Commercial Real Estate Investing From A-Z

Closing on a property the same day that the president declares a national emergency? Our friend Loe Hornbuckle checked that off on his real estate investing career last year. How did him and his team solve the problem that was about to arise?

You can read this entire interview here: https://bit.ly/2Mx2xUw

You closed on a property when COVID hit. This can be something that can happen at any point in time in different types of versions. It can be the economy or anything else. How did you guys overcome this problem?

I don’t think I’ll ever forget this, because how many people can claim that they closed a major real estate transaction on the day the President of the United States put the United States in a state of national emergency? Literally, the day we are closing on the deal, the President’s on TV saying we’re entering a state of national emergency and, like a lot of people, you’re in California, you have earthquakes, you have fires, there are all kinds of city and state emergencies, but I’ve never seen a national emergency before. So I didn’t know what that meant, or what was going on. All I know, is that I closed a very large real estate transaction, by some standard, $18 million is pretty large, on the day that the president is on TV, basically saying the sky is falling. 

because our construction was being done in phasing, we went ahead and figured out what our three targets were, what we needed at a minimum to close the deal in terms of investor equity. Then the second question was, what do we need to do phases one and two? And the next question was, what do we need to do all three phases? So we broke the project up into a few different metrics When you're doing a raise, people always focus on the ceiling, how much money you're going to raise. The question that we asked ourselves was, what's the minimum amount of money that we can raise in order to not have the project be delayed? And so we came up with those three numbers.

Are there any other tips that you can give our listeners on how to deal with unplanned situations like this one?

If you were to think about all the things that it takes to write a business plan, I think the first thing you have to be is you have to be realistic. When you're realistic, and you're writing a business plan, one of the questions you should ask yourself is, how could this go wrong? What are the problems this deal could have, and then try to be creative and pre plan. So much about people that write business plans, it's all optimism. For example, if we just assumed, that we were going to raise this money, no problem, we hadn't set the floor, then we potentially could have had to rewrite the operating agreement, and that could have caused other investors to be spooked. Instead, we just said, Hey, this is the minimum amount we're going to raise, this is the maximum amount we're going to raise.

Always go through your business plan and just think through things that that could happen, maybe you won't raise all the money, maybe you'll have some price increases. You're going to need to have a healthy contingency, and things like that. A lot of what made us successful on this project, or come to a successful conclusion, really dealt with going in being realistic. And then also asking, Where can we have problems? And if we do have these problems, what's our plan in case we face them? Because having that in your back pocket, and when something does happen, you've already kind of planned for it. It helps a lot in the moment because you don't feel like you're being blindsided by something you couldn't see coming.

Loe Hornbuckle

[email protected]

www.goodhorncapital.com

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In this episode I talk about setting goals for your investing this year. I think 2021 will be a great year for a lot of investors, and you guys have been taking the time to learn as much as you can. 2021 will be a great year to put all of that to work.

You can read this entire episode here: https://bit.ly/3b93z3h

First we need to look back at our 2020 goals, and what got accomplished and what didn't. I accomplished about 50% of my goals, and looking back, the biggest issue I see in not accomplishing the rest of my goals (guess what, it was not Covid!) is that my official accountability buddy and I did not follow up on our calls. And that was both of us, we did not hold each other accountable with our calls and our goals. Another serious part of this is that I did not block part of my day to really look at what is the most important thing that I can do that day, to help me get closer to my goals and take a couple of hours to just do that before getting into emails, before everything else. When we're having this one or two hours for ourselves in the morning, I think it's really important to always include the thought of how can I increase this by 100 times? Some people say 10 times. And I think 100 is even more powerful, it gets you thinking outside of your box, for instance who is my wealthiest friend who would be super interested in investing in real estate? Or what is the property that is going to give me the most return for my time? Not carwashes, I can tell you that!

Let's talk about one of the most popular forms of goal setting. And that is called SMART methodology, having Specific, Measurable, Attainable, Relevant and Time-Bound goals. So let me give you one example of one of my goals for this year:

Specific: I want to partner up with a friend who is an architect and has a lot of experience in not only remodeling things, but also adding things to spaces, and not only in the single family space, but also in other commercial and multifamily space. So we want to start small, and we want to build this relationship and grow from there. So that is the goal to get into the real value add through development and improvement of a property business.

Measurable: What is a measurable number for that? I want to buy and exit 12 properties, or 12 units with this friend in the Bay Area, which is where we live this year, we're going to be buying homes, or multi unit properties. At some point, she will take care of the renovations and the additions. I'll take care of the rest. And then we're going to exit.

Attainable: Are 12 units attainable? Yes. She said that she will be comfortable managing even 10 projects at a time. So 12 projects in one year, I think is very doable.

Relevant: Is it relevant? Yes. Homes right now are selling like hotcakes. And this is also a great way for us to not only make sure that we work well together, and also for us to be able to see and learn what other areas we can grow exponentially.

Time-Bound: The last part of the smart format of goal setting is for your goal to be time bound. So we are already in January. I think it's realistic that we start with one property by February, we'll start to reach out to lenders and real estate agents to help us with the properties, and then fundraise whatever we need for the project and start working with the contractors.

2021 will be incredible for real estate investing!

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Calls will be on Thursdays 2-3pm PST, 5-6pm EST, depending on how many people join, we may have an alternative time as well.

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This is our December 2020 Mastermind call. Our guests were Todd Sulzinger (mobile home parks), Victor Menasce (development, various asset classes) and Adriana Finnie (single family investing).

You can read this entire interview here: https://bit.ly/3mFeOCs

Steffany Boldrini (Self Storage, Car Washes)

I have been dealing with a new asset class that I invested in, and that is carwash. I was put through the wringer right away, within nine days of closing, one of the roofs caved due to snow, money has been already been stolen, and within 20 days of closing, and my maintenance guy quit without giving any notice. Thankfully, I was able to hire someone within a day. I'll be doing a couple of episodes on why car washes, what did we do to them within this last month, and how we are managing it from far away. What I can tell right now, is that it's a very hands on asset class with a lot of moving parts.

Todd Sulzinger (Mobile Home Parks)

One of the biggest things that is still impacting us is our inability to process evictions. I have properties in Georgia and Tennessee that are landlord friendly states, and in Georgia in particular, we had the courts closed in March, they opened back up at the end of July. And we had to start the eviction process on several people. We had several people that after a couple months process before we got a court date, they moved out just before their eviction was filed. Other people were still going through the process, we've got a couple of tenants now that have been in the park for almost a year that haven't paid rent. And we really have our hands tied.

Victor Menasce (Development, Various)

We've been busy with a number of new projects. And as you probably know, we also get a fair number of requests to consult on new development. For example we're doing a 150 unit apartment building up in Spokane, Washington for our client, we're doing a 60 unit townhouse subdivision just outside of Boise, Idaho, we are doing a boat and RV storage facility up in Austin, Texas. So we decided to formalize the consulting division and officially make it a core part of the business. And that's going to allow us to train the future leadership in the company. We're not going to accept every client by any means, but only those that we would say are intentionally congruent with that which we're already doing.

Adriana Finnie (Single Family Homes)

We're in single family homes in California, Ohio, Michigan, and Alabama. We started in California, but in the last three years, we decided that the rules are getting a little too dumb and that it's time to get out. So we've done it in a very leisurely way. We keep waiting for somebody to move, and then we put the house on the market. It has worked nicely until this year when nobody wanted to move for any particular reason. The biggest challenge is evictions.

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Todd Sulzinger: www.blueelminvestments.com

Victor Menasce: www.victorjm.com

Adriana Finnie: www.linkedin.com/in/adriana-finnie-4578ab12/

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In this part I will cover getting the loan for the portfolio of properties, the LLC formation, hiring, as well as dealing with challenges.

You can read this entire episode here: https://bit.ly/341nXip

Loan

The first lender that gave us a loan approval initially gave us a loan approval with an extremely unreasonable request, which was to basically tie up cash until we pay out the loan, this gave us no reason to get a loan. What I did when I got that news was that I asked to set up a call right away with the loan agent. We got on a call, I explained everything, not only from the property side, but also from my experience side and how, we have a ton of mentors, how I have access to hundreds of people, and all of that. You really need to show them that you are resourceful, that you are a professional and also a lot of times that you were successful in your previous career. It was a quick call, it was I think, a 15 minute call. After that, the loan officer scheduled a call with the president of the bank, and I told him the exact same thing. I asked them if they had any questions, etc. Shortly after that, we got the approval, that was probably the next day or two.

LLC

First I decided to break it down into two LLC's, one for the car washes and one for the Self Storage. This is purely for liability reasons. And with this decision, we had to change our closing date by about seven to 10 days. Because the lender had to rewrite all of the loan documents, the title company had to rewrite everything and divide into two entities. So that took a little bit longer. Ideally, in the future, you need to make that decision in the beginning, because we also had to sign another offer, breaking it down into two entities, even though when I signed the offer, it was under our name and/or assignee, which means we can assign this to anybody.

Hiring

We had someone in mind, but that person didn't even return my call when I left him a message, and the real estate agent had to remind him to call me back. So that was the very first red flag for me. And then after that, he showed up late for our very first meeting on site. And that was my second and last red flag. Some of you may know this, but there is a saying that says "hire slow, fire fast". You should take your time in finding the right person for the job, and do a really good job with the interview. And there are great resources out there. One of the books that I love is called "Hired", highlight everything that you can in that book, it is super helpful for hiring. And then on the firing fast side, people do not change. And I have seen that over and over again. And because this guy wasn't returning my very first call after we had agreed on him managing the property, and he was also late for our very first meeting, those were huge red flags for me. I decided not to work with that person.

Challenges

Nine days after closing on the properties, the roof in one of the car washes caved because of snow. Honestly, I was not scared when he told me that. I said, Okay, this is part of the game. Nine days, whoo. I'm thrown in the wringer. I made a claim with the insurance company right away. And I cannot talk much yet about the insurance because the project has not being completed. But all I can say is that I am very pleased with Nationwide, they really are by your side. This company has been phenomenal with the claim that we made literally nine days after closing. About 20 days later, the main maintenance guy quit. I started searching for staffing agencies in the city, posted an ad on Craigslist, and hired someone the next day. It was a blessing in disguise.

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I will be talking about a project that I have been working on for a year and that closed about a month ago.

You can read this entire episode here: www.bit.ly/3g9laZd

This property came into my inbox because I have been getting alerts for self storage properties for sale. It was a portfolio of one Self Storage property and three self serve car washes. It took 84 back and forth email messages, plus some phone calls to get all the information that we needed to analyze the property, to agree on a price, and also one year from my first communication with them to the closing.

Things to ask for:

- Profit and loss statement

- Tax returns for the last 2 yrs

- Detailed explanations on expenses

- What does it entail to manage and operate car washes

- Price for rental units on self storage

- Phase I report

- A list of multiple questions regarding the property, age of roofs, type of floor (asphalt, concrete), type of building, age of buildings, etc

Due Diligence period:

- Ongoing list of questions and follow up questions

- Recommendations for local lenders and credit unions

- Recommendations for local real estate attorney to review title and surveys

- How much would it cost to add credit card machines to the car washes

- Information for all the service providers that they currently use

- Finding a local property manager for both sets of properties

Example of things that you always must follow up on, until it gets 100% completed:

- I had to get quotes for putting internet in all of the car washes for not only the credit cards, but also for the cameras that I was going to be installing. And it turned out that for all of the car washes I had to get a different internet provider because not a single one of them could provide service in more than one car wash, they just did not have service in the other properties areas. That probably took three full days worth of work to find the best internet provider for every single location.

- I searched for the best provider for the Self Storage Facility that was 1. affordable 2. could take online rentals 3. could take credit card/bank payments. The previous owner did not have a website, and they were sending out paper invoices to all of their renters. So I had to get someone to create a website for us, and also to be able to accept rent, accept credit cards and also have people be able to lease things online. I found this very young startup that fit every single need for the property. And because they were so young, I really had to beg for them to take me as a customer. And that took a lot of following up, I said, Guys, I'm with you, I know it's not going to be perfect, but I really think we can be a very good first few customers. So let's get this going. And we got them to agree to that.

- I had to follow up with the guy that agreed to be a property manager and was not even responding to my phone calls.

- I had to follow up with the insurance company, I wanted to continue working with the same insurance that was the provider for the previous owner, because it was a good price, plus that insurance provider already had all of the information for the car washes. After three weeks of not getting a quote and also following up with the agent, she tells me whoops, the underwriter thought this was a renewal and send it to the wrong person in the office. And this was one week before closing. So I started Googling for highly rated insurance providers in that whole area and got quotes from everybody that I could get my hands on, We also had to make sure that this provider was real and reliable (there are horror stories about insurance companies being outside of the country and never paying things out), make sure the insurance provider is rated A++.

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What is unit level profitability? What kind of tenant is best to pick for your industrial space? How do you add value to an industrial investment? Neil Wahlgren answers a lot of our questions regarding this popular asset class.

You can read the entire interview here: https://montecarlorei.com/how-to-invest-in-industrial-real-estate-part-2/

What is unit level profitability?

When you say that you are getting properties at 8.5 cap rate, how do you add value to that property? Because you're dealing with the seller, and they're going to lease back the property. And it's going to be a 15, 20 year lease. So how do you guys bring value besides that 8.5 cap?

2. The second piece is paying down principal on the debt. You are able to acquire between 70 and 75% leverage on debt on the real estate. Most of our real estate debt comes from local lenders, or credit unions, they know both the tenant company and the area very well. And that's even more important when you're buying tertiary real estate, where the local lenders really believe in the companies, oftentimes those companies have been in place for 40, 50, 60 years, and you're able to get more aggressive and better terms on the lending. We acquire fixed rate debt, fixed interest rate, usually in the low fours or high threes in today's environment. With that, every month, you're paying down principal on the debt.

3. And then the third is a little bit more subjective. We look to buy real estate in growing metros where we feel like there's a chance for a cap rate compression. For example, today Omaha is trading around 7, 8 cap for a lot of industrial properties. If we think that there's a good chance that this might compress down to a six or seven cap environment in five years, based on the growth that we're seeing in this area as a way to create value. And the other half of that third piece is what they call credit enhancement. Imagine if you buy a piece of real estate with a tenant that has $30 million a year in revenue, and in five years, that company is doing 100 million dollars a year in revenue. Now that's a much stronger tenant, which provides a lot more security on your lease. So now you're able to sell that same piece of real estate at a lower cap rate because you've reduced the amount of risk.

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What is the difference between Warehouse, Distribution, Manufacturing, Flex Industrial, and Specialized Industrial? How do you assess a single tenant risk profile within industrial? What is a sale leaseback as an alternative form of financing? Neil Wahlgren answers a lot of our questions regarding this popular asset class.

You can read the entire interview here: https://montecarlorei.com/how-to-invest-in-industrial-real-estate/

Can you elaborate on what each type of industrial properties are and what are the differences between them?

2. Manufacturing: that tends to be a range. Everything from four walls, typically metal sided, oftentimes built from scratch for a particular operating company. These operating companies are typically core producers, they can make everything from widgets to industrial dryers, mixers, aerospace parts, and even commercial food, really anything that's made, oftentimes B2B, where you're creating large things with specialized equipment inside of them. Those are categorized as manufacturing space, some will be more agnostic, where you have just a core building, and sometimes five or 10 ton cranes on top. And on the other end of the spectrum, you can have some very specialized built to suit ones, oftentimes irregular shaped buildings. For example, the Boeing manufacturing plant outside of Seattle. You have a massive building that's unlike commercial or industrial real estate in the area.

3. Flex industrial: imagine an entire tenant area, each typically with truck bays, loading and unloading facilities, and those tend to be very flexible in that you have an outer shell of a building. And then the interior walls and the actual square footage of each tenant space is adjustable by the owner of the building to meet the needs of the tenants. Oftentimes, tenants will grow and they want to knock down a wall, take some of the adjacent space, and oftentimes that industrial will be more of an even mix of office and warehouse space.

4. Specialized R&D industrial: that's kind of the catch all for everything else. It can be everything from laboratory space to really high tech, pharma type of real estate, or everything in between.

The thing that I always worry about within industrial is most of them are single tenants, can you elaborate on how you or any investor should approach that when looking at a property?

How should you fundraise? What are the best practices? Ben Kogut, partner at HJH Investments will share his extensive experience with fundraising for syndications.

You can read this entire interview here: https://montecarlorei.com/getting-started-with-real-estate-syndication/

Walk us through your first syndication raise. What did you do? How long did it take for you to raise the funds? What were the results? Lessons learned?

On my first deal that started with my relationships. People that I've known throughout my involvement in real estate for the past 15 plus years, plus people that I know throughout my involvement in the community, I basically just started there by talking to people, Hey, here's the deal. Here's what I like about the deal. Here's what I don't like about the deal. And here's what you may expect by potentially investing in a deal like this.

But the best advice I could say if anybody's thinking, Okay, I want to raise money or I'm thinking about one day raising money. Then now is the time to start telling people within your sphere of influence. The people that already know that you're a smart, capable individual, and that you're working on a deal, or you have a deal, Hey, would you be somebody that would be interested in investing with me once I get a deal, and I think a deal will look like this, whatever that is. If you're in triple net properties the way I am, or if you're in multifamily, or all the other different asset classes, which there are many.

Now that you're raising all of your funds in less than a month, what are some of the best practices for fundraising for a syndication?

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What are the legal aspects of forming your LLC when investing in commercial real estate? We are talking with Garrett Sutton, a corporate attorney, asset protection expert and best selling author who has sold more than 900,000 books to guide entrepreneurs and investors.

You can read this entire interview here: https://montecarlorei.com/llc-strategies-to-protect-your-real-estate-assets/

How should a real estate investor organize their LLC’s for best protection?

Let’s dive into all of the documentation that you guys will be sending us after an LLC is formed.

How does an investor pays himself with an LLC?

What else is important for our audience to know?

Garrett Sutton

This is a transcript of our 4th Mastermind Call with a group of experienced investors to understand where each investor is and how they are dealing with the Covid-19 lockdown and its consequences.

You can read this entire episode here: https://montecarlorei.com/mastermind-call-what-are-top-investors-doing-during-this-crisis-multiple-asset-classes/

Self Storage and Retail

Mobile Home Park Operator

Multi-Family Investor

Senior Living / Assisted Living

Developer