Rocket Your Dollar Ep. 6: Real Estate Investing with Dan Kryzanowski

Dan Kryzanowski is Rocket Dollar's real estate expert, storage king, and EVP of Marketing and Business Development. Dan shares how he has used his Self-Directed IRA to invest in real estate and why it's his go-to alternative asset.

Transcription

Today we have Dan Kryzanownski on the show. And Dan is our EVP of sales and business development at Rocket Dollar and has been a real estate investor for a very long time. Which is how actually he and I got introduced through Henry back at the beginning of Rocket Dollar, right when it was still sort of an idea that was on a paper napkin. And so Dan's been with us the whole time and today we're going to talk about real estate in your Rocket Dollar account and how you can leverage it to accelerate your real estate investments.

Thanks for being here, Dan.

Thanks.

So, it seems like we all have a story in our family where either a parent or somebody had this great investment opportunity and they just couldn't take advantage of it. And then oftentimes life gets busy with kids and responsibilities and it just becomes hard to do. So tell me a little bit about the light bulb moment that went off when you realized that this is something that you could do.

Yeah, I call it a dual benefit. The nice thing about passive investing is that you could have a portion of your checking account and your retirement dollars together. So what I realized and lesson that I share with folks, particularly newlyweds, folks new to the city, folks who maybe just finished graduate school. Being a hard money lender, you can almost self fund your rent payments for the year. And not saying 100000 is a trivial or an easy amount to get to early in your career. But once having that on the side ... Austin and New York, other places are a little more expensive. But getting a fair return on a real estate investment or something that pays a dividend or you might hear it called the A Share, the Preferred Share. On that six figure nut you can probably pay some of your rent.

So, at the same time, kind of in a similar logic, feeling that security and seeing these returns play out for your day to day life. It was just as easy in my retirement account. Seeing these dividend checks come in, seeing the principal balance raise over time, that I can reinvest. And it's not like a dividend reinvestment. And listen, I'm coming from General Electric where everybody thought this was AAA secure forever. Those reinvest in dividends aren't really looking too great now. But in real estate, especially somebody that I knew and the location ... I knew where they were and I can look, feel, see, touch the house. It was very attractive knowing that also my retirement dollars would be growing by double digits year over year.

Yeah. And one of the big impacts that that makes is that you know, that nut can grow if it's in a traditional account, basically tax free, and then when you start withdrawing from it after you quit working, hopefully your tax bracket drops a little bit because you've quit making as much income. And so you pay less taxes than you otherwise would have. And if it's in a Roth account you've already paid the taxes on it so you can watch this money grow and it really starts to add up. Like you said, reinvesting these dividends, not you know, class A stock dividends but real dollars that are coming in from dividends being paid by people paying rent or self storage as you're a big fan of or whatever it may be. And it's pretty exciting to see an account grow double digits knowing you're never going to pay taxes on it if it happens to be in the Roth.

It's pretty slick. The Roth, I think a lot of folks in this space ... The Roth option really didn't come through until a little bit later in my life and career. And a lot of it is once I started investing ... If you want a good way to learn how not to invest don't invest in a comedy tour. That was actually my first alternative investment. Non real estate, let's say. In the days before crowdfunding. So of course sitting there with my wife and saying, "Honey, I hope you like these tickets because they might be worth a grand each." Low and behold that's a nice $2000 life lesson there.

But I share that kind of on a few fronts. One is that it made me really respect angel investing in the diligence that goes into it. Secondly, and I love how a lot of ... Especially here in Austin, but a lot of those who list on the crowdfunding sites are offering some sort of benefit to really inspire a sense of community that I think should be baked in the potential that you do lose, say the principal, which of course you never want to do. And then finally though, as I would look, and I always referenced fidelity because that's where it seems every time I was at GE or Merrill Lynch money would roll off into. I had a pre-taxed traditional in the Roth.

And as you start looking in the Roth, particularly when ... And I took advantage of the financial crisis, a la Warren Buffet to get a lot of these 8%, 9%, 10% bonds from the likes of Goldman and such. As these puppies were starting to roll off under a different times. It was a little frustrating to think for quote unquote risk-free, you're looking at like 2%, 1%. It really wasn't the spirit of the Roth.

And you start considering pulling that money out but then you learn that you could move just like with your real estate in the traditional world to the angel and the post-tax world. And this is where you see true excitement and the whole little seed versus big tree analogy. Or as I like to say, a few little seeds in big forest. That you know some folks are not only saying for my retirement as folks of my generation, gen X tend to have kids later in life. This legitimately could be your second, third child's tuition payment here, if you're just a little bit smarter, have a pretty diversified portfolio. So, that you know has been of great excitement for me in the near term.

And everybody that's listening now, may or may not know, but you are the sort of Rocket Dollar self storage king, which is actually how we met back in March of 2018. And it was kind of when we started talking. So, Dan, guide us a little bit through your journey through investing in real estate. Some of the lessons you learned and sort of where you're at now.

Yes, I did a post MBA. I did my undergrad Warren and my master's at Thunderbird. And I had the benefit to be part of General Electric, a great rotational program, it touched on multiple real estate asset classes. One of which was a cargo facility. So if you, not the main airport, but look next to it where you see where there's a UPS or DHL logo, where the plane flies in, the van moves out. That was our real estate specialty. That was our niche.

So as we made a conscious decision to move back to Austin in 2011 I shortly thereafter ended up with a company SpareFoot, which coincidentally is one of the darlings and great success stories out of here at Capital Factory. And although we'll never say the storage industry is recession proof, it pretty much is recession resistant. And I've been published and I'll be sharing more articles this summer, how storage just fits in with us from a consumer perspective. How we're just wired as homo sapiens, all the way down to how life is progressing out and how it is beneficial for folks at certain points in their life.

With that, when you look at the economics, there's a lot of things that are nice about it. There's no tenants, there's a pretty steady demand that comes into it and it's pretty easy. There's not big sort of improvements that need to be done on the facility. So, with all that, I also have the great benefit of getting to know the player. A lot of money, a lot of egos, different folks have different ways of doing things. I was fortunate to really have a great connection with two folks who I consider the top COO and CMO in the industry.

Summing this up, because I share a bit more on this ... Because I feel whatever you as an investor consider your niche, it's good to have that boots on the ground, personal experience, but also investing with people that have very strong operational and marketing experience here. So, from this experience, much like I think I needed another light bulb moment, when this gentleman who I refer to as one of the top COOs decided to go on his own. I said, "You know what? I really want to be in this deal." And we talked about the term and we're going to underwrite for 10 years. I still have a long way to go until I hit 60 and I said, "This is a no brainer for my retirement."

So, I and my wife, we invested in the first deal and then many others. And then I was talking to folks with their investing, and I think post financial crisis, people wanted to have that security of a dividend, but they also wanted some excitement on the back end. And I feel storage is that perfect sort of asset class. That said, how this was actually transact it ... It's just I heard from somebody, oh, sure I told this one client to do this, it wasn't a great experience, but they got it done and that's kind of it. I followed that same path, which in a sense, as you and I both know, this is kind of how it's been going on the last 40 years. It was the kind of the best of the worst, which brought me here.

Yeah. So, it's something that you were willing to go through the pain of setting up an account with this other company, but you decided that the end goal and the investment opportunities and the access to that capital was worth the pain of setting up an account, getting it funded and managing it. As well as paying for it because it's not always cheap to do. And it certainly eats into your returns if you're paying too much for your account. So tell us a little bit about that.

Yeah. And some of it is also kind of ... It's almost like when you go on a vacation and you buy and you're like, "Hey, this is going to be great." And you get a weekend and you have to sit there for two hours and listen to somebody selling you a condo. And then something else, then something else, and you're like, "Well, that was four hours of my time. And I guess I got a $300 steak dinner or something back from it." But was it really worth it? But you're already, not just toes dipped in the water. You're pretty committed from this standpoint. So you kind of just muddle through and go with it. And it all depends on your time, ultimately. Of course, like you, I've been working, especially busy with clients during the nine to five. And that was kind of their only hours. Never kind of a primary point contact person. Didn't really seem like there was a CRM customer, like a HubSpot or Salesforce in the background.

So, you know with all that is you kind of muddle through it and you kind of choose to not engage as much. There definitely wasn't a sense of community. It's kind of like the stereotype ... Although I have wonderful experiences going to the DMV here in Austin. It's kind of like what some folks stereotype at the DMV. It's like well got to get done and people need to drive and you do it. And that was my experience just so I can invest in these deals.

Is it safe to say that you skipped out on certain deals because you knew the hassle that would come out of working with this other company or the cost, and you just weren't sure if that was something that you wanted to go through?

So yes, but almost ... I'll give you even a deeper sort of answer on this. So, short answer is yes. And my buddy, he's been kind to just have [inaudible 00:11:18]. Do you have an extra 10 or 15 to put in? Of course I want to, Adam's never missed on a payment. He's a great guy. He's one of the top experts on the East Coast on the residential side but I say no because it's not just me on the phone, it's him raising money. And he would be on the phone and we don't know who we're going to get. For me to give him money. And this could even be on the same exact properties. This is how asinine it really gets from this standpoint here of somebody that has no deep insight into what we're doing and frankly may not even be familiar with their process. So they get fumbled in their process. And because of that, we've had to step back.

And that's unfortunate because I do feel, that said I have been fortunate, been able to put in my personal money from that standpoint, but I did hit a breaking point. I'm sure all those folks remember your first child as you're kind of is the kid ever gonna sleep through the night. One of these deals. And had a fantastic opportunity in the multifamily space. These folks, they've been around 30 years. We see them a lot in Austin, think the world of them. And this would've been perfect. This investment is perfect for self-directed account, but just the headache of potentially going through this sort of paperwork ... Because they have an A share and a B share. And I'm just like, "Oh, no. This is not worth it."

But I was committed so I'm going to honor my commitment. But there was a sizeable amount of cash that I much would have rather have had that liquidity for myself versus putting it out there. And of course have it with a real large [inaudible 00:12:47] self-directed dollars. I think it was around that time also, I had one of my previous employers where I had to move the money out and this would've been a great instance. But so, the net of it is that I'm not doing the optimal deal in the optimal places. I'm still sitting with a nut kind of in, call it my fidelity type, in some boring funds. And then there's a larger percentage of cash outflow out of my piggy bank checking account than I would've wanted otherwise.

And it's still not back. And I've kind of reallocated and things are okay. But yeah, I mean it's just the kind of the emotion of the one, two plus hours of is this even going to get done? What does this mean? I heard it even again today up at a lunch in Northwest Austin, people talking about their experience with this particular provider.

Yeah. It's pretty intense how bad it can be out there. And you having felt the pain. Let's talk a little bit about how we met, and how you kind of got connected to Henry. And we can talk a little bit about how we sort of envisioned Rocket Dollar when we were meeting for the first few times and sort of the path that we've taken to get to where we are today.

Yeah, I mean, I think the stars do align, but also just a left brain analysis says, wow. This is such a tremendous opportunity. And then kind of with the heart and right brain says is that this almost has to be done or should be done. And I think it's almost like kind of a feel that a missionary would get. But there's tremendous potential that we can literally touch millions of lives and have billions of trillions of dollars rollover in our community. That's kind of the big thing for me.

So, how are we actually met? Funny enough, the previous time it was me, Henry and a gentleman in a big pink cowboy hat on the way to Vegas ... I'll say on the way to Vegas, not coming home from Vegas. So, the gentleman in the pink cowboy had obviously had the best time, but I'm sure I pitched Henry on a storage deal. And I'm sure I dropped like, we're about the same age, think of your retirement dollars. Henry remembers everything. So that was back there. But how we really got together is a really good friend and she ... I support her for her. So, I've given her angel loans, angel equity, in a bunch of different endeavors and it's always been beneficial for her. It's been mutual terms. And she said, this is a good community for you to look into.

So, a little backstory. I met Dan shortly after meeting Henry. We were at a happy hour in Austin, and Henry and I were standing at the back of this bar in the middle of this happy hour. And we were talking about the opportunity and Rocket Dollar, what we felt that we wanted to do. And you were there and so you and I started talking and we all started talking about ... and it became very apparent that you had one of these and that you'd felt a pain. And so the conversation sort of just flowed naturally and we were lucky that you were in a spot where you had some time to help us during that time.

And as we started working together more and more, it just became apparent how much of a fit it was. And how knowledgeable you are in this space and it was just clear that you needed to do this full time and Henry and I and everybody selfishly wanted you to do it because there's few people that can talk to these accounts as well as you can.

So, what is different about Rocket Dollar that that has kind of sort of caused you to go full in on this and why you pursued this opportunity?

So, that's how we first got going. I do think it's kind of natural of how the puzzle goes, even as our team has expanded, how everybody's still puzzling and playing to each other's strengths, respecting each other's shortcomings and such. And then fast forward a few weeks later, I put on my marketing hat, like real strategic marketing and for my marketing friends out there, we talk about the SAM, the TAM. What's the serviceable and then what's the total mark? And the total, it's astronomical. I mean, whether you're going to say it's the 10 trillion or 30 trillion, you're still talking to a number that's the size of our national deficit. It's huge. And then the other number that really excited me from kind of a SAM sorta perspective is less than 1% of, I'd even say white collar professionals have been really made aware of this.

And you know, I always have a good pool to really test like my buddies from Warren. And when I realized that how many were not aware, but those that were, and how deeply engaged. I said, I think we have something going here. And then finally, thanks to Josh and friends at [inaudible 00:17:04] Factory, and Hugh. And everybody at South by Southwest. There was just a lot of excitement to announce Rocket Dollar, at this time. So, I look at everything. Life just isn't dollars and cents, but it definitely plays in. So I felt, it's a fair opportunity to put your six figure job to the side, where you can truly be ... At least my standpoint as a BD guy, preaching kind of what we're doing because of this tremendous benefit.

So, I think the shared message and just the excitement as ... Even last night we had it speaking to the folks at UT. When that light bulb moment goes off, it's pretty awesome.

Yeah, I mean that's been one of the things that I've really enjoyed being in this space, is that that light bulb moment and being able to get that reaction from somebody is really fun. And there's a few products that are as exciting and also not exciting at the same time. And I know that when I talk to my friends, it kind of goes over their head and then when I talk to their parents, they light up when that light bulb moment goes off. It's a really fun product to talk about.

It's almost as good as having us selling ice cream, which I will still say will always be the best job in my life, as a high school senior selling ice cream. All the moms loved me up and down the block.

It's definitely a different kind of ice cream now. But yeah, it's a good analogy. Dan, we've had some good times, bad times, ups, downs, but a lot of times to come. So, tell me a little bit about what's next for you, both for Rocket Dollar and for you personally.

Yeah, it's been very exciting. Last week alone, there's a gentleman I met, if anybody cures ... And I don't say this lightly. Anybody cures cancer or assists to it, this person will. It's a great opportunity. He's proven throughout his career also. And the exciting point was ... Like anything, I will of course do due diligence with speaking to three or four other investors. And they talked about him and the excitement and the passion and the why. It was all about the why. I don't know much about biotech, I'll never claim to. But the real fun part and why I actually put some Roth money in here, is I spoke to, with my Rockefeller hat on, I spoke to a gentleman who was unaware that you can do a conversion. Which for folks is basically you move your money from pretax to post tax, you pay the IRS today versus in X years.

He was so excited to know, and I think he had a relatively small amount, a kind of a blue collar, saved up his nickels and dimes, had 25000. And this was a total friends and family sort of we're going to invest in this. He was so excited to know that he can pay the taxes on it today because for his grandkids down the road he viewed this as tuition payments coming through. So I had a very similar sort of feel in this sort of community. That's a pretty major chip. Another one sounds ... I won't disclose names, but you can almost think it's like one of my buddies from Jersey or from the Sopranos. But it's his commitment and knowledge of the self-directive space. And also, it's in real estate also, but it focuses on female entrepreneurs. I know here, I think we have the Riveter down the street here, a few blocks. So a very similar aspect to that, a little bit touching hospitality but with backed by real estate.

So, those I think are the two things this month that I committed to and put money. Of course self storage is always something that I'll strongly consider and this summer, knock on wood, we get a moment of downtime. I think, I'll move heavy into crowdfunding. Indirectly I was doing that, as I mentioned earlier in the decade, but I think I'll double down now in some of these companies that'll pay 15% plus preferred return.

Yeah. I'm excited about the crowdfunding space too. And I enjoy about once a quarter getting my dividend check from a brewery restaurant down the road from where I live. And it's great being able to invest and make these small investments, they don't have to be major, in things that you care about. Or places that you frequent, that you are friends with the ownership team or the management team. Just people that you sort of interact with on your daily life, is a lot more rewarding than putting your money in the faceless corporation that you've never met anybody that even works there.

Yeah. And a great point that always ... Why I think we're doing kind of the right thing and the good thing, is a lot of us, politics of course way aside. But a lot of respect for Mayor Adler, Steve Adler, here in Austin. And every time I see him speak, no matter what the setting is, he talks about access to capital and he shares that as capital flows East ... Which for those not familiar with Austin would be the other side of the tracks, the, etc. The tremendous benefit that even a little bit of capital that flows West to East, how that could be recycled on the East side.

And I also think what we're doing what's great at Rocket Dollar is in the past it used to be you had to be a family office, a high net worth person, to have this type of truly diversified portfolio where you can have great returns with probably less than 10% of your money in stocks, bonds, mutual funds. So we're empowering now whether somebody has a million, a hundred K or frankly even 10000 or a little bit less. To have this similar set of diversified portfolio that could be very passionate, either in kind of an industry or in their hometown area. And we're giving this to folks literally with their money, a checkbook in hand, to invest when they want. And it's powerful.

Yeah, it sure is. And that's one of the things that gets me out of bed every morning and it's exciting. Dan, thank you for joining me. I know you've got a flight early tomorrow morning, so let's just wrap it up. And tell us what's the best way to get in touch with you, if anybody wants to discuss Rocket Dollar or real estate. Tell us what the best way to just reach out to you is.

Yeah, so the best is Dan at Rocket Dollar. My last name's funny and we'd be on the line the next 10 minutes, so I won't spell my last name. But dan@rocketdollar.com. And we're happy to be great stewards to speak with folks in the community here. And likewise, I found podcasts are a great medium to share. So I do encourage folks out there, if there's a particular organization, or you yourself are raising money, I'm more than happy to commit half hour of my time.

Thanks again, Dan.

Thank you for listening to this episode of Rocket Your Dollar. If you enjoyed this episode, please subscribe and share the podcast with your friends. To learn more about self-directed investing, or to get started with your own account, please visit us at rocketdollar.com. See you next week.