Insider Secrets Podcast Episode #63

Featuring Guest: Dan Kryzanowski

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Guest Bio:

Dan Kryzanowski - Episode 63 guest at Insider Secrets Podcast

Dan Kryzanowski is an active real estate advisor, investor, and partner. Dan has raised millions of dollars across multiple channels, including accredited investors, family offices, and investment advisors, while empowering his partners to raise seven-figures on multiple occasions. He specializes in niche segments, such as industrial and self-storage, complimented with a deep knowledge of tax-advantaged investing. 

Dan, a Wharton graduate, previously led commercial real estate initiatives for GE Capital in Mexico and South America. He also received a MBA from Thunderbird School of Global Management, graduating with Distinction (top honors). Dan holds Series 7 and 66 licenses, is a licensed Project Management Professional (PMP) and recently served as Corporate Board President for Hugh O’Brian Youth Central Texas (HOBY). Dan lives with his wife and son in Austin, TX.

Shownotes:

Standout Quotes:

“I want to make sure that everybody has the opportunity and the know-how that they can access what is theirs to invest in what they want or to provide for their community ” – [Dan]

“When you leave your business’s core intention, your core mission, you really leave yourself out there” – [Dan]

“Realize your retirement dollars, your old 401k, and your old diary. You can use that to invest passively in real estate, in different startup to buy Bitcoin” – [Dan]

“If somebody wants to be here in downtown Austin, they might even pay a sub five cap rate just so they can have a printed downtown” – [Dan]

“I know some folks that have been involved with call it the pension funds and such of the world and it wasn’t the next shiny object, but it was the person that was in the headlines” – [Dan]

“I invest where there’s a team or partners, instead of one person, there’s just too much that can go wrong or too much on one person’s plate” – [Dan]

Episode Timeline:

[02:31] Today, I’m excited about my guest, Dan Kryzanowski.

[03:57] In one word, can you describe for us what best describes you personally and professionally?

[05:50] Dan shares his backstory.

[09:21] Do you think that you wind up resting on your laurels, that people get comfortable and they feel like we’ve got this?

[11:09] So in your own personal career, what’s been a real defining moment for you to take you to where you’re at today?

[14:50] Do you think we’re going to stay like this? Or do you see a looming effect that’s going to happen here in the market?

[19:57] Dan discusses about the stock market and shares a personal short story that relates to it.

[25:49] Let’s talk about raising money, right? So when you raise money and you’re in this dynamics right now, what do you say to investors?

[28:53] When you’re raising private equity, how do you go about doing that?

[30:29] Do you ever see yourself or do you ever see those types of deals get into a place where people go, man, this is too good to be true?

[31:48] What advice would you give an investor in the multifamily space today?

[33:58] Favorite tourist attraction?

[35:35] Best book ever read; “Skin In The Game” by Taleb.

[38:29] How to contact Dan, search for Dan Kryzanowski on LinkedIn.

Transcript:

[00:00:15] Kristen: Welcome to this week’s edition of Insider Secrets. The show that turns multifamily investing into reality. Each show we interview guests who are seasoned professionals, actively closing and managing real estate deals. Your host Mike Morawski has more than 30 years of multifamily, real estate investing and property management experience.

[00:00:37] Mike is the founder of My Core Intentions. And he’s been involved in over $285 million of transactions. Focuses on helping you create short term cashflow and long-term wealth. Here’s your host, Mike.

[00:00:54] Mike: Hey, good afternoon everybody. And welcome back to another episode of Insider Secrets. And [00:01:00] I’m Mike, your host, and Insider Secrets is brought to you by My Core Intentions. And one question I always like to ask is, what are your intentions? You get up this morning, did you think about what you were going to do? What you were going to accomplish today? Where you wanted to go?

[00:01:13] Where do you want your business to go? Where do you want to go personally? One thing I always say is, our business doesn’t grow professionally or business doesn’t scale unless we grow personally. And hopefully through the information that we bring you on Insider Secrets, that helps you grow personally because you expand your knowledge.

[00:01:32] And I always like to think about my knowledge or my brain is a rubber band, right? Every time I stretch it, it never goes back to its original size. It gives me the ability to put more in there, more to think about, more to grow with. Hey, at MCI or My Core Intentions, we invest in your future. We have a couple of educational platforms of teaching events and things that will help you grow.

[00:01:53] I want to empower you to execute sound real estate principles and property management skills, [00:02:00] while living a quality and well balanced lifestyle. One thing I always find is that in real estate we can get so stretched in many different directions that our lifestyle gets out of balance. And if I can help you to live a more quality balanced lifestyle to pay attention to the things that really matter most, maybe like family, maybe like some personal time, some quality time that will help you get back in balance.

[00:02:27]Then that’s what I want to do for you. But I’m looking forward to today’s show. Today, I’m excited about my guest, Dan Kryzanowski.  Dan, you want to say hi to everybody real quick before I intro you?

[00:02:38] Dan: Hey, y’all. Dan K, greetings from Austin, Texas.

[00:02:41] Mike: Hey, Austin is a great city that’s for sure. Hey, Dan is an active real estate advisor, investor and partner who has raised millions of dollars across multiple channels, including accredited investors, family offices, and investment advisors, while empowering his [00:03:00] partners to raise seven figures on multiple occasions.

[00:03:04] He specializes in niche segments such as industrial and self storage complimented with a deep knowledge of the tax advantages that go along with real estate investing. Dan’s a Wharton graduate. I’m impressed. Previously led commercial real estate initiatives for GE capital in Mexico and South America. He’s received an MBA from Thunderbird school of global management, graduating with a distinction and top honors.

[00:03:33] Dan holds a series seven and a series 66 license, is a licensed project management professional, and recently served as corporate board president for Hugh O’Brian youth central in Texas. Dan lives with his wife and his son in Austin, Texas. And Dan, I’m glad that you’re here today. One question I always like to ask my guests, Dan right away is, in one word, can you describe for us [00:04:00] what best describes you personally and professionally?

[00:04:04] Dan: Passionate.

[00:04:05]Mike: Okay. Anything specific right now that you’re passionate about more than something else?

[00:04:12] Dan: Yeah. I’d say for a lot of us gen X-ers out there that have children later in life. I’m all in with my son and we were here on St. Patrick’s day. I’d be wearing my green and holding up a Guinness.

[00:04:21] He is a St Patrick’s day baby. So although I am here in Austin, I grew up in Scranton, Pennsylvania on the Irish side of the tracks. There must be some higher power out there that has you do that. I’m pretty all in with that. At the same time, it’s education.

[00:04:34] And I think I say passion, it’s we all have different backgrounds, different stories. We grew up in different towns, different assets. Might say my mission here is that, particularly when it comes to investing, just being aware of what’s out there, as long as everybody has the equal level of education then I feel good about it.

[00:04:49] We’re all big kids thereafter. I want to make sure that everybody has the opportunity and the know-how that they can access what is theirs to invest in what they want or [00:05:00] to provide for their community.

[00:05:01] Mike: Yeah. Interesting. And Dan, I got to call you out right away, right up here up front, talking about St. Patrick’s day, and your last name is w S K I and just like mine, us Polish guys have to stick together. Come on.

[00:05:14] Dan: I grew up in the Irish part of an Italian town, but I even did that when I lived in New York city earlier in my career, we lived in the East village, a block from the Polish church, the Polish restaurant. So I did have VIP service for four years to make me feel good about things.

[00:05:28] Mike: Yeah. If you’re a traditional guy like me I’m thinking about Easter coming up this weekend, wondering where it was a good Polish delicatessen to go buy some good sausage and some rye bread for Easter.

[00:05:38] Just the thought. Hey Dan, listen, we covered a little bit of your backstory, fill some blanks in for us. Would you tell us a little bit more about who you are? And how you got into the space you’re in? And actually what you’re doing today?

[00:05:50] Dan: Yeah. And thanks and I do think things skip a generation. When I think back to my grandparents on all sides and old aunts and uncles, they were the [00:06:00] first generation that was born and raised here. Probably through the depression, World War II et cetera. They were very entrepreneurial. They saw the value of land, owning a business, bartering, et cetera.

[00:06:10] And then you can argue our parents’ generation no fault to them, but they grew up with W2 jobs. My dad was a teacher coach principal. He didn’t have a resume till he was 60 years old. My mom was a social worker. Probably for me, it’s not in my DNA to do I’d say the value that she provided her folks was exponential, obviously not a high paying job. I share all that because growing up also in Scranton PA and politics way aside, but president Biden showing his inside backstory, we grew up a few blocks away from each other.

[00:06:41] Probably the same nuns, the same school, the same little league field all of that. It really does if you think of just Kiyosaki’s book, Rich Dad, Poor Dad, it doesn’t really give you the kind of rich dad mindset from there. And I appreciate you sharing my full intro. And thanks to listeners for listening in there.

[00:06:56] I don’t want to say fancy, but say expensive schools and stuff that I went to and [00:07:00] such that really doesn’t give you a wealthy mindset. I think what it did bode very well in the 20th century. And I would also say, for me it was right place, right time to. We joke a bit, but to be the Polish guy in an Irish Italian town, you’re the tallest guy in the basketball court.

[00:07:13] And it makes it a lot of fun. And growing up as a kid in the nineties, it was blissful in Scranton, Pennsylvania. The benefit from that fast forward a bit, I was a beach bump for a few summers, lived in Spain, went to wall street. It was the thing you did back in 2000.

[00:07:26] And I have joke. I was very grateful for a gentleman from my fraternity to give the offer and you show up the first day and guess what? He’s doing something else at the company. So right off the bat, you learn of how the real world works and how to maneuver and negotiate and such.

[00:07:39] But enjoy my time in New York, just didn’t really see a career. Went out to Thunderbird for my masters, great experience. I’ve always had that. I wouldn’t be surprised if later in life we’re doing a state department job somewhere. I’ve had folks in my feeling that I’ve done it.

[00:07:52] It’s in my head and heart. But the end results of that once again was our GE capital. 15 years ago, which seems like an eternity, but GE was voted top [00:08:00] company in the world. GE capital was the hot, we’re not even around anymore. The hot financial shop, and this was a great experience for me.

[00:08:06] Having the global backing, doing global deals on the real estate side and other businesses. I would say though in head and heart, I knew that’s probably where my future wasn’t going to be doing the commute or reverse commute, in Connecticut or New York city wearing the khaki pants all day. There was a little bit more, my wife and I, and almost 10 years ago to the day, did a one way ticket back here to Austin, Texas, and it’s been quite a ride.

[00:08:30] Mike: Yeah. It’s interesting. And how our world changes and how things change along the way. So I think because of the environment and the things that happen around us, it makes us make different choices and decisions and that’s what it sounds like for you. You mentioned GE, right?

[00:08:46] And even when I read it in your bio, I went, man, they were a huge company. And years ago, there was a book written called “Good Degree”. I don’t know if you’ve ever read it by Jim Collins. And he talked about what it [00:09:00] took a company to go from being a good company to a great company. And GE was one of those companies.

[00:09:05] And he talked about how GE scale and then, all of a sudden they didn’t continue to do what they needed to do to be around the withstand the test of time. It’s interesting how that happens. And what do you think something like that is, do you think that you wind up resting on your laurels, that people get comfortable and they feel like we’ve got this?

[00:09:27] Dan: Yeah. When the chart is pointing upward, it’s tough to knock it off coaster. And a real example is we’re taking this and maybe listening, in the year 20, 25 or 2030, we may be talking about Tesla to say, remember when they used to do cars and batteries, and now they own every 50% of all Bitcoin and tokens and such, and maybe that’s what they become and they own half of the world’s currency.

[00:09:51] On the flip side, if let’s just say, coins, Bitcoin, et cetera, flattens over, from now for the next 10 years or [00:10:00] drops. And they invest in not just I think the billion and a half, they said, a hundred billion or so.

[00:10:05] Then oops, they might have a cash crunch in for one reason or another, whether it’s business-wise or political, they can be out of business. Both of those are in extreme, but I think in a similar vein, when you leave your business’s core intention, your core mission, you really leave yourself out there.

[00:10:23] Particularly if it becomes a majority of your assets, a majority of your revenue. Sometimes it’s a life-saving play like, with eBay did with PayPal. Which you can say they were quasi connected, so it wasn’t that far away. But I just feel less than I think would she is you have this manufacturing company that got into for all effective purposes, levered banking.

[00:10:44] And that party only goes on so long. That said a few times your sales, and obviously there was discussion for our GE folks out there, both in the real estate and credit card business to maybe dispose in the two thousands, it didn’t happen. That would have made a melt and others look like a genius, and that would have been so [00:11:00] much more if that was invested into who knows what maybe GE would have been still talking to them as one of the top five or 10 companies out there.

[00:11:08] Mike: Yeah. It’s interesting. So in your own personal career, what’s been a real defining moment for you to take you to where you’re at today?

[00:11:17] Dan: Yeah. One is just of course leaving GE when I did. Obviously 2008 happened to everybody. The 2/2011 that was still an entity. It still meant a lot if you were in finance to live in the Northeast. I came to Austin before there were any outside of sixth street. There was none of the hipster bars on Rainey street. It’s still new, all the acts that were coming into play on South by Southwest.

[00:11:40] You pretty much knew everybody in town. Now we’re in this true sort of adolescent stage. I think the first thing was just the leap of faith to come to Austin. I think it was very big. And then I’d say like anything, five years in making the decision if I wanted to stay more with smaller companies or on the entrepreneurial route or bounce back up. [00:12:00] We have dental AMD dimensional financial advisors on the finance side, and I chose to stay a bit more on the entrepreneurial side.

[00:12:07] Those were, I’d say two notable points on the timeline. I think most specifically is so what are you passionate about when you tell your backstory? And I found myself being excited to say, Hey, I was co best man in a friend’s wedding. And I asked this guy what he did.

[00:12:19] He said, he flipped houses. I said, that’s great. You said 15%, my ears lit up. And then he said, did you know, you can use your retirement dollars. And that’s when the light bulb went off. And that was many years ago and it led me to a self-directed IRA passive investing how life plays out.

[00:12:35] I was on a plane with a gentleman whose previous company, Goldman Sachs spot. And next thing, I’m one of his early advisors investors and stay on as employee one. And taking that now for the confidence to be on my own, partner with who I think is one of the top real estate shops across all of Texas on the BD and Archway side.

[00:12:55] And feel confident that my interactions with folks in my reputation, or at [00:13:00] least going to merit a conversation to share a bit of education and a bit on our offering and vice versa. That’s where my chips are for the next few years.

[00:13:10] Mike: Yeah. Interesting. This conversation about GE is interesting. And I was in Dallas doing a deal and we were in a GE office in Dallas and this was 2009, probably summertime of 2009. And I had a somebody who I was doing business with in Dallas, who I built a really good relationship with said, come on, let’s go to GE. I know these players there.

[00:13:38] And I think that we can get some good debt and maybe even some equity. And I remember sitting in this guy’s office saying, you can see what’s happened. Lehman brothers was gone, bear Stearns, AIG. He says, I don’t think we’re going to be around much longer. And it was a very interesting conversation.

[00:13:59] And I remember leaving the building, looking at my buddy that day saying, Hey, I’m finding that conversation hard to believe that GE. And, the guy said to me, man, look what happened to Bear Stern. They were around a hundred years and AIG took a bath. And when you start to look at those major corporations like that, I remember sitting at lunch with my CFO in 2008, and then they were carrying boxes out of Lehman brothers by the truckload.

[00:14:29] And I looked at him and I said, man, we’re screwed. Aren’t we? He goes, yeah, we’re in big trouble. And so the world imploded back then. The good news is I think that, things are righted now, ships floating again, and the markets are stronger than they’ve ever been. But which brings me into a question. Do you think we’re going to stay like this? Or do you see a looming effect that’s going to happen here in the market?

[00:14:59] Dan: I joke because I know our conversation is going to be played a month or two down the road. So I’ll count you out with that. The one thing I think with all this is let’s assume and hope more folks are vaccinated, or we’re on Lake Michigan or each right now we’re enjoying ourselves for the summer.

[00:15:16] I think the big thing here, and I’ve talked to some really bright folks. Some humble folks that been analysts for 20, 30 plus years. And I think it really comes down to the money supply. So let’s take a real elementary. Let’s say, when the ball dropped in 2019 to 2020, and apple costed a dollar.

[00:15:35] Okay. Let’s say, as COVID went along a year later, it’s a dollar five. And now as we sit today, let’s say it’s a dollar 10. So a little bit more than inflation, but not too much more. But real estate and this is no exaggeration in some markets has doubled, cause you’re seeing, houses selling. A $600,000 house selling for 150, 200 above ask, like real deal, 50% are [00:16:00] doubled.

[00:16:00] So the question here is let’s just take extremes. The Apple went up 10%, the real estate up went a hundred percent and monetary supply doubled AK went up a hundred percent. What’s correct? What’s valid? Is the Apple going to go up that much? Or do we almost sit that we have two different markets for consumer perishable things that you buy versus, an asset like your legacy wealth, and somebody is gonna say, listen, my house is worth one over fraction of the money supply. Because that doubled, my $500,000 house is now worth a million, and people are going to say, that’s that.

[00:16:33] You know what it does I think it’s really going to continue to divide. I think the haves or the have nots. The folks that think of wealth and are actually have some sort of equity ownership, which once again, it could be as an LP. If you are riding that quote, unquote, say inflation or higher priced wave.

[00:16:51] And folks that we think of our parents generation that’s saved up. Why? Because their grandparents grew up in the depression. So all that money under the mattress, maybe it can value a few apples, [00:17:00] but you’re just never going to reach a house. And that’s historically this has really hit lower income communities of color.

[00:17:06] But it’s really gonna hit, I think your middle of America, white middle class, if they’re just not going to be able to buy. In Austin right now it’s comical. And I’m sure across the County, even in Scranton, PA talking to my cousin, she’s an appraiser up there today.

[00:17:19] It’s the same thing. Supply is one fifth, one 10th of before offers are 10 X, 20 X, meaning the number of people coming in. Is this sustainable? As I said, if it’s like anything, if everybody agrees that the game is going to be played this way, based on the amount of money supply out there, then guess what?

[00:17:37] You’re going to have very unique markets for housing and then your day to day. And the other thing I would say versus we talked a little bit about 2008. The difference here is people are paying with cash. So it’s like people are levered here. So in many ways people are saying with us, but there’s just a lot of cash out there.

[00:17:53] And as I said, I think that’s my advice for somebody that has been working, quote unquote, hourly or saving all these [00:18:00] years. Yeah, it might be very uncomfortable, sometime between now and not two in the near future, you’re going to have to put a chip and it’s like poker, you’re at the big kid table now.

[00:18:10] You’re gonna have to put that chip in and buy a house and ride this wave. Or you’re not really giving your family that sort of wealth that I think one’s going to have to rely on going forward.

[00:18:21] Mike: Yeah. It’s interesting when you talk about pricing. And we could say that yeah, this episode’s going to run in a couple of months from now or eight weeks from now.

[00:18:31] And that’s okay, but I want people to listen to this because this will happen again. The market is cyclical and we go through the cycles. But here’s something that’s really interesting. I’m getting ready to build a couple of single family homes and we’re trying to go vertical pretty soon here. And what’s interesting is the conversation with the builder has been like this, pre COVID, we could build this for 110 a square foot. [00:19:00] Today, it’s 133 a square foot in a year’s time. Okay. That’s a big jump. That’s a lot different than your apple be in a dollar 10 years ago in a dollar 10 today, right?

[00:19:13] Dan: Sure.

[00:19:13] Mike: And I had a friend call me the other day and he goes, Hey, I’m at home Depot. And two by fours are $7. He says, when do you remember eight foot two by four being $7. I said, I don’t. I said a year ago I was buying a two by fours at $2 and 33 cents.

[00:19:31] Dan: Yeah.

[00:19:32]Mike: So the cost of material has accelerated, cost of food’s gone up, cost of everything is going up.

[00:19:38] It’s an interesting time and place. I think people need to be aware of what’s going on. And because I think that we’re going to wind up in a place and I told you when we started this, that we’d end up in some rabbit hole.

[00:19:54] Dan: Let me push it even deeper.

[00:19:56]Mike: [00:19:56] Oh great.

[00:19:57]Dan: Let’s think in terms of three weeks. The stock market, [00:20:00] it’s been at an all time high, it seems the last few years outside of the course, March of 2020. And the question here is high level. So I referenced my first boss, great gentlemen, Moved to Vegas.

[00:20:10] We had dinner in Vegas a few years ago and he’s like, stock market’s fine, it’ll be fine for the next 10 years. And he’s been through many cycles and so he goes, tell me why? He goes to the bathroom, comes back and I list everything.

[00:20:20] He says listen, all the big pension funds, the CALPERS, the pin code, et cetera, what are they going to get in a bond? I’m like, you’re right, 1%. What are they going to get in cash? Zero, one basis point. Because of that, you keep on feeding sort of the stock market animal that goes in. When you just think of arc financial, they’re a big holder of Tesla. Once again, just PE make sense, or is it just a separate vertical much like how you can say Bitcoin is going to be, and these are going to be the rules of these games. And like anything where a lot of folks go in and they don’t want to see the bottom come out.

[00:20:53] The question here is, I’d say until there’s still pensions. There’s still people that are gonna only think in terms of stocks and bonds and funds, [00:21:00] they don’t want the floor coming out of that ship. Could equity stay like this? Maybe not at the same acceleration. Once again, sure, why not? Because I always bring it back. There’s a lot more money supply. And what other currency can you go into when you talk about that? What other physical asset that can do something now? And let’s just, I’ll finish here on the fourth dimension I heard at a family office show.

[00:21:22] They said if every millionaire wanted a Bitcoin, as in Bitcoin they can only own one third of it, which was a kind of a wild fact. So it’s you know what, that’s probably could it hit a million dollars? Sure, of course. It’s really bringing that back to the Joe Jane America in terms of, if you’re not as versed in private investments, hopefully we are educating some folks today that, I’d say one takeaway is, realize your retirement dollars, your old 401k, your old diary.

[00:21:48] You can use that to invest passively in real estate, in different startup to buy Bitcoin, a female entrepreneur, to invest in your community. All of that is in play. Most folks still may [00:22:00] not hear that message and they’re going to be thinking of the 20th century way to make money.

[00:22:04] And they’re limited because they’re not in these other sort of verticals that frankly, when you cash out, you’re going to cash out for a whole lot more dollars. And I don’t think folks are going to want to rock the boat collectively. I think that brings to more of a societal, do we reach a societal boiling point?

[00:22:18] Or does it seem like one of these movies where, there’s certain folks living on the top of the Hill and everybody else is at the bottom and that’s just the way it is.

[00:22:26] Mike: Boy, that’s scary to think even, cause that disparity has gotten that bigger. And I remember growing up, it was never like that.

[00:22:33] But, Hey, when you look at cap rates right now on multifamily or on any asset class actually, but let’s talk specifically multifamily for a minute. Cap rates are so compressed. Can they go down further or or does there have to be some kind of an expansion here? Can they contract more? What do you see?

[00:22:57] Dan: Yeah, I think that it comes down to [00:23:00] is, obviously big money is involved. And there’s two types of big money. One is one that has to show their investors are doing something and pay a dividend or at least keep wall street happy. And the other one is just on the private side of the desk to move money.

[00:23:11] In short, I would say yes. I’m more versed, I think in self storage and some of these niche, real estate asset classes. If somebody wants to be here in downtown Austin, they might even pay a sub five cap rate just so they can have a printed downtown. And that’s no joke and you’ll probably see one of the publicly traded REITs do that.

[00:23:27] So they get a headline and the folks living here, they’ll Jack up rent 10, 20% right off the bat. And nobody really do anything. So it’ll all work out in favor. On the multifamily side, it comes back to I think the amenities and stuff, and I don’t think people think when they pay the rent.

[00:23:43] This is, 40, 50, 60% of my gross or net wages. I think especially now. I don’t know if people are going to really realize that they’re just going to, it’ll be less of an interest or urgency to save. I’ll take, I’m here in downtown Austin, post COVID people are going to want to live here.

[00:23:59] People will pay up a lot. So I think the rent is going to like from a cashflow standpoint, you’ll be fine. And I think there’s always a lot of people, especially multifamily want to get in. There’s a lot of coaches out there. But eventually they’re going to raise their million or $4 million.

[00:24:15] They’re going to buy the property. Maybe they don’t underwrite it as well as possible. So yeah, frankly this could I think be my opinion, five or six years before we really have to take a deep breath and say things are way off or I’m really going to cash. And I want to be the first guy to take my money off the table, but I think we have another five years to go.

[00:24:33] Mike: It’s interesting. Listen, I remember there was a time when you looked at an A-class deal and an A-class deal was probably at a five and a half cap rate. And I remember having this conversation well, when you take the investor in an A-class deal and they’re a hedge fund.

[00:24:52] Or they’re a teacher’s pension fund or a union pension fund. And their only [00:25:00] obligation is to make sure that their investor gets a 4% or 3% return on their investment. And they keep a percent for the management fee and the rest is profit for the fund. There was a time that math made sense.

[00:25:16] But also at that time, B class assets were trading at, I wrote a book called exit plan. Somebody called me up and said, did you really buy this deal at a 13 cap? Yeah, I did. But today that deal is trading at a five, a B class deal. And it’s probably a B minus deal today just because of the age now, because of the operations of it.

[00:25:40] So it’s interesting, those dynamics, those metrics, and where you have to find your footing and where you have to find your place? Let’s talk about this. Let’s talk about raising money, right? So when you raise money and you’re in this dynamics right now, what do you say to investors?

[00:26:00] [00:25:59] Dan: Yeah, my first is always just my high level mantra to say, did you know you can use your retirement dollars to invest.

[00:26:06] Mike: Yeah.

[00:26:07]Dan: Even if you have a guy or gal that works at one of the big names, financial shops, this is your money. You have full access, you have full control over it.

[00:26:15] It’s your decision. From there I look at it as a barbell strategy. Let’s just take C plus workforce housing on one side of the bar bell. This is probably going to merit a higher dividend. So I’ll give you two real deals I invested in this year. This was an eight pref.

[00:26:31] And we’re looking at a 24 plus IRR. A similar property these guys did, they have a great track record was a 53 IRR. Now why do I feel confident? It’s well, it’s the same team that did this 53 IRR. Some of it of course is right place, right time. But the lessons that they learned, they imminently put it into this deal.

[00:26:50] So it went from a sub 60 occupancy, the pool hasn’t been open in three years and you want the pool open in Texas. It gets a little toasty here in the summer. And within a few months how the occupancy up to [00:27:00] 90 plus percent, the economic occupancy was up to 90 plus percent. That said it’s still workforce.

[00:27:04] Things can go wild, there’s things out of your control, like what stimulus checks or not, or legislation, although we think it’d be a pretty good idea how something in the Dallas Fort worth market would go based on local politics and at the state level. That said, let’s just say there’s a little more risk attached to that.

[00:27:21] So that’s one side of the bar bell. So if folks are comfortable and ideally, probably not the first time in, this is a pretty good deal. On the other side, somebody says, my money, I got scared, I got tired during COVID, I have 200 K on the sidelines earning 0.01% of my big bank.

[00:27:37] I’d like to do more with that. What is very secure out there almost like what is a bond wrapped in real estate? What’s the equivalent of Equity returns at a AAA bond level. And that’s something like industrial. Think of somebody it’s industrial company, they’re cash flowing like crazy.

[00:27:53] It’s a mission critical property, meaning where they manufacture something or their headquarters. They’d probably put X million of their own [00:28:00] money in a build to suit property. And they’re on a 15 year lease. So they’re not really going anywhere. And the lifetime of this deal was actually a fund was only five years.

[00:28:10] When you looked at that for, and there was multiple tenants under this same top credit very attached to the property and this was paying a monthly dividend. So this gave you a warm and fuzzy. And then, cherry on top, some of these deals don’t pay on the backend.

[00:28:25] This sponsor was paying on the backend. So when I viewed it, okay, your stock’s gonna make seven, 8% with all the volatility, Oh, by the way, this is going to be equivalent to 14%. And here’s the additional tax benefits on top of it. When you lay it out like that, hopefully folks say, yeah, this merits me moving, 10% of my portfolio finally into passive real estate.

[00:28:46] Mike: Oh, interesting. Now you raised a lot of money over the years, haven’t you?

[00:28:51] Dan: [00:28:51] I’ve been fortunate. Yeah.

[00:28:53] Mike: When you’re raising private equity, how do you go about doing that?

[00:28:57] Dan: Yeah, so it is a relationship and I [00:29:00] always find if it’s an individual, of course, seeing their level of education, level of experience, number of deals if they’d been in or not.

[00:29:07] That’s one side the other side, when you are talking to say big money or institutional, there’s a huge difference from talking to a private equity shop. That’s going to want a quote unquote private equity returns. Family office generally is going to want control. Also on the operational side, if they also have been in that same space as you, that can make sense.

[00:29:27] Sometimes I chuckle a bit when somebody says, Oh, I really want to get into self storage and you introduced them to the top operator in the space. Then they say, I’ll invest, but I want to have the a clause where I can fire the CEO. I’m like, you’re missing the point. This guy has a 20 year track record here.

[00:29:40] Finally, what I do like is what I’m realizing in? You mentioned it before Mike, in the pension space and these insurance companies spaces where folks that kind of syndicated together with infinite banking. So you basically have to hit a certain target return. But it’s almost, you need like as close to a guarantee of return of capital as possible.

[00:29:58] I think some of these folks it’s becoming a warm and fuzzy where real estate, to my barbell example, industrial real estate in my little world is really becoming something that fits cause they’re going to view it unlike you and I, that are probably going to view it from the return first.

[00:30:12] They’re going to view from the risk profile and say, wow, I really love the risk profile of this. And you’re paying me monthly and it’s asset backed and this, and you’re going to give me a return on the backend and it’s only a five-year term and I can pull out at any time, et cetera, et cetera, wow, this looks really attractive.

[00:30:29] Mike: Yeah. Do you ever see yourself or do you ever see those types of deals get into a place where people go, man, this is too good to be true?

[00:30:36] Dan: I’d say more, yes. And I Chuck a little bit, I spoke to a gentleman. As I said, when things are on the up and up, so let’s just take basically the whole 2010s, I know some folks that have been involved with call it the pension funds and such of the world and it wasn’t the next shiny object, but it was the person that was in the headlines.

[00:30:53] And I think they invest it with the headline as opposed to really doing their, I don’t wanna say diligence, but if this person was [00:31:00] not known objectively, they probably would not have invested with them. And same deal where I think individual investors, you have to be cautious.

[00:31:08] Like I always say, like when I invest where there’s a team or partners, instead of one person, there’s just too much that can go wrong or too much on one person’s plate. So more at the mom and pop level. And that’s the lesson I learned early in my investing career that you might want to avoid. Yeah, even if the check is a hundred K or call it a hundred million, I think you really have to abide by, here’s my diligence checklist regardless of who the party is.

[00:31:31] Listen, I’m looking at the clock here and I can’t believe how fast this time went.

[00:31:36] Mike: I could talk to you about this for hours. This is probably a higher level conversation than I had recently on Insider Secrets. I have a couple of questions I need to ask. If I can, what advice would you give a investor in the multifamily space today?

[00:31:56] Dan: Yeah. I would say invest to the most [00:32:00] conservative pro forma. And if somebody’s not showing that, or a worst case scenario, or they’re claiming there isn’t a worst case scenario, I would say run. I think it’s a fair, even if you are that first 50 K a hundred K check, you deserve the right to look at the base case, the optimistic and the worst case, and, base it off of the worst case.

[00:32:21] Mike: Yeah. I talked to somebody today. They were underwriting deals. They’re putting a 25 basis points per year on a cap rate accelerating and going up as a conservative underwriting piece. And I thought, man, that’s a big number, a big push on that, but I think that’s right. And that goes back to your five-year model that you said earlier in the show, because over five years, that cap rate is going to come up 150 basis points.

[00:32:48] Dan: Yeah. And one of the things I’d say in that too is, we’re all investing across the country here. Really think if you’re multi-family like a lot of real estate, you do the one, three, five mile circle. If a town or an area is [00:33:00] very reliant on one factory, one company maybe they’ve had a bit of good luck for one reason or other you do have to discount that. Whether you say, Hey, this is the local unemployment rate, you can’t say, Oh, it’s going to be a 2% forever.

[00:33:12] It was 10 years ago, it was 8%. You know what? Let’s put 8% on the model out of the numbers play out, then it might then comfortable investing.

[00:33:20] Mike: Yeah. So I have a guy who double checks my underwriting work from time to time. And he’ll ask me, he’ll say, listen, on the terminal cap rate, have deals traded in your market at this? Have deals traded at this price per unit? So I think that it’s always conservative to look back at that and say, are things traded? Have things ever traded at this number before? Because if they are, then there’s a good chance that in five years from now, that they could trade at that number.

[00:33:49] It’s interesting. So I think you have to be aware of it. Hey, Dan, let’s get on the lighter side a little bit. So I know you’re down in Austin. I love Austin, it’s a great city. But favorite tourist [00:34:00] attraction?

[00:34:01] Dan: In Austin?

[00:34:03] Mike: Yeah.

[00:34:04] Dan: I’m going to say Mount Bonnel, because it’s only about a hundred steps. But, you go up there and you got a panoramic kind of view of the city. And I like to say, you look downtown, you look everywhere else, you see old Austin. How it was with the lakes and river Colorado river dammed off and, the beauty looking to the Hill country.

[00:34:23] So it’s easy breezy. It’s it’s known, but as I said, it’s only a hundred steps, anybody can do it.

[00:34:29] Mike: Man and I thought you were going to say Coyote Ugly.

[00:34:33] Dan: No, those days are long gone. And that’s all I can say, wait until football season when sixth street opens up again. It’s going to be a party. I’ll tell you that much.

[00:34:41] Mike: Yeah, I bet. I bet there’s got to be a pent up demand. How about best restaurant?

[00:34:46] Dan: This is something we can definitely talk about for hours. I’m going to share my bookends, which makes me very happy. I share three things. Stinson’s 45th and Burnett for my Monday morning coffee.

[00:34:56] The team’s great. It’s just a good, it’s an old garage. It feels great. And they do have some of the best cold brew in town. On the flip side, especially if people are coming here with kids, a little deli pizza, you feel like you’re in a 1950s shopping center. It’s BYOB. It’s probably the Pizza I think in town, that’s a Friday afternoon.

[00:35:14] And then, there’s a lot of talk about TexMex, but Fonda San Miguel has I think a 40 or 50 year run. And this is true Mexican, it’s on it’s third or fourth generation of Austenite alone. That’s just things I love in my neighborhood and there’s a whole lot more out there.

[00:35:30] Mike: Yeah. Awesome. Best book you’ve ever read?

[00:35:34] Dan: Very recently. It’s a “Skin In The Game” by Taleb. He wrote “The Black Swan”, and I’m going to say something very lovingly for folks that have kind of my CV and background for better or worse. He talks about IYIs, Intellectuals Yet Idiots. Now, he’s talking more about I think the academic world and some of the major media. But, you know what I do [00:36:00] think putting that together with the titles, “Skin In The Game”. For folks out there that are going to take the leap, it’s like anything. Are you going to invest or not? And listen, it doesn’t have to be a huge amount of money, you can be literally 1% of your assets. It could be as low as probably 10 K in some of these real estate deals. Are you going to make that check? Are you going to do this? A lot of times it’s been about the commitment, not the dollar amount which really extends I think the depth of the relationship.

[00:36:25] So for me, that’s my reminders. Like you really can’t look back and the world is moving way too fast to say, here’s what I’ve done previously. I’ve done this for X years. That’s pretty, in some instances a net negative potentially. So just the reminder of skin in the game, if you’re going to be in begin it, if not, it’s okay.

[00:36:45] Yeah. And a lot of times too, I think skin in the game goes beyond just the capital. Roll your sleeves up and get in it. Hey Dan, this has been great and unfortunately we really didn’t talk about self-directed IRAs at all, which was one of the intentions of this show.

[00:37:00] So we’ll probably have to have you back or have somebody on that talks about that. But I want my listeners to understand that self-directed IRAs are a great vehicle to invest in real estate in, to invest in alternative investments in. If you have an old IRA from an an old company that you worked for something laying around, roll it over, put it in a self-directed so you can use it in real estate. There are some restrictions and some stipulations, but from a high level, it’s a great place to earn tax free dollars on your retirement.

[00:37:35] Yeah. And I know NAR association of realtors is with you in Chicago. Maybe this teases up for our October discussion, but for the 1.3 million realtors that are 10 99, there’s something called a solo 401k where you can actually contribute over 50,000, multiply that by two for husband wife, team, without W2 employees. Where you can contribute over a hundred thousand per year, [00:38:00] take that bucket of money to invest.

[00:38:02] Super, super powerful. Once got another thing, it’s not as well known, but once it is, people really find it beneficial. I’d love to come back, speak to your audience. Say we’re all back to school in September, October.

[00:38:13] Yeah, that’d be great.

[00:38:14] And actually I have an event, a three-day virtual event I do in October. Let’s talk about you being on a panel.

[00:38:20] Beautiful.

[00:38:21] We can work that in. Hey everybody, thanks for being here today. Dan, tell people how they get ahold of you if they want to pick your brain or talk to you a little bit.

[00:38:29] Sure. LinkedIn is great. Dan Kryzanowski, not too many of me out there. Please reference that I check LinkedIn probably every few hours. I love the back and forth interaction. Please mention that you heard me here on the Podcast.

[00:38:42] Yeah. And not to be confused with Morawski, easy not to confuse.

[00:38:47] Hey, Dan again, thanks for being here. It’s been a great pleasure. And this was a great conversation, very substantial is what I like to say. Good intellectual knowledge, not your typical how to do [00:39:00] something just really from a really high level view of what’s going on. I encourage people to listen to this a couple of times, there’s a lot of good data in here.

[00:39:08] Hey everybody, until next week. Hope you enjoy this and we’ll look forward to seeing you soon. If you need anything, reach out to me. And as a quick thought, remember to go out there on social media, connect with us, connect with me personally, and My Core Intentions on Instagram and Facebook and Twitter. Like us, love us, help our ratings and that way you’ll get updated on this stuff all the time. Look forward to seeing you next week.

[00:39:35] Kristen: Thank you, Mike, and thank you for joining us for another great episode of Insider Secrets. As always, Insider Secrets is brought to you by My Core Intentions. Join us on social media and visit mycoreintentions.com where you can get expert coaching on all things, multifamily investing in property management.

[00:39:53] We’re looking forward to having you back again next week for more Insider Secrets.