JF2561: 7 Key Benefits of Commercial Over Residential with Dan Haberkost

At 16 years old, Dan Haberkost was already managing a portfolio of rental properties for an investor. What did it teach him? That he didn’t want to buy, and how not to manage tenants. Today, Dan tells us his biggest takeaway from that experience, how he became an expert in land acquisition, and why his next investment will be commercial real estate.

Dan Haberkost Real Estate Background:

 

 

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TRANSCRIPTION

Ash Patel: Hello, Best Ever listeners. Welcome to the Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Dan Haberkost. Dan is joining us from Colorado Springs, Colorado. He’s a full-time real estate developer and investor. Dan has done over 50 land flips and numerous infill development projects and rentals. Dan, thanks for joining us today. How are you?

Dan Haberkost: Ash, I’m great. Thanks for having me. I’m excited to be here today.

Ash Patel: It’s our pleasure. Before we get started, can you tell us a little bit more about your background and what you’re focused on now?

Dan Haberkost: Sure. So quick synopsis on me – I actually got started in real estate when I was 16 years old; I was barely old enough to drive and I was managing a portfolio of rental properties for my boss at the time, along with a farm. And that experience early on did not make me want to get into real estate. In fact, in hindsight, it taught me what properties I didn’t want to buy, and how not to manage tenants.

Fast forward to college – I worked full-time through college, and as I was graduating, I decided, “Okay, well, if I can manage a full schedule of school along with a full-time job, I can certainly start some sort of business and start investing on the side.” So like many other people, I read Rich Dad Poor Dad, and real estate was the avenue I decided on. I bought my first duplex before I graduated college; I was living in Ohio.

Fast forward to today, I live in Colorado Springs. On the active side, I have the land and development company, which lately has been focusing more on the buying and selling of land, some for cash and some for notes. And then on the passive side, I have [unintelligible [00:02:17].13] distributed between four properties, and I’m actively looking to buy my first commercial deal; we can get into specifics there if you’d like.

Ash Patel: Let’s do all of that. What did you go to college for?

Dan Haberkost: It was a double major, business administration and entrepreneurship.

Ash Patel: And not real estate.

Dan Haberkost: Hah! No.

Ash Patel: So managing 16 properties for someone else. What did you learn from that? What were some of your takeaways?

Dan Haberkost: Well, I’d say really, the biggest takeaway is the dynamic he had was completely toxic; he treated his tenants poorly, he was constantly in lawsuits, his properties had a lot of deferred maintenance; these were C minus properties that were not taken care of.

So more than anything, I learned to treat them like humans, and to keep in mind that they’re customers have my business and to treat them accordingly, and that’s really paid off with my own portfolio here. If you have hundreds of units, that’s a different story. But for many of the people listening to this podcast, myself included, we’re small landlords at this point. When you have five or ten tenants, the way that you treat them really, really makes a difference in how they take care of the property, whether they want to pay you on time or if they take advantage of something like an eviction moratorium. So I think that was probably my biggest takeaway, is how to properly take care of properties, tenants, and the fact that I didn’t want C minus rentals.

Ash Patel: And you were playing middleman for a slumlord, it sounds like.

Dan Haberkost: Exactly.

Ash Patel: School of hard knocks.

Dan Haberkost: Yep.

Ash Patel: And how did you get into flipping land?

Dan Haberkost: That goes back to actually when I first moved to Colorado – I met a guy at the real estate club here, that I now host, who had been buying and selling land building houses and apartments, really anything you can think of within real estate for the last 40 years. He wanted help in his business. So I went and helped him; he actually stood up and introduced himself at the real estate meetup, and I spent about a year with him. Every Saturday, I’d drive down, he’s in the market about an hour south of me, and learned from him. It took about that long before I made any money or figured anything out. But he was the one that initially got me into land, because out here in Colorado, there’s a lot of ghost subdivisions from years and years ago that were complete failures, that are now rapidly being built out. So land and development are significant opportunities here.

Ash Patel: You said you spent a year with him. What does that mean? Were you shadowing him?

Dan Haberkost: Yeah. So he didn’t know how to use technology very well, so I was helping him on that side of his business. And I think the reason it took me so long to pick up anything on my own is because here’s a guy with 40 years of experience, and he’s showing me everything that he’s doing, which I tried to do… “Well, maybe I could build some houses or buy and sell some land.” “Oh, he’s buying distressed notes.” And it was like a waterfall, right? It would have probably been a quicker progression had I just said, “Okay, here’s land; let me go pursue that as an avenue for income,” but I didn’t. So that was a quick takeaway from that, is when you’re getting started, pick one thing and stick with it until you figure it out.

Ash Patel: And what was the first thing that you picked?

Dan Haberkost: The very first thing was that duplex I bought back in Ohio. I still own that today. However, there’s two buckets, right? There’s the passive and the active, and everyone’s goal is different. But for me, it was very clear that I needed to start an active business, because I didn’t want to work a traditional job. So the first thing that I had any success in as far as active real estate investing would be the buying and selling of a couple pieces of land.

Ash Patel: And what was your next acquisition?

Dan Haberkost: On the active or passive side?

Ash Patel: On the active.

Dan Haberkost: On the active side – well, I’d say the progression there, I bought and sold quite a few pieces of land, I’ve done about 50. However, the building of houses was the natural progression there. So for example, one of the pieces of land I picked up this year – it’s in a tertiary market, even further down south. It goes Denver, and then Colorado Springs, and you hit Pueblo, and then all the way past Pueblo to Colorado city. I got a lot down there on the golf course, for 1,000 bucks, infill, next to nice houses, utilities in place. So I’m building on that, and that was kind of the natural progression, from just buying and selling the land to putting houses on the ones where it made sense.

Ash Patel: Buying and selling land seems like a pretty unique proposition. How does somebody get into that?

Dan Haberkost: Well, first you need to know the land and the market that you’re in. So for the markets I’m, in it’s infill lots; and I know people that do this with acreage too, so you can do with any sort of land. But if you don’t understand the zoning, and the utilities, and that sort of thing, you can really get yourself hurt. So the market I just referenced, Colorado city, for example, it’s almost as if someone just was blindly throwing darts at a dartboard the way that utilities are distributed there. And if you buy one of those lots that does not have utilities, thinking that it does, you can basically just waste all your money.

So number one, understanding the availability or what you need to do to bring utilities to the property, and what the builders are looking for, and how to price it appropriately. And also the zoning; if you go and buy a commercial lot, thinking that it’s a residential lot, you can also obviously get yourself in trouble and pay too much, or just buy something that no one really wants. So yeah, that would be the first thing to understand is the zoning for your market and then also the utility situation.

Ash Patel: And, Dan, can you define infill lots?

Dan Haberkost: Yeah. So what I mean by that is — let me use Pueblo West as an example. Pueblo West is the market where I’ve made a lot of money over the last few years here in Colorado; it was a masterplan subdivision from the ’70s, that the guy who did Lake Havasu in Arizona, did that 10 or 15 years before; came here, did the same thing here in Colorado. It’s a subdivision at the base of a reservoir. So these lots – everything has been subdivided, platted, and utilities are in place. So I’m buying lots that are between two houses, or there’s a house next door and a couple vacant lots here. And everything’s ready; I do not have to do any of the preliminary development work as far as subdividing or bringing utilities to the property. “Shovel ready” is the term that we like to use, where it’s ready to go.

Ash Patel: And how do you find deals? If there’s houses on both sides, people obviously know what that land is worth.

Dan Haberkost: You know, there are a lot of wealthier or upper middle-class people who bought land 20, 30 to 40 years ago, they intended to build on it, and then for whatever reason, life got in the way, they didn’t move there, they didn’t build on it, and it’s just become a burden for them paying taxes on it every year. So if you offer them an easy transaction, where they don’t have to deal with realtors, they don’t have to do anything; a notary shows up to their house and they get paid, they will often sell it at a discount. Most consistently, I’m buying these parcels at 30-50 cents on the dollar from older people who are wealthy. And every now and then there’s that person who inherited it, or—I bought one last month where there was a lien and back taxes on the property, so I went and solved those problems, and he was very happy and sold it to me on a discount. So there’s a number of different reasons why, but it just depends on the specific person.

Ash Patel: Do you use some of the same tactics that wholesalers use in trying to find estate sales, or back taxes owed on certain lots?

Dan Haberkost: Yep, so back tax lien lists are a great place to start, not so that I can buy the tax liens, but to mail those people. And if the taxes aren’t too extreme – you get to the point where it’s not worth anything – a lot of times those sellers are expecting to lose the parcel to the tax lien sale eventually. So if you can give them something for the land and pay off the taxes, you can get very, very good deals that way.

Ash Patel: Are all of your land flips in residential areas, or do you do any commercial, industrial?

Dan Haberkost: I have done a few commercial lots, some multifamily, and then some [unintelligible [00:10:05].01] that was just for office space as well in a couple of the markets I’m in.

Ash Patel: And going forward, would you continue to do those types of land flips as well?

Dan Haberkost: Absolutely. If I can buy the land at 30-50 cents on the dollar, somewhere where there’s demand, which is most often in the secondary and tertiary markets of major metros like Denver or Colorado Springs – there’s a market outside of Las Vegas, I’m doing a few deals in right now and looking to expand in – I’m happy to do it, because the land and the development is really just a way to create income that I can then move into the acquisition of more long-term assets. That, for me, is my goal of the active businesses, is to move that capital, produce as much as possible and move it to long-term assets.

Ash Patel: And would you ever consider building on that and selling the house and the land?

Dan Haberkost: Oh, yeah, absolutely. That’s what we’re doing in the Colorado city build I was telling you about. So yeah, absolutely.

Ash Patel: And do you partner with developers when you do that?

Dan Haberkost: Most of the time—

Ash Patel: Or do you just commission the house being built yourself?

Dan Haberkost: So for the simple infill lots, it’s a matter of finding the right general contractor and then setting the whole system up. And usually, what that means is aligning your interest with them by giving them a portion of the profit and, then just getting it started. So if you have that lot in the area that you know someone’s going to want to buy a house once it’s done, then it’s simple for the general contractor. Once you get it in process, if you’re able to bring the money, whether it be from commercial bank or an investor, and put that together, they take it all the way to the end. And then realtors are pre-selling right now; it’s very easy. That’s one dynamics that’s changed. If it was two years ago, I would have already pre-sold this build that we’re doing in Colorado city. However, there’s so much fluctuation in material prices, I’m being a little more cautious and I’m not going to pre-sell that one until all the major components have been ordered and prices are locked.

Break: [11:59] to [14:00]

Ash Patel: Dan, how much risk are you willing to take on land? Would you purchase something that may not be developed for three or four years? Or do you want something that you can offload right away?

Dan Haberkost: Yes, offload right away. Again, the land is the avenue for creating substantial income right now. So velocity is everything.

Ash Patel: Are you taking on investors or are you using your own capital?

Dan Haberkost: Both. So I have line of credit with the local commercial bank, I have some investors that bring funds and then I use some of my own money as well.

Ash Patel: Would you recommend this course of action to others? Or would you rather them stick with purchasing the typical single families, renting them out?

Dan Haberkost: Well, that’s the goal of this business, is to move the funds into, whether it be a single-family house or an apartment, something long-term that will hedge against inflation, appreciate and pay me cash flow every month. I don’t want to buy more houses, as I was mentioning earlier, but we’re kind of talking about two different things there, because the buy-and-hold is on the one side—at least this is how I think about it and frame it… The buy and hold is on the one side, and then whether it be wholesaling or land flipping or flipping homes, etc. that’s the active business to create income.

So whatever you choose to do, stick with it until you’re successful, that would really be my biggest piece of advice in response to what you just said, is don’t try and do 10 different things at once… Because I’ve seen a lot of people do that and then they just fail at all of them. And it’s really a matter of learning one thing to start, getting good at that, and then other things branch off.

Ash Patel: What’s an example of a deal that you lost money on and what did you learn from it?

Dan Haberkost: Knock on wood, I haven’t lost any money on land yet. However, my first rental property—so this was when I was in college, I was 21. I bought a duplex, and in hindsight, I think it’s just about everyone took advantage of me in this transaction. The seller, the existing tenant, and my realtor in hindsight, did not have my best interests in mind.

So long story short, existing tenant ended up moving out, leaving a massive mess, still getting his security deposit back, and that cost me $6,000 or $7,000 at the time. But at 21 years old, that was a pretty substantial amount of money at the time, to get everything cleared out and get that rehabbed. So that was probably the closest I’ve come to losing any substantial amount of money so far, but again, it was a good learning experience for sure.

Ash Patel: Yeah. And when you’re flipping land, what’s something you wish you did differently?

Dan Haberkost: I gave way too much away at first to some of my investors. I think that’s probably the biggest thing. At first, I gave way too much away to my investors. Yeah.

Ash Patel: And when you’re buying these parcels of land, it’s all cash?

Dan Haberkost: Yes.

Ash Patel: You’ve got to close quickly.

Dan Haberkost: Mm-hm.

Ash Patel: Interesting. So what’s next for you?

Dan Haberkost: The biggest thing I’m working on right now is buying a commercial building as a long-term buy-and-hold by the end of the year. So to be more specific, because obviously, it’s a very broad category… Yesterday, I made an offer on a 7,500 square foot building that has about 2,000 square foot up front of office, 5,500 square feet of industrial, and—I’d have to pull up my notes—it was occupied by a national tenant for 13 years; it wasn’t quite triple net, there are a few things that the landlord was responsible for, but it was almost a triple net lease, really solid tenant. I just couldn’t come to an agreement with this seller, but he has quite a few more properties and we had a very good rapport… So I think over time, something will come of that. But yeah, I’m actively prospecting for that sort of investment here in Colorado.

Ash Patel: Why is that your goal? Why commercial building?

Dan Haberkost: That’s a good question. I thought a lot about this last year… With the residential portfolio I have, dealing with someone’s personal residence – plenty of people have made millions and billions of dollars with this. There’s nothing wrong with it. But for me, with the attitude of the government here in Colorado, and in most markets, with the eviction moratorium, I am apprehensive about building a large business around residential housing. I want to get out of that; not necessarily out of it; the rentals I have, I’ll keep. But I don’t want to scale that. I want to scale a portfolio where the valuation is predicated on the income of the property, where it’s a bit less emotional; this isn’t someone’s home—of course, it could be if it’s someone’s business and has been for years, so it can still be emotional… But it’s just more of a business, it’s valued like a business. In the direct mailing I’ve done to houses I’ve gotten “F U”, “Go die” etc. In the direct mailing I’ve done to commercial properties, it’s just, “Hey, here’s the numbers. Here’s what I’ll sell at.” It’s straightforward, it’s less emotional, which I really like.

So the third thing is, if I think about land, why has land been so simple relative to maybe wholesaling houses? Well, one of the biggest reasons is it’s a less well-known asset; there’s higher barrier to entry, because there’s just not as much info out there about it. So people would stay away from it. Whereas it’s very easy to figure out how to go sell houses. So there’s just much less competition. And I see the same sort of factors applying to the sort of space I was just telling you about. It’s not as well known, there’s no courses everywhere on it, it’s harder to value, the listing system’s antiquated, where you can’t just go on the MLS and see every piece of commercial real estate for sale. So if you can get over that barrier to entry, I see it as an advantage the same way as with land.

Ash Patel: I agree with all of your reasons. And one more is that commercial tenants will often improve your property. So I’ve had tenants remodel their entire space, or add a bathroom, remodel a bathroom… Versus a residential tenant, that doesn’t happen.

Dan Haberkost: Yeah, good luck with that.

Ash Patel: So can we dive into that deal that you walked away from, the commercial deal?

Dan Haberkost: Yeah, I’ve looked at quite a few in the last week—

Ash Patel: Well then—

Dan Haberkost: I can try and pull specific numbers out of my brain… But yeah, go ahead.

Ash Patel: What about the one that you had retail in the front, industrial in the back? Was that fully leased?

Dan Haberkost: Yes. He had that fully leased to a tenant that had been there 13 years.

Ash Patel: Okay. And the industrial section was leased as well.

Dan Haberkost: Yep.

Ash Patel: Okay, so it’s just a numbers game.

Dan Haberkost: Mm-hm.

Ash Patel: And what were the numbers on that? If you remember, what was the cap rate?

Dan Haberkost: So he said to me, he wouldn’t give me an offer price because, look, it comes down to the cap rate; what cap rate you want to buy it at? And he gave me the income. I looked at taxes insurance, I added a bit for maintenance that the landlord does have to do… And I was talking, seeing him if I could get him, [unintelligible [00:20:22].25] high, I started 10 cap. And obviously, that was a no. And we talked through it over lunch, even at an eight cap valuation, he goes, “I don’t really want to sell it.” And so I just realized I’m wasting my time on that building, because the motivation is just not there. Because an eight cap in a tertiary market – that’s pushing it already, in my mind. And I just wanted to see where he was at.

So for that, it became clear as I talked to him that he wasn’t really motivated. So I was wasting my time as far as that property in particular. But he showed me a couple others he has that potentially could turn into something.

Ash Patel: What was the national tenant that was there?

Dan Haberkost: Oh, I’d have to pull it up. It was some niche business. I don’t remember what it was exactly. I’d have to pull up my notes.

Ash Patel: Okay. Do you think you could have parceled those two units separately, the industrial and the retail, and sold it?

Dan Haberkost: Gosh, I don’t know how well that would go in that market specifically. So I’m really not sure. I will just say I don’t know, because I’m not sure.

Ash Patel: Okay. And what are you doing to find your next commercial deal?

Dan Haberkost: I’ve got cold calling, we’re just starting this week. A friend of mine has that system already set up, because he’s got a wholesaling business. So I worked out a deal with him, and he’s aggressively cold calling through that list.

Ash Patel: And what types of criteria are you looking for on that list?

Dan Haberkost: Yeah, it’s a good question.

Ash Patel: Tax liens—

Dan Haberkost: You know, I started really simple, because he’s gotten a number of commercial deals in his wholesaling business… So I really just took his criteria’; I think it’s 10+ years owned in the specific parts of the markets I want. And then I narrowed down the asset type to a certain size. I’d like to try and keep the first one under a million here. I don’t want to go too big on the first one, because I will probably make mistakes, just like I did on my first duplex. So a certain square footage, in certain parts of town, 10+ year owned, and I think [unintelligible [00:22:14].19] owners on the list that’s being cold-called right now.

Ash Patel: Yeah. One more tip is if you can get onto CoStar, you can look for places that have some vacancy in it as well. Not really distressed asset, but if it’s not fully leased, there’s some kind of pain point there.

Dan Haberkost: Sure, absolutely.

Ash Patel: So I would add that as well. That’s great. So that’s my focus, is non-residential commercial real estate. And I think it’s the greatest asset class out there, for a lot of the same reasons that you mentioned. In terms of doing the numbers, do you focus on cap rate or do you focus on cash-on-cash returns?

Dan Haberkost: Cash-on-cash is what I’m looking at.

Ash Patel: I agree with that as well. We all have a finite amount of cash, and you’ve got to grow it as best you can. What is your percentage cash-on-cash return that you’re looking for?

Dan Haberkost: On this first one, I’d like to get a 10% cash-on-cash return at least, which isn’t that great. But again, I look at the first deal — I’m already thinking about number three, four and five. So the first deal is getting my feet wet with something small, so I have an understanding of the business and have actually done it, and then can scale that and go after larger and more. So 10%.

Ash Patel: Is 10% hard to find in your market?

Dan Haberkost: So far it seems that way. Again, this is new to me. This will be my first deal. But yeah, looking at listings from brokers here in town… I looked at one the other day, it wasn’t even in a great area of town here in Colorado Springs, and it was a five and a half cap. So I forget what the cash-on-cash came out to, but I mean — it wasn’t good.

Ash Patel: You could buy a Starbucks for a 5.5 cap. Yeah, that’s insane. Was it all just mom-and-pop businesses?

Dan Haberkost: Yeah, there was like a church, and a couple — yeah.

Ash Patel: Yeah, that’s out of line. Here’s my advice; and I know this podcast is supposed to be about you—

Dan Haberkost: No, I’m listening. Yeah.

Ash Patel: …but I’m going to share this with you. 10% cash-on-cash I don’t think is high enough.

Dan Haberkost: Okay.

Ash Patel: Especially if it’s not triple net. Because any kind of capex that you have to put in – parking lot asphalt, roof, exterior – is going to destroy years of profit.

Dan Haberkost: Sure.

Ash Patel: So I would focus on a minimum of 15, closer to 20. And if you have to, go outside of your market.

Dan Haberkost: Okay.

Ash Patel: And then unlike what you’re doing with land, where you want to find something you could turn quickly, look at those niches in smaller towns, where there’s one strip mall that houses all of the neighborhood services; the hair salon, the insurance place, the pizza place, the internet-resistant businesses that are vital to the neighborhood residents. And I wouldn’t be afraid to go outside of your market a little bit, because once those commercial tenants are in place, there’s not a lot of management.

Dan Haberkost: Okay, that’s another reason why it was an interesting asset to me… [unintelligible [00:25:05].16] I appreciate that.

Ash Patel: Yeah, 10% – you could invest your money passively and make more than 10%.

Dan Haberkost: So I was factoring in a pretty good chunk of monthly that would go aside for cap ex.

Ash Patel: Okay. That’s a different story. Well, that’s—

Dan Haberkost: But point taken. Yeah.

Ash Patel: Got it. Okay. So then your underwriting is right on point. What else are you doing besides talking to brokers and looking at listings to find commercial deals [unintelligible [00:25:28].28]

Dan Haberkost: The biggest thing is cold calling, mailers, and then just the network. So in the market, South of here, that I’m in, where I’m building and buying and selling land… The real estate market or investment world is very small in general, but especially so in these smaller towns. And I know some of the older investors there who have a lot of the properties… So there’s a number of them that I’m meeting with over the next couple of weeks, just looking at what they have and might potentially sell off, trying to find motivation, whether it’d be the guy I was just talking to who was talking about the importance for him of being able to 1031 into a DST, which I was not familiar with before speaking to him… But anyway, so finding some sort of motivation that will lead to them being okay with some sort of discount.

Ash Patel: DST meaning Delaware Statutory Trust?

Dan Haberkost: I don’t even remember what it stood for, but the concept was, it’s a fund that is allowable for 1031s, and it’s purely passive the same way a REIT would be, as he described it to me.

Break: [26:29] to [29:32]

Ash Patel: Dan, is there a minimum price point that you’re looking for as well in commercial?

Dan Haberkost: $500,000 to $1 million.

Ash Patel: Okay, why $500,000?

Dan Haberkost: Well, somewhat arbitrary, but I had to put my parameters somewhere, and as I think about it, a friend of mine just bought $250,000 or maybe a $300,000 commercial building in an okay area of Pueblo; I’m looking at that and thinking to myself, it’s just such a marginal asset for the management involved… Because he has like four tenants and four small office spaces… And I looked at that and I said, “Okay, I mean, one of my houses is worth 400 grand. I don’t want to get into the commercial world with something that small.”

So I took that line of thinking, and then also, “Okay, how much capital do I have? What can I afford?” That’s how I came up with it. So I had to start somewhere, and that seemed, between the capital and what I have access to, but also making it worthwhile to be a good starting point. Also, because there’s quite a few properties in that price range that fit what I just described to you.

Ash Patel: If you found a $250,000 strip mall, let’s say two or three units, that gave you a 30% cash-on-cash return, would you do it?

Dan Haberkost: If it wasn’t in a terrible area… Because my first thought is a lot of those assets look awesome on paper, and in actuality, they’re in a very rough area. So if it really did provide that and wasn’t incredibly management intensive, sure; that would be hard to say no to. But let me know when you find that.

Ash Patel: So I think the other key that you’re right on with is management-intensive; you want to be very careful with that. And you’ve got the right mindset for that. Because when you scale, you don’t want to sit there managing your smaller properties.

Dan Haberkost: Exactly. And that is another reason why the residential – you can offload to a property manager, but let me give an example. The friend that I told you, who has really been a mentor, down in Pueblo – he owns a bunch of Walgreens buildings. And I don’t remember the numbers exactly, it was quite a while ago, but he does absolutely nothing on those. They just produce year after year after year; they were set up properly, in the right areas, with solid leases, and 20 or 30 year leases, and that sort of thing, to me – that’s what investing is about. And that’s the goal, because it’s scalable, and that was one of the main things actually, as he showed me those, and I just—he built one in Las Vegas actually, I was just looking at it there last week… And that’s where I’m trying to go and do the same.

Ash Patel: Have you prepped your investors that have funded some of your land deals, that you’re looking at commercial and there might be some opportunities coming?

Dan Haberkost: Yep.

Ash Patel: Yeah.

Dan Haberkost: Absolutely. Absolutely. Yep.

Ash Patel: And then if you found a deal that was closer to $2 million and the numbers are right, you would still pursue it, yeah?

Dan Haberkost: Absolutely, with that. So I have been able to progress very quickly in everything I’m doing; I shortened the learning curve by finding people much older and much more experienced than myself, and bringing them into the deal. So if it was the type of thing where, for example, let’s say there’s a $2 million deal here in town, I have a friend who owns a whole bunch of strip centers and the Ace Hardware is within them. So it couldn’t be a rush sort of thing where it’s predicated completely on me and my judgment when it gets into that amount of money and bringing other investors into it; it would have to be where there’s the opportunity for me to bring some of these other people into the deal, either to participate or to at least guide me on something bigger like that, especially. But yeah, I would absolutely look at it.

Ash Patel: Good. And have you spoken with lenders that do commercial lending? Because they’re often different lenders than residential?

Dan Haberkost: Yes. So I have a line of credit through a local commercial lender who also finances a lot of these construction projects. And he’s known me for years, and I have accounts there. So I’ve already spoken to him and he knows I’m actively looking.

Ash Patel: And how have you found the terms and rates differ from what you’ve previously done?

Dan Haberkost: Off the top of my head on that one, I think the rate is about a point higher; it’s like a 4.5, with a straight line 20 year AM. So a little shorter amortization period. And the qualifications are actually a little bit more global. Let me backtrack…

Number one, it’s predicated partially on the asset, as opposed to just a straight debt-to-income and credit score mix. Like if you go to buy a house, it’s your debt-to-income and your credit score, and that determines whether or not you can buy it. With these commercial investments, they’re going to look at the pro forma on the property, number one, so that’s completely different than residential; and then number two, they’re also going to look at the global cash flow. So a perfect example, as I’m looking – I had left my last W-2 job at the end of 2019. That was when I went full-time. So I don’t have to strong tax returns yet for them. So the debt-to-income, as they would calculate it, is predicated almost entirely just off the rentals. They don’t include it in the land or development income.

So the investor who I would first go to, who already invest with me – he makes half a million a year from his W-2. So it would be no problem at all with his income, both of us having experience, assuming we get a property that is cash flowing and makes sense. So it’s more of a global qualification process, all the participants plus the asset, to determine whether or not they’ll lend to you.

Ash Patel: And what about the downpayment?

Dan Haberkost: Oh, yeah, great question. 20% down.

Ash Patel: Yeah.

Dan Haberkost: Yep.

Ash Patel: That’s ideal. A lot of newer commercial investors will end up paying 30 or 35 until they have a track record, which is tough, especially when you’re calculating cash-on-cash returns.

Dan Haberkost: Yeah.

Ash Patel: So you’re in a great boat, that 20% down. 20 or 25 years AM is ideal.

Dan Haberkost: Yep, yep.

Ash Patel: Man, that’s awesome. So when you get your first commercial deal locked up and purchased, let’s do a follow-up. And—

Dan Haberkost: Absolutely.

Ash Patel: —we’ll do a deep dive into that deal. I’m excited for you.

Dan Haberkost: Yeah. Thank you.

Ash Patel: What is your best real estate investing advice ever?

Dan Haberkost: Be relentless with whatever it is that you’re going to do, especially when you’re new. Pick one thing… There’s a million ways to make a million dollars, so be clear on what you’re trying to accomplish, work backwards as far as “Okay, is it an income goal?” Is it, “No, I want to keep my job and create a certain amount of passive income.” Get clear on what you’re trying to do. Pick one strategy to start to get there, and then be relentless in pursuing that. Having a whole bunch of energy and motivation for a week or a month isn’t going to get you very far. But consistency over the long-term absolutely will. So be relentless in whatever it is you’re trying to do.

Ash Patel: Great advice. Dan, are you ready for the lightning round?

Dan Haberkost: Let’s do it.

Ash Patel: Let’s do it. Dan, what’s the best ever book you recently read?

Dan Haberkost: The Most Important Thing by Howard Marks. In the world of equities, he’s one of Warren Buffett’s buddies, but he offers some really good advice that’s applicable to real estate as well. So The Most Important Thing, Howard Marks.

Ash Patel: What was your one big takeaway from that?

Dan Haberkost: There are no assets that are so great they cannot be overvalued. There are few assets that are so poor, they cannot be undervalued. So that is really important to understand, and it’s why I’m in the markets I’m in. For example, Pueblo – it has been ignored by everyone in Colorado for years. I’ve been down there making a killing, because although maybe I don’t want to live there, we have all these retiring baby boomers and military families that do want to live there.

So point being, it was a okay asset that was grossly undervalued. Year and a half ago, I could still buy an infill lot with all utilities for five grand. Right North is Colorado Springs and Denver; look at the prices up there. It may not be the best market or asset ever. However, it’s really undervalued. Or was, it’s not anymore. But yeah, that concept is really, really important to understand.

Ash Patel: Dan, what’s the best ever way you like to give back?

Dan Haberkost: I actually host The Real Estate Club that I met many of my mentors and friends that I do business with now at. So there I talk to a lot of new investors and spend time with them and try and help them, the same way people have done for me.

Ash Patel: On a side note, what advice would you give to people to build their network?

Dan Haberkost: Just be willing to help without an expectation of return. And actually listen; this is a cliché, but it’s a cliché for a reason—don’t just listen to respond, actually listen to what people are saying. Think through it, and then respond accordingly. Don’t just wait to tell them about you. Be genuinely interested in people, and that’s probably the best way. Well, go out there looking to build genuine relationships. The people I invest with have really just become friends over time. If it’s transactional and superficial, it probably isn’t going to go very well for you. So yeah, I think just being genuine helps a lot. Just generally doing business with people I like and consider friends.

Ash Patel: Dan, how can the Best Ever listeners reach out to you?

Dan Haberkost: Instagram, Dan Haberkost. Same on Facebook. And then I have just a website – I’m not very creative, so I just made it, my name, danhaberkost.com. And I’ll be posting videos and details on some of the deals I’m doing there, and books and such that I like. So yeah, those would be the best ways to get in contact with me.

Ash Patel: Well, Dan, thank you for sharing part of your day with us today. Your story started out where you were playing property manager for a slumlord, and you’ve had this great run of buying and selling land, and moving on to commercial. So thank you again for sharing your time. Best Ever listeners, thanks for joining us, have a best ever day.

Dan Haberkost: Thank you, Ash. This was fun.

Ash Patel: It was our pleasure.

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