How to Invest in Commercial Real Estate

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Episode 136 - The Millionaire Blueprint: Smart Investing in Commercial Real Estate

by Criterion, Braden Cheek, Brian Duck
January 29th 2024

Today hosts Braden Cheek, Brian Duck and Joel Thompson unlock the secrets of wealth building with commercial real estate investing, and learn how to start early, invest wisely, and plan for an affl... More

People are just like, oh yeah, I wanna be, I wanna be rich and I wanna retire early. How are you doing that? Oh, working real hard. That's not, that's not gonna do it right. Putting a plan in action and saying I have to, I have to do this for my future self. That's the definition of delayed gratification. Welcome back to how to invest in commercial real estate. The coolest the best, the biggest commercial real estate investing podcast in Jinx Oklahoma. Who, what the hell time is it Braden? It is distribution time, baby. Our favorite time of the year. And uh if you are invested with us, most likely you got checks in the mail or direct deposit to your bank account except for Stephanie. Yeah. By the way, if I'm still sending you a check, stop it right? Like please let me send you a direct deposit, please. Isn't direct deposit so easy. Mine get direct deposited. It just shows up in my account. It's amazing. So how much are we sending out this quarter? Well, precision as normal is sending out a ton. Let's get that out of the way we sent over $600,000 out or over 2.5 million in, uh, distributions on invested dollars.

So, pretty awesome. I love sending people that I know that trusted me with their money. I love sending them checks back. Yeah, that's amazing. Uh, criterion uh, for the fourth quarter is what we're talking about was a quarter of a million. So, um, 850 between the two, just for the fourth quarter of last year, you know, when the world was seemingly ending, you know, people, you wonder, ok, why can't I get in these investments every time they launch a deal, it fills up. Well, if you, if you can appreciate that, we're sending out over $3 million a year to our investors, right? That's $3 million that they have an additional investable cash ready to go back in a deal and because we're earning them high returns, that money's just waiting for the next deal that we send them. And so as the investor network grows and the pockets of the investors get deeper with cash that we keep sending them back. It's gonna be harder and harder to get in the deals. Yeah, and II I will always say this right when we're talking about it, but we love getting people in deals. So if you want to get in a deal, email us and say, hey guys, I've got X amount of money.

I want to get it in a deal. I I take priority on that because I love getting new people in deals. We always talk about every deal before we actually uh launch it, right. We say, oh, you know, we're looking at this place or this place. So if you're watching the podcast, then uh you know, email us and say, hey, that sounds interesting to me. Uh I want, you know, first right of refusal or something or put me down for 20,000 preliminarily or something. Uh And then they can have a chance to look at it and decide whether they want it or not always, but we've had people do that. So, alright, next exciting thing we're gonna talk about is the results of our cold plunge challenge. Yeah, I, I gotta start being careful what I say on this freaking show. I mean, we had way too many people do cold plunge videos but it is exciting. Nonetheless, watching all the videos of you guys going through the pain. I'm sure you've probably seen my video which is not, you know, I didn't suffer through a lot of pain. I got, I gotta be honest guys, I, I kinda took like did like half of it, you know what I mean? But you know what I like I'd say. I don't know if you guys watched them all. I watched a good number of them a and could probably tell us, but I'll bet I'll bet it was 70% female, 30% male, maybe 7525.

And I would say 95% of them were under the age of 35 or 30. So my take on that, I like that following. For one, we love younger followers because uh as you're gonna learn later in this show, uh it's so important that you start investing early, it makes all the difference in your life and where you end up. But the reason we, I think we had so many young people is turns out young people don't have as much money as older people on average. And uh they're definitely more courageous when it comes to doing outlandish things. I'm pretty sure we didn't have any 64 year old men doing it for 100 bucks. That's right. They're like, I ain't doing that for 100 and the college students, like, I'll do that for 100 and so maybe we'll have an age limit next time just to uh keep it, you know, spice it up. I don't know. But thank you guys for sending in the videos and having fun with that. Not only is it good for you uh start your day off? Right. But it helps connect uh different communities with this podcast and that's what we wanted to do. So, uh who's announcing the topic for today? Is it me? Yeah, I mean, real quick, if you submitted a video we're going through right now, there's a decent amount of submissions that we're going through, just make sure you liked, commented, subscribed, shared, tagged us all of the good stuff.

You don't want to go through a cold plunge and then not get $100 because you didn't like share the video, don't disqualify yourself. And then that being said, we need to come up with the next thing, right? I, I mean, we need to come up with the next way to mentally torture ourselves, I guess is what I'm saying. So maybe if you have an idea of leaving in the comments below, we'll try to be thinking of something as well. I was thinking like uh go with an experienced skydiver. Uh And then you have to jump off without a shoot and you have to let him catch you on the way down. And as long as it all, we're gonna give you a $100. So some guy, some did that, right? Jumped out of the plane without his uh shoot and somebody got it on video. I saw that. Did you notice real quick on the Cold Planes challenge? It was funny because it's almost like the old ice bucket challenge. Remember if someone did it and then they tagged someone and said, you're next. Did you guys notice that? Or they were, they were sending it to their friends and said, hey, you're gonna do it next. I saw a few people like Braden here didn't get in all the way. I said to the neck. But I guess they thought that means to the waist. That's ok. What was interesting is some people jumping in with, uh, full and sweatpants?

I did not understand that. That was gonna keep them warm. It's gonna make it worse. It's literally gonna make it worse. Anyway, the topic of the show today is super important, like you said, and it is just a, a, you know, we're at the, we're at the beginning of the new year. A lot of people setting new financial goals, a lot of people are setting a goal of, uh, you know, I wanna save X amount of money. I, I'd like money, you know what, whatever that goal is, there's probably something money related in it. And we just want to remind you that as you're saving and starting your investing journey, the size of your return matters. Yeah. And there's two things that matter most, it's the size of your return and the time that you can give it to grow and you can argue that the time is just as important. And so, you know, we've done a show like this before, but it's been a long time and it's one of the most fun things we get to talk about. And I think it can help motivate people to get them over the hump to start their investing careers. And so what we did, we tried to take uh kind of like an a median household income in the U si think we chose about $60,000. Ok? We're not, you know, obviously we can't cover what uh 200,000, you know, dollars and like someone that makes $25,000 we tried to pick something that is gonna relate to the most people.

Yeah, but again, if you wanna do this yourself, just Google discounted cash flow formula for retirement and it'll pop up. Um, and so what we wanted to do is the, the first one is we're gonna focus on the uh the size of the return or the rate of return you got, you get. And so the scenario is this is, uh you make about $60,000 a year in combined household income. And remember we took a dump on Dave and Dave's advice was 15%. Ok. So then we said, ok, that's easy. Uh That's nine grand a year or 750 a month. And we wanted to start with just a little bit of cash. So we said, ok, most people, most households, if they sold some used furniture and they, they, you know, did a few things they could come up with 5000 and start in cash. We didn't want it to be a huge number. We think most people, most average American families can come up with 5000 to start. Yeah, that's a tax return for most people and COVID that was, you know what you got for being alive. I mean, people come across $5000. Uh So, uh that's the, that's the setup is you make 60,000 a year, you have 5000 in the bank and you're gonna start your investing career and we're starting it early guys because we want to show the power of the time and we're gonna start at age 24 and we're gonna go to, to your age 66.

OK. That's, that's uh 4042 years. All right. All right. So, Brian, you got the numbers. So let's say that I'm conservative, I'm a little bit risk averse and I want a mix of some bonds and some safe stocks. Uh, and so what kind of return should I expect? And then, and then if I invest that money, uh, 5000 and then 750 a month for 42 years, what does it get me? Can we, can we nickname these groups? It's like, what would we call a 24 year old who only wants to earn 6% of their money? Like that's gotta be just a little conservative. Ok. Let's call it super conservative. Ok. The super conservative 24 year old conservative, Karen. Karen. Oh, yes. And we, yeah, we picked 6% because that, that's a good average for, uh, just bonds and some, some safe stocks. And, um, so after 42 years at 6% 750 a month, all that time, it's 1.685 million. Conservative Karen million six at 66. So that's interesting because that tells me that, that most American households by just saving 750 a month, uh, can get to 1.6 million by the age of retirement.

And guess what? Not very many people that are 65 today have 1.6 million. So, uh, that, that should be eye opening. All right, let's say that again, you're investing $750 a month, every month for 42 years. Uh ok. So let's go, let's say that you're gonna do aggressive stock portfolio, maybe the S and P 500 Russell 2000. Uh mostly all stocks. What's the rate of return and where they, where are they at? Let's call this guy normal norm. This is, this is pretty, pretty standard for people. Um So we picked no percent as an average and after normal two years, uh it'd be 5.33 million. See, that's, it makes a big difference norm is doing ok. I mean, he's a, he's a multimillionaire. I mean, we'll get into inflation a little bit later on, but I mean, that's a decent amount of money and theoretically you can have that invested somewhere. Hopefully you're getting a dividend on that it can just appreciate and you're living a decent life. So ask yourselves. Uh while you're listening is in my current situation, am I able to save $750 a month. And I would say the bulk of our listeners would say yes.

And so then we would ask, are you on your way to having $5.5 million at retirement? And if you're not, then, uh, you gotta ask yourself, well, how do I get there? What do I, what changes do I need to make again? An S and P 500 index, $750 a month on average is gonna get you about a 10% a growth a year. That that's very, very realistic. I just sign up and make it come out of your bank account every month so you don't even think about it. Robin Hood Auto buys whatever it is. There's an app for everything. Alright let's go. Uh next we'll call this group. I don't even know what we're gonna call it last group but uh uh what aggressive Andrew? Yeah I like that. He's you know he's not settling for normal. He's not just gonna do an index fund, he's gonna maybe have a balance of uh some riskier investments. I'm not sure what those are. It could be some real estate also. Stocks, maybe he does a little day trading or option trading. He tries to get his return up to 15% and I would again categorize this bucket of people as our standard investor like a lot of our investors I think have a decent amount of money in the market and they're just trying to supplement and juice those returns in, in commercial real estate with what we're offering.

It may be blended. They're bringing down 15 a year in between, you know, everything. So at 15% after 42 years, it's 24.387 million. So that's really impressive. Aggressive Andrew is, is solid. He's killing it. I don't want to go with all, uh, I guess the first one was Karen. So we don't want to go with all dude names. But yeah, so how much was that again? 24.4 million guys. That's on, that's on 750 a month. Uh 15% making 15% which is not, not unheard of. And you're at, you're at millions of dollars, so many million like you're living in whatever house you want, wherever you want to, right? You're sending your kids to college, you and your wife are driving whatever cars you want, you and your partner, whatever. There's, there's an unlimited, like unlimited, almost allotment for vacations. You have unlimited time freedom. And again, you started with $5000 at 24 which we establish most people can do. You got 15% so that, you know, let's say half your money is earning 10%. The other half is earning 20%. Blends out to about 15%.

Again, a lot of our investors I think are achieving a blended uh return of their portfolio of about 15% and we'll be killing it. Now, this next group is pretty aggressive, even more aggressive than aggressive Andrew. So, I don't know, I want to give her, I wanna give her a really kind of a smart name because this person has got to be pretty savvy, maybe Savvy. Sally. I, I don't know, in order to get, yeah, extreme like that. And so, hey, this person has got to be both savvy. It's an extr extreme rate of return. But we're saying what if you could get 20% average return? Now guys, is that unheard of absolutely not, we've delivered far better than 20% return. But here's the thing is uh to get that kind of return, it's, it's hard to do it consistently without a break. You know, we may hit a, an investment that has an irr of like, you know, 40% or 50% but it may only be for a year and a half and then the money has to sit to get invested in the next deal. So, but to average 20% is very doable if you've got some winners that are coming in above 20 maybe some coming into the mid teens averaging 20 is not impossible.

Yeah, I I would say this is, you know, a business that you own, that you can continually reinvest in and grow substantially is a very normal case scenario. I would say, you know, house flipping or a lot of people who just start buying houses for retirement, I would say if they're doing it and pushing rents and, and continuing to expand, they can get a 20% return on the money. A lot of our investors, a lot of passive commercial real estate investments in general are underwritten to generally double your money every five years getting you about, you know, a 20% irr it, it's harder to find those deals. But if you're paying attention and you're connected to the right outlets, um they're out there for sure. And then again, a lot of people are taking this and saying, ok, I want to be exposed to a little bit of all of it. Right? And that's why we did. I think so many of these case scenarios. All right. So if you're 20% only investing 750 a month, starting with $5000 where are we at when we're 66? Believe it or not, it's 100 and 15 million, 42 years, $750 a month, it's a ton of money, right? Like you're, you're, you're the richest person in your family 100%.

So we did, right. You wanted us to do what, what would happen if we went from 24 just to 40 years old. So I think that's an important point, right? Because it was just last week somebody wanted to retire at 40. Say I want to retire, I think, I think went to 42. Yeah, it was 22 years from 24. So I think it was 4546. I, I think, or maybe, maybe 20 years from 24. So mid-forties. Right. I wanna retire when I'm in my mid forties. I think we're wanting all of the listeners, the watchers, all of the people we know to try to reset that, that story that we're telling ourselves of. I need to work until I'm 65. That's ridiculous, dude. Nobody wants to work until they're 65. So let's, let's go through the parameters. Ok. So, uh you start at age 24 $5000 750 a month up to age, we probably did only 44 years or something like that years old. So that's only uh what, 2020 years and it's $3 million. So it's not bad. But at 40 years, I don't know, 40 years old, I don't know if 3 million is, is enough. But as you mentioned, if you're, if you're invested in commercial real estate and you're getting 10% cash on cash, you're making 300,000 a year in passive income and, and the 3 million is still growing.

3 million is still growing, right? So 10% on 3 million, we're living a $300,000 you know, almost $30,000 a month, like $25,000 a month. So bad. Ass house. Amazing cars, college tuition. Right. And I, I think this is very realistic because for a lot of people we want money to buy time and, and generally nice things, but I know a lot of people that have a decent amount of money and they're, they're boring as hell. You know what I mean? They've got all sorts of money and they just don't know how to spend it. Most people don't need more than 3 million bucks. Like, what do you need it for? Unless you want a yacht, bro. Like sit at home and go with, be with your kids, go on vacation. You know what I mean? But most people have a lot more than $3 million and they don't do shit well. And, uh, you know, we picked 20 he pick 20 years but you can see you're kind of at the tipping point because you start with basically zero and, and 42 years is 100 and 15 million, uh, uh, at 20% but 20 years is 3 million. So I, we didn't do the math, but if you win another two or three or four years that three is gonna double to six or eight.

And, and that's where you, you really could retire. So maybe we picked the wrong number there. But I think the point you were trying to make is if you get started early and you're, you absolutely can see yourself retiring in your mid forties and most people don't even think that's an option. So they don't try rich telling your boss like, hey, man, I'm out peace at 45 and just doing whatever the hell you want. I think that's understated anyway. I'm, I'll, I'll get down. Ok. Ok. So now we've, we've, we've really shown how the rate of return, uh, blows up your, uh, amount of money that you have, uh, you know, from 6% to 20%. Now we want to go back and say, OK, what is, what happens to those returns and the money when you wait to invest so many people in their twenties and thirties aren't investing, they're just spending all the money they have, they're going to clubs and getting table service and they're buying cars that they can't afford, you know, living in the new apartment that's, you know, twice as expensive as the 19 eighties apartment. It's all these decisions that you're making leaves you without money to invest.

Well, this is what it costs you. We're gonna go through those numbers, procrastinating pam. OK? Is that who this is? Ok. So this is if you start at age 35 and go to 66 years of age and so it's 31 years, everything else is the same. We're starting at 35 most people get their head out of their ass at 35. I think that's a good benchmark. So uh at 6% it's 814,000. So it's about half of of, if you started it at 24 age 24 10% is 1.8 million 15% is 5.2 million versus the 24 million. And then the 20% uh rate of return is 15 million instead of 100 and 15 million. So waiting 11 years on the 20% scenario, uh costs you a theoretical $100 million. That, that 11 years, I hope you had fun. I hope your, your twenties were fun. $100 million worth of $100 million worth of fun. No, your broke ass did not have $100 million worth of fun in your twenties. Oh, I'm so happy. I had a baby when I was 20 but hey, here's the, here it gets worse guys because so many people and probably plenty of people that are gonna see this podcast.

They might be my age. I'm 45 and they haven't, they don't have any real meaningful savings. Uh and I'm not fing you. It's just a fact. Took a bit longer to get that head out of that hat. Uh Oh, maybe they had circumstances out of their control, maybe they lost a job and needed the funds. Whatever we're not, it's not a judgment show but uh same scenario. Now you're at 45 you're gonna invest for 21 years now, 42 years. So 6% is 387,000, not enough to retire. No, 10% 639,000 still not enough. 15%. 1.2 million, 1.235 million. I think that's enough. Do you think? I mean, again, right. Like if you're not getting a new house every, every time you can, like, if you just buy a house, it's paid off, you buy a house, buy a car, it's paid off like you can, you can live on all of these net worths and retire at 65 and be fine, right? You're just not doing whatever that you want. Well, we also need to mention that uh inflation because we're talking about today's Yeah, we're about to slash the shit out of these numbers. 20% is 2.4 million.

Uh If you start at age 45 at 20%. So, so two, if you wait till you're 45 instead of 100 and 15 million, uh it gets cut to two 0.4 million, 2.4 million. Wow. So time is, is just as big a factor as the rate of return. Um And so, you know, one thing you cannot control for sure is the rate of return. Nobody can. Uh you can't control stocks, you can't control the market, you can't control real estate prices. You can't control, you can't control me. But what can you control? Right? You can control when you start. That's what you can control and so take control over at least that piece and, and discipline yourself to put money in a secure investment every single month. Now, uh 100 and $15 million when I'm 65. So 42 years from now uh is all this money. But the trap of inflation as we've talked about is that money isn't worth what you think it's worth when you're ready to retire. It doesn't matter what the number is, what is the buying power of it.

And so what we did is we took an average inflation calculator over the last 42 years and uh to uh you know, 40 years, 42 years from now, the dollar is worth 30% of what a dollar is worth today. Ouch. So that assumes we get our shit together, right? And don't have years like the past couple if you compound that it's, it's bad. Yeah. And so this started, the inflation calculator started in 1980 81 and went to 2023 because that's, that's what they had data for. And so it really skipped the high inflation seventies uh because, you know, it was up till 1978 7980. Uh those are some super high inflation years all the way up to uh tell us about those years, Brian. Well, my first, you want to know what the mortgage rate was on my first house, 19%. It was uh it was only 13. He's not that old. Uh, if you, if you, if your calculator, whatever plan you're on says you're gonna have $3 million. Uh, I mean, you got to be young if you're in your twenties, let's say, uh, that's, that's gonna, that's $1 million.

Right. You have to triple whatever it is the number is to, to really get that buying power. Uh, and so that's, that's an important factor that I don't think a lot of people are considering when they're trying to decide how much money they need or want in retirement. Yeah, that most people aren't factoring in the fact or, or hopefully, right, that you don't have a ton of debt service when you're retiring. Like all of this passive income is not supposed to go to servicing your debts in retirement. Uh Hopefully you're paying that off and that's why you can only invest 10 to 15% of your income, right? Um If you go get this massive freaking house and you retire with a million bucks thinking it's gonna be worth it. It's, it might not, you know, so you gotta take that into consideration. Well, uh I was trying to think of a couple of other notes that we wanted to say, you know, this, this example guys is 750 a month. Now, that may be difficult for people making under 50 grand a year and it may be difficult for, you know, 2324 year old just starting out in life. But a lot of people are, you know, as, as their career progresses, they're gonna have an ability to save way more than 750 a month. Right. Any profession that makes more than 60 grand a year, you're, you're making 100 grand if you're making 200 grand and there are people out there that do, you know, you should be able to save 2 $3000 a month, $4000 a month by getting really frugal and that kind of money can compound so much faster and you can be out of the rat race that much quicker.

Well, yeah, we ran a scenario like that. So we did uh age 35. Remember if we invested for 31 years at 20% it was 15 million. But if you put 3000 a month in, instead of 750 a month in that 15 million goes to 57 million. Yeah, this guy's surgeon stew. He went to school for way too long. Surgeon stew. Uh, yeah, medical school, then residency, then specialization, then paying back the loans, but nobody's paying back student loans, nobody's paying back student loans. And so they're 30 five years old and they finally got a job at a hospital that and they're making decent money. Maybe it's 100 and 80 grand, you know, maybe even more surgeons make a lot more than that. So, most doctors they would tell me. Oh, yeah, I could save 3000 a month. So if you started at 35 making 3000 a month and you invest aggressively, uh, in real estate or with us or whatever, you got 50 you got over $50 million in retirement 30 years later. Now divide that by three as we've talked about, uh, to get your real number. Not a bad number. Still. Not a bad number. Yeah. So I, I think we've highlighted here just how personal this really is and how many different options there are in, in different ways.

There's not one avenue to financial freedom and there's not one predetermined time and there's not one predetermined dollar amount and lifestyle that we all want to live. I encourage everyone listening to this. If you, if you are still listening to this Google, uh uh I mean, what did you Google to find this calculator, calculator? OK. Investment calculator, right? You've got time, you've got rate of return and you've got how much you're contributing and maybe how much you started with. So for variables that you can change and, and just do a bunch of different scenarios. We, we did this in 10 minutes. We, we planned out a dozen people's life, you know, conservative Karen surgeon Stew, uh uh uh of Andrew, extreme Edna like all of these people, right? So go in plug in who you are, who you think you can be you know, are you gonna go and, and dedicate a, your life to schooling and come out making a ton of money? There's a scenario for that. Are you, are you gonna start super young and not be able to contribute a lot? But earn an aggressive rate of return?

Like there's all of these scenarios and, and then it actually becomes a reality. People are just like, oh, yeah, I wanna be, I wanna be rich and I wanna retire early. How are you doing that? Oh, working real hard. That's not, that's not gonna do it right. Putting a plan in action and saying I have to, I have to do this for my future self. That's the definition of delayed gratification and the goal of shows like this. Uh I mean, it gets us excited, obviously, we, we love this stuff but we want to motivate you. Uh You know, we wanna get you excited about it instead of, you know, getting excited about going to the bar this Friday night and blowing 100 and $50 on drinks for you and your friends do that every week. That's 600 bucks, right? You're almost to the 750 with four nights of drinking with paying $15 next drink, you know, so that, so instead of being excited about that, be excited about your future and about how much money you can make and think about all the people, you can bless all the places you can go all the things you can have. Uh That's how I, that's how I did. It is. I, I started reading books and, and I started getting excited about what my future could be that I wasn't focused on anything else.

I was focused on investing and saving and, and growing my, my net worth. So we're just forget all of that and have a great twenties, guys go spend that 100 million if you can't. All right guys, uh, rate of return and the time you have to invest the two most important factors that will uh determine how wealthy you are or how much freedom you have in this life. Until then we'll see you guys next week.

Episode 136 - The Millionaire Blueprint: Smart Investing in Commercial Real Estate
Episode 136 - The Millionaire Blueprint: Smart Investing in Commercial Real Estate
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