How to Invest in Commercial Real Estate

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Episode 123 - Strategies for Early Retirement: Building Passive Income in Commercial Real Estate!

by Criterion, Braden Cheek, Brian Duck
October 23rd 2023

Today hosts Braden Cheek, Brian Duck and Joel Thompson discuss the power of passive income through commercial real estate.

Time Stamps: 0:00 - Introduction 2:29 - Impact on Real Estate and S... More

All right. What is up and welcome back to how to invest in commercial real estate and we are back. What's up there? We go. Ryan. Brian's yawning. Brian's halfway there. I was up late doing real estate last night, plugging away on the deals anyway, before we get into the show. Um kind of a lot going on. We don't necessarily have a deal that we just closed or a deal that we're about to launch. So I apologize. We're, we're a little slower. We've probably got three, maybe four deals um to launch before the end of the year. So that's exciting. Um One is a super small one we should be doing in the next couple of weeks. So we're super excited about that. We're actually going to fly out to Henderson and Reno to go check out both of those sites. Carson City and Henderson. Ok. We're flying into Reno. So yeah, and, and Carson City. Yeah. Uh you know, we've been talking about a lot. Uh 10 year treasury just touched 5% today. Uh It's a 22 year high, which is a big deal.

Uh Also unemployment numbers continue to suggest a resilient economy. And so what we're hearing is that our feds are gonna be keeping rates most likely high until the end of 2024. So we have to, you know, all real estate investors need keep that on their radar uh as, as we move into 2024. So a couple of things remind us kind of what the 10 year treasury is because the 10 year treasury is kind of like a global lending benchmark, so to speak. Yeah. Yeah. So there's, there's two really big indexes. The 10 year Treasury is one, it's, it's the US Treasury bond, uh 10 year Treasury bond and a lot of loans are based on that. A lot of commercial loans are based on that because, you know, normally you get a 10 year fixed commercial loan from Fannie Freddie, uh maybe even CM BS and then you've got the other one which is prime and a lot of times prime uh decides what short term interest rates are like uh our development deals floating stuff and that is like 8.5 at the moment uh which is also really, really high, maybe maybe a 20 year high as well. So those are the two rates that we're dealing with and we just have to keep an eye on them because as uh we get further and further into the cycle with higher and higher rates, people that need to refinance that aren't in a good position like we've talked about earlier are gonna be struggling and those are gonna turn into opportunities.

It's also gonna put downward pressure on pricing and upward pressure on cap rates. So make sure everybody knows that. But I think generally speaking, I mean, it's, it's, it's not a news channel, but there's a lot going on like 2024 is also an election cycle. We've got the Ukraine and Russia conflict. We've now got the Israel Hamas conflict. Um You know, crazy time. So if anything now is the time to be paying attention now is the time to be nimble. Now is the time to, to make fast course corrections. Uh When you see, so because things are changing kind of super fast right now, like I said, opportunities are gonna start to hit the market and they're not gonna look necessarily like really good deals, but uh they most likely will prove to be good deals as the cycle goes just so I can get a a, you know, a bank owns deal at 30% off. Yeah, maybe today it doesn't make just a ton of cash flow, but you're buying 30 40% below where it's gonna be trading two years from now. So that's important just like there were good deals in 2008 and nine, there were back in 2001.

It's, it's gonna be the same. So, yeah, like you said, you got to keep your eye out. So that, that kind of bridges perfect into the, the concept of the show here because the, the theme we're going with today is to stop spending as much, um, time trading as much time for money. Right. We need to have money, make some money. We need to make some smart investments. We need to stop just having this ideology of, I'm, I'm gonna go get a job and that's my only source of income because we, we know there's a way to, to make more money and, and money typically buys you freedom, time, freedom. And most people don't like to talk about money for whatever reason because it's pretentious or, or it's shiny, but people love to talk about time. So today we're gonna talk about time, right? And so guys, it's so important, you know, most of you guys listening are working a day job and that's totally respectable and it's totally fine. But when are you planning on quitting that day job? I work, I work a day job. Yeah. Ask yourself the question. When am I? When am I?

You know, what's my plan? When am I quitting? And most of you are gonna say 65 most of you are gonna say 70. And the question we want to ask you today is why are you picking that number as a goal? Uh Most of you, it's because of cultural significance, right? It's not because you're excited to get your social security check. You know, the $400 a month that you're gonna get, uh, when you turn 65 like, oh, that's the reason you're quitting your day job. Uh, you know? No, I don't think that it is, uh, you're making a plan, you're planning to, to quit or retire at 65. And what we're saying is everybody listening to this podcast, your number one goal as an employee should be to separate the amount of money you make with the amount of time that you spend, that should be your life mission. And if you can get a hold of that, then you can start making plans to retire earlier than 65 because you're not focused on an age. You're focused on um an amount of passive income that will replace my day job income where I can quit my job forever and have all the freedom that I want. We're not necessarily talking about wealth here. We're talking about your freedom, time, time and you just can't, you can't buy more time in a sense, you can't create more time, but you can buy more time.

Uh Is what I wanna say. Uh money allows you to buy time, freedom. Uh but it, but it, it won't do that if you have to work hours for it, you know, eight hours a day for that, that money. But what if you could have an investment where you put money in and then it spits money out for you every single quarter for the next foreseeable, you know, future 10 years, 20 years, 30 years. And that's what commercial real estate does for us. And that's what we want to do for you guys is to start earning that passive income. And once you get a hold of that concept and you're like, OK, I'm, I'm earning 1000 a month now for my investment and then you, you, you save up and you work hard and you, you get a little more money, you put it in now, I'm earning $2000 a month and, and then, you know, you set another goal three years later. You're, you're doing more now. It's 4000 a month. Well, I don't know what everybody makes but you can see there's a path to quitting your job if you can replace that day in that day job income with this passive income. And uh I think I, I texted you guys this, you know what we do is we, we trade our freedom to go to work five days a week every week to get enough money to buy back the freedom that we traded in the first place.

And, and that, that really stuck with me. I think I, I read it in one of the books I was reading is that we, you know, we start with freedom. Uh, but then we get mortgages and we get car loans and we get student debt and we have all these obligations. So then we trade, we trade the freedom that we have to pay for the stuff that we, we didn't really need uh in order to buy back the freedom that we, that we had in the first place. And so, you know, most people, they're trading five days for two, they go to work five days and then they get two days of freedom. Uh But if you can get a hold of passive income and you can start building that eventually. And I'm not saying five years from now, but 10 years or 20 years from now, you can be in a position where you can get that freedom back. And it doesn't have to be when you're old. Uh at 70 it doesn't have to be that age. So there's kind of a couple of different buckets of, of like passive income, right? Because you've got the type of person who goes and earns, let's just call it $100,000 a year. That's a clean and easy number. They earn $100,000 a year at a W-2 uh job um career somewhere. They've been working there a while and then they also have invested over the years and, and maybe they're investing with us and they've got, you know, half a million dollars invested with us and, and they're getting residual income to the tune of like $50,000 a year and he's earning 100,000 at a salary and he's, he's getting 50,000 passively.

So there's one type of person that's not gonna take that $50,000 and exchange it for freedom. And I, I think that's the big point here is we all have the opportunity to, to double down on more shit that we don't need or buy a new or nicer car or a bigger house or send our kids to a nicer school. And what we're saying is almost the opposite. You know, take, take that money that you didn't exchange your time for and go buy some time, like go go buy some time with it, not some, not some useless shit. And then if you buy enough time, you'll end up and have this abundance, abundance of money. Eventually right after, after a few years of discipline of doing that, of not just consuming, not only more than you make, but at least everything you make, you know, at, at some point you've got to be consuming less than you're bringing in like some gross, you know, level you're bringing in 100 and 50 most people are, are spending hundreds of thousands of dollars. So I think the first step is just living within like a reasonable set of means, maybe living living within what you can actually afford.

And then step two is like pass on the temptation to buy the shiny object and instead use that to barter for some more passive income. Which buys you time, right? It, it buys you the ability to go to your employer and say, hey, you know, I, I'm really only looking for a gig that, that does four days a week. You know, I'm willing to take a salary cut or, or move to a different department or, or whatever that is. I, you know, I want my Fridays. You may be willing to gamble the fact that you may get fired from that job, but you feel so confident. It's like, oh, I've got thousands coming in now. It gives you that, that kind of freedom to like, yeah, you, you're not gonna be fucked if, if you probably can't say that I gotta bleep that out. You're gonna be screwed if, if you get fired from your job because now that you've got some support from these other things, you've got other sources of revenue, you've got something that you're not just slaving away for every, every day at 8 a.m. and you may, you may love your job. That's fine. I happen to love my job. So I'm not slaving away. But at the end of the day, you've got to make the choice to not buy the shiny object and to reinvest that into some vehicle to buy you more time.

And it doesn't, it's not like 10 minutes at the gym, right? Or may, maybe for some people it is, maybe it's an hour a day so they can go work out. What I think Joel was hitting on earlier though is this idea that it doesn't have to be 65. Like, it's just so arbitrary and yet people just decide. Well, that's what I'm gonna do. I'm gonna put a plan together to retire at 65. That was my plan. And I, once you're just buying into the cultural norm that, ok, 65 570 is when I get to retire or quit work or do what I really want to do. And, and I'm just saying, you can ask a different question is how do I retire at 35 or at 45? And how do I have the lifestyle that I want without working till I'm 70 I'm young enough to enjoy it. And I just don't think enough people are, are putting a plan together to retire early because they don't know how that would happen, like what that would look like. But commercial real estate offers at least a glimpse into how it might happen. There's a million different ways to get passive income but real estate just to be happens to be one that we're really good at and we're helping investors, uh, get into.

Uh, and so then you can say, ok, well, it's just a, it's just a function of replacing my day job income. And I'll, I'll give my own example when I was, when I finally quit the job, uh, a day job at like 37 I think I had set a goal to retire at 35. But, you know, I didn't get there. But II, I know I was such a failure. But the only reason I got, I got to quit at 3037 is because I set that goal for 35. You know, if I wouldn't achieve trying to work towards that goal, then I would have never got there. And that's what I'm saying. Most people haven't said is they haven't set a goal to try to get their freedom back earlier than 65 because society just tells them that's what they should do. But the point I was gonna make is that I wasn't making huge amounts of money. When I quit, I left, uh, a very high six figure job, uh, that I could have just kept making and I could have been a year, half a million dollars. No, no, no, no. It was like, it was like 100 and 75,000 a year. Very strong six figures. This guy, come on. He's like surgeon. Yeah. Ok. So it was, yeah, it was roughly 100 and 75 200. And so I, I left that and I, I could have stayed there and I could have even invested more money.

But the, the, at what point is your time and your life and your freedom, what is it worth? What is the value? And for me, I had enough money to cover my expenses and to live on. And I knew that I could keep building on the real estate. So then I just decided, ok, I'm gonna walk away from a really good salary, but I'm getting more time with my kids, I'm getting more free with my family and it's, it's gonna be worth it for you guys listening. If you'll just set a goal and I don't want, I don't know your situation, maybe it's 50 maybe you're 45 like me and you're like, ok, I'm gonna set a five year goal to retire earlier or a 10 year goal to retire at 55. I don't know. But if, definitely, if you're in your twenties listening or thirties listening, you've got a real shot to do something different with your life. If you focus on turning earned income into passive income, that's step number one, step. Number two is, uh, separating your, uh, earning power from the time that you spend. So if you can do those two things, you're gonna retire, uh, earlier than 99% of people and you're gonna buy back that freedom that you, you, you know, traded in the first place. Good point. You know, Mike. So, you know, I worked in an office job for 40 years and as I got closer and closer, my, my plan was to retire at 65.

I didn't, you know, I didn't know what else to do. I, while I was working. I thought, what else can I do? What else can I do? I was an engineer. I can I do consulting? No, I, I didn't know what to do. So I thought, ok, I'm just gonna stick as much money as I can in my 401k. And that was my retirement plan when I work to 65. Well, closer I got to that. I was realizing, well, that 401k is not really, I, I can't live off that for the next 30 years. So I had to do something else. And fortunately real estate came along. Uh I worked a day job for about five more years and then I was able to, to retire. And like you guys were saying, I wish I would have, I wish I'd have done it earlier. So I feel like we're glazing over the best parts of the story, right? Because I, I feel like some people think we're up here talking about passive income and I wanna get my experience, I don't have a lot of passive income in real estate because I work so freaking hard to manage the real estate. You know, it's not like I'm just writing Brian and Joel a check and then forgetting about it and then they mail me a check. That would be amazing if only there was somebody who did that. But anyway, back to your point which I completely forgot that you said you were glazing over the uh oh the yeah, the best part of the story, right?

You weren't, you didn't own the commercial real estate company. You, you were still working that job. You were living on less than your means. You had access to a little bit of capital that you had saved up throughout the years. And you saw an opportunity to be a completely passive investor in real estate. I didn't have a real estate company. I was just investing completely passive. So people love to shit on passive income. That is passive. You wrote a check, you got a lot bigger check back. Actually that, that still pays you checks that you're still paying me checks, still paying you checks. The worst deal Joel ever made the best deal for Brian. But that's what you have to do when you're starting out, right? If you are fantasizing about, hey, I wanna own a commercial real estate company. That's awesome. I think it's cool too. That's what Joel did. And he had to give somebody this crazy deal. It's like watching Shark Tank and Mark Cuban and Mark Cuban saying make me a deal. I can't refuse. It's like I'll pay you 500,000 if you'll take 10% of my company is what I would say. That's what you have to do to get into the game, to learn it, to figure it out. But you were looking for that opportunity. You had, you had made the shift. So if, if we can be anything think of us as like this spark to pull some arbitrary number out of your ass to quit your job.

Not because you hate it, but because you deserve more than working 40 hours a week, every week for the rest of your life. For somebody else, you deserve more. Right? I believe that. Yeah. And your employer, uh because I am an employer, the they're just paying you uh enough that you won't quit and they're also making money on what they're paying you. So if they're paying you 100 grand, they're making 500 grand on you or 800 grand on you. And so you have a, you have a genius, you have uh something special and unique about you and your employer is utilizing that for their benefit. Ok? But what if you focus just on, on just your skills for your family and for yourself? Uh what would you be doing if your job paid you? Zero? Would you still go? And if you would? Great, you have a great job. But, and, and, and if you make 600,000 a year, it's your job. Ok, great. You got a great job. You can afford to keep working at that job because there's so much excess cash that you can, you can invest, but most people aren't in that boat. You're in a job you don't like, you're in a job that requires too much of your time. And uh we're just saying, you know, why, uh why have you, why have you not at least set a goal uh to quit that job and to do whatever it is that you really love and we wanna be a resource to help you do that.

Hey, guys, uh Joel said I should quit my job. So I'm out now. Don't go quitting your job. Monday, Monday today. All right. Well, hopefully, we encouraged you. We want to be inspirational to you and to help you achieving your goals. But we think commercial real estate is a, is a great option uh to start that passive income and start replacing that day job income. Right now. I feel inspired right now. There goes Brady. Thank God, we finally got rid of him.

Episode 123 - Strategies for Early Retirement: Building Passive Income in Commercial Real Estate!
Episode 123 - Strategies for Early Retirement: Building Passive Income in Commercial Real Estate!
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