How to Invest in Commercial Real Estate

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Episode #033 - How to find good COMMERCIAL REAL ESTATE investment opportunities and how to vet them!

by Criterion, Braden Cheek, Brian Duck
June 1st 2021
00:00:00
Description

At the end of the day most people just want a safe outlet to invest in commercial real estate. Today our hosts Brian Duck and Braden Cheek from The Criterion Fund review how you can find sponsors o... More

one of the things I liked about Woodmont. One of the things I would look for personally is I'd like to see a commercial estate company that got a diverse portfolio, right? Because I don't wanna have to go find someone who just does industrial and then go invest because I want to diversify my money. I don't want it all in one asset class. I don't want it all just in multi family. I don't want it all in just industrial or office. I mean, look what happened to office, if you, if you've done that over the last couple of years and that's where you put all your money you'd be suffering. So that's a good reason for diversification. And I'd want someone who is diversified. I mean, you know, criterion looks at multi family, we look at industrial, we look at retail, we're developing. Um we're buying existing and adding value. So that's I think that's something I'd I'd look for. Mhm Master. All right, what is up and welcome back to how to invest in commercial real estate. My name is Brandon and I am with brian, we are the co founders of the criterion fund and also the co host of how to invest in commercial real estate. Um If you haven't already, make sure to sign up for our exclusive investor list.

If you go to our website at an investment sierra dot tv, there's a button on the top right corner says join our investor list and then boom, you get sent all of our investment opportunities right to your email super easy. That's a good segue because today's episode is actually about how to not only find good commercial real estate investment opportunities, but how to vet them right? Because it's, it's difficult. You're investing money, you kind of want to have a relationship with them, you kind of want to know them, you kind of want to know where the money is going or what they've done in the past or, or why this company is going to be a good financial steward of your money, of your investment and just kind of do what they say they're going to do. So, I mean, it sounds easier said than done, but you would be surprised about probably how many people are out there that have identified, they want to invest in commercial real estate, but they literally just can't find somebody they trust enough to do it. Yeah. So, I mean, we both started out kind of with outside of commercial real estate. I mean, everybody is not in is out. So how do you kind of dip your toe in the water and just deciding, hey, I want to start looking at commercial real estate investments and you know, how do I, how do I find some good ones?

Well, uh, what you said, uh, I think is a good point. There's a lot of people, you know, most of our program is about the details of the deal and maybe it's geared towards people who, uh, maybe they're flipping houses right now, but they want to do bigger deals and we're always getting into the weeds on that. But this show is more about maybe someone who just wants to do some passive investing right? There's got to be a lot of people out there that just think I just, I just can't do it. I don't have the time. I don't even really have the desire to do it. That's just not what I want to do. But I'd love to invest my money. So that's what we're, maybe we could talk about a little bit today as far as finding someone to invest with a commercial estate investment company. Uh, well the way I got started was I just had a friend who was doing it and I talked to that friend was actually Joel who's, you know, in the Bahamas today and couldn't join us. But somebody's gotta do it. Yeah. Um, but uh, that's how I got started. And then I started talking to a bunch of my friends or they heard about talking about it, Hey, I invested in this multi family deal. They were like, well, hey, I'm interested.

Um, let me talk to those guys. So I think if you just ask around, you talk to your friends, you talk to people at work, you friends and family. If you, I think you could even google it for your own hometown, right? If we had somebody who just googled commercial real estate in Tulsa and our name came up and they, you know, they shot us an email or went on our website or something and they wanted to talk to us and get to know us before they invested. We'd be happy to sit down and go have coffee or dinner or lunch or something with them and, and get to know him before they invested. Yeah, a perfect example of that is the Woodmont company, you know, and, and last week's episode, we had Andy on here and he literally found us by googling commercial real estate companies. And so it can be that easy and just started with a phone call, started building the relationship from there. I I literally didn't even meet the guy until after I gave him my money. So I'm a big proponent of, you know, you can build trust and relationships, you know, you could, you could watch the show and think, man, I, I really like that brian guy trust him so much I want to give my money.

I mean, people probably aren't home thinking that maybe they are probably not, but you do, you're right. You do have to, you have to develop that trust, have to develop the trust. I mean, I'm not gonna give my money to someone I don't really know very well or at least have talked to sat down, um, ask them some questions. Uh, and then, and then the trust develops from there. Yeah. So, you know, this is kind of off topic a little bit but fun facts, you know? Sure 99.9% of our investor list is people we know or people that have been added by people we know, you know what I mean? So it's a it's a tight close knit family because it's it's word of mouth, people are talking about it and people talk about what they're focused on. And for a lot of our investors, you know, they're they're focused on their money. They want to find good opportunities to place their money and commercial real estate. So they're talking about it, they're focused about it. And just like you, I mean you're going out with a guys night and I mean or just whatever a date night, people tend to talk about where their money is. Hey, are you in on the, does, are you in on on the coin or you went on, you know, this new N. F. T.

It's like no bro. And commercial real estate with criterion, You should check them out. And I'm like, oh commercial real estate. I've been wondering how you get in on that. I mean it can literally be that simple. Yeah. And you know, a joint venture opportunity for us when we go and partner with another, you know, sophisticated commercial real estate company that's that's typically called a joint venture with when both parties are bringing, you know value to the table and partnering up and going to do a deal together. It's the same thing as trying to find, um, uh, if I were a passive investor and I was trying to find a commercial real estate company to invest my money. And it would be the exact same thing because we're having to invest money in this partnership with this other company that may or may not, you know, have different controls or permissions. You know, we each had value and it's a partnership so we don't have complete control and it's the exact same vetting process. Well, it's like you said, maybe you gave some money to um, uh, Woodmont, but I talked to him quite a few times before, you know, well, we both did really before we ever did the joint venture with him. So, and we looked at their experience, we looked at their website, we looked at at some of the deals we had done, um, they sent over their operating agreement, we tore that up.

We send it to our attorney, we, we had changes that, we send it back to them and they had changes. You know, you go through all the nitty gritty because you really want to decide, hey, when shit hits the fan, what's going to happen? It's kind of like steel. You know, I've been watching the show fortune fire and it makes steel, they got to heat it up and beat the crap out of it because it makes it harder. And it's kind of the same thing when negotiating operating agreement, you want to go through the worst possible case scenario and we did that with him and it kind of led us to believe that hey, and you know, we have hiccups through deals, there was, you know, letter problems or hey, we're, you know, getting a month delayed entitlements and based on how people react when there's problems or when everything doesn't go according to plan because it never does. That's a massive indicator of how they're gonna react later on. That's, that's one of the best indicators is when things go wrong. What happens? Do they work with you or do they, they leave you holding the bag? Absolutely. But let's, so let's talk about the things that are important in vetting a commercial real estate company that you're going to invest with and I don't know that there's any particular order.

But um, number one on my list would be experience, right. You want to go see what they've done. Um, you want to look at the, at the deals that they've done in the past, how they perform versus how they said they would perform or they projected because I've seen on a lot of websites, you know, people can, can put deals out there and they can put out any kind of assumptions they want to and they might have these wild cash on cash returns or IR returns. But, you know, really, you can look at all the data but it's hard to hard to know. So um you need to look back at the deals they've done and whether they're uh whether they've met their projections uh that they first put out. Yeah, so a good example of that, you know, since we're on the kiddie Academy Woodmont joint venture, you know that we've done and we'll do several more. So it's good to talk about that. A good example of us going in and doing that due diligence is asking, you know, how many kitty academies have been built total not by you but total how many of those have failed. Okay then let's narrow that down to just you how many of you built, how many have failed, you know, really really good data there and then you go into, okay, what have you built the total, what have you built the past 12, months, what have you exited what did you assume you would exit at?

And we started getting, you know, the hint that, okay, these guys are are fairly modest underwriters. You know, there were typically assuming that we're going to exit at lower purchase price than we actually get, you know, which is good that and when we started these, you know, it's kind of in the middle of covid it became a really attractive asset class and you know, it's just anyway, you've got to you've got to dive into that. It's it's super important and you've got to ask for references on those deals, you know, hey, who did you do that? Who did you do the deal with? Is your equity partner happy? You know, a big concern for us was, you know, who, who has the right to maybe sell or refinance the asset. That's a big one. You're gonna ask that, when is it being sold? Who's got the right to sell it? I think that's a fair question. At any time you do the commercial real estate deal from anyone. It's a reasonable question. One of the things I liked about Woodmont, one of the things I would look for personally is I'd like to see a commercial real estate company that got a diverse portfolio, right? Because I don't wanna have to go find someone who just does industrial and then go invest because I want to diversify my money.

I don't want it all in one asset class. I don't want it all just in multi family, I don't want it all in just industrial or office. I mean, look what happened to office, if you, if you've done that over the last couple of years and that's where you put all your money, you'd be suffering. So that's a good reason for diversification. And I'd want someone who is diversified. I mean, you know, criterion looks at multi family, we look at industrial, we look at retail, we're developing. Um, we're buying existing and adding value. So that's, I think that's something I'd I'd look for. Absolutely, look, um, for who's part of the team, look at what they've done historically, not only with that company, but but by themselves, um, is a good indicator. Look at their debt relationships is another one. You know, who are they getting their debt from? Um, are they still giving them debt? You know, are they, do they have similar investors where they're getting the money? You know, just kind of dive in and don't be afraid to ask. Um, You know, you tend to get more questions from people that are aren't as sophisticated in commercial real estate. You tend to get more questions from, from people, when their investment is a higher percentage of their total net worth.

You know what I mean? Because it's it's a little scarier. It's it's more of the money they have versus, you know, somebody maybe with higher net worth could afford to lose it. So maybe who knows? But you've got to get comfortable, right? You've got to, you've got to ask, and part of that comfort is looking and making sure that these people have the correct documentation because they're in a legal team behind them, right? Because um, this all has to be done, You know, uh, just right, legally, and, and you, and I don't know how to do that. Most people don't know how to do it unless they have a legal team behind them. So I absolutely, it's it's super complicated. I'd be worried if someone just came to me, they said they were kind of by themselves and they don't have a legal team. I haven't seen that. But I I could see how someone might try to do that themselves. I mean, I don't know how they would. There's a lot of people out there that don't use legal counsel on their deals. A lot of people would be surprised. You'd also be surprised at the amount of people who buy a set of docks and then just decide, hey I'm an attorney now I'm just going to change these docks. Hate that personally.

So we have an attorney every every single deal every single day. Every single look over every single contract. You know what I mean? They provide operating agreements, they provide subscription agreements, we provide, joined her to operating agreements after you've bought in, we provide verification summaries. We have to have questionnaires. We've got to have previous experience where you've got a detail or not whether you know, you're accredited or sophisticated or how you've heard about us because again, this is regulated through a red d offering through the sec. And if you don't do it right. Uh you can't just go out and raise money and shove it wherever you want violations and everything else. Obviously nobody's gonna sue you unless you lose their money or don't do what you say you're gonna do if, if you have performing a deal and somebody's like, hey, you didn't do your docks right that I made a ton of money. I'm gonna sue. You haven't heard of that personally. But I mean to go bad, You don't have a green card. I mean a lot of people know about grant Cardone. This guy sec came out with this new thing called crowdfunding and it basically said you can go out and solicit to the general public that is not accredited investor meaning they have a net worth $1 million.

So you go out and screamed from the top of mountain that you can um, invest with me. And this guy raised like $50 million Instagram and people sue the shit out of them because they thought his dogs were wrong baby. He he did it right. He, I mean he, he just won his lawsuit. There's a big headline about it. He he smashed it because he had the right attorney right the right document. He was legally allowed to do what he said. He was going to do. It's as simple as that. So ask who their attorney is. Ask who's writing the documents. If they say they're doing it themselves, run for the hills. It's my advice. I'll tell you another thing that you know that this is a pet peeve of mine. But I think communication is key. So uh, you know, a lot of these companies, the communication up front, great because they're trying to get you to invest and then as soon as you invest and the deal is done, boom. You don't, you don't really hear from him much, but if I'm investing my money, I want to know what's going on. If I give you uh you know, however much money I want to know what's happening at least every quarter. I mean, for me personally, I'd probably like it more than that. But I think once a quarter is enough and tell me what's going on, the good and the bad.

I don't want to just hear the good part tell me when you know there's a problem or a leak or a or a parking lot problem or whatever and what you're gonna do about it. And how does that affect, you know, my distributions and um so that's something that I think is important as well. Absolutely. And that's why we tell a lot of our investors that um you know, you can't give us all the money you have to invest on one deal. You know, we, we wouldn't allow that. You know, somebody said, hey, I've got half a million in my portfolio allocated to commercial real estate will be like, sweet, we can take that on this deal, let's go, uh we, we wouldn't do that would say, ok, you know, let's probably break that up into uh 152 $100,000 chunks put in a few different deals, maybe in a few different asset classes, maybe in a few different parts of the country, let's diversify that, chop it up a little bit and it gives you a chance to kinda by, you know, not risk free. You know, this isn't a promo, but you get to dip your toe in the water a little bit. You get to see if they hold up to their quarterly communications, you get to see if they mail you the checks you, I mean, how many times have we heard from our investors? You know, we'll see, we'll see, you know, and they're always interviewing you, they're always testing you because if they plan to give you more money, they mean it's constantly and are you doing what you say you're going to do if you are, I have every reason to continue giving you my money.

And if you're not, maybe I need to rethink giving you my money. Well, that's a good point. We have a lot of investors and people who want to do this. The investment shouldn't be afraid to say no, I don't like that deal for whatever reason. And they shouldn't be afraid to say, well, I gave you money on, on, on the first two or three deals you came to me, I'm gonna pass on this one because I want to see how you perform on those two or three before I give you some more money and that's, that's fine, that happens to us all the time. Absolutely. Absolutely. And it's, it's really important to not only, you know, share it, but you know, talk about your good experiences, let let people know good and bad experiences with, with what you're with. I mean with what you're experiencing. I don't know that that may sound dumb, but I like to talk about what can happen where uh, I mean, you know, Joel has talked about on this on this podcast before where you have a really large tenant that, that, that leaves right. And so it's hard to fill those, those large spaces because there's just a limited amount of tenants that need that much space.

But you know, I want to know about it. Tell me about it. And did that happen on a past one. And how do you, how do you get through that? And, and if I'm investing with you right now and it's, it's happening or it's about to happen. Tell me it's about to happen. You know, before, well before they move out, you know, they're moving out. Let me know they're moving out and let's talk about it. Yeah. Give me the bad info. Yeah. Don't wait until the money, you know, stops. Hey, we had to stop sending money because a tenant left that we knew about a year ago. I mean just just treat people how you want to be treated, but anyway, kind of getting back to how you can find them and get them, you know, a good way to find them. As if you've got a regular attorney, use ask your attorney, Hey, do you know anybody working in commercial ST bankers? Another good one. Um, if you've got accounts of them, hey, do you guys do commercial real estate loans, who are they, would you recommend them? Do you know if they take passive investments, you would be surprised. Yeah. Another good places if, if you've got money and you're investing already and you have, uh, an investment manager who's doing maybe equity stocks and bonds for you. They probably, they've been in the business.

They probably know and they don't, you know, they know that you want to be diverse and with your money and they probably do the same thing to, if I mean, if they're good, they do. Um, and so those guys and girls will know, you know, probably some companies like ours and then like you said, I think towards the beginning you can always just a little google little effort. You'd be surprised we can come up with meet the guy girl for coffee. Ask them some questions. Start to build a relationship. It's not a hey, google google me. Find me at coffee. We talked for 15 minutes. Then you're writing me $100,000. Check it at lunch. It's, it's not that type of thing. Get on my investor list. Let me send you some emails, test me, see if I do what I say I'm going to do when I say I'm going to do it and then maybe after six months a year. I don't know that that drip wears away the stone you say, man, I like these guys. I finally trust them and I want to give him some money because I think they're going to be a good steward of it and placing some awesome commercial real estate deals anyway. It can be as simple as that. It's not always as simple as that. But um, if you want to sit down and interview us, feel free, shoot us an email and best at the criterion fund dot com anyway, make sure to like subscribe share.

If you can, how to invest in CRE dot tv on the web anyway, we'll see you next week. Thanks guys. Thanks. Mm.

Episode #033 - How to find good COMMERCIAL REAL ESTATE investment opportunities and how to vet them!
Episode #033 - How to find good COMMERCIAL REAL ESTATE investment opportunities and how to vet them!
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