Why invest in Commercial Real Estate ?
My passion for investing in commercial real estate originally started in my first year of University- although at the time, I didn’t know commercial real estate was my thing.
If you’ve ever lost significant money investing in stocks, real estate, someone’s company – then the story below will resonate.
My first big lesson in ‘how not’ to invest, came during the summer after my first year of University. I was living in Calgary, going to the University of Calgary, taking Economics and Business and had moved back to Whitecourt to make money over the summer. Whitecourt is a small logging town where I grew up.
During the summer,I’d operate D5 and D8 Caterpillars to build logging roads with my friends dad. It was a great summer job that paid well.
My friend, we’ll call him Sean, would take the summers off to do other entrepreneurial ventures. I’d get picked up at 5am and dropped off at 7pm, 7 days a week, as long there was no rain. Long hours, and good money.
Anyway, that summer, my friend Sean was working on a new business. He told me about an incredible investment opportunity that would 36% every 2 months. I wouldn’t have to do anything- just give him my money and I’d get a check every 2 months.
He told me a few big names of other very successful business man in Whitecourt who had already put in money- I think he raised more than $1m and that there was room he could make for me (playing on scarcity, fear of missing out).
At age 19- someone telling me I could basically be a millionaire in 2 years if I invested now and didn’t have to wake up everyday at 4:30 and work 16 hours. Sounded good to me.
Plus, look at all the other smart people already investing. I was lucky to even be invited in.
Well, I couldn’t get the money I’d saved all summer out of my bank and to him fast enough. Every penny I saved over the summer, went into the investment. I think it was about $10k USD or about $13.5k CAD.
BTW- that money was to pay for 2nd year of university living/food and the downpayment for my dream car – a purple mustang GT. Used, of course, but it was a beautiful car.
My dad, heard about the opportunity, met my buddy and was also sold on it. He had just paid off the mortgage on their home and took a line of credit against it to invest $100k.
As you can imagine, it was a complete scam. No profits. No returns. Just loss. For me, at 19, I was pissed off having lost that much money. Especially, because it was my buddy who sold me on it.
For my parents, watching them remortgage their home, after they had worked as teachers for 30 years to have their dreams killed. It was heart breaking. If I think too hard about it now, I still wish someone would have given us sound investing advice.
Like, don’t go into debt (bad debt) to invest in something you don’t understand, with someone who has no track record.
If you’ve ever made a huge mistake investing, you know how embarrassing it is. You don’t want to think about it or talk about it. It’s easier to try and forget it.
That was not an option for me. I took responsibility for that loss and felt that I should have known better for my parents too.
For me, that event put me on the path for learning how the rich created and then KEPT their wealth. I started reading books, going to seminars and hiring mentors. I became obsessed with making money so I could invest it.
First I needed a way to grow my income. That year, going back to University, I ended up working 3 and then 4 jobs. I was working early morning and evening and weekends. I don’t think I took a weekend off in 5 years after that. And, I saved every cent I made.
Once I graduated, I got my first ‘real’ job at the City of Calgary in Urban Planning and Assessment. There I met a guy, Richard who was into building houses and investing in real estate. About the same time, my roommate Jeff, also started investing in real estate.
Seeing them make money, I felt it was time for me to learn this. So, within a year, I had my real estate license and was buying and selling homes. I started fixing and flipping, then built spec homes and finally started to buy and hold rentals. I was making money, but it was not predicable and I knew I was not creating wealth.
I think it was 2006, when I landed a job at Sun Life Financial. We would lend money (mortgages) to owners of commercial real estate. This was the first time I interacted with individuals worth $10M, $50M, and one man I met, Harvey, was worth mid 9-figures.
During my time at Sun Life, at an industry Golf tournament, I met my now wife. She was a designer who specialized in commercial real estate. Her dad, was dad also a major player in commercial real estate. Over time, as he got to know me, he took me under his wing and brought me into some of the investments he was doing with high networth friends/family.
This was the first time I was on the other side of the table. Able to see how money was really made.
It was incredible to experience this level of investing. Growing up in a small town, I’d watch movies about how the rich and famous lived. But this wasn’t anything like that. There were big houses and nice cars. But, the investors were all very focused and clear on what they wanted. They understood risk.
They were, for the most part, good judges of character.
They did business with one another. And, I realized how small the circle was for these successful investors. They all knew each other and most did business with each other.
If you were an outsider, it would be very difficult to penetrate these circles. Most people, even successful businessmen, would not have the opportunity to work on the deals I was involved in;
- Selling $20M – $30M commercial properties (apartment buildings and retail properties). *
- Raising $6.5M in a week for a syndication of a resort development I was the president of.*
- Helping an investor turn $4.5M into $15m in 5 years, plus earning more than 10%/year during the 5 years.*
- One property we bought for 8.5M in 2011, we later sold for 17M in 2014. *
*CAVEAT: Results not typical. I’m not suggesting it’s easy or that these are typical.
You couldn’t do this in single family real estate.
You wouldn’t have the same level of control investing in stocks, bonds or private companies.
So what did I learn working with these sophisticated investors? And, how is it going to help you?
This post is long enough. I’ll go into that next week. Where I’ll discuss the 6 Stages of investing in Commercial Real Estate.