From W-2 to Financial Freedom: Preparing for a Career in Commercial Real Estate

In this episode, we discuss building credibility with brokers, our latest $10 million shopping center acquisition, securing financing and investor relationships, and preparing to transition from a W-2 job to a career in commercial real estate.

Uh you need some credibility. So go in knowing a lot about what you want to do and, and make sure that you know what is going on before you talk to that broker, right? Or just call Joel or call Joe Joe's a broker. I'm just kidding. Yeah, for a few 100 an hour, I'll, I'll help you with everything. All right. What is up and welcome back to another awesome episode of How to invest in commercial real estate, self-proclaimed. Awesome episode. No, man. We're the best commercial real estate podcast in Jinx Oklahoma. All find one better. Why don't we give them some information then? What are we talking about today? Well, we've been working so long to get um our new acquisition closed. It is an acquisition of a shopping center right next to Target in Saint Louis. It's actually in Florissant, Missouri. Um It's got an out parcel that we are hoping to spin off. It's gonna be great investment. Anyway, we're closing that Wednesday. So last minute commitments, we may have room reach out if you are interested, but we've been working on that one a few months now, 11% cash on cash or 11.5%.

Over 18%. Irr, I think we mentioned irr, a touch high. Last show. It's gonna be, I think 18 and a Halfish target. So, like you said, we've got a deal over over $10 million target and Aldi right next door, we've got, yeah, it's got great tenant mix. 100% at least. Panda, uh Chipotle, Alta Petco Marshall's American Freight. Did I miss any Michael's Michael's? Um so solid National Companies. It's a winner. I flew out there. Did you guys fly out there? I, I did not. That's what I thought. I don't fly out anymore. I took Joel's advice and, oh, come on. I know I didn't know I gave advice on it, but that's great. I met Jake from State Farm out there broker helping us out with the deal. Thanks, Jake said the deal dude. Every time I hear his name, I think of that stupid commercial. Me too. Great adverts. Do they have khakis and a red shirt on? Well, ok, what else we got coming up? Any, any other deals coming up? Uh Yeah, we're buying a shopping center. I was about to call it something else but I stopped, we were buying a shopping center in Amarillo, Texas, maybe one of the only shopping centers in Amarillo, Texas.

But it's a good thing. It's the only one. Yeah. Andy actually just left there. He, he spent the past couple of days had two canceled flights, had to drive to Amarillo. So that hail sucks to drive home through a few hail storms. He was on a conference call this morning saying he's holding his windshield in from caving because the hail was so hard, he's passing, you know, flipped over 18 wheelers and he's just on a conference call. His car get trashed. I don't know, he just hopped off. Seriously. And it's like, uh, did the hailstorm get him? I guess so. Anyway, uh that deal is a cash flow and shopping center. It's modeling up really good. We, we got a really good basis in it and we think we can raise the rents just because it's so expensive to bring new supply to the market right now, especially in Amarillo. There's, there's not a people, a ton of people in Amarillo. So a lot of sticky tenants and we think we can get some good rent increases there. When do you think we're gonna be launching that? Because we, we do not have that up on the website yet. We don't um realistically a couple of weeks, 23 weeks and I think we're closing July 8th July 5th ish.

Nice. Yep. So excited about both of those deals. We're bringing back the cash flowing shopping centers and we're making them work at uh in a high interest rate environment. And so what's really gonna be uh compelling is when rates start to come down a year, two years, even three years. Uh We'll be in a really good position to increase cash flow refinance, pull cash out and hopefully the lower rates uh push prices and values of the centers up. And just even in the short term, I think a lot of the retailers are still expanding and, and doing well. And like I touched on earlier, it's so expensive to bring new supply to the market that rent is going to have to increase just because there's gonna be more competition uh for those spaces. So anyways, without further ado our topic for today, the topic for today is how to prepare to leave your W-2. If you've been watching our show, you think you're ready, you wanna do some deals, we're gonna talk about what you need to do before you leave your W-2 job.

And I actually uh not to be presumptuous, but I, I think that should be a goal of everybody in life uh is to say, hey, how am I gonna transition? And I know people that say, well, we do have that goal. I wouldn't do that when I'm 70. Ok, great. But uh everybody should have that plan of how am I gonna transition from my day job uh to working for myself uh or living off my passive income. And so we just want to talk through, you know, uh kind of thinking in terms of how do I get commercial real estate to help me on the exit So I, if I was contemplating this right now, my first question would be Brian, we already discussed. It's for people younger than 70. Ok. I would first, I would, I would go ahead and accept me my um social security check. I would sign up for that. Um No, actually, uh my first question is, am I gonna have enough money like in savings or coming in or how am I gonna, what am I gonna live off of? Yeah. What are you gonna replace that W-2 income with? What are you gonna replace your job with? Well, uh, commercial real estate, hopefully. But, uh, but, but, you know, that's the end game.

Let's, let's start them with, how do they get started in building that income or that savings in order to, to be able to, you know, even consider leaving? Yeah. So we've done a podcast on how one deal can change your life. It's really kind of there, right. So we need to be able to figure out how to buy a deal or several small deals or, or starting to get in the game of buying things before we get the, quit the job. It's, it's very practical that we could buy something before we quit our job. Maybe again, several smaller deals. Um, and, and to do that, you're going to need, right? You're gonna need lenders who are gonna give you the majority of, of the capital to buy that deal and you're gonna need investors so you can start talking to these people while you have a job. So to me the hardest uh relationship is the lender relationship because they don't want a loan, uh give loans to people who don't already have real estate, right? They don't wanna do commercial real estate loans without real estate. So how do you, how do you establish that lender relationship? How do you get, how do you get a loan? It's just focusing on the amount of money initially, right?

The lender is giving you 70 80% of, of the money. So they're, they're gonna be a little more difficult and yeah, they're, they're looking for a balance sheet. They're looking for uh some sort of collateral to shore up the loan. It's the reason we put lenders number one is because when you go to buy your first deal, uh you can't do that after you quit your job and say, ok, well, I don't have an income and I don't own any commercial real estate, but I need a loan on commercial real estate that's not gonna work for you. So we recommend uh establishing relationships with, with a bunch of local lenders. Uh because your first deal probably is gonna be a smaller deal. You're not gonna be able to get institutional money and start talking to them. Hey, what size of a deal can you, will you loan on based on uh my, my current situation, my current W-2 income. If I got this two tenant shopping center, it's really small cost a million dollars and I need an $800,000 loan on that. How do you know what does that look like for you and the more relationships you, you develop? They're gonna tell you, hey, this, this is what we need in order to get that done.

You know, I, I can't loan you $800,000 even though it looks like a nice deal because you don't have any net worth. You need this net worth in order for me to give you that, that first loan. Ok. Now we have that, that target or uh hey, I need a cosigner. Uh you know, on your first deal, I want to see a cosigner someone either has experience or someone that, that can bring some net worth. Well, at least now, you know what you're, you're looking for you, you know what you need to get in place so you can close on that first deal. But until you, you meet with lenders and they assess your financial situation, your credit score, your assets, your income, you're not gonna know. So lenders are number one, here's the beautiful thing about that too because in the beginning, I personally hated that. I mean, it's, it's weird you feel like you're asking for money when you know, you don't have it, even though that's the purpose of, of getting a loan and you think you're, uh, almost like bothering them and taking up their time. And then it, it's, I clicked one day and I realized they get paid when they, when they lend money. So when you're, when you go to them and ask for money, when you ask to lend on a deal, they're excited, they're building up a future customer. They're, they're building up a future real estate customer that they're teaching how to, to lend and borrow money from that bank.

They, that's their job. They're getting bonuses and they're incentivized to do that. They wanna, they wanna lend you the money. I got a, I got a suggestion for everybody listening is if you're scared about having that call, if you, especially if you're in Tulsa, hit us up, we'll introduce you to several lenders here in Tulsa. That will shoot you straight. That will tell you exactly what they want to see from you in order to loan on your first deal. If you're out of town still, we can, we can help you find local lenders and I'll have that first conversation with you and help you kind of navigate through that. You're such a nice guy. What's the next one? So, uh next is establishing investor relationships? Yeah, great. So now, you know, from the lender, what you need, uh as far as equity uh is, you know, as far as money in the bank and all that, but where's the down payment coming from? That's the next question the lender's gonna ask you that's gonna come from your investor network. And so look, guys, it's gonna start with friends and family uh for lack of a better, you know, idea. That's what, that's what it is. But you gotta start having uh conversations with people saying, hey, I'm getting into commercial real estate.

OK, great. Uh Was that something you might be interested in investing in? Uh and if they say yes, talk them through? Well, what kind of returns would you, would you want to see? What would get you excited to put your money in a deal? Uh How much investable money do you have available? You know, is it, is it 25,000? Is it 50? Is it 100? What kind of properties are you interested in? Would you be interested in? Yeah, what kind of properties get you excited? Would you want to make sure it's here in this market? Can I look nationally whatever? And if you start with friends and family, most of them will be pretty honest with you about the situation. There's that works. It's great. I mean, I would, I would start with, hey, what are you interested in? Maybe, but I would also kind of lead them, maybe ask some leading questions like, hey, if I were able to acquire a shopping center like this, a small two tenant building for a million dollars and I could get these returns. Would that be something you would be interested in. That's, that's a good point. A great line. A lot of the investors, they're not, they not gonna know they don't know commercial real estate. So they're not sure that's what they're relying on you for. You're the expert, they're not sure what kind of returns they can expect or what kind of properties that are available. So, yeah, a few leading questions probably would be no great points because by this time, if you've talked to lenders and you're considering trying to begin your investing career in commercial real estate, you're thinking I wanna quit my job eventually.

Uh You should be able to model a commercial real estate deal. If you can't model a commercial real estate deal, you do not need to be asking people for money to clarify. You shouldn't be meeting with investors if you can't, if you can't model it. So you should be able to just pick random properties on the market, build the model and see what kind of cash on cash you can give deliver, see what kind of returns you can give investors. And that way when you go to talk to them, you're at least knowledgeable enough on, hey, if, if things go the way, I think they're gonna go and if my model's good, this is the return you can expect it. Yeah. Would that be interesting to you? And also if you can't do a model call Joel and he'll help you with the model. Absolutely. Yes. It's, it's very important that you just pick a deal and go through it. Right. So, even if you don't buy that deal, even if somebody else buys that deal, you stick with the deal because it's a great example. So you go to that lender, you get a prospective loan, you, you underwrite it because you can't finish your model, underwriting some sort of loan anyway. So you take the rough term sheet, you take the model, you take the offering memorandum, you know, on the deal and you put all that together and then you just have a brief pitch deck, have a brief conversation with tons of investors.

Hey, I've been able to talk to this lender. I've been able to look at deals like this. We we missed this one or we still have the opportunity for this one. But again, if we were able to get something like this in front of you and we had a reasonable timeline to, to get you comfortable with the lead documents, could you give me 50 or $100,000? It's a very simple conversation. You try to go get as many nos as you can, you'll accidentally get a few $100,000 maybe a million, maybe more. We had, we had a third one. Yeah, so you're gonna need help finding deals probably. So the third one that uh we like is to establish broker, relationships and relationships with Joel. Yes. That's right. That's, that's number one. So it's great because you don't want to get in a situation where you quit your job and, and you gotta, you gotta hunt really hard just to find available deals. So, uh, kind of before all of this, you've got, you've talked to banks, you know how to model, you've talked to investors. You, you kind of have an idea of money you can raise. Now you wanna have a source of deals flowing in where you, you have access to tons of deals that you get to pick and choose from. And so establishing broker relationships uh is probably the best way, but also getting to know all the commercial sites uh that, that list commercial real estate uh like krey.com and 10 X and Loop Ned and you know, there's bunches of them.

But um that way you're, you, you, you kind of have deal flow ready to go. Yeah, I think an important thing on dealing with brokers is you need to know what you're talking about though, right? You don't wanna hit a broker, doesn't wanna waste his time, he doesn't want to waste your time or her. So, uh you need some credibility. So go in knowing uh a lot about what you want to do and and make sure that you know what is going on before you talk to that broker, right? Or just call Joel or call Joel. Joel's a broker. I'm just kidding. Yeah, for a few 100 an hour, I'll help you out with everything. Uh, uh, yeah, I mean, deal flow is important and it's, it's hard to get good deal flow, I would say because you can't just sign up and get every deal in New Jersey and California and all these states that you're not in the first deal probably needs to be somewhat close to home. It's probably gonna be with the local bank. It's probably gonna be with local investors that can drive to that building and make sure you're not a complete idiot. You know, we're first deal, right, guys. So that first deal, you need to know the market, you need to identify an area in an asset class where you're like, I have a lot of investors interested in that, whether it's retail, whether it's industrial and you're gonna know, ok, this is a good retail area that I can afford and you just watch and hunt in that area.

If things are trading and if it's a small area, you find a broker who's bought or sold shit in that area, it's very, it's like, look at the previous data that tells you everything. And then you can see, oh, there's all of these deals that have traded in the past year. I could have bought some of those, you know, those Pencil II I made some of these deals work, you know, if that industrial building sold for a million six and it's got these tenants in, I bet I could have made that work. There's a lot of ways to identify it. And again, it's gonna take some time and, and you're gonna have to be able to speak to the market and why you chose the deal. And that time you spent in the beginning, um researching and looking for the deal will help and empower uh and drive a lot of that data and knowledge that you'll need to convince the lender and your investors and yourself uh to go and do this first deal. That's a good point. If you, if you just found, you know, the handful of brokers that, that uh that focus on retail in Tulsa, let's say, and there's, there's only, you know, probably a handful of uh apartment or multifamily brokers if you just had conversations with those and ask them, OK, can you give me a list of all the apartment deals that have traded in Tulsa uh over the last two years and the price points?

So now you can go drive those apartments, you can see what price per door, the cap rate, the cash flow they had and you can back into a model and get, you know, get pretty familiar with. OK, this is what deals are trading for in my market. Uh That'll give you so much knowledge to evaluate the next deal that comes out on the market. That was a good point. And, and the underwriting of your apartment complex that you're acquiring right now, right? There's an apartment complex down the street that's sold for more than your acquisition basis in this one that you're acquiring, that's a good data point to have for your lender, for your investors. Everyone wants to know that like, ok, we've got down protection. Our basis in this seems to be lower than the market value. And if you uh brokers are such a good source of information, if you had a deal that you were considering, you could, you could, if you had a little bit of a report, say, hey, Joe, Joe, the broker, can you, can you take a look at this? I'm looking at buying this at this price point. Uh Here's my model. What do you think based on the comps that you've seen based on the deals that you've sold? Is this a reasonable price? Is this, you know, and they're gonna tell you.

Yeah, I think that's great. Or that area is a little bit tougher and they're gonna give you some great insight and they, they should be an honest market professional. Uh So should be, but in case they're not get a few of those opinions. So, uh maybe Joel, we could wrap it up with, uh, everybody's situation is different, but maybe you could, uh because, you know, you actually did that, you had a W-2 job, you started buying commercial real estate and then you quit your W-2 job. Tell people like, how long did that take or what did you do? Can you kind of summarize that? Like I said, everybody's situation is different but maybe you could give us your, because you didn't have a Joel, you didn't have a Joel. We like all the viewers have to call. So how did you, who did it? Well, so the last point we were gonna make on, on quitting your day job is uh you know, my personal opinion, you don't have to replace your income, but you do, you should consider replacing your expenses before you quit roughly, right? Uh So let's say, you know, you, you make 80,000 or 100,000, but if you really pinch some pennies, you could probably live on 50 or, or 60 let's say, OK, that that should be your target.

I don't know that I would want people to quit their day job before they had that kind of income coming in passively. Um And so that's what you gotta focus on on building for me. It took me longer because I, I started so slow. I didn't even own a home when I started, I bought a, I bought a rental house before I bought my own home. And so my journey and, and I made a lot of mistakes because I didn't know what I was doing. So my journey was a long one. I started investing when I in 2000. Uh 3. I think it was the first year I bought, I purchased a house and I didn't walk from the W-2 job until 2014. So 11 years, uh but if I had started on commercial earlier, then I may have, I may have cut that down in half. Uh So yeah, this isn't gonna be, you know, a six month journey. But if you got after it and got a couple of, uh you know, closing a couple of deals, it could be a 1218 month on the, on the early side, got after it. I love it. Well, I mean, ok, hilarious Braden. Yeah, get after it. Uh my, my suggestion would be set a target of passive income and then uh based on your situation and how uh the investors you have access to and the, the lending situation that'll dictate.

Ok, what deal can you do? Uh you know, uh you know, a million dollar deal is, is, you know, may flow, you know, after your loan, let's say it's Kessel's 30,000, I'm just guessing. And you have, you are able to get 30% of that because of your, you know, GPS GP share. Ok, so that's 10, that's $10,000 a year. Ok. Well, you need four or five of those, right? And then you're in, you're in the game and so just planning that out. Uh but you know what, what we don't, what we don't suggest is you do your first deal and you think this is easy. Uh And you're maybe you're making 1520 grand on that and then you just quit your job. You're not covering your expenses. Well, now you're under pressure and you know, this game, you never know what's gonna happen because you're a little bit at the, at the mercy of market flux. Uh, the market could downturn, interest rates could go up or down deals fall out of contract all the time because of issues. And you never want to be in a position where you're under pressure and you're like, well, I, I gotta close this deal anyway, I know the, the, the condition report didn't come back clean. But, but I, you know, I get fees when I close this and I get past.

So I gotta make it work under pressure or, you know, it causes you to cut corners because you're, you're under pressure to cover your expenses and you think that, ok, one more deal and, and I'll be able to pay my bills next month. That is not how to go about doing this business. You, you want to have that passive income because then your, your expenses are covered. So then you can wait for the deal. That makes sense to you. And uh and I think that's just really important. You're patient and, and you make sure it's the right fit for both you and your investors. Great advice. What else cover it? I think everybody knows how to, how to leave their W-2 job and how to quit your job, how to quit your job. So, equally important. Right. Depending on your salary, there's a lot of people who don't necessarily want to be the sponsor or want to own a, a deal by themselves. There's, uh, an equal way to do it again. If your salary is big enough and you can invest enough cash to just replace your expenses with passive income through investments with uh other parties and just as a limited partner, right? And then you don't have any responsibilities whatsoever.

You've replaced your expenses or your income or, or surpass that and you can still quit your job. So equal, equal alternative way, that's way easier. You just have to earn more money from the W-2, the high income earners. It's, it's so much easier for you because I, what I understand about high income earners is they also have high expense lifestyles. And so what you can do is, is twofold there is, I'm sure you have investable income if you're a high income earner. So you can invest that and start earning passive income that way. But you also have the ability to cut your expenses if you so choose, you don't have to have a massive lifestyle if you're really wanting to quit that, that job where low income earners tend to have lower expenses and there just isn't much room to cut if you're making 50 grand and your expenses are 30. I mean, it's, it's really hard to cut 30 down to something else. Uh, so those people are gonna be able to get out of the game a little bit quicker anyways. That was, that was a really good show. That's exciting. And we will catch you guys next week on how to invest in commercial real estate.