Daniel Lichtman: Uncovered Secrets that lead to $150M in Apartments

In this episode of "The Gould Mine," Daniel Lichtman, a multifamily investor managing over $150 million in assets, delves into his journey from sales to real estate, particularly in distressed assets. He highlights the advantages of multifamily investing, navigating current interest rates, and transitioning from single family properties to larger multifamily projects. Daniel shares insights on working with distressed sellers in the hotel industry, the importance of understanding capital expenditure, and the flexibility and reduced risk offered by multifamily properties compared to single family homes. 

He also discusses the challenges of property management, the potential for passive income in multifamily investments, and the need for strategic renovations to enhance property value. Daniel advises on the fluctuating demands in the multifamily sector and the less competitive nature of the commercial market due to interest rates. Wrapping up, he emphasizes the importance of work-life balance and invites listeners to connect with him on LinkedIn for more insights. This episode provides valuable knowledge for anyone looking to succeed in multifamily real estate investing.

Follow Daniel Lichtman:
Daniel's LinkedIn: https://bit.ly/3RzWmwy

Transcript

•  What's up gold miners. In today's episode. I have the privilege of welcoming Daniel Lichtman a multif family investor that has over $150 Million worth of assets under management. In this episode we start with Daniel's early years as an Acquisitions manager for a group that's specialized in distressed property. Acquisitions we also talk about the current distressed Sellers and distressed assets in today's market and how investors like yourself could take advantage of the current environment. Later on WE explore the advantages of multif family investing versus single family investing and then we WRA things up by delving deep into the interest rate environment right now and what investors like yourself can do to navigate the current environment lots of great insights on this one so without further Ado everyone. Let's welcome to the show Daniel lickman Daniel welcome to the gold mine all right thanks for having me on Danny yeah well. You know I I've been listening to some of your stuff and I know that you've made other podcast appearances and and um you know. Let's just start at the at the Genesis of adult Daniel because everyone has that aha moment when they decide to get into real estate race so what what was that aha moment for you to to switch or to Pivot and to dive into the world of real estate investing that's a great question. So I actually started off initially um. I wasn't sure exactly where I wanted to go. I started up an operations manager role and the head of the sales for a Fleet Maintenance company here in New Jersey where I live um. I used to go to a study lecture every night with somebody else and ended up becoming my boss the next four and half years that was in real estate and I used to be you know enthusiastic and very passionate about what I do in general and I used to tell them about my sales work and how I'm working at the companies trying to bring them in and he felt that my people first sent in my persistence would be great for Acquisitions. He told me I want to hire you to be my director Acquisitions. At that point I didn't know what Acquisitions meant I didn't know what that were I tried Googling it. I tried seeing what that meant and obviously that didn't really come out with much because a lot of different versions of Acquisitions um I started working for him. At the uh end of 2015 um he was more distressed that junkie he liked buying anything that was distress so he bought defaulted notes. Aros taxes things of that nature. So I managed his fund um reaching out different lender servicers. Attorney. Etc. You name it try to find these um more distress. Quote unquote. Distressed assets or course tough to find to that market was already kind of you know after things already had started cooling off yeah um so that's that was my experience how I gotten into real estate I was kind of thrown into it. It was more on the single family and smaller commercial small multif family and smaller commercial space. But I was very Hands-On from the you know from anywhere from reaching out to Banks or or going to conferences all the way down to being on the property level. Twice a week being there as a from a management asset man respect it so it wasn't just just you know cold calling or behind the scenes or a desk job was very much Hands-On and I really got to learn everything from the top top to the bottom and that was my first experience in real estate. Um I was there for about four and a half years I realized that there's more to real estate and just the single family and the smaller you know mixed use. Commercial properties. I started getting very active on LinkedIn and I noticed a lot of people that were starting to broadcast what they were doing. At that point. It was 2018. 18. 2019 people were starting to get into there's a lot of syndicators that were coming out um discussing what they what they were doing on on their weti family properties and got me very interesting interested to learn more about a how it works in a on a larger basis instead of you know focusing on a smaller single family portfolio or a smaller 10 15 20 unit people doing it as a 50 and 100 unit 200 unit. And it's it very much intrigued me and that was kind of my aha moment once I was already in realid state kind of transition from the single family to multi family space yeah. That's interesting and I definitely want to go more in depth into that but before we do that something that just crossed my mind as you were talking about your original. Acquisitions role looking for distressed Assets Now is the time to do that you know for the next 12 to is months or so right who knows what the fed's going to do who knows what the rates are going to look like. There's some talk that maybe things are going to ease up sooner rather than later but if that isn't the case or you know regardless like there's going to be some blood on the streets and so what are some of the things that you learned in that early role that listeners could deploy to go out there and find distress assets of the RO. So I think it's very important to have the right context yeah um you know in my role. It was kind of the post 2008. A lot of the lenders had taken back um a lot of properties that they thought they do a better job than the sponsor I think now it's going to be you're going to see less of that. I don't think you have as many Aro foreclosed type of properties. I think lenders either want to work it out or want to try to sell the debt or try to negotiate or have have somebody else kind of step in so I think there be less of bank owned properties although you'll you're definitely seeing some of them come to market now yeah um. I think something that I actually learned recently is that um my company. I'm at now even though we don't focus on dist. Stress you know we're more in the value ad healthy family space. We actually purchased a property that was about 30 to 40% occupied. So. It's definitely a distressed type of asset um. Some of the things that we learned was that the cost of purchasing such a property are actually higher in the sense. Your insurance cost your um your carrying cost obviously certain things that you know maybe be on the road a little bit lower and then we had to kind of find to. Once we saw that you the property is only you know less than 85% occupancy. You have to deal with um you know besides higher cost of capital higher cost of insurance so just keep good thing to keep in keep in mind. If someone is chasing these distress assets to make sure they W capitalize to have the the fund that they need to uh to turn around the asset and also that be W capitalize in terms of insurance and and other costs that are you know obviously going to be a lot higher but you that it's more of a distress asset yeah and I think that there's a big difference to and it's worth noting that there's a difference between distressed asset and distressed seller you know because right.
•  Now. I am seeing a lot and and I focus more more on hotels not not multif family. But I'm seeing a lot of really like awesome hotels whose sellers are in distress you know and so there's a big diff. There is a difference there so so are you cuz. I'm. I'm really curious right like cuz. You focus a lot on ulti family and and uh and I don't you know explore too much that space I know enough to be dangerous. But like not that much more so what what are you seeing more of are you seeing more distressed assets or more distressed sellers um. I would say mix of both but yeah definitely. You're right. You you na on the head. It's definitely a lot of distressed sellers right. The properties don't have to be you know 30. 40% occupied in order to be distressed in today's market. Distress could be just you know underwater in the sense of not being able to make certain payments and you know the you know Mak raps expiring and things of that nature. So I think you're definitely going to see a lot of that um. But I do feel that the lender are trying to work with those sponsors more than they were in 2008 2009 so as much as there's going to be people that are having me to sell. I feel like the lenders are going to have to work with those borrowers to work things out or to let them bring in new prep Equity or fresh Equity to the table because a lot of those deals yes. There are some deals that you know that people overpaid in maybe 2021 um you know more recent years but there's a lot of deals that are just you know. Nobody would have predicted rates where they came to today and with a little bit of extra Equity to get them like I heard something survived till 25. We're hoping not that that long. But that's that's so people are kind of you know hoping for so people that are kind of running out of time but could you know could put in some fresh equity for another 12 to 18 months. Just to to run you know to get past that I think that's going to take away from The Surge and you know and surge of of distress assets but yeah it's definely to your point. There will be distressed um opportunities that may not be physically distressed but just financially distress or yeah and and just and hear you kind of talked that through something that came to mind as well is like you're right. I I do I I do suspect that and this and this is something that you know a lot of my friends and and people in the industry. Have we've all been kind of talking about and everything is that yeah the banks are going to be more inclined to work it out with the seller but then also like if I'm if I'm looking for opportunities it sounds like maybe a better approach instead of approaching the seller would be just to go directly to the bank and see if you can uh start talking to that like would you agree or or or or is that not something that you would uh. You would recommend um no definitely definitely way that definitely is a sell a selling point you know as opposed to going to the seller especially if they're really on the water go to the lender and say Hey you know if you're going to take back. This asset you know it's not going to be worth your time to run and manage such an asset. I could take it off your plate and you know maybe you going to lose x amount of million dollars. I'll give you. I'll you know instead of a$3 million loss. I'll come in and maybe a million and a half you know pass split the difference and Rec capitalize and take it on yeah definitely. Um I think both approaches has have their own merits. I think it really depends on the situation you know certain times. It makes sense to approach the the current you know borrower and say hey we'll step in. We'll assume the loan or do something that we put the fresh equity and sometimes the guy so under water and you have especially if you have a good relationship. It really goes back to the relationship if you have a good relationship with those lenders where you're in touch with them on a constant basis to see what how their portfolio is doing and how you could release some of their stress. Then you could definitely um you there definitely could be opportunity but I think if you're kind of sub in and say hey there's opportunity down the stress. Let me call this lender and see if I could do something unlikely that you you're going to be able to move the needle much when he has you know I'm sure plenty of other people that I've been chasing and reaching out. But the same type deals and opportuni. It really does go back to relationships. I think that's that's you know crucial yeah fair enough that makes that makes a lot of sense. So Switching gears now and and going more into the um you know where you were at before single family sector and then switching into multif family. So like I think that there's there's a myriad of different people who listen to this video like types of uh types of investors. There's the ones that are just getting started. There's the ones that are kind of in that mid like bit in between phase and so you were in that in between phase when you switch from single family to multif family. What were some of the advantages that you saw to uh buying a 200 unit right. What were some of the advantages that you that you saw and also what were some of the challenges that you experienced in in multif family that you never experienced in single family sure so that's a great question so I'll give you an example of why I felt have made more sense to go for a larger property than just a single family. I'm at the company that I was managing this portfolio of single family. We had one property that was a single family rental in Trenton New Jersey that was down for over a year because of a issue with the gas line. Um. You know it took numerous times to bring out a plumber from Bru Jersey to come to Trenton which is about an hour or so away. I got like the best guy to come out there figure out what's happening the city wanted or the the G Department. Giving this Contex. The gas company wanted to charge us a few thousand just to fix the line even though it didn't make any sense. We finally got this plumber to convince the gas company that it was their mistake and they were able to fix. The line with the line was crimped and they were able to fix it.
•  But one of the story is that it took us over a year to be able to get. This turned around be able to rent out the house for $8 $900 so that was just a one house that has its own you know mortgage or whatever it is that was sitting there vac versus if you have a treasure un property and you have few vacancies you know yes. It's ideal of course. It's ideal to have it as you know full as possible which but if you have that one or two or the several vacancies that's not going to make or break it or k the all so that for me was kind of my moment in the sense of why I want to from the single family to multif family um in terms of the surprises and things that I I never really focused on um. I think you know with single family. It's pretty you know straightforward if you put in if you buy for for x amount. You put in x amount. You're going to get this amount of rent. You know it's pretty straightforward. What you need to do with multif family family. One of the first properties um that I was you know in my company that I was working for. Previously. It was a 414 unit deal in St Louis um. It was an off Market deal my role was in Acquisitions and asset management for that uh for that property and it was really hard to gaug how much money that the deal really needed um. The property was you know was only 65% occupied. We were getting it at 21,000 J it's back in 2021 so pretty pretty good pretty low basis. However it needed a ton of CeX and it was very hard to uh really assess it so I kind of learned through the years of you know underrating and going you know and seeing deals and getting going through deals to be you know it's super crucial and key to really know how much capex is really needed in order to for the deal to make sense because if you're buying a deal at a low basis and it seems like a great deal but you're going to have to put you know as much half as much or as much as the the property worth the C and then you're in it for a lot more than what you initially anticipated that it may not be as good of a deal as uh as what you anticipated so that was something. That was definitely a new something new for me when I was getting to the multi family space where was really understanding the the capex and the needs of the of property that was definitely something a new new think for me yeah definitely and and you know going back to the to the vacancy thing. I mean that's something that I mean so many so. Many people talk about right what when when you're looking at the the advantages of of going multif family. It's that you know a vac. One vacancy doesn't kill you right. Uh versus versus single family so that's um. It's. It's a it's a point well taken and let's say so if you are say a an investor who is looking at putting like you're. You're faced with two different options. Right now you've got. Let's just say 100 Grand right. Let's just 100 Grand is it better to invest in a single family property with that 100 Grand or is it better to go in as say like an LP in a syndication deal where you can be a smaller percentage owner of a larger pie. So it really depends on what you're looking to do it's interesting. You say that because I have a friend of mine that over this the. Past weekend who's invested um passively in multi family properties and he told me you know for now I'm buying smaller single family. These you know $300,000 homes locally. I'm literally the your question and um I'll take a 30-year Deb on it. I'll refinance going it make sense I'll I'll fix it up and you said I have a management company. That's G for me. I like that I prefer that better but most people that are busy and they're 9 to5 and they're busy in their W2 are not going to have the time to be running after you know uh plumbing and spoilers and leaks and brotes is another thing that comes that comes into play when you're managing yourself. A single family plus the um what single family like I mentioned before the when somebody moves out. There's always that you know pressure to turn it around and to you know rented out as soon as possible. So although you know there's you know Merit both things I would say you know it's still if you're. It really depends on your your scenario and situation.
•  If you have the time to of focus on single family and you want to do that I understand that you will you do typically hear on most podcasts where people say oh. I I made a mistake starting a single family and now I'm not to multifam so yeah you know I think ideally would be to do multif family in an active role versus a passive role if you can. But if you have $100,000 to invest like your question. I would say um you know definitely still still look at the the multif family opportunities out there yeah. It's it's it's interesting because you know I think that well especially in like the last 10 years or so right that the internet has has brought a lot of access to people like just in terms of like investing philosophies and you didn't you know all the all that was available before is like Rich dead poor dead right like that was it right but but but since you know the YouTube and everything has really started to ramp up and you get things like Bigger. Pockets that have shown up and and all of these different um investing forums and and sites and and YouTube channels the ability for investors to or the ability for people to like come in and kind of get. This. This almost this like false idea of like what it really means to be a real estate investor can you explain when you are in doing single family like what was the level of like what was the time commitment like and everything because a lot of us you know we. We see the the form on Bigger Pockets we're like oh we could. I could totally do that right but then you get into it and you're like oh my gosh. Like that is so much more. I bit off way more than I could chew kind of things. So uh what was that experience like when you were first kind of like getting into that and and what was your reality versus your expectations going into um that yeah. So I didn't have a ton of expectations but we did and we did have an on-site manager that handle a lot of the day-to-day things. But there was a point uh for about six to eight weeks where I was the on-site manager and I was at you know down at the properties 12 hours a day. You know running around trying to get these you know occupancies. Vacancies spill um dealing with code enforcement issues dealing with busted pipes dealing with spoiler s so definitely more than just hey a side gig. I'll go on a Sunday once a month and I'll make my pants happy and bring them you know coffee and donuts. It definitely does take a lot more. However you know there's there is times that you could you know build out a portfolio and start you know bringing in the right staff and have somebody help you manage it and make it more manageable um. But it definitely does you know it does take a lot and I I don't think I would recommend it to somebody just to kind of do it on the side. I think it's better to have like a full-time focus on it if you're going to do it and go all in.
•  If you can you know on the whether single family multi family whatever real estate you know you're uh you're targeting yeah I would I would definitely agree. I think that um a lot of you know having been on the residential side for so many years and a lot of the clients that I that I helped buy Investment Properties or for example. Like a very common one was they would they would hold on to their exiting property right. They they hold on to it and then they buy another one and then keep the exiting property as the rental and more often than not. I would get a phone call like less than two years later and be like hey. You need to help me sell this thing you know before the tax before the tax exemption is is uh is gone I need to sell this because I just can't do it anymore you know I think uh and obviously like as you start to scale like you're right you could start to you know bring in more of like an an infrastructure and like a St like a support staff and everything so it's like that mess. Middle where you're like you know under a certain amount of units and I think that number is different for everyone or any person is just uh based on your own capacity levels. But it's interesting that you uh that you feel the same way or that you that you that you're thinking in the same way because I've always thought that too is like if you're not ready to go all in. It's probably better to to find more passive investment opportunities that they'll yield almost very similar results and way less headaches right so let's switch gears right now to your. Acquisitions uh and and asset management experience when you're when you're looking at multi family deals right now. What are the what are the key things that you're looking for on a on a on a on the acquisition side to determine whether or not like this is a deal that you want to want to pursue sure so in today's market. The first thing we look at is you know positive cash flow um. We're not looking for any deals that are negative leverage um and you know right now the rates where they are in order in order for a deal to make sense we're looking for something. That's you know North up whatever you know cap rate has to be in. Today's market is probably north of the six and a half cap which a lot of Brokers going on here um and we typically like to build it out about two to two and a half basis points so we're going to go you know build it out to like eight and a half or even close to nine cap over a fiveyear period and what that means is that we're gonna look for a property that has um has already up has already um cash flow currently. But it has upsides we can go in and do some you know some strategic renovation. So we're not looking to do a major major turnaround or to complete. You know re revamp of the property. We do look for something that has um that we can do strategic Innovations to it and provide you know certain certain inititive value ad to it and really push the rents based on our comp. So we definitely research and look at a lot of comps to make sure that the property does have that upside um. Typically if a property is already you know a newer property already been you know kind of renovated and that top Market. It's usually not going to work. It's not going to be enough of a of a cushion enough of a value ad um. But we typically look for something that's in place cash flow that has upside as well totally hear that and I'm also curious because another Trend that I've observing right now in in hotels and I'm wondering what you're seeing right. Now multif family is yes pushing. Topline is is super important but we're also seeing a lot of mismanaged assets too like talk talk to me about the expenses and and what like what is the typical like expense ratio that you're accustomed to seeing and are you seeing expenses. Uh that are exceeding that or are are you seeing properties right now that you're that you're looking at that have expenses that are like way out of whack and and should be a lot lower because they're being mismanaged. Sure yeah. I actually was just underwriting it deal the other day where I didn't see that much upside in the income but their expenses were through the roof. Like well well.
•  You know our typical uh payroll quants. The sum between you know 13 to, 1500 unit. This was over 2,000 unit. The utilities is just the electric bill. I noticed was a smaller property. The electric bill was you know over 150,000 over 170,000 but if you looked at it the last few months it was only about 100,000 so I asked questions about that and it turns out. It was some mistake in the building so there's I don't know if it's been because it was mismanaged. But it's definitely something that I've been you know on the lookout for you know what we could do to lower. Expenses you know sometimes properties. Utilities are higher water and store could they have older toilets. We'll put in lowf flow toilets that's something that we like to do um certainly things that we definitely look at where even if you know especially in today's market where there may not be as much upside of the income where you're not going to be able to push rents as much because you know you're kind of capped and the rent growth is definitely cool and in some place you know negative rent growth um. It's definitely something that we'll we'll be on the lookout for what we could do um on new acquisitions and current you know current deals what we do to bring down expenses what we do to negotiate better rates um you know what could we do to bre down. You know cut our expenses because obviously that it can't you know raise rents as much as maybe we could have or if it doesn't make sense or people are not going to spend as much for a unit unit. We have to figure out a way to get creative and and bring our expenses down for short. Have you noticed an uptick in the saturation levels for demand in the multif family sector in what what sense are you referring to in the sense that like have you noticed an uptick in like the overall amount of demand in multif family meaning like are you seeing are you are you seeing multif family getting more competitive uh or less competitive. So I would say now it's depends on the market you know certain markets. Um. I think have become a little less competitive. You know the ones that were super high before the rent growth started going down certain markets like Austin Phoenix that got a lot a lot less competitive certain markets like Florida Louisiana Texas that have insurance costs like through the roof. I think those markets also got a bit less competitive in the sense where you know I think deals in Dallas are still trading at like a five cap and most people looking six six and a half caps. I the St in markets have definitely cool but then there's other markets that are still very hot where people are running after like Ohio Viana s in Midwest Market. Some things where people are running after where they can get you know a decent in place cap and maybe a little bit of a lower rent on average. So there's still some rent growth um. I think there's definitely been an uptake especially now where the treasuries are kind of all over the place where rates are kind of fluctuating everybody's kind of hoping to grab it when it's on its way down like kind of that. At that point. So they can get a good deal and then refinance or sell it at a lower c r which is obviously you know uh use that opportunity now today's market and get a deal at the right price point and then sell it at the right place. Obvious you could do really well but again it's hard to know. I think I think a lot of people thought um a lot of people thought that the rates had already pulled off when they didn't but about I would say about six months ago. Things were six six to nine months but these were much quieter. There was a lot less competition. Brokers were coming back to us and saying hey um. What do you think this deal makes sense versus a year and a half two years ago was if you're not you're not going to hit least. The ask CRS don't even submit so definitely definitely come a lot less competitive and um a friend of mine was a broker actually had an interesting post on Linked. In the other week how he put a deal on the market and then he you know and somebody was interested but he never submitted an offer and then he did you know when he he broadcasted it that it sold the guy Reach Out. Him say hey how come you didn't kick AC. He says well not to submit an offer even if your offer the 15th offer but at least you're sitting at the table so definitely.
•  Today's market. I feel that things are are a lot less competitive even though things are starting to heat up a bit but it's definitely not the same Market. As you saw you know prior to rates uh jacking up for sure yeah. It's interesting well. We are coming up on time uh so just a couple of last questions here for you and and actually you hit on one of the questions that you started to hit on it. And then I I want I want you to finish that which is where do you see the future of we'll just say the commercial sector in general with the current interest rate environment. What what is your take on what's happening right now and what we could expect in like the next say 12 to 24 months. So obviously. I don't have a crystal balm yeah. But I could say uh I could say what I I feel and what I hope um like what I said before I hear a lot of people saying surv till 25. I think it's still going to be another 12 months 12 to 18 months before we're going to see some stability. But I think in the next 6 to 12 months you're going to start seeing things um. Peter out where if you could get in at the right price at the right price point and the right interest rate you mean you know rates may go down and you didn't lock in the lowest rate. You still got in at a point where it's not going to go up significantly or you know fluctuate I think if you can make sense that make deals work um in in the next six to 12 months. I think in in 18 to 24 months it'll end up being in a good spot. I really do you and hope that way I'm obviously I don't know for sure you know know the 70s and 80s or the rates went %. So I'm hopeful that I'm hoping that doesn't that doesn't happen um and obviously that hasn't hit you know so such you know. The rates haven't been this High since you know early 2000s but now that we're starting to see the treasuries kind of go down um. I think we're going to start seeing you know um deals. Come deals come to Market where you know people maybe that don't have to solve but maybe getting a point that they're ready to sell. I'm hoping in the next 12 18 months brings a lot of opportunity yeah I I would agree um. I would definitely agree there well Daniel. In traditional Gold Mine fashion why you leave the audience with one final gold nugget right.
•  So there there's something that I I I do as a religious too I practice a Sabbath and with everything um happening in the world I'm not not to get political. There's been people recently that have been embracing that even more and um what I do is every every Friday evening to Saturday evening for 25 hours. I turn off my phone I spend time with my family and with my community and that is definitely my goal notet that it's something that lets me reset and refresh. And if I didn't have that I'd could work be 247. So that's something that I feel is um something that everybody could take on their own level to turn off the phone disconnect reconnect for a few hours spend time with their family um spend time with their Community. Just you know spend time with nature whatever it is that they feel that they need to disconnect and that definitely helps uh keeping keeping level and keep you going awesome. Daniel well that's that's awesome and yes I've heard you say that a couple times on on on a few different shows and and I think that's great you know. I I I know that that's uh that that's a hard thing to do in in today's world but uh that's uh just yeah. That's why it's worth it right like if it were easy everyone would do it. So hey D thanks so much for stopping by people want to get in touch with you or they want to follow you. What's the best place platform for them to connect with you um Linked. In definitely they could they could connect with me awesome and we'll have your Linked. In profile Linked. In the description box down below Daniel thanks so much for stopping by perfect thank you all right.