From Working at Disney to $200 Million in Properties

 

What You’ll Learn in the Podcast:

● How Dan got into real estate and why he made the move into it from working at Disney.

● The life style and benefits that working in real estate allows for.

● Advice for new investors evaluating what exactly it means to over pay.

● The reality of evictions during this pandemic era in California, and what the future holds.

● What Dan looks for when buying an apartment building.

● The biggest mistake Dan has made and what he learned from it.

Summary and Highlights:

Then Disney marketer, Dan Tenenbaum, has made a name for himself after securing a loan from Disney and investing the money in property real estate.

In Jason Lee’s Episode 2 Podcast, the central talk about the whole segment was how Dan Tenenbaum became a real estate mogul, having earned over 200 million dollars in properties that started in the late ’90s.

Dan Tenenbaum was born in Montreal and he is a Canadian who migrated to America to become a marketer during his first stint in the workforce. Working for Disney at that time, especially as the rise of Pixar and the company’s animation gained so much traction, he took advantage of his success to invest in real estate. Having just graduated from his MBA, people thought it was unprecedented to start investing in apartments in California immediately.

Fast-forward to years later; he became a prominent entrepreneur with so many profitable investments under his belt. He went on to becoming a quintessential success story where every entrepreneur should look up to.

The importance of real estate

The segment also talked about why real estate is so important. For starters, Dan mentioned a few points about the fears going into real estate. Nobody in their MBA endeavors, let alone as undergraduates, will invest in property real estate. The most significant factor in becoming successful in this space is awareness of the risks involved and the willingness to tackle those risks. No business has no chance, so the real estate business isn’t for everyone because there are just too many risk factors attached to the industry.

Furthermore, there are also talks of the right place to invest your money in real estate. Firstly, the timing of investing in real estate is paramount to succeeding in the business. Dan mentioned that regardless of where you can invest in real estate, whether in a Real Estate Agency San Diego or Sacramento, there is always a diamond in the rough that will be a potential gold mine for your investments.

Considering the risk factors involved in your transactions and the different ways you can invest your money in property real estate, real estate financing needs a lot of skills to make a prominent name for yourself, and Dan has shared crucial points and his experiences to help audiences understand the nooks and crannies of real estate investing.

Insights

It’s difficult for an entrepreneur to invest in real estate, especially when they are still starting to delve into owning a business in general.

However, while it’s genuinely challenging to do so, it’s still important to at least try it out when having enough capital to invest, and knowing the risks and the market’s trajectory is as essential as finding the most profitable real estate property anywhere.

It just goes to show that no matter where you started; a Disney marketer, a plumber, or a Wall Street broker, you have what it takes to invest in real estate to earn high volumes of sales where you can become a full-time entrepreneur.

Episode 2: From Working at Disney to $200 Million in Properties

Watch the Podcast | Read the Transcript

Transcript

[Intro] Welcome to the multifamily millionaire podcast. The show that interviews multimillionaire real estate investors and top producers in the real estate industry. 

 If you’re looking to create passive income and achieve financial freedom so that you can do what you want whenever you want, you’re in the right place. Our goal is to simplify and make real estate investing easy for you. For more information, you can find us at www.jlm.realestate.

Jason Lee:  All right, everyone. So on this episode, I have the pleasure of being joined with Dan Tenenbaum. Dan, how you doing today?

Dan Tenenbaum: Great. How’s it going with you?

Jason Lee:  I’m doing fantastic. It’s Friday. It’s a beautiful day. Can’t Complain. Happy to have you here. To start I just wanted to ask you a few questions about yourself and kind of how you got into real estate and what your background is. All that good stuff.

 Dan Tenenbaum: Sounds good. Well, I’m actually a native of Canada. I grew up in the French part of Canada in Montreal, and I moved out to Los Angeles in 1992. So I’ve been here quite a while and I didn’t immediately get into real estate. I worked in marketing for Disney, marketing their animated movies on video when there was still video. And a few years into that job, I started buying apartment buildings in and around Burbank, not far from where I was working and it all started with one building in Burbank where I purchased it with three other friends of mine, 14 unit, all studios, kind of, not far from Burbank airport. And that’s just kind of how I got my feet wet. Just kind of learning by doing, you know, I took a UCLA extension class to get some idea, had an elder older gentleman who kind of taught me the old ways of property management, but it was better than no ways of property management. So I got some good basics out of that.

And then I decided that, you know what, there’s an opportunity here for a guy like me. I recently graduated from Harvard business school. Apartment investment is not something that a typical graduate with an MBA would typically do. I think it’s more sexy now, but in those days it would be like, I’d get questions Like, are you the guy they call in case there there’s a plumbing leak and the toilet’s backed up. And there’s kind of the initial attitude is, you know, MBAs go into commercial real estate, they go into development, they don’t buy existing apartments. That’s something that other people do. But I thought there was an opportunity for someone like me, especially new to LA and new to the United States. That could be an interesting niche, bring a little more sophistication to an industry where it wasn’t as sophisticated. 

But I didn’t have any money other than my initial investment in that first building. I didn’t have much more to go. So the only way I could think of growing it is to get investors and had an interesting opportunity, which kind of tells the lesson of you never know who you’re going to meet when you’re out there. And I was on a plane coming from Montreal to Los Angeles, and I recognized this guy who was in my younger brother’s grade in high school. And I started talking to him. I said, Hey, I just bought this building with a bunch of friends. And he said, oh, you should talk to my dad. He’s got a group of investors. They invest in real estate. And maybe they’d be interested in, in investing with you and make a long story short, I did a presentation in a law office back in downtown Montreal the next time I was there and qualified them as the, this is the opportunity. And here’s why it’s interesting. And I still remember to this day, going around the table, asking if they were interested and they all nodded their head that they wanted to invest. And that was just the beginning of many, many years, and a lot of successful acquisitions.

And so unlike some entrepreneurs, I didn’t start off just maximizing my credit cards and getting out there. I continued to work for Disney and continue to buy apartment buildings now working with investors. And at a certain point after I was able to get enough buildings under my belt, to be able to make some management fees to help pay for my rent. I gave notice to Disney and after getting loan approval on that last building back in 1998, and I started working out of the nook of my kitchen, and that was my official full-time start of my company, Pacific crest real estate, and something that I’ve been doing non-stop ever since very, focused just on Southern California apartments, you know, single industry, single location, there’s always opportunities to move to purchase elsewhere. But I, for a lot of reasons, including quality of life reasons, I’ve stayed here.

And I was able to grow this into a nice size business. Sometimes we sold, but a lot of our properties that we still own back from 1995 in the nineties, we still own a whole bunch of those. And so that’s a little bit about my background and how I’ve gone to the place I am now. And I’ve always wanted to give back and use that knowledge. So, you know, I just last year ended my two year term as chair of the California department association for the LA advisory group. And I’m currently on the state board in Sacramento overseeing on the legislative committee, every single legislation that comes out of Sacramento. And there’s a lot of it and going over anything that’s directly or indirectly impacting our industry. And it’s been very interesting, kind of crossing my interest in public policy with my skills in all these years of property management and apartment investing.

Jason Lee:  Wow. That’s a good story. I feel like a lot of people watching this, they’re trying to buy their first part building or trying to grow their portfolio. It’s awesome that you’re in the right place, the right time. You’re on the plane with your younger brother’s friend from school. Was it? You said? Yeah. So at that time, when you I mean, going backwards when you met that guy on the plane, were you actively like talking to people, trying to pitch your business and trying to raise money or were you kind of just like right place right time? Cause I feel like a lot of people are waiting for the right moment, but I think if you are constantly, you know, looking for something and trying to chase after it, opportunities strike, like just like where you did. So I just wanted to hear more about that if you’re actively trying to find investors. 

Dan Tenenbaum: Yeah. You know, I don’t quite remember, but I’m pretty sure based on, you know, I was pretty entrepreneurial hungry in those days, even though I was working for a big company and I’m very thankful for my experience at Disney, by the way. And I still elements of that, I still use in marketing and other things. And of course, very interesting enough, My bosses boss is now the CEO of Disney. So that’s, you know, was very cool working with a guy named Bob Chapek who’s now the CEO, he’s a great guy and so happy that he’s becoming the head of this such an incredible company. Having said that yeah, no, it was I always had this entrepreneurial urge.

So while I was just being friendly and talking to this guy when he mentioned that I was going to take full advantage of that opportunity, it pays to be friendly. It was my younger brother’s grade guy. I mean, I really didn’t know him but he was friendly. He’s a great guy. And you know, you never know where that opportunity may come, but yes, certainly if it’s on your radar to grow it, then, you know, take advantage of the people that you meet and talking to them, cause you never know who may be interested in supporting you.

Jason Lee:  Yeah. That’s great advice. I completely agree. And while you’re working at Disney, what exactly was the number one thing that made you want to get into real estate? Like what kind of sparked your interest and made you want to take that jump into buying that first, you know, 14 unit apartment building?

Dan Tenenbaum: Well, the first one was just an investment, but the second one was, is when it became a real business. And so I think it got to the point that I knew I wanted to do something entrepreneurial. I didn’t know what it was going to be. One of the benefits and I think I saw it even back then, is that there’s unlike operating business, you know, and you know, we see this when people, you know, they start a restaurant or something like that, there’s less of, you know, yes, we have onsite people doing the day to day work, but from a supervisor or an owner point of view, it’s active. And you know, a lot of people, they it’s easy. It’s not easy work and it’s not easy to be responsible landlord. And I pride myself and I think most landlords are responsible. It takes work, but it’s a type of work that allows a control of your schedule.

And that to me was always very valuable and continues to be valuable as someone who emphasizes in quality of life and that it’s not all about, you know, growing my business, I could have grown my business larger than I did. And some of the reason why I’m giving back right now is cause I say, you know, I could do more, have a more fulfilling life, not having to get, you know, getting that extra money is not going to make as much difference as me making a contribution to our community. And so at the end of the day, the real estate does allow you, whether it’s doing what I’m doing or just going, playing golf, or going on vacation or, you know, moving to another country or spending half your year there, you know, real estate does have that freedom that allows that I found very appealing that a lot of entrepreneurial opportunities don’t necessarily have.

Jason Lee:  Yeah. Well said, the thing about real estate, right, is that definitely not a get rich quick game. It takes years of investing and hard work to eventually build your portfolio to where you have that time Freedom. How long did it take you, you know, while building your business and investing in real estate, how long did it take you to, to see that, Oh, well, if I don’t want to work now, I finally can just, you know, I can just go golf or go hang out with my family that true, like definition of financial freedom. How long did it take you to achieve that?

Dan Tenenbaum: I’d say it probably took about 10 years. To get to that point where I could, you know, I mean, part of it is you can choose to outsource your management, which I never did. So part of what kept me in the game and busy was just managing what we already owned. And so that makes it harder just to kind of just quote unquote retire early from just cause you’re running an operating business. But yeah, I mean it took 10 years. It’s a lot of work. You can imagine the amount of work, you know, Disney’s not known as a company, that’s easy on the hours. It’s known as a heavy work kind of environment. And I still had to go in the evenings and work some more as I was starting my business and that continued for many years. And now, you know, now it’s easier and I’m benefiting from the fruits, but yeah, you have to work hard and it’s harder now than it was for me because I buying initially from banks, they were called REOs and those stands for real estate owned.

And that’s because the banks have taken out back a lot of these buildings that were not doing well in the nineties and we’ve just experienced between COVID and the previous recession, much worse recessions. But the real estate environment is so different that decrease in values have been, you know, very moderate, if any, I was lucky to be able the timing to be able to take advantage of pricing that whatever I bought in the nineties, you could have been the most unsophisticated investor and done well, that is not the case now. And it hasn’t been the case for a long time for apartment investors. So now it’s very important that you buy well, that you really estimate your, understand your market in terms of the, and then, you know, make sure you’re estimating your expenses accurately as best as possible.

Jason Lee:  That’s a great topic to bring up. What should an investor look for if they, you know, want to buy right. If they don’t want to overpay for a property.

Dan Tenenbaum: You know, overpaying for a property is so subjective. Because you never know what you’re paying now, it seems so much higher than maybe if you’ve been watching the market for a bunch of years. I mean, you may say, oh, it’s, it’s higher. So it’s so hard to say overpaying it. But what I would say is this number one, find the right market that you think that there’s an interesting story for growth in terms of the economy, but also one like San Diego, like Los Angeles, where it’s not easy to build. So, you know, it’s basic economics of supply and demand. So the growth in the economy is the demand part. People are going to have jobs and they’re going to need housing.

That’s part of it. But there’s many areas in the United States where they can come online with thousands of units within two years of the market going, you know, starting to improve. And so these built out coastal markets like San Diego, like Los Angeles, like San Francisco and others on the east coast. Those are expensive markets where cash flow is really tight, but that’s where you’re going to get some great appreciation. And working with brokers like you, who understand the local markets, who can help guide and at least, you know, help them a small apartment investor, both understand the expenses, but also the dynamic of the market and how the, you know, the neighborhoods change and where they change. Having local knowledge is really important. And so buying right at the beginning is very important in the end and then knowing how to manage it will help you. But oftentimes it’s a lot of the money is on the buy.

Jason Lee:  A hundred percent. The money is definitely made on the buy. And that was great advice. I think if you buy in San Diego or Los Angeles, you have the four corners, right? Like you have the desert right here and then you have the ocean and then the border, right? So if you’re buying in the core parts of Los Angeles and San Diego, there’s not much to build and there’s always demand for rentals. So there’s always more demand for rentals than there are the amount of units available here. We have a huge housing crisis. I think it’s the same in LA, too, right? There’s much more demand.

Dan Tenenbaum: Statewide. The housing crisis is statewide and in many urban cities across the country.

Jason Lee:  Yeah. So I mean, if there’s, you know, it’s simply economics, if there’s much more tenants than the amount of units available, the rental rates are going to go up, which means price are going to go up. So do you see that happening for the next 5, 10 years? Or do you see it slowing down? What do you kind of foresee coming up in regard to rents going up and price is going up?

Dan Tenenbaum: Well, I think there’s a lot of changes due to COVID that are putting some question marks on just this, the general statements that I may even have made before, because I think what you’re going to see is the impact of remote working on white collar jobs. And what are the white collar jobs tend to be the more expensive of class A apartments in these coastal areas? Will those grow as much as they have in the past? I don’t think so. I think you’re going to get people who are going to decide either that they’re going to live in a less expensive part of town, a less expensive state, and that just puts a whole new spin on demand for housing. And so there’s a big question mark on how that will impact the market. And of course it’s not, you know, class a is separate from all the other classes demand for the all apartments, get impacted. So that could have an impact, the spillover impact in, in the B and C type classes as well, but probably less significant or so.

At the end of the day, you know, how is California positioned in the world economy for the future where the emphasis is on creativity and knowledge, I mean, there’s probably not a better place. So I’m not worried about the general continuous and growing demand to live here, despite all the problems that we’re having in the state, you know, unless they really screw things up. Which is always a possibility that I see increase in demand, but there may be what you have is, is an influx of people. And we are already seeing it now of who are wealthier and an outflux of people who just can’t afford it. And so I think there’s, you’re going to see some of that as well. But because of, I don’t foresee a huge ability to increase the supply in these major cities, unless they really do major changes to zoning and things like that. And because the demand will be there, I think longer term, most apartment investors in urban California are going to do quite well longer term.

Jason Lee:  Yeah. That’s well said. I think it’s a great segue into the next topic I wanted to go over though, is you’re obviously on the California apartment association LA advisory, the biggest apartment association in California. What are you guys seeing legislative wise on for apartment owners? I know a lot of people I talk to right now are considering leaving California and buying in Florida or Texas less, more landlord friendly states, less tenant friendly states. So I think it’s a good topic to talk about, If you don’t mind just kind of elaborating on what you’ve been hearing, what you’ve been seeing, just like basic the recent market updates of what’s going on. 

Dan Tenenbaum: I mean, I think there’s a lot of pressure on politicians, especially on the local level, but I think statewide where you’re seeing a lot of landlord bashing and especially after recession that we’ve just experienced through COVID, it is not a sexy thing politically to start siding with the apartment owner group versus the time. And so the question is what’s happening now? What are we going to see? I will tell you that a department association, I’m proud to be part of this group because what I’ve surprisingly, even for me, when I got into it, I mean, yes, it’s a very sophisticated group. It’s a group that has great relations in Sacramento. And as we’re seeing now with the eviction moratorium, with the maximum rent increases, there’s a lot of things the state are now involved with on housing that they never were before.

We have a sophisticated group who really do try to balance the needs of tenants because they know the politicians and what pressure they’re under. At the same time, being able to advocate strongly for apartment owners, both the small apartment owners to the larger ones. But it is tough and we are often on the defensive and it is unfortunate. I do think that we’re going to, at some point by the end of this year, we’ll see the end of this eviction moratorium. You know, we are going to get back to somewhat of a normal situation where if a resident doesn’t pay and the owner doesn’t want to work with them, For whatever reason, they’re a bad tenant. They’re just never going to pay.

Most apartment owners are not interested in evicting, good residents, or even residents who may be having some temporary trouble. It’s too costly. It takes too long. There’s a real motivation to work with a tenant, but sometimes it doesn’t,  there isn’t one for whatever reason. And then I think things will go back to normal, but there may be issues of where tenants have more access to eviction defense lawyers, and those eviction defense lawyers may not be, they’re working for their tenant, just like one of the landlord attorneys would work for us, but you know, they, I’m sure you’ve heard the stories.

They threaten jury trials and you know, these can easily be extended to eight months. So it’s really it to the benefit of our industry. And I think for the system as a whole to people have confidence in our court system to figure out a way that solves this issue of homelessness, cause we don’t want to make things worse. It’s bad enough as it is. But at the same time, figuring out creative ways, whether it’s eviction, insurance, just like we have insurance,  unemployment insurance, maybe there it’s worthwhile for apartment owners to pay eviction insurance. Because by small amount of, if we pull all our money together, if that tenant’s ours and they just lost their job or they just had a car accident, they can’t pay their rent. Well, what if there’s a fund that just funds that and keeps that good resident in there.

So I think we need to be creative on what we can do, but yeah, the things are not going to get better. Legislative wise, some of these temporary COVID related things will go away. But yeah, you know, if you’re going to be in California, there’s going to be a battle, and I’m always looking for the carrots, the carrot approach versus the stick approach. Ones that are win-wins for the tenants and for the apartment owners. And I think those are the us as the industry need to be promoting.

Jason Lee:  Yeah. I couldn’t agree more. I think that’s all great stuff and people need to be in touch with what’s going on. I feel like things are changing every day. I feel like when I talk to my property manager, once a week, I hear something different from them that this law changed or this happened with the new moratorium. They’re pushing it back here. So yeah, hopefully by the end of the year, the moratorium ends. As of right now it’s August. Right. But it could get pushed back.

Dan Tenenbaum: No, it’s June 30th, but they’re going to extend it most likely to at least September 30th is what I’ve been hearing. But the big issue that a lot of apartment owners are experiencing is this issue of especially the small owners, who know their tenants, they’re seeing their tenants going to work every day, Like they did pre COVID. But they’re not getting collecting any rent because there’s some folks who are taking advantage of this eviction moratorium, those folks were not intended to be protected. It was supposed to take care of people who are legitimately and you’re hearing more and more stories that now in the month of June, when a lot of people are back at working where there’s still a lot of people not paying the rent. And for those people who are not working, that’s fine.

That’s what this law was supposed to be intending. And I can understand it and we don’t want to make our homeless situation worse. And that’s something that’s important to me. But having said that people taking advantage of the system, I don’t have empathy for those people. And they’re ideally, whatever this extension of the moratorium, eviction moratorium, I’m hoping there’ll be some way to deal with those people because I don’t think that’s fair. And that’s what a lot of apartment owners, who now are not collecting rents. Our feeling is happening.

Jason Lee:  Got it. And like yourself being a big real estate investor and knowing a lot of real estate investors in the area. How are you dealing with the people who are just taking advantage of the system and still going to work and not paying rent? Are you doing anything right now proactively another smaller apartment owner could be doing to try to mitigate that situation?

Dan Tenenbaum: Well, I think this is a real sensitive issue. I mean, you certainly don’t want to be accused of being harassing your tenant. So the best thing you could do is perhaps explain the law that they’re going to have to owe this rent. This is not forgiven rent. I think that’s important. So they’re going to, they’re still going to have to pay the rent. They’re going to have a year after the moratorium ends to pay it back. And so at the end of the day, you know, do they want to carry on this debt load afterwards or start working on paying back some of it now, cause it’s not going to be forgiven. I think that’s the best way. Just explain the law. And I don’t think that will cross the line into harassment. It’s in a way, you’re them on how best to manage their own credit.

Jason Lee:  Got it. And through your personal experience, what’s been the toughest thing you’ve got to deal with, The past year and a half since COVID started with your holdings.

Dan Tenenbaum: Well, the toughest thing is that all of a sudden we have zero distributions to my investors for some of our properties. I mean, there’s nothing, thankfully we haven’t had any cash calls. I’ve been really working very hard to avoid that. But yeah, we’ve had to get some loan forbearance on a couple of our properties because it was getting so bad between higher vacancy and delinquency and it’s been tough. Listen, everyone who’s a department owner is listening, is suffering in some way some more than others. And then, you know, there are some lucky folks who have a portfolio where the nature of their tendency was not as much affected. So I guess I shouldn’t say everyone was affected. There’s certainly stories of people who have been, have had zero impact on their vacancy and not that many collection issues. We have that in some of our valley properties. But our Korea town properties have we have, those are suffering with higher vacancy and with collection issues because the nature of the tenants are tend to be more service oriented. The industries that have been hit the most hard by the pandemic.

Jason Lee:  Yeah. I think you bring up a great point is that, especially in San Diego, it’s very location based. I know a lot of owners who bought like in north park, for example, or by the beach and Pacific beach and they have zero collection issues. All their tenants are paying throughout the whole pandemic. They probably have like an average of 98% collections, but then you go to certain areas like Logan Heights or Southeast San Diego, city Heights and east county San Diego. And they add a much tougher time throughout the pandemic. But you know, I try to stay on top of these things and I feel like, I don’t know if you agree or disagree, but I think we’re coming to the end, we’re coming to the light of a long tunnel that we’ve been, you know, battling through. I feel like a lot of owners are starting to see that tenants are getting jobs back. They’re paying rent again, there’s government assistance programs, but would you agree or disagree that we’re kind of at the tail end of this whole pandemic issue with the people not paying rents?

Dan Tenenbaum: Yeah. And the question is how many more months of that tail is left. So is it three months? Is it six months or longer? I think the eviction moratorium has a big impact on that. Thankfully, you know, the governor is looking like that program where they’re going to pay 80% of the rent for lower income tenants and is now going to increase to a hundred percent. They may increase the income levels and in parts of California that qualify for the funding as there’s an additional amount of federal funds have arrived. So hopefully that will help a bunch of apartment owners out. Like I said, there’s a bunch of people who may not qualify income wise who have not paid either. And so it’s really you know, the luck of the draw and the luck of your tendency.

And I feel for the small owners, the small owners, just like a small portfolio of stock, if you just buy one or two stocks versus a whole mutual fund, I mean, you just could have had excellent luck or terrible luck. And even if there’s a 20% in a submarket, a 20% delinquency rate, well, if you have a two unit building that one of those people was that 20%, you’re at 50% delinquency. And so that’s, you know, how are they paying the mortgage and whatnot and going into their savings. And it’s the small mom and pops. Those are the ones the most. And then certainly depending on, you could have also been unlucky where you know of the location of your portfolio and you’d be suffering [25:21 inaudible] too.

So it’s very interesting. And like you said, it’s very hit or miss, but the highest risk was for the smaller owners, because they’re the ones who could have between higher vacancy and higher delinquency could have been hit hard where they’re having significant difficulty in making their mortgage payments. And by the way, insurance rates are skyrocketed this year, you know, in Los Angeles, the garbage rates of skyrocket, it as they’ve come to regulate that. We’re seeing not only, I mean, we’ve also know all the additional expenses of COVID of cleaning and other types of things. So yeah, our expenses have gone up and our revenues have gone down, 2020 was a really lousy year for our industry. And I hope you’re right about being the tail end. But yeah, it does look like things are looking better. The question is when is it going to fully turn around?

Jason Lee:  Yeah. And I think investors agree with us too, because I have never seen so much buyer demand in San Diego in my career until now. I feel like people are more bullish than ever. But for someone who’s looking to maybe buy their first or second apartment complex, the smaller owner that wants to grow their portfolio, what advice would you give them? If they’re looking to enter the market right now, it’s such a weird time and things are changing every single day. What are some points you would give them? 

Dan Tenenbaum: Sorry, I think my internet may have just weakened, but so what I would say is, listen, we just went through a tough period, but it does highlight some of the risks, the vacancy risks when you have a smaller building. You know, so if you do, you could have a non-paying tenant that has nothing to do with COVID. And all of a sudden that fourplex with one unit not paying for eight months, a 20% or, you know, plus vacancy rate or collection issue. I mean, in most of these coastal cities, you can’t, you’ll have negative cash flow with that. So you have to understand the risks. Obviously we know the people listening know the benefits of being able to depreciate the asset from a tax point of view, the ability to have long term appreciation, to be able to while cashflow initially is not so high, hopefully in three to five years to match, you know, the prepay in terms of your loan, you’ll be able to refinance and take advantage of the increase in value. 

Certainly more of a common play in coastal areas that are expensive and lower cash flow wise where people’s wealth is created, but there’s definitely for the smaller buildings there’s that risk. And one of the other things, I don’t know if a lot of your clients know, and it kind of suggests that sometimes it may be worthwhile to buy a larger property from you or to pool their money with other investors, is that, you know, if you have two buildings that are side by side and they’re identical, and you know, obviously they’re identical pretty much in location. And let’s say they have the exact same configuration and amenities, but one was like a 40 unit building. The other one was a 40 unit building. What you’d find is the cost per unit of the four unit building would be significantly higher than the 40 unit building. And so that’s something to think about because obviously that means your cash flow is going to be lower for the same amount of rent, because the rent will be the same in those two buildings and you’d have a higher vacancy risk, yet the market  and the only reason the market is priced that way is because there’s more people can afford that four unit building as an investment. That’s the only reason there’s no, it’s not a business reason. It’s an investment demand reason.

And so that’s where, you know, if you wanted a passive investment, especially if you don’t want the headaches of management, you may be better in working with either someone else who’s a syndicator or has some investment plan where you can just invest your money with someone that you trust and someone who you admire and who perhaps thinks things similarly to you. It’s just important to take, you know, that sometimes yes, apartments is sexy and can do very well in it, but know the risk and, and know that sometimes these smaller deals have higher risk than some of these larger ones.

Jason Lee:  Yeah. That’s great advice. I think bigger buildings are much harder to come across because people simply can’t afford it. Like you said, I feel like a lot of people don’t understand that. I’ve had that question asked a lot, and it just makes sense because if you’re looking at a four unit building, it might be going for 300 a door, but the one that’s 20 units that most people can’t buy might be going for 250 a door or the rents they’re saying the cash flow is much better. [29:40 inaudible] some really, really good advice. So thank you for that. But switching gears a little bit, I mean, I don’t know if you’re in the market or not if you’re buying or not, but if you’re looking to buy an apartment complex right now, what are the parameters that you’re looking for in an apartment building?

Dan Tenenbaum: For me, I’ve always focused, because I understand that there’s risks involved with apartments. So I need to feel confident that within the year I’ll be able to get a certain minimum amount of cash flow. Which is hard for these small buildings too, often they’re not cash flowing at all, but for me, because I can access capital, equity capital and debt capital that allows me to buy bigger buildings. I look to be able to have a certain minimum cash flow with decent amount of upside in the rents, especially if we’re buying rent control properties or some other repositioning rent you know, typically associated with a renovation piece as well.

And then the market will kind of, once you’ve kind of implemented that the market will be able to hopefully lift all both, but you’ve gotten this initial added value that you’ve created, and that can protect you, you know, longer term from the downside and doing what I never liked to do and thankfully have hardly ever had to do it since my, you know, since I started my company in 1995 is do a cash call for investors. Or if you’re investing for yourself having to, you know, dip into your savings to put back into the property that you weren’t planning on doing, and you had some other good uses for those funds. So, yeah, [31:00 inaudible] cash flow, but again, it’s all about the, you know, the famous location, location, location, buy in a location where there’s a story, hopefully it’s in an area that you’ve either the building itself or the area submarket that you’re targeting has a story where you can do better than just the market. Because other than that, what value are you adding? You can just buy into, invest with somebody else or a fund or something like that.

Jason Lee:  Exactly. And if someone that’s watching wants to do what you’re doing, how do you raise money and how do you have access to capital that trusts you to make your next investment every single time? How do you grow that investor pool to where, you know, you’ll have no shortage of capital when looking for, you know, let’s say a hundred unit building in Los Angeles. 

Dan Tenenbaum: Yeah. I mean, part of is reputation. And if you keep making money for your investors, you’re not going to have problems getting investors. So that’s why, again, the buying right is so important. You know, I started small though. I started with a 14 unit  building with a few friends. And so I guess become an expert, know the industry and people will recognize it. And, but it’s like anything else. It requires focus. There’s too many people in these larger apartment markets who are eyeing deals.

You have to be able to really see something that other people don’t, and you’re not going to do that being an outsider, you need to be the insider. You need to understand your market and understanding where value is added in that market. Cause something, you know, one of the things that values created is through renovation, but there’s a such thing as over renovating a unit, you know, you can be putting in all this fancy stainless steel appliances and granite, but if you’re in an area where that you’re not going to get much more income because it’s more of a working class type tenancy or you’re going to perhaps spend too much money, you have to find that right amount of renovation for that market. And you know, you have to part partly is, you know, it’s not as hard as it used to be when I got involved.

I mean, now you can go online and you can, you see the rents, You can look at pictures, you can get a virtual tour. I mean, you don’t even have to go to the properties to get a good idea of, of what people are paying for units. And so become an expert and then I think investors will see over time that you have become the expert and listen, there’s a lot of money out there. There’s on the sidelines from, you know, single small investors to institutional investors. So there’s no lack of capital. It’s finding the right person, who’s going to be the lead manager of that property, that’s hard. Finding the right real estate and the right person, the right people, that’s the hard part. If you can manage that, the money will come.

Jason Lee:  It’s great advice, Dan. Thank you. It’s been a great show so far, but something I really wanted to ask you was what’s the biggest mistake you’ve made in your real estate investing journey and what did you learn from that mistake?

Dan Tenenbaum: Yeah, I think what comes to mind when you say that is a little bit related to my over renovation plan and that is the mistake that I can think of is one where I bought one of the highest end buildings and a more working class area. And the difficulty with that is that when the economy starts to decline, oftentimes the folks who are the more working class folks are the ones that suffer the most just as it we’ve seen in COVID, but that’s in previous recessions too.

And the premium that you might have in the good year has been able to achieve for that nicer building, pretty much almost goes away. And so I’ve learned, so I guess my lesson was, I’d rather take a building that is kind of middle of the road and make it somewhat nice. You know, I want my residents to have a good quality of life. I want them to be taken care of. I want them to feel proud of where they live, but it doesn’t have to be the highest end building for that area. And I think that’s the mistake that I’ve learned that I will not be replicating.

Jason Lee:  Got it. That’s good advice. I do have firsthand experience on that. I feel like on the first property I bought, I thought I over renovated the property for the area. And I think the rents that I got, I could have gotten with much less capital spent into the property. So I think it’s definitely great advice and a mistake that I made in my first property. So I’d learned the hard way as well. The last thing I, we kind of wanted to talk about was how technology is changing the way properties are being managed. And you wanted to kind of dive into that. How was technology changing, how you’re seeing properties being managed at this point in time?

Dan Tenenbaum: Well, I think a lot of us have during COVID have tried to make it as easy as possible, both from a marketing and a payment processing point of view, to be able to deal with, with COVID. So whether issues related to COVID. So, you know, there was no in person showing. So how did you provide a virtual tour? How did that integrate into your, you know, your marketing campaigns and on your website? So that’s the one hand and we made it free for, without a charge for our residents to pay with a credit card, you know, make it as easy as possible for people to pay. So we’ve moved towards credit and debit payments much more significantly. So that’s a big change and having all integrated into our property management software, it was challenging. But I’m happy we did that. And now going forward, you know, and part of the appeal I mentioned earlier is the quality of life and be able to control your schedule. 

But one of the nice things about moving some of the invoicing and payment process in the accounts payable into the more electronic and paperless world is that if you can get that point, you know, all of a sudden that also starts to free all of us owners that are typically going in and signing checks and everything like that to, for us, not even necessarily having to be in the same city where our properties are, or our property manager. And so my next step for my company is to be able to have all of our invoices get scanned in through, you know, there’s various people who will do that and then allocate it to expenses and then move towards paying everyone from our investors to our vendors electronically, as opposed to with paper cheques. And you know, you need to make sure you have good control systems in place, and you need to think about that carefully. But again, I think that’s an interesting opportunity for, especially as you grow your company and frankly, anyone who wants to kind of have a type of real estate investment career that where you’re less tethered to being in a specific location.

Jason Lee:  Good stuff, Dan, thank you so much for your time. Really appreciate all the advice you gave today. If someone that’s listening to the show wants to learn more about you, how can they go find out where you?

Dan Tenenbaum: Well, they just Google my name, but then you can also just go on our company website it’s PCR, for Pacific crest real estate, APTs for apartments.com. And there’s a little bio in there. And yeah, we’re owner operators we’re not looking necessarily for other investors or anything else. I’m here just to hopefully be a good resource for other apartment owners. But if I could be of help to anyone, you know, feel free to reach out. 

Jason Lee:  Thank you so much for your time, Dan. Really appreciate it. 

Dan Tenenbaum: All right. Thank you. Take it easy, Jason.

[Outro] Thank you for joining us on the multifamily millionaire podcast. The show that interviews, multimillionaire real estate investors and top producers in the real estate industry. We’re here to help you create passive income and achieve financial freedom so that you can do what you want whenever you want. We’ll catch you next time on the multifamily millionaire.

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