Listen to the Podcast Here: On today’s Bad Beats episode of The Real Estate Nerds Podcast, Daniel Barli joins our host and real estate attorney Scott Smith. Just like Scott, Daniel is also a real estate attorney and investor. Though Daniel now boasts a diverse and lucrative portfolio of over 80 properties, he’s here to tell us about one of his early failures. His story is a lesson to investors who try to take on too much. In Daniel’s case, he is an extremely educated attorney and skilled investor, but learned the hard way that he isn’t the best property manager. Tune in to hear what happened and how you can avoid repeating his mistakes. Description Useful Resources References Daniel Barli’s Commercial Loss: A Cautionary Tale In Doing it All Scott welcomes fellow real estate Daniel Barli onto the show. After briefly chatting about Daniel’s background, the pair dive right into the details of Daniel’s worst deal. [1:00] Daniel is a practicing real estate attorney, just like our host Scott Smith. He entered the real estate game in 2013 with the goal of generating steady, passive income. He now boasts a portfolio of over 80 investments, but is here today to tell us about one of his worst. [2:30] Daniel’s worst deals started with one of his earliest purchases–a commercial unit in New Jersey with four tenants. He decided to manage the property himself, which he now regards as a mistake. [3:30] In hindsight, Daniel believes his property management failure was rooted in becoming too friendly with his tenants. He cites one particular tenant, a fellow attorney, who consistently fell behind on the rent. Daniel attempted to work with her, but she progressively fell further and further behind. He tolerated this behavior because he empathized with her personal situation. [4:30] When the tenant fell four months behind, Daniel served her with a notice that she must pay half of her back-rent or face eviction. She failed to do so, putting Daniel in a bind: “New Jersey is very tenant friendly. It’s not easy to get a tenant out, even for nonpayment of rent.” [5:04] The tenant, being an attorney, knew and exploited this despite having accrued over $14,000 in unpaid rent. [6:04] Daniel showed up to retrieve the check and was met with a disappointment: “Of the $14,000 she owed me, she gave me a check for $100.” [6:44] This incident became a lesson for Daniel, who no longer manages his own properties: “I thought I could save money managing property myself, but it ended up costing me quite a bit of money.” He was forced to evict the tenant–a process that took an additional 2 months because of New Jersey law. By the time she left, the tenant owed Daniel $19,000. [7:15] Removing this tenant presented two problems. First, there was no good way to collect the tenant’s debt. Daniel would have had to take her to court, which would have been time-consuming, stressful, and likely fruitless. He also had to contend with having a vacancy in his building. Commercial property is more difficult to fill, in Daniel’s experience, than say multi-family or even single-family. He owns all of the above but has found commercial vacancies the most challenging to address. Deal Post-Mortem: Lessons Learned From Daniel’s Property Management Loss The two attorney-investors shift their focus from what happened with Daniel’s deal to why it cost him. Together, they conduct a brief post-mortem of Daniel’s property management failure. [8:30] Daniel owned the building in a company name, but had become very familiar and friendly with the tenant who ended up costing him. He learned first and foremost he allowed this tenant to get away with too much because of their personal relationship: “Now when I use property management companies, it creates a buffer. People don’t need to know who Dan is.” He has resolved that “I won’t make the mistake of doing it all myself ever again.” [10:30] The two investors observe that there was a personal, as well as a financial cost, to this mistake. Daniel faced property tax consequences, negative cash-flow, and a high degree of personal stress as well. [11:30] Scott asks whether there were any indications that property management would be a challenge. Daniel replies that there were not. The previous owner had managed the property himself for almost two decades, during which he managed to secure multiple long-term tenants. These tenants did not stay through Daniel’s tenure as owner-manager. [13:30] When asked what he does to prevent future situations like this bad beat, Daniel replies: “I try to do more homework and due diligence upfront, speaking with people who are more experienced than I and have gone through things that I haven’t.” In the years since 2013, Daniel has grown a substantial network of experts to call upon in times of uncertainty. [14:33] Daniel offers some tips for growing a network: “Going to local meetings to meet investors in your area is one way. There are tools online for meeting real estate investors, and then you just build relationships…Most of these people are not only able to help, but they want to help. They don’t want you to make the same mistakes they did.” [15:40] Scott and Daniel discuss some specific strategies for developing a high-value investing network. They address the age-old problem of weeding out the less helpful connections and finding those that will prove most helpful and useful. [17:00] Scott points out that he often determines a connection’s true value when he has face-to-face time with them. Daniel agrees strongly: “When you have time to get deeper into conversation with someone, you find out they know much more than you thought. Conversations can open doors that you never even dreamed of.” [17:54] Daniel cites a recent lunch that turned into a very valuable opportunity. [19:30] Scott probes Daniel’s intentions when meeting other investors, and Daniel replies that he starts from a place of connecting and sharing information. If a deal develops out of that, fantastic. But he does not necessarily go in in with that expectation. [21:00] Scott agrees with Daniel that some of the best relationships are unexpected: “When I’m connecting with an individual about more than just business, it forms those long-term relationships that are really impactful.” The Takeaway: You Don’t Know Everything, But Your Network Might Daniel and Scott conclude the show by sharing the major lessons learned from Daniel’s story. Each investor gives his opinion on the major takeaway for listeners. [21:30] Scott sees Daniel’s story as one of the value of a strong network for preventing bad deals. In his view, if Daniel had some stronger relationships with higher-qualitty individuals, he may have been able to avoid this loss. [22:18] For Daniel, the lesson of his story is simple: “Make sure you keep your education going. Don’t think you know it all. Don’t think you’re better than the stories you hear.” He recommends looking to your network for help so you’re not “kissing the same toads.” [22:50] Daniel also believes a mentor is valuable: “If I could give one piece of advice it’s this: Find someone who’s been there and done that and doing it who can guide you.” Connect with Daniel Barli Connect with Daniel Barli directly by reaching out to him by email [email protected]. Daniel has learned his lesson and is always looking to connect with fellow investors. He’s also willing to give advice to newer investors and share free information. Listener Resources Thank you for joining us on today’s episode of the Real Estate Nerds Podcast. For even more free educational resources on real estate investing and the law, check out the Royal Legal Solutions blog. You can also reach our host Scott Smith directly, connect with him on LinkedIn, subscribe to the Royal Legal Solutions YouTube channel, or join our investor community on Facebook. Don’t forget to subscribe to stay up to date and have the most current episodes of the Real Estate Nerds Podcast directly in your listening library. Every subscription helps us create new, custom content for you. What did you think of today’s episode? What would you like to hear more about in the future? Leave your thoughts and questions in the comments section below, or leave us a review in the iTunes store. We love hearing your feedback, so fire away. Join us again next time for another fascinating investing conversation with investor Jon Iannotti. Thanks for listening and joining us on our journey to become better investors! Hosted by Scott Smith, Lead Attorney and Founder of Royal Legal Solutions. Schedule your personal consultation now. If you have questions about our content or suggestions for future episodes or guests, reach our podcast team at [email protected]. About Daniel Barli Daniel Barli is an attorney in New Jersey who currently runs his own practice. He has been a real estate investor for seven years, focusing primarily on buy-and-hold rentals. Daniel has successfully built a portfolio of 80+ units and and plans to growing, while also helping other investors achieve their own goals.