Dan Lewkowicz Flipped $10K Detroit Homes - Now He Brokers $10M Deals Nationwide

Steven Weinstock: 0:01 Hi everyone, and welcome to the Wealth Clock with Steven Weinstock. I've been investing in real estate for over 20 years, from single family homes to multifamily properties to launching my own real estate fund. This podcast is brought to you by WE Capital and the Goethals Capital Fund, where we buy properties in cash lock in deep discounts. Eliminate the mortgage risk and refinance later in order to scale all without asking investors for more capital. But this show isn't about me, it's about operators, founders, and closers who are building results in real time. Today's guest is Dan Lewkowicz, a triple net lease expert, a senior director at Encore Real Estate Investment Services, and someone who's helped investors across the country navigate commercial deals with confidence. Let's get into it. Dan, thank you for coming on. Thank you so much for having me. I'm excited to be here today. Okay, great. Let's start with a little background. You began your career house hacking and flipping houses or flipping homes in Detroit. What drew you to real estate? How'd you get into that? Dan Lewkowicz: 1:11 It's a great question. I really, I have pretty much one defining moment. So back in 2005, I helped to found a company called Disability Made Easy, which is a barrier free home modification company still in existence today. Essentially what we did is we modified homes to make them handicap accessible for individuals with terminal illness, disease, or disability. And I was in charge of the sales and marketing. That's always been my thing. And one day I went for a long drive with our project manager out to a property to go give a quote. And when we got there, we walked around the house. The gentleman in the house had been in an auto accident. He was in a wheelchair. And we walked outta the house and I said to the project manager, let's get in. Let's get in the truck. There's nothing to do here. There's nothing we can do to help this guy, he didn't say a word. He took out his graph paper with his pencil, and about 90 seconds later he sketched a brand new front elevation. Moving one of the windows, turning into a door and redoing the entire layout of the house. And I had this light bulb moment where I realized that you can take a property, make some changes. Sometimes they're functional, sometimes they're cosmetics, and it's both. And now you've created something that's better suited for whoever's gonna be the occupant or whoever's gonna be the new owner. So in my mind, it like really stuck there. When it became time for me to buy my first house, I had a young family living in metro Detroit. We had an offer out on a property that was move-in ready, and this was in the height of the recession. So the prices will maybe make you make you wonder, but the property, we were under contract for $175,000. This was a three bedroom, two bath, full basement, all brick ranch. Beautiful home, move in ready and as I'm deliberating going through the due diligence, trying to figure out what to do, I had heard that a couple streets over there were some bank owned properties. So I got in touch with a lender, found almost identical house, 1700 square feet, three bedrooms, two bath, full basements. One had a pool a little bit distressed. Not gonna lie. But I ended up buying that house for $81,000 cash, right? So less than half the price. And then what I did was I hired out every single trade individually, and I told them, I'm gonna pay you a little bit more. I'm gonna be the annoying fly on the wall. Who's asking you questions I wanna learn. So I learned from each trade what they were doing and how they were preparing for the next guy down the assembly line to come in. And that was really my education house flipping. Steven Weinstock: 3:51 Sure. So you were buying these houses. You were the annoying fly on the wall watching it get renovated and then all rent ready. And you were selling these houses or you decided to rent them? Dan Lewkowicz: 4:04 The first one I was the fly on the wall. The first one was my own home. And that one I was watching to learn from all the different trades so that I knew what to do. The next ones I was managing all the trades. And then the majority of the properties were getting flipped either to homeowners or I would sell out to investors. Some of them I would just wholesale the deal. I did a lot of deals where, bought the property, cleaned up the title, sold it or bought the property, did a little clean out, flip the property depending on what was going on at any given time. Steven Weinstock: 4:32 As someone who my background is being a landlord I was offered the opportunity to flip houses when I first started, but I always personally, I stayed away from it. I always wanted to be an owner. What was your reason for selling these houses as opposed to maybe holding onto a few of them and renting them out? Dan Lewkowicz: 4:51 Great question. For me, I tell people that house flipping or house hacking is a gateway drug, right? That's what got me into what I do now, and when I was knee deep in house flipping, I wanted to focus on one thing. I always believe in focusing on one thing, and that one thing was sourcing houses, purchasing houses, raising capital for houses, closing on houses, renovating houses, and selling them. I didn't wanna also be a landlord and also be in the management business. I did hold onto a property that I really liked as a rental, but in general, I wanted to focus on what I was doing so I could build capital to do the next thing. Steven Weinstock: 5:30 My gateway drug into real estate was single family homes. And after a few I really transitioned into twos and threes and fours and stayed at that pace for a good 10 years. What was your biggest lesson you learned from those early flips that catapulted you into your next career? Dan Lewkowicz: 5:48 Listen it wasn't all sunshine and rainbows, right? I had my bad deals and difficult days. Just like we all have. I think we'd be remiss to not talk about those experiences too 'cause that's part of reality and transparency. One lesson I learned was, I was buying a lot in the city of Detroit. City of Detroit is like nowhere else in the world. It's lawless, it's a jungle in certain areas. And one of the lessons I learned was be very careful when you buy a property in the winter and not for the reasons that you'd think. The reasons are that in the summer when people come outta their homes, you really get a feel for what the neighborhood's like, how safe it is how inviting it is. In the winter no one's around. Everything looks great. Also, I think that at certain points I did overextend myself. I was doing too many houses at a time. Building too many crews, buying too much equipment, and it became difficult for me to manage. So again, for me, I think focusing on what I do best is the most important thing. When I transitioned into commercial brokerage back in 2018, 2019 I felt that rather than be that guy that's got the boots on the ground and it's getting calls in the middle of the night 'cause the property's getting broken into, and who's dealing with all the different headaches, I like the fact that I can sit in my office and I can broker deals and I can be in the thick of it, but I'm in the thick of it making phone calls and moving paper around and talking to title companies and talking to lenders. Which for me works a lot better. Steven Weinstock: 7:25 You mentioned Detroit. I've been to Detroit a few times. I used to go with my family to a suburb of Detroit, Southfield, Michigan. We spent a few years in a row for some of the Jewish holidays. And I remember driving around and looking at some of the real estate. Near 11 Mile is the name of the street. And obviously I heard of Eight Mile from the movie. I remember driving over and it was really like three miles away. It was like a whole different world. I saw full city blocks that were just empty. Totally empty, totally razed and just almost like a parking lot. Someone from Brooklyn who thought I knew the inner city, Detroit was really a mind opening experience. What was the moment you decided to move from residential to commercial? Dan Lewkowicz: 8:17 My first house was in Southfield, Michigan, not far from 11 mile. I'll never forget this. I have six kids now. I had I think four then. My kids were asleep in the house. And I got a phone call at 11 o'clock from the Detroit Police Department telling me they needed me to come to a property because there was literally somebody breaking in as we speak. I don't know why they wanted me there in hindsight, but I remember just like suiting up, literally putting on a bulletproof vest and grabbing some firearms and getting in my car and I just said to myself, what are you doing? You've got four kids at home, there's a house and they want you to come down 'cause they want you to ID someone or something. And that to me was like the moment where I just said, it isn't worth it. I don't want to be remembered as the guy that was successful house flipping and that was literally the last thing he did before he left this world. Steven Weinstock: 9:22 When I started buying also in Class C, class D areas, when I started, I was still single. I didn't have any kids. But as time went on, I also got afraid. There were times I wouldn't go to a tenant's house after dark. Back then there was no collecting rental electronically. There was no Zelle, there was no Venmo. But I'd never put on a bulletproof vest. Being from New York and collecting rent in New Jersey, firearms were not something that was accessible. You mentioned you have six kids, so most people would say, wow, Dan, you're crazy. So I have seven kids, and you got me beat. Dan Lewkowicz: 10:30 I'm senior director here at Encore, and what I do is I advise buyers and sellers in the purchase and sale of net lease assets nationwide all over the country. The majority of what I do is either single tenant net lease. So think about your Walgreens or your Taco Bell or your advanced auto parts or your single tenant medical office building. Discount retailers like dollar stores. I also do a lot of shopping centers, neighborhood shopping centers. Anything from normally 8,000 square feet to several hundred thousand square feet. I do a lot of multi-tenant office buildings as well. For anybody who doesn't know what a triple net lease is, let's compare it to multifamily. Let's say you've got a multifamily property, 10 units. Everybody's paying let's say $12,500 a year. Total gross collected rent is $125,000. Now let's say down the road you've got a Wendy's property. Wendy's is paying same thing, $125,000. The difference is that in the multi-tenant deal, that's your top line number, your gross collected rents, but you have all these expenses, right? Property management, taxes, insurance, capital expenditures. You gotta fix the roof, you gotta pay the parking lot, landscaping, cut the grass, plow the snow. All these expenses typically could amount to 50% of your gross collected rent. So you might be left over with $60,000-$70,000 of net operating income. It's highly variable. Now if you flip back over to the Wendy's property, $125,000 gross collected rent. However, that's a triple net lease. What that means is that the tenant pays for your taxes. The tenant pays for your insurance. The tenant pays for any common area maintenance or management, any capital expenditures. Your net operating income is fixed. It's $125,000 annually. In addition, things like built-in rental escalations are very common. You might have 2% every year, 3% a year, seven and a half or 10% every five years. So it's predictable, it's stable, and the credit is very good typically. Steven Weinstock: 13:37 I understand why an investor would want a triple net lease. My question is Wendy's or McDonald's, why do they decide, why do they agree to the triple net lease model? When the roof breaks, why is it that they are willing to call their roofer or their plumber to fix it, as opposed to calling the landlord? Dan Lewkowicz: 14:21 McDonald's probably not the best example 'cause they own a lot of their real estate. But if you look at the other tenants, where the genesis of this originated I would say that when the developers were building the deals 20 years ago when the leases were signed, they wanted to be able to sell the property for the lowest cap rate possible. The developer has fixed cost to build a building and then they really can only pull two levers. One lever is the rent. They wanna get as much rent as possible. And the other lever is the cap rate. In order to get the most dollars out of the development they wanted to create these triple net leases that would give them the lowest cap rate possible. Steven Weinstock: 19:12 You see a difference in tenants when it comes to franchisees and the actual corporate? Like Starbucks is not franchised. Dan Lewkowicz: 19:21 Starbucks is all corporate credit. There's definitely a difference. The corporate guarantee is a much stronger guarantee. I've seen 90, a hundred, 110, last two years ago there was 172 unit Burger King operators go bankrupt and stop paying rent. It's not as big as Starbucks with 20,000 stores in corporate credit. Is credit important? Yes, and corporate credit if it's good is better. A large franchisee is better than a small franchisee. However, we don't wanna leave aside the unit level fundamentals. What I mean is if you're looking at credit, you're looking at the system. But I want to look at store sales. I wanna know how much volume is this tenant doing at this location, because that's gonna tell me what the likelihood of them leaving is. I wanna look at specific ratios like a rent to sales ratio. Steven Weinstock: 25:15 What factors do you use to spot a distressed asset that still has upside in triple net? Dan Lewkowicz: 25:20 You're gonna look at the underlying fundamentals. Sometimes it's not the real estate that killed the deal. Sometimes it's external factors. You look at ingress egress, visibility. Does the city setback have tons of trees so you can't see the sign, or is it completely clear? You look at traffic counts. Very important. How many vehicles per day go in front of that site? Look at increasing population. Average household income and different tenants thrive in different environments. Another thing that I think is very important is the proximity to other major national tenants. If you've got a Chick-fil-A and a Starbucks and a Target and a Walmart in close proximity, all of those companies have real estate departments and all of them determined that was a great location. And then the fungibility of the box. Can it be easily transferred to another usage? Steven Weinstock: 29:35 What is a common misconception about real estate that you wish more people understood? Dan Lewkowicz: 29:40 One of them is that a lot of people don't understand that you need to jump in whatever you're gonna do. For me it was house hacking. Analysis paralysis is not your friend. Number two is that you have to go it alone. The commercial real estate community is so supportive. There's so much knowledge. And then there's a misconception that you need a tremendous amount of money. I invest in my SEP IRA in debt funds in commercial real estate deals. And you can do that with as little as 25 or $50,000. The misconception that you have to have millions of dollars to invest in real estate or even commercial real estate it's not correct. Steven Weinstock: 31:24 If someone had $200,000 and wanted to get started in commercial real estate, what do you suggest they would do first? Dan Lewkowicz: 31:32 It really depends on their goals. I would say one of two avenues. I really like the passive debt fund deals. You can find great operators who are putting together deals. Steven Weinstock: 31:42 Just tell the audience what a debt fund is. Dan Lewkowicz: 31:45 The ones that I'm currently invested in, it's basically four or five deals. They're all short term bridge loans. The fund lends at an aggregate of probably around 16 to 18%. And they're paying investors 14%. It's passive, it's easy. The money compounds. It's in my IRA anyway. Another avenue I really like is the multi-tenant retail shopping center reposition play where you buy a shopping center that has some vacancy, deferred maintenance, a lot of gross leases. You buy the property, deploy some capital expenditure, paint it, make it look nice. Get rid of the poor performing tenants, sign new tenants. Now you convert the gross leases to triple net leases when the leases are rolling over. The property is more desirable to investors. The cap rate goes down and the price goes up. Steven Weinstock: 33:59 Tell us about a deal that maybe didn't go as planned. Dan Lewkowicz: 34:08 There was a street in Detroit in the Morass Meringue neighborhood. Real rough neighborhood. I had bought a bunch of properties because I was buying entire houses for five or $10,000. I bought this beautiful 1500 square foot tudor style home all brick. If you would've moved this home 10 miles north, it would be worth half a million bucks. I bought it from Chase Bank for 10 grand. It had foundation issues. Unfortunately, there were gangs in the area. Every Wednesday was a raid. There'd be SWAT coming in every single Wednesday. I hate to bring this up, but there was a kid that was working for me. His mom was murdered on the street across from this house while we were there. It was gut wrenching. I was into it for more than it was gonna sell for. Eventually I sold the property. I lost money. I had another house on State Fair, seven and a half Mile. Squatters moved in. They had created some mechanism where they could move the board and put it back. They were dealing drugs like a drive-through. These squatters had somehow found out that I owned the property and they had created a fraudulent deed. The police said this is a title dispute at this point. I just said you gotta cut your losses. So I sold at a loss. Steven Weinstock: 37:11 Outside of real estate, what do you do for fun? Dan Lewkowicz: 37:24 I play guitar. I've been playing since I was seven years old. I live in metro Detroit so I love cars. I was at the Extreme Experience driving a Ferrari 296 GTB and a Porsche 911 GT3 on the track. On the weekends I'm taking at least one of my kids to a cars and coffee. Steven Weinstock: 40:27 What sector in real estate do you feel is most recession resistant right now? Dan Lewkowicz: 40:34 I love medical. I think medical office is great because medical tenants are very sticky. If I were to tell them I have this great property 75 miles away, they're gonna laugh at me because probably 95% of the population lives within five miles of the office. In addition, a lot of times the tenants will invest heavily in equipment that isn't easily transportable. Steven Weinstock: 41:14 Name a book or a mentor or a quote that has had a lasting impact on you. Dan Lewkowicz: 41:21 A book would be Think and Grow Rich by Napoleon Hill. Everyone's heard of it. If you've read it once, you haven't really read it, you have to read it a few times. Just the ideas of setting your intentions and of mindset and mentality. I firmly believe that the stories we tell ourselves about ourselves, about other people, and about the world define our reality. Mentor, I had a mentor when I was a lot younger and I asked him for advice. He told me, find yourself the best mentor you can and make yourself dumb in front of him. Meaning don't try to show off. Just learn. I immediately said can you be my mentor? In terms of piece of advice: Provide value and everything else follows. I really believe in that. Thankfully I'm in a point in my career where I'm not desperate to do deals, so I lead with providing value. Steven Weinstock: 42:49 Providing value is probably the best sales technique you could do. The book that had the biggest impact on me was Rich Dad Poor Dad. When I was a kid we had these 45 minute infomercials on TV with Kiyosaki. It really changed the way I look at money, the way I look at employment versus investments. Passive income versus employment income. And it's one of the reasons I got into real estate. Dan Lewkowicz: 44:21 Whatever I can do to add value to anybody watching this, please reach out. You can find me on LinkedIn. Dan Lewkowicz, L-E-W-K-O-W-I-C-Z. My direct phone number is (248) 943-2838. If there's anything I can do to add value, it would be my absolute pleasure. Steven Weinstock: 44:57 That's a wrap on today's episode of The Wealth Clock with Steven Weinstock. A big thanks to Dan Lewkowicz for sharing his insights on commercial real estate triple net deals and what it really takes to create passive income with less risk. If you found value in today's conversation, make sure to follow or subscribe on your favorite platform. And if you're an accredited investor looking to put capital to work in real estate without taking on heavy risks, check out what we're doing with Goethals Capital Fund. Thank you all for listening.