Walk 2 Wealth Ep 81 - 3:26:23, 12.29 AM

[00:00:00] This is Walk to Wealth, episode 81. The Journey to Wealth is a long walk and some may walk quicker than others, but what good is sprinting to the finish line if you pass out when you cross it on Walk to Wealth, we enlighten and empower young adults to build wealthy abundant lives. They say the journey of a thousand miles begins with a single step, and your first step starts right now.

[00:00:26] This is Walk to Wealth with your host, John Mendez.

[00:00:33] Before we start this episode, you know, I gotta give my shout out and today's shout out goes to everyone that signed up for the first Step to Wealth Virtual Summit. This was my very first summit. It was a lot putting together a lot of work, went into it, and I can't wait to tell you guys all about it in my March recap episode next week.

[00:00:50] But without further to do, let's get right into this episode. Have you ever thought about investing in real estate? What about commercial real estate? Well, if so, I [00:01:00] have the perfect guest for you. In today's episode, I brought on Brad Shepherd. He is a commercial real estate investor. He's been in the commercial real estate space for over 20 years now.

[00:01:09] He has his own rental portfolio and he has done a handful of flips of his own. He has tons of experience in his space and he has tons of experience in entrepreneurship. He started super young, but it wasn't always this. I mean, going back that far, man, I'm, I'm number eight of nine kids, and my dad was a high school teacher, so things were tight

[00:01:30] It was, it was, it was never, it was never, like, there wasn't food in the kitchen, but it was, it was. You had to, we weren't getting name brand clothes or . Find the latest pair of Jordans or anything like that. But somewhere along the way, I had this idea, like, I wanna make millions. I wanna see my name in Business week.

[00:01:45] And I'm, and I'm like, from small town, farm country, Utah, right? Like , I wanna, I wanna see my name in the Wall Street Journal. I had this idea like, I'm gonna, I'm going, I'm gonna make it outta here. And how was I, I was gonna do that. I had no idea. I was selling chicken eggs, I was selling, selling golf [00:02:00] balls.

[00:02:00] I was, I was doing everything I could to like build up my dad and I actually built up pretty good landscape business. So I had this idea like I could put together some, some business. Finally, somewhere maybe high school, I got the idea of real estate. I'm gonna do this through real estate. I, maybe I read a statement somewhere that more millionaires have been made through real estate than anywhere else.

[00:02:17] Mm-hmm. , I can, I can do this. Um, so I went to college with that, with, to do a finance degree with a goal to get into commercial real estate. And that's what I did my internship in. Did a internship with, uh, in between my junior and senior year with a, a company up in Seattle that was wheeling and dealing skyscrapers and shopping malls internationally and domestic.

[00:02:37] It was a blast. I loved it. I came back from that, finished my senior year, and life took me down a different path. I ended up staying with a small little company there that I worked with my senior year, and it ended up being a good move for me, but different path than I had initially intended. , but even though it was a different path, I still was able to stay involved in real estate.

[00:02:56] We'd started doing some vacation rentals before Airbnb was a thing. We were doing 'em in cool [00:03:00] touristy towns back east. Mm-hmm. , uh, we, we built a hotel and a, and a retail cafe that we were able to Yeah. I was able to help raise funds for and be involved in every aspect of that development and construction.

[00:03:09] And then after we, we, I, we sold that company back in 2009. My wife and I moved to Texas and I started doing some more of the typical more residential type of, Fixing and flipping wholesaling, et cetera, and did that for a while and realized, man, why am I doing this? I, yeah, I don't like this stuff. And so it, it was kind of this, what do I wanna be when I grow up?

[00:03:31] Kind of a moment. And it was, oh yeah, commercial real estate. How do I get involved in that? And that's what led me to my role today. Where do I been focused on since 2017? You brought up some pretty interesting points, Ron, in your story, I kind of wanted to ask you, Ron, before we really get into today, is a conversation.

[00:03:45] The first, you mentioned selling chicken eggs, so talk, when people talk about entrepreneurship is the lemonade stand, it's the, the paper route you were selling chicken egg. Can you tell us a little bit about what was that like? Yeah, man, I, I grew up, I would say it's a farm, but we, we had six [00:04:00] acres, had a couple horses, a bunch of chickens, Turkey.

[00:04:03] A goat that thought it was ours, . And we lived on a pretty busy road. So it was the idea of, hey, we've got all these eggs, we've got extra eggs. And my mom was a piano teacher, so people would come to our house. So I get you to put up a sign on the, uh, on the, on the highway, the side of the road there in front of us.

[00:04:18] And we have chickens, a avail, chicken eggs available to, to sell pretty much any time of the day or people could do self-service. My mom's piano students would bring their empty cartons and while they were doing their piano lesson, I'd go out to the coop and fill it up and come back. I can't even remember what, what a charge, four or five bucks for the dozen or whatever it was back then.

[00:04:35] Maybe might have been more like two bucks a dozen. Yeah. . But uh, but yeah, I remember going to the store, the Iffa store and pick buying some chickens from their catalog. They get shipped to your house, which is kind of funky. Little live chicken show up to your house, live chicks, raise those, taking care of those.

[00:04:50] And that was, yeah, that was one of my first, my first ventures. . Yeah. Amazing. And so, and then tell us a little bit about your story. Uh, In college, when you went to the internship, it came back and [00:05:00] life decided to take a, a switch of plans. Right? Right. And a lot of the times when we're young, we're starting off early, it's like we wanna get into something and then we get into something new and and shiny object syndrome kind of takes us over and stuff like that.

[00:05:12] So it's kind of hard to, to navigate the road when you're young cuz there's so much opportunity, so much potential, so many things you wanna try out and do. Take us a little bit through, what was it like during that time when you realized like, hey, maybe. This is something that I need to do instead of what I originally planned.

[00:05:26] What was that kinda like navigating during that time period? Yeah, it was, it was such a cool experience. It was, again, being a small town kid l, that was my first time living in a big city, working downtown Seattle. Had a blast going to the Mariners' games, doing the big city stuff, and realized like, this is where I want to be.

[00:05:43] I want to be involved in this kind of, and I, I got assigned like a section of a spreadsheet for my three month internship. , you know, I don't know how much value I provided to them, and I certainly didn't get deep into the weeds. They, they would, didn't gimme a whole lot of leash, but it was just really fun.

[00:05:58] I, I did realize though, [00:06:00] that it was a lot of, a lot of people and that my who knows the first five or 10 years in that industry would be just heads down in, in spread. I, I came back from that and I felt like I, I had, I had earned pretty, a pretty good amount of money for that. I knew I had enough money to make it through my senior year, but I didn't wanna be idle.

[00:06:17] And so I went and got another student job just to get me through my, my senior year. Mm-hmm. , and I was employee number two in this online retail store, and it was, you know, 2001. So online was still relatively new. This idea of online retail. Yeah, that would be kinda cool. I'd love to learn more about online retail as well.

[00:06:35] Just the internet this new. . And so I went and, and started working with them and by the time I graduated a year later, we had grown that thing pretty well. We were, we were doing several million in revenue. I had a chance to buy in as a small junior partner, and we started doing some cool stuff. When I graduated, we were still in the after effects of nine 11 and, and still after effects of the.com crash.

[00:06:58] And so the job market was just [00:07:00] not great, and I was getting some interest. So the offers I was getting were, again, they were like, okay, you're gonna get a. of a spreadsheet to focus on. Mm-hmm. and I was coming out with a finance degree. The plan was work for two or three years and go back and get my mba.

[00:07:14] So then I could get into one of those. The, and I wanted to go to Thunderbird down in Phoenix, which has a, a strong international real estate program. That was the plan. Okay. But I needed that three year of job, three years of job experience before they would accept you into their MBA program. And so I was looking at finance, I was getting offers from finance departments in like a Sears and a pay.

[00:07:36] and Walmart kind of, kind of places. And again, just sitting in a cubicle looking at a, like a single line of a spreadsheet, I was like, man, I'm, I'm doing some cool stuff here. I'm running this little company. We've got 10 employees at this point. We're we're, yeah, I'm, I'm kind of running every little, every little aspect of this almost.

[00:07:52] I don't know, I, I, how I, I just didn't feel that excited about sitting in a cubicle and staring at a spreadsheet. Yeah. Um, and so just, I [00:08:00] think it was definitely a function as well of just the job market wasn't that great. Right. But it for, for both professional and personal reasons, it ended up being a good move for me.

[00:08:10] Shortly after I, I decided to stay there. We, we launched a magazine. I had a chance to get more, a bigger slice of the company, you know, over years. I had a chance to buy out some of the other partners until, until I got, I owned more than a quarter of the company and the last four years there, I was the president of it until we sold it.

[00:08:26] So it gave me a ton of hands-on, more detailed experience than I would've gotten in a cubicle. Yeah. And that's amazing. A good move for me. That's amazing. And then you ended up getting, finding your way back into commercial real estate, which is a great segue to get into today's conversation a little bit.

[00:08:41] Commercial real estate, it's something that's not really ever talked about. Everyone usually talks about buying, buying, hold, fixing and flipping, family rep holes, Airbnb, stuff like that. But most of that stuff, uh, a lot of the times when people are speaking on it, especially on podcasts like this, it's, it's always in the, the residential space, one to four.

[00:08:57] and you're doing things in the commercial space, which isn't anything. You [00:09:00] are technically speaking over five, I guess you could say, but in the, you're dealing with a much larger property. So my first question, where I wanna ask you to start this conversation off a little bit, is why commercial over residential in terms of getting started in it, because you guys started in it pretty early on, most people think you have to get into residential before you get into commercial.

[00:09:17] You kind of just skipped the residential and went straight. The commercial side of things. So what kind of made the, made you choose that decision there, and what advice can you give to anyone that's looking to get into real estate and doesn't wanna do the residential side of things? Yeah, I, I don't know that I would say I, I skipped, uh, because even, even while I was with that small company, I started buying, buying some rentals.

[00:09:34] Oh, okay. And Pat the rentals. The primary ones I was buying there in Utah were ones, like I lived in a condo, bought it, lived in it for a year, and then moved out and bought another one and, and, and, and piled them up that way. Mm-hmm. , but then we were doing those vacation rentals as well, but then we, we started doing some, you know, we, we bought a couple of cabins up near Park City and rented them out for family reunions and that kind of stuff.

[00:09:57] And it was, it was, it was really fun. It [00:10:00] was, it was a good taste of what was, was the potential out. . When we moved to Texas, I, I didn't really know exactly what angle to go. I knew smaller stuff and so the idea of, but I didn't know how to find fix and flip opportunities, so I actually just went and signed up with a coach and got somebody's basic training how to do that stuff, and I realized, man, okay, you can make money on that, but I really don't like this idea of yellow letters and door knocking and and whatnot.

[00:10:26] It was just not really what I wanted to spend my time. And, and so then it was, okay. I, I like the idea of the more sophisticated elements of commercial, and again, it's everybody pick your poison because, but real estate residential is a little bit more grungy, right? You're, you're door knocking, you're networking like crazy.

[00:10:42] You're the yellow letters, you're dealing with the contractors. Mm-hmm. , you're dealing with the tenants who might be ripping the copper ramp up your, out of your, outta your walls. Commercial is just a different level of, it's more business. It's more, okay, you, you're buying a, a cash. , you're buying a, you're buying a spreadsheet as opposed to a [00:11:00] management project.

[00:11:00] And, and so we, you're right, the technical definition of commercial in residential is anything over five units. So we clarify that saying by saying large commercial. Yes. Uh, generally we're looking at properties with 150 units and above, and the, the attractiveness of that is, I don't care where that's located.

[00:11:20] I mean, I do, I care where that's located, but it doesn't. Right. I can, I can get a set of financials from, from a property in Georgia and analyze it from my, my house here. I now live in Idaho. Yeah. I can analyze it from here. No. Okay. That's, that's an attractive deal. Or it's not. And I can get a really good idea of whether I wanna pursue this thing from Google Maps and, and, and, and talking to the broker as opposed to if I'm gonna go buy a, a duplex, it's, it's a much different, different conversation.

[00:11:47] I wanna walk through that myself. I'm gonna go mm-hmm. , you know, it's, I wanna be able to go drive by it on a week on a regular. . And then, and then as far as the operations go, when you're talking 150 units and above, you can hire professional management, meaning people whose [00:12:00] full-time job it is, they work in the office right there on site.

[00:12:03] Mm-hmm. , uh, you've got a full-time maintenance person. You can afford to go buy a, a a 40 foot container of. Materials from China and have 'em stored in your warehouse. The, so it is just a different level of sophistication and professionalism than you can generally find on the residential. And so that, that level, that aspect plus the economies of scale, just make it, for me a much more attractive proposition.

[00:12:24] Yeah, definitely. And so one question I wanted to ask you a little bit too is because things are, as you said, a little more sophisticated, a little bit different, how things have run. What is some of the lingo that people use when in this commercial space? Because we, a lot of times people throw in like NOI and cash on cash return and your cap rate and things like that.

[00:12:39] They throw in all these buzzwords. Can you break it down? What are the basics? Anyone that's interested in commercial real estate doesn't really know what anyone in re commercial real estate is talking because we all speak our own. Right. Can you break down what is some of the lingo that people should look into understanding so that when they wanna get into the commercial space, they could kind of hop in and pick up these conversations with people as if they already were in, in the [00:13:00] industry?

[00:13:00] Okay. I mean, that being said, for sure real estate, especially commercial has, it has its jargon, . But one of the reasons I really like real estate is it's not rocket. I'm not, I'm, I'm never gonna be the smartest dude in the room. It's, but real estate is a pretty simple concept to understand. That said, the jargon, the most common one you hear in commercial real estate is cap rate.

[00:13:20] And that can be confusing when you get into it. But basically the simplest definition I've heard for that, that I like is what would be my return on this property if I were to pay all cash? It's, it's just, What is, what is, what is this property generating compared to what's going on in the, in that local market?

[00:13:36] The other one that you hear a lot about is I r r, internal rate of return. It's, it's not to perfectly equivalent with an annual return. It's pretty close. It's, so, it's just an, again, a little bit, just more of a sophisticated way to analyze what is, what can I expect this property to generate on a return basis year over year.

[00:13:57] But, but taking into. [00:14:00] account the present value of cash and, and, and some equity events as well. So I r r is gonna just be a little bit more sophisticated way to, to, to talk about an annual return. Why? Of course, that's how commercial val properties are valued. Mm-hmm. , where in, in, in, in, for me, I consider it a pro of commercial versus real estate.

[00:14:19] Where residential, I mean, where in residential your value is determined by what did your neighbors sell their house for most recently, right? Yeah. It's all about the cops. Where in commercial it's about a business. How much net operating income is that property generating? And then there's a multiple of that, which is the cap rate.

[00:14:38] And that tells you how many dollars you can sell that property for, or what you should pay, pay for it. And so it's you, when you buy a, a commercial property, you can, you can to an extent control the value of it by how well you operate it. How? What upgrades are you gonna do, and in exchange for doing those upgrades, how much can you increase the rent?

[00:14:58] Can you [00:15:00] implement a, a trash pickup, Amazon locker service, any concierge service? Can you get a bump in rents for some fence backyards or the dog park, or a nicer clubhouse at the, in, in the, in the common space? Anywhere you can increase those rents comes right to your will, will impact your noi, which then means you can sell that property for.

[00:15:20] And so you just, you don't have that level of control with a one to 2 0 4 unit type of a property. So, yeah, so those are a few. Noi cap rate, i r r, those are kind of the basics that we talk a lot about. When we're evaluating a deal, we're always gonna ask for the T 12, which is just the, the last 12 months of financials, okay?

[00:15:40] Cash flow expenses. The rent roll, who's currently in there? Let, let me see the leases. We wanna get an idea of who's actually in these places. So the T 12 is, you'll hear a lot, a lot about that, but that just means this, it means trailing 12 months, the last 12 months of. the financials on that deal, uh, that's critical for evaluating whether that deal [00:16:00] makes sense to purchase or not.

[00:16:01] I think those are the core ones though. Yeah. Okay. Now that we got a little bit of the, the jogging out of the way, fighting, right. Structuring a deal, right. I, I know that when it comes to at least the, the residential space, usually as you said, you go buy the comps and your neighbors hold for this, or I'm gonna offer this and hopefully you might get some closing costs, you know, things like that put towards the closing.

[00:16:20] But when it comes to structuring at Theona commercial space, what. Usually goes into structure and a deal and underwriting a deal. Cause a lot of times you're dealing, as you said, with these bigger properties, right? It in, in it it's essence buying an apartment complex, a hundred units to 400 units to whatever.

[00:16:37] It really is the most similar to a fixed and flip in, in residential, what we're doing, we're going in there, we're trying to take a C plus property and turn it into a B minus and then sell it later. For a significant gain, just like we do in the fix and flip, in the residential fix and flip model. But to get, to me, when we're buying 200 units, it's, it's a lot harder to come up with that down payment [00:17:00] than for a a, for a for duplex.

[00:17:02] So it normally takes a group of people coming together to make it happen. And when we put a group of people together to make a deal happen, we call that a syndication. And a syndication just means a group investment. But by having a bunch of people come together, that means that we now have to be worried about the regulations of that, of that deal.

[00:17:18] You've turned it into a security. Yeah. So you have to make sure you, you structure it legally Correct. But just like in residential, the bulk of the money for the purchase is gonna come from the bait. There's gonna be a loan to buy that property. It's 75% of the money coming for the bank is not uncommon.

[00:17:33] We try to be a little bit more conservative. So more, maybe more along 60. In this current environment, we're even do, it just, we're, we're lowering our loan amounts around 55%. And then the rest of that money for the down payment for the, which would essentially is the down payment comes from the investors coming together to pool their money, to, to, to make the, to have enough funds there, to be able to get it to the closing table.

[00:17:54] So you've got the bank, you've got the, the, the investors as well as what's called the general partner. Mm-hmm. , that's the [00:18:00] person who found the deal, structured the. Has invited all these investors to come to the table to participate in it and is gonna manage the managers. So those are the, the, the, the, the, the, the, the parties to, to the deal.

[00:18:12] And, and, and the bank is gonna do their underwriting and they're gonna poke every hole in it. They can just, again, just like buying a, buying a house. Mm-hmm. . But unlike residential, they don't care where that, if, if you're gonna go buy a house for your yourself to live in, they wanna look at your bank statements.

[00:18:25] They wanna know where, where did that last deposit come? Nope, you can't get any help from grandma and grandpa. Mm-hmm. , mom or dad. That has to be your money in your bank account for, for six months or whatever their requirement is. In commercial, they don't care where the down payment comes from. It can be from one person or for, from 40 people.

[00:18:40] Mm-hmm. . Uh, but they're, of course they're gonna underwrite the heck out of it. And so that's just the fact that the bank is underwriting. They've got the biggest stake involved in the deal. That can give you an added level of comfort. Plus the general partners have. It's their job to find it, source it, do their due diligence and make sure this is a good deal before they take it to the [00:19:00] bank, before they take it to their potential investor partners as.

[00:19:03] Yeah. Amazing. And so now that we kind of understand, we're starting to understand commercial real estate a little bit more, what would you say is the most practical way that someone can get, and not the easiest way, right? Cause everyone loves taking the easiest way out, but what is the most practical route that someone should take to get into commercial real estate?

[00:19:18] Is it going to residential, kinda like you and building up your portfolio a little bit and then they're eventually transferring into it? Is it just getting a job and then trying to come in as a limited partner, and then getting into your own syndication deals? What would you recommend even to your younger self if you had to play it over again?

[00:19:33] What would you recommend someone of a practical, practical way to get into commercial real estate investing on these larger commercial deals? Okay. I, I don't regret the deals I did in residential. I mean, I did, I definitely had some bombs, right? I had some fixing and flips that didn't work well. I tried to fix and flip for long distance.

[00:19:49] I was living in Texas, flipping a deal in pi. That went horribly wrong, but yeah. But it lessons learned and it was, it was valuable lessons for me. I build up to, the highest I got was 17 [00:20:00] doors that, that, for my own personal rental portfolio. Mm-hmm. , I, I've, I've sold most of those. I'm now down to seven, which is over two properties.

[00:20:06] So that said, I, if I had gotten into commercial sooner, I'd be much further ahead. And what held me back was the idea that I wanted to do this as a lone. In residential, you can be your lone wolf, right? You can find your own deals, you can source your own deals, fund, fund your own deals, or you just go get one funding partner to knock it down, or a hard money loan, whatever.

[00:20:25] You, you can do that commercial. It's a team sport. You've got, you, you've, you've gotta have multiple players to find the deal, to source it, to, to handle the, the, the investors, to handle the bank, to manage the manager. There's just a lot more roles that have to be filled. And so I would say for somebody who wants to jump to commercial, You do not have to do the re the residential stuff first.

[00:20:47] It's, it's valuable essence, have you learned there? But you could jump right to a 10 unit, a hundred unit with the team sport element. So it's finding a partner, finding a mentor. Getting a [00:21:00] job as an acquisition specialist, as, as with, with, with a, with a commercial broker to learn, learn the jargon, learn some of the ropes, build up some relationships, and, and so you just have to leave that idea source, doing everything by yourself to teaming up.

[00:21:15] And in that teaming up, you can, I mean, advance your career so quickly. I, I'm just thinking about the difference for me, what I've been able to do in the last five years as I've teamed. on the commercial side with other partners versus what I did in the previous 15 as a, as a lone wall. Yeah. Um, I just wish I would just, that's the only thing I would change is just being willing to buddy up much sooner.

[00:21:38] what mindset shift, mindset shift do you have to put into place? Because a lot of times when, especially being younger, right, it's hard to ask these people cause it, it may be a little intimidating or we, we don't know what you don't know. So if you don't know, what questions do you ask, right? Because you just don't know anything, right?

[00:21:51] So it's like what mindset shifts did you have to put in place? And what things did do you have to learn finally start incorporating that team element into doing things. Because as you said, you know, you wanna go fast, [00:22:00] go alone, right? You wanna go far, go together, and you've been able to do a lot more in the past few.

[00:22:03] Your team than you have in all the other years of residential to estate investing on your own? Yeah. I mean, for me, the idea of taking other people's money and putting 'em to these deals was scary. I didn't, I didn't feel like I had like anything special to offer to be, to be honest here. I was a finance degree internship in this, all the, all the commercial raising experience or doing, doing all these deals that we had, did.

[00:22:27] But I felt like, I don't know anything. I don't know a ton about this stuff. I see other people who know so much more, they're way more sophisticated. Why would, why would somebody trust me with their, why would somebody write me a check for 50 grand or a hundred grand to fund, to fund my deals? And it, it, the, the, the mindset shift was, dang, I actually have quite a bit of knowledge.

[00:22:45] I have quite a bit of experience. So I'm talking to somebody who has the ability to, to write a large. They might be great at what they're doing, but they don't know real estate. You might be, they've might have made a ton of money from their business or their dental practice or whatever they're doing, but they don't [00:23:00] know, they don't have the type of real estate experience I do.

[00:23:02] Mm-hmm. . And so that was the mindset shift for me was I actually do have quite a bit to offer to somebody who wants to be involved in real estate, doesn't know the ins and outs, doesn't want the b built daily in and out of, of managing it. And, and so just seeing. What you bring to the table. There're, it's easy to compare yourself to the people you see on Twitter.

[00:23:24] The people you know yourself such a podcast are like, dang, okay, that guy knows everything. But if you take a moment and compare yourself to the average population out there, man, you or you're sitting today know a ton, right? As I'm, and I'm talking to your audience here, a a ton already that you could provide value to your services, could provide a lot of value to other.

[00:23:41] That said, I'm not saying go, go run out and ask people for a hundred thousand dollars check unless you've got heels to back that up. And that's where a team could help be the part that backs that up so that you could go knock down larger deals. Yeah. And so when it comes to. Team, what role would you say is someone who really doesn't have the knowledge, the skills of their money [00:24:00] role, would you see best fits them?

[00:24:01] Generally speaking, mentioned something about, uh, being a acquisition specialist. Right? What kind of roles would someone in, let's say my position kind of fulfill if they were to try and join a team or, uh, start a team? Yeah, I mean, in, in, in the residential space, we talk about bird dogs, right? That, that you might he have somebody who just goes and knocks doors all day long mm-hmm.

[00:24:20] or helps you send out the letters. not in the commercial space. We're, we're always looking at the, the, what's the m mls of commercial? There's two costars. The primary one. Mm-hmm. and LoopNet is one that you can look at as well to, to learn about, but then you, you see that posting and you, you see it's posted by commercial broker.

[00:24:37] We need to get in front of that commercial broker and build a relationship with that individual so that we get, we're on that broker's. Buyer's list. Yeah. And so it's a lot of time spent building relationships with, with brokers just to get on their buyer, on, on their deal flow. So unlike, again, unlike in in residential where you might be doing a little bit more direct to seller, direct to the owner effort in commercial, it's.

[00:24:59] That [00:25:00] that happens, but it's much more rare. Most of the deals go through the commercial brokers. Mm-hmm. and you've gotta get on their radar. And so the outreach to those brokers following up with them, Hey, we're looking, hey thi this deal I just saw you post on, on LoopNet doesn't quite fit my Criti, our my firm's criteria, but it we're looking, tweak this and tweak that and we'd have a winner.

[00:25:19] Do you have anything like that? And so it's a lot of just pounding the phones. Follow up via email with, with commercial brokers to get on their radar and, and, and, and, and somebody with very limited experience could jump in and help. And we, what you call that an acquisition specialist, you're, you're helping us get in front of our, these brokers, that person could deliver quite a bit of value without having to be the one with the money, without having to be the one with the experience.

[00:25:44] Being able to speak to brokers in a professional, knowledgeable way to make sure we're top of mind for them when they do have a deal that they're ready to blast. Yeah. You mentioned several times throughout this podcast, right? The, a concept of a team and relationships and building the relationships and importance of that.

[00:25:59] How [00:26:00] important has networking been in your commercial journey? It, it's, it, it, it, it, it's, it's big. I, I it's, it's a little different from the experience on the residential side because the, the most important networks. are with those commercial brokers, with the, with the lenders. My role where I sit, I work, I partner with several different operators.

[00:26:19] Mm-hmm. , and that was really part of where, where my journey was a little bit unique was when I decided I wanted to get back into commercial. I started calling the brokers and a asking them about their deals and try and just talk with them. Like I knew what I was talking about. And along the way I was able to meet a couple folks there in Austin who had this, a very similar journey to.

[00:26:41] and who had started to develop relationships with operators who already had those relationships with the brokers and lenders who already had their operations teams built out and relationships with the property managers, but they needed help raising equity. And I thought, man, I can do that. I know people with money.

[00:26:56] I, I, I know real estate money. I can combine those two. And, [00:27:00] and so for me, my network is now, my primary efforts in networking is networking with people with funds who have money ready to invest maybe. Funds and they have time and who wanna be involved in real estate, but don't want the hassle of managing it.

[00:27:17] They don't want to land be, they don't wanna be landlords, but they want the tax advantages and the returns that come from owning real estate. And so now for me, my networking efforts are strictly with I've, I've got my operator teams well established, I've got my fundraising team well established. I need, I'm out there trying to build relationships with.

[00:27:36] With dollars to invest in these types of deals. And so, yeah, I mean, whatever angle you're coming from, networking is just, is, it's never gonna go away. Yeah, definitely. And so let me ask you then, right, whether it's networking, whether in the commercial you end up finding yourself in, a lot of us may find ourselves in starting us as an acquisition specialist, but what skills are you, would you say are the most important to find success in that commercial?[00:28:00]

[00:28:00] The, the, yeah. It's that the, the willingness to learn is, is, is step one. There's, and that's gonna be ongoing. I still learn a lot, even just hanging out in, on Twitter and, and following those, the, the Ari Twit bros going, the conversations happening there. I, I learn a lot from there. It is a hustle game. It doesn't have to be for, for decades.

[00:28:19] You can hustle for three or four years and, and build up your pretty significant income and that you can slowly grow from there. But it, it's like the coachability, the, the pers personability, the, uh, it's, it's a much smaller market than residential. So your reputation is gonna be huge. You, I mean, you, you screw screw up one deal and it's gonna be hard, much harder to, to recover from that because word gets around, say you can close, but then don't brokers talk.

[00:28:48] And so if you can't, if you, you, you contract on a deal, you end up not closing it. You're gonna have a hard time getting back on buyer's lists. And, and so you've gotta have that follow through as those are just a few thoughts that come to mind, but pretty, pretty [00:29:00] basic stuff though. It's, it's doing what you say you're gonna do and being a likable guy in, in, in your own way.

[00:29:05] Yeah. And so let me ask you then, right, so we kind of talked the majority of this conversation about how to get into it, the basics, the, the were fundamentals. I guess you could say, well, what does the, the grass look like once you get to the other side? Oh, don't word it that way. Once you start flourishing a little bit, now that you got this going a little bit, what does it look like?

[00:29:24] What does, what can people look forward to once they find some success in this area and they stick with it long enough to enjoy the fruits of that success? I, the, the on these deals, the people that do make the most money are the general partners. The people who have sourced the deal, structured it. The downside is that they're always looking for the next deal, and they are managing the managers and, and, and dealing a little bit more with the responsibility of the, of the asset.

[00:29:47] That said, those, those dollars they're bringing are, are life changing a couple of deals that you're able to close. I mean, if you're talking 'em, 200 unit, 300 unit, a couple of those deals can set you up for. They're, they're, they're truly meaningful. It, [00:30:00] it, it's, it, it's, it's, it's really remarkable and, and amazing the, the, the impact that that can have on an individual's life where I sit focused primarily on the capital raising side.

[00:30:10] For me, it works out really, really well. I've got a couple young kids, I've had a, some life experiences for me. I, I, I'm not the guy that wants to work 60 hours. , and this isn't an industry where, no, this is an industry where you can make it a 60 hour week. But what? What the operator partners I'm working, I work with, they're not that type of deal, those operations.

[00:30:30] But even from there, for me, we're not blasting out dozens of deals a month. We might blast out a deal or two a month. So it's gone through so many levels of due d. From, from the operators who have, who are sourcing, looking at hundreds of deals, they, they bid on 10, they win one. And then we look at it, okay, does this fit our investor community?

[00:30:50] Is this something they would want to invest in? Do we feel like we can bring in significant capital to this deal? So then we make our judgment call as well. And if so, if it passes our [00:31:00] requirements, we we send that out to our investor data. . And from there, I'm, I'm, I'm just kind of taking orders, helping, helping investors place their capital, and then I'm following up with them in between serving as the liaison from the operator to the investor.

[00:31:13] Mm-hmm. , um, with the monthly reports, the an answering their questions as, as the, as the deals go along. And so for me, a lot of my day-to-day is simply just in the, the conversations with our investors or potential investors. And it, I can do that from anywhere. I can. I can, as soon as we're done here, we, we had a snow day here in Boise today, so as soon as we're done here, I'm gonna go out and sled with my.

[00:31:32] And, and, and we'll go on a nice Christmas vacation while I'm out on vacation. I might, I'm, I'm gonna have some investor conversations while in current investors and prospective investors, and I can do, again, do that from anywhere. And so it's, it ends up being a really nice, a nice lifestyle where you don't have to crush yourself for, for years and years and regret the time you didn't spend with your kids or.

[00:31:53] Yeah, definitely. And I kind of wanted to ask you, what does it look like being a general partner, right? Being a guy or gal [00:32:00] or group? Usually there's a couple general partners that are running the show. What does that kind of look like? What does that take and what, how would one, especially, let's say I just had you get started as an session specialist and you start graduating into different roles.

[00:32:14] Let's say you wanted to go to offering your own, and once you got some experience, what does that take? What does that look? Yeah, that's pretty frequent where somebody, you know, you, you end up working with, for a general partner for a number of years. You, you get the knowledge, you get, you have some of your own relationships, and then you peel off to beat, set up your own shop.

[00:32:30] That's fairly common, to be honest. And, and again, that's simply, you're gonna have to, you've gotta, you've gotta have those hundreds of deals coming across your desk that you're gonna, you're gonna do it at least a preliminary run through to see which ones make sense for a little bit more detailed. and then with the ones that do make sense for you, you've, you're, you've gotta have some level of confidence in having the, the, the finance, the financing support to be able to, to knock that down.

[00:32:57] And if you've got that, you've got that support [00:33:00] there behind you, then you're gonna submit an offer to that broker for that deal. And they're gonna get, you might submit 20 or 30 of those offers before you get a broker, call you back and say, Hey, you're in the running. We we're ready to, we wanna, we. Enter into negotiations with you.

[00:33:14] And so it's a lot of effort before you even just get that first deal and you get a, a, a, a fish on the hook mm-hmm. . And so now at that point, now you're gonna go full blown, deep due diligence where you're gonna walk through every single unit and, and order up the inspections and yada, yada, the whole thing that goes into that.

[00:33:28] So that it's n And if you win that deal again, you've gotta have the bank loan, you've gotta have all the investors come together for that to provide the down payment capital and the operating capital to do the improvements that you have in mind once it's secure. Yeah, the general partner, they're the ones responsible for executing the business plan.

[00:33:46] What is, what is it you saw in this deal that made you think you can do these improvements and take the rent from 1200 a month to $1,400 a month? You know what, what's gonna, what warrants that $200 jump And so you're now [00:34:00] responsible for executing that business plan. You also hire the onsite property management that's gonna be likely to just contracted out to a third party.

[00:34:11] and again, these are large operations that do this. Some of 'em are public companies. That's all they do is manage large commercial properties like this. So you you, you source that. So they're hiring, they're just dealing with the, the, the daily rent resets, the, the, the, uh, the tenant requests, the, the, he helping people renew their leases, yada, yada.

[00:34:27] Mm-hmm. , the, the walkthrough, et cetera. But you're, you are managing the manager, so you're, you're looking at those reports on a daily basis. How are they doing? How's that team performing? Do you need to make any changes or tweaks? And then ongoing reporting to the investors, ongoing distributions to the investors.

[00:34:47] So you're calculating those and sending those payments out. And then the general partners are gonna make the decision whether to, when, when, and whether to sell the property. So they'll be running that, that side of the conversation as well. And so it, it really is [00:35:00] everyth. Hinges on the, on the general partner being sophisticated, intelligent, forthright, and on top of things day in and day out, to to secure the deal, operate it, well sell it at the right time for the right price.

[00:35:16] I wanted to ask you a little bit to pivot. You mentioned earlier on in an episode, right, that something along the lines of raising fund as a security. We have someone talk on syndications back. Actually, my very first interview was my old pod real estate coach. She also had a syndication business that she had on Asai, which is now long, has now turned into her main focus.

[00:35:34] So she has to leave real estate coaching actually. But she never mentioned anything about, uh, securities brokers. What, what would you, what is the difference, I guess, there, so you can break that down, not only to my audience, but to me, what's the, like, the difference there? Okay. So when you take you, when you take a deal like this and you divide it up into a bunch of little pieces and let.

[00:35:53] Invest funds into it for the promise of a return, the expect, not the promise, the expectation of a return that's [00:36:00] now deemed a security in the moment you turn something into a security, you're now under the oversight of the Securities and Exchange Commission. The s e c and the s e c has a ton of rules about who can raise money, how they can be compensated for raising that, that money.

[00:36:15] Mm-hmm. And so I, 2017, 1819, the, the, the capital raising scene exploded and that's certainly part. . And the rule was, and and is. You cannot be compensated as a non-licensed individual. You cannot be compensated as a percentage of the dollars that you bring into the table, but yet everybody's getting paid a percentage of the dollars they bring to the table.

[00:36:38] And so it was this kind of funny business going on. And Weedy could kind of work your way around that by saying We're part of the general partnership. We would get ourselves written into that, into that part of the agreement. We're. Due diligence and marketing services beyond just the capital raising. Um, we all got letters.

[00:36:54] I mean, I think the entire industry did in 2020 from the s E C. We're on to you. [00:37:00] I mean, just, right, I mean like a week before Covid really became, it really hit, it was things were starting to get a little weird out there. We were hearing about things going on in China. What's this gonna do there to the US real estate?

[00:37:10] And then we get these letters from the s e c, like, okay, we better take a step back here, make sure this is all, we're all good. And we have our securities attorneys looking at our deals and, and ad advising. But we just took that to mean, or they're not happy with how this is done. They're, this is, this is not gonna end well for people who are trying to mon, you know, skirt around that rule of how you're compensated.

[00:37:32] And so we've just made the decision, let's go, let's go the broker dealer route. It's, these are securities. We don't like the idea of having kind of do funny things in the general partnership documents, so let's just make it super clean and simple. So we had to go find a broker dealer to sponsor. That worked out really well.

[00:37:50] I had to go take a couple secur study and then take some secur securities license exams, and now I'm a licensed representative of broker dealer, which means I'm held to a higher [00:38:00] standard. I have to, I can only take funds from an individual, individual after I know them well. And I s I I have an expectation of an understanding of, per this, this potential investment is a, is suitable for their situ.

[00:38:12] But I can be paid simply a percentage of the dollars that I raise. And so my agreement with the operator teams is very clean, very straightforward, fully disclosed. The investors know exactly where, where I sit and how I get paid. And so it's just no more, no more monkeying around, no more having to worry.

[00:38:29] What is the, what is the s e c gonna do here? We have seen them end up, make me pushing, actually pro pursuing some charges with some, some people who are doing it the old way. I, this is not the technically correct. . So I just, for me, it just helps me sleep better at night. My, our broker dealer has, his compliance department, keeps me out of trouble, make sure that we're doing things on, on the up and up.

[00:38:49] It's another level of confidence that I can offer to my potential investors saying I'm a hell to these standards. And so for me it's just a, a more comfortable place to sit. Yeah. And then I wanna kind of ask you right. Mitch [00:39:00] no more monkey business. What else good should you look after, look out for actually, when getting into a commercial real estate deal, whether it's you're joining a team or maybe it's whether you're investing in that deal yourself, like what things should you look out for?

[00:39:12] What are the red flags? I, I'll tell you the first deal, I wanted to learn how these things worked and so, and I didn't wanna go get a job for somebody. I, I, I, I was just at, at a different stage of life, I had some funds and so I invested with a general, Where I just, I was just one of the passive investors, one of the limited partners.

[00:39:29] So we put in our funds. It was supposed to be, we were a two year deal. Five years later, I'm still in that deal. It went horribly wrong, and so I learned the types of deals I'm not gonna invest in and I'm never gonna offer my investors. It was a deep value add, meaning not a war zone property, but it needed a ton of, and it was an operator team that I think was a little too aggressive, really liked these really in trouble properties and, and, and had made money doing, doing this type of model, but had lost money on several other deals [00:40:00] in the same exact model.

[00:40:02] So it's just higher return, higher risk type of a conversation. There was a new development aspect to it. It was two hour south of Houston, right there on the coast, right there in hurricane, hurricane. So everything that went could have gone wrong with that one, did the, the, the, the zoning on it was wrong.

[00:40:17] Our, our, the gen general partners were not getting it, we're not doing filing for the correct permits. And so what I took away from that is no deep value, no hurricane alley type purchases and no new development. I'm not interested in those. It's so easy to make money just doing a slight lift. Take something from a B minus to a b a C minus to a B minus or a c plus.

[00:40:38] There you go. You got it. . Those incremental upgrades, you're, we're not buying war zone or 50% occupancy type buildings. We're buying stuff that's 90% occupied and doing well. We just know we can go in there, make it do even better, and there's so much upside just from that. And because it's already performing that well month one of ownership, we're all starting to receive cash [00:41:00] flow because it's operating well.

[00:41:01] Right. We're buying a currently performing asset that's gonna generate cash flow from the, from month one of owner. So lessons learned is just, you gotta pick your poison. Are you comfortable with those deep value add higher, higher return, higher risk type scenarios or, or not? Do you want some little bit more predictable, a little, little safer, less risk?

[00:41:19] Um, and, and make sure that operator team has a lot of experience in doing exactly what you're talking about and that they've got a really clean track record. Amazing. And so you've been dropping Gem since this entire episode. You've got really broke down commercial real estate. You have to kind of understand the jargon.

[00:41:34] You help us understand how could even someone in our shoes get started in real estate in the commercial space, even without any much experience. And you shared with us your stories from both the rest side of things yourself and actually being in it and being one of the partners that is part of the deal in the the fund managing or relationships part at least.

[00:41:55] And. Where could we find you at? Where could we connect with you at whether we wanted to invest with you or [00:42:00] whatever we want. Just wanted to learn more about the real estate investing process. What syndications, where could we find you at? Brad? Well, I, I appreciate that and I feel like I did gave you a lot of long-winded answers, , but it is, you get me going, man.

[00:42:11] I just start talking. It's, it's one for me to talk about and it is. I've got a, a, a weird background, but I appreciate the opportunity to share some of those nuggets. Best place to connect with us is@sugarhouseinvestments.com. That's my firm where we help potential investors learn about the deals that we put out there to our un venture community from our operator partners.

[00:42:28] And again, I'm happy to just chat with people. My whole job is to. To share information and whether, yeah, I'm, I'm happy to do that with somebody who's got money to invest today or not. Mm-hmm. . So I'm always happy to have those conversations and if anybody's in Boise Yeah, I'm happy to go grab lunch anytime as well.

[00:42:44] All righty. And so now it's time for our final four question. We actually have a bonus question today that I wanted to ask you for the very first time. So without further ado, question number one is, what is the most impactful lesson you've learned in life? Is, is that It's, it's, I. I don't think it's [00:43:00] cliche yet, but it is, it's a well known statement.

[00:43:02] If you help enough other people get what they want, you will in turn get it what you want out of life. That's exactly right. Yeah. It's, it's, it's a, and that's so impactful. It's, it's, it's, you can come at life from a selfish perspective or how do I help other people type of a perspective and Yeah. When, when you're out there helping people accomplish their goals, it's amazing the returns to come back.

[00:43:24] What is the most admirable trait a person can. Loyalty. I'm, uh, I'm big on loyalty. Sticking by your friends, sticking by your family, not talking crap about the people around you. I, for me, that's, it's, it's, it's when I, when I, I see that cons, the consistency outta somebody from holding up their end of the bargain, getting your back.

[00:43:43] That's me. That's huge. Yeah. Uh, rapper, let's do what by the name of 21 Savage, that you'd rather have loyalty over left because you could love someone and still stab 'em in their back, but you could hate somebody and who loyal to them, and you'll never do wrong by them. Right? Because that, that loyalty.

[00:43:57] And then if you had to change someone's life with one book, what [00:44:00] would you recommend? All right, I have, I, I'm a religious guy, so I have some scriptures in mind. All righty. Talk to, talk to me. I'll over there. No. Talk to me. Talk to me. Shoot 'em out. Shoot 'em out. What you got? What? Well, I, I'm, I'm a member of the Church of Jesus Christ of Latter Day Saints.

[00:44:14] For, for me, I'm a, I'm a lover of the Bible in the Book of Mormon. Those two help me more than anything else. Those are the ones I'm always going to help me under. Get to know my who I, who I consider my. and change frame how I live my life. Amazing. Uh, so thanks for letting me sh thanks for letting me share that.

[00:44:30] Yeah. Um, of course, of course. , I would say in is outside of re the religious text, psychology of money. Mm-hmm. is, is, is a big one. That, that's just down to the, just the basics. How do you think about money? How do you, how do you think about saving, how do you think about earning that one could be really impactful.

[00:44:47] Yeah, definitely. And what is the legacy that you're trying to leave behind? For me, it's all about my kids. I've got a six year-old boy and a three-year-old boy. It was, things were tight when I was growing up. It was, it was, I remember driving up to college in my little [00:45:00] $400 Dinker car and not sure exactly how I was gonna buy groceries when I got there.

[00:45:04] As, and, and I, so it's, I'm, I'm thinking about how do I make sure my kids don't take anything for granted, but also have something. Some, a little bit more level of security as they, as they start thinking about what, what they wanna pursue, and having the ability to have conversations with them about goals and potentials and, and, and career choices that I just didn't have that with, with my, with my folks.

[00:45:23] So thinking about the impact I can have, uh, I'm, I'm not, my name's not gonna show up in Business Week in Wall Street Journal. I've given up on that. . But if, if I can leave my, my, with my kids thinking, Hey, dad's spent a ton of time with me, gave me some good life lessons, set me up well, to blow me away. I want them to blow way past me in, in accomplishing their goals.

[00:45:43] I, I'd be thrilled. And for anyone that's looking to start their walk to wild today, what is the most practical advice that you could give them

[00:45:56] real time? The, the, the [00:46:00] college classes can be. So college course is great, but the, the stuff that happens in real life on the street, day in and day out is, is, is is huge. The more you can get yourself inserted into the conversations that are happening today, the deals that are happening right now, the, the money that's passing back and forth, how those conversations are going on, that's happening at your local meetup groups.

[00:46:20] That restaurant down the street from you tonight has a meetup that 50 real estate investors are gonna be showing up. Go in there and just learn those conversations. There's a ton of conver real estate conversations happening on Twitter every day. It's, I love hanging out in those conversations and get, put yourself out there.

[00:46:34] Learn that jargon. Offer value where you, where you can, but just get yourself inserted you. We've all been the shy, I don't know a whole lot. I don't know enough to contribute guy, right, or, or Dal, but just put yourself out there and there's so many people willing to help. Yeah, just don't, don't be a afraid of not knowing.

[00:46:53] You can admit that. Go in, willing to learn and you'll find so many people are willing to help out. Just get yourself inserted into those conversations.[00:47:00]

[00:47:02] You've now finished taking the first step. Now let us help you take the next one. Subscribe to our newsletter@walktowealth.com. That's walk the number two wealth.com so we can keep you moving on your. We'll see you on the next episode of Walk To Wealth with John Mendez.