Throwing a Dart: Dealing Real Estate From Hong Kong to Omaha

[David Chan]

For 6 years, I've kept my thoughts to myself. Part of my still seeking affirmation about my "project", and part of me thinking: "Wow. What the %!#% are you doing...", maybe some things are best left silently unwritten.

But I suppose as you grow older and more comfortable in your own skin, you change. And thus, sitting here at the office on an extended weekend at 2:30 AM... I am writing. Most of this piece probably won't focus too much on specific deals, but rather, on my experience throughout this (ad)venture, starting out as a reckless and aimless 22 year old. 

But perhaps it is the thoughts and experience that matters the most; and maybe more so to hear the feedback or new ideas... or maybe just simply hear the voices outside the one in my head.

I hope this is the right section to post this under, and I sure hope BP is the right place to finally share my story:

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2008: While at UT Austin, the world crashed and burned. Feeling that my way into Goldman Sachs or MS was no longer viable, I decided to drop out of college instead of paying $35k a year for a piece of paper, and decided to take a trip overseas to visit family. I already had built a small tech based startup since 2004, I know I can do things, and as much shame or regret dropping out might cause: its a risk I had to take. 

... And that one risk, is the same one that landed me a job with a local investment bank when I penned a letter directly to the chairman of the board ripping apart his old school view on education after an interview that aired on public television.

April 2010: After rising thru the ranks at the bank, I realized the investment banking culture was too cutthroat, and simply not right for me. 

I threw a dart on the map. Perhaps with just a really good aim, it landed right in the center: Omaha, NE. I had no real direction or goal at that point, but I knew I wanted to do something that I had loved: architecture, and real estate. After all, I did apply to architecture school, and I did grow up in a family of real estate flippers. 

Packing my bag I landed in the Midwest with no friends, and no contacts, just with the proceeds from that small tech company I managed to sell out. I was 22.... and way too eager to prove myself.

I sat in a hotel room in the Old Market, called up numerous banks and realtors, ready to go out there and stake out a piece of something for myself. Most bankers never bothered meeting me, said no, hung up, and most realtors never returned my call, but having a hotel room for only 3 weeks, I forced myself into an uncomfortable situation, that I just knew I had to get thru one way or another. Maybe that was the beginning of me ditching whatever introverted personality I had left in me.

May 2010: I bought my first piece of real estate: A condo in the Old Market. It was a small deal, something I can buy with the cash from my business sale, and it was nothing fancy: but it is my first deal. I ended up finding an amateur realtor to work with, and did most of the learning and negotiating myself with the seller's agent. The lack of support from the realtor who was not very knowledgeable about -anything- was the first lesson I had entering this business. I knew I had no friends or family to call upon here, and everything was to be built, from scratch, and ground up. I started meeting people around my building, asking questions, interview new realtors and brokers.

Rest of 2010: I ended up meeting a realtor who had her office in my building. Through her, I was introduced to a fairly open minded banker, and a contractor who did work in my condo building. Some firm handshaking followed and I was able to acquire a duplex and a single family home in foreclosure, both requiring massive renovations.

I drew the design by hand on paper, I worked daily with the contractor overseeing the projects. I looked at every material and price checked for a better deal. I wanted to be hands on.

And yet, those two houses costed me 6 figures from a raided prepaid renovation "reserve" when the contractor "went under" and left my projects unfinished and my accounts emptied.

It was humiliating, and damaging. But I was already knee deep in it and thus I pushed forward. I managed the projects myself, found new subcontractors and slowly pieces together a new construction team to rebuild the projects.

In the end, with the backing of my banker, and parts of my project completely redone twice to do things right, I was happy with the end product. No matter how horrendous my P&L may look, I refused to take shortcuts. I knew my name would be associated with the house for years to come, and I refuse to settle for anything less than quality even if it meant redoing things that I didn't find acceptable. 

Fortunately, I was extremely aggressive purchasing these foreclosures (perhaps I simply had no shame, as did my realtor when we made those offers), but we bought them right, and the right deal cancelled out my wrongs. I lost my potential profits in these deals, but I was once again reminded how my team is critical in the future of my career in this business. 

I also had to adapt: the house above was supposed to be a very profitable flip, but in the end, I had to keep it as a rental as my mistakes closed the window for me to exit gracefully, and profitably. And perhaps it opened up into my new strategy.

2011-2012: Having familiarized myself with Omaha a bit more, I fell in love with the midtown area around the University and Med Center. Dundee was the epicenter of my focus. With the backing of my bankers and family, I aggressively acquired numerous properties in the area. The portfolio grew from 2 bldgs, 3 doors..... to 8 bldgs, 10 doors in a single year. I was relentlessly aggressive and I took advantage of negative market headlines to make some of my most aggressive offers, and often they were accepted.

At the same time, I had to market myself as an investor and project manager. Thankfully, I did well enough with my own design work my bankers was impressed with enough confidence to continue funding me, and I also rejected the notion I was going to willy-nilly my way into a business that will last. I was going to continue building a portfolio meant for the long run instead of quick short term profits, and survive the ups and downs of any market condition.

And I bought well, very well perhaps, as most of my deals were 50-60% what banks were asking. Yet, being a core team of 1 person, I found myself swamped with projects and not enough bandwith to process my projects efficiently. Some projects fell behind the schedule, and again it was only through buying aggressively that I was able to save my skin and avoid any further embarrassment for my banker who vouched for me in front of her board and committee. But another lesson was taught in knowing my own limitations, and not diving into every single deal even if they were bargains waving right in front of you. I slowed down, I consolidated. Things slowly recovered.

It was during this time I changed my personal lifestyle: I paid off my car, and cut my own living expenses to under 750 a month. I was going to bootstrap every dime into my real estate business, and I was going to put myself out of the picture as something of a liability in the operation.

2013-2015: It took 2 years, but I completed all projects and towards the end I continued expanding the portfolio some more to 12 bldgs and 15 doors.

I am often told that my projects often reflect myself in a very clear way: I had never been comfortable in assets or projects I wouldn't be willing to "eat my own cooking". And thus I focused primarily on properties I could make into Class B+ or Class A.  700-1000 for a 2 bedroom, 1250-1500 for a 3 bedroom, I also tried to keep rents at levels that are realistic instead of fantastic moonshot projections.

I never felt my rentals were ever going to be massive cash cows, as I generate around 0.85-0.9% of my portfolio cost in monthly gross rent, but I am happy with it and as are my tenants. I rarely had terrible experiences with tenants as most of them are quality and even slightly high maintenance, but in a strange way, I am happy about that they care. 

Sometimes, there are moments I feel I am still a bit naive, perhaps I should be more aggressive with my sales and rents to maximize a return, but part of me still hold onto the fact that the product we create is what others would call "home". I still often still feel "reasonable" and "stable" to trump "maximize" or "efficiency". I often hire the contractor that are reliable but bids in the middle of the spread, and I often have leases that probably have room for adjustments, but if my deals works for my own metrics at conservative metrics, I will do it.

And slowly the market rose, and then very very steeply we entered a seller's market. With the market heating up, my deal making also started to slow down. What used to be 10+ foreclosure MLS listings in my inbox daily trickled into 1-2. And I slowed down with the market. For the first time I considered doing brokerage work outside of just working for myself and my family.

Present Day: I just turned 28. I bought my first Class C apartment building in Dundee this year. It is well maintained, and the tenants were thankfully all fantastic and quality that I felt comfortable enough to step outside of my comfort zone to snatch the deal fast and furious. It took me 10 minutes from walking onto the grass of the building to having an agreed offer with the seller on site.

Today, I stand at 14 buildings, and 20 doors, with a rolling 93% occupancy rate. I can't say my profitability over the last 6 years was a resounding success, as I am sure if I invested in Manhattan, or the stock market, I would have done -TREMENDOUSLY- well. Yet, I am not complaining. I know inflation will slowly send my real estate values up through the years, (though for real value: I am not intelligent enough to say whether it will be higher or lower) and with a my current financing structure I will do more than alright if I hold on for the next decade or so.

The portfolio is structured on a 20 year term, of which I am 6 years through. I will be 42 when the last mortgage payment is sent off. I generate enough profitability that I can support my frugal lifestyle and still add 2 SFH a year without breaking a sweat. My bank continues to increase my financing capacity at a reasonable rate, and my banker and realtor had watched me grow up that they serves as my feedback wall to bounce my sometimes crazy ideas off of. All in all: no complaints. I don't think about retiring: there's a certain sense of pride and high achieved from every home delivered to a family. This is my dream job.

Yet the Class C apartment struck me as probably my most profitable purchase, ever, in my track record of investing in Omaha. Granted, being in a very prime location, it may have simply been a mispriced asset sold to me at a bargain rate. It is the first time any asset returned over 15% cash on cash for me here in Omaha. (The rest of my Class B+ to A portfolio is generating around 6-7% COC on a low LTV)

For most people, that kind of COC most likely would make them cringe. Yet, I feel confident of my assets, and there is pride in what I built. Yet often I ask myself: Is this a big mistake?

There are often times I wondered whether my whole experience in the last 6 years was just one grand lesson sponsored by the School of Hard Knocks; Or whether you constantly have to step outside of your comfort zone and achieve reinvention. I still question myself all the time: did I pick Class B+ or A properties because of strategy, or if I was simply too afraid to get my hands dirty. Or even if the above question is a valid and logical one where I am comparing potential returns to practical and actual returns... profits that may never realize. 

I know I can grow slow and steady today, and what I have built today, works; but is there an argument to be had to step outside your niche for higher returns? How far should you go to chase returns? Or are there intangible values and maxims to consider being a real estate investor?

6 years later, I still question if I am on point on a daily basis, if that dart throw 6 years ago in an empty boardroom landed me on target or otherwise... I am not sure. My plans for the future still rings true today as it did 6 years ago, though the method and angle of attack is still being evaluated.

I hope in sharing my experience, I would hear what others like me have experienced or thought about. Feel free to let me know your thoughts, direct message me, or simply just share your own below, as I would love to hear from others about their experience in this business, regardless of your skillset or profession in the trade.

Hopefully not too longwinded, or hopefully you had your coffee,

-David