JF2296: Bad Start but Strong Finish With John Dessauer

John Dessauer Real Estate Background:

 

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“The best benefit for having multiple companies is having multiple sources of income for when unfortunate events happen” – John Dessauer

TRANSCRIPTION

Theo Hicks: Hello Best Ever listeners and welcome to the best real estate investing advice ever show. I’m Theo Hicks and today we’ll be speaking with John Dessauer. John, how are you doing today?

John Dessauer: I’m good, Theo. How are you?

Theo Hicks: I am well, thanks for asking. And thank you for joining us, looking forward to our conversation. John’s background – he’s a full-time entrepreneur and has over 22 years of real estate investing experience. His current portfolio is over two million square feet in rentals and retail. He is based in Chicago and you can say hi to him at his website, which is johndessauer.com. So John, do you mind telling us some more about your background and what you’re focused on today?

John Dessauer: Yeah. So thanks for the interview and the introduction. I guess my background started growing up here in Chicago, just outside now, but up until the point I left for college I had always grew up in apartment buildings, so I had a unique perspective of that business from the inside looking out, rather than — a lot of people that get involved in real estate investing, they learn it from the outside looking in.

So after I graduated from college and I got out into the workforce and realized that the corporate world wasn’t for me, I kind of went back to my roots and said “I liked it when the rent guy would come once a month and pick up that rent check.” That was something that I’ll never forget, around 10 years old I’d have that happen all the time. I was like “Ma, why is this guy here again?” “He’s here to collect the rent.” But yet I’d see my mom go to her nine to five, or nine to nine really, to make that rent check happen. So I never forgot that. 27 years ago, when I started this, I said “I want to be the rent guy. I love my mom, but I want to be the rent guy” at that point. So I started out about 20-some years ago, at 22, and I haven’t looked back since.

Theo Hicks: Perfect. So maybe walk us through how you started. You mentioned that you wanted to be a real estate investor since you were a kid. You said you went to school, and then came back to this area. Maybe walk us through how did you get into your first deal.

John Dessauer: So what was interesting about the whole thing was when I first thought about being a real estate investor, you don’t think about all the dynamics that are involved in actually doing it, from financing, to property management, and all the things that you’ve got to do. What you think about is the luxuries and the ton of money that you’re going to make, right? That may not happen, by the way, but that’s what you think about.

So my first deal was a duplex; it was a street that I was interested in buying real estate on, and lo and behold I was driving by one day and I see the realtor pounding the “for sale” sign in the front yard, and I thought “Hey, that’s something I would be interested in buying.” So I pulled over, talked to the real estate agent… And what was interesting about that first deal, which I made a terrible mistake on, by the way, is I was way over-leveraged on the deal, because I bought the thing with 80% bank financing, and at that time I was able to use 20% seller financing. So it presented a situation where I came to closing with zero money out of my pocket. So I thought “Man, I’m the next real estate mogul. I’m unstoppable now, if this is how every deal goes.” But what I realized pretty quickly within 30 to 45 days is I was over-leveraged. I not only had a mortgage, but I had the operational expenses of the duplex, and I had an empty unit on one of the units, and the other unit – the gentleman was paying about $300 in a $700 market. So I had all this money going out, but not a lot of money coming in.

So that was my first deal. I learned pretty quickly that really kind to understand the financial dynamics of the deal and how important that is, and even more importantly, just because you can buy a deal with no money down, or even buying it creatively – because there’s a lot of that around today – doesn’t mean you should. So those are my lessons there.

Theo Hicks: That was a great lesson. So let’s flash forward to now… So what’s your business model today?

John Dessauer: Yeah, good question. What’s interesting, I studied a lot of guys from the industrial revolution. I don’t know what it was, but Chicago was a town that had a lot of these guys in it; Pullman, and Marshall Field, and some of these other guys… But the guy that I drew a lot of interest in was not from Chicago, he’s from Pittsburgh, Andrew Carnegie. And what I realized about him was his original business was not steel, his original business was a telegraph business. And he started on the telegraph business and got to steel because they would put telegraph lines along railroads. So he got interested and started buying railroads so he could place his telegraph lines a little bit better and save money by doing that. And the biggest expense of a railroad is steel… And the rest was history.

So by no means am I saying I’m in Andrew Carnegie but it’s kind of the same thing in that all of my business today has been related to that initial business that I got into, which was real estate investing. So today we have a real estate investing company, we’ve got a full real estate brokerage, so we have real estate agents, both residential and commercial, we do asset management with that, we are managing assets for ourselves and other people as well, apartment buildings, retail, office buildings, things like that… And then we have a marketing company, too. And one of the things that I have learned in my career is marketing in sales are so important in the real estate investing world. That’s one of the things that I think people don’t really think about… But that’s kind of where our business model is; it falls into our investment company, our brokerage, our asset management company, or our marketing company, and all of those are kind of related, they have a symbiotic relationship with each other… And that’s kind of our model, we stay with that core real estate theme.

Theo Hicks: Could you walk us through the progression of when those were brought on and then kind of how it happened? Obviously, it started with investing in real estate. So you said you’ve got an investing company, the brokerage, the asset management company… The asset management — is that the property management company?

John Dessauer: Yeah. Yup. Property management.

Theo Hicks: Okay. So brokerage, asset management, marketing company. In what order did you bring those on, and when, and why?

John Dessauer: Obviously, the investment company started first, and that was basically at first buying and selling all types of real estate, everything from single-family houses up to 350-unit apartment complex kind of thing. So the very next thing that came was the brokerage. And the reason that that came is I would sit at closings as the owner-operator, I was buying a hundred-unit apartment complex, and I’d sit at the closing and I would see the work that the agent that represented me and the agent that represented the seller in the deal, and no offense what they were doing, but I saw the checks they were getting and I thought “Wow, that’s pretty amazing for them to be partaking in this deal where I’m bringing the capital, the equity, and the debt to the deal, and they’re taking a chunk.” Now, granted, they found me as the seller – or sometimes the buyer in that case – but I did like that process, so I thought it would be interesting to get a licensed and create a  firm.

Now we’re in four states – Illinois,  Indiana, North Carolina, and Florida – and we buy and sell a lot of real estate through that. As an investor myself it helps, because I do get an inside look on real estate as it comes through, but also I am able to participate my real estate commission in my deals. So I start saving 3% to 6% off the top before I even get rolling with that.

The next was the asset management firm. We were probably at one time one of the fastest-growing firms in the south part of Chicago, and the reason for that was we were acquiring a lot of assets… And as you know, Theo, that management is probably one of the most important aspects of that; for you to have a successful real estate investment it’s got to be successfully managed. So we started doing that for ourselves and other people as well, so that became an income string to us.

And then finally the marketing side, and I think I was mentioning this before… One of the biggest things that I think people underestimate when they want to become a real estate investor is they underestimate the skillset of sales and they underestimate the skillset of marketing. So we created the marketing to get leads for our deals, and we also do marketing in other areas, but that was the real premise initially for that.

Theo Hicks: Okay, so you kind of mentioned where you got this idea (from Andrew Carnegie) of starting your original business, and then from there seeing what your expenses are and rather than paying those, basically starting that company or buying a company that does that. Is it possible to do too much? Because there are 20 different ways you’re paying money; how do you know when you should stop? Should you bring everything in-house? Like contractors, mortgages, financing… How did you know when to stop, or how did you know which one is to bring in? Not necessarily in what order, but… I know you kind of  explained why you picked these particular ones, but just a larger level… If I’m this investor right now, should I base it off of what I like, what I’m good at, maybe when I’m spending the most money on, based off my market? What type of things should I be thinking about?

John Dessauer: I think initially — and by the way, I don’t want to sound cliché, that is a really good question for an entrepreneur, because one of the dangers is of bringing on too much, and taking in too much. But the idea of where I was going with that was I would look at where we were spending money, and I would look at where I didn’t have a lot of control.

So let’s take property management, for instance – we were spending money on a property management firm or third party firm, but yet I didn’t have necessarily direct control in that firm. And that was a real sensitive thing for a real state that we were buying, because a lot of times we were buying assets that were assets that needed a value-add to it. So we would come in, do a little renovation, increase the rents, lower the expenses, and that really takes an experienced manager. Initially, I didn’t have the time to educate some of those property managers, so I thought we would shorten that curve and create that ourselves. Now, that is a little more difficult, and we do need to bring on some people for that, but you’re either going to outsource the property management or asset management to a third-party firm, or you’re going to outsource it to a firm that you own, that you have employees too. And for us, that was a decision that we made, and 22 years later it was probably the best one.

Theo Hicks: So you’re getting to my next question, which is – so I’ve got my real estate investment company I’m in charge of, and I guess technically the COO, too. So you said the first company that you started was the brokerage. So here walk me through specifically for that, or just kind of in general… Am I then the CEO of that company, too? Or am I hiring someone to run that company, and then trusting the company to this individual? And if so, how does that work? How do I pick someone? Does that make sense?

John Dessauer: Yeah. So for us, it was interesting in that my wife – I know she’s better looking than me, but she’s probably smarter than me as well. So as a married couple, I’ve got a little bit of an advantage over somebody that’s starting off on their own. So we have two people, type-A personalities, instead of just one person. So when you have a couple of different entities, number one, there’s a synergy that goes on between all of them. And there are some tax advantages in different things that you can do as well through having multiple companies like that.

The best benefit of having multiple companies is you have the ability to have multiple streams of income. And a good example of why that’s important is March of 2020. When COVID hit, a lot of things shut down, and a lot of income stream shut down for a lot of different people. And while it was unfortunate, I think one of the things that I’ve realized over my twenty-some years of doing this is that always happens. It’s COVID today, or it’s 9/11 yesterday, or it’s the great recession, or whatever it is, it always happens, and it comes in cycles. So one of the things that we’ve realized with the way that we are set up is when an income stream shuts down, another one is there, or turns on. So for us, that’s been a real blessing.

Let me get back to your question on structure; the structure can happen really any way that you need to see fit with that. What I would suggest is don’t overburden yourself and take on too much where you’re ineffective at all things. Only taken on is much you as you can really kind of handle, and you’re going to know that for yourself, your listeners are going to know that for themselves. I knew for me that I was able to take on a role on the brokerage and on the asset management side, because we were already doing it. I was already taking that responsibility. So I had a little experience there. If I didn’t have any experience with that, I would probably looked or lean on some other people to bring in to kind of run that show, if you’re that big. A lot of times you are starting on small and you can’t do that.

And that’s probably the third thing I would mention, is instead of bringing on all these people and creating all these entities and all this workload, make sure there’s a reason for it, make sure there’s a journey for it. Ask yourself, number, one, why you’re doing it, how is this going to make you money or save you money, save you time rather than spending time… That’s number one.

And then number two, make sure that you are growing financially in a way that you can kind of bring on that. There’s no sense in creating all of these things if financially it’s not in the cards yet. So that might be out of your 18-month plan. That might be your three to five-year plan, but not your 18-month plan. Your 18-month plan is to get to a certain revenue or income scenario, and then make the decision once you’re there what we do next, whether it’s a brokerage, and asset management firm, marketing whatever that is.

Theo Hicks: Perfect, John. Alright, what is your best real estate investing advice ever?

John Dessauer: My best real estate investing advice is there’s a lot of places that you can go and spend a lot of money to get educated. For me, the best education was some of the mistakes that I made early on. And I’m not saying not to get an education because I do think there’s a definite spot for that, and bringing on a mentor or a coach and things like that is a definite help. I wouldn’t be where I am today without that. But what I would say too is don’t be afraid to take a little action. If you’ve got a duplex, call that agent. If you’ve got a six-unit building or a retail center or office building, call that agent, start talking to them, start getting information.

So this is the advice part, surround yourself with people that are doing it now in any way that you can. Either go to their meetings, take them to lunch, do a deal with them, whatever it takes, but surround yourself with the people doing the things that you want to do, and all of that would rub off on you.

Theo Hicks: Perfect. Alright, John, are you ready for the Best Ever lightning round?

John Dessauer: I’m ready.

Theo Hicks: Perfect. First, a quick word from our sponsor.

Break: [00:18:34] – [00:19:24]

Theo Hicks: Okay John, what is the Best Ever book you’ve recently read?

John Dessauer: I read a lot. The Best Ever book that I have read recently is called Spin Selling by Neil Rackham. And it’s interesting, and I was mentioning this earlier – as a real estate investor I think we don’t focus on how important sales is to the real estate investor, where you’re selling that agent, you’re selling that tenant on paying you rent on time, or you’re selling a contractor to get the job done in the right amount of time, at the right cost. You’re always selling. So for me, that was a really impactful book on how to organize your sales process. So Spin Selling by Neil Rackham.

Theo Hicks: If your business were to collapse today, what would you do next?

John Dessauer: That’s an interesting question. I would probably work — I would go right back and work on an advantage we have today that I didn’t have when I started, and that’s technology. And what I mean by that is, for instance, the way that we find our leads today is purely tech-based, and we do that by… Instead of searching for a property, instead of searching for a person, like a real estate agent, we search for problems. So problems in real estate – when there’s a piece of real estate for sale, there’s always a problem to solve. If I can get there before that owner says “I need to reach out to a professional”, I’ve got a leg up, whether it’s pricing, or deal structure, things like that. So that’s what I would do, I’d go right to my tech source for that, and we would start down the marketing way like that. I know without a doubt if it failed today I would be back up in no time.

Theo Hicks: What is the Best Ever deal that you’ve done?

John Dessauer: I would say — I’ve done a lot of good deals, I’ve done some deals that weren’t so good; I’m sure you may be asking that, too. But one of the best deals that I did was I bought a property in Lafayette, Indiana, and I bought it for 3.15 million bucks. So within 18 months, I turned that into 5.4 million. The way that I did that was by a technique that I worked a lot on, I call it “divide and conquer”. I buy at wholesale and then I piecemeal it off and sell it retail, and I can drastically change the value of the real estate in a very quick way by doing that. So I would say that was one of the better ones.

Theo Hicks: Well, you were leading me, you know exactly where I’m going next – what’s the deal that you’ve lost  money on? Give me the most money, or just the biggest headache type deal… And then what lesson did you learn?

John Dessauer: So everybody likes to talk about their wins right? They don’t want to talk about their losses. But I think in your losses is where you learn more.

I bought a 48 unit apartment building, it was made up of two twenty-four unit buildings. And the way I bought it was I had a contact that was a real estate broker at a national firm, a big firm, and he said “Hey, I’ve kind of got this pocket listing that if you want to buy, it’s yours. I think there’s some upside here. It’s been managed improperly.” So I looked at it, I had the equity to buy the two buildings at least, so I went for it. And the lesson that I learned was bad management sometimes leaves a scar. And what I mean by that is when you’ve got a single-family house that has bad management, you can change that pretty quickly. When you’ve got a 48-unit building – even though there are two buildings… When you’ve got a 48-unit that you’re buying, of bad management, it really does take a longer time to get that straightened out. And my fault was my ego got in the way and I said “Hey, I’m John Dessauer. I’m going to get back in there and I’m going to change this around in 6 months. I’m going to have a performing asset.” Well, that didn’t happen. I ended up selling the building after a year and a half and losing money on that. But that was a lesson learned, and I haven’t done that since.

Theo Hicks: What is the Best Ever way you like to give back?

John Dessauer: We do a lot of things. We’ve been involved a lot with the country of Haiti. Haiti is a couple of hours off of the US coastline of Florida, and it’s really a forgotten about country; they’re in a really really challenged economic scenario for most of the country. The government is a little bit in chaos. They don’t govern the best there, let’s just say that, for the people.

So that’s always been a focus of mine… I was on a board of directors for a foundation that we’ve built 23, actually 24 sustainable villages down there. So that’s always been something that’s been on our radar and something that we’ve participated in over the last, say, 10 to 15 years.

Theo Hicks: And then lastly, what is the Best Ever place to reach you?

John Dessauer: You can reach me at johndessauer.com, that’s probably the best way. I’ve written some books on real estate investing; one in particular I think your listeners and watchers would be interested in is the one called Apartment Confidential, where I start to talk about some of the strategies that I’ve used, like the one property with my biggest upside [unintelligible [00:24:22].22] so I used that strategy in that book. But that would be the best place to find me, johndessauer.com.

Theo Hicks: Awesome, John. Thanks for joining us and giving us your Best Ever advice. Some of my big takeaways – your first deal, you talked about that over leveraging and these creative financing strategies… Even if you can do that legally or the seller is willing to do it, it doesn’t necessarily mean that you should always do it. You gave the example of your first deal being zero money down, but that also increases your monthly outgoing payments, and the property couldn’t support those payments… But obviously, lesson learned.

You talked about your business model, which I really liked. I had an interview with someone a few weeks ago who does something kind of similar… So you have your initial business, and then you look at things that you’re spending money on and then things that you don’t have a lot of control in, and then rather than continuing to use that third-party, you bring it in-house, and you either create your own company, which is what you did, or [unintelligible [25:22] just bought an existing company that did that, so bought asset management companies, things like that, and just took them over. And so the benefits are synergy between all those businesses, there’s tax advantages, and then obviously, you are able to reduce your risks if something bad were to happen, because you have these multiple income streams that are hitting the deal from all different angles. And you kind of walk through during your journey when you brought each of those on.

So it started off with obviously an investment company, next was the brokerage because you saw the money that they are making for not really doing that much, or at least that much as you were doing… And then next was the property management company, because that’s was more of a control issue. And you did the marketing, because marketing is something that people underestimate, the skillset of sales and marketing; that’s how you were able to get your leads.

And you talked about the mindset of when to bring them on, making sure not bringing on too much, not overburdening yourself, making sure you can handle it from a time perspective; if that’s something you’re good at and experienced at you can bring it on, if not consider, finding someone else and bringing them on… And then making sure you know exactly why you’re bringing this type of thing in-house, and making sure you’re at the point financially that you can bring it in.

And then lastly, your Best Ever advice was that obviously education is important, book education, but you’re going to learn a lot more by the mistakes that you make. So just kind of surround yourself with people that are at where you want to be, so that if you do make those mistakes, you’ve got someone to help you quickly resolve those… But even also leverage that experience to maybe increase your confidence to get out there and take some action. John, I really appreciate it, thanks again for joining us.

John Dessauer: You got it.

Theo Hicks: Best Ever listeners as always, thank you for listening. Have a Best Ever day and we’ll talk to you tomorrow.

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