JF2547: How He Acquired an Off-Market 7-Unit with Daniel Sarao
Working exclusively with off-market deals isn’t always easy, but if you ask Daniel Sarao, it’s always worth it. Today, Daniel tells us all about his recent off-market deal from his marketing, how he acquired it, how he made it worth it for the seller, and why he decided to sell it shortly after.
Daniel Sarao Real Estate Background:
- Co-owner and managing partner of investment firm Sesa Properties
- Owner of a boutique marketing agency in FL
- Has been investing for about 10 years
- Currently owns a handful of properties and has wholesaled and/or flipped 20+ properties in the last 12 months alone
- Based in Cape Coral, FL and company is based in Cleveland, OH
- Say hi to him at: sesabuyshouses.com & digitalmacaw.com
- Best Ever Book: Profit First
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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the Best Real Estate Investing Advice Ever Show. I’m Joe Fairless. This is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of the fluffy stuff. With us today, Dan Sarao.
How are you doing, Dan?
Daniel Sarao: I’m doing great. How are you doing, Joe?
Joe Fairless: I am well, and looking forward to our conversation. A little bit about Dan, he’s a co-owner and managing partner of their investment firm, Sesa Properties. He also is an owner of a boutique marketing agency. He’s been investing for about 10 years. He’s based in Cape Coral, Florida. His company is based in Cleveland, Ohio. He currently owns a handful of properties and has wholesaled and has flipped 20+ properties in the last 12 months alone.
So with that being said, Dan, do you want to give the Best Ever listeners a little bit more about your background and your current focus?
Daniel Sarao: Sure. So my name is Dan, obviously. I’ve been in the real estate game, started off doing a lot of the house hacks and things like that when I was about 25-26 years old, grew a little bit doing about three or four of those with my wife, and then really started to look into investing in properties, mostly single-families and small multifamily properties in Ohio and Florida primarily, and then grew into a pretty strong relationship with the realtor team that I was working with in Cleveland. And one of those individuals I actually started the company, Sesa Properties with. And we started out, like many people do in Cleveland, with the wholesaling strategy, and over time, we’ve actually shifted into actually purchasing properties for cash, which has worked out better for us, and then doing minor rehab, so kind of wholetailing, and then listing them on the MLS for what we’d like to think of as pretty significant profits.
Joe Fairless: Mm-hmm. Give us an example. Do you have a recent deal?
Daniel Sarao: Yes, one recent deal we actually picked up — and everything that we do is off-market; very rarely, I think maybe one or two times we’ve picked up a property on the MLS. So we are mostly doing direct marketing, directly to sellers, and most of the time it is for investors that are looking to get rid of investment properties, rental properties, things of that nature.
So one lead we were really proud of, because we worked on this lead for, I would say, about 14 months all total. Essentially, it was a seven-unit property in a pretty shady part of the Cleveland area. So essentially, we bought that property for around $80,000, for a seven unit. We kept it for approximately three and a half months, while collecting rents, and the cash flow of the property was very strong. And then we turned it around while doing very minor – I think it was under $5,000 worth of rehab, and we actually just sold that property for about $140,000.
Joe Fairless: Wow.
Daniel Sarao: So that was one of our recent ones, and that’s kind of what you get when you’re looking for these discounted properties, and you have a very certain buying criteria, I would say… It allows you — even if the market crashes, you’re still going to make money on it, or at least not lose your money in that place.
Joe Fairless: Let’s talk about that seven unit a little bit.
Daniel Sarao: Sure.
Joe Fairless: You bought it for 80k, and – what was the lead generation tool?
Daniel Sarao: So kind of going into my marketing background too, the major focus that I have in the company is acquiring off-market properties, I would say. So this one – we used a couple of different methods, postcards being one of them, and then a website, which is, if I can plug it, https://sesabuyshouses.com/. So essentially, we have leads coming from a couple of different angles. This one we actually got through a telemarketing campaign that we were doing with a VA that we were using, just a cold outreach to the person; it was a self-management who actually her husband had bought the property several years ago, and she had been managing it, and didn’t really want to manage it for the last couple of years. So we found this opportunity at the right time, like we usually do, and worked on her for, I would say, it was about 12-14 months, honestly, of back and forth before we finally closed the deal on it.
Joe Fairless: Wow.
Daniel Sarao: Yes. It’s a labor of love, but it does take some time to get these deals done sometimes.
Joe Fairless: Mm-hmm. What were you doing over those 12-14 months with her? Tell us about that.
Daniel Sarao: I think a lot of these off-market deals, obviously – you’ve got to build trust with people, so that’s the first thing. The first thing that you have to do, the most important thing, is obviously getting in contact with them, right? And selling them the pitch that there is an opportunity to sell the house, and then there is a benefit and a reason why they would sell it for cash to a cash buyer like ourselves, versus listing it on the market, and/or keeping it would be the other major pushback. So it’s the objections and it’s understanding what their objections are, and kind of going back and providing them with the information to actually give them a case of why it’s a good idea to sell it for cash. And it’s really about relationship building.
So this one I actually handled personally, once the VA handed it off. And I’d built a very strong relationship with her, actually a couple of nights or more than a couple nights, spent a couple of hours on the phone talking with her about her family or in her retirement and things like that. So it really is relationship building.
And then once you get the agreement for them to actually purchase the property, it really comes down to the final objections and then making sure that everything closes smoothly. So in Cleveland, there is a POS process. It was also during the COVID period when we bought this too, so lack of resources in the city to actually get these things done and close. So a lot of hurdles there, a lot of obstacles, but it’s just constantly working on it. And I would imagine that a lot of people would say, “It’s not worth it, we’re just going to move away and focus on something else”, but we kept at it over that 12-14 month period.
Joe Fairless: And that’s why I asked you, because a decent chunk of people would say, “Man, I’m going to move on. She’s not never going to sell.”
Daniel Sarao: For sure.
Joe Fairless: But you stuck with it and made a good chunk of money as a result of that. What is the reason why it did make sense for her to sell cash instead of listed?
Daniel Sarao: So honestly, from when I talked to her, I think it was more — she just wanted to get rid of it. She didn’t want to deal with the realtors. I think that’s something that we come up with a lot. It’s just the hassle, especially with a multifamily property, like — a single-family with tenants is tough enough to sell on market if you have the renters in there. Having seven renters in there, trying to coordinate all the showings, trying to deal with all the hassles that go with listing it on the market… She was just ready to get rid of it at that point, and maybe we just caught her at the right time. But it’s easier for her to just sell it for cash and get that cash, versus going through the process on the MLS.
And I think she was happy with what she got, and that’s the most important thing in the end. Obviously, we’re looking to make money, but we want to make people happy with what they get and satisfied with the other deal that they had as well.
Joe Fairless: And you said this came from a telemarketing campaign with a virtual assistant. Can you talk about how you set that up?
Daniel Sarao: Primarily, my partner and myself are the two main employees of the company, so we’re a very small boutique firm. And essentially the way that we handle most of our outreach, and I would say, administrative tactics and things like that, is through virtual assistants and contractors. It allows us to, obviously, number one, keep the overhead low, and then number two, it allows us to build and subtract the team as necessary. So I think that’s very important.
I actually found this individual through quite a lengthy interview process, I would say. And he was found on Upwork, interviewed probably 3-5 different individuals, we ended up moving forward with two of them… And we don’t just hand it off to them; we do a lot of training, a lot of practicing of the scripts and objections and things like that.
So this individual was actually really good at what he did, and we try to train him and mold them into being a voice of the brand and getting our message across. And he did a great job of actually reaching out to a large number of people and getting a lot of leads into us. And then essentially, once we get the lead in, that is passed to the Sesa team specifically, and either myself or my partner would reach out to them, establish that relationship and then eventually make an offer and go from there.
Joe Fairless: How much is that person compensated?
Daniel Sarao: I think he was actually on the higher end; I have heard a lot of podcasts and talked to a lot of people where they’re paying these cold callers four, five bucks. I think we were actually paying him 11 or 12, I want to say, and we actually gave him a raise after a little bit when he was doing such a good job. So I think that once you find that right individual that you want to keep with your firm for a while, and you’ve spent a lot of time dedicating to training him, even if it is a VA over in Asia or the Middle East, essentially, you want to make sure that they’re paid and compensated and incentivized to do the job well.
Joe Fairless: What was the raise, from 11 to what?
Daniel Sarao: I think it actually went from eight to — it was either 11.50 or 12. But he was actually based in Pakistan. So pretty sizable income for him over in that area.
Joe Fairless: Okay, so start around eight and then the raise was to 11 to 12?
Daniel Sarao: That’s right, it was almost like a trial period, essentially.
Joe Fairless: Where did he get the phone numbers to call?
Daniel Sarao: So the phone numbers are actually through us. We were doing the Mojo Triple Dialer, and we were actually using the numbers from them. He connected through a Google Voice number, I believe was the way that we had set it up; either that or Skype, I can’t remember exactly.
Joe Fairless: What is a Mojo Triple Dialer?
Daniel Sarao: A Mojo Triple Dialer – not to plug the company or anything, we actually don’t use them anymore, but it is essentially a software program that you can call multiple people at the same time. So imagine sitting there with a list of phone numbers, and you’re calling one person at a time, hanging up and then doing it over again.
Joe Fairless: Ahhh.
Daniel Sarao: Essentially the Mojo Dialer – it’s like a database that you essentially just shove a bunch of numbers in there. And you can call three people at one time, and then the first person that picks up, that’s the person you’re talking to, the other two numbers drop off. And essentially, you just do that over and over. And it exponentially increases the amount of people that you can talk to in a given amount of time.
Joe Fairless: Why don’t you use it anymore?
Daniel Sarao: We moved away from the telemarketing side of things and we’re really just focusing on direct mail now, as well as the website. The website’s actually been a great tool for us to get leads lately, and it’s a lot lower cost and it’s a lot less intrusive, I would say. And the level of leads that we are getting through those sources, I would say, are a little bit higher. And I can talk about why I think that is, but I’m not sure if you’re interested in that.
Joe Fairless: Well, I want to keep talking about the seven unit for—
Daniel Sarao: Sure.
Joe Fairless: —a moment, because you said something earlier that I found really intriguing. I know it came from you, but how did you and your partner get those phone numbers initially?
Daniel Sarao: I think at the time we were using another virtual assistant. So again, with the virtual assistants to essentially build a list of potential leads within certain zip codes that we were interested in. So essentially, when we get those property addresses and the owners, we take those and we do what’s called skip tracing. And I forget the exact program that we use, but essentially, there’s a bunch of them out there. So you can go with a list of properties like a mailing address, and the person’s first and last name, and then essentially, they’ll use a query to pull back phone numbers, and I think they give you either anywhere from 3-10 of those phone numbers. So essentially, you call through those phone numbers and hope that you get the person that you’re looking for. So that’s essentially how we got the people to call specifically.
Joe Fairless: Got it. Okay. Now, the thing you said that intrigued—well, you said multiple things that have intrigued me, but one of the things we haven’t talked about that you mentioned is you bought the property for $80,000.
Daniel Sarao: Yes.
Joe Fairless: And you kept it for three and a half months and it cash-flowed, but you said it was in a rough area of Cleveland.
Daniel Sarao: Very rough. Yes.
Joe Fairless: How did you manage it successfully over those three and a half months?
Daniel Sarao: This is kind of the beauty of it. So to fund the property like we typically do, we brought on another investor. He helped out with a large portion of the cash, because we bought it for cash. And I know it’s not that much money, but honestly, it’s better to bring someone in and use that cash for other properties at the same time.
But essentially, what we do when we bring any outside partner in is that we essentially offer to that partner, and to save ourselves a little bit of money, we actually do our own property management. So we would set up a, almost like a pseudo property management firm, which would be managed by Sesa Properties. And we would charge essentially to the other investors a property management fee at a discounted rate, which is also attractive to them. But essentially we do the property management of those properties as we hold them in-house, and then it makes it a little easier.
So the reason why my partner is located in Cleveland [unintelligible [00:14:48].04] he’s our boots on the ground, which is nice to have. So he acted as the property manager for that property. And then we also have a team of preferred contractors that we use; so essentially, we farmed everything out to our preferred contractors. So everything in terms of the property management of the property is actually done in-house, so we can control the cost, we know what we’re getting, and we know that we can trust the contractors and everything else.
Joe Fairless: Is that an area of the business that you are growing? Or is that a necessary evil?
Daniel Sarao: That’s a necessary evil, I would say. We could scale it past probably 200 units, it would be something that we would think about, but obviously, the company would need to grow. So I think for the purposes of what we need to use it for, for these properties as we’re holding them, typically, it’s 4-6 months is what we’re holding a property before we sell it. So essentially, for that purpose, I think to self-manage those properties specifically is the more strategic option, I would say.
Joe Fairless: Why hold it 4-6 months, instead of holding it zero months or holding it for a year and a half and doing the renovations and getting increased valuation and refinancing it out and holding it long-term? There’s all sorts of different hold periods that you could do, so why did you choose to do the 4-6 months?
Daniel Sarao: So for the seven-unit specifically, that one was actually a unique situation. We bought it because even after extraneous analysis on it, the cash flow looked amazing. So we got it, we picked it up. And the plan for that one was actually to hold it for at least a year. As we started to get into it and we start to see the actual expenses, when we started to see some of the other issues that arise, correcting those issues along the way… But the cash flow didn’t look as attractive. So we were pulling in cash flow, it definitely cash flow, we weren’t losing on it. It just wasn’t attractive enough to tie up 80+ thousand dollars of our money that we knew we could go out there, and especially in a market like Cleveland and the surrounding areas, pick up a couple more properties and essentially, exponentially, grow the cash, versus just keeping it in that one property.
So we held it for about three months and then we made the decision, we were going to offer it up as a cash sale to investors in our network in the area. And we got a bunch of offers on it, but we got one really, really good offer, and we said, “Yes, we think that this is the best way to move forward.”
So honestly Joe, it’s a case-by-case basis. And I would say too, some of the properties that we pick up – our roots are in wholesaling, right, so we would pick those up and not even take title to the property. We would just wholesale them out and assign the contract to someone else. But some of these, we have the opportunity — sometimes we’ll line up a buyer before we even close on it, and we’ll still close on it, and then sell it to the buyer for a profit as well. So it really just does depend on the individual deal itself. But the way I should phrase it – we don’t like to keep them for more than 4-6 months, honestly.
Joe Fairless: But you do own a handful of properties yourself, right?
Daniel Sarao: Yes, I have a handful of properties myself that I bought before we even started the Sesa Properties business in the Cleveland area. So those are outside of the Sesa business itself.
Joe Fairless: Okay. And you said you had had those before you started the business. So it sounds like you haven’t acquired any holds once you’ve started the business. How come you’re not acquiring holds since you’ve started the business?
Daniel Sarao: I would say it’s not in alignment with the strategy of the company. So the strategy of the company when we first started was as a wholesaling company. So obviously, those are ones that we want to move as quickly as possible. The strategy shifted, I would say, over the last year to actually closing on the properties and then reselling them, mainly, probably 90% on the MLS. And then the choice is I guess to get rid of them and get the cash flow from them and keep investing in more properties. But I would say eventually, their strategy might shift into more of the hold. But right now, we have more of a short-term strategy in the company itself.
Joe Fairless: Makes sense. I appreciate you walking us through it, because I was curious about your strategy and the different phases of where you’re at with the company.
Daniel Sarao: It’s evolving, for sure.
Joe Fairless: What have we not talked about that you think we should before we wrap up?
Daniel Sarao: From my side, it’s always been – not a desire, but I would say there are alternatives out there to the MLS. And I know that not everyone wants to deal with those, because off-market properties kind of have their problems and their challenges and things like that. But there are different ways I guess just to get creative in how you find deals, especially in the climate that we’re in today; we’re looking at Cleveland – Cleveland has grown significantly. Looking at the local areas here in Florida, where I am, those have grown significantly. So trying to get a discounted property on market is very tough. So I guess just think outside the box, honestly, and think about other ways to get properties, whether it’s—not necessarily recommending knocking on people’s doors, but think about different ways that you can kind of reach out to people in your local market, and see if you can get the property at a little bit of a discount, because you’re going to put yourself in a better situation, number one, from a cash flow perspective, and number two, if you do go to actually sell that property, you’re going to make a lot more on it, versus losing money.
Joe Fairless: Any other tips for acquiring 5+ unit properties off-market based off of your experience?
Daniel Sarao: Yes, I think it really is a numbers’ game, honestly, Joe. I think it’s finding those properties, or having someone local or having another way to find a list of leads, and then actually going through the process of finding those people’s contact information, reaching out to them… And it really becomes a numbers game, because the majority of people are not looking to sell. The majority of people that do want to sell, they’re looking for a market price, right? So it’s finding those needles in the haystack, and that takes a lot of work, and it takes a lot of effort… But when you get one of those deals and it has a large return on it, it’s definitely worth the effort on it.
Joe Fairless: And if it is finding them and then skip tracing and reaching out to them, how do you reach out to them if you don’t have a VA doing those phone calls?
Daniel Sarao: We’ll do it ourselves, honestly, a lot of times. So we’ll reach out to them, give them a cold call. We have certain lists; so some of the lists we will call, some of the lists we will send postcards. And then obviously the leads that we get coming organically through the website itself. But most of the outreach is done by us. We’re a very, I would say, personalized business; we do most of the work ourselves. We do use VAs for the administrative task, but most of the time when we’re working with people, we’re actually talking to them, we’re the ones that are dealing with them and working through the relationship building.
The other thing I kind of put out there too – and we’ve been doing this a lot more since we moved away from the wholesaling, is relationships with other wholesalers and other investors.
So one case, I don’t want to mention their name, but we’re essentially using a company based in New York, who essentially does not have a presence within the Ohio market. So we’ve been working with them, and essentially, they do lead generation and then they pass the leads to us, so that’s one way. We’ve done that with several other wholesalers and investors in the past on a joint venture or JV basis. So essentially, we get a lot of leads that way as well, which is really nice when that works out and you build those relationships with the other investors, because you’re not essentially paying for lead generation and the marketing, which is honestly, the most expensive part of this whole acquisition process. So it’s definitely a good way to go about it if you can pull that off as well.
Joe Fairless: Taking a step back, what’s your best real estate investing advice ever?
Daniel Sarao: I go back to what I said a couple minutes ago – put a little creativity, get creative with it, look for deals that are outside of what other people are bidding on, and especially outside the market where you have so many bidders going after the same property. And I would say that holds especially true for multifamily, where the inventory right now is so low.
Joe Fairless: We’re going to do a Lightning Round. Are you ready for the Best Ever Lightning Round?
Daniel Sarao: Let’s go for it.
Joe Fairless: Alright. Best ever book you’ve recently read?
Daniel Sarao: I think this is supposed to be real estate, but I’m going to go outside that a little bit. The best book I’ve read recently is Profit First by Mike Michalowicz. It kind of shifted my whole mindset with both of my businesses of how I’m looking at it from a profit standpoint and accounting standpoint. I think that book is amazing for anyone that’s trying to start a business and trying to understand how they should kind of budget and pay themselves, etc. So that’s actually a great book.
One of the more recent real estate books that I’ve read is Real Estate Titans by Erez Cohen. I thought that was a great one, because he interviewed so many big names in the real estate industry, and you get to see their stories and everything else. So that was also a very good book to read.
Joe Fairless: Best ever way the listeners can get in touch with you?
Daniel Sarao: A couple different ways; so I’m on LinkedIn, just my name, Daniel Sarao, if you want to look up. The website, if you guys want to check it out, it’s sesabuyshouses.com, or I’m going to get risky and throw my personal email out there. So it’s my last name, sarao.dan @ gmail.com if anyone wants to reach out and work together or has any questions, we’d love to talk to you.
Joe Fairless: Thank you for being on the show. Thanks for talking about how you acquired an off-market seven unit, getting into the details of the VA service and skip tracing and hiring the VA and how much it costs to hire him and just their overall approach to getting that lead. And then once you got the lead, what you did with it for 12-14 months. And—
Daniel Sarao: It takes a while.
Joe Fairless: It takes a while, but man, you bought it for $80,000 and you sold it for $140,000. Some might keep it, do a value-add business plan, some might wholesale it before even owning it, and some might do what you do. But the point is that you had the deal and then you can decide what you want to do with it.
So thanks for being on the show. Really enjoyed it. Thanks for sharing your insight. Hope you have a best ever day and talk to you again soon.
Daniel Sarao: Thank you again, Joe. It’s great.
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