it makes all the difference what rate you get on your money and and that's made all the difference in my life to take me from where I was to where I am today master what is up guys. Welcome to episode 003 of how to invest in commercial real estate. My name is Brendan cheek with the criterion fund. I'm joined by my co host brian Duck with criterion and Joel Thompson a precision. What's up guys? Thanks for going on. So I thought today we'd uh we dive into um just comparing real estate returns versus other asset classes. You know we're talking about why we think we should invest in real estate. We're going into you know how to find real estate deals, how to close on them. But I thought it would be a good episode to just stop and say, hey here's what's out there, here's how it historically performed and here's what we're offering and here's how that historically performed and what that can really do for you over an extended period of time of you know your working life which for ease, we'll just call that 40 years yep.

Well uh I think we should go with brian today because brian you have been investing in the market and stocks and for one case a lot longer than bread. And I have so you know what talk to us about your experience with the market and and what are generally people expect on returns from different asset classes. Yeah I think uh stocks have probably got to be the most common investment by most investors. Um and as I looked into some statistics, you know, I think you can usually uh count on about a maybe a 9% return on average. Um Goldman Sachs did a study where they looked at every ten-year period back for 50 years and they found that the average for any 10 year period, The return on stocks is 9.2%. Um interesting. That's actually slightly higher than I would have thought. Yeah, well, um I looked at some other time periods. So uh the s. p. 500, if you go back from 2019 into 2019, you go back 20 years.

The return for that period of time is only 5.9%. So I think that has a lot to do with the fact that the 2001 ah Market was so bad. And then of course also um back in 2008. So it captured those two periods. But what, but what it says is that if you start investing, let's say you don't, you're you're working and you're raising, you know kids, and everything you don't have a lot of money to invest and you don't start investing till you're in your forties or or maybe later. And maybe you only have a 2025 year period to invest. That doesn't guarantee you that you're going to get that 9% or something higher. There can be a couple of downturns that can really can really affect that return. So That's interesting. I I graduated college in 2001, started working and started maxing out my 41 K. In 2001. Is that why my returns have sucked my my last 20 years? I'm averaging 5% on my money probably. Okay. Um The other uh other aspect about that and and I'm just like this is I don't feel like I can go pick stocks, so uh and I don't I'm not sure I can even pick, you know, mutual funds and rely on those mutual fund investments.

So I think a lot of people want a financial advisor and most financial advisors are gonna charge about, on average about 1% of the assets that are holding in that account. And um I looked into a statistic that said that if if you had a financial advisor for a brokerage account or maybe a 41 K. They used it as a 41 K. Example, that if you invested the maximum amount that the government would let you invest in a 41K over the last 40 years, That that 1% that the financial advisor is keeping costs you $1.3 million dollars out of your account, incredible. And so it's it's again it's the power of compounding, but it's something people don't don't think about. So um I and I've done that same thing, I have financial advisors and I, you know, I'm I'm paying them and and it's because I just don't feel comfortable picking my own stocks or bonds or so most people are paying fees for an actively managed account. How do those perform versus just an S. And P. Index? Yeah, I looked into that as well and and um there's a guy named um Phil town, he's a he's a well known hedge fund manager and he's also a best selling author and got a couple of books in the new york times bestseller on free plug for Phil town.

Welcome Phil. Anyway, he says that um the S. And P. 500 outpaces um the returns of of some of the more he leaked financial advisors, he looked at some of these guys that are um um Managing really large funds. And the s. p. a. 500 beats them 92.2% of the time. And again, that's crazy because these guys aren't smart. These guys are really smart and they're investing well. But but it's their fees. He says that that keep them from being able to match the the S. And P. 500 or beat the S. And P 500. You know what it tells me is that they're not beating on average, not beating the S. And P. By more than their fee. Yeah. Right. And uh that's been my thought is the stock market, I encourage everyone to invest in the stock market it needs to be part of your investing portfolio. The problem is that that stocks in general are sometimes, or most often their only investment, they just, the only thing they've ever done is put money into a 41K.

And then it's pray and hope that that there's enough in there when they retire that they can live the life that they want to live. Yeah, like brian said, most people don't understand it, they need a financial advisor to help them and its charge them an exorbitant amount of money at the same time. And then on top of that, people are just forgetting about it. You know, if if you're not focused on something all of the time and it's just something you don't understand with somebody you don't know and don't talk to regularly. How how do you think that's going to perform? Of course, it's it's probably going to underperform something you're thinking about all the time every day that you're in control of. So, okay, let's talk then about, obviously there's there's a few higher return avenues um that people can do, whether it's buying a business or investing in real estate. And so I I want to do a thought experiment with everyone listening. If you have a piece of paper write it down, but I'm gonna take an An average investment of 25,000 a year. So it's a little more than maxing out your 41K. It happens to be, uh, the lowest amount that we typically allow investors to come in with.

But if you uh if you're, you know, in your 30s or 40s and and have a good job, you might be able to put together $25,000 a year to put into an investment. So the thought of the question is this How much uh do you have at the end of 40 years investing? 25,000 a year? At 8%. Okay. So mentally, think, think about what you think that number might be 25,000 a year, compounded at 8% for 40 years, because that's most people's working career. So basically if you max out your 41 K through your job and then maybe, you know, get a tax return or, you know, save up a little extra cash through that, an extra $500 a month, you invest 25,000 and then you put it in the stock market because that's What, and this is, this is eight. So basically the same thing, yeah, about about a stock market return, depending on how you allocate your portfolio. Okay, so you have that number. Hopefully in your head now, I want you to do the same thing with 16% compounded annual return. So just double man double returns, get me as excited as charlie right there.

So, okay, so you've got, hopefully you got those two numbers. So, uh I'll ask you guys, you may not remember, but what what do you think it is? Well, I mean foreshadowing I was I was nine figures off nine. Okay. Yeah, I remember asking you guys this question when I was thinking about it. So we'll go ahead and pull up the graph for those watching on YouTube. What's the number is 25,000 25,000 a year, times 40 years, So Times 40 25, that's a million bucks. Okay, $1 million dollars invested. And and and if you But it's invested at different times, right? Uh and it's compounded 8% and compounded at at 16%. So it Probably, you know, over 40 years at 8%. It probably don't know, quadruples or something, maybe at 8%. It's four million. I don't know. Yeah, I mean, I don't know what the answer is, I miss it by nine And that's 16%. It's got to be all right, so, so we'll tell you, hopefully you guys will be shocked by this, but at eight and we have it up, I think we have the graph up online, but at 8% it ends up being almost $7 million wow, So seven times your money.

Okay, so there's a million, you know, an original money paid in C you made about $6 million 40 years at 8% in the stock market Now here. Here's what's gonna blow your mind, or at least it did me um at 16% of the total after 40 years is just shy of 70 million. Oh my God, wow, $70 million 25,000 For 40 years at a higher interest rate. So the take away from me on this is uh that typically people are viewing commercial real estate as riskier than the stock market. And for one anything can be risky without knowledge. I don't happen to think what I'm doing is riskier than the stock market, but Especially 10 times riskier, right? But then, so let's, yes, that's the point. Is that okay? They think, well, double the return, but it's maybe it's double is risky. Well even if it was double as risky now I want you to realize you're getting 10 times Or you have the opportunity to get 10 times the returns.

Like the rate of return on your money in this life matters in a big way. And people they see eight and 10 and eight and 16, they just see it. Well, it's a little more interest. No, in your lifetime, it makes all the difference. What rate you get on your money? And and that's made all the difference in my life to take me from where I was, to where I am today, man, I I thought I was good at math and I did this and I felt like an idiot when I when I missed this so much because It's so easy to say. Yeah, 8% return, 16% return a year. You know, we're going to do that for 40 years. Can't be that much, you know, a little bit more than double. I've seen maybe 2.5, 3 times if you just, you know, generous. But I was, I was missing it by so much. If you get, if you averaged now, obviously it's hard to even in commercial real estate because your money in and out Of deals, so you're not going to be as consistent on your compounding. But at 20% return on that same 25,000 a year, it's 220 million in 40 years.

So let's, let's on The same one million paid in, One million paid in is to 2220 million and 40 years compounded at 20%. Oh my God. So, uh, I know, I can hear people saying, Well, I can't, you can't even make 20 well, I'd like to look at a case study. Um, and so we're gonna pull it up online. It's a deal right here in town called Village South retail center. We purchased that four years ago. And as you can see from, from this proforma that I gave the investors, uh, four years ago and Brian, I think you're invested in in this one. Uh, we were pitching about 12, uh, to 13% cash on cash And a 22% ir what that means is that I told the investors that I was gonna get them a 22% compounded return Over the five years and saying that's a lot of money. I was remember when you pitched that? I was thrilled with that. Yeah. And um, yeah, I Mean, you're, you're used to what?

9.2 stocks? Yeah. And so Fast forward four years. Um, we've paid out, uh, well, we're paying currently 14% cash on cash. And we're gonna update this next year because the deal's going a lot better. But next year we will be doing close to 25 or 30% cash on cash to the investors with with a third of the required equity in the savings account you mentioned before the show. Yeah, we, we've been able to store up cash in the account. So that's a, that's a real life deal where I was pitching returns that people would say, oh, you can't do that. And, and not only are we doing it, and we're not, this is four years in now, but we're way exceeding it. Now, If you only have $25,000, you need to spread that out. Uh, and if you have, uh, you know, a bunch of money by a bunch of deals because every commercial real estate deal isn't going to hit it out of the park. You may have some make less, you may have some that make, uh, the returns that, that we think they're going to make.

But this is an example and we've had brian, how many would you say you've been in all of our deals? How many would you say have overperformed what we projected to you at the beginning? I'd Say probably 75% of them, don't you think? Yeah, I would I would say most likely over half. So uh and I think the point I'm bringing this up, because people are listening and the whole goal is to open their eyes uh to commercial real estate as being a vehicle for them and achieving things that they may not have thought were possible. Like uh in a previous podcast, we talked about this deal in Broken arrow Oklahoma that you can find in front of a walmart that can make 16 17% returns uh compounded returns while you have your money invested. And then I'm pitching a deal here. It's in Tulsa, It's uh shopping center. This is an average run of the mill shopping center. Uh It's in a good location. It's got good demographics, but here it's far exceeded even my aggressive returns that we had.

We had shown. So Uh man, I just don't think people realize the power of getting higher returns on their money versus what they've been getting in their 41K. Yeah. Or the, you know, we we talked about earlier um the power of appreciation on scale, right, economies of scale when it when it comes to appreciation. Real estate, um you know that deal you bought for what We paid 7.6 million. Okay. 7.6 million. And it I mean, total equity on that Was total equity 1.4 million. 1.4. And you're paying out 14, And you think over the next few years, you you could almost double that cash on cash. Yes, absolutely. So that property is gonna be worth way more than seven, whatever million I would guess. Um I mean, today retail is a little tough, but I would guess 10 or 11 million pretty easily, Wow. That's insane. That's great. That's insane. So it's it's appreciated. Almost almost 50% value may be more. Yeah.

And and that is uh, it's a little bit unique. But um we have other, I mean, we've done uh even better than that in some apartment deals that we've we've done. But that that's a good retail deal obviously. Yeah. But it was it was looking at deals in your market. It was knowing that was a good deal. It was for sale for how long, I mean, did you fight other people for that deal? Do you push him off? That's okay. So that's a good point. That was for sale for a long time and people, a lot of people had passed. And even I didn't take action on it. In fact, a real estate company here in town, way bigger than us. Way more experience than us. I called them about it and they're like, no, we just can't make the numbers work. So uh just a good point that the deal a decade is sitting sometimes right in front of you and and people with more experience or more money are passing on it, leaving it there for you. These guys were out of state, the original owners were out of state, they had passed away. It's now in the heirs of their Children. They don't know Tulsa, they live in California and the center had struggled in the past through the recession.

And so they were kind of like, well the numbers are moving up. This is a good time to get rid of it. And so they, their view of the value of their property was was lower. Uh just because if they had gone through the recession with this property and they didn't have any affiliation with it. It was something their parents purchased. So those are the kind of things where opportunity is right for you to take advantage of. So you know what if what if you're saying or watching this or listening to this and saying, well Joel, I don't want to quit my job. I don't, I don't want to go start a commercial real estate company. I don't want to go do this by myself or or find the bank or find the investors, how do you, how would you get in on a deal like this? If you were just working a regular job and investing in a 41 K. How could you take advantage of that opportunity? Because it's a it's a massive opportunity. Um Yeah, there's a couple different ways. Um But if if you're saying well uh the only money they have is in a 41 K. It depends on the type of 41 K. If they have some self directed capability built within the plan, then they can they can invest their their tax free 41 K.

Dollars directly into this as as part of their portfolio. Well let's just say it's somebody in cash, somebody's got 25,000 cash and they want to get into a real estate deal that's making 20% and you know The market is different than it was four years ago. But let's say somebody can travel back in time four years ago. They had 25,000. You know, can anybody just invest in this deal with you can I mean anybody could have just been on your email list at that time and gotten this opportunity and and gotten those returns. How did how did Brian get the opportunity to invest in that? Yeah. So brian and all of our investors are on our newsletter. Um They're getting our emails uh So they can evaluate the deals for themselves depending on the type of offering that we do. Uh That will decide whether we can take a certain number of non accredited investors Before. I used to have to do have to have 100% of accredited investors. And you precision is doing regulation D um, you know, 506 C or maybe not general solicitation because you're taking um, sophisticated investors, we have not done a general solicitation.

Um, All of our offerings to date have, have been, Uh, needed to be accredited, uh, and, or sophisticated and credited is, I think the net worth of $1 million 200,000 a year maybe? Yeah. I Think if you're married at three 100,000 a year, okay. And then, so now you can do a certain type of offering, which allows sophisticated investors, which means that, hey, if you have a relationship with them and they're, you know, they're reasonably educated and they know what they're getting themselves into that. You can, you can take a certain number of non accredited investors called sophisticated investors. I think what they want to protect is that we're not out pitching, you know, shady real estate deals in a walmart parking lot to people that, that may not know what they're getting into. But if you, if you have, if, you know us, and if you're on our email list and, and we can talk through the risks and the rewards with you, uh, then then we can have a certain number of those in our deals. Yeah. So I think there's a couple different people that might be watching the show or listening to the show.

And I think one of those is going to be um real estate entrepreneurs aspiring to go, you know, build a real estate company and are going to be super interested to try to do this deal by themselves. Um, and, and like we talked about an episode to fill up their email box with deal flow to try to find those deals. But I think there's also that other group that, you know, said, hey, I don't want to quit my job. I just want to invest as, you know, 20 25,000 years for 40 years and I'll take that quarter of a billion dollars. They equally need to be filling their inbox with um, you know, sign ups like yours going to precision of signing up other good sponsors. There's there's lots of sponsors um, that are doing all kinds of deals. So yes, this could be someone else. You're feeling, you know, if you want, if you want to go do this by yourself, go go find a bunch of deals and underwrite a bunch of deals if you want to become an investor and invest in deals like these and and reap the benefits without having to do all the, all the work because, you know, there's some work involved. Then just fill your email box full of um, you know, in real estate syndicators, there's, there's tons of people that you can go sign up on their website for their investor lists and you get an email, hey, we've got an investment offering.

There's websites you can go to like a real crowd and a crowd street and you can go in and say, hey, I'm an accredited investor looking for amazing real estate opportunities, where can I get those? And it may be the best way to learn about how to do this. Obviously, the goal of this is how to teach people how to, how to invest in commercial real estate, whether that's a sponsor or an investor. But you may find that you learn a lot by getting in on a deal. That way you'll have access to the financials, you'll go through the closing process with us and you'll get the updates. And so it will help familiarize you with, uh, the inner workings of a deal. It was a good way for me to learn how to, how you go about analyzing deals and, and, um, just all the steps, it was just by investing and, um, trying to understand those steps. It helped me when it came time to, you know, start criterion. Well, hopefully we have enlightened people on the power of the size of your return and how much it matters that that extra few percent compounded over a bunch of years.

Yeah. And then equally associating the risk involved for that return. Like you're saying most people think it's double the return, double the money, but so you know, it should be doubled the risk, right? But it's it's 10 times the money and it's definitely not, it is definitely not 10 times riskier than the stock market. I promise you, I'm I actually just being honest with the money that in the returns that I've made in real estate starting from very little experience. I feel like the stock market is riskier. Uh and that's why I put a majority of my money in in the commercial real estate. Because not only do I feel that it's safer based on my experience, but that the returns have proven that it it's way better return and I still feel that it's less risky. So I keep money in the market. I just don't, when I get a bunch of money I want to put it back into real estate. I definitely don't run and put it in the market. Right, Well, I I think this is gonna help a lot of people think bigger and really pay attention to those percentage points annually and and the difference it makes when you compound them over your working life, which is about 40 years for most people.

Yeah, well thanks for, thanks for listening. Be sure to watch us on youtube. Like subscribe listen on google podcast Apple podcast, Spotify. Um man, thanks for joining us. Yeah. Till next time. Absolutely how to invest in CRE dot com. They've got the links to everything there, so feel free to go to the website, check it out. But brian Joel, we'll be back in a few days. See you next. All right.