Real Estate Investing: The $400K Distressed Property That Could Be Worth $3.5M

Dave Fontana (00:00)

But the property, we started renovating the property. We’re doing a light, soft renovation to it because we don’t know what we’re gonna do with it once it is done. But we’re probably into the property for about 300,000, 400,000 at this point. But the property, and we bought some property next to it, another half acre. So it’s 48,000 square feet on four acres. The property’s probably worth two million bucks the way it sits. Maybe three and a half million by the time we’re done. So you know opportunity. I knew there was a title issue. Knew the soil was contaminated. But it was a great location.

Issa Hanna (02:02)

Welcome back to another episode of the Real Estate Pros show. I’m your host, Issa Hanna, and today I have Dave Fontana here to share his knowledge with us. Dave, welcome to the show.

Dave Fontana (02:10)

Thank you for having me.

Issa Hanna (02:11)

Super excited to have you, you made the natural progression of every investor, and you’re sitting at the other side of it where a lot of the other investors are, they’re in the residential, they’re in the single family. Started single family, started flipping. You kept climbing, got into multifamily commercial. So you have such a vast amount of knowledge to share with our viewers, that I’m super excited. But with that, can you kind of run down what a day to day kind of looks like in Dave’s world?

Dave Fontana (02:36)

I I started flipping houses again ’cause we’re in the process of building new product. So I’ll start the day, I’ll come to the office for about thirty, forty minutes and then I’ll go out and visit the sites. Then I’ll come back to the office and try to find new deals to buy. I’ve been buying a lot of land lately, so we’re trying to find land and I’ll put in a couple of offers a week. But mostly at this point it’s talking to architects, engineers, a couple of banks. So it’s really just I I guess I’ve become a developer more than a house flipper at this point.

Issa Hanna (03:07)

Definitely, our our our business, it’s a business full of variables, it’s a business full of pivots, right? You have to pivot every, every time the market shifts, it resets. Somebody who’s very knowledgeable could kind of take a step back, look and see, okay, what can I get into that’s gonna make me even more money when this wealth starts drying up? You mentioned land. A lot of people are going that way. Starting to develop their own their own land, they’re starting to build their own houses. So definitely the like I said, the natural progression, but you’ve already made it to the other side. You started in three, you told me. You started in New York. Can can we get the how I got into real estate story? How did Dave get into it?

Dave Fontana (03:44)

I was a general contractor in New York and someone wanted to wanted me to f flip a house for them. So it was an investor that had cash and he wanted me to flip a house for him. And I think we did two houses with that one investor. And then we kinda we kind of broke off and I started just flipping my own houses. Around 2009-2010, I bought a HomeVestors franchise and I did that for about I want to say for two years. And up until about 2010, I was self-funding everything. So it the things that I learned from the franchise was it was okay to borrow money, even at that time was 16%. But I had positive cash flow on a lot of stuff. So it was okay. So that that was my way into real estate. But I went into multifamily almost immediately after I bought the franchise. And my first multifamily was in Charlotte.

Issa Hanna (04:34)

With that. And then you’ve made the move now. You’re you’re all you’re basically now strictly investing in North Carolina, from what I can understand.

Dave Fontana (04:41)

I moved to North Carolina about six or seven years ago full time. It was just around COVID. My partners and I, two partners and I, we bought probably around three or four hundred rental units. There was a property management company that was gonna manage as part of the purchase they were gonna manage for us. And during COVID, immediately like March of twenty twenty, the the actual employees of the property management company left. So we had to figure out how to manage this stuff. And I use the word I got stuck in North Carolina, but I love it here. So it really wasn’t getting stuck. It was actually a blessing. So we we ended up buying the property management company that was gonna manage for us and we continued to buy through COVID and then even beyond COVID. I think we stopped buying probably two years ago and started selling off our obsolete properties.

Issa Hanna (06:19)

I love that you can vertically scale. You can grow so many different branches from the one tree that you plant in real estate. You’ve been able to, you have a property management company now. How crazy is that? And they service your own property. So you’re keeping that that money in your pocket, which is great. And now you’re selling off the rentals because yes, nationwide guys, rentals have tapered, construction costs, maintenance, all these different costs are are adding up and the rental game isn’t as lucrative as it is anymore. So seasoned investors Dave, like others, they know the market has shifted and they got a pivot. And now, some future plans you touched on a little bit. You’re flipping properties now, you’re gonna focus on flipping and and then developing your land. Is that correct?

Dave Fontana (07:00)

So yeah, so the land process it looks like it’s gonna take us twenty-four months to get all our approvals to build. So in the interim to generate cash flow outside of the rental cash flow, we’re flipping houses again. We bought five houses in the last I would say from May since May. We also had a building that that I bought in twenty twenty two, I think. Which is in a great area, but again, it’s like 1990s vintage. And we actually condoed the building. So in the pro we’re in the process of selling. It’s 26 units. We actually sold one and we’re selling the other units as condos. It’s maybe like an oversized flip in my mind. We are selling the units as is. We have some that we’ve renovated. But basically a higher end rent ready apartment, and we’re doing that. So part of the reason why we did that is when we offered it for sale, we were getting pricing 120, 125 a unit. We’re actually selling them. The one that we did sell at 180, 180,000 a unit. We did no work to it. So I think we’re gonna blend out probably at 190. A unit which is gonna be super lucrative for us.

Issa Hanna (08:07)

Amazing, the knowledge is just flabbergasting to me. All all the stuff you’re just casually saying, the way you’re adding value, the way you’re you’re identifying these new opportunities in the game. This is a seasoned guy in front of us, somebody who knows this game inside and out, knows his wheelhouse very well. As a as a professional in the real estate business, just listening to Dave talk, unbelievable information you’re showing. So this one of the important episodes. Make sure you got the pen, the pad, you’re taking notes because you can pick up a lot of a lot of stuff, a lot of knowledge from what Dave is sharing with us right now. You can make a lot of money by implementing some of his own strategies that he’s being so generous to come here and share with us. Dave, unbelievable. I wanna I wanna shift a little bit though. I want to shift the tone just a little bit. We all have it, right, as investors, the real estate nightmare. Give me a a real estate nightmare that sticks out in your mind that you had to pivot and overcome.

Dave Fontana (08:58)

We it it was a It was a nightmare that turned out pretty well in the end. But every every day that we we we my partner and I we bought a property, I want to say it was 32 units in Columbia, South Carolina. And we were renovating the building and we’d put a window in, go to lunch, come back, the window’d be broken. And we just could not figure out how to get this building renovated. And it it was a nightmare. And we we we started taping styrofoam up against the windows so they wouldn’t break them. And we had a a watchman. It was rough. We never really got all the apartments renovated. Someone came in and made us an offer. And I think I’ll give you numbers too. I think we paid five thirty-five for the building. We probably put a hundred into it and and it was like we were limping along. It was just a nightmare. We ended up selling it for like 980. And we were so happy. We were so happy to get that money. It was a rough neighborhood. It was, when you learn real estate, everybody says you gotta buy the C properties, and that’s what we were doing. And this was probably a D minus. We we probably would never touch a building like that ever again.

Issa Hanna (10:05)

One one hundred percent. Those nightmares, I always say you never really lose. And in your case you didn’t lose, you made some money. So kudos to you on that, because usually you do lose money, but you never lose. You always learn. Yeah. Exactly. You gotta buy right, you gotta know your numbers and then sometimes the variable is that bad neighborhood where they’re busting out the windows and you can’t get any work done. Which slows down adds a lot of money to your to your cost. What a crazy nightmare. I always ask all my guests that because like I said, we all have one. And then, in retro dirt while we’re facing it, it’s the worst crisis ever. We’re always stressed out. But in hindsight, we’re like, I’m glad that happened. I really learned a lesson and I’ll never do that again. So I’m sure that’s where you are with that too as well, Dave. I want to pick your brain a little bit for our younger viewers now, right? A lot of people are just starting off, or maybe or maybe they want to start investing in real estate. And I always tell everybody the most important thing in our business is establishing those business relationships, growing that network. You need to have a network, you need to know people, or you’re never gonna make any money. So for the person just starting out, what would be your advice on on getting the ball rolling and get growing their—

Dave Fontana (11:12)

I’m a big believer of the eighty twenty rule. And I think and I’m not that old, but the younger generation I think they want to do what the eighty percent is doing. They wanna do a lot of kind of fake it till you make it. And I think we’ve all done that. But there’s a way to do that. I don’t think you can you can’t fake yourself. You can’t lie to yourself. And I think all investors in the beginning, I know I for sure used to lie to myself about, well maybe I can get 200 for this when I sell it, or maybe I can get 225. And the reality was I was only going to get 170. And I believe that there are a lot of investors like myself that would take a chance on younger people that that are go-getters if they worked. I just had two agents that worked for me. And one of them said she sold five point two million dollars worth of real estate in her first two years. She worked for me that entire two years. And she’s not with me anymore. I don’t think she’s gonna sell a half a million dollars worth of real estate. I supplied her with so many, I was buying, selling, buying, selling. So she was on both sides. But I think patience, number one, if you’re gonna fake it till you make it, you gotta be true to yourself. You can’t lie to yourself. That’s a big deal. And you gotta, you gotta leave some meat on the bone. I see a lot of new wholesalers. They’re they’re buying something for forty, they want a hundred for it. And I get plenty of deals that come my way. I’m not gonna pay wholesale of fifty, sixty thousand dollars. So I think that’s it. I think the three things is gonna be be true to yourself, don’t don’t lie to yourself, don’t look for too much all you know, at one point and don’t try to be a a star. I think a lot of people today with social media they’re doing these I don’t know, renting a plane to show how successful they really are, but it’s not there. The hard work, the hard work still has to be put in. It doesn’t come—

Issa Hanna (13:36)

100%. One hundred percent. Nothing will replace the old school hard work. The best form of advertising is word of mouth. And the only way you’re gonna get word of mouth is to do exactly the three things that Dave just said. Because when people respect that work ethic, when you’re out there and you’re grinding for your people, they respect it. They want to do business with you. You’re out here showing off, taking TikTok videos, looking crazy like that, but you have no production, you have no work ethic to back it up. Nobody’s ever gonna deal with you and they’re gonna see right through you. So you might make that one check, but you won’t get referred out to somebody else. Amazing advice, Dave. Yeah, as a former agent who sold well over a hundred million worth of real estate in just a a short eight years and never put a dollar into advertising, an investor like you, I would never leave. I would never burn a bridge with because yeah, five million in real estate in two and a half years, unbelievable. I would be I would be buying you all types of stuff, fruit bouquets and you’d be my number one guy. So young agents, if you guys get somebody like Dave who’s who’s super personable, who has all this knowledge and will give you deals, never burn that bridge.

Dave Fontana (14:42)

Right now we have about six million dollars worth of inventory that we want to sell. And we want to sell it over the next eighteen months. Over the next eighteen months, we’re gonna create more inventory to sell. So it just blows my mind that some people won’t—

Issa Hanna (14:57)

No, definitely, as like I said, as a top producing agent, the numbers you’re spitting out coming from one one person, that’s one deal source. Guys ever find somebody like that, you treat up here. No cutting corners, no nothing, because they will they will make you wealthy. And and Dave is not doesn’t get mad at that. He just wants the best services possible for for all these type of deals. So Dave, amazing. And hopefully these new realtors in North Carolina, the ones that you interview, maybe hopefully they see this and and they see what kind of operator you are because and and heed my word, because you’re definitely a great guy and and and you can definitely help a lot of other agents out with that kind of business. I wanna give you the floor now. If people wanted to get a hold of your property management they wanted to to have you guys take on their properties out in North Carolina, where could they reach you guys at?

Dave Fontana (15:46)

So the property cu the property management company that I own in North Carolina, it’s in Hickory. We manage within a 60 mile radius, which almost goes to Charlotte. The company that we bought was was established in 1958. We’re in the same location since 1972. We actually bought the office building here, my partners and I. You can go to my my I have a website. It’s davefontana.com. There’s links to my businesses there. A property management company is shook-tarlton.com. We manage we manage multifamily and and we manage it as an asset manager. Cause when the properties that we bought, we were also the asset manager. If we did a syndication, we did a few syndications. So we managed it as an asset manager. And we know a lot of property managers don’t want to admit it, but the investor has to make money too. And we try to watch every nickel for them so that they’re happy with us and they make money and we make money. And there’s we partner with people like that too. We just partnered with someone that had a rough patch in their life, was a good investor, and she’s got a little bit of a rough patch, and she is at a hundred percent occupancy for the first time since she’s owned the building in the last, I think, four years or five years. So it’s it’s important, yeah. But I also got a book coming out. It’s called Duck Duck Goose. Talks—

Issa Hanna (17:07)

Nice.

Dave Fontana (17:08)

—about obsolescence in real estate. You can buy that great deal. It’s two-bedroom, one bath. The bathroom’s on the second floor. The ductwork runs right through the ceiling. It’s only seven feet where the ductwork is. You can’t use numbers for a real two-bedroom, one bath.

Issa Hanna (17:23)

So—

Dave Fontana (17:24)

It’s it’s it talks about obsolescence and I don’t think people realize that, but someone’s gonna get left holding the bag.

Issa Hanna (17:31)

Definitely. Hundred percent. So viewers at home, davefontana.com, this guy can give you a lot of knowledge property management-wise. You have an owner operator who’s in the business, who understands it. It’s not just an agent that the big boss company hired, who has no rentals, who has no skin in the game. This is his personal business, his personal brand with his name on it, and his expertise in renting. These are the type of property management companies you guys want to deal with. Don’t go after the big shiny name. Go after the knowledge. Go to davefontana.com and make sure to check out Duck Duck Goose when it comes out because I’m sure that’s going to be a wealth of knowledge. Front to close. Dave, I want actually, I was going to close this out, but I was very intrigued by by what you said is your strength. And I want you to enlighten us on it a little bit before we out. You said you’re not afraid of opportunity. So can you kind of give our our young viewers what that what you meant by that?

Dave Fontana (18:26)

I’ll give you an example of exactly what what what so I bought, I follow the auctions. So I’ll look to see what’s for sale at auctions. North Carolina’s kind of funny funny with auctions because there’s a 10 day upset period. So you could be the high bidder. Someone can come in within 10 days, bid 5% more, and now they’re the high bidder. An auction could actually last three or four months. I bought recently probably two years ago, bought a 48,000 square foot warehouse or factory, was a factory, and it’s probably less than a thousand yards from a college, private college here in North Carolina. It I couldn’t believe what it was selling for. Think when I first saw it was like $17,000. It’s on three and a half acres and it’s it’s valuable property. It’s valuable property. There is some the ground is condemned not condemned, but the ground is polluted. I think it’s mostly dye because it was a hosiery factory. There was a hole in the ceiling. You could have landed a helicopter in there. That’s how big that hole was. And I must have visited that property. It went from like seventeen thousand to it was about one fifty when I looked at it. But I went to that property probably five or six times. And the first time I went, I said, I would never buy this place. And then I went back a week or two later. And I’m like, nah, it’s I just can’t do it. I can’t bring myself to do it. But probably after the fourth or the fifth time, I was like, it’s really not that bad. And I ended up calling the owner of the property that was in foreclosure. He he owed it money in taxes, and there were title issues. So I had to hire three lawyers to fix the title issues. But I basically told the owner, I said, hey, forget about this auction. Just sell me the property and you’ll make, you’ll make some money. I’ll pay you some money outside of the auction. And that’s what we did. But it was, it took me about a year to I had to get the bankruptcy from the from who he bought it from. I had to have the bankruptcy reopened. So I had my lawyer hired a bankruptcy lawyer who hired the bankruptcy trustee open this. They took it to a judge and they showed him that it was a the whole the whole problem with the title was just the typo. And it took eight months and probably about $10,000. It wasn’t as much as I thought it would be. But the property, we started renovating the property. We’re doing a light, soft renovation to it because we don’t know what we’re gonna do with it once it is done. But we’re probably into the property for about 300,000, 400,000 at this point. But the property, and we bought some property next to it, another half acre. So it’s 48,000 square feet on four acres. The property’s probably worth two million bucks the way it sits. Maybe three and a half million by the time we’re done. So opportunity. I knew there was a title issue. Knew the soil was contaminated. But it was a great location. And it’s a factory, and there are there are several factories in the town that I’m in. So eventually someone will either buy it for a factory or it’ll be turned into storage units or maybe even retail space, mall space, shopping like retail space. So I don’t know, not every deal looks great in the beginning, but if you visit it enough, it’ll it’ll work out it’ll work itself out. So—

Issa Hanna (21:27)

One one hundred percent. You keep going back, you keep those wheels turning, right? And you develop the plan, you’re like, what? I don’t think it’s gonna be that bad. And then you start seeing the upside. Two, three million dollars off of excuse me, a hundred thousand a few hundred thousand investment. Even if you put seven, eight hundred into it, you’re doubling, almost tripling your money. Yeah. Just by rolling up your your sleeves and doing the type of work that other investors don’t want to do. And another thing I want to highlight from from that last piece of advice, and I’m so glad I asked you that before we close out, it is the distressed properties, the title issues. These type of properties, clouded title, you can get such a discount on these things. It is literally an untapped thing that people don’t know. Like Dave said, you hire a lawyer, you don’t have to get your hands dirty with it. A lot of times it’s not as expensive as you would think. Amazing advice you brought to the show, amazing knowledge, Dave. Dave, if you will, I’d like to officially invite you back on the Real Estate Pros show for a later date if you’d have us.

Dave Fontana (22:22)

Yeah, great.

Issa Hanna (22:23)

Thank you, I enjoyed our conversation so much. It was a true honor interviewing you.

Dave Fontana (22:27)

I appreciate the opportunity.

Issa Hanna (22:28)

Thank you so much. And to our viewers at home, if you enjoyed my conversation with Dave and want to see more like it, make sure to hit like and subscribe. I talk to people every day that could bring us different knowledge on every aspect of the real estate industry. Until next time, the Real Estate Pros are out.