All Forum Posts by: Joel Owens

Brad could not give really concrete answers without knowing your age in life, own business or work for someone else, liquidity, net worth, annual income from job or business.

There is the tenant ( credit quality ), property ( dirt ), lease terms ( financing options and guaranty with security level), and the investors life goals.

All dentist offices are not the same. The building, location, tenant could be inferior versus the cap rate and years remaining offered with in place rents.

A one person dentist office can be tricky because they have a hard time finding help. These individual doctors want kids right out of college to work all these hours and make commitments to possibly one day take over the business. Usually when out of school they want to work minimal hours and not be tied down anywhere just yet. They want to let lose and have some fun after all that schooling. So a larger brand can often take dentists from one location and move them to the next to fill gaps. Emergency clinics can have similar problem they have business for months backed up but getting the consistent high quality workers is the problem encountered the most.

I would have to see the particular property in general OM to give an assessment of what I think. Good luck

What is purchase price of the property versus your annual income from job or business and current net worth? You need to assess risk of the property itself against your financial position.

Someone worth 10 million buying a 2 million center can stub their toe and chalk it up to a learning experience with any losses. Someone worth 2.5 million and most money came from a large event and not from job or business per se buying a 2 million center and having limited knowledge can really have a major loss not knowing what they are doing. 

Alex people that move from multifamily into multi-tenant are primed to be ripped off by a seller or listing brokerage. They will try to pass stuff onto you that they would not stand a chance selling to someone like me or my clients.

With a retail center there are literally hundreds of items to watch out for or more in a deal. It's way more complex than a single tenant deal with lots of variables. Often people get sucked in looking at a high cap rate compared to what multifamily is going for. The lower credit to no credit the tenant is the more you have to vet them with underwriting as a non-pay, slow pay, or going dark risk. 

Josh you are asking the wrong questions.

About 2 decades in as a broker. I do commercial and also an investor and principal owner of my company.

You need to define what your IDEAL LIFE is, create a vision board, and work toward that in smaller bite size achievable steps.

Property management is really a waste of time. It's the lowest return on time for an agent. The absolute lowest of the low dollar per hour work.

I will give you an example:

In commercial real estate not even considering splits lowest to highest return on time.

1. Property management. If you manage a 10,000 sq ft center at 200k gross rent at 4% that is only 8,000 a year.

2. If you do the lease up for a tenant or landlord for 5 to 15 years that goes in a center or freestanding building then could be 15k to maybe 45k for smaller tenants.

3. If you broker a deal such as the sale of a retail center then could be six figures per deal in some cases.

4. If you become the owner syndicating deals the returns could be exponential 6 to 7 figures or more per deal.

Each type of those avenues have different responsibilities and demands on time.

So think with the residential you are doing really hard about where you are currently at and where you want to go. I do find occasionally some brokers that enjoy property management on the commercial side and like the minutia and interacting with the tenants. It is rare though as most just do it in between supplementing lease or sales activities with higher returns.

So define what path you want and then seek out interviewing with multiple of those brokerages. The split means nothing in the beginning. Lots of brokers/agents focus on the splits. If someone makes 100k and keeps it all but someone makes 500k and 30% goes to the broker they still get 350k. There is cheap and then there is value. You pay a premium for the right value and knowledge.

I don't have agents currently on the commercial side because I do not like babysitting. Some brokers like doing that and then going golfing rest of the week. Lots of agents fall behind on dues, let license lapse due to continuing education not being met, owe student loan debt or back child support, etc. The agents can be lots of headaches to deal with for a principal broker.

Good luck  

These days I am semi-retired. I am selective what NNN clients I take on. Anyone marginal I usually refer off. I own my company so get to keep it all.

At 48 years old I only work about 30hrs a week or less.

My clients buy the stabilized NNN properties. I make millions annually that way and then buy my own value add dark buildings for cash and syndicate others ( accredited investors) when too much of my own cash is out on projects.

Currently buying about 3 a month and ramping up. I buy nationally for value add. ( blend and extends, undeveloped outparcels, vacant buildings paying rent or not, etc.) 

What I have learned doing this almost 20 years is that TIME is what is most valuable. When people are younger they tend to chase money because they want to be financially free. Once someone is financially free they tend to define what their ideal life is and want to live it. I could work harder than 30hrs but do not want to. They interviewed thousands of seniors some very poor and others with considerable wealth. They all pretty much said the same thing. It was memories with loved ones family and friends that they cherished in life over time and nothing to do with the money. Being financially free helps have more time to enjoy life how you want to create more of those memories so in that way money can help. After you have lots of money giving back and good works becomes more front and center for many. You can see giving a great tip makes someone's week that doesn't have that much money.

Historically wealth transfer gets lost 2 to 3 generations down the line in many situations unless a strong path is placed for how to keep the system going.

I have a Harmony meter I follow where 30hrs a week business is the limit then I have myself time and then family. Myself, family, business is how it goes. I put myself first because without taking care of myself I won't have the best of me to give to others. It can be easy when getting successful with business to put more and more into that and less time into more difficult or work intensive aspects of your life. When people do that they lose the harmony in life and synergy and manifests itself in addictions, divorce, etc. I have seen this talking to thousands of millionaires over the phone through the decades.

My goal is 1 billion net worth by the time I hit 70 years of age BUT I am happy with whatever the number is by then as long as I enjoyed the journey through the years my way. If I have to sacrifice everything else to get there it's not worth it to me.

4 years left will be paying cash typically. Lenders do not like anything typically under 7 years left. A few will do 5 for very strong borrowers and the right tenant and location.

Some stores DO NOT disclose sales and if they do it is annual in nature. They want to keep bookkeeping costs down. Getting monthly sales is more valuable every quarter because you can spot trends sooner of health of the business and where it is going. If stronger franchisee guaranteeing the lease make sure they cannot sell the business off to a lesser credit or strength franchisee or that they remain on the hook for full primary lease term.

Dunkin makes most of their sales on the coffee funny enough. The donuts are not really that good anymore and not made like they were in the old days. Lots of Dunkin Donuts go out of business. They have to sell a lot of product because of lower price points. That heavy volume of consumer traffic requires lots of labor power to process and eats into profits with bottom lines. All of the franchised brands pretty much charge a royalty off of the top line sales that way they get paid regardless of how good the operator is. They figured out long ago the money is in franchising and charging royalty fees on gross sales, commissary mark ups for food, re-imaging packages to sell, advertising fees, owning the real estate and leasing it back to franchisees, etc. The franchise company can do this without having lots of employees and overhead. They put that on the franchisees.

As the NNN landlord myself why in the world do I want to have a restaurant with managers and employees when I can buy value add properties to reposition without all of that and make betters returns than they do? Exactly

I can be passive and out perform their profit levels in many cases.

With Dunkin you will need to see what other national concepts close by and who has the better position in the market. Example is Starbucks in a better spot and crushing it and Dunkin Donuts is doing mediocre? If you live local you can sit in the parking lot and count cars during busy days and times to try and get an average for sales. Example if Dunkin average ticket is 10 dollars and you count 300 consumers that day that is 3,000 gross.

If absolute NNN lease has Dunkin tenant re-coated and resealed the parking lot and made other interior and exterior upgrades in recent years? If they have that can be a good sign the sales are strong with profit as they are investing for the future. If building and lot look old and tired inside and out they may be buying time to find a better spot to move and sublease the space until they can get out of the remaining primary term of the lease.

What is the building size? Is it typical for their footprint or more or less space than they need? How big or small is the parcel size and shape? Is the drive thru too short causing parking and car stacking issues with congestion? What about the main road is the property entrance too close to the red light and heavy traffic keeps people from getting in and out of the lot?

What is in place rents for that building size? How do they compare ( at, above, below ) current market rents? Example I buy Dunkin property with land and it turns out it's a crappy operator who goes dark. If they were paying really low rent I still make money releasing to a better tenant. If the Dunking operator is weak paying market rent and I bought with 4 years left at an 8 cap then it's still a loser as with releasing costs I lose money.

I could keep going on and on. You can make great money if you know what you are doing. If you do not you can lose your shirt.   

Plan to live very lean starting out. You will likely be on teams and splits when licensed eventually. A typical 100k commission deal after company cut and senior broker cuts you might get 8,000 before taxes as the junior agent.

Someone 5 years in could make 300k or 400k but put in 80hrs a week in time. When you are younger you have time. When you get older and established you can pick and choose the business. My friends on the listing side have to sell the crap out of properties to make anything decent. The head of teams might make 800k and up a year but in constant meeting, taking portfolio's to sell, etc. and have to move like 300 million annually in product.

Examples they sell 300 million at 2% = 6 million gross

6 million / 2  = half to company leaves 3 million

3 people on a team

Senior Director - 50% = 1,500,000

Agent - 35% = 1,050,000 

Junior Agent maybe 15 percent so 450k annual income

That's the properties they list, sell, and close and does not mention the ones that did not sell. That is a ton of work.

I stay on the buyer side. I can do a few dozen deals a year and make millions or more because I own the company and get to keep it all and then roll that money into investments to make more money. I do not work more than 30hrs a week by choice. 48 years old now when you get older and have wealth you value TIME. People are often focused on that first million to try and escape the rat race and be financially free. Once you hit that metric the way people think about life tends to change with a major shift. Philanthropic efforts, more time with family, friends, yourself to enjoy life becomes more front and center as the financial piece is taken care of as long as huge dumb mistakes are not made. Pay attention to what state you are in also. Some places like CA you could be paying over 50% taxes and cost to live could be insane so the money is not as much as say where I live in GA where you can be very comfortable on 100k living a year and taxes much better.

As to learning it's good to intern to see whether this is really something you like or not. There is the question of liking commercial real estate or not and then what asset class and then type of activity within that asset class.

Example you find you love commercial.

Next you want to find out if you love retail, industrial, etc.

Then you want to find out the subset examples for retail do you like:

1. Land assemblage for developers

2. Transacting the sale of existing building

3. Representing tenants for leases

4. Property management, etc.

Best thing I can tell you is never give up. Keep an open mind everyday. I start each day with the mindset that I know nothing and that allows my mind to always be in expansion mode to get better. I am confident in what I know and my abilities but understand the smallest of daily improvements lead to big long term gains over time.

Focus on ACCURATE KNOWLEDGE to gain Wisdom over time. If you have knowledge that is partially right, not at all, etc. then you are learning the wrong things. Even if learn some of the best knowledge but do not apply it then it's the same as not learning it at all.

Have a vision board with your ideal life on it and what you want that to be. That way you will be pro-active working toward what you want out of life instead of re-active to what others want you to do which may or may not be best for your short and long term goals.

Good luck

You are buying the land and location and not really the building and the tenants. It's not what it is but what it could be. Sometimes I buy buildings and knock them down. The listing broker is worried that property is trashed and do I still want it. I am really buying the dirt to redevelop so could care less about the building.

Some states and areas are putting moratoriums on smoke shops and marijuana dispensaries until they can decide how much and where they want those types of businesses in an area.

Alot of the tenant types you mentioned are WEAK and never hardly last the term of the lease. CONSUMERS think of brands as to what would be COOL in an area they live and or work in. LANDLORDS are thinking of cash flow and stability of the tenant for current value and future exit values. Of course landlords would like to put in nice tenants that the communities long for but the lease and strength of tenant still has to work. Often times these mom and pop brands leverage their house to get the business going and have a 6 month shelf life versus the larger franchisees and big corporate brands that have been in business for decades and cycles and know how to keep making profit and stay open.

The only time I consider a clothing shop is if a personal guarantee and the people are already rich and just want something to do. Example somebody wants to open a clothing shop and has 100k net worth and if not successful in 6 months will burn through cash that's a no from me. If someone retired and worth 4 million and wants something to do and if shop makes money great but if not a tax write off then could work. I do not want tenants to go dark UNLESS they were inherited and rent very low to market then after tenant improvements, leasing commissions, attorney fees, etc. I still make good money.  

Zoning can also be a problem. Example in Austin Texas you move a tree branch and can get a violation monetary penalty and they want big set backs from road for sidewalks etc. It makes visibility and access much harder for street front buildings. The benefit though is that developing is much harder so helps values and insulates against oversaturation with competition.

On the other spectrum some parts of Texas have no zoning so on a mains street you will see a developer that made a super nice development and buildings and then right beside it someone put up the ugliest and cheapest looking building possible. That hurts the feel of the area, the values, etc.

Before you waste time you should have a written exclusive agreement with that buyer.

Is the buyer paying all cash from the 1031 proceeds? Adding more cash to the proceeds? Wanting to use debt?

Does buyer have a preference for geographic region? Cold belt, mid-belt, warm belt state?

3 to 5 million range is massive difference in the buyer pool competing against. 3 million might have 10 offers and 5 million 4 offers. The bigger the price the smaller the buyer pool. There is a conversion from more cash buyers at 3 million and below to 5 million and above using mostly debt as they do not want that concentration of cash into one property typically. Does your buyer understand the 1031 process goes super fast in 45 days selection if making the 3 choices option? In commercial it's not like residential. A PSA is a custom redlined word doc between commercial attorneys and that can take 2 weeks on it's own before even going under contract and 1 week before that on the LOI stage.

The listing brokers have agreements with sellers unless they are showing it off market with bring them an offer type situation. In any case do NOT rely just on what the listing broker took for a fee. The listing model is a VOLUME machine model where they might take 40 Olive Gardens to sell and agree to a total fee of 4% or less for getting hundreds of millions in listings and then sell them off individually. You are only working on the one transaction so do not get the same benefit or have the same model. I have a fee agreement in my exclusive agreement where the buyer compensates me up to a certain total percentage fee. That way if listing broker took a really low fee for co-op and total then I get my minimum compensation I work for regardless deal to deal.

Welcome Peter,

I do commercial NNN STNL and MTNL. My clients buy stabilized nationally. I do value add buying with cash to turn around more small ball properties 2 million and below typically.

I am a principal broker and investor.

I do a little bit of ground up development but like the vacant buildings for conversions as typically less red tape with the county or city as it's a dark building they want performing again versus the public arguing their park or greenspace is being taken away.