How to Turn Failure into Freedom with Real Estate Investing

0:00one of the mindsets that I really subscribed to early on was, you know, if this is a vehicle that I'm going to look at and leverage to really build wealth and and generate cash flow and income and unlock the life that I want, you know, this is something that isn't going to be a lightning in a bottle moment. It's it's something that is going to be an accumulation of relationships and learning and experiences and and really connecting the dots over a long period of time to unlock a life that most people don't get to live, right?

0:30You know, they always say is the if you want extraordinary results, you have to be willing to do the extraordinary things that most people just aren't willing to do consistently over a long period of time. And so I really bought into the the crock-pot mindset versus the the microwave mentality is what I call it of, you know, it takes a lot of ingredients and time for the crockot to put out that great dish. But we all know that if you were to put a crock-ot dish next to a microwave dish, you know, side by side, right, everybody would 10 out of 10 times the crock-pot puts out by far the superior dish.

1:03But that takes time, right? And so for me when I got into real estate investing and what something I always try and you know reiterate to anybody getting into this game is it really is a get-rich slow game and it does take time but if you do small things consistently over a long period of time and you look up in 5 years or you look up in 10 years you'll have just like the stock market right like it keeps going up but it has downs too and you just have to stay the course not get too high not get too low, keep, you know, trying to find ways of skilling up, exposing yourself to the right people, and and trusting in that long-term process.

1:42And so, you know, I think that's something that's really important for anybody getting into real estate is, you know, if this was just about hard work, then the housekeepers at my hotels would be millionaires. Then, you know, every contractor that I know swinging a hammer and busting their butt every week would be a multi-millionaire. That, you know, the the cash gal that, you know, rings me in at my grocery store every day who's extremely hard work. It's not always just about hard work, right? So, you do have to get yourself in the right vehicle, the right ecosystem, get the right people in the right seats around you, and actually be playing a game that allows you to to generate wealth, which is something that real estate does, right?

2:19And so that's where I always say is if you're clear on where you want to go and when you want to be there by there is a business model, there's an investment vehicle, there's a strategy to get you there, we just need to get clarity in that first thing and then we can start working backwards from there, which is ultimately kind of what pushed me into commercial real estate once I realized that I was going to have to own a lot of single family doors in order to get to the cash flow goals that I wanted to. And so that took me back to the lab, right? And saying, "Okay, well, I want to get to $500,000 a year in passive income over the next decade.

2:51So, you know, how do I do that?" Right? And as I reverse engineered what that looked like, if I were to just buy one commercial property a year that nets me $50,000 a year when all said and done, and I just bought one property a year for the next 10 years, that's $500,000 in passive income. Not even accounting for the equity growth that'll occur there, the you know the cost sag and the depreciation and tax incentives that I can collect along the way. But again, that was just a here's my goal, here's when I want to be there by, you know, what is the model that's going to get me there.

3:22And that's what I really started to subscribe to, which was okay, cool. I can I don't have to buy 10, you know, houses a year, 20 houses a year to get to that cash flow goal in the next decade. I just need to buy one commercial property a year, figure out that strategy, figure out the market, the team that, you know, I need to kind of assemble and put together to achieve those goals. And and once I'm clear, it's just getting into the trenches and doing the work, which I'm good with that. I can I can execute and work my butt off. And and that's ultimately what I've been focused on the last, you know, 15 years of my real estate investing journey.

3:53Wow. Yeah. I was going to ask you about that because it kind of ties into your point around being willing to be flexible on the the means to get to the goal. And and so I for for the commercial side of things, when was it that you transitioned and was it like you just decided I'm I'm going all in on commercial and you stopped doing any of the the flips or single family rentals or was it kind of a slow transition into that or what did that look like for you? Yeah, it was a gradual one. You know, I wasn't once I kind of had my aha light bulb moment that this was going to be the path forward.

4:31I knew that I still needed to keep some income rolling in. And you know, obviously I already had a single family portfolio that I had built up. And I slowly started to kind of make the focus less about my day-to-day business being 100% allocated towards flipping and being that commercial. Many of the skills, the relationships, you know, the strategy in single family does transition well into commercial and they somewhat run parallel next to each other with just different nuances, maybe a little bit of different scripting.

5:03It's kind of like, you know, sitting I always equate it to, you know, chess and checkers. You know, I think those are two games that everybody understands how to play, but at the same time, the first time you pulled up a seat to those tables, all right, what what how do how do you win in checkers, right? And same thing goes in chess. You pull up and then all of a sudden by the fifth or 10th time you've seen a chess game, you go, "Okay, I understand how the players move and what the strategy is and how to win this game." Two different games, but somewhat similar, just different, right?

5:34And so that was something that I knew I was going to need to pull up a seat to the, you know, metaphorical chessboard of commercial real estate and start learning just like I had a learning curve and how to flip houses or just like I had a learning curve and how to, you know, wholesale or to underwrite single family properties. It was going to be the same learning curve in commercial and I just needed to be patient with that. But I needed to get myself in proximity to the people that were playing that game. And so I bought my first property in 2017. It was a neighborhood commercial strip center.

6:05I actually just sold it and closed on it last week that I'm 1031 exchanging into another commercial property. But that was the first one that got me in the game. I used a private money first on it. I used private money second. I ended up, you know, forcing enough value into the asset where I was able to kind of like what many people do, burst strategy on single family. Depending on the right commercial opportunity, you can do that as well. And so I ended up burring that that commercial property and I cleared out my private money first, my private money second.

6:37I now owned this commercial shopping center that was net me about $45,000 a year. Which had, you know, six tenants, triple net leases on it, so it was relatively passive. And I was able to kind of sit in that asset for, you know, many years to generate some cash flow. And that was my first property that I bought using 100% of other people's money. Now, that's not always common in commercial real estate. But again, I always say, you know, the beautiful part about commercial is you can get as creative as the minds in the deal are willing to get.

7:13And when you're on the commercial side, you're dealing with more businessfriendly, businessminded individuals, not as emotionally driven. So, it does give you the freedom and flexibility to get somewhat creative. Closing on a mobile home park next week. It's going to be 100% financed deal just about outside of appraisal fees and closing costs. No money out of pocket for me on this deal. So those deals aren't common, but they're out there and they are available. And this is something that, you know, I'm very passionate about teaching in on my commercial real estate mastermind group, the Wise Investor Collective and and just in general, you know, helping people identify a vehicle or a strategy in commercial real estate.

7:55And many of them are single family investors that are, you know, got 10, 15 houses and are kind of coming to that same, you know, recollection of like, man, I I there's got to be a better way for me to get to my cash flow and my kind of financial freedom goals than me owning 200 single family properties and, you know, the kind of the beast that goes with managing that. So, that's something that I do see from a lot of single family individuals that go, "Okay, I've got good skills. I know how to underwrite, analyze deals. I know how to find properties. I know how to manage and operate assets.

8:27I just need to understand the nuances that maybe go along with one that might do a little bit heavier lifting and give me a better ROI on my skills, my time, my relationships, which is ultimately what I think pulls a lot of people into at least exploring, you know, the possibilities of commercial real estate. Yeah. Yeah, that's a great point. And and I I was curious cuz you know obviously real estate as a whole has shifted a lot over the last couple years and you know there's a lot of headlines around oh you know commercial real estate there's there's problems with it and it kind of lumps all commercial real estate together and I know different sectors perform very differently.

9:05It sounds like you're you're still doing deals today. And so it sounds like it still works today in this environment. So, can you kind of walk me through an example deal and and how you can make deals work today when it's a challenge for other people compared to, you know, the past? Yeah, these honestly these markets are my favorite markets. You know, the stale and the scary and the fear driven markets are my favorite markets. You know, I think that's a perfect alignment with, you know, Warren Buffett's sentiment.

9:37When there's blood in the streets or there's fear in the streets, that's when he's buying, right? Yeah. And and I think you know the same goes in real estate when things are stagnant, when things are scary, when interest rates are too high, when it's hard to make deals pencil and that is the mainstream narrative that most people are buying into. That's really when I get excited and go on the offensive now. It's harder to make deals work. You know, the economics of the the landscape and the environment. I can't control those, right? So, I can only meet the market where it's at. But I'm always a believer, just like, you know, some of my favorite stock investors always say, there's a bull market in any bare market, right?

10:14You just got to find out where it is. There's always opportunity in every market. I've done deals in up markets, down markets, stale markets. And I think, you know, that's what the best investors do is they find a way to meet the market where it's at. They pivot and adapt their strategy accordingly. And of course based on what your portfolio is and what you're trying to accomplish and what risk you're trying to mitigate and what you're trying to you know you know capture in your portfolio there's things that you'll have to adjust and tweak.

10:46But for me personally I think right now is you know one of my favorite seasons of the market because when you've got high interest rates, when you've got sellers still somewhat stuck on their pricing of what they think they need to get or should be getting, it makes deals really challenging to pencil. And so I call this the season of seller finance where you know the last two or three deals that I've done in commercial have been seller finance, creative finance structures and types of deals where when you understand kind of what levers you can pull and how you can engineer real estate investment opportunities between you as a buyer and somebody as a seller or vice versa, there's a lot of ways that you can still make it a win-win for each party that's involved in the transaction.

11:30So, I think right now, you know, is somewhat of a challenging market, somewhat of a stale market, and whether you're in single family and whether you're in commercial, I think across the board, it's actually somewhat, you know, a little bit stagnant and, you know, choppy and volatile, you know, going from a horizontal perspective. But I also I I, you know, over the course of the last 15 years of doing my deals in these markets, I found some of my best deals in these types of markets. And so I like to get very creative.

12:01I like to, you know, present two to three options on on every deal that I'm interested in offering on. And instead of assuming what works for a seller and going, "Oh, this price isn't going to work for them. They want this." Well, I just don't assume what people want and need. I just put forward different options of what I think and know I can perform on and what I can, you know, get creative and hopefully, you know, engineer and structure to make it a win-win for everybody. And you'd be surprised. There's so many times where I'm like, man, I'd be shocked if they take this offer cuz if it were me, I would take this one and they take that one, right?

12:34And it's for whatever reason is driving them to make that decision and and what's really, you know, motivating them. So, it's just always a good reminder of like, you know, in in every down market, there's something, you know, opportunistic going on everywhere. And you know, when when it's fear in the streets and everybody's selling off their real estate or their stock portfolio, guess what? There's always somebody on the other end of that buying that fear. And so I'm I'm somebody that tries to be, you know, somewhat risk mitigated, calculated risk, but I'm also, you know, in a mindset where in in these types of markets, this is where I think the most opportunistic purchases are.

13:14And when I look at my mentors and when I look at, you know, my my portfolio and some of the past acquisitions, some of my best buys have come in these types of markets. Yeah. Can you can you share that? So, you mentioned you're about to close on a mobile home park here. Can you share kind of the details of that and what what made that a deal to you? Like what what makes it so desirable? Yeah. So, I'm I sold one of my medical office buildings and I've got about $2 million in equity that I got to roll into another deal and I had about 650,000 in debt that I needed to get replaced on that to meet all of the 1031 requirements.

13:55So, you know, you have to basically obviously roll all your equity into another deal and you have to replace that amount of debt that you're whatever that was left on that asset that you're selling out of on the next exchange equal or greater. So, I am rolling that 2 million in equity into a hotel deal with I'm actually partnering with a bank that ended up taking this asset back and foreclosing on it. And I convinced the bank to partner on it with me and instead of us doing a debt component with that deal, we're doing it all cash.

14:28So, they're going to be bringing a couple million dollars or leaving a couple million dollars in the deal. I'm bringing 2 million to the deal. Well, I still have this 650,000 that I need to get replaced on my 1031 or else I'm going to have to pay boot and tax on that. And so I was like, man, how am I going to find another asset that, you know, I can get all debt on or else I'm going to have to bring additional, you know, down payment money to the table and figure that out. So anyways, I was negotiating back and forth on a couple different deals with a gal that you know, specializes in mobile home parks and does some different things, and she brought me this one and said, you know, they're asking 1.5 on it.

15:10It's a small mobile home park, not anything huge, but they were asking 1.5 on it, and it was inherited by a brother and a sister. They grew up in the mobile home park. Their parents owned it for like 40 or 50 years, and they were asking this price and they wanted a a relatively, you know, quick close on it. And so I came to the table and said, "Hey, I'm only interested at this price," which we started at, I think, like they wanted went down to 800. Anyways, long story short, I got them to 660,000 and they were I got a local community bank that is going to do 75% of that purchase price and then they're going to carry back the remaining 25% in second position

15:58And they're going to defer mortgage payments for the first 12 months. So, it's a So, basically, I'm I said, "Hey, I'll here's your price. I need to get $660,000 in debt in order to satisfy my 1031 or I'm really just not interested in doing this deal. So they said, "Hey, we're open to it, but we need this much money." And I said, "Okay, well great. Here's your price. My terms are the bank will pay you 75% of that 660. So you'll get a big chunk of cash up front and then the remaining 25% you have to carry in second position.

16:34And it's going to be interest only at 4% and those payments don't start until 12 months after we close and it'll be a three-year balloon. So, I'll get you that remaining 25% that you're carrying back at least within 3 years if not sooner. So, the the sellers agreed to that. So, essentially bank's coming in with 75% of that purchase price. The sellers are leaving the remainder of that in the deal in second position. I'm only having to pay the bank the appraisal fees, some closing costs, and I think the appraisal came in at 880.

17:09So, we're walking in at like 220K in in equity and the property is, you know, only at like 40% occupancy right now because they haven't been adding in new income streams to it. So, I think there's going to be some major upside on the income which is going to grow the value of the asset. And that's stabilizing it, refinancing it, getting it on permanent debt, and getting them paid out. And again, that's a just kind of a creative finance deal that understanding what do you guys want to accomplish?

17:43You know, when do you need this cash? How much of this cash do you need? We can engineer this deal in different ways, right? And so I think we went back, there was something like 14 counters on this deal. But we ended up getting the deal done and everybody was excited and, you know, everybody's goals were met in the process.