Ep #297 – Dana Robinson – The Goldilocks Approach to Real Estate Investing

Here is some of what you will learn:

The importance of playing the long game
Understanding the math of collective properties
Understanding the passive loss limitation
Multiplex financing
Dana’s “Just Enough” philosophy
How to make your house an asset
Discovering cashless currencies
The value of scavenging

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Full Transcript Below:

Dana Robinson – The Goldilocks Approach to Real Estate Investing (Ep297)

Rod:   Welcome to another edition of “How to Build Lifetime Cash Flow through Real Estate Investing”. I’m Rod Khleif and I’m thrilled that you’re here. You’re gonna get tremendous value from the gentlemen we’re interviewing today. He’s name is Dana Robinson and he wrote a book and co-hosts a podcast called Opt Out Life and about really well I’m not gonna steal asunder I’ll let him tell you what that means but he’s got a pretty extensive real estate background, has owned a couple of property management companies for a couple of decades, he’s been a broker for 18 years, he’s that 90 doors in the apartment arena and you know now he’s got more of a lifestyle focused attitude and about life. So welcome to the show Dana. I’m glad you’re here brother

Dana: Thanks Rod thanks. Thanks for having me

Rod: Absolutely

Dana: Hopefully I can bring some stories that can help people at whatever stage they’re at with real estate

Rod: Awesome awesome. So let’s talk you know let’s start as we normally do just by having you talk do a much better job about talking about your history and how you’ve got you know maybe as it relates to real estate and then how you got to where you are right now

Dana: Yeah I’m a lawyer by trade but while I was in law school I actually was the on-site property manager in Mission Beach which is a coastal community that’s a lot of short-term rentals, college rentals and that sort of thing and so you know I played the mussel and my wife played the nurse and we co managed this apartment complex for a realtor and her brother and kind of learned the business. And then once I was a lawyer you know about the time you know second or third year down my colleagues were buying bigger houses and nicer cars and I squeezed, I kept my old Volvo and squeezed every penny I could to get a rental property and bought a condo down in that same beach community

Rod: Wait where was this? where is this again?

Dana: Mission Beach is San Diego’s kind of largest vacation rental market. It’s you know a little peninsula with maybe two thousand vacation rentals and another thousand long-term rentals. Condos, it’s got Bay on one side each on the other. So yeah it’s a it’s a cool place to own because see also San Diego has you know three major universities and so there’s a lot of the capacity to rent nine months to students and then three months to vacationers and so we learned we learned that trade and right after buying that property found out that a friend of our old boss was selling his property management business and so we bought it. It was you know swung everything we could into that and ended up the owners of struggling property management business and we kind of got our hands around that and spent the next four years growing it. We would grew we’d doubled each year and streamlined the business. We went all online in an era when that wasn’t happening quite yet and you know also while honing that primary management business had parlayed the sale of that condo to 32 Plex, a 33, and very quickly had a partner that helped us get a 48 Plex just down the street from that and then with the realtor who set that deal up and I bought nine units down the street from that so ended up with a collection of Apartments in downtown Phoenix

Rod: mm-hmm this was Phoenix okay

Dana: Yep yeah downtown Phoenix which was a pretty flourishing market you know prices were rising and it was

Rod: When was this? when was this approximately

Dana: 2004 through 2007. We bought before we had any sense that there was a bubble and and then rode through that crazy downturn in the market. We actually entitled two of the properties for high-rise one that one my partner knew an architect and we thought well maybe we’ll add value well I was the managing wing of the business, he had the vision and so we spect up high-rises for those and actually had them sold in escrow July of 2007

Rod: Ouch and yeah and then the world the world stopped

Dana: It stopped yes we were about to share our respective shares of a 12 million dollar net profit

Rod: oh man well you don’t want to compare memos with me on that whole debacle and that time frame but that is painful you know that is painful Wow. So what did you do?

Dana: At that well at that point I buckled down my partner wanted out because he was in a lot more deals that he needed to sort of like extricate from so he wanted out and I bought him out and I stayed in and kind of fought my way through the downturn and you know one of the buildings, my accountant named the building Jerry Springer because we had you know tenants that were crazy and managers that was stealing drugs out of the tenants properties and

Rod: Oh good God they what make this stuff up

Dana: Oh yeah yeah the best was when I thought I finally had the perfect manager, his girlfriend was a drinker and I didn’t realize it but she was taking his keys and sneaking into units and sipping the vodka out of people’s freezers you know cheap she was smart for a while just enough you know so people didn’t know and then eventually I had several people call me because she got caught in one of the units with a beer in her hand and everyone then checked to their vodka levels and realized that they weren’t drinking as fast as their vodka was disappearing. So for the for the you know the ensuing six years I just buckled down and held on to the properties and you know kind of learn to manage them efficiently, learn to deal with the drama you know I talked about that that birthday when my sister who was helping manage one of the properties called that get my credit card number because we were digging a hole in my driveway and needed five thousand dollars immediately to continue digging that hole. So you know I learned a lot between the property management business managing for other people and then managing a substantial number of my own doors you know I had this feeling that maybe I was I was either going to big or not big enough I mean and I that in between was a difficult spot to be didn’t quite have the economies of scale that I think I really needed to you know I don’t know where that is and I may be in Phoenix it would have been 300 doors where you know you’re running a flourishing management business of all of your own properties and maybe you can expand into other management but it was definitely I looked at the math and I was doing better on one oceanfront condo than financially when I was with all of those properties

Rod: Well no kidding

Dana: With each one so just take take 33 units I did a financial analysis compared the 33 unit to it to a mil and a half dollar oceanfront condo that my wife managed in her sleep with no no drama and she was like we’re doing better on this condo than you’re doing out there with all that work you’re putting in on that on that property. So by the time we sold you know we eventually sold when the market recovered and we did pretty well I mean that there’s a you know good story about playing the long game on real estate is there will be times when it goes down and even in that worst time you know there’s a recovery that you can hold on for

Rod: Yeah if you can hold on yeah don’t ask me how I know okay

Dana: I can tell you that that you know that I had some liquidity at the beginning of the down

Rod: And that was your saving grace right

Dana: It was but I mean I bled it down to the last little bits so you know for those that you know survived through that as well those that didn’t you know if you ran out of oxygen in 2011 or 12 even you know you needed to hang on to thirteen or fourteen to get your to get that rebound so yeah it’s tough times but you know the lesson to me wasn’t necessarily, the biggest lesson really wasn’t the downturn and holding on it was and the long-term value of real estate, those are all there, but it was the realization that a smaller collection of properties might perform just as well or better and so when I took this break I took a little sabbatical after I sold one of the two of the properties. I went to Bali and I you know kind of like recovered a bit

Rod: How long how long were you in Bali?

Dana: Eleven, twelve, sorry fourteen months

Rod: 14 months

Dana: yeah yeah one-way ticket we took a one-way ticket our daughters in college I put everything and you know at that point I didn’t own and still don’t own the home I live in I mean I own real estate substantially I think but not the home that I live in. So we just got out of the apartment we were renting put our stuff in storage and went to Bali with a one-way ticket. And it gave me a chance to reflect I had a couple of books you know everybody’s got a book in them so it was my opportunity to kind of stretch my brain a little on that and I started writing and in this book I wrote that you mentions called “Opt Out” is you know a reflection on the tools that I used to get I guess what I’d call like an alternative life that opt out life a life where you don’t have to punch a clock, where your businesses don’t own you, and you know a big pillar to the opt out life is real estate but you know I had to come to terms with this idea that real estate can become a monster that owns you just like a job or a business and I and I had that you know with all those units

Rod: Well you are managing to which which you know managing is a thankless job and you know tenant don’t call you when they’re happy and owners don’t call you when they’re happy. So there’s a real burnout with that as well. So I can see how this all worked up and then you’re in Bali, partners butterflies and you’re like you know what what have I been doing? and I get it Wow okay so so please continue I interrupted

Dana: Yeah no no it’s a great interruption and it was the realization was that that if the math would have worked better if I had just bought a four-plex over the 30 you know let’s just take the 33 and the 48 Plex each one was probably worth about the same as a four-plex in San Diego and I live in San Diego. So you know I postulated this theory and and even wrote about it in my first draft of the book that the opt out approach to real estate was to have just enough you know just enough I mean I wanted the maximum passive loss that I could get

Rod: Passive loss? So you say you’re not focused on income you’re focused on loss?

Dana: Well no but you want to maximize that loss because it’s a gift from the government.

Rod: Okay

Dana: You know if you’ve got $25,000  you now you know if you own a lot of real estate, I mean you reach a point like where I was with with 90 units, I was more than 500 hours a year, I didn’t have a passive loss limitation, so if I incurred and I did some years six figures and passive losses when you depreciate the property all those losses you write off against your other gain. So I mean I had six figures of usable loss from my real estate while I was a full-time broker, owner or manager. But coming back I didn’t want to do that full-time. So well what’s what’s the gift that the government gives the you know the regular guy is twenty five thousand dollars a year and passive losses that you get to write off against your other gain. You want to get that and if you have a little real estate you don’t maximize that you know if you own a condo, that’s not enough, if you own 90 units you don’t you have a lot more losses than you can even use and you may never use those they just carry forward. So I wanted to maximize that passive loss. Obviously get a property that I could get to that was a big lesson was getting properties that I could get to easily. So buying lower, in my backyard and having some management experience would enable me to have something that I would consider passive but that I still would manage. I mean when you’ve managed dozens and dozens of units and right you know properties for others having what I have now which is 2 to 4 plexes is your that in your sleep I can do it in my sleep you know the turns are fast the contractors I’ve had relationships with for forever that you never get ripped off right and you can you know you build with you know I’m very personable with the tenant since they appreciate that rapport and don’t take advantage of it and so between my wife and we you know we don’t have one text maybe every week about an apartment matter it’s it’s so easy. So we’re saving on management fees, we’re saving on contractors that rip you off, we’re maximizing our passive loss, and the four-plex is actually a sort of underappreciated property because the financing. You can get a conforming conventional financing for

Rod: Yeah if you live in it you can get 97% financing incredible opportunity. We talked about it on this show. So you know you’re talking about doing just enough now I realize the argument for buying just enough real estate to maximize that twenty five thousand but what about on the income side?

Dana: Yeah I mean the income side I’ll give you an example for the for the first four Plex I bought. I put about eighty five thousand dollars into rehab. So I bought it for a million 150 yeah about a million 150, put eighty five thousand into rehab and I raised the rents across the four units, a thousand seven, twenty seven hundred dollars across the four units as soon as I was done with the rehab. I did a refi, my I got the garage, no one wanted the garages and someone was using them for free to do two dual garages

Rod: Wow

Dana: I took one and used it for my personal storage. That saved one hundred and seventy five dollars a month. I rented the other one for 175 actually half a one another ones for now for rent for another hundred and seventy five you know so the end between not spending money on management being able to keep an eye on my contractors, raising the rent, renting the garage saving money on the storage, I mean I’m like about thirty five hundred dollars a head from a cash flow standpoint on the property and at this point I’m using that for another property but once I refinance that property, I’m going to pour all of that money into paying down this property and it will get paid off in the next 15 years you know I’ve got a 30-year amortization loan

Rod: It’s not gonna float it’s there’s no balloons, that as a beautiful thing about residential financing is its 30-year fixed and you know you can accelerate the payoff like you’re describing here and you know there is nothing better than free and clear real estate

Dana: Right you can also take out a HELOC on a on a for unit that you usually can’t do if you’ve got a 5 or more units because if five or more units you’re in commercial lending, you get prepayment penalties, you’ve got points on closing, you can’t take out a second mortgage, you know to me the kind of I did a I did a speech at a mastermind a couple weeks ago about real estate andyou know I thought it occurred to me that my approach was I called it the opt-out approach to real estate because it gives you maximum freedom with maximizing the benefits of real estate from a cash flow pay it off, easy to finance, all of those things I realize it was kind of the Goldilocks approach you know that Bob papa bear maybe he’s got too much or at least my version my 90 units the Papa Bear was too much. My buddy who has one condo is baby bear, that’s just too little you know you don’t get your passive loss you know in if you look at a 20 year horizon, one condo is not gonna set this guy up for life. I’ll tell you what though in 15 years by two four plexes will be paid off and they’re gonna be throwing off you know in today’s dollars $7,000 a month each you know so I’m not that worried about whether my 401k performs and you know as they go up in value if I see other opportunities I could borrow a second against one take out some money and buy another property if I wanted to but I feel like I’ve at least got the opt-out and you know by the time those are paid off you know I don’t know what retirement is because I don’t think I could just do nothing but golf but I like the idea of having $14,000 a month in today’s dollars coming out that I don’t have to do that much for on top of whatever else I’m doing for fun

Rod: Right so so this the strategy of yours which is you know lifestyle centered for sure which frankly you know I even struggle with you know yeah you try to especially it at my age you know I’m 58 you want to look at life through a lifestyle filter and you know enjoy I mean life’s about being happy and enjoying as much of it as you can. So talk about some strategies besides I mean in real estate is a pillar. What are some other strategies for maximizing well minimizing how much time you work and maximizing the enjoyment?

Dana: Yeah so my approach to income is that you get income from side gigs and then if you want if a side gig is performing well you might turn that into a business. So I’ve got three pillars, side gigs, business, and real estate, that’s how you make your money the you know a lot of people I know they’re making say seven, eight, ten thousand dollars a month from side gigs they’re like I don’t want a business you know it’s kind of like my approach to real estate. I don’t want 90 units again. So their approach is like look man I’ve run businesses I don’t want to scale and grow I like my lifestyle so they’ve got a side gig they invest in real estate and that is all they’re gonna do for the rest of their lives and I’ve got these column expense hacks. So the income hacks or business I dig in real estate right the expense hacks are make your house an asset, cashless currencies and

Rod: Let’s drill down on these make your house an asset what does that mean?

Dana: Make your house an asset means look around and think you know a house the house you live in is a liability right you need to make money from somewhere else pay for it. Well what can you do to make it an asset generate some income from it? If your urban that might mean renting your garage out for storage to somebody make you 200 bucks a month you know if you’re in a place where there it’s a destination, it might mean I mean I’ve known people that are single guys that own condos and they rent them out on the weekends on Airbnb right. They’re just like look I’m going to New York anyway. So I just put it on Airbnb for the weekends I have a lawyer friend and he was divorced. He had a dog and he lived near Point Loma Nazarene College and it turned out a lot of parents wanted an Airbnb room and they were fine taking like a how a room in a house. So he’s making $1,000 a month well just having you know two weekends a month yes that were parents that would come and sometimes he’d stay sometimes he would leave him and say hey can you watch my dog. So he was turning this house into an asset and you know there are variety of ways to do that you you know you can permanently build what I call a Fonzie flat you know something in the Attic that short-term, I owned my didn’t own I leased a house that had a flat over the garage that someone used for storage and it had a bathroom. So I just cleaned all the storage out and it was coastal. So I was making $3,000 a month well I’m the unit above the garage from just vacationers that wanted to stay there and my lease payment was fifty to fifty. So I was paying and there’s a equivalent to a mansion you know on the on the ocean and there’s more than half of my rent was covered by that Airbnb and if I’d owned the place I would have done the second unit you know I would if I owned it I’d have built one somewhere else in the structure. So make your house an asset to me and means you know don’t just make the house something you live in it costs you money. If you want to get ahead have passive lifestyle sort of the opt-out life, do something to make your house an asset and okay sometimes that’s as simple as renting it while you take a vacation. I mean I have a good friend that’s got a multi-million dollar house in La Jolla which was a you know fancy zip code here in California and he’s gonna take three months off and he’s he doesn’t he’s like I don’t care what they do to my house. They he can’t ruin it enough to make up for the fact that he’s making ten grand a month for three months and they said that that will more than cover his family’s vagabonding for three months

Rod: Cool

Dana: When they come back, the house is still there and you know he’s not gonna you know leaves that a few precious family heirlooms out. So that what’s the strategy for make your house an asset

Rod: Okay and then what’s the next one?

Dana: Cashless currencies are those things a lot of people don’t think about that they sometimes already do like trading some service for another service. I call it trading things of unequal value you know if you do consulting and someone is in the wine business they can say hey here’s a you know here’s a case of great wine and I need two hours of your time and this swap is tax-free you each get value that’s greater than what you spend. So if you know you say give someone six hundred dollars in your time as a consultant if it’s unused otherwise then that time isn’t really worth $600 right but you’re getting full value and you’re getting 600 bucks in wine and the wine person paid $300 for the wine right if they’re a wine you know wholesaler or something right. So they’re getting $600 so each person’s getting a sort of dual benefit of this of this swap and I call it a cashless currency not to be doing

Rod: Bartering yeah no no I you said bartered we used to do that in a big way back in the day businesses, I’ve had 24 different businesses out of business at least rooftop cold air balloons and I’d you know for Grand Opening sales things like that and I would trade those for tons of stuff. I mean tons but yeah awesome couple more I think this is interesting enough I know it’s not multifamily guys but you know I know a lot of you certainly long of tooth like me look at look at this this whole lifestyle thing. So I hope I’m certain this is adding value so let’s continue with with just a little more if you don’t mind

Dana: Yeah so the you know the third expense pillar of my philosophy is scavenging and I you know it’s it might be a dirty word but you know I am always sort of looking for underappreciated value. I’ve done this with real estate. I’ve done it with cars. I mean I drive an SL 500 that I bought from an 87 year old man that had only put twenty thousand miles on it you know he paid a hundred thousand dollars for it and I bought it for seventeen thousand dollars. So you know to me I don’t want a sacrifice lifestyle you know I don’t want to be you know that the penny hoarder kind of like you know trying to figure out how do I you know how to make something for the kitchen that that’s gonna save me five dollars. I want to get nice things. Well you know for example if you if you go to an estate sale in a branch of Santa Fe or you know Beverly Hills yeah you’re gonna get a lot Crusade pot that cost $300 or $400 new for like 20 bucks. So whether this scavenging is little stuff to make your life better or something like a car, or if in real estate this scavenging to me is like look for that underappreciated value and get rid of this like you need to own the fancy things you need you know that this mall mentality where you just roll out and pay full retail you know then all that hard work you’re putting into making money with these income pillars, you’re squandering it on something that you could still have those things but you need to channel your inner scavenger

Rod: Love it love it. So let me ask you this, let’s digress for a second, if you could teach schoolchildren one thing and that’s not being taught what might it be?

Dana: I think it would be things that trigger entrepreneur the entrepreneurial spark you know that when I was in fifth grade, I had a teacher that created a mini society, the second half of the school year, and we’d spend I think it was one day a week might have been more than one day a week for the last couple hours after lunch running the society and it was all to trigger entrepreneurial, is she wanted you to run a little business, sell some things, sell a service, my buddy and I set up set up a bank and we sold wallets that I made with my mom’s sewing machine

Rod: What an incredible teacher holy cow. It’s a shame there’s not more people more of them out there like that. What a brilliant brilliant strategy love it. So if you could go back this is a question I like to ask regularly if you could go back and tell your 20 year old self something what might you do differently?

Dana: Geez I have bought more real estate so yeah absolutely and I you know I think not worried as much I mean that that’s the thing you know that people do when they’re younger is that the older self looks back and you’re like I’m here, I survived

Rod: Roof over my head. I didn’t run out of food to eat you know when when when you’re going you know when you’re going through this the storm what’s the what’s the analogy keep going are you going through hell keep going that’s Winston Churchill’s quote yeah now I love that great advice a great advice Dana. Now you know well let’s talk about advice what’s the best advice you’ve ever received?

Dana: That is a really good question

Rod: Yeah I’m not you didn’t prepare for these I’m thrown at you you weren’t ready for so

Dana: Yeah okay I’ll give you I’ll give you the best advice I received and probably didn’t didn’t really hear that well. I was a first-year lawyer and the partner that started the law firm was an entrepreneur himself and had done really well and I was getting involved with a small deal and I came into his office and he looked at the deal and he just shook his head and said don’t do this this is a waste of your time. He said now I would tell you, you know be more cautious in general he goes I could paper the walls of this office with stock certificates that are worthless and he said basically you know I know I can’t talk you out of getting involved with business and being an entrepreneur I can see that but you know his wisdom was don’t make the mistake of going in with so many ventures that you could pay for the walls of your office when you’re 50. And I kind of came close I heard him I’ve heard that in the back of my head but sometimes not soon enough so it’s a you know with that entrepreneurial zeal you want to just get involved and get into a deal and like throw yourself into it and you know it’s gonna be big and then the words the news that mentor was telling me was a whole bunch of those are gonna flop and you know to get success you’ve got to see those failures at the same time I could have been more cautious with some of what I’ve done with my time and money

Rod: Fantastic advice. I mean you know I’ve started 24 businesses several worth tens and millions of dollars, most have been spectacular flaming seminars. So you know we fail our way to success I had bottom line but that’s great advice and you know what I heard was the power of focus, and not rushing, and not you know not not taking the time to really you know evaluate what it is you’re getting into, that but then again the flip side there for those of you that are analytical is not getting caught up in analysis paralysis but now that’s great advice okay. Well listen my friend you’ve added a ton of value today. Guys his book is Opt-out Life and the podcast is the same name check it out and you know really appreciate you being on the show Dana

Dana: Thank you so much for having me. I love talking about real estate and look forward to talking to you about it more

Rod: All right take care my friend

Dana: Thanks

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