My 15 Year Journey to Raising Capital and Finding Commercial Real Estate Investors
When I started investing in commercial properties - I had no idea how to raise capital and find commercial real estate investors. I was born in a small logging town, Whitecourt AB where both my parents were teachers.
My parents believed (like many) get good grades, get a good job, work hard and save your money. That was the key to their success.
And while this conventional wisdom sounds ‘good’- when I looked at the wealthiest in my town- they didn’t seem to work harder than my dad (always on vacation) and weren’t any smarter (many didn’t have grade 12).
There was a disconnect.
Why had a few guys in our town created financial abundance– while my mom and dad worked 16 hours a day to survive?
Growing up I didn’t have wealthy mentors. I just followed my parent’s strategy: work as many hours as I could and keep getting higher paying jobs.
The concept of making money while you sleep sounded like a fantasy to me, until my mom gave me the book, Rich Dad Poor Dad, by Robert Kiyosaki.
The wealthiest figured out how to invest their money safely and it was a 3-part formula:
- Make Money (what most focus on- trading Time for Money)
- Keep your money (Buffett’s #1 Rule- Don’t Lose Money)
- Grow it (invest your money so it pays you while you sleep)
There was no shortage of people willing to do #3 for me- taking my money to ‘invest’ or, charge me to ‘learn how’ to invest it. The market place was full of guru’s pitching:
- Invest in Real estate– fix and flip, wholesale, Single family rentals, apartments, land, retail, storage, multi-bay industrial?
- The Stock market- call or put options, value investing, momentum trading?
- Gold and precious metals
- Investing in new start ups
- Trade currencies
And, while I was committed to becoming wealthy, I learned some expensive lessons along the way.
First Big Investing Lesson
One summer while living in Whitecourt AB, building logging roads, I was presented with the opportunity to invest with my boss in my first opportunity.
I trusted my boss. He was a rich man by all measures.
So, without asking questions- I handed over all the money I’d earned over the 4 months ($13,500).
(First mistake- investing in something I didn’t truly understand, control or could influence the outcome- is very risky).
I didn’t know back then what questions to ask. What to look for in an investment opportunity. How to even evaluate a good deal from a bad deal.
- How much money is going into this deal?
- When is the money going in? Are you raising additional money down the road?
- How much money will I get back?
- When will I get my money back?
All simple questions- but you’d be amazed at how few people ask these questions when investing. Back then I didn’t know what to ask. Today I know and I’m comfortable asking them.
2nd Mistake- not asking tough questions/or proper due diligence.
I invested based on emotion - Greed and Fear. Greed for quick and easy money. Fear, on missing out and seeing others get rich.
Everything I’d saved that summer to go back for my 2nd year of university, $13,500 was lost.
It took me 1,200 hours to earn that money and less than an hour to hand over.
What was even worse- was that my parents followed me into the deal. They had just paid off their home (achieving their dream of being debt free before 50).
They remortgaged their home to invest $100,000.
This meant mom and dad would keep working for 10 years to pay for 1 shitty investment decision. Every month reminded that they’d made a huge mistake.
This type of memory stays with you.
I saw how money (or lack of) impacted their relationship. It was my dad’s idea to invest at the warning of my mom. To my mom’s credit- she never brought it up after it was lost, but for some time there was an underlying friction about the loss.
As I look back, it wasn’t their fault. They didn’t have any investing criteria or principles to base their investment decisions on.
My parents were hard working teachers- dad was the Principle and mom taught grade 1 for 35 years. How could they be expected to know if an investment was good or risky?
They followed the heard.
A group of successful and wealthy business man in Whitecourt AB invested and my parents (and I) saw this as an opportunity to get ahead. We didn’t want to miss out.
We wanted to be part of the incredible gains that this deal promised.
And, without any due diligence or research, we trusted the promoter (my boss)– and lost it all.
3rd Mistake- investing on emotion- Fear of Missing out, Greed
After that event, I vowed I would not let that happen to me or people close to me again. I spent years studying how to invest and learned how to avoid risky or flawed investment opportunities.
I read about Charlie Munger and Warren Buffett. Buffett’s first rule of investing – ‘Don’t Lose Money’.
Which means you have a set criterion for how you invest. So you can quickly narrow down your options.
For me, I realized after the first loss, I would focus on investing in what I understood, could control, was tangible and indestructible.
That really meant I would invest in myself and in real estate. I eliminated all other options – stocks, bonds etc. because I had no influence or control over them. And, I didn’t really understand how value was created.
Buffett invests in companies. He takes such a large position in a company, that he’s able to influence their decisions and the direction of company (with a seat on the board).
I’m not at that level. But, I can influence the value of a property I buy.
Not loosing money became my driving investing philosophy and I’ve invested 20+ years of my life to applying it in the world of value-add real estate investing.
And, while I’d like to say that I’ve never lost money again (I have)- I have not made the same mistake twice and, the losses have been minimal. But more importantly I’ve made millions for myself and my investors. And that’s really what I want to share with you today.
How to find Commercial Real Estate Investors for larger Investments
When I graduated from the University of Calgary in 2003, I was still scared from losing my money in the 1st investment. While attending university, I worked 3 and 4 jobs while taking a full course load, and I saved every dollar I could.
Straight into my safety deposit box. I was still that distrustful.
I thought I was getting ahead. Keeping my costs low, living in my best friends’ basement.
Right before Christmas in 04’ I was dating my dream girl. She was 5 years older than me, had a great paying job and owned her own condo.
She was over at my place visiting and while walking past my 2 roommates who were playing video games in the middle of the day, she stopped. She looked at me and said, “I have to go”. I didn’t think much of it at the time.
Next day, she tells me she can’t date a guy still living in friends basement suite. She was embarrassed to tell her successful friends about me.
I was devastated.
I thought I was doing the right thing- working hard and saving money. But I was fooling myself. Cash in a safety deposit box is worthless pieces of paper.
I was merely existing.
3 months later, I took my savings and bought my first townhome. I got a roommate to cover ½ the mortgage and thought- wow, this is great.
I now had an asset, and someone is paying for ½ of it.
Four months later, I bought my first fixer upper. The property was a 1948 1 ½ story war time home I bought for $180k. It didn’t have central heat (so in the winter’s you had to use the stove and firewood to keep it warm).
I had no idea what I was doing. My agent (who was my buddy) didn’t have a clue what he was doing. It was the blind leading the blind.
For 8 weeks every evening after work I’d go to the house (then to home depot to buy supplies) and renovate. Painting, cutting baseboards, replacing appliances and floors. After 8 weeks, and the house was a disaster- and I was running out of cash.
The fear came back to me and I thought I was going to lose all the money I’d put into it.
I took an add out in the newspaper to sell- “Investor Wanted: Fixer Upper in Great Neighborhood”. No realtor fees- call Shane directly.
My saving grace was I’d studied direct response marketing, so I could market the home better than most of the agents. I had 12 showings on Sat and ended up selling it that weekend to a fellow investor for a $22,000 profit.
I did most things wrong- except for the most important. I bought in the right location.
I made $22,000 in 8 weeks without really knowing what I was doing- and I decided there was something to investing in real estate.
I decided to hire a coach to help me invest and learn the business.
For the next 4 years I bought and sold millions in fixer upper properties. As I ran out of my own money (at times I had 7 or 8 properties at one time), I went to friends to help with down payments and getting mortgages.
I was making decent money- but I was working 16-18-hour days.
I was still trading time for money and the allure of passive cash flow was nowhere.
There was no way I going to retire renting out single-family homes to earn $100- $200/month in passive income.
How do I find commercial real estate investors and get to the next level of investing – like the big boys?
In 2007, after a golf tournament at a local pub, I met a girl- Kelly. She was an interior designer and we hit it off immediately.
She helped me design, fix and flip my houses I was working on.
Her father (Andy), was a commercial real estate developer. His family owned a publicly traded development company which has been in business for more than 97 years.
As Andy got to know me and saw my hustle, he asked me to go on a trip with him to Palm Springs to look at an investment.
On the plane ride down, we talked about what I was doing. As I look back, that flight changed the trajectory of my investing career.
Andy had experience buying and selling billions of dollars in commercial real estate and was now open to showing me how to do the same.
I quit my job at Sun Life financial as a commercial lender and started working with him full time. I was only paid on deals I found we executed on.
Some deals took months to find and secure- but when we found the right one, it would be worth 7 figures.
This was an entirely new world of investing I didn’t know existed.
I helped his family company buy 742 Class A apartment units in Texas (Houston and Dallas) between ‘09 – ‘11. They were able to increase rents and in 5 years more than tripled their money.
Andy and I also started investing. Our first deal, we raised $2,000,000 USD to buy the 5 homes in Palm Springs.
We raised another $2M to buy a portfolio of 1st mortgages on properties across Eastern Canada. Because we bough the mortgages at 60% of face value we earned more than 22%/annualized returns for 6 years for ourselves and our investors.
- If a property had a $1,000,000 first mortgage- we bought the mortgage for $600,000.
- If the mortgage was paying 12%/year on $1M = $120,000/year, we earned $120,000/year on $600,000= 20% (as example).
I was starting to see how large deals got put together.
I kept my head down and focused on finding the right deals. With the right deals, we had the investors network to be able to raise millions from.
Muskoka Communities, 1,153 Acre Development in Ontario.
Trying to do everything ourselves and having the wrong people on the team- we struggled for the first few years to make money.
Our biggest deal was the acquisition of 2 resorts in Muskoka ON, Canada.
Bonnie Lake Resort- was 1,100 acres surrounding a private 200 acre lake and Shamrock Bay Resort, a 53 acre resort located along the Trent Severn waterway in the desirable Muskoka’s. The areas was a destination for people living in Toronto, where the average home on the water would be worth $1M+
Andy and I partnered up to take on the project.
The purchase price for both resorts was $8.5M.
Our biggest capital raise.
Our game plan: redevelop the sites, fix up the resorts, raise rents, increase the number of sites we could sell cottages on at each resort. Doubling-Tripling the value in 5 years.
The resorts were Land Lease Communities, where we sold cottages (profit center 1), collected rent for the lot each trailer was on, and had a marina where we earned $500-$900/season for keeping their boats.
All this sounds like a great deal. And, it was, except for one thing.
We needed the right team to execute.
Cottage Sales. Marketing. Operations. Development. Rentals. Taking care of park. Setting up cottages.
We underestimated the team we needed to execute. In the first year of operations we had a husband/wife team managing both resorts. Working 18-hour days, we burned them out to the point they almost didn’t come back.
Our 2nd year, we were behind on sales – and some of cottage owners were leaving as we’d neglected them.
Cash flow was dropping and we were getting behind to investors.
Over the next 2 years, we went back to our investors to raise additional money.
This is one reason, I don’t recommend doing development projects to new investors. They are risky, take twice as long as you think and cost more than you'd expect.
The development was, and sales were gaining traction. But the pace at which we had to keep reinvesting into the development was sucking up our cash.
I learned a tremendous about cash flow management. The importance of having great partners.
Who would stick with you when shit goes sideways. Because, investing in commercial real estate- things don’t always go as planned. You must be with the right investors that will see a deal through to the end. Even if it means you don’t make a lot of money.
Because you develop a reputation. And, the reputation I wanted was- Shane puts his investors needs before his own. He doesn’t quit. He will make things right, and because this is the long game- I will keep putting my money with him.
In Dec 2014, we sold both resorts for $17,000,000 and were able to pay back our Limited partners the returns we promised +.
During that time, I developed the skills to manage a team. To overcome adversity. To treat investing in commercial real estate as a business.
With my track record and reputation, I can Syndicate, which is to pool money together from accredited investors, and raise several million dollars in a week.
Accredited Investors will, in almost all cased bet on the jockey 1st (you and your team) – then the horse (the actual deal).
If you’re the right person running the deal- and you can show that you don’t give up at the 1st sign of struggle, you can build a loyal following of investors that stick with you.
From flipping homes and raising $40-50k from my best friend– to today raising multiple 8 figures and earning 100k-$200k upfront (my acquisition fee) plus 25% of the profits- I learned the game of investing in commercial real estate and how to raise money.
Over the years, I’ve been asked to many lunches and coffees to help other real estate investors scale their business. To help them structure their deals, raise money, evaluate the deals they’re finding.
I bring 15+ years of raising money and investing – so that experience has saved some friends millions from the wrong deal.
It’s such a big topic, that I decided to write a book - Club Syndication, How the Wealthy Raise Capital and Invest in Commercial Real Estate.