How to Invest in Commercial Real Estate

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Episode #001 - Introduction to Commercial Real Estate, What to expect, and Who we are.

by Criterion, Braden Cheek, Brian Duck
December 4th 2020

In today's episode, we have Brian Duck and Braden Cheek from the Criterion Fund, and Joel Thompson from Precision Equity covering what you can expect to learn from How to Invest in Commercial Real ... More

just no way that me working my $40,000 a year job can, can own $100 million of real estate that that allows me to to retire. And I'm going to tell you that it's absolutely the case because that's exactly the position that I was in. Mhm. What is up guys? My name is Brandon and welcome to episode 001 of how to invest in commercial real estate. I'm joined by my two co hosts, Joel Thompson and brian duck brian is my partner on the criterion fund were a commercial real estate syndication company. So we go out and we find and invest in these awesome commercial real estate deals that we find and then we send out um an email to our exclusive list of investors and then they have the opportunity to invest alongside of us with a return. It's kind of a little bit about us and what we're trying to do again investing commercial real estate going and buying these assets and then we allow our partners to kind of invest alongside of us, Joel, what's, what's going on man, what's up? Tell us a little bit about precision you bet. So Joel Thompson and I am the co founder of precision Equity.

It's a commercial real estate firm that also buys multi family and multi tenant retail centers in Tulsa and around the country. And uh yeah we have about 100 and 20 million under assets under management and commercial real estates made a huge difference. And so been great. Yeah. How long have you guys been in now? So we started the precision equity back in 2003 and originally was just gonna be house flipping and house rentals and fortunately we've been able to make the shift uh into bigger assets and commercial real estate in general. Okay, 17, 18 years, not bad brian, what about you? So I was, as you said, I'm co founder with you on criterion started in 2019 and uh We're a little newer than Joel and precision. We only have about 15 million under assets but we're trying to, Trying to increase that. But uh I was uh W2 worker had a day job for 40 years until I finally decided to make the move and and uh joined up with you and and start our own deal.

That is awesome. That is awesome. Well I obviously impartial criteria because I'm your partner in it. But I think what we're doing is pretty awesome. We we buy mainly shopping centers right now. Um we're doing some early childhood education development, some construction and stuff like that. But let's just get into, you know why why commercial real estate. I obviously think commercial real estate, it's amazing personally changed my life probably changed both of your life. So I was just working at a job. I was, it was a commercial real estate company. I was just watching, you know the inner workings of how it was going on. I was doing the books, I got the opportunity to invest in some of their deals, just like we give the opportunity to our investors And it was it was really just tax return money. I mean most people get, you know, $356,000 tax returns, saved up a few of those and and got invested in a deal, learned how to find them and source them and what it took to get the debt and find the investors and kind of put this investment together. Um you know, for this other company I worked at and then you know, uh me and brian linked up, we we found the synergy to go and and start criterion. It's worked out amazing. Um And you know, I wouldn't have been able to quit my job at, You know 24, you wouldn't have been able to quit your job and and start this commercial real estate company unless we knew how to do it, unless we believed how powerful it could be.

So, I mean, It's just out of all the forms of investment. Most people think of investing, you know, and you save a little bit and your 41K. And then you start um you know, just invest in the stock market, maybe your company manages that for you most of the time, it's the stock market, some mutual fund, whatever. Why do we invest in commercial real estate and why is it so much better? Yeah. Well to piggyback on that, you know this show is how to invest in commercial real estate, but what I I want to tell people is that through commercial real estate, uh the investors and partners and myself have made millions and millions of dollars. And we were just normal people. I was a guy working a day job, had zero knowledge of commercial real estate, had nobody in my family that knew about commercial real estate, and I had no access to capital. And so really it was just finding the right information, the right mentors uh to help me learn that that made all the difference. And and so that's what we're doing here is we're going to teach people how easy it is, how they can do it.

Uh And hopefully some of them will take us up on it. And it's really just kind of documenting what we're already doing. You know, we're all acquiring these assets, um you've got a few deals rolling right now, criteria has got a few deals rolling right now, I'm sure we'll get into those eventually. But, you know, we're really just documenting recording what we're already doing and trying to break it down and share it to the listeners, share it to the viewers of how we're doing it, where where we're sourcing the things what, You know, models were using the debt structure, everything like that. And really, because like you said, I mean, we were normal people, uh you know, with with regular W2 jobs, you know, and and just regular modest circumstances and you know, we've been able to not only make ourselves millions of dollars, but make our investors millions of dollars as well. And that's really cool. That's a really cool opportunity to manage somebody else's money and be a good steward with it. Yeah, we're going to go into detail about why we should invest in commercial with the state. But what you said is exactly right. I was uh since I was 21 years old, I went out into the workforce, I graduated with an engineering degree and I thought, okay, I'm gonna retire with my 41 K.

I started investing in my 41 K. That day, that first day, and I've been investing in it for 40 years. And it's a pretty good some, but now that I'm 60 and I'm ready to retire, it's not enough to retire on. And so I I I feel like I almost wasted 40 years with a with a 8-5 job. And during that time I looked at other investments, I've invested in futures. I've invested in cocoa and soy and gold and silver and stocks and bonds and mutual funds. And until I was educated on commercial real estate. Um Once I was educated on it, then I knew that was the investment that I needed to be in for the rest of my life. And that's what I've done starting about 10 years ago is when I first invested in commercial with the state and it, it has, it's changed my life. I think one of the biggest things is, is realizing that you don't have to do it by yourself. It's not this big gargantuan thing that you've, you've, you know, we have teams of people, we are attorneys and title companies and we have bankers and we have um, you know, uh, tens of investors on a deal, you know, on anyone deal, you may have 10, 25 investors, but we're not doing it alone, we're doing it with a group of people were doing it with, um, other sophisticated investors and lenders, you know, they're only going to do it if it's a good deal, we're underwriting it heavily, you know, there's a lot that goes into this big team, We're just the facilitators really.

Exactly, because we, we realized it was possible and and we just kind of put the framework together, but I mean really, once you set it up and and learn what, you know, engagements you need to hire, It starts running by itself. Yeah, that's a good point. Um, you don't need to necessarily know that much about all the workings well, teeth will teach you guys what you need to know, but uh, like I said, you have a title company, they do all their work, the attorneys do their work, you'll have real estate brokers that bring you the deals, you'll have lenders that help you underwrite the debt and and so really just putting the pieces together and what I would say is people are going to listen to this and they're gonna say, you know, there Just no way that me working my $40,000 a year job, can, can own $100 million of real estate that that allows me to to retire. And I'm gonna tell you that it's absolutely the case because that's exactly the position that I was in and without any knowledge. And and it was just started listening to things just like this. People telling me exactly what steps I needed to take uh and you just keep moving forward toward those goals and hopefully it helps people have another alternative to a life behind a desk till they're 65.

Uh and then hoping that they have enough money when they get there uh to retire. Hopefully it allows them to say, you know what, maybe I want to Uh you know, retire at 35 or 40. Or maybe I just want to have the freedom to be with my family and uh maybe I want to travel the world and you can't do any of that with a day job. But commercial real estate gives you not only is it going to make you the most money, but it also gives you get cash flow. So you don't need the day job and it just doesn't require you to be anywhere. So that's really the magic behind the commercial real estate money is the one thing, but the freedom it gives you is, is the best. Absolutely. And even for people, you know, with jobs and for along case right now there's, there's still tons of opportunity to get that money invested in commercial real estate. There's self directed four oh one K and you know, various retirements accounts that you can get through self directed custodians and that just allows you to submit a form and say, hey, instead of, you know, placing this in stocks and bonds or mutual funds or whatever, I want to place that in this private real estate deal with, you know, Joel brian and Braydon, You can do that.

We have tons of investors that invest their retirement money through their 401K in these private real estate deals. Again, just because they knew it was possible, most people don't even know that's possible. A lot of our investors don't even know that's possible. Yeah, I want to say. Uh, so people listening, you may be an employee. Uh, that's what I was, this show can help you begin to invest in commercial real estate brian. Uh, he is an investor and he was one of my first investors and now he owns his own real estate investment company. And, and then you worked at a commercial estate company and now you're an owner of commercial, so everybody out there can be put themselves in a position that we're in and say, hey, uh, this podcast might help me start my own gig. I think it's, I think it's super real. We're going to dive into just a lot of the practicalities of, of, you know, hey, we found this deal or different asset classes are different, you know, types of investment, how to invest in commercial real estate so broad. You know, there's so many different types of commercial real estate and, and avenues you can go down. But generally speaking, you know, I would say, you know, apartment complexes, retail shopping centers, um, some developments going on, you know, we've seen a lot of different stuff and I would say the hardest part in the market right now is probably finding that first good deal, you know what I mean?

Being out there, being in the marketplace, understanding what to look for, understanding what a good deal is, you know, where a discount is, where value is. And then I think once most people can start to research and find a deal, it's the hardest part of most people's heads is probably finding the money. But, and in my mind that's the easier part finding good deals. You know, there's always gonna be money to go in a good deal. A great deal is always going to be funded. Well that first deal, some of that might be intimidation when you say the first deal is the hardest to find some of that intimidation. You're not sure yet because you haven't done it yet. What's a good deal and what's not and we're going to teach people what's a good deal. And we're going to uh tell them what our financial model is that tells us that now that's a good point talking about some of the barriers to entry because we're saying, hey, it's great anybody can do it. Uh that is true. But when you're starting out, depending on how big a deal you want to do, uh, you are going to have that, that risk of failure. Uh, you're gonna have the problem of coming up with the down payment. You're going to have the problem.

Even if you have the money, you may not be able to get the debt because the bank's gonna say, yeah, great. You got a million dollar down payment. I'm not going to give you a $5 million 200 grand. And so, um, you know, we'll get into how you can overcome those obstacles and still be successful uh, in commercial real estate. Yeah. Long story short partners, right. Partners for every aspect, You know, you have partners with money, you have partners with that. You have partners with operations. There's, there's all these different facets of deals. We've invested in deals where we don't require any debt and were maybe not the hands of the business plan, but we injected the capital. So we got the majority of the ownership, There's other deals where you're maybe just operating the business plan and getting, you know, a smaller percentage of the ownership. But somebody else got the debt and equity or, you know, whatever piece you can bring to the table. And the biggest thing is people who are just operators that are finding good deals and know how to operate them and put a business plan together. There's ownership on the table for them. Even if they're paying their giving equity away for somebody signing on the debt and they're giving equity away for somebody injecting capital.

There's still a big chunk to be had for finding the deal, operating the deal and knowing how it works and and taking the risk and being able to burn your boats and go on and do it. Well, what if what if they say, well, I don't know, I don't know how to manage commercial real estate. Yeah, I can find the deal. But then what Yeah, that's an excellent question. Every part of that of it. You can find a partner, we, we don't manage our commercial real estate. We pay a management company to manage it. And it's underwritten in the budget to underwritten in the returns, everyone knows it and they operate it great. There's institutional management companies anywhere in the United States to manage almost any type of commercial property. Yeah. So there, but how do you do that? And is there still profit left over? Yeah, there's, there's absolutely still profit left over after hiring your attorney, your mortgage broker, your, um, you know, real estate broker, uh, the title companies, you know, that the teams of people that it takes to get these together, we're underwriting all of that in the business plan. You know, we're pitching that to our investors. You're, you're getting this sources and uses of, hey, here's where we're getting the money and hey, here's what we're doing with the money.

Yeah. So that's the, that's the point I'm trying to get to, is, uh, people, um, you can, you have to start with 100% ownership of the deal that you found, you found a deal right now, you're gonna give away ownership to the money and then you're going to give away ownership to the person that you need to sign on the debt. There's still ownership left over. You're gonna hire a management company. So you're never even going to have to go to that property. You're never going to have to do anything at that property. You are literally going to get a statement at the end of the month that tells you how much money you made, literally with no money with no personal guarantee. And with no work after you've bought, after you bought the deal. That's how powerful. Uh, it can be. Yeah. I mean, it really just kind of throws money at you from every direction. I mean there's aside from just cash flow, like, hey, here's how much money you made this month, You're paying down the debt, right? Because you have debt on that property, paying that down like a mortgage on your house every single month. It's appreciating through, you know, the, the area becoming more competitive. There's, there's less land to develop on, there's less space is open.

You know, it's just, it's, it's dense. So the land is appreciating the buildings, appreciating the rents are going up because there's a premium on them. So when you sell that thing, it's not worth $5 million dollars anymore. It's worth seven because it's been, you know, 357 years down the road. So it's, it's paying you in that aspect. I mean, it literally, the tax advantages are probably some of the most advantageous tax advantages in any industry. I mean, just the tax advantages alone as well, recording this, right? We can spend a whole podcast on tax advantages. It's nuts. But just thinking about that. So can you make money in commercial real estate if the property breaks even? And the answer is absolutely yes. Just to the point that you were talking about, uh, now I set up a scenario where they didn't have any money in the deal and all and they still have some ownership. We're not even managing the deal. Okay, But let's say it doesn't even make money just breaks even. Uh, right, you're still paying down the mortgage on, let's say, a $5 million dollar building and the properties appreciating in value real quick, just paying down the mortgage on a five or six or $7 million building could easily be 5 to 7% yield on, on total investment itself.

Just on the principal pay down. That's right. Obviously, depending on the set up with your investors, you don't want to break even deal. They're gonna want their cash flow. But the point is, is that over time that property is not gonna be worth five, it's gonna be worth 10. And over time you're gonna pay that mortgage balance down, uh, you know, 1234 million. So you're still making money even on a break even deal. So just so many ways that it can be, uh, you can be successful in commercial real estate. Absolutely. There's different types of deals to like, um, we're doing a development deal. So, you know, when we fund that in the beginning, it's obviously not paying a return until the buildings completed, um, maybe even sold after completion a little while after. Um, and then we close on other deals in the middle of quarter and we pay a pro rated distribution for that quarter, you get immediate cash flow and you get cash flow every quarter thereafter. So there's different types of deals, different types of cash flow structures and, you know, each sponsor and each asset class and each investment you're going to do is a little different, but generally speaking, you're getting paid, you know, multiple different times from multiple different things.

And I mean most businesses don't do that. Yeah. What I'd like is what you just said, I didn't realize when I first got into the business with you that there'd be all these different avenues where we could get into commercial real estate, like you said, the developments and multi family and single tenant, multi tenant. And really what's happened is we jumped in, we started on our first deal, we got to know some of the brokers, the brokers start bringing the deals to us and um, they're bringing different deals that we never even thought of. And so there's lots of avenues to make, to make money. Lots of different deals to be had. I'll throw in a couple more. Um, so once you get started and you get a deal, you get, you can get fees, acquisition fee for finding the deal, you can get an asset management fee for overseeing it for your investors. Uh, you sometimes, if you can get your broker sites and get a brokerage fee, um, you can take a fee on the deal when you sell it. Uh, so lots of different ways that we're going to teach everyone how to make money in commercial real estate. Yeah, everyone is is, uh, you know, motivated in the right way.

You know, a mortgage broker is getting paid when they're closing a mortgage, a real estate broker is getting paid when they close a real estate deal and find good real estate deals, they're getting repeat business from clients when they find really good deals that do what they said they were gonna do instead of just pitching them, you know, pie in the sky returns. All of these people are getting paid at the close of this transaction and it's kind of all coming up to that closing day. But you know, there's a lot of people that if the deal falls through all of their stuff falls through on that real estate deal too. So everyone's really pushing and motivated to get this done. Everyone. Well, I'm excited to be able to tell people about how we did it and how they can do it and and just break it down, give it to him and bite size manageable steps and just help them through the process via, via documentation on what we're doing. Whether it's, you know, building an apartment complex, buying an apartment complex, buying an office building, office building, you know, schools buying strip centers, I mean, whatever you can think of in commercial property, we probably, maybe, maybe we haven't done it, but we can, we can definitely get somebody on the show that specializes and we'll have a guest speaker and they'll help you absolutely.

Like joe says, I think half of it is just hopefully we can motivate people just to make the leap just to do it. If we can give them a little bit of knowledge and a little bit of motivation then I think that's all it takes Absolutely well. Um Thanks for joining us on the first episode guys, we're super excited to be bringing you this content and trying to help you out and document what we're doing. I'm Brandon with criterion, we have brian criterion Joel at precision and the three of us are just super excited to teach you um and and motivate you. Like brian said feel free to drop a like subscribe to us whether you're listening on Spotify or Youtube or Itunes. Um Check out our website how to invest in C R E dot com. Other than that we'll be back in a few days with episode 002 and we'll talk to you soon. Thanks everyone. Thanks guys. Mhm.

Episode #001 - Introduction to Commercial Real Estate, What to expect, and Who we are.
Episode #001 - Introduction to Commercial Real Estate, What to expect, and Who we are.
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