Effective Tactics to Profit from Flipping High-Value Properties with Dan Breslin

A lot of times we're doing a deal in one spot and the other one's like 40 miles southeast in a totally different county, etc. So we have a very wide footprint for where we do business.

What I've seen as a good example for that and the impact this housing shortage has been a really good thing for a lot of economically challenged areas.

Welcome to Truly Passive Income. I'm Neil Henderson.

And I'm Clint Harris.

Dan Breslin. Welcome to Truly Passive Income. How are you, sir?

I am fantastic. Thank you for having me on the show.

What's been something that's surprised you recent juul you've learned from your guests?

Man, it's tough to say like a recent juul.

Doing the podcast has been probably more beneficial for me in my business than anyone else, selfishly, because of the amount of forced exploration and research. A guest comes through the booking channels. Not every guest who comes through the booking channels makes the cut for me these days.

I have more bookings than I have slots and whatever that topic their niche happens to be. I do the research, the background. Maybe that's an hour in some cases, maybe that's a few hours.

But a lot of times I'm not, like, entering those businesses and I never would have given them a cursory glance otherwise. And then I have a chance to follow up and really dive into some of those topics on the show.

Yeah, I love that. Same here is like, I always kind of look at it as.

And I didn't say this originally, but, like, who you are right now is the same person you're going to be 10 years from now, the exception of the places you go, the people you meet, the content you consume. And this is just forced connection with people that clearly have had high levels of success. And it.

Ours has benefited me more than I'm sure it's benefited anybody else. But about your business, Diamond Equity Investments, I know you operate in a lot of markets.

Talk to us about what you're doing and what your business model is.

As it stands now, our business is growing. Over time, we've gravitated more toward more expensive properties. I'm not talking about million dollar, $2 million vacation rentals, but going from.

I mean, the market itself, obviously appreciate it, but, you know, in my earlier career, I'm probably doing retail flips that sell as low as 60, 70 grand when they're done, maybe an average of 180 or 200,000. And on the high end, maybe we're talking 250 or 300. And then anything beyond that was my comfort zone.

Now we have a large number of transactions that are probably 450, 500, 600,000 on the retail sales side. And with that comes a little more risk, but also more profit.

So we're kind of evolving toward going after a little bit more quality on the deals that we're going to work on. And we'll go and do work in the neighborhoods where those price points don't exactly line up with that.

But that's probably the business model as it stands now, a little bit quality over quantity. Or maybe quality and quantity would be the ideal world.

So flipping houses is very easy according to hgtv.

Oh, it is, yeah.

Oh, yeah, super. Just put some shiplap up and you're good, you're going to make money.

So there's a lot of people that have tried to flip houses, myself included, with some success, limited success, usually after a few stumbles. There's a lot of people that are out there doing it and having success.

There's not that many people that are doing it at scale across multiple markets. So from top to bottom, talk to me about, like, your acquisitions, like, how are you getting the properties? Are you a wholesaler?

And then how are you managing things like construction? Do you have. I know you got markets that you love. Do you have teams in that market? Because I'm sure you're not paying retail costs for the building.

You're probably not paying retail costs for the construction or for the agency on the back end. What does that look like?

Yeah, you mean a real estate agency selling it, Right? Okay, yeah. So great question. I have an executive team in place, and these people are like my partners and have been for a really long time.

So there's an executive who runs our Chicago office. Same for the Philadelphia office and same for the Atlanta office. And then I have a executive in training.

We'll call him who's running our virtual strategy.

But I think post Covid, the world got a little more accustomed to doing things at a distance virtually over the Internet. Right.

We saw people leasing storage spaces without ever seeing them, people leasing apartments, people buying houses for themselves to live in without ever having stepped foot in the state until they show up with the moving van. Right, nice. So that's where the virtual direction has come in. But as far as, you know, getting to scale, obviously we have this team.

Because clearly the people doing that are making the most money. Right?

And so I always thought that was kind of the goal you had to get to this place where you're doing these humongous rehabs to make humongous profits. I would not get involved in a project like that. I'll pass on that one. Maybe I'll sell it to another investor to take on that project.

For us, the niche has come in a matched level of renovation that's required for that property to be acceptable to somebody.

And I think that's where the HGTV flipper mentality might get people in trouble is they're going to go in and try to gut out, you know, the first scene is the sledgehammer in the kitchen cabinets.

So it's like the husband and wife buys a house and then the wife's busting up the cabinets and she's saying maybe those cabinets should have been painted or the doors just simply replaced and what was there was left and we didn't take out the wal, et cetera. So finding creative ways to stitch the property together in a lower renovation method is important for getting to scale.

That said, there's some properties that are hammered and are so far gone, you just better have your prices. Right. And it's going to require that, you know, full top level renovation in order to get to your profit. Right.

Those houses need to be completely redeveloped. But there's a lot of opportunity for the middle ground creative renovation because of the low inventory market.

If we were in a high inventory market like 20, 10, 11, 12, 13, 14, you had to have the most superior product out there because the supply and the choices that were available were so abundant. You had to differentiate through quality.

All of that said, there is a place in particular neighborhoods throughout the country where high end, expensive renovation will actually pull a higher end price. That doesn't really make sense on a price per square foot to anything that was comped out there.

However, right now you're going to run into appraisal risk with that kind of a strategy. I know some people doing that very well. Maybe they do three, four deals a year and they're going to make $200,000 per deal on them.

They have a small team to execute and maybe they're netting, you know, 400 grand after they pay their team the other three, 400 grand to kind of keep that moving. That's not my niche. I'm not that artistic developer, flipper guy or gal that's out there. And for us it's a matter of volume.

We do a lot of advertising, big brand type stuff.

TV, radio, direct mail, the Google pay per clicks, YouTube, Facebook, like you know how you advertise to get leads, that's how you have to kind of run the business.

And I think our team here at Diamond Equity does a decent job at generating those leads and kind of keeping those opportunities coming in front of us.

So you source the deals in house, you have your own sort of wholesaling team, acquisition team internally?

We do, yeah, we do. And what doesn't fit for us to do the renovation, we're going to sell that out to other investors in the market.

I've got a liquidity event coming from selling a property that I've got coming up soon. And I'm going to have a period of time where I'm just sitting on the cash and had decided what to do in the short term.

And the thing I chose to do is put it into a debt fund specifically for flipping houses. And originally I was like flipping houses right now, I don't know how I feel about that. And then I got thinking about it more and more.

I was like, well, I'm sure that finding the deal is probably harder than it used to be and picking the right ones unless you have in house acquisition.

But the reality is where we are in terms of a housing shortage across the country, it's going to keep those prices propped up at the end of the day I was like, yeah, that's probably exactly. If I'm putting this money somewhere for like nine months to a year, that's probably exactly where it needs to be.

Because they're going to have a very low.

There's going to be a few people out there that don't know what they're doing, but for the most part you're dealing with people that are professional operators. They're going to continue to have a lot of success just because of the shortage that we have in the housing market.

I'd say this a lot of the smaller house flippers a lot of times figure out it's not the strategy for them and they move on to other things. Or a lot of people realize at the end of the day, if you're flipping one house or even just a couple houses, you're trading time for money, right?

And the day that you stop working is the day that you stop getting paid. You're going to flip a house, you're going to make a good check. If you don't go do another one, you're done.

So I'm curious as to your personal strategy as a real estate investor.

Now you're a real estate investor for a living outside of like, are you all in on flipping and this is what you're doing because you got the right team and you built it out and you love it?

Or are there other real estate investments that you look at personally that are more passive because it's another place to park capital that's, you know, multifamily or anything else like that? Or are you all in on flipping?

That's a great question. And I am certainly stuck on the treadmill of the real estate machine at this point.

I know this is my purpose in life and I'm blessed to have this team. And creating the opportunity and enlarging the opportunity for the team is my motivation.

Not net worth, not another deal and another dollar and another investment.

And for me, I'm not like trying to get out of, quote unquote, the rat race and be free, but I do put the money that I have into what I consider to be, in a sense, savings vehicles. And I'm always looking for more of the tax efficient stuff. So we're making money flipping houses. I don't necessarily need the return to happen today.

Now someone who's 68 years old and they're putting the retirement to work, they're going to need 8, 9, 10, 12% income is sort of their main motivation.

For me, I'm looking to have some tax Advantage Put my money into projects I believe in that are making an impact and hopefully that risk bears out two, three, four, five years from now. These are development deals similar to the kind of self storage, somewhat large scale redevelopments that you guys do. I like those type of assets.

I also put my money into a lot of short term hard money loans for the flips that we do. You know, two points, 10% interest. I pay that to my lenders.

My dad has money in deals, ironically not with my company or anyone associated with me at the time. Time we have, you know, partners, family, friends, et cetera, people just in our network and I participate in those deals individually too.

So they might run 3, 4, 5, 6 months, turn around the money and it's better than the four and a half percent interest that the money markets happen to be producing at the time.

So high volume house flipping, what define that for us. How many projects are you guys executing on a month?

We probably have what like a deal every day of the week that goes to settlement and we make some money on it.

Yeah, you said 300 last year and 60 to 70 so far this year.

Yeah, maybe it's a little higher than 60 or so. Let me see here, 65. And this is like our slow season coming through the winter.

So usually the bulk of our closings for the year are going to happen more in the second half and even the last quarter just as we're kind of like winding up spring market activity that started now and we're coming out of the winter months. So we're on like maybe a 60 or 90 day closing cycle by the time we get a contract and that's the earlier part of the year.

So I think we're about on par dollar wise for the year.

I don't know where we're at volume wise as far as number of transactions for the year last year, but in our pipeline we have 120 transactions something like that at the moment.

So this is, you know, 300 plus homes per year that you're not only giving people a place to live and a place to raise their family, but you're also affecting the equity of their properties around there.

You're having a big enough footprint at that point that is changing values on a neighborhood basis and certainly within the community of people that are your buyers. One of the things that you talk about a lot is the community impact and it's part of your business philosophy.

So specifically focusing on the positive impacts that you're having on the neighborhoods and providing housing. Expound on that a little Bit more. I want to hear kind of what your thought process and making sure that that's a big part of the business strategy.

Yeah, 100%. And we're not like, actually moving the market with our volume. We're probably like 100 transactions a year in Chicago, Atlanta and Philadelphia each.

I don't know. I've checked transaction volume numbers and like, 100's not. We're not like, moving the needle there. And a lot of times it's.

We're doing a deal in one spot and the other one's like 40 miles southeast in a totally different county, etc. So we have a very wide footprint for where we do business. But it's interesting what I've seen as a good example for that.

And the impact is this housing shortage has been a really good thing for a lot of economically challenged areas, and I think that's throughout the United States. I know for a fact that's the case in places like the south suburbs of Chicago.

So outside of the city, into the south was tremendously impacted in that last go around, and those prices went very low. We see the same kind of thing in south side of Chicago. There is a lot of work for flippers in the south side of Chicago.

And because of that housing shortage, you know, the prices moved up enough to justify the risk of somebody building out $125,000 in construction, because they could get that on the exit. So I think it's a really good thing that these neighborhoods are kind of becoming reinvigorated.

Like, we have a housing shortage, but a lot of that's probably shown up because people want to live in this one specific area. So maybe those people are having to compromise a bit.

And in a different school district and in a different area, a little bit further from the job they want. I mean, there are houses available maybe just not right exactly where they want them all the time.

And if they do want them in that specific area, zip code, et cetera, they're going to have to pay up, you know, the premium prices that are in the market. So the impact of the housing shortage has been a really good thing to reignite the investment in these challenged areas.

If anyone's familiar, it's by the belt line and that area. I remember walking down one of these streets and I don't think there was anyone living in any of the houses.

And none of the houses look like they could be brought back to life. They were all frame construction, overgrown. I'm like, man, these look like they're abandoned out in the woods now.

That entire block, I'd be surprised. There might be like one or two houses that are distressed.

And every single other house on that block is like back to life and selling for 3 to $400,000. That's a good thing. America needs that, right?

When did you first start flipping houses?

2006 is when I did my first deal.

Okay, you've been through profound shifts in the market both up and down. Low interest rate environments, high interest rate environments.

That said, I think that's probably faulty or it's probably 50, 50. There's probably a Jekyll and Hyde on the market's too high and I can't believe the prices.

And this is actually where the market's supposed to be because the inflation of the dollar from.06 to 24 is what it is. And we're probably not too, too far high up on the prices. And this is kind of the price of real estate.

I mean interest rates tick down a little bit and they become a little more affordable. So maybe these prices can maintain would be like one aspect, I guess of it.

And I'm invited to speak at a real estate networking event. And my topic was the real estate market is not going to crash, it's going to continue up.

So Covid was like on the horizon and I'd like heard about it and I was afraid to shake people's Hands that night at the networking event. But the shutdowns hadn't hit. The irony was I was eating my words a little bit.

My feeling was it's supposed to be higher than it is right now, and it should be significantly higher than it was. The market did briefly crash for that 90 day period and then all hell broke loose.

The interest rates dropped and, you know, I was vindicated from spe speaking. My opinion the night before the shutdowns happened pretty much. So maybe we're right where we're supposed to be at.

And like, one of the other things you also would consider as you look at the market is a lot of these houses that people paid a lot more money for. Back to my Chicago Southside example, the houses were built with three bedrooms and one bath in an attic.

And a guy or gal comes in and puts $125, $135,000 into that three bed, one bath. And suddenly that thing is like a four, two and a half when they're done. So that is a superior house than what was originally built.

I mean, maybe the brick construction was a little more desirable than some of the frame construction stuff now. But again, larger rooms, larger layout, larger staircase, the technology's improve and we're not doing anything like smart homes.

But you know, there are smart homes that are out here, you know, fully loaded with cameras and app controlled light switches and automatic blinds. So they probably should cost a little bit more, right?

I don't know if that's enough to base your next investment on, but that's just my gut feel on how things have changed.

Do you think, in your opinion, to have been through so many ups and downs that, you know, the right person with the right deal flow can keep flipping in any market? Or are there periods of time where you're.

I mean, obviously there was a period of time where you were probably forced onto the sidelines for a brief period at some level. But you know, for the most part, you guys feel like you're flipping in pretty much any environment instead of trying to time the Market.

Yeah. And the thing is, real estate moves generally somewhat slow.

So the ones that I'm worried about are ones I've owned for two years now and I still do own some for two, two and a half years and the construction's not done. We made bad decision, hired a bad contractor. Things went against us. When that happens, you're going to get in trouble. Hopefully we don't.

Hopefully we bail out and lose 50, 60, 80 grand and keep it moving. Hopefully it's not 200 grand that we're going to lose, but 10% on 300, 400,000. You know, it's 40 grand a year.

So there are bad deals you're going to get into.

You wouldn't want to hold through that cycle. So I think the name of the game is money loves speed in a lot of instances.

So if you can execute quickly on the project and then price right and not be greedy with your price drops and getting out of the house, you can get in and out. Before the movement in the market is too dramatic would be like one way of saying you're going to beat the timing in the market.

In a sense, we're in unusual times and it's very difficult to say, you know, a lot of people going, well, you know, like you're saying, it feels like homes are overvalued. I mean, it's clearly housing costs are too expensive. I think that goes without saying.

I think you've got even middle class people who are doing fairly well who are screaming about housing costs. That's usually a sign that housing costs are probably a little too high.

A lot of that has to do with just the inflationary pressure of COVID With all that money hitting the market, the low interest rates and also, as you said, there's just low supply of housing. They haven't built enough housing.

They've got, you know, if you look at the data, all those builders that got wiped out in the Great Recession never came back and we are still short housing in most markets.

You know, and you hinted at this, is that okay, even if prices start to tick down a little bit, as soon as the Fed starts to dial back the interest rates, all those buyers are going to reenter the market.

All those sellers who are sitting on homes, you know, that are worried about moving and not being able to buy another place, now suddenly they potentially reenter the market and now you've got the housing costs shooting up again. I don't have a crystal ball. I don't know what it's going to do. And I don't know if you do either.

Yeah.

As I peer into the crystal ball or the diamond.

Yeah, yeah.

There you go. Right? Nice polished diamonds. One of the interesting things that I guess correlates with the last real estate crash was the demographic wave.

So at that time, the people who are of age to be a first time home buyer, they were at the lowest that they were in any recent history. So you had like, the chart was really low where people were entering the market to buy a new home.

At the same time, the economy went bad and lots of layoffs happened and people who were coming out of college couldn't get the jobs that they normally might have gotten in a better environment. So they're like, not only is there a low number, but they're also like discounted even lower because of the economic timing.

At that same time, we had the people who were like, I don't know, 55 to 65, the kids moved out, they're living in apartments, they're at college. And this cohort now didn't need this 3,500 square foot house, five bedrooms, three baths.

So they went to try to like put that on the market at the same time. So, like underwriting shenanigans of the mortgage meltdown aside, we had the demographics as part of that storm, which became like a super event.

But that part of the crash is rarely ever acknowledged and talked about. So now we have that cohort who was in the small end and the first time homebuyers, who eventually became a large number. Right.

The millennials kind of started to come of age and they were burned from looking at their parents. Houses drop in value. So they held off buying. Oh, it's never going to go up. It's a terrible investment. Blah, blah, blah.

All of them came online during COVID And so now we have this like big wave of homebuyers kind of coming into the market to potentially be some of that demand, to keep it propped up.

So I think there's a lot of cases similar to the one you just mentioned, Neil, where, you know, there's things that potentially could keep the market prices high. The thing that is really hard to put your finger on is the market psychology.

And so what Happened during COVID is Gamestock exploded and everyone's watching bitcoin go up in price. And so all of a sudden people are seeing these over exuberant returns from investment.

And now everyone has this investor hat they put on and their psychology of, oh, we want to buy assets now, we want to hang on to them. That market psychology is strong. And we assume it's still strong now, but in a market cycle that declines.

And it's looking like the dead cat bounce. We're like kind of there and it could fall off the cliff and be not great for the next year. Two years, three years, we'll see.

Maybe it's cyclical and it hopefully hovers flat. Would make a lot of us happy if that were the case. But the thing about a declining market stage is that the psychology changes.

So regardless of whether the interest rates are low or the people are old enough to buy the house, if everyone is watching the values go down and the psychology turns the corner, now you're looking at a soft market for a year, two years, three years, five years, whatever the case is. And if it's anything like the last downturn, we took six years to hit the market bottom.

So we were still doing deals and kind of like flipping in and out of a handful of stuff. Really small scale at the time, but you could get in and get out in the three months.

But the days like for me in my career, it was like a huge shocker. And I was probably in the business 10 years before. I had multiple offer situations. Oh my God, we got an above asking price offer. This is amazing.

I couldn't believe my eyes. And there was like conspiracy theory type comments floating around the industry.

Well, the Fed told the appraisers to rubber stamp all the appraisers and push them through. I'm like, if anyone's the criminal out Here in the market in 21 and 22, it's the appraiser for validating all these values. Left, right.

This week alone, I have two in the last 30 days to the tune of $50,000 on a $300,000 purchase. And I want to say 70 to $80,000 on a $500,000 purchase are two appraisal chops that we recently received. So I guess theory carries on.

And the Fed told them to start chopping the. Not that there's any truth to that, I don't know, there may or may not be.

But you know, the appraisers are not rubber stamping the values where we are at this time. So it's a more normalized market.

I mean, we're still seeing some of the bidding war activity, although people's psychology and willingness to go way above the ask price is almost non existent. So we used to go from 500 to 550 or 575 on a bidding war.

Maybe you go from 500 to 505 or 510 and then the appraiser is now chopping it down and suddenly they want us to go to settlement at 435,000, let's say as an example. So appraisers and market chops where we're at.

Occupational hazard.

Well, Dan, this has been an eye opening conversation over all of our sakes that the market, if it corrects, it's not too big of a correction that we continue to just sort of plug along and things go well. But this has been a great conversation.

If any of our listeners want to find out more about you, maybe chat with you, what would be the best way for them to reach out?

Yeah, there's a form at my podcast website. It's reidiamonds.com you can check out all the podcast episodes there and kind of reach out, say hello, check it out.

That's been the progression of my career through those guests. And the funny thing like Clint was saying, the host has to show up and listen to every podcast interview. And it's pretty rare that someone does that.

And I don't blame them. Right. I'm not like wishing my listeners listen to all 247 episodes that I did.

But if you wanted to do that, you know, there's their step copy process of along the way you could kind of pick up what I picked up to build the company to where we're at today.

I love it. Well, Dan, listen, thanks so much. Appreciate your time.

I love the fact that you're doing what you do because you've got the right team in place and you know that this is your purpose and that's why you're doing it. And this is not a stepping stone onto something else. Like this is what you're doing.

You're clearly doing it very well, taking a lot of people along with you for the ride and appreciate you sharing that knowledge with us today.

Yeah, thanks. Really appreciate the feedback and the opportunity to share with you our listeners here today. Neil, Clint, it's been great.

Thanks Dan.

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