I love this job because there's real justice in the amount you receive from the amount of effort that you put into it. Mhm Master. Hey guys, what's up, Welcome to episode 004 of how to invest in commercial real estate. We are joined today by a special guest Neil daily. Thanks for coming on, thanks for having me here. What's up guys? Also joined by our co host, Joel Thompson and brian duck, brian is obviously my partner in the criterion fund and and Joel is a co founder of precision, both commercial real estate agencies and Neil is actually the, what's your title? Leo uh commercial real estate broker. I started the commercial division at McGraw. So McGraw realtor is a very well named well known name and residential real estate here in Oklahoma. Now across the state. Recently this year we made an acquisition to stretch us across the state and into Northwest Arkansas but started the commercial division uh 12 15 years ago at McGraw and have grown it. And now we have property management, we have silos of retail office, industrial, multi family guys have really done well and now in the property management, looking at corporate services and now an energy sector, it's getting it's getting big, so it's taken very cool.

So how many people do you guys have over there now, it seems like you guys have been growing like crazy, especially in the multi family side recently. Yeah, we have uh it's kind of taking a life of his own and as we have brought people on, they have over the last couple of years, really tried to isolate into silos. I say, I want you not just to say you do commercial, but I want you to be the specialist at that particular job. Take, for example, if the newspaper is looking for a quote on a recent story, they want to call an authority on the subject, I want you to be the authority on that, whatever it is that you want to do it, if it's office, if it's retail, if it's industrial, be so well known in that, that doesn't mean you can't, you know, dabble in the other transactions or if you have a good client doing something else, but be known for really being good at that one thing. So, niche niche down. Yeah, yeah. I mean, if you look at some of the people that have been the most successful in the brokerage community, it's those people that have done one thing and done it really well, right?

So, if you look at the industrial guys, that's all they do is industrial and retail, that's all they do in retail. And you can look around at all the different markets that we And we are in and then say, all right, who's the top person? And why are they successful? Because that's the only thing they do now, getting started. That's really tough to take a 25 or 30 year old person. And go, now, you need to really, you don't know anything about that multi family deal, right? You do retail and you do it really well. And I know you can make, You know, $50,100,000 on that commission. But the chances of you taking that on since you don't know anything is gonna take you away from your endeavors and in retail and likely you're going to screw up the deal or you're gonna miss something and you're gonna be liable for something and it's gonna damage you and your reputation refer that still get a fee but continue down your path. So is the silo because uh, they become an expert in that particular area or because they get a name and so people come to them or, or a little bit of both or Yeah.

So if you want to say, um look at the evolution. So you have on the residential side, everybody's seen them. Uh, the business card says, you know, I do residential and commercial. So Jack of all trades, what really if you, if you drill that down there are great people and they're they're good at what they do. But it's so hard being so knowledgeable about just one subject. If you really think about it. I mean if you did residential and commercial, you would have to be an expert on every subdivision and every level of investment all over a given territory, then you want to do commercials. So that means you're going to be familiar with the commercial lending rates. And uh, if you're doing tenant rep, if you're doing landlord representation, if you're doing industrial, you know, what are the key factors in multi family metrics? And there's no way one person can be an expert and all that. So to the general consumer, recognize that if you're working with someone that says, I'm an expert in all of this, it is, they're not almost impossible.

Yeah, I don't know. I mean, I've worked with brokers all over the country and I've never come across a super successful broker that does anything more than one thing. It's retail, multi family. Uh there's a little crossover with uh, single tenant because single tenant may have retail and single tenant may have industrial, but it's still a single tenant expertise, correct? But I, I completely agree. You have to specialize, um or you're, you're really gonna flounder, I think if you really want to go to the top of the game, the top of the industry, you've got to, you got to be an expert in a specialist. Yeah, I'm kind of a buffet fan and steve jobs fan, and that that's too big things that they just say over and over again, it's just, it's not what you say yes to, it's, it's all the things that they said no to right? Um I'm at a stage down that we have brought people in that, I still have people call me and say, hey, can you help us with this office retail bump up about whatever it is, if it's not directly in my wheelhouse or where I wanna be, then we have people on the team that, that fits for, right?

Hey, can you help us find this 1500 square foot office or this 1000 square foot retail space? Or can you list this long john silver's for us? And like yes. And then I would call Kayla or Carly or julie or we can, I can't, we can, yeah, yeah, I can quarterback. And, and that's good. Now I have the ability to stay on those emails and I'll keep up with a chain of flow. And you know, if there's a question that comes in, if that person has, you know, has questions, then we'll talk offline and say, all right, well, this is how you would structure that answer. This is probably who you would want to call for that. So we have that team and it's very organic. We've started, uh, we haven't, you know, bought other groups to come in. We've started uh, recruiting people that have had a real estate license, Maybe they worked a year or two at another company, but we're looking for more direction and we have a great culture. We have great leadership. We have now territory now as we expanded across the state. Now, Northwest Arkansas, it's really a fun time. Yeah, good.

So good. So I'll ask you a question. Um, so many times brokers are experts in commercial real estate and this shows about how the average person can, can get in as an owner. Uh, start making passive cash flow. I know you own some stuff. What do you think are the challenges for brokers? Um, trying to move into the ownership position because so many times it seems like, uh, they are, they just stay on the brokerage side. Uh, and don't ever become an owner. There's a couple of philosophies. When I was getting started, I talked to some guys I really looked up to in the business And they said a one I don't want to compete with my clients. All right. I don't want to seem like I'm scooping the deals as they come into the house. I ended up taking the best deals. That's exactly, here's my leftovers. That's exactly right. And there are people that get a reputation for that. Um, there are philosophies for the people that do the deals of, hey, I'm in the investment world as well.

I'll reach out to clients and maybe we, we, we syndicate this or we go in as partners or things like that. The way I started, would, would help me Not only talk the talk, but walk the walk was, I bought a rental house. It was a $25,000 rental house. I borrowed all the money plus $1,500 for carpet and I was 24, years old. All Of the money plus $15 at 12 and three quarters percent. There's a hard money lender in north Tulsa that said I will do it. Um, and it was amazing how much I learned In that, you know, it was only 25,000. But the lessons that you learn and how the banking system works at that age was fantastic. So I learned it's easier to refi than it is originate, right? So I can go to this guy, I can pay 12 and 3/4% on uh $25,000 or 26 5. I can get at least and then go refight. And at the time this is something where they would go off of appraised value. It would've praised for 42,000.

I pay off the original loan and now I have a delta. Now I can go take that. That sounds eerily familiar. That's how we got our start. So it's so it's obviously a decent plan. You know, if this is both, how both of you guys are, are starting, somebody just take some notes on this and so it's just learning how to do that because you're going to learn about leases, you're gonna be learning about the financing of insurance. Now, you're developing all of your, your vendors, you're gonna meet other landlords in that space. You're going to meet, you know tips, you're gonna get tips and tricks which are applicable to shopping centers and multi family centers. Uh, the mechanics of it are all the same. It's just, you just add more commas as you get into larger investment property. Right? And I think we mentioned that in a previous podcast, how it's arguably the same thing buying a house, buying a $5 million dollars shopping center. But same processes brokers that get into that have never crossed that barrier. It's a real big gut check to go in and sign on the other line. So take philosophy, you know, out of it. It's, it's really committing.

And even the biggest talkers have a hard time actually signing, I think, uh well, we haven't talked too much about risk and risk taking and getting comfortable with that. But I, that's absolutely the case. I see guys that They don't understand the deals, they know the metrics, but putting your own money down and assuming the liability for $3 or $4 million dollar mortgage when it may or may not work. You just don't know most people just can't get comfortable with being uncomfortable. That's right. And I think I love that. Can we get comfortable being uncomfortable? Yeah, you're gonna be on if you get into this game and you want to take if you want to do big deals like we're doing. Um it took me years. I mean, I'm still on some deals, slightly uncomfortable every time I buy a deal, there's some level of uncomfortable because I just don't know how it's gonna work out and I'm using other people's money in my own. But man, you've got to be, you got to get that will be there for years for the first few years.

And I think starting with houses like what we did, you're able to get comfortable with it because it's a it's a number that I know it's insured, so if it burns down, right, if it gets wrecked or knocked over by a tornado, it's covered from insurance. So if I lose a tenant, I'm not going to be out of 10 it forever. All right, so let's think through that. So my risk is mitigated by having to go out and find another tenant, which they can certainly do can they wreck a house? Sure, but it's drywall and paint and carpet and you can fix it. Um So you get comfortable thinking about the ways to mitigate your risk and you do it at a $25,000 level or of 30,000 or 40,000 houses and you build up tolerance to it. So now it's now it's time for us to go buy a million dollar shopping centre or two million or five million or $20 million apartment complex. So I wanna grow into it. Interject there. I think that was a really good point and and saying we need to start in residential houses in that 25,000 house because you learn how to do it. But theoretically somebody could go get, you know the real estate license and get into a commercial real estate firm and and kind of start that way like your saying niche down into shopping centres, get an apprentice and then broker that deal, learn how to do it, take the notes, learn the lingo, learn how to walk the walk and talk the talk and then is this a biography?

Yeah. Biography and that the knowledge, what I've found is the more knowledge you get, the less risky it feels. That's correct. And so by getting the knowledge and working with others that are doing it and see seeing others do it. The risk level comes down. Yeah. And one other point I want to make while I'm thinking about it early on, you know my wife and I had a lot of discussions about the risk portion. It made her really, really uncomfortable and she's not by nature a risk taker. But I knew that we had to go down this path and and you know having a mentor saying that failure is part of the journey. I I knew we had to be prepared to to you know fail financially or file bankruptcy. The key that I want people listening to to think about is I asked, I asked my wife what can we lose by failing financially because you know I had a day job, didn't make a lot of money but bankruptcy is not the end of the world. They couldn't as long as I make my house payment, they can't take my house.

As long as long as I make my car payment, they can't take my car. Uh and as long as I perform at my job, they can't take that, it can only, you know, and so then I began to let her, we're not gonna lose our friends, we're not gonna lose our family. And and so then you just drill down what is the fear and what is it that they're going to take if you, if you fail and ultimately the things that are important in life, you're not going to lose by by failing on a real estate deal. So take a deep breath, relax, you can do this and whatever failure comes your way like we talked about earlier, it's just part of the learning process. So yeah, if you have a mentor in it, if you find somebody, I mean there was a guy in our office carry velez, we were at a at a house, uh it was an easter party and our kids were over there and we were just standing around, he goes, hey what do you do? Commercial real estate? Somewhere in his life. He had met somebody that was in commercial real estate and he goes, man, I don't know what that guy does, but I want to figure it out. So carrie came to work and um he, he put the time and he came in every day, um, was terrible at it.

And if he's watching this, uh, sorry bro, uh, he sat out right right outside my office in the cubicle and listen, talk, I was like, listen, you had the deal, You had a yes. And you kept talking and you talked him into it. Yeah. So I said that's your achilles heel and he's worked on and he's worked on and he's worked on it. Um, he got the analytics down. He has worked with other people, um, and ultimately has become very successful at it now. And so good for him. Yeah. And there's a lot of stories you don't have to be a salesman to be in commercial real estate. Like you don't have to be able to be, you know, johnny show up and in a suit and pocket square and all that kind of stuff. Right? Uh, you can be in commercial real estate, you can be on the analytic side, you can be on a team, you can be the research guy or girl for that matter. Uh, you can be in that in that world and still be a part of commercial real estate. That's, that's 100% how I started. Um, and I think going back to joe's point in your point of, you know, fearing the unknown. That's, that's so real.

I mean, you just, you don't know what, you don't know and you're terrified of all these things that could go wrong because it's, it's big and it's got a lot of zeros and you're signing on the debt, you're ultimately responsible for it. And people just think, oh my gosh, I've never been responsible for something that big that could ruin my life. But when you break it down, the probability and the practicality of that happening is it's just a lot lower than I think most people realize to get into this job. I love this job because there's real justice in the amount you receive from the amount of effort that you put into it. You work hard, you go out, you prospect, you meet with people, you stay up late, you study, you write this and uh, and then ultimately you start knowing more than the other guy and you start making contacts and you get deals. And so there's real justice in that. I worked three jobs in order to get into this job. So I was waiting tables at El Chico in the evenings and I was an underwriter at State Farm Insurance and of doing this on the, on the side and then doing a radio show, I mentioned to you uh, it took a lot of sacrifice in order to get here.

But I absolutely love it. But 100% Commission is scary. It's terrifying. Yeah. So, well, so I was gonna say, um, you know, I was an engineer like brian And I started in a house flipping in 2003 Uh with with my partner Victor. Uh Whitmore and I worked that day job until 2016. And and so I could have quit a little earlier, but but I never wanted to give up, like we were talking about the safety net of that day job because of the risks. Uh and so that gave me comfort knowing that I can pay my bills if I if I mess up on deals. Um So I wouldn't suggest people, you know, I would say that you need to try to have a stream of income on the side in the commercial real estate can absolutely be done part time until you're big enough to quit the day job. Right, I quit because I did a least downtown and it exceeded my annual salary at State Farm. Beautiful.

Yeah, I thought all right, it's time to yeah, there's the time now. Yeah. Yeah. Yeah, yeah, I did the same thing. I still was working uh full time uh when we started criterion actually, yeah, we both were and yeah, I I think we both ended up quitting within a week or two of closing on that first deal, mine I think was a few weeks before. Um But yeah, I mean that first deal, it's kinda the same thing with you, you know, you get that first deal close that you've been hustling for, you know, maybe on on the side or whatever and then it's big enough to where you're like, okay, let's dive in. So let me turn the question on you guys outside of brokers, how are you finding your deals or are you using brokers almost exclusively? Is that how the most of them come to you is I mean as your, as your fund now is gaining notoriety, are more deals just happening, happening to come to you. Absolutely. Um, I would say a lot of them are just relationships and brokers and hey, check out this deal. Hey, we'd love to have you be a part of this, hey, this looks like something you previously bought or expressed interest in. I would, I would say the majority is uh, referrals and brokers like yourself reputation now that we've done some jobs or done some deals then.

Yeah, we're getting more notoriety and, and more people are coming to us, right? Yeah, we talked about this in a episode two, I think it's It's fairly easy to fill up your email with tons of deal flow. Just massive amounts of deal thought. I mean every day I'm probably getting 50 deals. It's sickening. It's annoying actually and it's hard to go through and underwrite all these. What a problem. Yeah, I know. Well, because most of them are exactly the same and you know, within seconds that they're not, there's no value piece there for you. So you're just streaming through them. Can you make every deal work? I mean, if you spend time on it. I think, I think that's an excellent question because I, I think so. I, I think my make it work. So like you, I get email stuff all the time. It's brokers advertising stuff. And that's how you see a lot of stuff you have to cut through the noise. Um, and ultimately that's where you, you talk about just focusing on a knish a niche. And as you go down, you start looking at very quick metrics. I know. So the industrial, I found, uh, you know, the 20,000 square foot industrial facility that's listed for less than $50 a square foot with great clear heights and heavy power in a small yard and offenses like check, check, check, check check, right?

But if you get one that's like The same, but it's 65 or $70 a square foot and you have to add a little here and so you have to soften up the cellar and then you have to do some modification and same way with your investment deals if you find them. Is it really just a measure of how much time you want to spend on it too mash it together, I would say probably for me a precision equity, Not really, uh, you know, we're, we've only got so much time and capital and uh, and so a lot of these deals, if it comes across my desk and it's, you know, it's a six cap and I just know that I'm not going to get my investors to return they want or, or for me, I'm not gonna get enough after I pay the investors. There's nothing left over for me. Um, so yeah, I, I can't, I can't make every, every deal work. That's what I think. I feel like it's hard to find good deals. I just went out to Memphis, we're buying a three tenant retail deal in Memphis. And, and to find that deal, I took maybe three hours on crazy.

And I, I literally went and looked at every single deal in the country that was above an eight cap between two and eight million and so three hours and I, I may be handpicked 8, 10 deals that I followed up on and, and this was one of them. And it's a, it's an older guy that is getting completely out. Uh, and so he's selling every deal he has, which is, it's a good time to buy from that time. My attention. Yeah. And in the broker seemed cool and we went out. I loved it. I think it's gonna be one, we close on here next month. But so for me, how we find deals is local brokers because you're going to find stuff that isn't nationally marketed, it's going to be, you know, maybe local owners or maybe not even listed yet. You know, maybe it's a pocket listening, that's where you hope to get to as a, as a fun guy. Yeah. And then we also do, we've bought deals that are nationally market and you think there wouldn't be value there, but we saw something others didn't. Um, we find some from, from lenders. I, I know bankers in town and I tell them, hey, if you have struggling sellers or if you hear of an opportunity to send it my way, um, you know, we haven't gotten to the point where we're like going through co star and just cold calling owners.

I hope to be there as we hire more people. Um, that's a, that's a great way to do it. You find people that have owned a property for, You know, 10 years, 15 years. So they have a very low cost basis and they don't necessarily know how much it's increased in value. And you say, Hey, if I could bring you a good offer, would you be interested in selling? And most people say yes to that question, right. And, and then you get all the financials, then you underwrite it to a number that you like and shoot over the offer and you probably have to, it's a numbers game probably to do that 2030, 40 times. But that's another way you can find them. And when you have those successes, do you find people go, man, you're so lucky. You always find the good ones. Yeah. And they don't realize you spent months trying to like calling through all the dogs and you get to the right one, it's not luck, right? You know, it's just so much. Um, and uh, look, I know there are deals that I pass on that are good deals that other people make money on. I don't, I don't spend any time, uh, worrying about that. I can only, you know, find what I feel is, you know, is perceived value.

And it just does, it takes a lot of deals and, and the reason it does is, um, you probably see this too in your inbox if you see 100 deals and they're all, let's say a 6.5 cap and you know, kind of what they look like. And then you see one that comes along and it's a 7.5, let's say, okay, you have to, then you dive into why is this one slightly different? But the only reason, you know, that could be a good deal because you've looked at so many, uh, that are at a different price point, you know, how to compare. And so it really, that's what you're doing. It's not that you're looking at so many deals that you're memorizing price per foot forgiven markets. Um, what the rents should be, uh, what, you know, what looks the best, um, for a given price, how new is that? It's, you know, what cap rates should go through all those things. You're kind of muscle memory going through, when you look at so many deals. And, and then, so when, then when someone, one sticks out, uh, you can realize, hey, there might be some value here. And all you're doing is you're memorizing those metrics. Do you have a core set for your, your fund members? Just say, well, we don't get to, we don't do anything outside of these parameters or is it case by case now?

Well, we don't yet. Um, we, we tend to go where our experiences, which is a multi tenant retail and multi family, but we will look at anything and if it's compelling enough, we might step outside that, that box, but we don't have a directive for our investors and we don't really have a fun, we just do a deal by deal structure. So, and I think what you were talking about earlier, it's just knitting down and paying attention. It's really hard to know all of the market statistics for every asset class for your own city, let alone any, any city outside of that. I mean, I, I couldn't imagine trying to do that for more than one or two asset classes because it, it's hard. Too much information you've got to know. And that's good that we're having Neil on, uh, if we go into a market like, like Memphis, I don't own in Memphis. Uh, and so we met with property management companies in Memphis, I met with brokers in Memphis and I met with bankers in Memphis. And so they're going to tell me this is a good area, this is a good price, these are the market rents uh five years.

Yeah, and and and so you know people that are thinking about how getting into or buying a deal in Tulsa, they may connect with you because of your market knowledge and then if you are or we are going to go to another city, we're gonna need to find someone like uh Neil or another local expert. That's how you get to know phoenix in a matter of minutes is you don't go to phoenix and spend a year learning it. You talked to local experts and they're gonna want to help you because they're gonna want to find you deals get commissions, that kind of thing on the brokerage side of the business. How do you? So there was a guy at Cushman Wakefield, so I started with colliers International, it was bought or they split off, they didn't Cassidy turley was bought by Dtz and then bought by Cushman Wakefield. So one of the guys that never left is now the head of the global occupier services guy, am Greg Schuster, we're having uh they have have an annual meeting and afterwards I went out to dinner with him, he said all right, so you're a boutique brand locally in your market knowledge, we are a global account service or for all of these other companies, then you have brokerage companies in the middle that are kind of regional, trying to be both.

They're trying to be global, they're trying to be local, they're not doing either one of them very well. So we call the boots on the ground whenever we need information. So same scenario where they would say, hey, here we are, Cushman, Wakefield, jones, lang Lasalle, Marcus and Millichap, we need to know specifics on this. Can you help us with this deal? Yeah, absolutely. Right. So that's, we do a lot of stuff that way as well. So we don't have a national flag, but we compete with the national flags or cooperate with other national flags that aren't necessarily already in this market. It's also is an example of that. We're not every flags represented so we can help do that. So if you're a boutique in a smaller, you know, second or third tier city, that's another example of things you can do make inroads with some of the national ones. Yeah, well, to kind of wrap this up, I would say what I failed to do early on was was connect with the experts in markets like the brokers like Neil and so I was just kind of winging it and trying to do it on my own and trusting sellers more more than I should have been.

And so a big piece of advice today and having a local expert on is encouraging people that are wanting to get in to begin dialogue with local uh, commercial real estate brokers because they are going to know the owners in the market. They're going to know the price is the price points, they're going to have the connections you need and the experience to help you make fewer mistakes than you would on your own. All the vendors, the roller decks of different people that help you in that property. Well, um thanks for coming on Neil and I appreciate it. I love the opportunity to sit down and talk with you guys even if it's recorded and out for the world that you know, it's a lot of fun. Um I I want to tell the story of how we met real quick just because I I think it's an interesting story and I think you could, you know, meet somebody else like this and sell them an amazing deal, but we didn't know each other at all. I'm not sure how we got connected somehow. We ended up at a double shot coffee. Susan. Susan. Okay, it was boma through boma. So we're members of boma. Susan um Property manager, commercial property manager, she manages um I forgot about this, You guys managed red.

But for us, Susan does so Susan connected us and you knew kind of knew we were maybe in a multi tenant retail or something like that. You mentioned Joel and I have met you through Brandon. Yeah, yeah. Um anyway, you, you pitched us a deal and kind of going back to your point on underwriting. It was, it was a low cap deal and it was one we should have thrown out in our quick and dirty. It was one Joel told me to throw out in our quick and dirty, but the real estate was appealing, right? The real estate was appealing. It was one of those, like you mentioned that, you know, I wanted to keep underwriting it even though I knew it didn't work right? I mean it was, you know, I don't know why did you almost took it like a challenge? It was, and luckily I think the scenario was everything lined up perfectly. Had you not, had you not done it though? You wouldn't, you wouldn't know. But you did a fantastic job calling out different things, doing the adjusting the seller's expectations. Yeah, that's right. I had a lot of calls with those owners at nine o'clock at night uh like, well what do you think, what do you think, what do we need to do? And it's like, well, I mean, he's kind of spelled it out for you.

I mean this, this, this gets the deal done, you're gonna have to take a haircut anyway, we still meet a double shot, we still talk about stupid deals we want to buy and, and I think that's uh, you know, taken for granted sometimes get out there, make those relationships, uh, connect with people selling deals in your market buying deals in your market and and meet with them. A lot of things these days happen the old fashioned way. It's the it's the phone calls, it's the meetings, it's the in person stuff you can't achieve through instagram post or an email or a text message or something. You gotta do it the old fashioned way. I mean there's a human element that's still very paramount in this. Most of our deals have happened that way. It's through uh personal relationships that we've had. Absolutely. Well, I think that's it for episode 004. Again, thanks for coming guys. Really appreciate make sure like and subscribe on YouTube, check out our website how to invest in cre.com and we will be back in a few days. Thanks guys. Thanks. Yeah.