Introduction 0:00
This is the real estate investing for Freedom podcast, where we bring on the experts to teach you the golden nuggets of real estate investing, so you can escape the rat race and start living life on your terms. Now, here's your host, Dalyn Hazell,
Dalyn Hazell 0:21
Hey everybody, and welcome back to another episode of the show. In today's episode, I sit down with Dan Kennedy, who is a commercial real estate investor. But he's also a former major league soccer player. And he talks about his story and his career as a soccer player and how that helped him transition into real estate and how he got into real estate. And also how you transition from single family investing all the way to the bigger syndication deals, he and other investors are buying class assets in Los Angeles. So big things are going on for him. In this episode, I think you're getting a lot of value if you want to move on to those bigger deals like he is in. And speaking of that, let's go into today's golden nugget of the day. And today's golden nugget is to make sure you are relying on experts. So by that I mean, just this past week, I had an hour long conversation with an attorney in my area. And I just got to pick her brain and really understand the legalities of what I'm doing in real estate investing. So make sure you're doing that, make sure you sit down with an attorney or especially right now a CPA being tax time. And really going through all the implications of what you're doing, making sure you're doing things right. Also out might throw in your insurance agent, do like an annual review with your policies with them. One thing I pulled away from the attorney discussion that I give us tangible, tangible, like takeaway from that is to have, if you're a landlord, like I encourage many of you to do if you're listening to the show and have rental properties, then only have about two to three properties in each LLC. And that will help you know how to hedge against potential risk, or lawsuits. So if you got properties, let's say you have five properties in one LLC right now Well, you just need to form the new LLC and quitclaim deed those properties to get it more even. So quit claiming a couple here a couple there and just have, it's okay to have multiple LLCs. And you'll just need to have a bank account, an EIN and an operating agreement for each LLC. So that was one big takeaway, aha moment I had from that discussion and something I'll be implementing right away with my business. Because what I found is that I have a little too many properties in this LLC. And so I want to make sure I'm diversifying my risk, you never know what will happen in the real estate world. So with all that being said, I hope you guys enjoy this episode with Dan Kennedy. Welcome to the show. Dan, how are you today?
Dan Kennedy 2:53
Doing great. Thanks for having me.
Dalyn Hazell 2:56
You're welcome. Yeah, we're glad to have you on. Dan. First, just go ahead and introduce yourself and talk about where you got your aha moment real estate.
Dan Kennedy 3:04
Aha, wow. Well, I knew I knew from a pretty early age that I wanted to invest in real estate, and I didn't necessarily I certainly didn't know how. And I went to undergrad at UC Santa Barbara, and read the Rich Dad Poor Dad series and really started thinking about investing in real estate as investing in single family home rentals. So I started, I started my first investment was in 2011, which was, a couple years after the great recession as a great buying opportunity felt like a very big risk that I was taking. And my goal was just to buy one single family home a year. And so five years passed, I looked up and I owned five properties. And I was managing them all and I wanted to scale quicker, but I was really constrained by my own money. And I was constrained by the lender's appetite to lend to me, because single family homes with conventional lending are far more difficult to finance as investment properties than commercial real estate. So I started looking for ways to invest my money in real estate outside of just buying single family homes and that led me to syndications. So I was in business school at USC and that one of my classmates, his family is the champion Real Estate Group family and so I started investing in their syndications and it opened my mind quite a bit as to the opportunities that are out there if you can go and put together a good Real estate investment deal and how lucrative it could be not just for you, but for everybody involved. So it's 2016, I made my first real estate syndication investment as a limited partner, and finished Business School. And that's when my business partner Matt, Seamus, and I started dreaming of Capital Partners. And it was, it was really with the focus of, of how do we invest our money more efficiently? And how do we scale to have a meaningful real estate portfolio that would provide us freedom, financial freedom, I mean, we're looking for passive income, recurring income investments that would allow us to earn while we slept literally. So Matt, and I, it sounds, it's funny, because we didn't think it was very risky. But we sold everything we owned. And we funded driven Capital Partners, and we thought about it as our money was going to be the first money in any deal we did. And if we didn't raise any money, we would go buy some real estate together on our own. So we started, our first deal was a small apartment deal in Huntsville, Alabama. And we had eight investors come along with us for the ride, everybody made great returns. And that guy that kicked us off, and 2018. At the end of 2017, we bought that and that really kind of kicked us off to building the business that we have today. Which is a portfolio made up of apartments and industrial warehouses. Throughout the United States, we have about 100 million under management. And yeah, I mean, it's up to us to see where we take it, but we could, the trajectory that we're on, is exciting. It's very fluid. It's fast moving.
Dalyn Hazell 7:01
Thank you for sharing all that. And there's a lot of directions we could go from that. I also wanted to touch on a little bit of your past. And you're probably too humble to admit this, but you are a major league soccer player. I think that's so cool. And you did that for 12 years. And you most recently played for the LA Galaxy. What was that like transitioning from that stardom to a career in real estate? Just curious. Yeah.
Dan Kennedy 7:25
Well, I personally was never, I was never motivated in my professional sports career, by fame. It just wasn't something I was ever interested in. So the stardom, part of it was never something, it was never even a reason why I was doing it. I love the competition. And I love the challenge. And I love the game. And while I was playing, I was always really actually nervous about what was going to happen when I was done. And that's what drove my investment strategy. That's what was the force and the ambition behind the decisions that I made to invest in real estate because I knew my career was gonna be short. I had a very, as an athlete, you have a very small window to make money. And when it's over, it's over, and then you retire and you're in your mid 30s. If you have a great life, that's considering you have a great career. So I was 30, I was 34, almost 35, when I retired from playing, and your income goes from really good, the best money you've ever made in your entire life to nothing the next year. And so that's why I was very focused on passive income. And then to you as I, as I think about what I'm setting out to do today, my long term goal is to make a bigger impact on Major League Soccer, as a real estate investor, than I did as a player in the league. And I was an okay player. But I had a long career, I was part of the Players Association, and had the privilege to have had the privilege of leaving the Players Association as an executive board member and collective bargaining agreements. And it was a work of pride and trying to help the players out now, as I transitioned in what I do now, I want the same thing, all these guys need to have tools at their disposal to be able to invest in so that when they retire, they have something to fall back on. And that will make the transition from playing and your next career much easier. And so like for me, my life, my quality of life, since I retired has actually improved dramatically.
Dalyn Hazell 9:51
Yeah, because your income keeps going whether or not you're playing soccer or not. I'm sure that carries over. Do you have a heart for people who are exiting professional sports and advising them along and different alternative investments like you provide?
Dan Kennedy 10:07
Yeah, I mean, particularly, I just tried to reach out to my friends and that are retiring and going through it because it's, it's, it can be a very challenging process, because you're walking away from everything, a structure that is timed on a daily routine, people telling you what to do. And you get to go and turn on the lights on Saturday night and play in front of 30,000 people, and you can't, that's exhilarating. But for me, having a smooth transition. In order to achieve that, you have to be financially comfortable. And so if you make good money and you don't invest wisely, you're largely going to retire and then your quality of life is going to diminish. Or you're going to have to go and work a job that you don't want to work. So what I always try to coach up athletes and think about is investing is just like working out, you're not, you're not going to go and get fit and, and 2022 by having a good workout routine, the first week of January, right, you got to have a plan that is consistent. And it has to happen over the course of a long period of time for you to get fit, and then maintain fitness. If you want to get financially fit, then you have to do it. It's no different, you have to invest? Well, you have to identify a strategy and set some goals. And then you have to have the discipline to go and execute them. And so this is predominantly what driven Capital Partners does is it gives people the opportunity to invest in real estate, high quality commercial real estate assets that you and I can't own by ourselves, because independently, we are not wealthy enough to do so. But you can invest a small amount of money, and six deals a year. And if you do that year after year, after year after year, and you and you do it for 10 years, you're going to look up and you're going to have accumulated significant wealth and real estate that is now diversified across a portfolio that is going to provide some great protection for you. And some consistent incomes for you. As you move on to what's next.
Dalyn Hazell 12:29
Exactly. And you touched on the correlations between sports and professional career in business. And there's just so much we could talk about, you got to be in the game, right. And then you have to continue to put into practice and work, which is for us to analyze deals every day. It's making offers every day, that's our practice. And, that correlates very well to your professional career. So I'm sure you took a lot of that away from soccer, and we anybody can do that, if you're working a job that you may or may not like right now, stick with it. And use that to your advantage going forward. For example, I always tell people my story. I was an accountant for three years. And so I understood the tax law. I read up on it and I learned the nuances, and then that's helped me greatly. Now that I'm in real estate. Of course not everybody can have as cool of a backstory as you with soccer. I like to watch the sinner curse. Yeah, yeah, definitely probably a blessing for you. Well, great, let's let's dive in. Because I'm sure it is interesting, as people are about your, your history in sports. They all also want to know how this conversation can help them. So let's turn this into. You touched on earlier, why is it harder to finance? Single Family investments versus commercial? Because my first thought is, well, single family is less expensive. So it's easier to finance than why is it? Why does it get easier to finance properties? The higher you go up?
Dan Kennedy 14:01
Well, the lender is highly focused on the individual buying a single family residence. And the single family residence in the world of real estate is typically looked at as an owner occupied home. Now we've seen a huge evolution and fix and flips and buy rent, buy renovate, rent refinance. So the world's changing and the financing surrounding single family homes is changing. But when I was doing it, in 2011 to 2015 We're coming out of the Great Recession in which the world collapsed because of a bunch of bad loans on single family homes. And so the guidelines for qualifying for these loans improved dramatically, which is a great thing for real estate investors because it becomes harder for people to qualify for these loans. Now, Dan Kennedy made $100 a year, and the bank would look at my $100 a year income and say, Well, we're willing to lend you $55. And you need to be able to pay us off over 30 years. And, okay, well, I bought a house and I took a 40 $40 loan. And then I bought another house and I took a $15 loan, well, then I was tapped out. Because I wasn't making enough money playing soccer to buy more homes, I was in debt, my debt ceiling had been met. And so that was the limiting factor. In commercial real estate, the lender is not the lender, it is interested, and my balance sheet, and how my life is operating financially. But assuming it's sound, and in good balance, and I don't have bad debt that I can't service, the lender is focused predominantly on the asset itself. And so when we focus on buying real estate, we're always focused on assets that we understand our cash flows, and their cash flows seem like they will be very consistent into the future. Or we think we can buy a building and completely change the way that it operates and dramatically improve the cash flows. And so lenders look at those assets, completely separately from whatever's happening in my life, or the borrower's life. So it allows me to go out and try to buy $15 million pieces of real estate.
Dalyn Hazell 17:01
Exactly, because you're getting the focus off of Dan Kennedy and his ability to produce income at a one to one ratio, the amount of hours that he has in the day, to what can the asset produce, I think that's very powerful once you get up to that level, and a good book on that I recently read his skip the flip, and it was all about skipping the flip, get on to assets that the merit is is how much income it can produce, rather than how much income you individually can produce. So that's all fine and great for people who are at that level now. But what about the person starting out? You did single family for a few years, do you recommend? Like what was your exit out of that? Like?
Dan Kennedy 17:43
It was a decision. It was an investment decision. And it was an investment strategy. And the strategy was how do I scale? How do I scale my real estate holdings? I was at my lending ceiling and the single family space. So I was either going to stay there or stagnate. Or I was going to sell and roll it into something that I could scale, which at the time was apartments in COVID that changed the world. And we still love investing in apartments and we still buy existing and we build. But we also buy industrial warehouses now too. And so we're it was really just that it was an investment strategy to trade out of everything that I own to give me the liquidity to go out and syndicate and buy higher quality commercial real estate assets.
Dalyn Hazell 18:39
So did you do that piecemeal? Or did you just package up all those homes and 10? Three? Oh,
Dan Kennedy 18:43
yeah. No, there were no 1031 exchanges out of the single family home portfolio. And we, we we I basically let the leases burn off and then I would go clean the property up and sell it.
Dalyn Hazell 18:56
Okay. Yeah, yeah, that's one strategy. I've heard about people, they just sell it as a package. Now, you may make a little less profit when you sell it together, because you're looking at more of an investor type buyer. But both are good strategies to get out of the single family space.
Dan Kennedy 19:12
Yeah, yeah. And single family homes sell typically pretty quickly. So a healthy market. So that's it was it was easy to exit from
Dalyn Hazell 19:21
right now. Now, we've all heard of those people who just love single families, they have 50 to 100 homes. How do they do it? As far as Are they just carrying commercial loans on all these properties? I mean, when is the bank tapping them out? And the single family residence space, right, like in at least in my local market, I've had coffee lunch with people who have a significant amount of single family. Yeah,
Dan Kennedy 19:44
and that's that they've established a stronger relationship with a single lender or bank that understands their business. I had a hodgepodge of homes. I had homes in Northern California, Southern California, Texas. So I wasn't going to get a single lender on board across state lines that was going to understand what I could do. Now I live in Santa Barbara, California, of this, our business has established a relationship with a small regional bank. And typically, with a small regional bank, you're likely to get some, you get afforded some leniencies that maybe a Bank of America when it a lot, you because you're not a big enough client, but with a small with a regional bank, we're big enough client, that they'll write us a line of credit. So we could go and pull a $2 million line of credit and, and have a down payment for a small apartment complex that we're going to go out and syndicate the capital on, and then we're going to pay that line of credit back in 30 days. So these are the types of things that over a period of time, reputation is everything, track record is really important.
Dalyn Hazell 21:02
It is truly now pivoting a moment to partnerships, because when you sold that package of homes or sold them piecemeal, you set out on this journey with your partner, Matt, who's your business partner in? And how, what was that decision? Like for you? Did you feel like you needed a partner to get on to bigger and better things? Or was it just natural? What was the experience like?
Dan Kennedy 21:29
Well, Matt and I are longtime buddies, he grew up with my wife, our wives are best friends. And it's like, having a good teammate in life is valuable. It doesn't matter what you're doing, Matt and I come from very different upbringings backgrounds, completely opposite in terms of skill sets. So it was just, it was a natural fit. And we're going to go out and try to build a really substantial investment grade real estate portfolio. To do that alone is hard to do. But when you join forces with someone, you keep each other honest, you challenge the narrative of what you're doing, which leads to better decision making. And you get benefits of the balance sheet when you're going to a lender. Typically you present better when you're trying to buy a deal. So there's across the board we've linked up and we've helped each other achieve what we have done today, we neither one of us would have been able to if we would have done it independently, we wouldn't be where we're at, that's for sure.
Dalyn Hazell 22:48
All you're saying is it's not necessary to break into commercial real estate, but it definitely has helped us specifically.
Dan Kennedy 22:55
Oh, for sure. For sure.
Dalyn Hazell 22:57
Good. Talk about a little bit the the experience between being an LP and being a GP, because you started out being an LP, which basically is a limited partner where we're about to just put in some capital, you understand the investment, but you don't have to do the day to day in and out to becoming a GP now. What made you decide to take the leap there?
Dan Kennedy 23:21
Well, I wanted to learn, I wanted to understand what it looks like syndication wise, get the documents and see how these guys presented themselves. And I also wanted to invest in the student housing bill downtown LA next to USC, I thought it was a great investment. And it helped prepare me for the GP. It prepared me to sit on this side of the table. Really. It was a very good learning experience. And on the GP side. I mean, it's about leadership. And we have a good strong network. And these people trust us and we men are typically the biggest investors in any deal. So we put in the deal as much as anybody.
Dalyn Hazell 24:16
It really shows people that you're committed to the deal's success because you have so much at stake. Definitely talk about and I know we're wrapping up here because we both have commitments shortly. Talk about why commercial real estate, it's just that meaningful investment to you.
Dan Kennedy 24:34
Well, today is December 2 2021. The stock market is going crazy because of the concern over the next wave of COVID related issues. And so I watch my stock portfolio go up and down 9% day in day out. Reality is on every single property we own December past and rinse comes in. Yeah, brands come in. It's consistent. It's a slow moving ship. And if you buy fundamentally if you buy right, then these assets shall perform consistently for you over a long period of time. And the tax benefits are so creative that it's a win, it's not brain surgery. It's definitely learnable. Investment space, and we're not guys that are recreating anything new here. We're just trying to do it in an efficient way. We're trying to allow ourselves and our friends and family to benefit from investing in real estate just like people have for generations.
Dalyn Hazell 25:46
I completely agree. And thank you, Dan, for sharing your knowledge on commercial real estate. If anybody's interested go to Drivecap .Com. Learn more about Dan and Matt in their work. Thanks, Dan, for being on. I really appreciate it.
Dan Kennedy 25:58
Oh, good. Yeah, nice connection.
Outro 26:00
Thank you for listening to the real estate investing for Freedom podcast. If you enjoyed the show, please subscribe and leave us a review and tune in next week for the next episode.