Episode 127 - Navigating Year-End Challenges in Commercial Real Estate Investments

Today hosts Braden Cheek, Brian Duck and Joel Thompson discuss effective & strategic ways to end the year in commercial real estate.

All right. What is up and welcome back to another amazing episode of how to invest in commercial real estate. And we're here. What's up? Um We're gonna talk about the end of the year, right? We are gonna talk about the end of the year. So I think the end of the year is kind of fleeting, right? You have all of these holidays. I know my birthday is in the end of the year. So that kind of revolves. Nobody gives a shit about your birthday. I do. You're a grown ass man. I, I like my birthday man and Thanksgiving and Christmas are like my favorite holidays. I don't know, like I'm busy literally until the end of the year. I don't know about you guys. Literally. Every week it started, it's already started middle of November to the end of the year. Everybody's busy, everyone's Christmas parties, you know, like, oh, hey, how are you love going anyway? Ok. We think people ought to take time to look at their finances, but between now and the end of the year, right? Yeah, there's a lot of things that you need to be asking yourself. Not like in December. Not on January 25th. Not like, oh, crap. It's Christmas. I need to find my taxes or, or worse, like a lot of people. January 1st, you know, the second week January, like, oh, crap tax year is over. What do I do? You know if you want to be affecting change in, in this year's taxes, it needs to be done right now right now, guys.

Yeah. So one thing we wanna recommend is uh or at least give this advice is when you're investing in commercial real estate or if you're purchasing a property, even if you buy into the property in November or December just a year, uh a one month before the end of the year, you get a full year's depreciation that you can apply to your taxes. So we are launching, we're trying to get two or three more deals out this year. If you have a chance to get into, into them, that'll allow you to get, uh maximize that depreciation before the end of the year. Yeah. And actually, um you know, development deals, you can't maximize that as much because you obviously can't depreciate land and you can't depreciate costs that you haven't incurred. So you kind of have to wait till the building's done in a sense, but we are closing that deal in Henderson. Um So super excited about that deal. We'll be able to um costs e that and depreciate the crap out of that um, in Nevada and again, everyone loves to tax tax, write off, uh, to Vegas. But anyway, when you, when you're kind of approaching this time, you need to be emailing your CPA. You need to be saying, hey, here's kind of my investments that I made this year. Here's, um, you know, my bank statements or my financials kind of through September.

Can you do some sort of, you know, rough tax analysis of what you think I may be paying or, or getting refunded, um, for, for this tax year and, and it may take a little bit of time and it's obviously not going to be completely accurate because the year is not over and, and, you know, it's, it's just a forecast, but at the end, you have a decent amount of data there. Um, I know we're in the middle of doing that right now just to see if we can affect any change in this tax year, right? Because after the accountant CPA sits on it for like a month, you may have a month left and I know most people's ridiculous reason is, you know, going and buying a truck or, or God another truck. Well, I mean, that look, that could still be part of the strategy if they're gonna have a big tax bill. Uh, it, it could be part of the strategy, but the thing is you're not gonna know what you need to do unless you're getting with your CPA, and you're lining up all the investments and, uh, all of the potential K one like that we're gonna be sending, uh, and all that and seeing. Ok, what is the tax liability gonna be, uh, come next year and is there anything that I can do in the next month and a half in order to reduce that?

Because once you pay those taxes, they're gone forever. So if there's anything you can do to uh hold them off another year, uh or put them into the future, then that money can be invested or it can earn you interest in the meantime, and it'll be, be better than just giving it, giving it over to the government. Yeah. And speaking of K one, for next year, I know a lot of our investors have kind of stayed in, in touch with us throughout this year on our ability to hire a CFO. And I'm proud to report that we have finally got our new CFO uh Jim Taylor. He's been with us for a few weeks now. So we're excited to have him on the team and, and having this position has already helped exponentially, but I can tell you, it will definitely help with K one for next year because Jim's first order of business, our new CFO was getting our uh tax prep, our kind of finance to review that we're talking about right now done for us. Um So we can have all that information over to our CPA S faster so we can get our Kate ones out faster. That's a massive priority for us to let people know. We sent the information, the financial information uh last week or this week.

And um, that's in preparation of the K ones and then at the end of the year, we can get the rest of the information to them and K ones should be out. So, so can we guarantee our investors that they're not gonna have to wait until summertime to get the K ones this next year? I can guarantee that it won't be summertime. That's the guarantee I'll make. And so for any of uh any investors that invest with precision equity, uh I believe that we get all of ours out before April 1st and that that's the goal. So then they have a couple of weeks to get their, their taxes finalized for April 15th and I uh hope that criteria can do the same. You and me both. Alright. And so the next thing we want to talk about is uh we have gotten into a lot of positions and we have a lot of investors invested in a lot of deals and a ton of those are gonna be exiting next year which is gonna be exciting. We wanna tell you that because we want to help everybody plan uh as these exit, you're gonna be getting your cash and you're gonna be getting profit And so if you don't get that profit and that, that cash reinvested in order to start getting more depreciation, then you're gonna have a huge tax bill come at the end of next year.

And so, you know, we wrote down several of them that we think are gonna exit next year just to uh for all the investors that are listening. If you hear the one of the deals you're in, make sure you're thinking, ok, I'm gonna be I invested 100 grand. They're gonna give me back 100 and 50 100 and 70 grand on that deal. Maybe you're invested in two or three. You need to be thinking I need to be able to get that money placed before December 31st of next year in order to uh reduce that tax bill. So we made a list, we've got 11 on the list that we think will sell in 2024. Um So why don't I go through here, Braydon? Why don't you just give a like a one minute summary on each one or like, you know, 10 or like 30 seconds, 30 seconds, maybe. So uh number one Burleson Burleson Burleson. Yeah, so this is a ground lease and a multi-tenant strip center. The ground lease is Hawaiian Brothers and there's a bunch of other tenants in the multi-tenant strip Center right now. The buildings have been demoed. Um Those buildings contain Asbestos, there's mandatory waiting period before we can go vertical on construction. Um But we should be going vertical literally any day. Now. Um that asset will be done and complete next year and should be on the market end of Q three, maybe Q four.

So this one will definitely be towards the end of next year. Ok. All right, Princeton, Princeton. Um This is six different pad sites. We've got Chipotle that we're delivering now should easily um be on the market in Q one if not before the end of the year. Um There's a seven brew ground lease should be on the market in Q one of next year. There's a sell and go ground lease that should be on the market in Q one of next year. There's a pad site that is in contract to sell should close early next year. I'm not sure exactly when and then the two build the suits, the fat burger and the learning experience should break ground right at the turn of the year and should be um done and complete to be on the market by end of Q three, beginning of Q four next year. And both of those are in the Dallas Fort Worth area rights. And Princeton. Princeton's like 2020 minutes east of mckinney, which is like 40 minutes north of Denver. Burton is just about 20 minutes south of Fort Worth. All right. And then two in Owosso Smith farm one, Smith farm two. Yeah. Smith farm one is done. Seldon goes to open the multi-tenant retail strip center. The tenants are in their build out phase. Most of them have rent commencement early next year.

Both of those listings are signed. Seldon goes actually on the market. Um The multi-tenant strip we had mod pizza back out. They're honoring their lease. They just asked us to re tenant it. So it's fine for us operationally, it'll just ding us on the exit. So we're trying to re tenant that um but overall, both those assets wouldn't surprise me if they were sold or in contract to be sold. Um In Q one, um the second one, right? So Sal and Go multi-tenant Strip, then we have Chipotle, that wasn't us. The other side of that is our build to suit Pickle's. Um that is almost done. We're about to turn it over to the tenant for the tenant improvements here in about a month. They'll have it for 60 to 90 days and should be open at the end of Q one next year. Um But yeah, that will be on the market end of Q one next year, beginning of Q two and then the ground lease we delivered over to Taco Casa. Same exact thing should be on the market end of Q one, beginning of Q two next year. Ok, great. Uh Ring Creek, another Dallas Fort Worth area project. Yeah, this is like uh you know, Infield Dallas kind of like around Arlington. Um you know, closer to Dallas. But anyway, it is a build to suit Starbucks and a multi-tenant strip center with Shipley's Donuts, which we actually had the pleasure of, of going in one for the first time in Jacksonville.

So that was a cool concept. Um, doughnut shops similar to like a Krispy Kreme or something with coffee. Um, there's a liquor store, a smoke shop and I believe, uh, Verizon or an AT&T, um, construction is underway. We, uh, have been working on the, the grading and the civil stuff utilities for the past several months. Now we're starting to go vertical. This is right across the street from a QT, uh, quick trip and, uh, a massive highway. We're actually buying some more land right around the corner, I believe. Ok. Um, Nucky's hoagies. Where's Nucky's hoagies? I can't remember. Nucky's hoagies is actually in the Princeton, uh, development group. Ok. Different pads. So this is all predicated on the 70,000 square foot grocer kind of being built behind us. Nucky's hoagies was funded a couple of months ago. We're about to close the construction loan, um, here in a couple of weeks with the Bank of Kremlin, they did the Marine Creek loan for us too. Um, they're actually based out of Enid, they've been great to work with actually. Um, anyway, that should break ground, you know, end of the year, maybe January, maybe a little sooner. Um, probably six months to go up.

Um, I would expect it to be on the market end of Q three, beginning of Q four next year. Ok. Two in Nevada. The perfect auto and the Carson City gas station, perfect auto is probably gonna be in the market like today. Um Yeah, because yeah, perfect auto is gonna be listed immediately if it sells before the end of the year. That would actually, I mean, I'd like to have it, you know, depreciated. Yeah, I'd like to have it this year and then when it sells and we get capital gains tax, I want that to not be due until the first quarter of 2025. Exactly. Exactly. So, we'll, we'll push for that. Um, yeah, so that's, that's a great little deal. We reined it already signed the listing agreement. So, yeah, we'll, we'll sell that Q one of next year. We think maybe Q two. Um, the Carson City Gas Station will close on at the end of this year. Right. So that's, we haven't closed on it yet. We're raising money for it now. It's a super low equity raise. So we probably aren't launching it now is a good time to say if you want involved in that deal, just like, call us, email us whatever, you know, get in touch with us. We're not gonna launch it. Um, anyway, that is a ground lease to a gas station.

Um, so that gas station owns all of their other sites. They have a right of first refusal to buy it and then, um, we can take it out of the market. So we think that'll sell really quick as well. Um, Q two QQ three of next year, probably. Ok. What about the Slidell Louisiana pads? How many do we have? Three pads there? Three or four, depending on the, um, right now we've got three that have interest and, you know, we've got one PS A for a purchase, maybe two for a purchase, right, the car wash and o'reilly's are wanting to buy and then the ground leases from take five, the oil change concept, not the car wash. Um We countered that we were pretty close. So I think we'll get a deal done there. Um The thing is they have like 100 and 80 day contingency periods. I think o'reilly was even longer. So we won't know until a decent apart or a decent amount and into next year. And, and that's really the biggest challenges challenges we're facing with vetting these opportunities is the upfront timeline to get to get them vetted. You know, o'reilly's is a great operator.

It's got a decent sale price, but like to string us along for six months before we even know you almost need a premium on that. So, I don't know we're negotiating this out. But yeah, a lot of uh one or two of those pad sites if it's sold next year would not surprise me at all. And as those pad sites sell, we'll be releasing funds to investors, right? It will be a return of capital, not a return on capital. We probably need to just preface that with. We're not sure how much the lender is gonna keep or do they say they're gonna let us sell them? This one, this one is a home run. So we actually got this appraised. We purposely carved out the pads from the appraisal and Louis Louisiana National Bank said we could keep all the proceeds from it. I believe we got it in writing. Uh This was one of those things sometimes you get what you ask for. Um And Andy asks for amazing things. So, uh pat of the back to Andy for getting that done for us. Ok. Uh Next one Grand Prairie learning experience. Um Yeah, we should break ground on that. Um End of the year, beginning of next year, we're probably eight or nine months up and then we can get it on the market next year. So if it sells next year, it would be great. But uh it would be tight, you know, could, could sell it next year.

Same thing with the um the Children of America and the last one in Fort Worth. Yeah, and that's an upcoming closing. Um That's probably the next deal we're launching out to the investor list. So, uh uh you know, we just closed. Perfect auto didn't launch that one, unfortunately. Carson City Gas. We're kind of like behind the scenes, fundraising right now if you want involved, hit us up super small equity raise. Um The Children of America in, in Fort Worth is um, closing December 11th. So you'll probably see marketing materials, legal docs come out on that the next week or two. Um And then the last thing we're closing this year is, you know, if you follow us on Instagram, you probably saw this amazing site that we toured in Jacksonville. I know we shared it on the podcast last week, but that site's gonna be a home run. I think we're closing that towards the end of the year. Again, we're probably eight months up out of the ground. I believe we are fully entitled. I believe we even have all of our permits by everything. Austin was telling us um, last week at the site. So, yeah, eight months up that Starbucks could be on the market. Q three of next year. It's tax-free state. It's Jacksonville, Florida, which I'm kind of regurgitating this.

But Jacksonville, Florida, I, I was told the main interest in Jacksonville is, it is just like one of the largest cities by land mass in the entire United States. Fun fact known share. So I ha I have to do some research on that and fact check it. We'll have to remember to bring it up next week. So, so this, I'm putting you on the spot here and there's no telling how many like Sli Dale Pads would sell any idea. All these sell in 2024. What the total amount would be to me the list. All right. All right. While he's adding that up, I wanna, I wanna talk a little bit about, uh, you know, Braden mentioned like the Carson City deal, we're not launching, uh, we're, we're just gonna privately place the, the funds with investors that have already let us know that they are gonna invest. And so that brings me to the point that I wanted to talk about today is we're, we're trying to plan ahead for next year. You can see all the stuff we have going on and we're getting more and more investors on the list and you know, we don't really have visibility on uh how many of these people want to invest and how much they can invest.

Uh And so what I would suggest is if you want to make sure that you get into deals, uh We'd love for you to hit us up and just tell us, hey, I'm interested in investing uh on the next deal or on one of the next deals and I have X amount of dollars to invest. Um How, how that will help us is, you know, let's say we have a few 100 people that are on our list, but they've never said they want to invest. They're just waiting for the deal to come out and then they push the button that says invest. Well, the problem with that is, is that we'll, we'll put out a deal and we'll, if we have 50 people or 100 people say they're gonna invest, we can't get everybody in and then we end up disappointing a bunch of people and we don't have visibility to how mu how much funds are out there that want to get into these deals. And so if you are interested in investing, uh let us know that, hey, I'm gonna get in one of these next deals, ok? Now we know we've got uh the number of investors, but the next thing we need is for you to tell us, hey, I, I've got, you know, $300,000 in the next year that I want to get into real estate and maybe that's three deals, maybe it's five deals that doesn't matter.

We're just trying to get a handle on how much capital uh that is out there that wants in these deals so that we can go and try to find deals that, that make that fit that, that capital stack. Uh And so it'd be really helpful if you guys want to do that and it'll help us uh go find the appropriate deals where we disappoint less investors and we're not having people fight over getting in these deals. Um because our challenge is, you know, do we chase that $20 million deal? It's got a $4 million equity raise. What if we can't raise it? And we're gonna spend six months of time and maybe $100,000. Yeah, it's expensive to, to chase the stuff. And, and so what we typically end up doing because we don't have the visibility that I'm talking about is that we end up getting smaller deals that we can just, we know we're gonna fill. So then our time hasn't been wasted, our upfront money hasn't been wasted. But once again, it, it leaves a lot of people out of deals. And so that's why I'm saying that this could help us. So if you're a, a podcast watcher, if you're on our investor list, shoot us a note and just say, hey, I am definitely gonna invest in and 2024.

And you know, I'd like to get into three deals and I'd like to put 50,000 into each deal. Great. There's zero obligation to do that. I mean, like, even if you told us that you were interested and you had that much money, but you didn't invest any money in 2024 that's still fine. Uh It doesn't hurt though to just go ahead and say what your objective is that way we can plan accordingly and try to get as many people involved in commercial real estate as possible. And there could be some people out there that have decided they've been investing with us for a while and just say, ok, I want $25,000 on every deal. I don't want to miss one. So just put me down, just know that I'm gonna be in for 25 or 30 or whatever and then they don't have to worry about whether they make it or not. Right. That's a great plan and, and I'll use ourselves as an example. You guys, we do this, ok? Uh Rayden knows that, that Ryan and I are putting $50,000 minimum in every deal that we do. Now some deals I may say I want to put 200 in but, but as a standard, we're all putting in 50 roughly 50,000 at a deal. So that means that 100 and 50 is just gone right from the start of some of these and sometimes equity raise is only 500,000.

So 35 40% could be gone right at the beginning. Um So yeah, if you guys wanna do that, then we can add up, then we know, ok, every deal we do, we got, we got a half a million lined up. We need to find bigger deals or we need to find more deals and it never fails, you know, the the $25,000 investor on every single deal and then you send him like the next deal and he's like, yeah, I'll take 400,000. Of course, you will. Jeez, you just messed up everything but thank you, you know I'll take it but everyone else that sucks. Alright. Uh last thing for today because we gotta get out of here is that uh in the next week or two, we're gonna be doing a cold plunge podcast. Uh and so uh you guys are not gonna want to miss that episode. We're gonna be talking about the benefits of doing the cold plunge and and we're also waiting for it to get colder because Brayden it's not cold enough yet. It's 70 degrees today. We would have done it today, but it's 70. We pull temperatures. What? 60 still? Yeah, mine's upper fifties but we would love it to get down into the f even forties, uh, just to make it as painful as possible. So, anyway, stay tuned for that. Yeah. Ok. And Rayon, what'd you come up with the total amount there?

Yes. So big disparity here, you know, back the napkin math. But somewhere in the range of 60 to $70 million we can easily exit next year. Now, the problem is gonna be is that's gonna give people roughly 100 and 50% of their equity back, uh, that we're gonna have to turn around in place. Uh, so we're gonna be really busy next year. We may have to think outside the box and find some bigger, uh, bigger opportunities where we can handle some of that equity. Yeah, I think next year is a big question mark. I mean, not only for us but for a lot of people. Right. We've got a lot of stuff we can exit next year. We've got a massive pipeline, at least through the end of the second quarter. Next year of, of just acquisitions. We've been targeting interest rates are a big question mark. Inflation, jobs are a big question mark. Next year is an election cycle. So, yeah, could die. I mean, we got a plan for all of it. It's the most plausible thing you could have said. That's not even like, ok, we'll see you guys next week on how to invest in commercial real estate.