Note investing, mentoring, and running for office are just some of the interesting things Dan Zitofsky is doing these days. Dan is the owner and CEO of Zitofsky Capital Management. Through his business, he aims at educating people about note investing. He shows us how to raise capital the right way, as well as educates us about the wrong ways to do it and how to avoid them. Focusing on the mechanics of note investing, he shares how one should carefully select his investors and how investors should cautiously choose their coaches. This will lead to better relationships with your investors and your team.
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Raising Capital For Note Investing with Dan Zitofsky
Dan Zitofsky, welcome to the program. It’s truly an honor to get you on and spend a little time with you.
Thanks, Martin. I appreciate being on. In this day and age, it’s been so tough. Our time has been so limited with our business and our education especially the political campaign we’re running. I’m very strict of who I do any webinars with or speaking events with. You’re somebody I look up to in the industry. The reason why is you do it the right way. Not that you have a ton of years’ experience and not that you’re doing millions and millions of dollars, which you might be. It’s that you’re looking to teach this the right way and you’re preserving the industry. That’s what I’m big on is preserving this industry.
What drives me insane is that many people out there and there are many gurus out there. They’re doing it for the money. They’re not teaching people the right way. They’re looking to get over on the people. I got to give you kudos. I see what you’re doing. You’re killing it. When I say killing it, I mean you’re killing it with like ethical, moral education. I love that. If I’m going to put my name behind somebody, it’s someone like you. There’s probably on a handful on my hand how many people I could say I’d put that behind. Thanks for what you’re doing. Thanks for having me on.
It’s a great honor to be here and thank you for those kind words. It’s not that anything that I’m striving to do anything intentionally. I wasn’t even set up to be a trainer until the book came out and people started coming out and reaching out to me. I wanted to focus on the mechanics of the note investing and doing the things that I did on a daily basis. I do it on a daily basis to source notes, to perform due diligence and to perform workouts that are successful. I appreciate that. Enough about me, I need to talk to you about you. You help people build long-term wealth for themselves. You teach people how to do it as well as you also took people that want to be passive with it as well. Can you touch on your passion behind doing that?
I’m in this business for a long time. I’ve started like every other real estate investor out there. I did start with a couple of rentals and I got heavy into fixing, flipping in different merging markets around the United States and in the north of 800 plus properties. I fixed and flip. For many years, I was doing 30 to 40 properties. Everyone knows the story of 30, 40 properties every single year. My net was probably $40,000 to $50,000 and up on every property. Figure out the numbers, we were in seven figures year after the year. We were living what most people thought is the best life in the world, watches, cars, boats, toys upon toys, jet skis, anything you can imagine.
Money was not an object at that point, but I was on a path of destruction. When I say that, it means destruction with my wife, destruction with my kids. Not that they hated me, but I was never around. I remember my family had to take me on vacation to be out of banks only because they didn’t have cell phone service back there. That was their issue. I could not stop working. Most entrepreneurs will tell you if they go on vacation, they’re not 100% happy being on vacation because in their mind, they’re always, “Where’s the next deal? What can I do?” It’s hard to turn off. Several years ago I realized, “No matter how much work I do, no matter how much money I make, God forbid something happens to me, my wife and my kids can’t go out and do the same thing and start flipping properties, start wholesaling and start raising money.”
I needed to do something that the economy changed again and the market changed again. God forbid something happened to me, that my family was taken care of. More importantly than that is I wanted to be there for my family. When I speak to a lot of potential students of mine or people in the industry, and I ask them, I always work backward. I said, “What are your goals in this business? Why are you in this business?” A lot of them are, “I hate my job. I want to retire early. I want to retire with my husband or wife early. I want to send my kids to college,” or whatever it might be or, “I want to travel more.”
What do their actions speak? Their actions are speaking totally different than what their actual plan is and what they’re doing. I go to events and all I hear is, “How many deals are you going to do this year?” They think that’s a sign of success. What they’re doing is setting themselves up for destruction down the road. I’ve done that to the point that I’ve watched people get divorced. There are people that work twenty hours a day and kids hate their parents. That’s not what I wanted. I put on a path back then and I said, “I’m going to make this a passive income.” When I say that, if you go and buy a note and you buy these in a low-end area, you’re not going to have that passive lifestyle you need.
You’ve got to work. That’s why I say you’ve got to work backward. Don’t own note on a property you’re not willing to own. Not only did I do that for myself, north of 600 doors at this point, but I’ve helped more. I spend more of my time working with investors on two-fold. One is raising money for our projects. We do a lot of development deals. We do a lot of takedown tax liens. We take down nonperforming notes. We take down some of distress seller properties and we fixed these up. We get in place with property managers and tenants. We sell them to investors that want to build their own portfolio. They probably lend you money, they probably joint venture with you.
They lend us money. They want to be on development projects. We have a development project coming up in Philly. We’re going to be doing a race for that. They want to be in those projects. That’s great for the passive investor. What about those investors that don’t want to be paid back at a certain point? They want to have a legacy for their family. They want to be able to turn over properties for their family. They want to have something when they’re retired. They don’t say, “I gave you $300,000, you’re paying me back the $300,000 plus the interest. Now I’m out of a deal.” We found that there’s a great number of investors out there that aren’t interested in giving you their money. They want to build their own portfolio. We’ve done a few thousand of those deals in a few years for investors.
What I’m curious about is that this touches more on discernment. I’m not sizing someone up, but when you go and meet someone at a conference or they reach out to you and they’re like, “I want to give you money or I want education,” what have you. What are some things that you’re looking for in that person? You want to know their goals, but are you looking at where their hearts at, where their souls at with this?
We never even talked about this. Most people don’t ever ask me that question. I always say that I interview my investors probably harder than they interviewed me. I have online training. We saw people love that because they do it on their own. It’s a lot cheaper than one-on-one coaching. I only take up to eight people a year in one-on-one coaching. People say, “Why would you only take eight?” I’m not in this business to be a guru. I’m not in this business for education. I’m in this business to help people that want to be helped. I interview them and I want to make sure that they’re ready, willing, and able to do the work I need them to do.Never take somebody's last dollar and invest it in a deal without letting them understand the risks involved. Click To Tweet
They have the right mindset. They’re going to do this ethically and morally. Ultimately, my goal is to teach them this business enough that one day I could fund their deals for them. If people come to me and they say, “I’m going to pay you all this money and I want to become a millionaire next year.” It’s unrealistic for them. I’d rather not take their money. Let somebody else get it. Let somebody else set them up. Not that they can’t do it, it’s not what I want to do. If I have somebody come to me and they said, “My goal is I want to be handed off. I have a job. I do deal with a lot of doctors, some insurance brokers, pharmaceutical reps, some dentists. A lot of them would come to me. They don’t have time to take calls and have problems. They want to be totally passive.
Why would I put them into a Class C-minus, D property where the numbers on paper look great, but at the end of the year, they don’t get those numbers? They never see them. I want to make sure that they don’t come to me. They’re not looking for ridiculous returns. These are people that understand the business. I always ask everybody, I said, “What are you going to do? I need to know if I call you up and I said, “We lost money on this deal. How are you going to react? What’s it going do to your family?” I look at their face or I listen to them on the phone. I will never take somebody’s last dollar and invest in the deal. I need people to understand the risks involved.
It’s funny because when we did our money raise years ago, my attorney wrote our documents up and in bold print where it was in red, it said, “Don’t trust Dan almost. This is a high risk. You might lose your money. Do your due diligence.” I was like, “What are you doing to me?” He says, “Believe me, you want that.” Have we lost money for anyone? Thank God, we haven’t. We’ve lost our own money, but we’ve not lost anybody’s money. I don’t think until you lose the money you’re an investor anyway.
That’s interesting with losing money because that was something I did quite a bit when I first started buying notes because I didn’t have all my due diligence systems in place. That’s been driving my passion with helping the people that I’m helping is I want them to avoid losing that money that I lost. That’s important to me.
It’s important. There are so many people that want to do it for free. You can go anywhere. You can watch it for free. In the note business, I can’t imagine how many notes I’ve done at this point. Every single one has a different caveat to it. I can tell you about the problem. That’s the problem that I have in each note. There’s something different in every single one. When all these gurus out there put their presentations they have or they talk about the greatest deals they’ve done, but nobody talks about the deals that they had issues with. Every one of us has had note deals where there are issues.
The deal takes way longer than we expected so our annualized return become way less or we’ve lost money on a deal because we use the BPO company possibly and no values came in a way different than what we thought. What we’ve learned from that point how to do the business. I’ve had somebody reach out to me. I said, “I don’t do business unless I have a realtor in that market.” That’s me. That’s changed my business over the last few years. I have a personal relationship with realtors and part of what we do is we teach people how to build teams in emerging markets. In fact, I don’t know if you saw it or you paid attention, we did a buyer store, but before our buyer store, we did a one-on-one coaching session for three-and-a-half days.
We had somebody fly out. They paid us $9,000. They had 24 hours a day. My short sale negotiator and I were there. We trained for somebody. For three-and-a-half days they met. We build teams in three different markets and they saw us do it. They’re already eighteen or nineteen deals in now since we’ve done that. Is that worth it for them? That’s the first time I ever did that. Why did I do that? It’s because I said, “Everyone’s asking me, how do you buy in other markets? How do you build a team? We’re going to other markets right now. Two of the three markets I’ve never been in, let’s do this.” They got to see us build the teams in that market. We’re talking about not even a full year, they’re eighteen or nineteen actual deals in. It was probably the best training I’ve ever done. I offered it to one of my other students. They couldn’t come and now they’re so upset.
They want to come to the next one. I said, “You tell me when you want to do it. We’ll work on the schedule. You tell me the market you want to be in. That’s how we’ll do it. I’ll go into that market and I’ll show you because you need to do due diligence. You need to get feet on the ground. You need to get relationships. You need to shake people’s hands, look them in the eye, and you need to see the market for yourself. If you understand and note this, you could invest anywhere.” There are a lot of people telling you, “You invest anywhere.” I’ve gone through deals where I’ve had students come to me after they bought deals from somebody else. They bought a burnt down house. They had no idea because they used the BPO company. There are many things that you and I can teach people. We can check and we can help. That’s what the due diligence period is. That’s why you’re doing great with due diligence and teaching them that.
Your life would be easier if you worked in a cave doing deals and turning money. Why exposure? Why do you feel you need to be out there the way you are?
It’s my passion. I had this question, I was at a mastermind. Some of the people that might be on, they’ll test it if they read this. I was going almost through like a depression. When you hit those goals, everyone has these goals. I hope you have a goal. You just didn’t jump in and say, “I want to be in business.” We all have these goals. My goal is, originally, I said I want to get to a point where my income exceeds my debt. I want to live a lifestyle doing what I want to do, how I want to do it. If I miss my daughter’s softball game, I’m miserable. I’m so upset. Whereas years ago, I couldn’t find a way to go to any of their stuff unless it was on the weekend. I slipped it in before going into one of my properties. My passion is truly content. My top passion is teaching. We’ve talked about financial literacy. The reason I’m selling my all-in training is I’m raising money. I’m going to put a financial literacy course to teach around the world. I can’t be in every country, in every state around the world, but what I could do is I’m putting a lot of money behind it to build an online training and for financial literacy for youth around the world. There’s a big component missing on not only adults but on kids these days.
My true passion is teaching quality content and being a servant to this business. When I say a servant, I mean somebody who’s going to do it the right way. Somebody who’s here not to make money. I’m not teaching, educating and coaching to make money because I can make a lot more money spending my time myself and doing my own business. If I can teach this business the right way, if I can teach people how to raise private money the way where they’ll never have a problem, if they follow what I tell them, raising money again for another deal, I’m passionate. That’s what I’m passionate about because I’ve reached my goals. People say the same thing, “Why are you getting involved in politics?” It’s the same exact thing. It’s the stupidest thing in the world. Most people say, “There’s no money involved.” I don’t have an ego. I don’t need my name out there for any money. I’m out there. I could speak at another 30, 40 events a year. We’re asked to speak. We could speak almost every week if we want to. It’s because I see an issue and I can’t sit back and watch without trying to make a change.
You mentioned raising money the right way. Tell me about some of the wrong ways you see money being raised out there.Be a servant to the people's money and to the deal. Treat your investors better than you treat yourself. Click To Tweet
First of all, legally I see it done in the wrong way. I’m sure you see it too, the Facebook investors that go to a course and all of a sudden they promise these crazy returns. They’re openly raising money on Facebook for a deal where they are not legally allowed to. If the SEC starts watching Facebook and they’ve done cease and desist before, that’s an issue. Telling people the benefits of the deal. You’re never telling about the possibility of losing money. You don’t understand the time factor. I see people buying all these $20,000 deals out there right now and not one of them will talk about, “If I have to take this house back, I’m going to have to rehab it for $40,000.” In the beginning, I saw a lot of people doing it with all these guru courses out there. Not to the point where I got tired of going through and telling people. Some people took advice on people. Some people didn’t.
That was the thing when I first started, I took a three-day course from one of the big trainers and that was the whole thing. It bought these lien properties in the Midwest. I go and I buy them. Sure enough, a $70,000 home is $30,000 when you’re ready to resell it because it’s all stripped out. It’s in a bad neighborhood or it’s in a semi-bad neighborhood. You’re barely getting out of it.
Some of these properties that are worth $20,000 to $30,000 after repair value and they’re buying them for $5,000 or $6,000, but they still have to put $40,000, $50,000 into them. They’re complete junkers. They shouldn’t be touching them. They’re dealing with legal fees. Most people don’t have an ROI calculator set up properly. They don’t understand how long it’s going to take. They don’t understand the issues with a contract for deeds out there right now, which states are okay with them, which states aren’t. There are a lot of those floating around because they’re the low-hanging fruit. It’s the stuff that people are saying, the newbies in the industry stuff they’re saying are the stuff that nobody else wants. It’s floating around. These newbies come in. That’s what they’re buying without doing true due diligence.
I hear it because I refer them out to some of my realtors. I refer them to my property managers and they called me back. They said, “Why would you let this person buy them?” I said, “I don’t have anything to do with that. I referred them to you.” They say, “They should run, not walk from these deals.” I’m like, “That’s your due diligence,” but what’s scary is they’re out there newbies. That’s what kills me is brand new people in this industry not putting in their own money. Going out and raising money for investors and putting investor’s money at risk. That’s going to hurt. What’s going to happen is a whole Dodd-Frank issue. It’s going to hurt our whole industry.
Do you know Mark Pantak by chance? He said something wise when I had him on. He’s like, “If we don’t self-regulate, we will be regulated somehow by some governing bodies.”
He’s a brilliant man. I love his comments, his intellect on this business. I love when I see his posts. He’s somebody I’m a fan of because it’s true. Eddie Speed is also great with this. I’ve had some conversations at Eddie’s events. Eddie talks to me. You could see he’s so passionate about protecting the validity of this business because this is how he’s made his money over the last many years. We love this business. It’s turned into a get-rich-quick scheme that everyone’s flying into town and doing these events. People may be free coaching, cheap coaching, whatever to buy and they’re not learning the right way.
I’m like, “There are many ways to learn this the right way. There are many good people that’ll teach you the right way.” You’re running an amazing course. You’re teaching people how you’re doing this business. You’re in the business. I’m in business. I’m not here as a guru teaching education. I’m in the business doing it. I do it a little different than everyone else, which differentiates me, which was cool for my business because they’re like, “He’s doing a little different than everyone else. I want to learn how he’s doing it.”
We have a nice complement because I teach more than mechanics on the day-to-day. You have a high-level picture of raising money. You’re only a viable source or you only bring value to JV if you become a true expert in the field. That’s important. It’s interesting because I was a landlord since ’09 but in 2013 is when I started buying notes. Facebook was different then. It was more like small groups. We used to connect on deals and advice. What I’m teaching now is I’m moving my class towards teaching them how not to use Facebook, how to move away from Facebook or be extremely careful what they post on Facebook versus before my mindset was like, “Facebook was the way to expand everything.”
Facebook is great if you use it the right way. Those Facebook Lives are great. If you’re doing due diligence, hit the Facebook Live button, show people the due diligence you’re doing. It’s the easiest thing in the world. If you’re doing a deal, hit the Facebook Live, show people. What we’re doing here, you’re putting this on Facebook Live. People got to hear this on Facebook Live where they don’t have to get on a plane and fly to go see us. I’m doing a lot less speaking events from now until the end of the year because of the campaign. I have a couple left that I’ve canceled. Facebook Live could be used for the right thing. I don’t think I’ve ever, as crazy as it sounds, bought or sold a note on Facebook.
I don’t think I bought or sold a property on Facebook. To me, if it gets to that point, it’s usually watered down. It has never been to me. It doesn’t work. Where we get our deals, we have relationships. We’ve worked hard over the last how many years building these relationships with special asset managers, tax lien companies, attorneys, distressed sellers who refer us out. We are as direct as you could possibly get. We don’t put our stuff out there for sale. If we put something out there, we’re doing this and we keep our business going. Our investors, we work with them more on a one-on-one basis. Our investors will prompt us and say, “Dan, I have $100,000 to $200,000. What can I do with that?”
We work directly with them. We’re not putting stuff out on Facebook. Our thing is we want our investors to be like our family. We want the people we raise money from to be like our family. That’s how I treat them. I’ll die before I lose their money. I’ll do anything in my power to make sure they’re taken care of before I make a dollar. That’s what I say about being a servant to people’s money, being a servant to the deal. Treat your investors better than you treat yourself. If you don’t make money on a deal, that’s okay, but you’re going not ever to let your investor lose a dollar because of something you did or something you didn’t do if you could protect them.
I applaud you for that mentality and the morals about you with that. Touching on financial literacy because you mentioned that. I’d like to be a part of that in some way. Let me know because I’m putting together a financial literacy class that I wanted to promote with people with special needs. Whether physical or mental disabilities, my heart’s been calling to help those individuals know that they can go out and be entrepreneurs. They can go out and crush it the way everyone else is crushing it. I’m going to bring that to life. I’ve already started doing some work in that regard. I’d love to be a part of what you’re doing. Your day is pretty busy. In addition to this, you’re running for office. Tell us about that.You don't have to do 100 deals. You just have to do a few of the right deals. Click To Tweet
I’ve decided after long, lengthy years of back and forth that I’ve been asked a few times to run for office. One of my biggest keys and as an investor, Dodd-Frank has hurt our industry a lot. I’m running on the state level, but I’m running alongside somebody for the US Senate, who is a bank regulator. He was part of PayPal. He’s got a good chance of winning this election. One of the things he’s looking to do is work on Dodd-Frank. I don’t think they’re going to be a takedown of Dodd-Frank. There’s going to be some remediation of it. That’s going to help the investor world nationwide. That’s a huge thing for me. One of the reasons I decided finally to run, and I always said years ago, “I would help out.”
I’m somebody that doesn’t like to sit on the sidelines, watch and complain. If I see an issue, I want to get involved. Back several years ago when they started asking me, “You should run for office.” It’s one of those things I didn’t have the time. I’m blessed enough that I said I have the time to run for office, make a difference. I’m out there campaigning. I’m out there raising money. Some of our biggest supporters have been outside our state in the investor world. A lot of investors are taking note especially in our business like, “We need help with this.” It’s not the local level, it’s not the state level, but it does fall into a federal level. I’m passionate about helping my community. I’m not somebody who sits back and watch. There are other things going on in the state, tax issues, public safety. Obviously, we see the school shootings going on.
There are all these things that are going on, senior citizens and that’s me being a vet in the Navy and an ex-police officer. Those are very close to my heart. I see a lot of vets coming out. I would love to do something with vets. Whether I win this election or not, I want to put some together and help the vets with job training, education and services. They leave the military. They protect us in the past, the present and in the future. They’re forgotten about when they leave the military. That’s devastating. I was a vet of the Persian Gulf War. Thank God I’m okay health-wise, mental-wise. A veteran never ever go into the military, protect us and ever have to worry about how to support themselves, try to pay for healthcare, how to get the services and training they need.
Alex Morriscott said, “Go vets.” He’s a veteran himself. He served in the military.
I appreciate you, Alex. Thank you for your service. That’s one of the reasons I’m running for office is because I can get the word out there.
You touched on Dodd-Frank, give us all a few thoughts on Dodd-Frank. How has it affected the industry?
Dodd-Frank has been destroying our industry. To understand why it’s important, I take distressed assets, whether in notes, tax liens, REOs and I turn those into performing assets. I try to get housing. I’m working with companies. I have a team of attorneys in the Midwest. I’m trying to get housing to people who couldn’t get those back from banks. Dodd-Frank has limited me from doing that to owner-occupied borrowers in certain states. I can only do up to five. In certain states, I’m not allowed to do. A lot of these borrowers are not W2 and paystub-type borrowers.
They might not even have the credit. A lot of them were contractors. They might have some issues with credit, whatever it might be. Dodd-Frank has come in and said, “No, you’re not allowed to lend money to those people basically.” You cannot let them owner-finance a property. I understand Dodd-Frank is there because we didn’t regulate ourselves. They came in, either regulate yourself or they’ll regulate you. What Mark said was great. It’s true. I was in the mortgage industry. I was a subprime guy, but the subprime guys were taking advantage of. The option armed guys would take advantage of these borrowers. It caused the demise of the industry.
When the government gets involved and regulates, they overregulate. That’s what Dodd-Frank has done. They’ve over-regulated. What I do in my business is I can’t help those people unless I do a lease option, which is also applying a little bit on the gray line. That’s why I sell my properties to non-owner occupied. Essentially, I sell them to investors that want to own rental properties. I hold a note for them. I do that because Dodd-Frank is not involved in commercial lending. That’s why I do that. That’s been my business model for several years. I used to provide quality housing to people who couldn’t get bank financing. I love that.
There are a lot of people in our audience that don’t understand some of the lingo. Touch on what it means to provide someone with turnkey property.
What I do is I take these properties and most of them are in disrepair that you see out there. Someone that lost their house in a tax lien, someone that lost their house through foreclosure or nonperforming note. I take those houses. I go in there, it’s like a fix and flip. I fully rehab them. I get a tenant placed in those houses. I get them placed with a property management company. Essentially, I’m a passive investor at that point. I don’t have to do much. The property management company sends me my rent every month. Usually, it’s not even a check. Usually, it’s an ACH right to my account.
I have somebody like you that says, “Dan, I can’t go out and get bank financing to buy your property for let’s say $80,000 to $100,000 because I don’t show my income on the books. Dan, I don’t have $80,000 to $100,000 to buy a property from you, but I want to build a rental portfolio.” What I do is I sell them that property holding a note. I take 30% down or $20,000, whichever is greater. I’ll hold the note for them for ten to fifteen years, which is better than most commercial lenders are doing anyway. Most of them are doing five to seven years. What I do is I help these people build up their portfolio. They can buy themselves five or ten properties and work on paying it down. Once they do that, they have $1 million to $1.5 million in real estate and they’re saving themselves $8,000 to $10,000 a month in income in the next ten years.It's fine to take the slow path. Do things the right way and you’ll be successful. Click To Tweet
On the training aspect, if you have a training component to this investor that you’re helping situate on a property, do you help them understand the cashflow, cash on cash in those types of financial evaluations?
The other thing you’ve got to look at is I’ve had some investors come to me. I said, “I can get 12% from this guy.” If you look at those numbers, I’m not going to say everyone is not completely honest, but a lot of people don’t put vacancy maintenance in there. A lot of people don’t put reserves in there. A lot of people are doing that, but they’re in a Class D neighborhood, which is probably the worst neighborhood you could be in. If you look at the average length of time and a tenant in those neighborhoods, they are less than nine months. Turnover of a property is usually $3,000 to $5,000. If you start adding up what you should get on paper to what you do get, your returns are usually negative if anything and you have no exit strategies.
We touch a deal. I talk about this every time I’m at an event. I’m sure you’ve heard us say this, my whole thing is the exit strategy. I have eight to nine exit strategies on every deal. When you buy a deal on a low-end market, you have two exit strategies. Those are either rent it or sell it to an investor at a discount. An investor is not buying full price. My exit strategy is I could do anything. I can sell to an owner-occupied. I can sell to an investor. I could sell it for cash. Somebody can get conventional financing and I can hold the note. There are many things that I have to do, lease options. I can rent it. There are many things I could do. What I’m saying is work this business from top side down, go through where you want to get, where you want to be and how you’re going to get there. If you do that, you don’t have to do 100 deals. You have to do a few of the right deals.
Going high level and working back, the reverse engineering, it has to come down to the integrity of the provider. You’re providing this investment opportunity. You’re doing a rehab. You’re turning over the property with a good tenant in place because you’ve done the leasing backgrounds and everything on the tenant. That’s your integrity there. They have to put some weight into because if a bad rehab job is done correctly, you’re setting them up for maintenance in the short term or you put a bad tenant in. They’re going to have turnover.
Even doing a great job on the rehab and putting a great tenant in, you still left with a chance. I always tell people, “Understand that could happen.” What we do is we mitigate our risks the best we possibly could. When I say that, a lot of people may be on here or not on here have seen some of the rehabs we do. That’s why we put those Facebook Live pictures. This is our rehab. They see the type of work we’re doing in these rehabs. I’m like, “They go high-end on the rehabs. Why are you doing that?” I’ve been called, “You’re an idiot. You’re losing money.” I’ll tell you this, my average length of time with a tenant beats anybody in the industry by far. My average turnover on a property is less than $1,600. We have a 93.1% occupancy rate on all of those. I only know that because I went through my financial with my accountant weeks ago. I always say most statistics are made up. This one happens to be true as I went through this.
Are these B and C tenants?
Most of them are B plus, A-minus. I do still have a decent amount of C-plus. Less than 5% of my portfolio is C, C-minus that I have. I have a lot of investors that come to me. They still want those lower-end C, C-minus properties. Anyone who’s on here, if they’re one of my investors, I tried to talk them out of it all the time, but some of them don’t care. They’re a yield player. That’s all they want. They’ll deal with the problems if they come up. C is okay. C-minus, you might get a little fishy there. I don’t want to hold those notes on the Cs because I always say, “I’m not going to hold a note on a property. I don’t want a home.”
I got to expect if I hold a note, you’re going to foreclose, you’re not going to pay me. It doesn’t happen now, but I have to expect that. That’s part of doing your due diligence and setting your expectations from the top level down. I don’t want to hold the note on the property. People liked that because they said, “If he’s willing to hold a note on this, he must like this property. Most of the stuff I sell, it’s stuff that’s in my portfolio already. If you don’t buy it, it doesn’t matter to me. I’m not a pushy salesperson. I’ll keep collecting rent. It doesn’t matter. My premier properties are higher-end properties. I have some rentals that are $250,000 and $400,000 properties. The yields don’t make sense for anyone, but I don’t have a mortgage on him. It works for me. I have fewer headaches with those. You’ll get to that point.
I’m going to throw the compliment back your way. One of the things that have always made you stand out in my mind is that you are a hustler. You are fully committed to the projects. That going back to that guru level where you’re saying all these things and turnkey this, turnkey that, but you’re not doing any turkeys. You’re teaching people how to do it. That realness comes through and it shows you as genuine. I’m working on my third book now. I have this thing. It’s a silly takeoff of Brandon Turner’s BRRR, Buy, Rehab, Rent, Refinance, Repeat. I don’t agree with that model. I came up with GRRR, Goals, Rituals that are Real and Repeated. Let me ask you, what are the daily rituals that allow you to be who you are?
It’s changing a little bit because of the campaign obviously. Usually, my daily rituals are I worry about my health, mind, business and relationships. My rituals, I’ll go through that because this is going to be a little different from the next few months with the campaign all over the place. It’s like wherever my campaign manager tells me I need to be, I need to be. Usually, what I like to do is I like to get up first thing in the morning. The first thing I’d like to do is get to that gym, take care of my mind and my health. Without that, you’re nothing. Unfortunately, that’s slipping a little bit because of our time. I’m doing as much as that I could still do because that’s important.
I’m getting out there in relationships. I’m always working to better my relationships with my investors. We stay as a family. When I say that, I want my investors to know. It’s not just, “Give me money on my deal, invest in my deal and I don’t talk to you again.” I try to stay involved with them. I’m constantly working with my team. I’m on the phone with my team almost every single day in different markets. I’m in six markets. We’re raising money. We’re going to be getting ready to do a development in Philadelphia. That’s going to be like a 21-unit duplex, 42 units plus two commercial. That’s my biggest development ground up. I stay involved in that stuff.
I make sure that I spend, whether it’s five nights a week, four nights a week at least, I try to make sure I’m at that dinner table with my wife and kids. I had a meeting, I canceled it. I’m watching the NFL draft. My CSV he’s going to be home. We watched the NFL draft together. I’m making sure I’m doing that. If I lose a deal tonight, I lose the deal. It’s okay, but I’m not going to miss the time with my son. My son is 21 years old saying, “Dad, we’re watching the draft together. I’m getting links.” I need my Giants to do something. I’m watching the draft maybe I can help them somehow. Those are my rituals and it’s a lot different than it used to be when I was worried about the art of the deal.
I’m not worried about the art of the deal anymore. I hope that answers that question. There are different components of my life I’ve brought in. It’s so important and it’s getting better and better. The campaign is going in a different direction, but once that campaign is done, win or lose, there are different things that I like to focus on. I’m still planning my vacation with my family. I’m not giving everything up like that. That’s become the most important thing in my life is spending time with my friends and family. Sometimes no matter how much work I have, closing everything up and letting it go until tomorrow.
Everybody needs to take note of this when it was Dan doing 600 rehabs years back and your mind was probably cloudy and it was on material possessions or party all night, whatever. Going from that binge work lifestyle to the binge relax lifestyle that Tim Ferriss touches on. Now you have a lot more peace. I can see it.
I have my ups and downs. I have my days where it’s nothing can go right. Ultimately, sit back, you’re blessed that you have the ability to have those days and some people don’t have that ability. It’s funny because if you compare my deals or doing a deal for me compared to somebody who goes on and secures my online training. Why I asked for the video testimonials, I started asking for those from people is because maybe I’m selfish. I get goosebumps every time I see those. Rather than somebody writing something out and I have believed those I see. I go back and I watch those. I follow up with them.
I’m like, it’s not a transaction for me. It’s like, “That’s my piece. My passion is, “I changed this guy and I changed his family’s life. I take that.” That’s so serious about changing somebody’s family’s life. If I could raise $500,000, I can do all these deals. I had a guy who bought my training. Finally, we spoke, I tried to help him a couple of times. He was on the cusp of it. He’s a builder in Texas. He’s good. His quality is good. He can’t get over to raising money part. We’ve talked about it. It got to the point where he’s like, “I need help with my presentation.” I’m like, “I would love to help you. I’m not sales. I’d literally in an hour call, I can’t give you everything you need to do. This is why I put together my training course. I’m not salesy. I don’t care if you buy it or not, but it will give you everything you need to do.” If you look at some of the video testimonials on there.
That’s why I love it because it might be a selfish thing, but it makes me feel good that I hope somebody changed their life. I know once they get it down, they’re changing their life. That comparatively, the amount of money you make from that is nothing compared to what you make on a deal. On a deal, you make some nice money. On that, you make very little money, but it’s much more enjoyable, much more refreshing to have that, to help people. That’s when you know you’re doing something you truly love, you’re truly passionate about. You do have to charge money for it.
If you don’t charge money for that, there’s no value. If you don’t charge money, I’m even charging too low that I want your professionals. They said nobody had seen value in it because of the price of your charge. That’s why we’re changing things up a little bit. I still want to give them the opportunity to at least get a certain part of it because some people need to learn how to raise money. They don’t care about how I do a deal, how I write a mortgage, how I built a team, how I find an emerging market, how I do a partial, they don’t care about all that. There’s like show me how to raise $1 million and I can be successful.
Let me ask you this and this may be addressed in your training or it may not, but there are a lot of people that are new to real estate. They’re working in-office job. They’re trying to make a transition for a better quality of life or whatever. They want to follow some dream or some aspiration. Can they take your training or can they learn how to be a real estate note investor the way you are and have the quality of life you have now? Do they have to go through the hard knocks of the hundreds of rehabs and the pounding of the phones to build your database and all those things? Do they have to go through all those downturns to get to where you’re at so you can have that quality of life or could they still go get the quality of life?
They could go get the quality of life. I get a lot of people calling me up and they say, “I’ve gone to these courses. There are no notes out there. There’s nothing out there. That’s wrong. There is. Everyone decides, “We go to a course,” and everyone’s beating the same path of, “Where did we get our notes from?” They’re that low-dangling fruit. They’re all trying to fight with each other over that same fruit. Nobody is intuitive, going out and getting their own notes. In your neighborhood, you could send out postcards if you want to. You can find that distressed. Take that distress seller if the numbers work, my numbers are the high $70,000s, $75,000 to $130,000 range. That’s my niche for my business model.
In a Class B or B-minus area in that range, you could find a property. You don’t even need to buy your note, take that property and rehab it. Put a tenant in it, get a property manager or a property management company. You only have to do it. All you have to do is set up your teams and that’s part of what we train and sell that property. Selling those quality properties to investors that want to build their portfolio is the easiest business in the world. It’s the easiest business any monkey could do it. I have people will tell them that it’s the easiest business in the world. All you have to do is go out there, find people that want a certain return. They want to own real estate. They want to create wealth. They want to create a passive lifestyle. Go online. Everyone wants that.
If you can’t sell that and I don’t know what you’re going to do in the note business anyway, we’ll find the property. You don’t even need to buy it. How many notes I bought from other people, nonperformers from these groups. We bought it for four. That was it. I took down probably 160 tax liens. I probably took down all 200 REOs direct from the banks. Those are tax liens and REOs. Those aren’t notes. Why it’s because I’m not going to meddle where everybody else is meddling, fighting all these same notes, paying these ridiculous amounts so I create my own gold. Once you create gold, you own the village.
It’s safe to assume that you didn’t make the bank connections for those 200 REOs off of Facebook?
Other than people coming to me and buying my online training, I don’t think I’ve ever done a deal from Facebook. In all these years, I don’t think I bought nor sold property through Facebook. I’ve had people hit me up, investors and we have a one-on-one relationship, but I’ve never posted property on Facebook and sold it and never bought. I’ve never called in through a full purchase on Facebook. Honestly, even these blast emails out there from everybody, I usually don’t pay attention to them. Unless I have a relationship if you call me up and say, “Dan, I got these three notes. They might be perfect in your area.” I know it’s yours, I probably won’t do it because I’m not going to buy anything unless I do due diligence. I don’t buy on your numbers. If there’s a trust factor if somebody called me up that I trust and said, “This is perfect. This is what you’re looking for and it’s coming to me. I can say yes and no, I want it. Don’t want it, give me a price. I don’t play this whole back and forth. I don’t want the time for due diligence to do that.
Dan, I wouldn’t call you unless I was rock solid.
That’s what I appreciate and that’s why people like you in the industry is what I appreciate. I love what you’re doing because you’re teaching people to be rock solid when they go to somebody else with a deal. You’re not teaching them to be joker brokers out there. You’ll teach them to do it the right way and they’ll be successful. It’s fine to take the slow path.
It’s a slower path. I know some of the people that I’m mentoring. They want quick results. I’m the same way. I want it now. Sometimes the notes you’re not buying are as significant as the notes you are buying. We have a question here from Alex, our veteran. He says, “Dan, what’s your business platform for the election? Are you going to prioritize business or something else?”
What we’re looking to fix, on the business side, the biggest issue there is Dodd-Frank. We love to overturn it. That’s not going to happen, but we’d love to come through and open up the amount of seller finance notes that are allowed to be done within limits. You still have to have your watch high-cost landing, open up the regulations with that so it’s not so overly regulated. In our area, we’re also going to protect tax increases. There’s a huge amount of tax increase going on in the state from property tax to transfer tax, which we’re the highest than the United States to silver tax. We’re doing school safety with all the shootings going on. We’re more on school safety, getting inside the schools and getting to the root of the problem rather than saying it’s guns, we want to fix the actual issue that’s happening. Veterans, we want services obviously for the veterans.
I’m going to pin you down a little on that because when I hear it, my wife and I homeschool our four children. We take a different approach to it. School safety is important. What do you think the real root is? Is it the children’s mental state of mind or what’s your thought on that?
A lot of it has to happen at home. The parents aren’t talking to kids. They see the issues, but they’re not fostering those issues in the beginning. When they notice them, they need to get with the kids and get more counseling involved. It is to take it more serious. Bullying is a huge issue. I’m 150% against old bullying going on. I want to have a whole campaign, not only statewide, nationwide. I’ve talked to the US senator on that one and he’s 100% with me. He needs me to bring it up in the legislature and he’ll pass it through federal. Bullying is a huge issue and it needs to be handled. Kids need to be held responsible for that.
The other thing is the charges. In this state and most states, there’s not enough money to prosecute those vicious crimes. Over 90% of them are being pled down to misdemeanors. That’s a big issue. A lot of it becomes an opiate issue too. I see that nationwide. There are a lot of things that we’re doing and that’s why we have a lot of support, not in the state, but nationwide. We have a lot of donations coming in nationwide. Some of my best donations are coming in nationwide because of what we’re doing, not only in the state, but it helps the federal level as well. I hope that answers your question. I don’t want to go too long into this. In fact, I have made my actual kickoff event. I’m going to the convention. I’m going to be speaking. I have a kickoff event. We’re going to have 100 plus people. I’m hoping to show up there and constituents show up there. It should be a pretty good fundraiser, but we’ll talk more about it at that event.
I have another question, I hope everyone understands how accomplished Dan Zitofsky in all the different facets of real estate and notes. Now he’s running for office and all the speaking and training he’s done over the decades. It’s amazing to hear your path as a broke Dan, young and into doing 600 rehabs. That’s probably a whole other webinar. I have a question for you, Dan, from Debbie Eversole, who’s a dear friend of mine. She’s my realtor here in the Northern Virginia area. I love her because she got me a three-year lease for $2,400 for one of my properties. They’re signing and wiring the money. She says, “For someone who wants to be involved in a passive basis, what percentage return rates should be expected?”
It all depends. You have to back that out as well. It all depends on what your risk level is. Are you looking to be in a high-end area? Are you okay going into a low-end area? A lot of people look at the cash on cash. Nobody looks at depreciation. I don’t know why that’s not being taught. If you take a property, you don’t have depreciation works and most investors should understand it. I’m not an accountant. I’m not a lawyer, but I always tell people to check with your account and your lawyer as well. Cash on cash return, if you could see yourself and it depends if you’re buying it cash, if you are getting a conventional mortgage or if you’re doing seller financing because those will play. If somebody buys $100,000 property cash, they’re going to see a smaller return probably. They’re getting a conventional mortgage. On a cash on cash return, if you’re in the 8% to 12% range for a decent market is probably where you want to be. In your depreciation and debt reduction, you’re probably going to push up to 16 to 18%.
Your investment proposal or your investment service is to help place people in turnkey. Do you also have a fund that you raised to go out and buy new properties for yourself?
We have to commit to a million minimum of about $500,000 a month in purchases in the Midwest area to continue to beat up premier. We are the number one buyer for some tax liens. We’re at about $500,000 every four to six weeks. We have to commit to that. We have some investors that are hitting us with some good amounts of money. We’re going to be raising now for our development deal in Philadelphia. They are pretty good returns on a development deal. If somebody who’s interested, we work on that. We work with accredited investors. It’s all about we want to make sure we’re working with the right people. We want to make sure people understand the business and they were okay with the business. We’re not taking advantage of anybody. It’s doing business the right way. If that doesn’t answer the question, feel free to ever send me over any other questions about returns and stuff like that. It all depends on the area and your level of expectation on, “Are you’re okay with Section 8 or not Section 8 tenants causing issues moving out, not moving out.” I like better quality areas. You still could have issues, but I like to mitigate that risk a little bit better.
If someone wanted to be hands-on, I’m sure that your training provides all the instruction and guidance so they could do it themselves.
It is do it yourself. That’s why it’s online training. If they want me to coach them, it’s a lot more expensive, obviously one-on-one coaching. My online training basically gives them the ability to do it on their own. It’s my business in a box. Everything I do in a box. We don’t hold anything back. Originally, it was done the wrong way. Now it’s all being redone. The whole training is going to be a lot more expensive. We’re going to pull out the portion how to raise private money and make that probably even a little cheaper than it is now, not much. That’s huge. If people know how to raise money, that will change their life. Our business in a box, it’s everything. All my forms, all my marketing material, all my presentations, all they’ve got to do is change the name. They can even see how we do emerging markets, how we present to investors, how we do our investor meetings, all my paperwork, legal docs. I didn’t hold anything back. That was my business in a box.
Do us a favor, if you can post information on for yourself, the training, if someone wants to look into your fund and any other service options that you have. Any final thought you want to leave us with here, Dan?
It’s not a commercial for you, but what you’re doing is whoever they work with, they want to do due diligence on that person. They want to make sure they learned this business the right way. The nuts and bolts, the unsexy of this business, what you’re teaching is the unsexy, the need. I wish that I had you when I got in the note business many years ago to learn. I had to figure this out as I went along. There are a lot of people out there doing training, but you need to learn the unsexy first before we get to the sexy. I love what you’re doing, keep it up and anything I can do for you or your audience and your friends, I’m always available. Maybe one time you and I will have an event together we’ll get to do.
We can work on financial literacy for the children. That’s wonderful. We’re both passionate about that. I wish you success with the election. I know you’ll do a great job. I have confidence in you. You don’t need my confidence. You have plenty of it. There you go, Dan. If you’re in Delaware and what section of Delaware for anybody who’s reading?
I’m in Middletown, Delaware. I’m District Rep 8. I’m set up pretty in with the whole state and on the federal level as well at this point.
Thank you for joining and until next time. God bless.
Thanks. I appreciate it.
About Dan Zitofsky
For well over two decades, I’ve specialized in working with clients to build equity in their wealth portfolios through investments, savings, IRA’s, and 401K’s. Here at Zitofsky Capital Management, we perform extensive due diligence to protect every investment for our investors as well as our lenders.
I’ve closed over 800 fix-and-flips, 650 rental properties, 800 plus doors in multi-family projects and over 1,000 private money and Non Performing Note transactions. I personally coach investors at all levels, offering guidance for turnkey rentals or fix and flip properties, but more importantly how to create “True Passive Wealth.” I’m also a featured speaker at many national gatherings of investors and wealth groups Internationally which is now my true passion bringing real content in a mix of so much smoke in this industry.
One of my specialties is training investors on how to create long term passive wealth for themselves by turning non-performing assets into long term performing assets be “Becoming The Bank”. I‘ve also traveled to multiple events teaching others how to fund their real estate projects by packaging their portfolios in order to present to private lenders. and finally launched our first Online Training Series on “Creating True Passive Wealth”.