How to Invest in Commercial Real Estate

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Episode #058- There's Money EVERYWHERE! The Secret to CLOSING Deals in Commercial Real Estate

by Criterion, Braden Cheek, Brian Duck
April 18th 2022
00:00:00
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Today our hosts Braden Cheek & Brian Duck from The Criterion Fund, and Joel Thompson from Precision Equity talk about the benefits of the wide availability of money and investors in Commercial ... More

most of the time, people will not not put in the work most of the time. It's his first category of like an email for an offering memorandum. That's that's not going to get a deal closed guys. But I will say if it's uh, if it happens to be a good deal, even if you don't do a majority of the work, getting it to us talking through, you know, we may call you, hey, this is what I like. That's what I didn't like. And if we follow through and I take it over and I do the work. Yeah. You're not gonna get rich on that deal. But if you sent it to me, I'll include you in our underwriting. I'll include you in our model. I'll include you in our due diligence and you may spend that first deal learning. But guys, it's not that hard. There's not that much to learn. If you go through that process a few times now, the next time you're going to understand how we go about evaluating those deals and you're gonna add even more value and then the next deal, your add even more value. And eventually, the, the idea is that you can do this on your own. All right, what is up everyone and welcome back to how to invest in commercial real estate. Today. We are talking about the money.

There is literally money everywhere everywhere. I think the government calls it a quantitative easing. Um, but the idea is that the hard part of commercial real estate is not only finding the deal, but it's getting it done. And I think the biggest problem people have is they get so worried about where am I going to find the equity? How am I going to qualify for this loan? What do I do? But if you can at least learn how to underwrite good deals, find good deals, there's people out there who will fund your deal for you. Yeah, Most people, that's how they get started in commercial real estate. Is there is there a sponsor? And they understand the real estate game, but they need help with the equity, They need help with the debt. And so they're out hunting for the deal and then they learn which groups to bring it to to get it done. Yeah, sort of sort of like a sales broker. So when a realtor or commercial sales investment agents, you know, they don't really call themselves realtors, it's simply brokers at that point, when a broker is trying to sell a commercial real estate shopping center had a call today actually, dude has a gorgeous shopping center up in Missouri.

We posted on linkedin. We always post on linkedin after we close the deal because that's how you let people know you're buying deals like this. Sure enough. Dude, saw the deal we bought it was Gordon and Barbara in ST louis, we just closed on it last week. He said, hey, I saw you bought that deal in Missouri, your buyer of Missouri in retail, I've got a retail property for sale. Would you be interested in looking at it? Alright, that easy. So we've talked about finding deals, We talked, we talked about that a ton, you know, get on the broker's list, go out, go to the be in the right room, go to the conference. We've talked about all this stuff, but when you find the deal, here's how to not talk yourself out of buying it and actually getting it done right, because that's hard and that's where the money is made, not only for you, for the bank, for the broker, for the investors, for everyone, the money is made after you buy the deal. So how do we get that deal closed? How do we do it? That's interesting. You know, Early on, one of my mentors used to used to say, hey, don't say how am I gonna lose, ask yourself how you're gonna win. You know, how do we buy the deal? How do I afford the deal? Uh that's really the key. And once you do that, at least now you're trying to turn any negatives into positives.

But most people, they're literally trying to talk themselves out of every deal because they're they have a fear they're they're afraid what's gonna go wrong, That's all they can ask themselves instead of hey, what could go right now, you have to protect against the downside. But that positive attitude, what you do is you set yourself up to be a problem solver and that's the key in order to get yourself over the finish line and by these deals. Yeah, yeah. Well, breaking you say it's that easy. But you know, when we first started criterion, we had those same doubts, right? We had to meet with lots of bankers because we weren't sure that the banks were gonna loan us money. So we did a lot of lunches with bankers and now that we've done a few deals, they they trust us. We had the same problem getting investors. We had to, we had coffees with investors and and we frankly had a little bit of trouble raising all the money that we needed to on the first couple. Well now, you know, it's kind of snowballing and and now it doesn't take hardly any time for us to sell out. And as an example, tell tell them what happened on this last deal. Our last episode was about the ST louis deal. So what happened? Yeah, so I want to get into the ST louis deal.

I really want to get into ST louis deal. But you said something that that was really intriguing me. And it was in the beginning we were we were struggling. So we had to go meet with all these people. So that's what we're talking about today. We found deals, we were good at finding deals, but we didn't know how to get them closed. So what did you say? We met with tons of bankers, We met with tons of investors. We met with other commercial real estate investment companies in our hometown to say, hey, if we get something like this tied up and maybe we don't have all the equity, would you be interested in partnering with us? We covered the downside, but we were opportunistic enough to look for the upside and say, hey man, getting deals like this close, It's what makes everyone money. That's what we're in business to do. So how do we go and get that done? So ST louis um, we just, we just closed that last week. Not ST louis, it was slidell. So there's a steel in New Orleans. It's a, it's a shopping center, um, a bit of a bigger box shopping center, but it's, it's massively over parts, so you could, you could sell some pads out in front of it. We did a podcast about this, why we, why we love the steel while we're investing in the steel.

But there's a story behind this. The story is our partners brought us to steal and they said, hey, we found the shopping center in New Orleans. What do you guys think about partnering up on, on something like this. What would, what would partnering up on? Something like this look like I love those questions. We ask other groups, those questions with without doing deals with him. I've had that conversation with so many groups just in case, right downside protection. So they said, hey, we do it like this. And I was like, well, I probably wouldn't do it like that. It was pretty quick, but we would do it like this. And we laid out a structure that was a win for our investors and win for their investors, a win for both sponsors. And it got the deal closed most importantly. And they said, hey, we think we can find, uh, you know, a little bit better terms in the market were, you know, let's put a pin in that. Maybe another deal. I think this one, we've got something else in mind. We're like, okay, that's that's awesome. We're, we're busy. We have other deals. We were launching the ST louis deals and the kiddie academy's sweet a lot going on fast forward. You know, two or three weeks, we get a call from the same group, our partners, they say, hey, remember that deal in slidell outside of New Orleans?

We're like, yeah, of course, you know, we offered on that. I thought you had a, you know, different different partner. Well, come to find out that equity partner that they wouldn't found something that happened. It wasn't related to the deal was related to them. And they said, hey, we can't allocate the money in the market anymore. We've got to go shove it over here and it left these people who had this deal locked up kind of, you know, empty, They were looking for something. They wanted to get that deal done, they had done all the work. All the D. D. Had been done. The appraisal had been done. They found the whole deal is set up. And we said, okay, yeah, we do it at uh, you know, the same terms we offered last time. We didn't even try to renegotiate. You know, when the opportunity presents itself, you know, which, we probably have little power there. But we, we held our original agreement. Yeah. So you know, within a week from that conversation, we hammer out the details, get the attorneys agreements, everything hammered out and, and we launched it out to our investor list. Uh, last friday friday at five Was that 7th, 7th or 8th friday five. We launched at five p.m. Yeah, I was, I was, we were working all day to get that launched. We wanted to get it out before the weekend.

Let him chew on it over the weekend, tried to start getting investor commitments. First part of this week I thought that's what we thought saturday morning. It's, it's eight or nine a.m. And our group taxes going crazy. Hey, so, and so just committed, hey, another $1,050,000 here. It was a frenzy. It was a frenzy. And I immediately was sending text out to these guys saying, hey, you need a text. Whoever is going to get upset if they don't get in this deal because it's gonna be gone in 30 minutes. And by 10 a.m. 17 hours later, $2 million was oversubscribed. We've got a list of over a dozen people wanting in the deal. And that wasn't even our deal. It's a great deal. We love the deal we're investing. We're the biggest investor in the deal. We're guaranteeing the debt. So obviously we believe in the deal, but that deal wouldn't have happened. That deal would have been dropped. They had their, their limited partner dropped. But we just, you know, they brought us a deal. We brought it to our investors win, win, win, win win deal is gonna get closed first week of May home run home run and you say 17 hours. But as far as I'm concerned, it was like seven waking hours, right? I mean five PM on a friday to 10 a.m. On saturday And We raised 5, 7 hours, it was blink of an eye blink of an eye.

And so I think the bottom line is there is money out there for your deals. The key is finding the deals and being optimistic enough to see the upside and to and to push it forward, get it under contract. And if you don't have the equity, you got criterion or precision or another third party, there's someone out there that wants that wants deals that has equity partners like we do investors ready to go. They didn't even get in this deal there. They're waiting for the next one. There they are. So I would say there's there's buckets of finding deals. Let's let's dive in a little bit to just say what finding a deal and email it to me looks like before you just start blowing up our inbox with, with offering memorandum, I would say the first bucket is you may be probably don't know what you're doing. You found an offering memorandum on on loop net, not even co star, maybe your buddy send it to you. And you say, hey man, here's this property that's for sale. And that's the email. Right? Yeah. I mean, that's gonna Be a Quick one for me. It looks great. Well, it's not just quick in that it may not be a good deal.

Even if it's a good deal. All you did was email us a good deal. Okay, so now we got we know we have to do the underwriting, we have to find the lender to work, we've got to do all the work and and and get this thing ready. So the value that you, you bring, if you're if you just email is something that you got, that's not what we're really talking about here. Yeah. So if you email me a deal, don't do anything. We end up buying. You know, it's it's finder's fee situation. You know what I mean? I appreciate it. Thanks. Here's what I'm actually talking about, You know what I mean? It's an offering memorandum. It's your model. It's some sort of due diligence. It's it's uh something from the broker. It's you've got a lender teed up. It's um here here's the business plan. Yeah, here's the value add exactly. Where where do you need me? You know what I mean? Where where do I fit in this piece of pie And also in the same respect, where do you fit? You know what I mean? Because we're not in the business of just You know, you get 10%, you get 10%, you get 10%. You know, I think people have that perception sometimes like Oh I found this deal, I'm going 10% of it for free because I emailed it to him.

Yeah. Yeah, that's not necessarily what we're talking about now. But if you do a lot of work, if you can learn, just listen, we're giving you the letter of intent. So you can you can get the property locked up, we're giving you our models. So you can underwrite the models will probably give you our contract eventually. So you can we've given you everything, you need to go find the deal, go lock up the deal. Underwrite the deal put in some work, find a lender, what does finding a lender look like. What what do we do every single time we find a deal, what's what's the first question out of your mouth, first question, what's the debt look like? It's eight, it's 80-90% of the purchase price, maybe a little less, maybe a little bit more. But that's, that's the majority of where the money is coming from. You found a lender that wants it. So if you find a deal and you find a lender, it's twice as good already. Just because you found somebody who's willing to lend on it, right? We've got, we've got tons of people and by tons of meat. I mean, not, not tons, but there is a ton of people who think commercial real estate is interesting. They think commercial real estate will make them tons of money there right on, on both fronts. They just don't know how to get in.

We have investors of ours, how many times does investors send you a building that they're thinking about buying themselves? I know a few times I've seen that a few times because they're, they're interested in getting getting involved. They're like, hey, what is this deal? Most of the time? People will not not put in the work most of the time. It's this first category of like an email forward, an offering memorandum that's, that's not going to get a deal closed guys, but I will say if it's, if it happens to be a good deal, even if you don't do a majority of the work, getting it to us talking through. You know, we may call you, hey, this is what I like, that's what I didn't like and if we follow through and I take it over and I do the work. Yeah, you're not gonna get rich on that deal. But if you sent it to me, I'll include you in our underwriting, I'll include you in our model. I'll include you in our due diligence and you may spend that first deal of learning. But guys, it's not that hard. There's not that much to learn if you go through that process a few times now, the next time you're going to understand how we go about evaluating those deals and you're gonna add even more value and then the next deal, your add even more value.

And eventually the, the idea is that you can do this on your own. So we've talked about value, we're adding when you're finding deals, I maybe mentioned, you know, you're finding the deal, but like you said, there's, there's value to be added in so many different facets, right? Like we've got a buddy who's a mortgage broker, loves the idea of investing in commercial real estate. He is a madman searching for deals for us to try to buy so he can get involved in the real estate. The majority of his value add. Yeah, maybe it's finding the deal, but it's also, he's gonna find amazing debt on the property, you've got other people who are our sales brokers and hey guys, if you're selling property like this and you can bring it to us before it hits the market. I promise you, if we like it, we can get you paid. I mean it's a no brainer. There's so many ways you can add value. Maybe you're an investor of ours, Maybe you're not an investor of ours, but you've got a circle of influence that you just, man, if this stuff works, you know, if these guys aren't just scammers, I, I could raise so much money and put it in commercial real estate. I've just, I've got this massive circle of influence even if you know nothing about finding debt and finding deals, but you think you could aggregate tons of money, we want to talk to you, you could talk to us.

It's a valuable to us as, as the, finding the deal. It's just as valuable. Um, you know, I'll give you an example because I know a lot of people that, that, that know us watch the podcast. I'm working with a friend right now who, who likes real estate, who is kind of, you know, interested in it and it has some familiarity with it and he wants to get in the game. And so he is pounding the pavement, looking through all kinds of sources to find deals and then when he finds three or four or five deals, right, he hits me up to go to coffee and then we go sit down and we take 30 minutes and I tell him exactly why I like a deal, why I don't like the deal pitch that one. Let's follow up on this one when he hears the five questions we need to ask on this deal and and this is gonna get him in the game. And now I have someone out there trying to find deals for themselves, but also for me, I'm gonna get a big chunk of that because I'm going to provide the debt and I'm gonna provide the equity but slowly but surely he's going to get in the game because of his effort. Now other people, you know, they act interested, but they don't put in the work that that that this guy does and they don't call me to go to coffee and and plow through the deals and I'm happy to help.

I'm happy to give that knowledge. But most people maybe they think they're putting me out and so they don't make the call, They don't ask me about it. But really you've got to force your way in and if you love real estate and you know this is what you wanna do and you've been listening to the podcast and you know that you can make money doing this Then that's what I suggest is read the books, start looking at deals, find some of you think are good. Give us a call, we'll go over him and just start that way and then you'll know better. Okay Joel said he doesn't like anything under a seven and three quarter cab and he doesn't like anything under 200,000 people. And he likes household income to be above 75,000. Traffic counts need to be above 20,000. You know, there's all these things that I can tell you that would help your search be that much better and then you hone in and pretty soon you know what to look for. Yeah. You know what to look forward for us for you. I mean I think people have this misunderstanding that somebody decides to go get a commercial real estate and then just go by the $7 million dollars building by themselves. You know what I mean? They don't get a lender, they get they get a team of people. They it's a team.

You're not gonna do it alone, you're you're definitely not going to do it alone. So and are you willing to put in the work? And this is what I I used to say early on is when I started my real estate career, I was a complete idiot. I had no experience. I had nobody in my family that was in real estate, nobody knew anything. And so it was just me like fumbling along working for free nights weekends, driving the market, calling brokers. Underwriting deals all for free for years, right? I mean I bought a house here about a house there but I just had to work for free and I had no expectation, I just knew that I wanted to be in the game and I wanted to learn and most people are not willing to work for free, especially for years In order to get a huge payday. They want to send us a deal and they want their, their 20% of it. Well, okay, but you don't add any value right now, but the, the education is the value. And so if if you'll be willing to to send us deals and talk it over with us and not be not have to get rich on the first deal. Uh you know, then I promise you just going through the exercise and us including you in the room uh in closing that deal, you're gonna learn so much.

Uh and it will pay off because once again this is not that hard overall. Um you just need experience and and you need to get in the game. Yeah. And and we obviously love talking about commercial real estate, which is why we do it for a living and started a podcast around us. So I promise you're not putting us out when you're calling and saying, hey Joel brian Brandon, I got this deal. I want you to look at, you know, can I take you to lunch? I eat every day dude, you can take me to lunch anytime. So ask us, we're going to help you were because it's it's mutually beneficial I think saying is you know rising tide lifts all boats. Like you said deals are where everyone in commercial real estate is making money whether you're buying or selling, so if if it stops before you get to that point it's dead. So do whatever you can, even if it's you know they talk about this on shark tank a lot. I love shark tank But people have this fantasy with like Oh man I can't give up that much equity. Like you said you're not going to get rich on the first deal, even if you want 100% of it dude, that's great. Do you watch shark tank brian? So I do too and my kids are with me and we're watching it and they're like I need you know 300,000 for you know 10% of my company or whatever the pitches and then like Mark Cuban or mr wonderful or Lori they'll be like well I'll give you the 300 grand but I want 15% and I've seen people freaking turn that down and I'm saying dude I would I would pay 300,000, I would pay them 300,000 to have them take ownership in my company, so I could learn from them, learn their contacts, have access to their capital and the fact that these entrepreneurs Are so greedy and they think oh I built this, I can't give it up, but they don't know what they're missing, getting the experts on board for me.

I I, if I went into the shark tank, I don't know if they wanted 50%, whatever it takes to partner with Marc human, I'm doing it, you know, because it will lead to other opportunities. Uh, so anyway, I was a little plug on shark tank. Now, that's, that's so true. And it's the same thing in real estate because every single time you do a real estate deal, if you're syndicating it, the ownership, the ownership is up in the air based on value, You have to underwrite the investor a good return. You have to pay debt. That's changing every time the ownership structure is going to look a little different. And that's why just to come full circle as we come to a conclusion here in the beginning, when we started criterion when everyone is starting, they don't know, you don't know what, you don't know. You find a good deal that's bite size. It probably shouldn't be more than, you know, five or six million bucks. And that's even a decent sized deal. But you need to meet with bankers with other commercial real estate investors and potential investors of yours and just say, hey, bring that deal with you. By the way, if I got this deal and contract and I could pay you 20% if I could get you a 20% ir if I could you know get 75% leverage on this if you're talking to a letter whatever if I could get this would you And if would situation if they say yes what's stopping you from going and getting that deal in contract?

That's actually a good point to go to a lender and say okay what would you loan on this? What does the loan terms look like? Why do you like it? Why do you not like it? Because the lenders he underwrites deals for a living as well. So that that would be a good good thing to do and then after you get you know those crappy terms from your lender and then you come to me and say Brandon brian Joel you know I heard you guys talking about partnerships, you know what would debt on a property like this look for you guys and then ours is like you know just ridiculously stupid, amazingly better. Um debt if you don't know the debt you will get on the property, it has to do with the property but it also has to do with your balance sheet? Right so like you as a sponsor, how many properties do you own? What you're free cash flow is what you, you know, are you personally doing all of that, all of that. So we, we've obviously been doing this so we better get better terms than you on your first deal or else I'm gonna be piste and I'm gonna be calling my letters saying, hey, what are you doing offer in terms like this and that dude. Anyway, if you need help getting your real estate deal funded, if you need help analyzing your real estate deal, if you don't know where to go after you found the deal of the decade, right, your first step needs to be asking for help in your market, whether it's us, whether it's other people, whether it's investors, whether it's lenders, you need help and the sooner you start asking for that, the sooner you are going to start closing in commercial real estate.

I believe it and making money. Well if you enjoyed this day, make sure to smash the like button share and subscribe and we'll catch you next week on how to invest in commercial real estate.

Episode #058- There's Money EVERYWHERE! The Secret to CLOSING Deals in Commercial Real Estate
Episode #058- There's Money EVERYWHERE! The Secret to CLOSING Deals in Commercial Real Estate
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