What Are GOOD Returns for New Development?
Ever wondered what investors really consider a good return on a new development deal? In this Office Hours livestream, I break down exactly what makes a project attractive to investors—why an 8% return won’t cut it, when you should target 20%+ IRRs, and how risk levels shape expected returns.
We’ll also cover:
- The biggest mistakes new developers make when structuring deals
- How to vet contractors and keep projects on track
- Creative ways to add value to industrial and commercial properties
- Why equity multiples can tell you more than IRR
- Real audience Q&A on financing, leasing, seller financing, and more
Get commercial real estate coaching, courses, and community to jumpstart your investment journey over at CRE Central: www.crecentral.com
Key Takeaways:
For new development projects, investors typically want to see a 20% or higher Internal Rate of Return (IRR).
An 8% return is considered too low for development projects, which are inherently risky.
Equity multiple is often a preferred return metric, with investors looking for around 2x equity multiple in less than five years.
When vetting contractors, it's crucial to:
Talk to other developers they've worked with
Inspect their job sites
Check their professionalism and documentation
Seller financing depends on:
Talk to other developers they've worked with
Inspect their job sites
Check their professionalism and documentation
Seller financing depends on:
Talk to other developers they've worked with
Inspect their job sites
Check their professionalism and documentation
Down payment amount
Borrower's track record
Property type and potential risk
Marketing and finding tenants requires active prospecting, not just putting up a sign and waiting.
For commercial real estate investing, having a track record is crucial - even a small first deal can open doors for future opportunities.
Returns and deal attractiveness vary by market, location, and specific project details.
About Your Host:
Tyler Cauble, Founder & President of The Cauble Group, is a commercial real estate broker and investor based in East Nashville. He’s the best selling author of Open for Business: The Insider’s Guide to Leasing Commercial Real Estate and has focused his career on serving commercial real estate investors.
Episode Transcript:
So this episode of the commercial real estate investor podcast is brought to you by my cre accelerator mastermind, where you'll get access to my step by step investment blueprint, essentially a library of resources on how to invest in commercial real estate. You'll get connected to a supportive community of other commercial real estate investors that are doing projects just like you. You'll get personalized coaching and feedback from me every step of the way. Go to www.crecentral.com to learn more. Welcome back to the commercial real estate investor podcast. We are live from the cobble group Studios here in Nashville, Tennessee, with another round of office hours. So this is where I go live, and I answer whatever questions you have on deals that you're doing. How to get started in commercial real estate doesn't really matter. I am here to answer your questions. We do this on the second Tuesday of every month, at 8:30am Central Standard Time on YouTube. So if you're listening on the podcast, feel free to join me. Then every second Tuesday at 8:30am Central Standard Time. Let's see today, we'll give you a recap of kind of what I've been up to for the past month, some things that are frustrating me as a developer, and maybe some things that you can kind of take away, as you know, maybe I don't want to do development. We've got a thread to dive into from Reddit titled, what's an attractive return for investors when it comes to new development projects, I get asked that question all the time. I figured this would be a great thread for us to jump into, because what is a good return? Well, it's a very subjective question, and we'll talk about that. So that leads us to the question of the day, what investment returns are you looking for when buying commercial real estate? Are you more interested in IRRs or is it cash on cash? Or is it the equity multiple? Are you wanting to double your money every five years? Or are you looking to hold this for 10 years and just cash flow it to the sunset? Let me know in the comments. I am curious to hear what you guys are looking for these days. We recently ran a poll in the community here, and I thought the I thought the results were pretty interesting. Let me see if I can even find it, because I think that it's, I think it's worth diving into. I had asked the question to the community, what kind of commercial real estate are you focused on right now? And or what? Just what kind of real estate, right? Not even necessarily commercial. So I dropped in residential rentals. 19% of people are still interested in doing residential rentals. That's a surprisingly high number. Honestly, you know, we've got, I mean, mostly my audience here is all people interested in commercial real estate. So the fact that people can hear me talk about how miserable residential real estate investing can be. It still went out of every five of y'all, come on, man, we got to fix that. 16% are interested in investing in small multifamily. That's three to 100 units. Is what I consider small multifamily. 16% is kind of high. I mean, honestly. I mean, now we didn't ask the question, are you actually buying these deals, or are you just trying to find the deals? Because small multifamily deals right now are so overpriced for the most part. Can you find a deal, of course, but they're unbelievably overpriced. And then I had general commercial real estate, so retail, office, industrial, and that was 35% so good to see. Hey, 35 and this is out of 245 votes. So small sampling size compared to the 80,000 followers we have on YouTube. But you're not really ever going to get a whole lot of people that want to participate in these. I thought this was good information, that 35% one in every three are actively trying to buy commercial real estate. I think that's pretty solid. And then we had 31% that were just getting started, and they're trying to figure it out. So if you have any ideas for polls that you would like for us to run, anything that you think would be interesting to know about this community, feel free to drop those in the comments the video comments. I do check and respond to every single one of them. I'm a little bit behind. I get behind every now and then, because, surprise, surprise, I have other things to do other than just responding to YouTube comments, but I promise you, I will get back around to it, because I do enjoy responding to those So Eddie is saying, Good morning. Tyler, cash flow all day. I love it. Man, how much cash flow do you need? Eddie, what are you going for? Like, what are you looking for when you're doing those deals I want to know. All right, so this past month has been interesting. I mean, it's been hotter than hell in Nashville, which it seems like it just gets hotter every year. But, you know, we were supposed to be done with this hotel back in June. The contractor knew that for a year, it was originally March, and then it was May, and then it was June, and now it's September, and it's probably going to end up being October. You know, it's one of those things where, you know, unfortunately, as a developer, you can only crack the whip so much before you get to a point where are you going to fire the contractor off the job? Because. You do that now you gotta go find somebody else that's willing to step in. If you sink your teeth too hard into a contract where, you know, Hey, it's $1,000 a day penalty for every day that you don't deliver it past this specific date. Those are helpful, but it could also demotivate the contractor to a point to where he just doesn't care about doing the job anymore and walks off, right? And so you get into this like catch 22 of working with contractors to where you're like, Okay, well, you know you're not performing in the way that I need you to be performing, but it's probably going to hurt us worse if I take you off this job. And so what I've done is I've just put all the resources in place to help him start making all those decisions and getting things done. Because, you know, I've got a project manager on this, on this deal too, that is staying on top of him. And unfortunately, it doesn't matter how long you've been in commercial real estate, or how long you've been in real estate or building, you know, you have to have all those kinds of things in place and sometimes pick up the slack for somebody that's just not doing a great job. So are there financial penalties? Are there, you know, other sort of penalties to contractors that you can put into your contracts? Absolutely. Yeah, of course. I mean, why not? But at the end of the day, it's really more about having somebody that that you just trust is gonna get the job done. And that's the hardest. Hardest part about being a developer is finding contractors that you can do that I have very rarely used the same contractor more than two or three times. Typically on the first job, you know, they're good. The second job, you know, the cracks start to show. And then, by the third job, you know, you've either helped them get so big that now they're working on, you know, 20 other deals at this at one time they've grown too big. Or, you know, the honeymoon phase is over, and so they just start thinking and kind of do whatever they want. I mean, you really have to babysit. Which is, which is unfortunate. We are. We just closed on a on a flex building out in Chattanooga. So I'll be talking to you guys about that one. We'll do some more videos on that. You probably saw a video that I did on this channel not too long ago. I think it was titled something like, you know, we stopped buying apartments because of deals like this. That was actually a video of my partner and I going and walking the property, you know, touring it, and kind of walking you through how we're how we're doing the deal. We actually raised capital for that one. So I talked about that. We kind of did a little Investor Pitch there at the end. So you can kind of see how we how we do things. Really excited for that. It's a, it's 101,000 square feet out in Chattanooga, mostly occupied. It's over 92 or 93% occupied. So you know, the plan is to just come in, do a white value add, increase the rental rates, flip some tenants over, and flip the deal. It'll be probably a three year deal, and we'll be documenting it every step of the way, which is exciting. Joseph is saying, how do you vet your contractors? I think that's a great point. I want to hit this before we move on to anything else. It's really, really tough, because every body interviews Well, I mean, you know, anybody can lie for 30 minutes. What I like to do is, I like to get out and talk to developers that they've worked with, right? That's the best thing that you could do, hands down. But just, you know, if you can't do that, get out there and look at their job sites. Get out there and see, you know how they're running things. I mean, the biggest problem that I have with the contractor now, I've worked with him before, and he was fine. I think he's just got too much going on at the moment, and so we're just having to stay on top of him far more than I would like to you know, and see how dirty somebody's job site is. I think that tells you a lot about them. As a business owner, honestly tells you. It tells you quite a bit. I also think that you know how professional they are when it comes to documentation, that can be another thing. If they are not using contracts like they don't have an AIA Contract or their own custom contract, they're just trying to do things by handshake or whatever. That is a huge red flag to me, because that's not how this world works. You should not be doing them. Eddie's saying he wants about $1,000 a month, or $100,000 cash investment from his from his cash flow. Eddie, we got to get those numbers up. Man, you got to get those numbers up. I think, like, what was it like? Oh, man, I'm trying to remember, because we just did a poll of members in the in the accelerator mastermind, and let's see, 19.57%
Tyler Cauble 9:51
of the members are making over $10,000 a month in passive cash flow from their investments. So we could definitely get you out there, buddy. Just. Keep working on it, but I thought that was pretty cool. Like, one in five members of the mastermind are making over $10,000 a month. Like, that's a lot of money, which is pretty cool. So let's see. Wheeler saying, I have a lead on a one and a half acre property. It's zoned for industrial and it's being used as a lot where broken down cars are being parked. How would you add value to this deal? Well, I mean, you know, it's, I don't know enough about that, like, is it in the middle of nowhere Nebraska, or is it in the middle of downtown Manhattan? Obviously two, two very different answers, if that's the case. But what I would do is, I would look up the zoning and figure out what you can actually build there. Maybe you need to talk to an engineer to figure out what the building envelope could be. But go through that process, figure out what you can actually build and see if that's worth the squeeze, right, if it's worth putting the money into it. Otherwise, maybe it's worth just parking cars there. Unfortunately, Wheeler, I just don't have enough information on that deal to be able to really give you good advice. So I don't want to go too far into it. All right, cool. Let's, let's dive into that is not what I meant to do live production, man. All right, so this is, this is on Reddit, what's an attractive return for investors when it comes to new projects? So the question projects? So the question is, or the poster is saying, Hi folks, myself and my business partner have started a development firm. He owns a Well, hold on. That's that's a little concerning. Right off the bat, you've started a development firm, and you don't know what attractive returns are for investors when it comes to new development projects. Development projects interesting. He owns his own construction company, and I've been in the investing and financing side for over half a decade, like how he said, half a decade, instead of five years, we're starting off small. To have a project between both of us complete a sponsorship experience is vital to getting financing for larger projects down the road. That is true. Your first deal doesn't matter the size. Just go get a deal done, because once you have that track record under your belt, it's going to make everything else in your life substantially easier. At this time, we're doing a fourplex and looking to scale quickly. Afterwards, we will build larger buildings with more units. So yes, I know four units doesn't consider as commercial right now, but the intent of the post is for larger projects in the future as well. We would be using investor funds to purchase the land and get us to the first construction draw. However, we have received feedback that the return offered is not attractive, attractive enough. At this time, we were able to make the numbers work by offering an 8% annual return. Oh, that's horrible. I would never, I would never give my money for that. Is that all you're getting? It looks like that's all they're getting. Even at an 8% return, we would still have a small handful of investors, capital invested in the building after the takeout financing, and they would only be paid out upon a refi five years later, we know we got an amazing price on the land. The area has strong rents, and our build costs are less than average due to the in house construction and general contractors. So basically, if we can't make this work, nobody should be able to but offering nine to 14% does not make the project feasible. 100% right off the bat, if nine to 14% to your investors doesn't make this project feasible, it's not a project worth doing. It's not actually a good project. Doesn't matter if you got a better price on it than anybody else. Can I say that a lot if hiring an attorney and paying them 2000 $5,000 to help structure your deal the right way. Isn't in the budget for this deal, not a deal. If paying your investors a market rate return that investors want to have isn't in the budget, this isn't a deal, right? There's so many things like that that you know, hey, if you can't do a phase one, or you can't do a survey like, if that's not in the budget for you doing this deal, don't do the deal right for new construction and development. Typically, investors are going to want to see a 20% plus IRR. They need it to be high, because investing in deals like that is incredibly risky. Like, that's just what it is like. So, you know, for example, like, on a value add deal that I do, we are aiming for somewhere between an 18 and 22% internal rate of return right over five years. That's what we aim for on a value add deal that's already like, the building's already built. There's probably already some tenants there paying rent. Like, that's a relatively stable deal. So investors look at that, they're like, Okay, still risky, but not as risky as development. Investors under development want a 20% plus. IRR, probably 25% plus. So essentially, they need three times the return as to what this. Person is saying they're able to give them, really, if you're wanting to pay somebody 8% I don't know anybody that would take that. I mean, that's, you know, you might be able to structure some sort of preferred debt, or debt for the property instead of equity. And then maybe, you know, 8% is feasible. Most investors are probably going to say they want 10 to 12. Say they want 10 to 12% interest on their on their debt. The reason an investor would be more willing to consider a debt structure at that return is because they are going to be essentially guaranteed that they can get their money back. Right? Equity is essentially unsecured, like, Yeah, I mean, it's secured by the building, but if you file bankruptcy or if you go through foreclosure, they could lose everything, which is why equity needs higher returns. If I'm placing debt on the property, especially if I'm in first position, I'm going to make sure that you're bringing enough cash to the table so that if I have to foreclose on this thing and take it back, it's a great deal from either way, right? And that 10 to 12% per year sounds good, right? That's fine. That's a decent return. So right off the bat, I can tell you know, not great returns being offered. All right, oh, cool. All right. I haven't even read these comments. First comment, agree with everyone here, 20 plus percent. IRR is spot on for development. We see those mostly with content developments where I'm from, but can be achieved in other asset classes. Too much risk with development to target less than high teens. 8% is what most GP give as a pref on a cash flowing multi when I first read 8% that's why I had to say, like, is that all they're offering that sounds to me like a preferred return? Like, on the deal that we just closed last week, we gave our investors a 7% preferred return. That means that we have to give our investors a 7% return on their money before we, as the deal sponsors, see $1 so our interests are very much align with our investors. That's why we do that. Let's see my first development deal. This is another comment. My first development deal was done with my best friend, who happened to be a highly competent commercial GC. And my background is in commercial brokerage. Started an industrial with a focus on large investment deals, and eventually pivoted towards land and high density residential development. I've been a part. Okay? He's just talking about his my two cents is that he's just going on and on and on and on about his experience. If you're watching on YouTube, you can see how giant this paragraph is. All right, my two cents is that you need to be skilled at finding off market tracts of land with the opportunity to rezone increase your debt. That is exactly what a broker would say, get really good at fighting off market deals. I mean, that's how I got my start, and it is great. It's not the only way. All right, he actually doesn't go into any advice at all for that. So I'm going to skip out for that. Let's see this person's saying, find bigger and better deals. I'm penciling in a 40 to 70% IRR on 100 units with HUD financing and a sale at year five. Hell, I'm penciling in a 100% plus IRR on a deal where my Muni municipality is giving me land and paying me to develop affordable housing. I like my development deals to cause at least a mild amount of brain damage as a barrier to entry. If you wouldn't make that much with a straight 8515 split on profits, it's a bad deal. I'm not saying take an 8515 just that you need to make fees or rely on prep the pencil. It's a bad deal. Keep fishing. Oh, man. I mean, hey, if you're able to get a 40 to 70% IRR, that's amazing. Good for you. I don't think that I've ever seen a deal. I mean, that's not true. I have seen deals that have gone to upwards of that. I haven't seen that in the last four years. Interest rates are too high. There's too much money that's coming into commercial real estate. I'm just not seeing it. So if you're able to get 100% plus IRR, on a deal, please call me. I would love to give you all of my money in the world. I will find people to steal money from to give you more money. Because, I mean, if you're getting 100% plus IRR, that's, that's absolutely insane. I
Tyler Cauble 19:21
don't even see how that's possible. But I mean, if you're, I guess it depends on your debt. I mean, if you're coming in with HUD financing, and the municipality is giving you the land, and you're putting $1 into it, and you're getting $500,000 back, well, yeah. I mean, it's Yeah, but still you gotta, that's why I don't like the IRR. It's like you still have to look at so many other factors to determine whether an internal rate of return is actually even a good metric to be considering. Because in that, in that deal like we could do, you know, I could get $1 and I could get back 100,000 I could invest $1 and in two years, get back $100,000 and my IRR is going to be insane. It's. Gonna be insane, but it doesn't show you that I took on $10 million of debt to risk making $100,000 right? So, like, that's why, when I see a 40% to 100% plus, IRR, like, it gives me some pause, because I'm like, man, you know, like, I've taken some risks, you know. I mean, you guys know, like I didn't get here because I had a trust fund, like I had to really bust my ass and take some risks that, honestly, I would not do again. But I did it. I needed to get going. And I wouldn't do a deal where, you know that much debt is on the table just to make this happen. We actually did have a deal a couple years ago. I'll tell you about it, because it because it was 100 it was 100 and something percent, IRR. So I know this exact scenario. It was, it was affordable. It was an affordable housing deal. We were gonna build 63 units here in Nashville, and the bank, my partner and I put $100,000 in H to buy the land. So it was $618,000 so we got a $400,000 loan from the bank. So the bank. The bank turned around once we'd finalized all of our approvals, and said they would give us 100% financing on building 63 units. And when I ran the numbers on it, it was, like 115% IRR, like it was something crazy, like, I'd never seen anything like that before. I took it to my partner, who's, who's, you know, probably twice my age, right? I mean, this guy has done a lot of deals. He's brilliant. And, you know, I said, Bruce, this is a hell of a deal. We should do it. And he goes, Yeah, the returns look great. But I would never do this deal. I was like, okay, you know, first of all, like, brokenhearted and disappointed, because I was like, Man, these returns are amazing. You know, he was like, Look, we're taking on $10 million of debt to make a couple million dollars. That's not worth it. And it might have been three or 4 million. I mean, it was, it was a decent amount of return. But, you know, considering the amount of risk, and also, we would be delivering those units probably today. Can you imagine delivering, you know, I mean, just in this market, God would have been a nightmare. Would have been an absolute nightmare. I'm so glad we didn't do it. But I was brokenhearted at the time, because I was like, man, I've never seen investment returns like this. Okay, I know I've gone on a complete tangent, but I wanted to explain that a little bit further, because when, when anybody says they're regularly getting 30% plus IRRs just let a let a flag, a red flag, pop up in your mind, or maybe a yellow flag, you know, question it, because most of your professional investment sponsors that do this time and time again, typically don't aim For that, you know, maybe they can get it, but that's not what they're aiming for. Let's see, working in a construction company we're raising third party now. IRR, needs to be 20% plus. I mean, 100% is pretty attractive. 18% or more, IRR, yeah. I mean, everybody's saying 20% plus on these developments. So, I mean, that's, you know, there you have it. For what are attractive returns for investors, when looking at new development projects, I aim for a 20% plus. IRR, I just don't think that anything less than that is going to be attractive. You got to think about it. You can invest in multifamily, which, you know, is stable. Yeah, you're not gonna get good returns, but it's stable and you're getting a 12% IRR, right? I mean, it's, it's, you know, again, not great, but, like, I'm not taking the risk of building something completely new and hoping that it works and I'll get a 12% IRR, so why bother? All right, let's get into those questions. I know you guys have been dropping some stuff in here. Let's see Jared is saying Question of the day, looking for high single digit cash on cash. So eight, 9% returns, two times equity multiple in less than five years. I love it. Yeah, he said that. Said not finding anything out there that will get those returns. Right now, I'm sorry to hear that, Jared, that's, that's what I am for. You know, cash on cash on cash return over a five year period, fine, whatever. But a two times equity multiple, that is my favorite return metric. That is what I go by, is the equity multiple. Oh, but Tyler, that doesn't take into account time or years. Yeah, I can. I can do simple math and look at like a two times equity multiple over five years, versus a two times equity multiple over 10 years. Which one is worse? It's not that hard to figure that out. Obviously, you're going to take the 2x over five years, right? I'm big on on the equity multiple, because it doesn't lie. You know, it just like IRRs lie I'm telling you, let's see. Luigi is saying, hey, how do I know how much tenant improvement allowance to give a tenant? Luigi, the best thing to do is to just call around in your local market and figure out what's the market rate, right? It's like your tenant improvement allowances are just like your rental rates. There's going to basically be a market rate for that. But. Typically brokers will know it. You know, in Nashville, it totally varies. Like, for a second generation space, you might get 10 or 20 bucks if, like, if it's really worth it. Sometimes you're taking it as is. If it's new construction, you might get 50 to 100 bucks a foot in tenant improvement allowances. It completely depends. And so that's why it's so important to just call the brokers that are working on deals similar and see what they're saying. Nick is saying, morning. Tyler, good morning. Nick, thanks for joining us. Man, good to see you here. Roy is saying, how to enforce deed restrictions called covenants that has a liquor license, non compete, how to enforce the deed So, Roy, I want to make sure that I'm understanding this properly, because I'm dumb. But are you saying that you have a deed restriction in on your property that says you cannot get a liquor license? If that's the case, I don't know that there's much more that you can do, and the best thing to do is to call a title attorney and see what they recommend. From what I understand, typically, once a deed restriction is put in there, I don't know that there's a lot that you can really do on
Tyler Cauble 26:12
it. Let's see Wheeler saying it's in a heavy industrial area in metro Atlanta. There's currently a 900 square foot building on the way in. Yeah. I mean Wheeler, there's, there's a ton of stuff that you could do with that. So I would, yeah, I would just start digging in, doing your due diligence, studying the area, seeing what, what the demand is for in that area, talking to brokers, talk to some engineers, so you can get some back and napkin sketches done for it, and take it from there. Man, Nick is saying, closed on first commercial deal two months ago. Congrats. Congrats on the first commercial deal. It's an eight unit professional building, six out of eight units occupied. Not much lead traction. So far. Broker hasn't really gotten any leads advice. Nick I would, I would have to see, like, your entire marketing package, like, really, how you guys are fully approaching this. In order for me to give you good advice, I think that marketing and finding tenants is one thing that, like my brokerage, is better at than a lot of other ones. The biggest thing is making sure that your broker is actually actively like prospecting outbound. That's that's all that I could say about that. Are they sitting there and hoping that the sign that they put up is gonna, you know, generate all the attention, or have they put together a list of all of the potential types of businesses that could work in those spaces. And they're calling them every week. I have my brokers turn into me a weekly traffic report that has, I mean, it's got a ton of information on it. I just got one, you know, over the weekend from one of my brokers, and I'll tell you guys what's on our traffic reports. That way you guys can kind of get an idea of how much information I as an owner need, right? Because I don't want to work on these deals. I need you to go work it and then tell me so total new inquiries, the source of the leads, breakdown any repeat interest, tours conducted, tours scheduled. Let's see active prospects, sorted by hot, warm and developing as well as follow up actions. I like marketing and exposure updates. So how's our online listing performance? How's, you know, like, what, how are we looking on our across our different platforms? Because we're on crexy, I've got my own website, we've got email blasts, we've got social media, and then we've got our own, like, CRM, that'll, that'll send out, you know, text messages and stuff like that, to people who have inquired. We look at competing listings and market feedback, what's going on, what else is coming on the market against these listings, and what is the feedback that we're getting from, from prospects, Lois and progress, lease, negotiation, broker commentary, and then strategic recommendations. They're intense, like, it's, it's a lot, like there is a lot that I need. And so if your broker is not providing you with that, get a new broker or ask them to start doing it. It's, it's not a super complex thing to do, especially with AI nowadays. Tell them to sit down for 10 minutes and have a conversation with chat GBT to get you all this information. But if they are typically what I see Nick and it could be, you know, I mean, what? You could have bad photos on the listings. You could have bad information on there. He may, you know, there's, there's a lot of assumptions that I'm making. So maybe your broker is actually, like, I don't know, kicking tail, and he's really knocking on doors. It could be overpriced, and there's nothing that they can really do about that. So again, I know I'm making some assumptions here, but typically what I see is that the brokers are not actively prospecting time and time again. You guys complain to me about brokers all the time, and as a broker, I 100% agree with almost everything that I've ever heard from you all when it comes to complaints about brokers, because. Guess what? They also don't return my phone calls, and they don't return our emails, and they don't get us information on time, and they don't show up to property tours. And they say, Well, it happens all the time. I don't understand it. If you want to be good in commercial real estate brokerage, just answer the phone and show up on time. That's your old be better than 90% Scott is saying, hello from the Adirondack Mountains, New York, Lake Placid Scott. Man, you're all over the world. Dude, I love it. Like last time we talked, you were in like, Greece or something. Let's see. Isaac is saying, what deals are you in need of capital for need help capital raising. I mean, Isaac, if you if you've got good access to capital and you like raising money. You know, we always need money. I mean, I just, I'm about to put an $11 million deal under contract, so I'm gonna need some money for them. I've already got my financing pull together, which is pretty cool, but, you know, we've got time, and we're not closing on that until January. So that's another tip. We just, we're about to put this deal under contract, typically under my like, due diligence period, like, how we like to operate, we'd be closing at the end of December. And I can't tell you guys enough how much you should never, ever, ever, ever, ever try and close a deal at the end of December. I've done it two or three times in my entire career, most miserable closings you will ever deal with. Nobody wants to work. You'll be working on Christmas and New Year's Eve. I promise. Nobody wants to work. Then, you know, it's just, it's too much. It's way too much. Let's see. James is saying question for refinancing, what's better to purchase the building and lease back 100% of the property to the seller, or only lease back 10% to the seller and 50% to 10 new leases? Hmm, well, that's a good question. James, I mean, it really, really depends on what you're aiming to do, like, if you're simply going for what's the best for getting the deal refinanced? It's going to come down to the length of the lease and the credit of the tenant, right, and so also, you'll have to season it right. I mean, most banks, before they refinance will want to see at least 12 months of stabilized PNLs at whatever new leases or whatever you've got. So, you know, if you're, if you're doing that, I mean, either one could work, they could both be equally as great, like if the seller is, you know, Apple, you know, I'm sure that that's you're probably gonna get better refi terms than if the 10 new leases are all small businesses. So there's a lot of factors that kind of go into that, and unfortunately, I can't really answer it either. One can actually be better. There's a lot that else depends on it. He's added to this for refinancing. Does the bank prefer one lease at 100% of the space or 70% to 15 new leases at higher rent, but 30% vacant? I mean, I think, Well, James, at the end of the day, it all comes down to the net operating income. If the NOI is equal in both cases, you're probably going to be getting roughly the same amount on a refi. It doesn't matter if it's 50% vacant or not, although what you will likely start to encounter if you are experiencing vacancy is you might get capped by the debt service coverage ratio. And I know we're past nine o'clock, I'm going to keep going, because I don't have my next meeting until 930 at Salt ranch, and I got to get it out there and go meet with my contractor. So we'll keep this going, guys. So yeah, I mean, James, that's kind of what I would be looking at. It's like, at the end of the day, what is the net operating income? Because that's really the most important factor there. Chris is saying, morning. Tyler, good morning. Chris, great to hear from you. Saying, How could a beginner stand out to an established owner to be able to convince them to sell or finance a deal with no prior relationship and without it just being a transactional relationship. Is it just timing? For example, how can I stand out to you and somehow convince you to sell or finance a deal with me? Chris, you don't have to convince me. I love seller financing deals. I just got paid off on one a couple weeks ago, so and I'm trying to sell or finance another one. Sophisticated commercial real estate investors understand the pros and cons of doing seller financing. I like it. I like it a lot. Biggest thing to me is, I mean, here, here's, here's. The problem with, like, newbies and seller financing is that you still have to get a construction loan if you're going to be doing any construction, and the the bank that's or the lender that's giving you the construction loan is going to want a first position, I, as the seller, will not consider anything other than a first position. So there are some sellers out there that will do a second position. For me, it's just not it's too risky. It's not worth it. I'd rather not do it. You. Yeah, and so, but let's assume you don't need a construction loan in order for me to give you. Seller financing completely depends on the terms, right? Like, how much money do you have to put down? If you have no money to put down, then you know, I'm going to be making you get a massive insurance policy to make sure that my property doesn't get torn up, because I am expecting to foreclose on it, and, you know, I'm gonna give you some super high interest rate, right? I mean, it's just how it is, right? If you've got no track record, because you gotta think about how much risk I'm taking. I'm basically giving you a property and hoping you don't mess it up.
Tyler Cauble 35:38
Whereas, if you, let's say, I'm selling you a million dollar property, and you bring $200,000 down. At that point, I feel pretty good if I have to foreclose on this, I've got your $200,000 plus my million dollar property, I'm feeling good about it, plus whatever interest payments you've made at that point, then we can start negotiating what it looks like in terms of the amortization or the interest rate, or the how many years we're going to carry it. You know, it all completely depends. Chris, I think the biggest thing for you as an as a beginner, is to just fully understand 100% of the levers and the mechanics of how seller financing works, because then you'll be able to tell a property owner why it would make sense for them to do that instead of just selling it and taking the money, right? And so part of that is being able to ask the right questions, but part of it is fully understanding how to best structure seller financing. And so if you can learn that, I don't think it necessarily matters. If you're a newbie, you just got to get in front of the right person. Adam is saying, for someone looking to bring into commercial do you recommend getting a license? I'm currently a wholesaling residential I mean, Adam, here's the thing, like, my take on getting your real estate license to be a commercial real estate broker. If you want your full time job to be commercial real estate brokerage, and you're investing on the side, or you're using that to get cash and experience to then start investing 100% go do it. It's gonna take you three to five years before you start making money. I mean, it took me three years. I made 40 grand. My first year I made like, 40,500 my second year. Like, I'm not even kidding. I remember looking at my tax return and being like, I messed up, because I had dropped out of college and, you know, so I'm like, Man, I'm making less than all my friends are. Third year I made $120,000 right? So I tripled it. My friends weren't doing that. I'll tell you that. So, you know, it's, it's, it really just comes down to how much time and energy you want to commit to it. If this is something like part time, like you just want to get your license, because you want to buy commercial real estate, and you think it's and you think it's going to help, I would just avoid it. There's no point, you know, you can always just wholesale deals to buddies, you know, collect a fee doing that, and you don't have to disclose that your license. Like there's so much in there that's just, you know, so much better. Luigi is saying, Would you be my broker in Roxboro, North Carolina, Luigi, I probably wouldn't. I mean, it depends on what you're looking to buy. We help investors buy deals all over the country, right? So mostly single tenant, at least deals, but we do investments from, you know. I mean, we've gone, you know, Texas, out to North Carolina and pretty much everywhere in between, right? The reason we don't go further west is just because, once you start getting to Arizona, California, you know, Portland, Oregon, you know some like, some of those areas. I mean, Washington, not not Portland, when you start getting into some of those areas, it just the returns, it gets tough. It's a different type of investing. And so, you know, we just don't like to do it, to be, to be honest with you. So, yeah, I mean, look, if you're buying commercial real estate and you've got a substantial budget, we'd be happy to help if you're looking to, like, lease space, probably not a fit for us. But, I mean, you know, I may be able to help you find somebody in Roxboro that's qualified. Oh, let's see here. Scott is saying, Thanks for your time. Tyler, absolutely. Scott, hope you're doing well. Man, loving all the traveling. Dylan is saying, How do I find a lender that can help me finance a Housing Assistance Program, 24 unit? Ooh, Dylan, I have no idea. Man, I don't really do a lot of affordable housing. I mean, I would love to, and I've got a buddy that does it, and we're trying to figure out how to create more affordable housing here in Nashville on a market rate. I've done one that I stepped in as a, you know, kind of a project manager to assist the development team getting this across the line. It was 126 units here in Nashville, which was a great experience. I loved every bit of that, but I'm not really sure about the financing on that. I mean, probably the best thing to do is to call your your local municipality and ask them, you know, who they would recommend that you talk to. There are, you know, like Nashville has several affordable housing. Programs to help people do this kind of stuff. And so you could probably just look those affordable housing programs up in your area and start calling them and just say, hey, look, I'm planning on doing this 24 unit affordable housing project who finances deals like that, and they'll be able to point you in the right direction. Guys, thank you for joining me for this month's office hours. We will be live again the second Tuesday of September 8:30am Central Standard Time. So if you have any questions, that's the ninth, September 9, by the way. So if you have any questions on commercial real estate, as you're going over this next month, you're doing your deals, and you want some advice on it, feel free to jump in. Then, if you've been listening for a while, or if it's your first time listening, please give me a thumbs up if you enjoyed this. If you're, if you're on Apple podcast or Spotify, give us a ready. Give us a review. Helps me get out there in front of everybody and make sure that we're, we're spreading the gospel of commercial real estate. Cheers guys. We'll see you in the next one. You episode of the commercial real estate investor podcast is brought to you by my cre accelerator mastermind, where you'll get access to my step by step investment blueprint, essentially a library of resources on how to invest in commercial real estate. You'll get connected to a supportive community of other commercial real estate investors that are doing projects just like you. You'll get personalized coaching and feedback from me every step of the way. Go to www.crecentral.com to learn more you.
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