Rehabber to Developer

Mike Hambright (00:01.048)
Hey everybody, welcome back to the show. Today I’m here with my buddy, Daniil Kleyman, and we’re gonna be talking about how he’s kind of transitioned from being a rehabber into a developer. In fact, he develops real estate and builds communities and has done a lot of amazing things. Daniil and I have known each other for a long time now, so this is gonna be good stuff. He’s a good guy. Daniil, welcome to the show, Yeah.

Daniil Kleyman (00:20.837)
Thank you. Thank you. Mike, I was thinking you were actually one of the first podcasts I’ve ever done when you were still doing Flip Nerd. I mean, that was what, 2010?

Mike Hambright (00:29.638)
Yeah. Dude, so get this, I looked this up. It wasn’t 2010, it wasn’t quite that long ago. I started it in 2012, but I just looked it up. You were on the podcast January 20th, 2015. So that was over 10 years ago. Yeah. And you still, you look just as young, my friend.

Daniil Kleyman (00:44.187)
Ten years ago. Yeah. Yeah. You… Thank you. I’m flattered. I appreciate that.

Mike Hambright (00:51.342)
Yep. Yeah. So, Hey, I’m you and I are in a couple groups together and we talk fairly regularly and kind of have an idea what’s going on. But for those that don’t know you, maybe tell us a little bit about your background and without stealing thunder for what we’re going to talk about today. But because I know you’ve kind of pivoted a little bit, I guess probably all of us have pivoted certainly over the last 10 years, right? Yeah.

Daniil Kleyman (01:07.237)
Yeah, sure.

Daniil Kleyman (01:14.161)
Yeah, absolutely. mean, quick 30 seconds. I’m an immigrant, first generation immigrant from Russia. Back in 92, I had a corporate career prior to the crash in the way. I got out of Wall Street. I started rehabbing houses in Virginia, Richmond, Virginia. Did a ton of renovations, gut renovations.

And then yeah, transition into doing grounded development. My vision almost from the very beginning was to build a development company and do kind of bigger, more meaningful projects that have more of an impact and probably more of a bang to the bottom line. so probably right around 2015, when you and I recorded that podcast, I sort of made that switch from doing renovations to doing small infill ground up. And since then I’ve just been…

It’s developing basically, at a very sort of gradual scale build up. I didn’t immediately jump into doing bigger projects. I started doing single family homes, duplexes, and since then we’ve been developing some larger properties, but it’s been kind of a very organic journey.

Mike Hambright (02:29.602)
Yeah, there’s a lot of that going on right now. A lot of people that were rehabbers are moving into new construction. you know, what was the catalyst for you to do that back, you know, I guess maybe roughly 10 years ago when you did that?

Daniil Kleyman (02:44.155)
Burnout and opportunity. And really scale. So really three things. Burnout just from doing… All the housing stock here is old, 100 plus years old. And so I from day one wanted to build a rental portfolio. I never wanted to become a flipper. I wanted to… I just wanted to build and keep building up my residual month of cash flow. And I realized early on that…

If I’m taking a 100 plus year old property and I want it to be in my rental portfolio and not be a nightmare for me, we need to gut renovate it. I want to redo everything. Which accomplishes the desired task. When we fully gut renovated, it’s almost like new construction. But each gut renovation was not like the next and not like the previous one. It wasn’t a scalable business model.

And after you do 50, 60 of them, you just get burned out with problem solving and finding termite damage and mold and fire damage and properties. So burnout was one. Again, not a scalable business model. If I want to build up 300, 500 units, 1,000 units renovating single-family homes and duplexes, I’m never going to get there. And at the same time, there was opportunity. Infill lots around me.

at that time back in 2014-2015 were incredibly cheap incredibly cheap so you could pick up land for I I land banked at one point probably close to 60 lots with an average purchase price of 12 grand right I’ve since then developed all of them and I’ve burned through all of them but there was a big opportunity to pick up land at that time incredibly cheap because nobody was focused on

Mike Hambright (04:37.955)
Yeah.

Daniil Kleyman (04:38.863)
everybody was looking for rehabs. So the opportunity was tremendous and it was just a good time to switch into something more scalable.

Mike Hambright (04:47.726)
When you were doing infill lots, like how did you target those? And you were probably catching some of those in your net while you were a rehabber anyway, right? You just come across these opportunities and, cause I know I have in forever. I was like, nah, we don’t buy lots. We don’t buy land. We don’t do that, you know?

Daniil Kleyman (04:57.231)
Yeah.

Daniil Kleyman (05:01.965)
So I had a very specific farm area, right? And all your listeners should kind of understand what that term means, right? I mean, there’s very specific neighborhoods where I was looking for deals and I was renovating and I was already involved in. And so those opportunities started either coming to me from wholesalers, started picking them up at tax auctions because you would show up to a tax auction back then and 20 people would be bidding

on a piece of crap rancher that needed to be renovated and nobody would be bidding on the vacant lot. That’s not the case anymore, but at the time there was a big opportunity to pick up again assets that nobody else was really paying much attention to. And then after I started developing, I started doing very targeted mail campaigns, direct mail campaigns within my sort of farm area, which is really only a couple of zip codes.

and we started picking up lots that way. And the response back then to direct mail campaigns for vacant land was phenomenal. were not, you know, again, we have to evolve with the market and how we find deals now is different than how we used to find deals. But back then I would send out a hundred letters and I would get 10, 12 calls. That’s, that’s, that’s an

Mike Hambright (06:11.566)
Yeah

Daniil Kleyman (06:31.323)
You you can’t hit that now. You can’t get anything close to that now.

Mike Hambright (06:35.672)
Yeah. Well, there’s a lot more people doing marketing for land and lots and so I mean that that that kind of that, I guess asset classes matured, I guess, you know, I most of that’s driven by inflation, right? I mean, the cost of like, there’s so much value in building now. I mean, it used to be when prices were much lower, like, I guess the opportunities not quite there as much right.

Daniil Kleyman (06:44.047)
Yeah, yeah, yeah, so now we’re…

Daniil Kleyman (06:59.665)
Well, what appreciates is the land, right? If you look at any market and if you look at a market where single-family homes have 100 % price appreciation over X period of time, it doesn’t cost 100 % more to build the sticks and bricks, right? So a lot of that appreciation, outsize portion of that appreciation is in the land. So yeah, land is a lot more expensive now. It’s appreciated.

and a lot more people are building. We haven’t created, at least in our market, enough housing, so there’s a lot of demand from actually both tenants and homeowners. so people are filling that need by building, by going ground up. We’re doing the same.

Mike Hambright (07:50.734)
So over time you started to transition from infill lots and smaller properties to more kind of mixed use and like, you know, I guess mid-scale type developments, right?

Daniil Kleyman (08:02.737)
Yeah, so my projects aren’t huge, right? Like I’m not a big developer by any stretch of imagination. My deals, my sweet spot right now of projects that we’re really focused on and projects that we’ve already completed are probably 15 to 60 units in a specific project. And that’s kind of a sweet spot because like the small guy can’t do it and is not looking for those deals. And the big multifamily developers…

that’s too small for them. it’s become kind of an interesting niche for us. I call them boutique style apartment buildings or mixed use buildings. They all have a unique design, but because they’re so small, we can be very efficient with common areas and access and efficiency of the building design. Because they’re smaller buildings, I don’t need to compete.

on the same amenities that 100 plus unit apartment buildings are competing in, which is, you know, I don’t need to put a pool in a gym, a bocce court. What, what are people do now? Pickleball five pickleball courts, a dog butt washing station. So we, we don’t need to invest money into those things in these smaller buildings, especially the buildings that are

Mike Hambright (09:13.567)
ball yeah.

Daniil Kleyman (09:28.227)
in the neighborhoods where I develop, which are very walkable neighborhoods. And then the local businesses and the restaurants really serve to amenitize and attract tenants to our buildings. And I love those kinds of projects. And a lot of these projects that we do are mixed use projects, which means we’re putting a commercial tenant either on the corner or the entire ground floor. And so I have buildings where we just have a corner commercial.

a restaurant or we just signed a lease with a bakery in a 16 unit building and I have a project, I have multiple projects, one we’re in the middle of finishing now that’s got 8,000 square feet of commercial and three or four different commercial tenants on the ground floor. But those are really fun projects to me because I’m

I’m putting in sort of assets into the neighborhood that serve the neighborhood as a whole and make the neighborhood more attractive and make my building more attractive, make my properties surrounding that building more attractive as well. And then it’s just fun because we get to cure, like curate really great local mom and pop owned businesses that go in there. don’t do, you know, one of the reasons why it’s sort of like

where I develop Richmond City is really cool and unique is because we don’t have a lot of franchises here. So we don’t have these, know, Quiznos and Subways and Pizza Hut. Like we’re putting in really neat local boutique businesses into these buildings. Bakeries, coffee shops, juice bars, they’re all uniquely branded and they’re neighborhood businesses, not some, you know, corporation.

Mike Hambright (11:16.984)
Yeah, it feels unique. how do you curate that? I’m curious how you curate those. Like how do you keep out somebody that, you I guess you can discriminate on the commercial side, right?

Daniil Kleyman (11:23.76)
Yeah.

Daniil Kleyman (11:27.601)
It’s funny, I always say that, mean, you, the discrimination is not the word that, that I would choose, but we have ability to pick and choose the types of businesses that we want and the types of businesses that we don’t think will be additive to the block or the neighborhood or, or buildings. So we, and that’s why I use the term curate because I can go into a project and I can say, I want

coffee shop here but maybe I don’t want like a typical convenience store here or I want a gym here but I don’t want a vape shop. So we can steer the path that the neighborhood goes in by putting commercial tenants in there that are again additive to the neighborhood and not you know attract vacancy and crime and

with ever else.

Mike Hambright (12:27.534)
Yeah. So these developments, know they’re all different sizes, but just to kind of give some perspective, what are the typical number of apartment units that you would have in these buildings?

Daniil Kleyman (12:39.761)
We’re finishing one now that we already started leasing up. The commercial is fully leased, but that’s got 40 apartments and it’s got three different commercial tenants. And then we’ve got a sushi restaurant going in there, got a bakery going in there and we’re finalizing a lease with a yoga studio. There is another project that we finished recently. It’s got 25 apartments and seven different commercial tenants in it. So again, that’s kind of the sweet spot. Once you hit above,

I would probably say 80 units. You really have to start amendatizing these properties because that’s who you’re competing against. And construction numbers get more expensive. My efficiency ratio goes down because I’m paying to build the gym and the lounge and the swimming pool, but I’m not really getting rent on that square footage. I may be getting a little bit of a premium on my rents because I have those amenities in there.

I don’t think it really ROIs. So that’s not like, I’ve got a hundred plus unit projects in the pipeline multiple. So I am going to be in that business. given what’s happening with construction costs right now, I think a more interesting niche to me is these smaller projects. And you need less equity to get them done. I mean, when you’re talking about a, like the…

for the unit project we’re finishing now that had a 4.5 million dollar equity piece to it that that needed to go into the deal to supplement the bank loan so it’s significant capital requirements

Mike Hambright (14:22.126)
And you’re not, I know your goal is to ultimately keep as much of this stuff as possible and you’re not doing what a lot of folks might do which is creating big syndications, raising a lot of money. You’re trying to keep as much equity as possible. Talk about maybe your typical kind of structures.

Daniil Kleyman (14:33.744)
down.

Daniil Kleyman (14:40.261)
My typical deal structures have been either I sell fund the equity or I bring in like a 50-50 partner. We’ve done one small syndication so far for a piece of the equity, but I’ve largely tried to avoid syndications for a couple of reasons. And there’s nothing wrong with syndications. That’s how most of the development world operates. But I’ve tried to kick that can down the road as far as I can.

And so why do I not like syndications?

First of all, you give up control and equity of the deal, right? You work to do a deal this big, but you only own this much of it.

A big, even bigger problem to me is the misalignment of incentives in lot of these syndications. Whereas I, as the general partner, make most of my money from fees, but I bring in limited partners, they put up all the equity and they really only start getting paid down the road. The biggest problem to me, and there’s ways to structure these syndications where your incentives are aligned and then the good syndicators will…

structure these deals correctly to where their incentives are perfectly aligned with the long-term, with the limited partners and equity investors. To me, the biggest problem is that every project I do, I want to hold forever. At least I’m going into the deal with the mindset that I’m going to hold this asset forever. And when you structure a syndication, typically you’re promising your investor a certain equity multiple.

Mike Hambright (16:22.798)
Yep.

Daniil Kleyman (16:22.915)
or internal rate of return. And the quickest way and the most surefire way to generate that equity multiple or IRR is to sell the deal as quickly as possible. Three, four, five years. So, I mean, that’s how most indications work. You need to cash out your investors, you’re gonna sell the deal.

I’m not a fan of that model. The beauty of development to me is that I’m gonna, because development is not easy, it’s not quick. I’m gonna work my ass off to build this building. Now it may take me a year of planning. If we’re doing zoning entitlements, it may take me two years. Then I’m spend 18 to 24 months building it and leasing it up.

So now I’ve spent four years of my life on this project. Smaller infill that we do, it’s much quicker, right? I can build a duplex, I can get it permanent, it in eight to nine months and be done.

But if I’m going to do all that work, I want that building to pay me for the rest of my life. To me, that’s the beauty. Every project I do just builds my cashflow and my monthly not and I call it my F you all. I did kind of a longer video a while ago, but it seemed to resonate with a lot of people. But every project I do and I add to my portfolio that

Mike Hambright (17:38.254)
Yeah.

Daniil Kleyman (18:02.423)
I hold for the long term is like a brick in the wall that just it’s more cash flow that I can count on every single month and it’s there and it’s a wall that protects me against everything. Unexpected bills, having to have a job.

Mike Hambright (18:05.39)
That’s right. Yeah, yeah.

Mike Hambright (18:13.528)
Yeah, that’s great.

Daniil Kleyman (18:19.757)
emergencies, inflation.

But also because I have that long-term outlook, think it insulates me against a lot of the short-term bullshit. So yesterday, right, you and I are, I don’t know…

I don’t know when this is going to air, but this week there’s a lot of market movements around tariffs. People are freaking out about their stock portfolio. They’re freaking out about everything. I try not to pay attention to these daily or weekly moves. I’m more curious about what happens six months from now, a year from now, because I look at all of my businesses in terms of decades.

Mike Hambright (18:54.414)
Mm-hmm.

Daniil Kleyman (19:03.535)
And even with my stock investments and I have money in stocks, it’s not a significant portion of my net worth, but I have money in stocks. I have no idea what my portfolio did yesterday, the day before, I couldn’t tell you. I don’t care. Like I look at it in terms of decades. So I try to avoid the short term thinking and also the short term strategies of just purely being a flipper, being a transaction.

Mike Hambright (19:22.231)
right.

Daniil Kleyman (19:33.421)
engineer because I want to do a deal and I want that deal to pay me for the rest of my life.

Mike Hambright (19:39.18)
Yeah, I get it. Yeah, I have a bunch of multifamily syndications, a GP and a bunch of deals, but you know, by design, we have to start selling most of our properties over the next two or three years and several next year, which I don’t want the money back. Like I don’t want to keep it busy. just like you said, that is part of the problem is, you know, by design, these are going to either get refinanced or sell off and it’s a difficult time to refinance now. And so…

Daniil Kleyman (19:52.657)
Mm-hmm.

Daniil Kleyman (19:56.859)
Yeah.

Daniil Kleyman (20:06.673)
Sure, absolutely.

Mike Hambright (20:08.31)
It’s like, okay, well, we got to sell it to get everybody their money back. And I don’t really want the money back. I want it to stay busy because then it’s a first world problem, but that’s my problem is now, okay, where am going to put it now?

Daniil Kleyman (20:20.177)
Well, because at the end of the day, you and I, and a lot of people listening to this probably got into this business in order to create time freedom. And we’re in it 10 years, 15 years, and a lot of us find ourselves with none of that time freedom because we didn’t structure our businesses correctly, because we’re constantly doing deals to make money.

And so my goal is to always keep that front and center. What do I truly want? I want time, I want flexibility, I want space. And the way to accomplish those things is by having those assets that pay me forever, not assets that I have to sell and then find a place to reinvest that money and be forced to do more deals to put my money to work so that it starts paying me again. And that’s really important to me.

Mike Hambright (21:18.83)
Talk a little, you mentioned tariffs a minute ago, talk a little bit about, nobody really knows how this is gonna play out, mean, but material costs are an issue for you as a developer for sure. So how do you navigate those waters and what are some things you might be doing differently than in years past based on material prices going up as much as you have?

Daniil Kleyman (21:28.784)
Yeah.

Daniil Kleyman (21:39.355)
Well, you know, we’re not big enough to where I can go and fill a warehouse full of stuff in anticipation. You know, a lot of the bigger developers, like truly big developers, I think a chunk of them have been doing that, right? They’ve been pre-buying certain materials in anticipation of construction costs going up. You know, we’re not in position to do that. If I have a project that definitely gets approved,

then I get with my general contractor and they go and they lock in as much as they can at that time. But there’s only so much we can do. There’s only so much control we can exert. I don’t really know what’s gonna happen over the next six months. I personally am hopeful that I’m just a general optimist to begin with. I think to be a real estate developer, you have to be an optimist. Like you just, you have to be. If you have a pessimistic view of the world,

It’s the last thing. Yeah, that’s the last thing that you should be doing, right? So I, by nature, have an optimistic outlook on the world and I believe that things will work out. And so my opinion, without any scientific evidence to back it up, is that there’s gonna be a short-term shock from the tariffs, but maybe we look at it three or six months from now and a lot of the countries on whom we’ve put reciprocal tariffs cry uncle.

Mike Hambright (22:38.168)
wouldn’t be building you wouldn’t be building for the future.

Daniil Kleyman (23:08.753)
and meet us where we want them to be. And it blows over.

Mike Hambright (23:16.078)
I have a friend, a guy that’s in my mastermind, it on the podcast a little while back. So he buys a hundred containers a year of LVP, like fluorine, right? And he’d been buying it from China. And he’s like, you know, cause there were already tariffs in place, by the way, with China. So he’s like, I’ve been paying like 20 to 30 % tariffs. He’s like, I think it’s going to 60. But then he’s like, but my manufacturer.

Daniil Kleyman (23:25.882)
Mm-hmm.

Daniil Kleyman (23:30.993)
Yeah.

It’s still cheap.

Mike Hambright (23:40.302)
just announced to me that they’re moving their production to Vietnam that I don’t know what happened here with all the changes recently, but he’s like, they only have a 5 % tariff. So like the the supplier is providing a solution to that. In fact, his costs are going to go down because they’re the tariff is smaller and they don’t have to pass as much of that through. So it’s interesting. Like I don’t think it’s all just like, are we going to cave or are they going to cave? It’s like the people that are doing the manufacturing.

Daniil Kleyman (23:51.503)
You’re done.

Daniil Kleyman (23:56.87)
Yeah.

Mike Hambright (24:08.398)
are moving to different countries, maybe moving to the US.

Daniil Kleyman (24:10.117)
or they’re going to move it here? Yeah, I mean, again, like we will all adapt. There are also counterbalancing forces that even today, if you look at like what the bond market is doing after the tariff announcements, bond market shut up, the yields are falling, right? I mean, just, think today they’re down 20 basis points. So that’s going to help in terms of development.

alleviate some of the pain from construction costs rising because hopefully our cost of capital will go down if this bond market move stays, you know, if the bond yields stay down or go down even further. So at the end of the day, there’s already a housing affordability crisis in this country. There’s a housing shortage and there’s a massive affordability crisis. And I have to believe that the current administration is smart enough

to know that that cannot be exacerbated because it’s already really bad. It’s already really bad. part of me still naively believes that, and you know, not to get into politics, but I’m not generally a big fan of government in general, but part of me wants to believe because I’m an optimist that there are adults driving the bus and that they will drive the bus

in the right direction. Because if this housing affordability crisis worsens to the point where new generations have no hope of buying starter homes in their 20s or even 30s, I don’t know what’s going to happen, but nothing good will come out of it. Home ownership is still very much a part of the American dream and less and less people are able to achieve it.

As that gets worse, it’s gonna become a problem for.

Daniil Kleyman (26:12.155)
for anybody that sits in the seat of power in this country.

Mike Hambright (26:18.178)
Let’s talk about, can you share some tips on from a developer side of working with cities? I know you’ve got a lot of, it’s a delicate process, right? I mean, you have a vision for something you want to do and you have to convince, especially when you’re in an older city like that, that has probably very specific things that they’re on their development roadmap. Like how do you find ways to, I mean, do you always just…

Daniil Kleyman (26:30.502)
Yeah.

Mike Hambright (26:44.75)
Do you kind of have an idea of what they want and you go find an opportunity based on that? Or are you having to twist arms and convince people to come your way?

Daniil Kleyman (26:54.403)
No, so in an ideal situation, I’m going to build, current zoning already allows. And if current zoning already allows it, unless it’s in what’s called an old and historic district that’s historically protected and I have to have somebody review the exterior renderings and materials, that’s notwithstanding. If I’m doing something that zoning currently allows, then great, I’m off to the races. I can just file for permits. So…

If I can find projects that meet where my vision, it starts with the vision, right? I don’t try to find projects that fit what somebody wants. I try to find projects that I find exciting, that meet my investment criteria and that I have an interesting vision for. And then hopefully that vision aligns with what the current zoning allows. If my vision for what the current zoning

allows if those two things don’t line up then it becomes the question of for me to get this entitled fully and get this rezoned am I going to be fighting an uphill battle there’s a certain grade of uphill that I’m willing to go but I’m not willing to go this way right I’m willing to go against some pushback from some neighbors maybe from some local leaders but

Mike Hambright (28:15.054)
Yeah, right.

Daniil Kleyman (28:23.259)
but I don’t wanna go, I don’t wanna climb, I don’t wanna scale a steep cliff, cause I’ll die. Right, does that make sense? So.

Mike Hambright (28:30.552)
Yeah, at some point it’s just a trade off. It’s not worth the effort.

Daniil Kleyman (28:34.775)
No, it’s not. So then it becomes a question of, know, does what I want to do align with the master development plan for the area? Can I get the planning staff locally on board with my vision? Because ultimately they have to recommend this to the planning commission. Who are the local politicians and will they back this? Because oftentimes when we go through any kind of

entitlement where the current zoning doesn’t allow something, the local council person has to be on board with what we’re doing. And so I ask those questions first. And if I don’t know the answers to those questions, I usually will hire a land use attorney that has relationships in the local area, knows what is likely to get passed, what is likely not to get passed, has relationships with the planning department and can help me answer those questions. And then it’s a matter of figuring out again, how

how steep is the climb. And if the climb is not too steep…

Mike Hambright (29:36.494)
for sure. That’s all, it’s just managing risk, right?

Daniil Kleyman (29:40.751)
It’s managing risk and time and…

It all, there are real costs associated with seeking any kind of entitlement because I’m have to spend money on surveying, engineering, architect, land use attorney, and if what I am trying to do doesn’t get approved, those are sunk costs. I’ve spent that money and that’s typically tens of thousands of dollars. So.

Mike Hambright (30:07.576)
Well, Deneil, thanks for spending some time with us today.

Daniil Kleyman (30:10.021)
Yeah, absolutely happy to. It’s been 10 years since we recorded one, so we’re long overdue.

Mike Hambright (30:14.082)
Yeah, we got to, that’s right. That’s right. We’ll to do another one maybe in five years this time. Yeah. Hey, if folks want to, you should, you know, you’ve got an open invite. So if folks want to learn more about you, connect with you in any way, where can they go?

Daniil Kleyman (30:19.599)
Yeah, we’ll wait less time this time. Maybe I’ll come to Texas, so…

Daniil Kleyman (30:31.761)
You can find me on YouTube if you search for RehabValuator, R-E-H-A-B-V-A-L-U-A or search for my name, you’ll find me on YouTube. We have a ton of content, specifically on infill development on YouTube. You can go to rehabvaluator.com. We have a software company for real estate investors and developers and there’s a free version there that you can gain access to. That is great. And you start getting emails from me and…

If you reply to any one of those emails, I’m usually pretty good at replying to people myself if there’s something I can help you with.

Mike Hambright (31:09.804)
Awesome. We’ll add those links down below on the show notes. So thanks again for joining us today. Yeah. Guys, if you’re moving into the development arena, you definitely need to check out Daniil. He’s got some good stuff. He’s been around for a long time. I know him. He’s generally a pretty good guy. So I vouch for him until he does something. Yeah. So anyway, hope you guys got some great value from today. Appreciate you a bunch. We’ll see you on the next show.