business from fix and flipping to then investing those profits into long-term rentals. So instead of you being transaction-focused – which you still do, where you sell homes, but you also have the long-term play where you’re an owner on these development deals… What was the biggest challenge that you and your wife had, evolving from transaction-based to then becoming partners on the development deals?

Dan Lesniak: Initially, it was just such a big capital commitment… The first deal we did was a one-acre home in Arlington; they contacted us, one of [unintelligible [00:09:17].26] one of the townhouses we were selling. I knew that that townhome was gonna sell quickly, so they couldn’t write a contingent offer… But I knew I’d be able to quickly sell their existing home. Then my wife said “Hey, that’s one acre. We could probably get like four or five houses out of that.” Most of the homes in Arlington are like an eighth of an acre or smaller… So we decided to buy it from them directly, so that they could move into the townhouse that they wanted, so they were happy about that… But it was a two-million dollar purchase for us, which at the time was a lot.

We didn’t have a history of development at the time, so banks options were requiring us to put 30%, 40% down, things of that nature. So it’s just kind of that first, big, initial loan was a little scary, and we just kind of jumped into the deep end…

Joe Fairless: How did you get the money? Was that your own money?

Dan Lesniak: Half of it was our money, and then we ended up partnering with one of the top two or three builders in the area that did custom homes; they put the other half of the money, and we basically became a 50/50 partner. Our role was to give input on designs and what the end product should look like, and then sell the four homes. Their role was to do the engineering and build the homes. So we each put in half the work and half the equity.

Joe Fairless: Did you pay cash for that, a million each, or did you have a loan?

Dan Lesniak: We got a loan. We ended up putting 300k each, and then a loan for 1.4.

Joe Fairless: Okay. What type of process did you have to go through to get approved for the loan? Anything noteworthy?

Dan Lesniak: We went with a small local bank. They tend to be the ones that do the investment and spec build type loans. The bigger banks and regional banks seem to stay away from that. So it was a local bank. We had to provide them with personal financial statements and a few years of our earnings and tax returns, but other than that I don’t think it was too out of the ordinary.

Joe Fairless: Okay.

Dan Lesniak: A little bit of legal work… We had to form a separate LLC with the builder, but that wasn’t too big of a hurdle either.

Joe Fairless: Have you sold those four homes?

Dan Lesniak: Yeah, those four were done about two years ago, [unintelligible [00:11:40].27] Overall, it was a really great project. We put in 300k to kind of get it going, and I think we walked away with about 480k in profit, and it took a little under three years total. Yeah, we were happy with it.

Joe Fairless: Do you take any of those profits – or maybe not those particular profits, just profits in general – and then invest in long-term real estate for you and your wife?

Dan Lesniak: We haven’t yet. We’ve bought and sold rental homes before, and typically we’ve done that through our guaranteed sale program. We have a program where we guarantee the sale of homes for move-out buyers and give them a price upfront; if they agree to it – great. If their home doesn’t sell, we buy it at that price. We’ve acquired two or three rentals through that program, so we’ve definitely used some of the profits to do that.

We haven’t really held on to any of them for more than a few years. We tend to kind of rent them, try to get them cash-flowing, but if we see a chance to sell for profit later, we do that.

So we’ve done that, we’ve reinvested some of that money into two new projects, and then the other thing we’ve added – we’ve got three different development deals going on now, but now what we’ve added, because of our success on the first one and because some of our past clients have heard about that, they’ve wanted to participate somehow… So we’ve basically gone out, we’ve raised the majority of the down payment now, and put those people in kind of like a second position behind the bank, and they a preferred return of 15%. So now we’re able to do projects of similar size, but not have to write such enormous checks to do it.

Joe Fairless: A 15% preferred return – did I hear that correctly?

Dan Lesniak: Yes.

Joe Fairless: And how long does the project usually take? Two, three years?

Dan Lesniak: If it’s one house, it’s about a year, because we have done some where you just buy one house, tear it down, build a new one. If it’s a subdivision where we’re gonna take one or two houses and try to get four out of them, that can take about two years.

Joe Fairless: And let’s go with just one house to keep things simple – one house, it takes about a year… That 15% return – that isn’t paid out once you close and start working on it, it’s deferred until you actually liquidate, and then they get the first 15%… Is that accurate?

Dan Lesniak: Correct. So if they put in 100k and it takes 12 months, we’re writing them a check at the end for 115k.

Joe Fairless: Okay, and do they have any upside on the deal, or is it just the 15%?

Dan Lesniak: No, so far the only structure we’ve used has been a straight 15%.

Joe Fairless: Okay. And when I say “just”, I mean, 15% is amazing… I don’t mean to trivialize that, I was just curious if there’s any equity participation. Okay, based on your experience, what is your best real estate investing advice ever?

Dan Lesniak: I think my best advice would be to just find something that you like and that excites you and just jump in and do it. There’s probably dozens of ways or even hundreds of ways to make money in real estate, and until you’ve done it, it’s gonna be new to you… There’s gonna be some few of the unknowns, and uncertainty… If you let that get in your way, you’ll always find the reasons why not to do something.

Real estate has the advantage of having a lot more flexibility than most investments. If the market turns on you, you don’t have to just throw up the flag and surrender; you’ve got options to refinance, restructure, change the purpose of whatever you’re doing… So there’s usually a way to make it work.

My biggest advice would be to just find something that really interests you, and learn about it, read about it, get a mentor if you can, and jump in and do it.

Joe Fairless: I am the same way, I have a similar mentality as the one you described. Pros and cons to that mentality… What’s a disadvantage that you’ve come across with having the ‘jump in’ mentality?

Dan Lesniak: Well, you might not do it the best way; you might read something wrong and make a mistake, or even lose money when you do it that way.

Joe Fairless: What about a specific example for you? Can you think of a specific example where it hasn’t worked out?

Dan Lesniak: Yeah, the biggest example for me was probably about 12 years ago, so it was a long time ago, but I started buying my first home when I was fairly young – I think 23 – and I was in the navy, so I had access to [unintelligible [00:16:40].25] financing, so it was pretty easy because you didn’t have to put any money into it… And especially back then, anybody could get a loan on 2004 or 2005.

So I bought my first home in Jacksonville, Florida. That one went up in value a lot, I think like a 25% increase the first year or two… So I bought a second one, and that was going well. Then they were building some new condos in downtown Jacksonville and I thought “Oh, I can get in pre-construction, put down a deposit to hold it, and then two years or a year and a half when they said it would be done, I could sell it and make a ton of money.” Well, it worked out well for my first two homes in Jacksonville; I made I think $65,000 on the first one, and that was having put nothing into it when I bought it… But the condo, they said it was gonna take a year and a half to build; it took closer to two and a half, I believe, and by then the market had turned, so I basically had to walk away on my deposit, which at the time was close to $40,000.

It was pretty tough to do… Their developer was pressuring me to close, and my parents actually were, too. They were like “What about that money you’re gonna lose?” In my mind, I had made money down in Jacksonville, so I was happy about that, but I was also buying a condo in Arlington at the time, so in my mind had I made money in the Jacksonville scenario, or had I not lost that $40,000, the $400,000 condo that I was buying in Jacksonville probably would have cost 500k… Because you’re really only gonna lose in a down market if you sell and don’t get back in.

So I sort of took comfort in the fact that although I was losing 40k down in Jacksonville, a) I made about that much on the first house I did down there, but b) I was buying a home to live in up in Arlington, DC area. Had the nation’s market been such that the Jacksonville home worked out, I would have paid just as much, if not more, for the home in Arlington. So that was a good lesson. I think I looked at it in a way that  was healthy, and it helped me in evaluating investments since.

Joe Fairless: Are you ready for the Best Ever Lightning Round?

Dan Lesniak: Sure.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [[00:19:05].01] to [[00:20:09].07]

Joe Fairless: Best ever book you’ve read?

Dan Lesniak: Tony Robbins, Awaken The Giant Within.

Joe Fairless: Best ever deal you’ve done?

Dan Lesniak: The deal I’ve described earlier, where we bought the one-acre lot for two million and then turned it into four homes.

Joe Fairless: What’s a mistake you’ve made on a transaction that you have not mentioned already?

Dan Lesniak: I think there was a deal once where we waived the home inspection of a property we were acquiring for investment, and we ended up having to do a lot more fixes than we originally anticipated. It was the deal where we should have had the home inspection or looked a little bit closer before we made the offer.

Joe Fairless: What’s the best ever way you like to give back?

Dan Lesniak: We love partnering with local charities. There’s a couple that we’ve partnered with for a few years now… Number one is Doorways for Women and Families. They help women specifically, but also families that are going through hard times get back on their feet, get into safe housing, and then educate them so that they can get out of tough situations and go on and live happy lives. So yeah, Doorways for Women and Families has been a great partner for charity.

Joe Fairless: How can the Best Ever listeners get in touch with you? What’s the best way?

Dan Lesniak: You can go to my website, LiveTheOrangeLine.com, or HyperLocalHyperFast.com – either one of those two.

Joe Fairless: Dan, thank you for talking to us about what you’re doing, in particular how you’re generating multiple revenue streams with your company, how you got started in selling homes – a very strategic approach… The segmentation, targeting and position approach, and how you mentioned “The smaller the market piece you go after, the easier it is to make an impact.” Make sure you have it large enough to actually make an impact, but be very specific and intentional, and pick a segment that has a cohesive profile, so that when you send the message to that segment, it will resonate with the majority of the segment.

Additionally, how you’re partnering with builders to develop properties, bring in money, now bringing your money and investor money, and sharing in those profits… In that one example you gave us, you put in 300k, it was the first deal that you did, it was a big ol’ one at the time, and I imagine 300k is still a large deal to you, but still relative to the amount that you had been doing in the past, 300k certainly was a big chunk, and you ended up making over $400,000 in the course of less than three years.

Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Dan Lesniak: Thanks a lot, Joe.

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