What is up and welcome back to how to invest in commercial real estate. What's up guys? We're excited to be here. We have a pretty cool show. It may be a little short and sweet, but it's, it's, it's worth knowing that is for sure. But before we get to that, we want to talk about what is going on in our, our world right now, obviously. And um we have a new deal. We have a new deal that we're launching out. I think it, it's probably already launched by the time this is aired. What is the name of it? It is a build the Suit. So we're building a building for Nucky's hoagies. Nucky's hoagies. It's ho it's a sandwich shop. Get you some Nucky. Yep. So this is a super familiar location for us because if you remember when we launched the six pad sites in Princeton, and we're gonna put up the site plan now that I put the site plan up, put the site plan up and um we bought all of the land around this brand new market street grocery store that's being built right now. And we developed six pad sites and this, this parcel was just kind of a holdout landowner. We finally acquired the parcel, we put it up for lease and it went like that.

And now we have a lease with Nucky's hoagies. We're gonna build them a building. It should be super fast construction timeline, fairly fast exit timeline. So we model it up for 18 months, but realistically, it'll probably exit before that. And how big is the equity raise? And what's the IRR projector? The equity raise is 560,000 and we're injecting a 27.83 irr or a 1.36 equity multiple. Pretty good. So we'll hold it for typical 18 months or so 18 months or less, probably 18 months which leaves a lot of room for air in permitting, mobilization, construction or the exit. We have almost, you know, nine months to a year buffered in of just anyway. So really exciting deal. It's on the website. Go check it out if you're not a member of the investor list, I don't know what else to say at this point. Other than shame on you, you should be on it. Go to the website. Um Anyway, so now we're going to get into the, the, the episode here and it starts with how to make a competitive offer, right? When you buy a, a property, when you're getting this deal, whether you're doing a joint venture with somebody else, whether you're buying an apartment complex or an industrial building or a piece of land, you've got to make a competitive offer.

Yeah, you found a deal that you really like, you think that the returns are good, but a lot of times good deals have competition. And so today we just thought we'd go over a few keys to help your offer stand out in the event you have a deal you want to buy, but there's a bunch of different bidders trying to get that deal from you. Yeah, yeah. So it's kind of like going out to dinner with your wife. You're never gonna pick the perfect restaurant. So you just ask your wife, where do you want to go? You're never gonna write the perfect offer unless you ask the seller or the seller's broker most likely, hey, how can I make my offer stand out? How can I make it more competitive? What does the seller want to see on this offer that would bring me to the top of the pile, top of the pile? Um Yeah. So the key here guys is that you want, you're digging for information and you're gonna do it in the most subtle way possible, but you want that broker to give you as much information about that deal about the competitors, about what the seller wants as possible. So, you know, it may, it may start out as, hey, how long does the seller own this? What's the seller's objectives in selling, why are they selling, you know, try to understand the seller's motivation and then once you have that, OK, a broker, how many people do you expect to bid on this?

What kind of people are bidding on this? Are they big institutional buyers? Are they individual buyers trying to, you know, judge what their offer is gonna look like? And so the first thing like you say is to talk to the broker and ask the broker these types of questions. But the main one, as Braden said is, hey, what, where does this offer need to be? What, what, where does this likely trade? That's a question we ask a lot and the broker tends to tell you, hey, I think this is gonna trade at this number. Uh and that may not, but every little piece of information you can get out of that broker is it will help you in crafting the offer that will help make you as competitive as possible. Yeah, because we've had some deals where sometimes it's, it's just price, right? But other times the uh owner wants a quick deal, right? He wants to close really quick. And so um it's not always about price. So like Joel said, the more information you can find out the better and more attractive your offer can be. Yeah, at the end of the day, you know, we, we bought hundreds of millions of dollars of commercial real estate at this point and every single deal, something is, is their importance to something is different, right?

Like they may let you have the longest due diligence time ever because you're paying so much more than anybody else. They may uh allow you all of this wiggle room. Whereas um on the contrary, you know, somebody may, may be willing to take a million or half a million dollars less because this person is offering a cash closing in 30 days. So you have all of these different uh variables and you need these data points uh before you can go in and start to craft your offer. And then, you know, I think now we're just gonna get into what we think makes us competitive buyers. I feel like because at this point, we ask that a lot, hey, how can, how can I place a competitive offer when it's something you really want to buy? You have to ask that question every now and then you're gonna lose a deal, but we don't want it to be because we were a crappy offer, you know, so like what is, what is the deal typically they give you pricing guidance or uh cap rate guidance on in place income or whatever it is. Yeah. You know, we're looking at around this number, you know, that every broker is going to do that unless it's every now and then you'll run into like a real stickler about it and then you're running into due diligence.

What's the typical DD period? You know, what do we want to see here? They may say something crazy like two weeks or we're expecting non-refundable earnest money day one because we've got 20 offers coming in, you may just walk away right there. It's like, oh I was trying to get a deal on this property, non-refundable earnest money. Like there's so many variables. So uh speaking about earnest money, can that make your offer more attractive? Some um non-refundable from day one or a weekend, 100% non-refundable earnest money is attractive to a seller because it drastically increases the likelihood that you're going to perform, that you're gonna close. It gives them confidence. And you know, this has happened to me where we've, we've gotten something under contract to sell as a seller and the buyer does the due diligence and tours our properties. I have to let the staff know that we're potentially selling and then they don't, they don't close and it disrupts the staff and they're, they're in limbo thinking we were gonna have a job. Now, we're not gonna have job. Now, we are still gonna have our job. And so as a seller, I want to know that the buyer is just gonna do what they say they're gonna do and they're gonna buy that property. And as long as they have refundable earnest money and a period of time where they can just kick the tires around, you don't know if you have a sale.

And so the number one way to, and let me preface this, if you're wanting to get a deal, then you need to steer away from what we're gonna be talking about today. Uh You know, if there's competition and you're trying to make your offer more attractive, well, that, that is going to limit your ability to get a really good deal. But if you find a property that you already think is a good deal, ok, at the price that they're asking, well, now we've got to figure out how to make that deal happen. Uh So we're not trying to get it already is a good deal. We're not trying to get it a really good deal. We're trying to buy the asset and the number one way to do that is to offer non-refundable earnest money day one. And uh for all the the newer investors, this is a risky strategy. So this is not for everybody to consider. You're not getting that money back. You, you know, speaking from someone that has lost uh a quarter million dollars in earnest money on a deal by not closing. This is risky. So there are certain deals that you don't want to employ the strategy on. Uh And if you're not confident in the seller being honest, then uh you shouldn't do this, we should also hedge that.

You should only do this. If you have a great real estate contract a great real estate attorney and you're comfortable, you know, with what it, what it says, what's your outs are? Because once you offer that non-refundable earnest money, you wire it to the title company, the probability of you getting it back is next. And this non-refundable earnest money is usually tied to what a closing date or a period of time performance on what you guys agreed upon or what you said you were gonna do. So you'll sign the PS A and a standard is a 30 day due diligence period, a 30 day closing period. And, and, and then you close, you know, you may have a couple built-in extensions or something, but after that, there may be a remedy or two, the seller can pretty much have the right to go after the earnest money. And yeah, so let me give an example. Uh we're bidding on some multifamily units and we think it's a really good deal. And so one of our strategies to set us apart is we're offering non-refundable earnest money in the, in the amount of maybe $100,000. Now, uh Why am I doing that?

A couple of reasons first is it's an institutional seller. So the institutional seller is most likely not going to be able to mislead you in the condition of the property. They have too much to lose. They're, they're professionals. Uh They wanna be by the book and they don't wanna get sued and And so they're just gonna be honest with the condition of the property, they're gonna be honest with the income and whatever it is it is. Now, if you're buying from a, a mom and pop, that is not an institution that, that, you know, doesn't have any reputation to uphold, you may not wanna take that risk because you don't know what they may or may not be telling you and you may not find any negative uh aspects of the property until it's too late. But in this case, we tour the properties and uh they're really clean and, and so there's, there's nothing I could tell uh from, from walking the units or anything that I have to be afraid of. Obviously, we vote a bunch of multifamily. So not in front of earnest money is an attempt for us to put our offer ahead saying, hey, push comes to shove, we're not gonna get it under contract and wait for 30 days and then say, oh no, we were just kidding about offering that price.

We're gonna lower our number. No, they know that if I go under contract that they have $100,000 of my money. So if I try to back out or re trade them on price, they're gonna say no, they're gonna take my 100,000 and they're gonna go to seller number two or, or sorry, buyer number two and they're gonna try to get them to close. Uh So it's a really powerful tool. If you find a deal, you want to offer that non-refundable earnest money. OK. And, and Braden, you mentioned due diligence, I assume you said typical good catch. You said typical period of time might be 30 days. I assume the seller wants as short a period of time as possible, right? Because he just gets his money quicker. Yeah. So for reference, um the in a standard transaction, you put up refundable earnest money that goes non-refundable after your inspection period. So that inspection period allows you to inspect the roof, inspect environmental and inspect all of these things and and pull out kind of cost free. You get your earnest money back. Um I mean, you paid for your own inspection. So it's, it's a normal cheap way of doing business. Now, I will say to, to Joel's point, even when we offer non-refundable earnest money we put in that they have to deliver clean title.

We put in material adverse change clauses we put in that they have to deliver a clear environmental study because these are things out of our control, right? So the seller may not know that they have a bad environmental study. We get a bad phase one, our lender pulls out and then we don't have that in there. Seller keeps 100 grand, we don't have anything that's a shitty day for everyone, you know, except the seller actually. So those are great points. So let's talk about those three things. First was the, the environmental is we get it out for environmental because if there is environmental issues, they can be very expensive and very tedious to clean up. And you like Braden said, if your lender finds out about them and typically they do require a team phase one is they will not lend on that property until it is clean. And so you don't want to be in a situation where, because the seller didn't tell you, they don't have a clean phase one and you put up this non in front of earnest money that you're just out that money. This is OK. This is what we call a stupid tax. It's like not using an attorney playing the lottery. Like there's all of these stupid taxes not getting environmental studies on your properties.

A phase one that's less than $2000 most of the time, it's like 1500 bucks, 1900 bucks. That is a stupid tax tax, not doing it one of these days, it's gonna bite you. Yeah. So you wanna make sure that you have if you do non-refundable earnest money, which is a great idea to get an asset. Um Is you give yourself an out for environmental issues? Second is uh material adverse change clause. And so what does that mean? A lot of sellers are gonna balk at this? But how you pitch it is really important and how we've pitched it in the past is look, Mr Seller, you have said in this om that this property produces, you know, let's say $400,000 in net operating income or I mean more simple that you have these tenants that are open operating and current with their rent balances at this center. Yeah, so rent roll and noy, let's let's just take those two things. And so if you present a rent roll that shows 95% occupied and you show noy of $400,000. But then, and we go non-refundable based on the information that you gave us, but that information turns out to be false or misleading.

Let's say that your occupants, you didn't tell us that two tenants moved out, they're on the rent roll, but they're not there anymore or they're not paying, that's a material adverse change. You know, the, the deals of the, the, the terms of the deal have material materially changed from what you, you know, showed us in the om uh we wanna re trade and if that changes during, after you've signed uh an lo I does that does that matter after you sign a purchase and sale agreement, then yes, if you have that clause in there, then that will allow you to walk away or renegotiate the purchase price without losing that non-refundable earnest money. So you need to have that out in there. And what you tell them is look as long as the deal that you presented is the deal that I'm closing on then. Yes, my, my money is non-refundable and I will close. The idea is that at some point from the time that you go under contract to the time that you close, if tenants move out, if tenants file bankruptcy or if you find out some adverse change in the the net operating income that you get to change. And all you're saying is seller, look, we want you to take the risk up until the closing date.

After the closing date, we'll take the risk. If tenants move out after the closing date, that's on us. If the income goes down after the closing date, that's on us. We just want the seller to take the risk up until the time that we purchased the property. And I don't think it's too much to ask. And if you can talk through that with the seller, typically you can get them to agree to that. Now, there's one other, that's why you get Joel on the phone with the uh seller right there. And so there was one other, uh there's a third thing I think um environmental material, adverse change, clean title. And so clean title is a pretty easy one. All you're saying there is, hey, we want insurable, marketable Lable title and, and so we're not gonna be able to do that ahead of going under contract and that's just not something that we're gonna spend a lot of money chasing down before we have a signed purchase and sale agreement. So, all we're saying is we're going non refundable on, on, on our earnest money. But we just want to ensure that the title we're getting is clean and, and marketable and that's most sellers agree to that as well. All right, we have other points but one more point on non-refundable earnest money.

It's, it's a bear. I mean, you can see there's all these steps you have to do in order to offer non-refundable earnest money because you're really having to pre inspect before you get in contract. Right. This is what we're trying to do or at least build in these outs where if you fail those certain things, even after they're inspected that you can get out. But another one is you gotta get boots on the ground, right? You gotta go for a site visit, you gotta go for a property tour. It's not only gonna make you look like a very attractive prospective buyer that you're willing to invest your time, your energy, your funds to bring you and your team out there to walk the property audit. Some leases, audit, some units, make sure it exists, check the condition that, that gives you confidence, um, in the sense of, you know, I went out there and I didn't see the roof caving in or leaking, it was wet and there wasn't ponds everywhere. The asphalt parking lot was in good condition and maybe as a few more years left. Yeah, ba basically uh a site visit does two things. First. If you're gonna go with non-refundable earnest money, you reduce your risk by getting eyes on the asset ahead of time.

Uh because you will then see potential issues that you might run into. And you may say, OK, this is not one that I want to do non-refundable earnest money on the other thing though, as a seller I can say is if I get a bunch of offers and two out of the five offers didn't even bother going to the property. I haven't seen the property and haven't even been in the city that the property is being sold in, then that offer is going to be less attractive. And so today's pod is about, hey, how do I get my offer to, to rise to the top uh versus the competitors is one is do a thorough walkthrough of the property. If you are interested in that asset, it tells the seller that you're serious and that you've, you, you've been to the property and nothing scared you off that you're still willing to, to make a good offer after being, you know, having gone to the site. So that's important. Yeah, most of the time, if somebody's not willing to do a property tour, they're wasting your time. I would, I would say that I would say that and they may say, well, I'll, I'll go to the property once we get it under contract, you know. Yeah. Maybe, you know, and would I care as much if they were offering non-refundable earnest money?

No, if they were offering non-refundable earnest money, then the site visit means a little bit less. Most likely they won't offer that if they haven't done a site visit. But if they don't, if they don't have any non fundable earnest money and they haven't, they're saying I'm not gonna go to the site until I get under contract. Well, then, you know, you don't know what you're getting. You may spend a few $1000 negotiating a purchase and sale agreement and then they show up to the site and like, yeah, we don't like it and then they're out. But you, you wasted that time and money negotiating a purchase and sale with someone that you didn't even know was serious. And so, uh if you want your offer to stand out first, non in front of earnest money with caveats, second is go to the site ahead of time and have that be part of your resume. Hey, we've been to the site, we've toured it. We're good with it. All right. Moving on and kind of back to your timeline question on due diligence. Once we've got all this stuff kind of figured out is a normal, reasonable, very freaking reasonable amount of time is a month guys. It's, it's normal. I, I guarantee it. There's people who offer 45 all the time. There's people offer 60 all the time.

If I can get away with it, I'd do it too. I get it, feel, felt found. You know, I, you can get it done in a month. Just do it if you hire somebody else to do it. Average due diligence time in our industry. Ok. Is a 30 day, we call it a 30 day look and a 30 day close, 30 days of inspection. Once that inspection's done, earnest money of some kind should go non-refundable. And then you have 30 days to close, which is really just getting your financing order finalizing the appraisal. I mean, and, and to think it through is OK, we're under contract. Uh, but I don't, you know, I haven't done my due diligence yet and I don't want to spend, you know, three or 4000 on an appraisal uh, before I know if my inspections are going well and if there's anything that's going to deter me from buying it, right. That's why I said that you're doing the appraisal after you've made the decision to do it just because you have the luxury of that typically. Now that being said last year, 2022 when the market was on fire, uh, appraisers were backed up.

I mean, we're seeing like 36 day lead times on an appraisal. So, in that circumstance, I mean, maybe call and quote it out we're typically getting through, I mean, two or three realistically quotes on an appraisal. So ask their lead time if it's too, if it's within a month. Definitely wait. And then the other point is we use up our kind of free oh shit time at the end. What I love to put in offers is, hey, Mr or Mrs Seller, if we were to give you another non-refundable earnest money deposit, would you give us another two weeks at the very end? And nine times out of 10, they're gonna do this. They've gotten my first earnest money deposit. That's non-refundable. They got the second one after the inspection period, which is now non-refundable at this point, everything is lined up. We've inspected it, we've gone through tidal, they've seen all of my inspections. They're very amicable. They give you two weeks because right now they, they have you on the hook and they're just reel you in the boat, you know. So if you actually have, I mean, don't just exercise it to waste somebody's time, but you always have a lender issue or some crap. I mean, there's, there's always something right?

There's always something OK? A couple more points to get your offer to the top is shorten the due diligence. So, uh you know, it could be that you don't need 30 days to uh inspect the property. Maybe you can have a property condition report or somebody go out there that can inspect the property and you can do it in 15 days, 21 days, 23 weeks, we've done that a lot and it, it helps, you know, because we, you know, let's say you said your offer has 20 days of due diligence and you're gonna bust it as soon as that contract signs, you're hiring people, you're going to the site and you're done within 20 days earnest money non-refundable after that. And another person puts in 45 days, which is also, you know, fairly common as a seller. I'm, I'm gonna wanna get a buyer on the deal or off the deal as soon as possible. So 21 days is better after that. 21 days. I know. Do I have non-refundable earnest money? Am I moving to closing or, or are they out? But I don't wanna wait 45 days. Uh you know, so 21 days, 14 days is better than, than then, you know, 30 days or 45 days.

So that's another area to, to separate yourself. I would say these are like sub, sub 15 $20 million deals. You know, when you, when you can get up there in property size, you can probably see some longer inspection periods. I would imagine, you know, like some massive apartment complexes. I'm, I'm sure can have some and then um what's, what's next uh financing? Right. Well, yeah, um, so that's what I was gonna bring up. So I'm thinking the last time I sold a house and I had offers on my house and people had contingencies, right? One was contingent on selling their house. One was contingent on them getting the loan. I assume any contingencies uh in the contract are probably looked at negatively by the they're garbage. They're a, they're absolute free. A contingency is a contingency. The only reason they're taking our environmental contingencies because they don't think they have an environmental problem. The only reason they're taking our clear title. Contingency is because they don't think they're gonna deliver bad title. Same thing with material adverse change. This one, this was the worst as a seller.

If someone came to me and said, I want a financing agency, that's the worst to me because depending on how it's worded, they could, they could tell their lender, hey, deny me for this loan, you know, and then they're like, we didn't get qualified and we're two months into the process and they're bailing. And so if you're gonna agree to a finance contingency, I would have that expire with whatever due diligence period you have like at some point, you've gotta say I'm in or I'm out and to leave a financing contingency hanging out there. Uh There's just too many ways to wiggle out of that one where environmental is really clear. Are there environmental issues or are there not? But on financing, we have lenders on any given deal. Some lenders will say no we're not gonna lend and some lenders will say yes, but all the seller would have to do on a finance contingency is just say, hey, we were unable to get acceptable financing. It's, it's just not gonna, and so they could for sure they'll find, find a lender that are gonna, that's gonna tell them they don't want to lend on it or they'll try to get terms that are not market and that no lender's gonna give them and they'll say, hey, no one will give us 99% loan to value.

So we're out. So let's try to think of an example where we would take a financing contingency if somebody gave you non-refundable earnest money and they were willing to let you keep it even if they took their financing contingency, would you take that deal? Uh So is, is your earnest money non-refundable or not? It's not 100% non-refundable, but they can walk away if they don't get their refunding if they don't get their, but I get, I get the earnest money and they walk away. Yeah, I would do that. I mean, if I, if I'm getting money for them telling me they're not gonna buy the property, I can still sell it to somebody else. Uh But if you're trying to remember the whole premise of the show is you found a really good deal and you want to put yourself in a position to buy that deal, I would waive financial contingency and in that due diligence period, whatever that period is, uh 15 days, 21 days, 30 days, I would make sure that I had a lender that I was confident, could do the deal. How do we, how do we make sure a lender is confident in doing the deal? That's a great question. Um I would try to have them submit it to final loan committee prior to uh the the the due diligence period, expiring.

I would try to do that. So guys, uh we, we probably know, I mean, getting a lender through final loan committee is probably like a month from the time, maybe they could be could be three weeks. So we're doing that at the beginning of this, right? Because at the end of the inspection period, we need to have that signed commitment letter. We need to have that through final loan committee. We need to have them on the hook, right? Saying we will and a lot of times what will happen with a lender uh is that they will give you loan commitment, but it will be based on the appraisal coming in on, on target or on there being no material adverse change. Well, great. So you'll say, well, I, you know, I have this no phone number of earnest money. What if I don't get, what if I don't, the appraisal doesn't come in. Well, just, just add that to your contingency language on your non-refundable earnest money. Hey, I'm gonna give you 100,000 non-refundable, but it's contingent on no environmental issues. It's contingent on, uh, you know, what's the material adverse change, clean title? And the appraiser from a certified appraiser in the state of the property is located in coming in at the, the purchase price.

I'd take that deal. Yeah. So, you know, as a seller, you're gonna be confident that what you're selling at someone's gonna appraise it at. And so if you're saying it's $5 million and the appraisal comes in at 48, either you can get out with your earnest money or the seller can reduce the price or you can agree to pay the five with a lower appraisal, but at least you have it in there as an out but, but definitely uh take out the financial contingency, consider non-refundable earnest money shorten your due diligence period and go to the job site. The last thing you can consider is your reputation on being a closer. So are there brokers that you have closed with, uh you know, have you closed with this broker before having a reputation as being someone that gets deals closed and maybe showing that track record is another thing to give the seller when you're trying to get a deal. Uh You know, if I, if I have several offers and one of them, you know, buys uh section eight voucher apartments and let's say that's what I'm selling is, is 19 seventies apartments in Tulsa.

And one person that's all they buy is, you know, older section, eight income type apartments and another person they're mom and pop and it's their first time to get an apartment over 10 units. Well, which one am I gonna go with? I'm gonna go with the one that's proven that I think has a, has a better chance to close it because it's what they do. Yeah, we've had uh multiple times. We've been not the highest bidder, right? But we've been close and the broker knows this and goes to the seller and says, hey, they're a little bit less but these guys are, these clothes are for real and I love that because it shows we're disciplined in our offering and it shows that you gotta do what you say you're gonna do because the world's a small place. You know, there's a lot of times where we've used brokers at Marcus and Milaap or, or Stan Johnson or North Market or, or all these other places and they can put in a good word. It's like, hey, these are real people. Once they get a contract, they're gonna close you, they're not gonna screw you over. I mean, if you hear that from a person you trust that's, that's a shoe in versus some random person in Utah who this is their first time or something.

It's like you have no idea. You just, you have no idea. So you're again, just trying to vet these things and, and again, you can put that in your application. We, we obviously have a decent web presence uh because, well, obviously, um so put your website in there um everywhere, like such as put, put your track record, put references, put uh properties you own in your lo i or easily retrievable for them to get. So when they're looking at your offer, again, they can give you those bonus points. Wow, this group owns similar properties. They're uh located close to here, they own stuff close to here. I mean, it, it makes sense and it helps make your offer more competitive. So we're gonna wrap this up guys. But I think the important thing is this, you're gonna have two types of opportunities when you're buying commercial real estate. One is, is the, the, the deal that nobody wants that that you found that's a diamond in the rough and you don't have competition on that. That's when you negotiate to win. OK? But then there's gonna be other deals that are deals of the decade and they're right in front of everybody and there's gonna be competition on those because people are seeing the same dollar sign that you're seeing.

And so you have to play to win when you're going after those types of deals because some of those deals could be generational money for you. Uh and your family if you can just get control of that deal because you know, it's gonna double in value or there's some massive upside. And so the things that we've talked about today can put you in a position to get that great deal that you may not have otherwise had. Uh If you'll, you'll take note of some of these strategies in order to move your offer up to the top of the list. All right guys. Well, if you are still listening on the podcast platform, make sure to drop us a review itunes, Spotify, wherever hit the five star button, we would sure appreciate it. Anyway, we will catch you guys next week. I appreciate it guys. Thank you. See you.