A Short-Term Trader and Investor

Michael Quarles interviews Chris Dunn

Hello everybody. Michael Quarles with the Michael Quarles real estate show. Today I have Chris Dunn with me. Chris is an amazing individual; he is an investor, he’s been in the stock market, he’s an angel investor, he had one of the strangest jobs anybody has ever had in life and I’ll let him tell you that. He’s a traveler who has been to 100 countries and we are just going to have a great conversation talking about a lot of stuff. Chris, welcome to the show. Tell us about yourself.

Well I’m a real estate investor, day trader, angel investor… just about anything investing-wise or entrepreneurial is basically crack for me. That’s what I wake up excited about and what I try to spend all of my time doing when I am not traveling.

Tell me about the real estate part of what you do.

Well right now I am investing in Central Texas. I have a couple of flips going. Moving into multifamily. I do private lending to some wholesalers and rehabbers and yeah that’s pretty much it. I really like third tier markets here in Texas. I live in Austin and I invest mostly within an hour/hour and a half range outside of Austin.

What do you mean by third tier markets?

Just smaller towns. The numbers in a city like Austin - which, as you might know, has been one of the fastest growing cities of the decade and of the last several years. That’s really caused…I wouldn’t call it a bubble because we’ve had the population growth to sustain it; there’s not an insane speculation but prices have gone up considerably. Particularly in the multifamily space. You can’t get cap rates above 5 or 6% right now. I mean prices are just too high. What I like to do is go about anywhere 30-90 minutes outside of Austin and you have smaller towns that have some decent population but they haven’t had the growth and price appreciation that we have seen here in Austin.

You can still get your cap rate up there?

Yeah exactly. You get good cap rates, you can find blue collar neighborhoods where the numbers for flips makes sense. For example, I am getting ready to put one on the market. It’s in a beautiful area -the historic district. We got it for $45k, put about $40k into it and we are going to sell it for $160k on owner financing. You just can’t find that type of deal in Austin. The same house would be half a million bucks or more.

It’s crazy. Two hours away from Bakersfield California is Los Angeles and my house in LA would be several million dollars and I’m thinking, “Man I am so glad I live in Bakersfield.”

Yeah.

It’s just crazy. How do you find your properties that you buy or do you go through a realtor?

I actually have a couple partners that are the boots on the ground. I am more of the money and marketing guy. The partner that I have on this house for example gets a lot of deal flow. He has bird dogs. He is a very experienced wholesaler. He has done over 600 transactions I think. I like to partner with guys and ladies that know the real estate markets they are in better than I do. I just provide the financing and marketing and move the process along.

Make your money work for you.

Exactly.

Now this has to be…strange is the wrong word I’m sure - am I reading this right? You were a dancing ice cream cone at one point in your life?

Yeah when I was 15 my first job was as a dancing ice cream cone.

Is that a girl magnet or what?

Oh yeah. It was funny because I swear I actually invited girls to come see me because I didn’t care. I was making money, I got minimum wage - $5.15 an hour - and I felt like a big shot. But then I realized “Man this sucks. I’m sweaty, I’m hot, I’m really not making a lot of money. Let’s go find something else.”

So how did you go from that to where you are at today?

Okay, I will try to make a long story short. I got suspended in high school. I got in trouble for doing something, God knows what, and was forced to sit in a classroom and not talk to anybody for a week. I came across the Rich Dad books, started reading entrepreneurial stuff and was just on fire. I was really really into it. I started learning as much as I could about entrepreneurship and said, “Well let me go start a company.” I started a car detailing company, hired a bunch of my friends, and we ended up landing some pretty big accounts of fleets of car and we were pulling in a few thousand dollars cash every weekend and after school. I was doing really well.

We would go into these shopping centers where there were office parks and store fronts and we would just say, “Hey anybody in here want to get their car detailed?” We went to a mortgage company and this was during the Refi boom, I think it was 2001. There were probably 100,150 loan officers in this boiler room-type office, just a big open floor plan and the owner of the company came out and said, “What are you doing here? Detailing cars? Why don’t you work for me?” I was like, “What are you talking about?” He said, “Well you can run your business. I will give you a desk, you can run your business but basically just be my do-boy. Do what I need to, detail my car, run errands. I will mentor you, I will teach you finance, I will teach you real estate.” I said, “Fair trade.”

I learned the mortgage business and then when I was 18 or 19 I sold the detailing company to my partner and went in full time into the mortgage business and moved into the home builder side of that, of financing and then started doing my own investing. I got into the stock market, quit the mortgage industry, traded full time for many many years, and now I just do whatever makes money on any given day.

Here I am envisioning a dancing ice cream cone. I really am not envisioning it, it’s hard to imagine. Then you went into the mortgage business, then you went into the mortgage business inside of tract houses or builder housing, then into the stock market. That seems like a big jump from real estate to the stock market.

Yeah it was interesting. When I was working at the mortgage company, one of the guys he had some stock charts up. I said, “What are you doing?” and he said, “Well I’m trading. Sit down and I’ll show you what’s up.” He made a couple of grand in less than a half hour and I was like, “I don’t know what you’re doing but I want to do that.” I opened an account and I lost five grand in two weeks. I am really stubborn and I can’t accept defeat so I spent the next several years just studying everything I could about the stock market. It took me several years to really figure out what the hell I was doing and how to make it work.

In the real estate business I had someone I was very close to and he was doing pushes and calls I think or something like that. It looks so foreign to me that I haven’t even jumped into the stock market.

Yeah it’s a world of its own. It’s a beast.

I am afraid that I would lose all of my money and I am not a gambler so I like as many certain things as I can have and real estate seems to be really certain for me. For some people it might not be but for me it seemed to be a better place to put my resource.

Yeah it’s great to have something that actually backs your investment that you know isn’t going to get up and fly away or become irrelevant because of new technology right? Housing is always going to be there.

You can lose some of it but it’s hard to lose all of it.

Well said.

No it’s been fun. Then you got into bitcoin? Is that what I understand?

Yeah. I can’t even believe that I am now an advocate for bitcoin. I first heard of it in 2011 and said, “No this is a scam. It’s a Ponzi scheme. It’s a plump and dump. It’s like a penny stock. I don’t know what it is but it’s going away.” Then two years later, in 2013 I noticed that it wasn’t going away. In fact I looked at the stats on user adoption and how many people were using it and I was actually blown away. I spent about six months learning everything I could.

I totally geeked out on cryptocurrencies and said “okay this is actually something real. This isn’t going away, it’s not a fad. The government is not going to ban it.” In fact they are embracing it because they know they can’t push it away. Granted it’s going to have a very bumpy road to mass user adoption but I am a fan. I started trading it, started investing in it, started looking at the entrepreneurial opportunities in it. Fast forward a couple of years: user adoption is still increasing, there is a lot of really cool stuff happening. The media loves to hate bitcoin though. It makes for some really really juicy headlines of bad things.

For those of us who don’t know it as well as you do, explain bitcoin to the novice. What is it?

Bitcoin is a digital currency. It’s like cash on the internet that’s not controlled by any one government. If anybody knows what torrents are, like bittorrents, it’s a peer-to-peer network. It’s kind of like a currency without a fed, with the FOMC, without somebody controlling money supply and interest rates. It’s a math-based currency. It was created in 2009 and when it was created the anonymous person that put this out into the world made it open source so anybody can look at the code. It’s kind of like being able to audit the fed in saying, “How do you make your decisions?” Instead of placing your faith in a person to make the right decisions, you’re putting your faith in math and in code.

A lot of people say, “Is bitcoin safe? Can it be hacked?” - bitcoin itself can’t be hacked. If it could be hacked it would’ve already been hacked because there is a multi-billion dollar pie at stake. What can be hacked and what a lot of people see in the media is the exchanges; where people put their bitcoin, where they put their value and they trust a third party. It’s like if you give your gold to a vault and they steal your gold right? Gold itself can’t be hacked. It’s a math-based currency that is not controlled by any government.

Why is it useful to the consumer over a government-controlled currency?

There’s several benefits. The biggest one being that it gives the un-banked of the world - there are several billion people that don’t have access to basic banking services like credit cards, checking accounts, access to cash - access to money, to currency. It also makes international remittances fast and inexpensive. You can send millions of dollars around the world pretty much instantaneously for next to free, for just a few pennies. Where it’s really helpful is in countries like Argentina or Greece or these areas that have currency crises like hyper-inflation or government controls.

It’s putting companies like Western Union completely out of business and making them irrelevant. It’s very expensive for people that work in a different country who send money back to family in their home country. You have to pay somewhere around 10% usually to Western Union or a third party service where bitcoin you can do it instantly for free.

Yeah and that 10% is almost like 10 points. It’s an instant interest rate.

Exactly.

Compound it.

There are billions and billions of dollars lost every year from low income people that need that money to these companies that are just ripping people off. Bitcoin has really disrupted that space.

Can I go down and buy a gallon of milk with my bitcoin?

That’s the challenge and the rocky road ahead for bitcoin is user adoption in the states because in the states we have a relatively, I use this term lightly, trusted system. People trust the US dollar. Right now it’s the reserve currency of the world. We don’t really have a need. People trust our credit cards. Most people in the states still use US dollars to buy themselves stuff. There are several thousand companies now that are accepting bitcoin and they have debit cards where you can actually use bitcoin anywhere. You can pay with bitcoin through a Visa debit card and it gets transferred into US dollars. The short answer is yes you can spend bitcoin anywhere you want now. It just gets transferred into US dollars for the companies that want dollars over bitcoin.

Gotcha. Way back in the day - see I’m old enough that I can actually say way back in the day - we had the barter system. It almost seems it’s a little like where we would trade things. Like I have a car and you have a bike and you have vegetables and somehow through all those trading I can take my car and buy your vegetables. Similar or different?

Well it takes money back to its roots. Bitcoin has all of the properties of money: it’s divisible, it’s fungible. All of the basic concepts of what money should be, it has. That’s why people like it and trust it and use it. It really puts the control back in the hands of people and takes it out of the control of the Fed or people that try to control the money supply.

I think the computer age or the digital age means we are pushing ourselves there which is probably why it was created in 2009. You said it was an anonymous person that created it? Is that because they were afraid to tell people who they were?

Exactly. The name of the person was Satoshi Nakamoto. That’s just a username. Nobody really knows who it is. There have been several journalists that have written articles claiming that they found who Satoshi Nakamoto is but every time it’s been debunked. Nobody really knows.

Interesting. I would hope that I wouldn’t create something that I couldn’t brag about. Maybe if it was something so special that it would be dangerous for me to brag about it, I would take the other side of the fence.

Well I don’t feel too bad for him because whoever that person is is worth several hundred million dollars.

He is right there with me or she is right there with me. You indicated earlier that in your real estate business or what you like to do is be the money behind it. Can you talk about that? Is that a subject that you don’t like talking about?

Absolutely. Please, I have no reservations about talking about money.

Okay so if I am a guy or a gal out there in Texas and I find a really great deal but I can’t finance it, am I the kind of person you would go to or do you already have your boots on the ground that are looking for deals for you already?

Yeah I mean I work with several wholesalers and rehabbers. What I love about real estate is how personal it is. It’s a very tangible, it’s a personal business. I like working with people that I like and trust and that I know have a track record.

Wait a second. Those should not be the qualifications of someone you work with. You like and you trust them?

Exactly right? Crazy concept I know.

It’s not even American.

Yeah but when it comes to that, I want to see somebody with a track record and knows what a good deal is. I love talking to people that are new in real estate and are learning the game. I prefer to lend to people that have done several successful deals already.

When you talk about lending, are you joint venture partnering with them or actually just loaning them money against the tangible asset?

Both. I partner on a lot of deals and I just act as a lender on some deals.

Are you an angel investor as well?

Yeah. Here in Austin Texas we are trying to become a tech hub. We are not nearly as big as San Francisco or Boston or New York. There is definitely an entrepreneurial spirit and some DC firms here in Austin and I am part of a couple of angel investing networks which is basically a group of anywhere from two dozen to a couple of hundred angel investors that look to invest in early stage tech start ups. I got into that space just a couple of years ago. Like I said the entrepreneurial spirit here in Austin is really interesting and I love to be around that. I am still learning that space. I am not a coder or highly technical so I lean on the expertise of a lot of these other guys and ladies in the group to tell me what a good investment is because a lot of times I don’t know and that’s why I like partnering and really being around a lot of people that are experienced in that space.

Describe for us what an angel investor is for the person that may not have heard that term before.

Right right. Good question. Let’s say you are going to start a company right? Let’s say you are going to start a company making iPhones. You say, “Well look I have this idea, it’s called an iPhone. I really don’t have any money to get this started. I need a million dollars to do my first production run of this iPhone or to hire designers to create this iPhone.” Your first source of capital is obviously your own capital and then from there it’s friends and family. They call it friends, families and fools. People that will invest in you very very early on because they believe in you and know you and like you. A next level is angel investors, who are private accredited investors. People that have a certain net worth that basically say, “Look I am willing to invest in you. Here are easy terms.” It’s a very simple investment. The next level from that is like venture capital. Venture capitalists look to invest anywhere from two to five million, kind of in that range, maybe more. Then from there you have the public market and you get IPO and you get listed in the stock exchange.

Angel investors are quite literally the first investment that a lot of tech companies receive their funds from. A lot of times before revenue. Sometimes with a prototype or an idea or maybe some revenue but it’s a very early investor into a company that like, there are angel investors in Uber, Twitter, Airbnb, like those are the types of companies that attract angels.

But wait, there’s more!?

This post has been adapted from The Michael Quarles Real Estate show. Listen to this past episode for more on the inspiring story of CHRIS DUNN!

About
Michael is an accomplished real estate broker, contractor and expert specializing in residential real estate. He bought his first property before age 20 and has contracted thousands of deals since then. As an active and current investor, Michael understands what it takes to be successful in today’s market.

Follow Michael on Twitter at @michaellquarles. We welcome your comments.