Lisa Calhoun
Welcome everyone, back to the Atlanta Startup Podcast. I’m Lisa Calhoun, Founding Managing Partner at Valor Ventures and your host today. I’m really excited to interview an Atlanta entrepreneur, Daniel Dorfman. Daniel, thank you so much for coming today.
Daniel Dorfman
Thanks for having me. I am excited. I got to check out a few episodes and really started to see kind of what I was up for. I’m excited to be on.
Lisa Calhoun
We met at a private equity conference earlier this summer and I got the chance to see you and your father receiving an award for a really cool business roots. I wonder if you could just introduce yourself and the business a little bit. Let people know what you’re doing.
Daniel Dorfman
Absolutely. My name is Daniel Dorfman, I am a lifetime Atlantan, which is pretty rare. We built the Roots Investment Community, and what Roots is, is it is a real estate fund that prioritizes the ability for everybody to participate, including our renters. We are the first real estate fund that builds wealth for both renters and investors at the same time.
Lisa Calhoun
How did you come up with that concept?
Daniel Dorfman
The long and short of it is data. My entire career is in real estate investing. I’ve done a ton of deals, I’ve syndicated, I’ve helped a lot of wealthy people get wealthier. So when we first kind of had a moment to think about what the next evolution of what we were doing was, one of the first things I wanted was to say, hey, there’s not really a product out there that’s democratizing the asset and still providing private level returns, right? Because by the time you democratize it, and you go through all these tests, you end up in this world where it’s hard. It’s hard for operators and you have to be very intentional about it. The way that we were able to do it and still provide what we believe to be wonderful returns since we started three years ago, is we looked and said, alright, if we are going to spend the money to become SEC compliant, and to be able to offer this to nonaccredited and accredited folks, we really need to do the best that we can at operating the real estate.
Lisa Calhoun
So you became an owner-manager?
Daniel Dorfman
Exactly. I’ve done over 54 syndicates into small multifamily in Atlanta.
Lisa Calhoun
In Atlanta, not the southeast, not Florida, in Atlanta. Awesome.
Daniel Dorfman
We are very much targeted into the Atlanta area. That’s just what we did. Again, when you’re looking at it, and you don’t have the fees and the regulatory stuff that you have to jump through, it’s a little easier to produce 14-plus percent returns because you don’t have that extra layer.
Lisa Calhoun
Forget traveling and you don’t have also property management because you’re in this network.
Daniel Dorfman
Exactly. We just said we know we want to do this, we know we want to provide an avenue for anybody to invest in real estate, and we do that for as little as $100. Now, how are we going to do it and still create the return that we want to be able to deliver? One of the coolest things that we figured out was we looked at all the data from all our previous deals and this isn’t rocket science, but it’s the location of deals really matters. Absolutely.
Lisa Calhoun
Give us some tips. What are the hot areas?
Daniel Dorfman
We like to hunt on the edge of awesome is what we say.
Lisa Calhoun
Build fresh, or do you make something beautiful or something older?
Daniel Dorfman
We try to leave condition homes as much as we can. One, we like workforce housing. We like impacting that renter and resident in Atlanta and anybody who’s telling you right now that they’re going to build and construct new with affordability in mind is probably not looking at all the numbers. For us, it’s more about, hey, let’s go buy a home that’s in really bad shape and probably hasn’t been lived in for a little while. Let’s recondition that home and then let’s put it back on the market for a reasonable rent. 92% of our portfolio falls below the affordable housing criteria, which is nice for us. It’s important to continue to have that inventory for our city.
Lisa Calhoun
What percent is multifamily, just roughly, versus single?
Daniel Dorfman
We have 136 buildings, 90% of them are single-family.
Lisa Calhoun
This is a really interesting strategy. So, three years ago, you’re like, alright, we’re gonna run the numbers. We’re going to find a way to help the everyday person, make a 14-plus percent return while living affordably. What happened? Did it work right away?
Daniel Dorfman
No. Basically, the fundamentals were, that we looked at all those deals that we had and we looked at it and said, alright, it’s the people in the building that generate profits for any investor. There’s this really weird relationship that happens between customer and owner in the real estate world, which is it’s adversarial, right? Like, there’s not another industry that I know of–
Lisa Calhoun
–where your customer can be a little adversarial–
Daniel Dorfman
–from the day they walk in. Maybe a rental car? It’s usually you walk in and that customer’s supposed to be treated, and real estate just doesn’t necessarily happen that way. What generally happens is they’re handing you, the tenant, we hate that word, is coming in, they’re leasing your building, they hand you the security deposit that they never think you’re gonna give them back. The landlord takes that check and says, oh, this is never gonna cover what this person is going to do in damages, and at the end of the day, they both end up right. So the tenant ends up saying, I’m paying kind of house money, they’re never gonna get back, and doesn’t keep up with the home, maybe as well as they probably would. Landlords just don’t treat their residents right, because they think they’re gonna have a big bill on the other side. What we did was, we said, what would happen if we, instead of having a tenant, we had a partner. We moved people in with the expectation that we’re not hiding away from the fact that you’re helping us make money. They’re helping us take care of this home and this asset, and for doing so we’re going to reward you with a wealth-building program that not only allows you to take what would have been your security deposit and invest it in our fund from day one, making you an owner in that little property in our entire portfolio from the jump, but we’re also going to say, if you pay rent on time for 90 days in a row, if you have no lease violations for that time period, and if you do a quick, and this is big for an asset, and this is what made us very efficient, is we have them do a video of the inside and outside of the property for preventive maintenance. They identify little things for us all the time that we really would never have been able to see before and we probably wouldn’t have been alerted to right.
Lisa Calhoun
Wow, that’s very different. They’re also seeing their own home condition. I mean, this is where they’re living.
Daniel Dorfman
They’re stacking it up. They’re understanding the value of reporting those things, which they were never even asked to do or told about before. When that happens, what we do is we drop $150 extra into an investment account for them.
Lisa Calhoun
Paying for their labor of helping you keep an eye on the space.
Daniel Dorfman
Exactly. You pay rent on time for us for a year, you do four videos, and you don’t have lease violations, which is pretty uncommon. You’re gonna have $600 extra in that investment account. So you take your $1500 to $2100 even with no growth and it’s really magical to watch now, we can go back to why it was hard. It was challenging but, it’s amazing to watch now where our residents are logging into their investment portals and seeing their investment. I don’t know if you noticed, but the average Atlantan renter in the workforce housing communities, has about $500 in savings, and that’s it. To kind of help multiply that on a grand scale, almost $600 bucks covers that every year, we feel like we’re making a great impact on their lives, and they’re making a huge impact for us because they’re helping us to stay more occupied.
Lisa Calhoun
I’m wondering, three years down the road, how is occupancy relative to the market?
Daniel Dorfman
It’s crazy, we are three years down the road, and our occupancy has never dropped under 96%. The industry average is I think, right around 92%. The biggest number that we hang our hat on thus far is our renewal rate. The industry average renewal rate is around 52%. Ours is 81%. It’s really exciting. We’ve been fortunate to have great investors and now our community is growing by the day. We have Atlanta buildings and we have investors from across the country.
Lisa Calhoun
How do you find your investors? How do they hear about Roots?
Daniel Dorfman
Lots of marketing and lots of different partnerships. We just did one with a newsletter called The Skimm Today.
Lisa Calhoun
Cool. Everyone knows The Skimm.
Daniel Dorfman
That was awesome. We just kind of keep picking our pockets and trying to spread the word as much as possible.
Lisa Calhoun
Well, I’m excited that our listeners get a chance to hear about this,. How will they find you online if they want to learn more?
Daniel Dorfman
https://www.investwithroots.com/ is where you can find us. You can find all of our information about the fund and you can sign up to invest with us if you want to. You can also reach out to me at any point at daniel@investwithroots.com. Love to chat.
Lisa Calhoun
Awesome. Well, I’m glad to share that information. I want to go back to a couple of things. We were talking about your types of investors. I want to get to that, hold that thought in just a moment. Because while we’re on the business fundamentals, curious about what you see if anything, holding you back from just throwing this out tremendously. What are the governors, challenges, or headwinds in business like this, if any?
Daniel Dorfman
It’s a great question. One of the restrictions that we have is on the operating side. Fund limits. Limitations to how much I can take in investment. Also, property. It’s a very tight market right now. Interest rates are extremely high.
Lisa Calhoun
I was gonna ask, about mortgage interest rates, you’re kind of a governor when it comes to that, right?
Daniel Dorfman
From the fun side, yes. So what we started to kind of really think about was all right, we’ve run this program for ourselves for two years. Last year, this time is about when we started thinking about and we’ve done decently but the operational efficiencies of letting your renter build wealth, which is really cool, were so dramatic that we started to think about that exact question of like, as a fund, an operator, it was pretty limited. That’s where that ceiling and those governors come into play. But as a technology, we’re not. What we’ve done is now we have broken off the resident experience products, and put in, basically, its own company. Now, we can offer any operator across the country this opportunity to build wealth with their residents, and experience, hopefully, the same efficiencies that we have. We kind of built a product for ourselves, and now we get to offer it to the whole country.
Lisa Calhoun
That’s exciting. Do you use any type of AI or automation when it comes to looking at the properties?
Daniel Dorfman
We do. So we use a lot of AI in watching the videos. Understanding what’s happening, we do a really unique component where we have a baseline video done at an empty-level set apartment so that we know exactly what we’re looking for.
Lisa Calhoun
You did that yourself? Great. Okay, so you’ve got a baseline, and then?
Daniel Dorfman
Then the resident moves and they do one, so that should match up pretty darn close. And then basically, every quarter, they’re doing that same video. We’re matching and making adjustments on our end.
Lisa Calhoun
Do you walk them through the video? Like take this, now do that.
Daniel Dorfman
Yes, absolutely. Residents don’t know what they’re looking at.
Lisa Calhoun
Well, also, if you’re trying to match it on AI, you really need a fairly apples-to-apples comparison. Which AI stack? How are you thinking of that, as you can see the very fast-moving, fast-developing AI stack?
Daniel Dorfman
Honestly, that’s a little above my head, we obviously use ChatGPT stack, and we use some other machine learning-type elements. It’s not all AI.
Lisa Calhoun
We have an interesting portfolio company here in Atlanta. Georgia Tech co-founders, their very first customer is the Centergy One Building, that big, beautiful property in Tech Square. Their technology helps industrial facilities do something very similar. It’s more on the training of operation industrial facility, but they use high-quality video to make sure that they can track all kinds of things as well as help people be trained. This whole visual management system, I think you’re onto something.
Daniel Dorfman
Infant is what I would call it. The human component of it is very hard to manage. We have to help train that. Training the human to help us do this is almost as hard as anything else. But at the end of the day, that is where the gold standard of where we want to go. Everything we do works very well with how we’re trying to do it. We feel really good that we have this learning pool and this test pocket to work within, as we kind of master that as it grows.
Lisa Calhoun
If there’s anything confusing, you’re close enough to all of your properties that you can clarify that. One of the things that makes me curious, and I’m moving more into that the right investor for you, going out on The Skimm, podcast, I’m sure you’ll get a lot of interest just in the next couple of weeks. But I bet not every investor is in love with this product and one of the things I hear a lot when I’m talking to potential investors around Valor funds, is well, we’ve noticed you invest in a lot of diverse founders. Does that mean I’m going to have concessionary returns? And they may ask that question, but they actually already somehow believe that that is the case, which is not with our strategy, either. We’re investing in the best of the best for quality seed turns. But I’m wondering how you’re hearing about that when you talk about sharing. Well, how’s it going?
Daniel Dorfman
I love that question. Our fund has performed well, in my opinion. We’ve had over 16% returns for three years in a row. But even with that number, we do get individuals who just can’t see past this idea of like a winning plan.
Lisa Calhoun
You gave up a dime or a nickel somewhere.
Daniel Dorfman
It’s insane. I will kindly invite them to invest with their hearts. There are a lot of places you can put your money. I know, there are a lot of places you can put your money, where it does not make an impact. That’s not us, though. So yes, we are going to take some risks. I mean, we have risks in terms of we work with people. We don’t just shy people away who have had issues with credit and things like that. Sometimes it works fantastically.
Lisa Calhoun
It will rain, I’m sure.
Daniel Dorfman
It works its way, right? Part of our process for resident selection is a little different. We’re talking about building wealth when you’re calling in on a Zillow ad.
Lisa Calhoun
That’s a really interesting psychographic frame. That is very much to your credit because everyone needs a roof over their heads. But those who want a roof over their heads and also have an eye towards building wealth in their family or for themselves, that’s probably someone who wants to be a pretty good teacher because they want a whole lot more than that.
Daniel Dorfman
Exactly. Our goal is to position them into home ownership. To act like this mezzanine product between renting and owning. We just transitioned our first people into homeownership about a month ago.
Lisa Calhoun
Did you sell them your own properties?
Daniel Dorfman
We didn’t on this one. It’s in the roadmap. But really, it’s for us, it’s more about finding the place that you really love. So they built up, $3500 in their account while they lived with us and that’s not enough to go buy a home. It’s enough to help them fix the water heater and help them do that little repair that they need to do. They built their credit while they lived with us as well and learned because of the videos–
Lisa Calhoun
The art of home maintenance. Oh, my goodness, it took me many years.
Daniel Dorfman
I still don’t know that. My wife’s gonna laugh when she reads that. She’s the one who helps with our home maintenance.
Lisa Calhoun
It’s good to have a partnership.
Daniel Dorfman
Yes, she’s awesome.
Lisa Calhoun
As you walk in the door here at Valor, we’re talking about investors, and you said you noticed one of our posters, and it’s about the great returns generated by gender-diverse teams. You mentioned that you are interested in more female investors. I was like, hold that thought, we could talk about that here. Tell me about the relationship between Roots and female investors.
Daniel Dorfman
So right now, it’s not great. We want to do better. We’ve got 30 around 38% female to male right now, out of 7000 investors.
Lisa Calhoun
Numbers of investors, right? Does it look the same for capital?
Daniel Dorfman
No.
Lisa Calhoun
I see.
Daniel Dorfman
I don’t actually know that.
Lisa Calhoun
By capital, do you think it might be that women are investing bigger checks or smaller checks?
Daniel Dorfman
A little smaller. I need to pencil that out.
Lisa Calhoun
That’s how I look at it in Valor. 50% of our investors are female, female lead strategies, and it is about 50% of the capital. But that has evolved over time. Women have typically been less comfortable. There are not that many people in the south about comfortable venture capital, period. But once you get into it, and someone is finding out that that’s a high risk, a potential high return, a lot of times women very much think conservatively about money, and they might want to put a smaller check-in. Over time, I like to think that we’ve learned to tell our story and our returns have started that they are just as risky on as the gentleman in our strategy, which is an exciting thing to be a part of.
Daniel Dorfman
That’s awesome. I think I actually see it the same way. It’s not that we’re not doing a good enough job telling the story, if that’s the thing. The other thing that we overlook, I think in some cases, is we have a lot of family investments. And that decision could have been made.
Lisa Calhoun
I’m wondering how many are actually female-led? You can see how interesting it could be to a woman who’s like, wow, okay, that 92% renewal rate is driven by a big number of percent by the female head of household.
Daniel Dorfman
So the people who bought the home, Morgan, is her name. She was on every investor call. She led a lot of that discussion. That’s actually very interesting when you think about the participant, she was there. Even though both of them obviously were on the lease and investors.
Lisa Calhoun
Fascinating. We’ve dived into a lot. Is there anything else we should know? I should have asked or that you’d like to share?
Daniel Dorfman
I think this is awesome. We’re excited and thanks for having me.
Lisa Calhoun
It’s a real pleasure to talk to you, Daniel. Thank you for your time. I’m excited to follow the Roots story.
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