Dan’s Story (and my investing principles)...

 

Dan, was a successful Physician who worked hard and made a comfortable 300,000+year income.  

 

In our first conversation, he said - I’m trading time for money and don’t have a plan to replace my income.  I don’t want to work when I’m 70 to maintain the life I’ve built.

 

He wanted a safe place to invest where he could leverage his high income.

 

He wanted more  control over his money.  

 

Where can I invest assets that are going to pay me every month?  I don’t want to have to work.  I love what I do, but I don’t see a way to stop working.  

 

Dan had the majority of his savings in the market and the last time the market dropped, he was tempted to take it all out.

 

I don’t have the temperament to deal with the uncertainty of the market.

 

He just attended an investing seminar and invested in a up/down bungalow.  Renting out the upstairs and downstairs to 2 sets of tenants.   Within 3 months, he was meaning it and dealing with fights between the tenants.   

 

This single family rental (SFR) became a 2nd low paying job.  

 

When the property was rented, at best, he could expect a few hundred dollars a month.  

 

How am I going to replace $25k/month?  I’d need 100 properties at this rate.

 

It didn't seem realistic.  This was not a plan he could bank on to create financial certainty for his family.  There has to be an alternative to single family or the market.

 

Dan started his search online for alternative investments.  He looked at Cryptocurrencies, franchise opportunities, IPO's, venture capital, private mortgages, and then he came across my website.

 

Dan told me in our first phone call...

 

“Shane, I want a safe place to invest my money so one day I no longer have to go into the office.  I want to stop trading time for money.   I’m tired of relying on my practice to put food on the table”.

 

I asked Dan, why do you want that?

 

He's a caring dad, with 3 girls.  He was looking ahead and worried about how he was going to put them all through universities they wanted to go to (top rated US schools) and the growing cost once they were old enough.  

 

He wanted to travel and not have to think about work or his practice while he was gone.  He loved marathon and triathlon training,  but felt rushed because he only had so many hours in a day and if he was on a 2 hour run, it was 2 hours not with his family or business.  

 

• When he was at work- he thought about his workouts.
• When he was running, he thought about family.
• When he was with his family, he thought about work.

 

To this point, most of his money was in the market.  The last time the market dropped, he lost 35% of his net worth in a month. 

 

That haunted Dan.  He didn't like having his money exposed to the volatility of the stock market. 

 

He was looking for a place to invest, that was tangible and would pay him each month predictably.

 

He wanted a new plan to replace his $300,000/year income.  And, because he was a busy professional with a business to run he didn’t have 10 or 15 hours a week to manage or oversee it.

 

Step 1. The Plan - a customized investing blueprint.

 

1. Starting place- how much money did Dan want to invest?
2. Ending Place - how much money did he want to have?
3. Time - how much time did he have to do it?
4. Returns - this was the variable we solved for.  Based on the money he had available and the time he had to invest, we just needed to find a property that would pay him the returns necessary to replace his income the predetermined time.

 

The process is simple.  Figure out the goal and the starting place.  Then reverse engineer the plan.

 

The art, is in the execution.

 

After transacting more than 1/4 billion in real estate deals for others (and $70M for myself) - there is one thing that holds people back from pulling the trigger.

 

Confidence.

 

If you don't have the confidence to invest, you'll sit on the sidelines.  You'll miss out.

 

The solution...

Step 2. Learn the game of Investing (in cash flowing assets).

 

Next, Dan needed to understand the “Game” of investing in commercial real estate.  So he could tell a good property from a poor one.  He wanted to invest with confidence and not worry about whether he was investing in a crap property.

 

This is where I introduced the Non-Negotiables to Dan.  Where he could eliminate properties that didn't fit his plan in minutes.

 

• What locations should he stay away from and where should he look?  
• What tenants to focus on.
• Was he too late to the game?
• Who would help him with finding the property?
• Ho to secure the debt?
• The due diligence?
• How much money did he need?
• Who would take him seriously?

 

He was afraid of making a mistake and rightfully so.  Investing in commercial real estate is more complex with more moving parts than a rental house.

 

But, once Dan saw how the game worked and with a clear set of Investing Principles, he could move forward with confidence.

 

Rule # 1 is Pick a property Big Enough.

 

Once we had clarity on what Dan wanted (replace $25k/month in cash flow) and how much equity Dan could invest (from his savings and trapped equity in properties that were not cash flowing), we knew exactly what to look for.

 

• Properties in great locations.
• Priced under replacement cost
• That cash flowed on day 1.
• That would not require more than 2 hours of his time/month.
• That were big enough to afford a professional property manager.
• Tenants that were credit worthy.

 

These were some of the non-negotiables we developed for Dan.

 

He ended up investing in a $4,800,000 commercial property.

 

And, once the mortgage is paid off (by his tenants), this single property will pay him more than $292,800/year or $24,400k/month in passive income requiring less than 2 hours of work a month.  (This assumes no rental increases).

 

This one investment goes a long way to getting Dan to retirement and paying his girl's college tuition.  Dan’s on his way to doing this again with his second commercial property as of this writing.

 

This was the success of implementing a few of the 8 Non-Negotiables to investing in commercial properties, which you can download at the end of the article.

 

But before we get to that, I want to share 'how' Dan got the property.

It was no accident that he was able to find this great property and this is where most new CRE investors fall short.  They try and do it all on their own.  They think they can find the properties online.

 

They think commercial real estate brokers will be eager to help them find a property.

 

In reality, the game is rigged and favors those with a track record.  If you're new, with no track record investing in CRE, it can be frustrating.

 

But, with the right understanding of the game, there are strategies to investing safely with confidence.

 

Step 3. Executing Your Plan.

 

Once Dan had a clear plan and understood the game- he just needed the right people to help him.

 

• A great commercial real estate agent.
• A commercial mortgage broker
• A lawyer who specialized in these types of contracts.
• An accountant and
• A property manager who had experience handling the day to day operations.

 

Someone who could show him the path and make these introductions.

 

The world of CRE is small.   It is built on relationships and reputation.

 

If you are new to the game (an outsider) - it can feel cold and harsh.

 

If you're on the inside, where people are there to help and protect you- it's like a family.

 

But, how do you penetrate?  How do you break in?

 

Enter: Club Syndications.

 

When Andy showed me the way of investing in CRE, one of the first things I noticed was the importance of having someone Shepheard you into a new city.  We didn't fly in to Palm Springs, Houston, Phoenix, or Dallas and start calling brokers.

 

No.

 

We had a experienced broker with connections who plugged us in.

 

The first 3 trips, all we did was go to meetings, tour properties, go for lunch, dinner, football games etc.  I was thinking -when are we going to make an offer?  When are we going to make some money?

 

This is the 'single family investor' transactional mindset.

 

What I didn't realize, was the people we were meeting were vetting us.

 

They wanted to learn about Andy.  Shane.  Who were we?  Would we do the deal we said we would?  Could we close?  Would we retrade (ask for a price reduction for no reason) before closing?

 

Brokers and sellers want 1 thing when they sell a commercial property:

 

Deal Certainty.

 

Deal Certainty comes down to reputation.  And, if you're new, you don't have a reputation.

 

So, you borrow or leverage others who have a reputation.

 

This is why the world of CRE is so small.  Because it's risky to vouch for someone that's unproven.

 

Think of the last time someone asked you to refer a painter.  Or a General Contractor?

 

Unless you were 100% confident that the person you were referring could and would do the job, it's safer to say, sorry, I don't know anyone.

 

Why?

 

Because it's all downside.

 

If the person does a great job- that is what was expected.

 

If the person does an ok or poor job- you take the blame.

 

Investing in CRE is no different.

 

There's a saying, you're only 1 bad deal away from being out of business in commercial real estate.

 

Translated, one wrong deal (or person) can ruin your reputation.

 

As Warren Buffett says:

 

“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently" and more importantly,

 

“If you lose money for the firm I will be understanding. If you lose reputation I will be ruthless"

 

Warren can live with someone who losses him money (forgivable).  But, NOT if you cost him his reputation.

 

And, if there's one thing to know about CRE, because the stakes are high (1 bad deal can take you out of the game- just like it can replace a 6 figure income) - the players in the Game are very careful who they do business with.

 

What are your options for the new investor to CRE?

 

In my experience, there are 2 main options if you want to go down the path of investing in CRE.

 

OPTION 1.  Direct Investing (Like Dan)

 

This is where you invest the time to learn the game.  Find the properties.  Negotiate the debt and do the deal from start to finish.

 

It requires learning the skills, process and building the relationships to find the right properties.

 

I would say Dan was relatively lucky.  The market in Calgary was soft when we found his property.  Which meant, there was less competition.  Dan was also a very coachable investor.

 

He took direction and followed the process.  He was committed and didn't allow set backs to deter him.  Of the investors I meet and work with- he is 1/100 in terms of his abilty to commit and stick through the hard sh&t.

 

Dan’s email to me (some of private information has been blurred out for privacy)

 

If you're thinking, that sounds like a lot of work - it is.

 

There is no sense in sugar coating it.

 

But, the work Dan put in, for say 4 months, a few hours a week generated an asset that will pay him the rest of his life (if he keeps it that long).

 

He went to school for 12+ years to become a physician.  And, that education allowed him to earn great money.

 

What is the return on time invested to learn the Game of Commercial Real Estate?  Enough to replace his mid 6 figure practice.

 

Now, if you decide, that's too much work, what is the other option?

 

OPTION 2: Indirect Investment (Passive)

 

The goal here is simple.

 

You find the right people to invest with.  Find people who have played the game of investing in CRE for years, and already have the relationships.

 

You leverage the attributes you already posses (capital) to attract successful commercial real estate investors.

 

This is the concept behind Club Syndication (a book I wrote on investing in commercial real estate).

 

To overcome the barriers to investing in commercial properties the choice comes down to two questions you can ask yourself:

1. Will you put in the time (like Dan) to do it? or,
2.  Will you find the right Partners who can do it?

 

Partnerships is the 'straight-line' to investing in CRE.

And, many investors, start investing in other peoples deals to then move on to their own.  They are able to learn the Game by investing as a passive investor (like Tim).

 

The last question...

 

Will this work for me?

 

Dan was nervous at first.

 

Commercial real estate can be intimidating.  Bigger numbers.  Sophisticated sellers, lenders, tenants. 

 

Where do you start? 

 

As mentioned, designing a clear Plan for you is step 1.

 

Next, is having a solid foundation of the Game.  Even if you decide to invest other peoples deals- you must understand the difference between a good and poor deal. 

 

For 2 reasons:

1. so you don't lose money (like my dad and I did)
2. To attract the best Syndicators, they typically only want smart money.  Why you ask?  Because their/my job is to find deals.  Raise money and execute.  If they spend all day educating and making sure their investors are comfortable with the deal they invested in- it takes away from what they are meant to be doing: Executing on the deal.   

 

Last, take action.

 

On your own, or, with others.

 

Regardless of which direction you take, it all starts with a Clear Plan.   

 

How to know if commercial real estate is even right for you?

 

In my experience, even for some high earners, investing in commercial real estate won’t be right for.

 

The reality is, commercial properties are  illiquid.

 

Which means if you need access to your money fast, you shouldn't invest.  Investing in commercial and multifamily properties require patience and willing to invest for the long term.

 

There’s also a steeper learning curve.  If you have no desire to understand the Game of CRE, then, it’s best to stay out of the market.  

 

Contrary to what I see online, investing in commercial properties is not Easy or Get Rich Quick.

 

This requires patience and effort.  

 

Taking 100% responsibility for your outcomes.  

 

Few will commit and do the work necessary to invest in commercial deals.

 

Which is why, so few have it in their portfolios. 

 

But, for the few who commit and take the time to get a plan.  Understand the game of investing in commercial properties, it can be an incredible way to generate monthly cash flow without trading time.  

 

If you've made it all the way down here, you'd likely want the next step in the process to exploring commercial investing.  Below are 2 tools and resources.  Up to now I've only ever shared the 1 Page Blueprint with my private clients who work with me.  

 

1. The 1 Page CRE Investment Blueprint.  This will give you the Clarity on the Plan you can build for yourself and decide if CRE is right for you.
2. My 8 Non-Negotiables for Investing in Commercial Real Estate

 

To get the resource, enter your details below and I'll share this with you.