From SFR To Commercial Properties

I think a lot of us when we start out in the investing game, we kind of fall into that trap. We think, if I go get 10 doors, I'll replace my income. And then you have 10 separate roofs in 10 separate HVAC systems and 10 different tenants and it costs, 8% to 10% to manage that if you don't want to be involved on the day to day basis. So we looked at that really hard actually. We said, why don't we usually start acquiring some of the deals that we're buying? We're buying stuff at 50 cents on the dollar, 60 cents on the dollar of retail. So it would make sense to do, a lot of people talk about the BRRR effect, right? The buy, renovate, rent, refinance and then we started getting around some multifamily investors, a hundred, $150 million under management.

And every single one of them told us the same thing, which was their biggest pain in the neck property was the smallest one they owned. You know, they were telling us about these 7,500, hundred and 50 unit buildings where the economies of scale really allowed for third party management, professional, third party management for professional accountants and professional lawyers and just a real high echelon professional team that the deal could absorb the cost of. So we said, that's really interesting, but I don't know if my first deal could be a hundred-unit deal. And that was a little bit of a mindset shift that we needed to undergo to really believe that that was something that we could do. So we bought in that we can do that, so let's go find a deal. Right? So we went to a couple of classes, we went to a couple of seminars, we learned how to underwrite deals, we understood what people were looking for, we understood how to model a deal out and those big Excel models and figure out internal rates of return and return on investment in cash flow.

All of those different metrics. And then we went and put a bunch of LOI’s out. Well, nobody cares that we're going to flip 200 houses this year in the residential space. That's a pretty good operation in the commercial space, it's not assets under management and it doesn't translate to a broker wanting to give you an off market deal because he's not really sure if you can execute on the different animal. So that was our big challenge and we put a lot of LOI’s out. We built a lot of really strong relationships and people, although they liked us, they didn't see a background where they were confident in giving us their first $10 million project. These guys make money off of commission, they want to make sure that they're presenting deals to people that could execute it.

"The money's not really in the deal, the money's in the money."

And I understood that as a previous broker, I just didn't know how to clear the hurdle. So, one of our mentors said, look, the money's not really in the deal, the money's in the money. And I thought about that a little bit and I said, so how do you, how do you get into these deals? And he said, well look, you could partner with me or you can partner with another experienced sponsor that seeing the deal that you're not seeing right there, seeing the good deals before you're seeing them and then just tell them that you could bring the money to it. And so that was the next mental block that we had to overcome it. Well, can we bring all that money?

And luckily for us, we had the background in residential and we have had investors giving us money for our fixing flips. So we did have a couple million dollars deployed with us that if we reached out to those people and said, do you know, we haven't really been able to deploy your money for 12 months at a time. Right? Cause we're flipping a house, giving you your money back, flipping a house, giving your money back. It didn't create the consistency and the return that they were getting. So if we were giving them a 10% return, they were only getting 8% because it wasn't deployed for the entire 12 months, so a lot of those people wanted to come with us into this space because it created more consistent returns for them. So we did. So our first deal we started first with sponsors, who do we want to, who do we want to work with, who's deal do we want to fund? And then what's the timeline in which we had to fund something. We didn't want to pigeonhole ourselves into something that I had to fund in three weeks because we didn't know. We didn't know how fast we could raise that money. So we found the right sponsor and the right deal came along and we partnered with a company in the couple of deals now.

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