Why Underwriting is SO Important | Office Hours
Underwriting is one of the most important skills a commercial real estate investor can develop.
It is what separates investors who guess from investors who understand exactly how a deal will perform before they buy it. A property may look great on the surface, but until you run the numbers and test your assumptions, you do not actually know if the deal works.
In this video, I walk through why underwriting matters and how experienced investors analyze deals before putting money on the line.
You will see how investors evaluate deals by looking at:
Small multi tenant retail centers
Office condos and medical suites
Flex industrial properties
Single tenant triple net deals
We also walk through a real example and show how small changes in the numbers can completely change whether a deal makes sense.
If you want to become a better investor, underwriting is the skill that makes everything else possible.
Once you understand how to analyze deals, you can compare opportunities, avoid bad investments, and make decisions with confidence.
Get commercial real estate coaching, courses, and community to jumpstart your investment journey over at CRE Central: www.crecentral.com
Key Takeaways:
Underwriting tells you if a deal actually works
A property may look attractive on the surface, but underwriting reveals the true performance by analyzing financing, rent, expenses, and exit assumptions.Small changes in assumptions can change the entire investment
Adjusting factors like purchase price, loan terms, or exit cap rates can significantly impact returns such as cash flow, IRR, and equity multiple.Understanding the “why” behind the numbers is critical
It is not just about plugging numbers into a spreadsheet. Knowing what each input represents helps you identify which levers you can adjust to make a deal work.Strong underwriting builds credibility with lenders and investors
When you clearly present the numbers, risks, and projected performance, it shows you have done the work and understand the investment.It helps you compare opportunities the right way
Underwriting allows you to evaluate real estate against other investments by factoring in cash flow, loan paydown, tax benefits, and long term value.The more deals you analyze, the better your judgment becomes
Consistently underwriting deals helps you quickly recognize whether an opportunity fits your strategy and return goals.
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:
Tyler Cauble 0:00
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, and today, I want to talk a little bit more about underwriting and deal analysis. If you have been following the channel for a little bit, you know that back in the fall, we did a 30 deals in 30 days underwriting challenge, where I went live and underwrote 30 deals in 30 days. If you want to see how to go about doing that process, I recommend going to the YouTube channel, go to the playlist section and just watch those videos, because that will show you how I go through the entire process of pulling all the information together and pulling off underwriting right? It's one of the biggest questions that I get from you guys. How do I properly underwrite? How do I properly analyze these deals? Today, I want to talk more about the why behind some of the stuff that we are underwriting. And I'm actually going to be utilizing a tool that we have created for the members of the accelerator mastermind. You could also do this with the underwriting spreadsheet that you guys get for free in my deal analysis toolkit. That link is in pretty much every single video, I think, in the 30 deals 30 days playlist. But you could also get it at Tyler cobble comm slash deal analysis toolkit with hyphens in between each word. It's a free download. It is the spreadsheet, the commercial underwriting spreadsheet that I use. But today, just to make things a little bit simpler, I'm going to go through the tool that we have for the accelerator members. We also now have a Buy Box quiz that is live on the website. We talked about building your Buy Box a couple of live streams ago. How important that is that you have something physical that you can actually send to brokers, other investors, that displays what you're interested in investing in. I think you answer like 15 questions. It takes five minutes. You can even upload your logo, if you would like to to customize this. So to so it's yours to send out to these brokers, and you can download it directly there. So that is on cre central.com/buy Box. It's just one word. So if you wanted to do that, start creating your own Buy Box. It's a little more put together. Looks professional. Go check that out. But like I said, Today, I want to dive through a lot of the why behind some of the items that we're diving into when it comes to underwriting. And let me show you guys this tool real quick. So this is essentially a spreadsheet that we have taken and dropped into a piece of software on our website. It makes things a little bit simpler. Like I said, we're not going to have to go through an entire spreadsheet. We're just going to go through line by line for a sample deal that is not a super complex deal. All right, looking at a single tenant, QSR, it's a KFC that is for sale. It is an investment 19 years remaining, one and a half percent rental increases. This is an absolute triple net investment that is actively for sale in the Nashville market. And wanted to do this because it's going to be a lot easier for us to just go, go through this whole process real quick. Okay, so in the toolkit I'm going to drop in. Let's just do KFC Nashville address. Let's just do 123, Main Street. Not going to matter. Building square footage. We're going to pull this directly from the OM so if you have not underwritten commercial deals before, if you're looking at professional investments that are actively on the market, you will typically have an offering memorandum like this that you will be able to walk through. All right, so it's 4549 square feet. It was built in 2005 renovated in 2009 and let's just for underwriting purposes, assume that I'm going to acquire this on May 1. All right, now the purchase price is 3,396,003 396123, capitalize, rehab. We're not gonna have any because we're just buying this as is, all right. I'm gonna assume closing costs at 2% we'll assume a down payment at probably closer to 30% the nice thing is, it's going to auto populate a lot of this for us. You could probably get 6.75% interest rates on this debt, probably a loan term of, I would assume, actually, you might be able to get a loan term of 10 years, since it's a 19 year lease. The KFC. The nice thing about going through this underwriting process, especially if you're coming from the residential world, there's just a lot more that you have to take into account as you're going through it than you traditionally would from a three bed, two bath home perspective, right? There are different fees, all sorts of things like that that you will have to keep in mind. Okay, we're not going to have any lender hold back or escrow reserves. I'm not going to do an interest only period or mono or refinance, because there's nothing. We're not doing any white value add or any value add whatsoever here. So there's nothing really to refinance. And since we're not having any construction or anything like that, lender is probably not going to give us any interest only anyway. So only anyway, all right, one tenant, they are occupying the entire square footage of this space, and they are paying the nice thing about an absolute net lease, very, very simple to underwrite. So the NOI is 195, 288, divided by 4549 square feet gives us $42.93 a square foot. So 4293 the lease started. Let's see when it started. We've got it here in the offering memorandum. 516, 24 so let's go ahead and set this here 516 and then we'll change this date here to 2024, all right, it was originally a 240 month lease with 1.5% annual bumps every single year, which is pretty nice. You don't typically have that for QSR. That's nice to see here. We don't have to worry about ti leasing commissions or free rent that's already been taken care of for us. I'm not going to make any second gen assumptions here, because this tenant is going to be here for a long, long time. This is a triple net tenant responsible lease. I'm still going to make it zero, because it is absolute net in all of these instances. So no OPEX, no OPEX increases. You may want to account for that if you were actually going to underwrite this, because in 20 years, you're probably going to have to take this back. You might want to know where that could be, but we don't need to worry about that today. I'm going to assume that I'm just going to pay for this in cash, so or not in cash, but by myself, I'm not going to bring any investors. I'm not going to syndicate this. So we don't have an asset management fee. I will account for 25 cents a year per square foot per year in capital reserves. Again, it's a an absolute net lease. The lease goes through 20 years, but you still want to be saving a little bit of money every single month or year for when that tenant decides to vacate. Now the nice thing about underwriting is that we can start to take into account some tax benefits of this as well. So instead of just looking at the cash flow, the appreciation and the value at sale, I'm actually going to assume we do a cost segregation study on this, we'll select the property type. It's restaurant hospitality, which will give us some typical ranges here of what we can expect in terms of five year property, 15 year land improvement basis, all that kind of stuff, and, of course, bonus depreciation. So I'm going to weave in the assumptions that it made for us, because it's right in the middle some of these, you know, obviously you're going to want to get a cost segregation study done. You're going to want to get somebody professionally to come in and do this. But for the purposes of this underwriting, it's not going to affect our cash flow. It's just going to show us, Hey, here's what your potential tax benefits could be. All right, we're buying this at a 5.75% cap rate. I'm going to assume that we'll be selling this for a 6.25% cap rate in maybe 10 years. All right, we'll have a 1% closing cost, 6% and commissions. We're going to keep it at the exit at 10 years. I'd like to hit a 12% IRR, that's relatively low. You guys know, from my perspective, if I'm doing a deal, however, I like to do value add deals, right? I don't have to touch anything here. This is a basically buying a bond. It's backed by commercial property, all right, with with the credit of KFC. Let's say I want to get target and annualized 8% cash on cash return. And we'll go here to calculate those returns.
Tyler Cauble 9:22
So the nice thing about the underwriting is that it's going to tell you whether or not a deal will pencil based on the, you know, target assumptions that I'm going for. This is basically saying, Hey, you can't pay 3.3 9 million if you want to get a or whatever it was, yeah, 3.39 I think if you want to get an 8% annualized cash on cash return and a 12% IRR, you need to pay 1.7 million Max, all right? Or you're going to have to hit a 4% exit cap rate, right? So for a lot of investors, they'll look at these, you know, absolute net or triple net deals and say, Well, why is it worth. Right? I mean, if I, if I'm not going to be able to hit the returns that I would ideally like to hit, why would I bother with doing this, this deal? Well, you'll see your year one cash flow. You're only losing $16,000 and I know I'm saying you're only losing $16,000 all right, instead of making any money. However, let's come up here to the annual cash flow. This will show us our benefits as an investor. So yes, I'm having to cover the mortgage about 1617, grand a year. All right, will be this my estimated tax savings at a 37% tax bracket in year one is $198,000 so yeah, I might lose $16,000 the first year, but I'm getting $198,000 in my taxes. And look at my loan balance between year one and year two. Again, I'm having to put another $17,000 in cash in to carry this. But my loan balance is going from 2.3 2 million down to 2.2 6 million. So we're talking about $100,000 just about in pay down again for $17,000 it's really, really not a bad return, especially if you're in like a 1031, exchange, and you just have to place it somewhere. So I'll come over here to our exit analysis and look at all of this, and it's going to tell me, you know, basically year 15 is the best time to exit. We're looking at a 2.56 equity multiple. Now look at, look at the IRR. It's, you know, 6% it's really not attractive. But you're not going to expect the IRR to be very attractive on a deal like this. The why behind a lot of these items. Here is one, so that you can understand whether you're getting into a good deal or not, right? It will help you understand if I'm going into this specific deal for cash flow. This deal doesn't pencil right now, I have to figure out either the purchase price that makes it work, how I can raise rents, which in this case, I can't do it. Maybe I structure my debt a little bit differently. Maybe I find a way to bring less down. Probably not going to make that work, right? I mean, in this instance, probably the only lever that we can actually pull is going to be the purchase price. But then also, if you're not the sole investor, right? If you're raising capital, you need to be able to take this to investors, you need to be able to take this to lenders and show them, hey, here's everything that we've taken into account. All right, I've gone through the purchasing costs, we've put together our financing here. This is what the rent roll looks like. Here's our operating expenses, here's our non operating expenses that we've taken into account, and the tax benefits. And then here's our exit assumptions, here's our stress test. Here's what we're looking at in terms of how this investment is going to perform over the lifetime of this deal. And we actually have a stress test tab here that shows you a bear bull and a base case as well, so that you can again have those conversations with them and say, Look, base case, we expect it to perform this way. But if things go the way that we think that it's going to go, we actually expect it to come out like this, right? And so, you know, there's, it's really important that you understand, especially as an investor, you know, why we're doing the underwriting, and why each piece matters, right? Because it's one thing to just be able to go to an offering memorandum and plug those numbers in, or maybe you're underwriting an off market deal and you're having to look at comps, you're having to look at other properties that are for sale and pull you know what they're saying their expenses are, aggregate all of those and then blend it so that you can estimate what your expenses are going to be. It's another thing to actually understand why you have to do all of this. The more you understand about going through this process, the more you'll know which levers you need to actually be pulling in order to make this deal work, right? So if I was going for, you know, a 12% IRR, this deal doesn't work. I wonder if I drop this down to 3 million, what that ends up looking like. Calculate my returns, Nope, still doesn't quite get there. My but my projected IRR over 10 years is 9.2% again, for a, for basically a bond in commercial real estate. It's not a bad deal, right? So the more you know, the more you go through this process, the better it's going to be for you, as you are going to underwrite your own deals, all right? You can do this with you know, any number of deals, right? And I recommend that, like, go through the process every single day, do what I just did, right? I wasn't seriously underwriting that deal. I wanted to look at it, but here's the information that I got out of it. I now know that a 5.75% cap rate with 6.75% and debt was. Probably isn't going to work, right? But then I can go through and start stress testing it, okay? Well, what does make it work? Okay? Well, if I actually don't have to lift a finger and I get favorable debt terms from my lender, is it worth me taking a 9.2% internal rate of return over a 15 year period, as opposed to having to go and do something where I have to take a little bit more risk, I have to take on some more debt, I have to actively work on this thing in order to get twice that right, an 18% internal rate of return. Is it worth it? I don't know, right? I mean, that's, that's, that's a decision that you will have to make yourself as you're going through the process and determine whether or not, you know, a 9.3% cap rate is or, I'm sorry, 9.3% IRR is really going to be worth it. I mean, here's the thing, like, the nice thing about this is, I can tell you right now, I couldn't get this deal funded right because we're looking at a 1.05 times debt service coverage ratio. So without even taking this to a lender, I know from just having gone through this process, a lender is not going to fund it. Okay. Well, what are they going to say? Well, we'll give you up to a 75% LTV, but we're going to limit you by 1.25 times debt service coverage ratio. Okay, well, then I need to come in here and start messing with my loan to value and seeing what loan to value is going to work, 65% doesn't work. All right, maybe they're going to require me to bring 40% down instead. Let's see what 60% looks like. So that's closer. I mean, it's a 1.22 times debt service coverage ratio again, that's year one. It's, you know, rents going to increase one and a half percent year over year. Let's see. We hit a 124, in year two, and a 126, in year three. A lender may be willing to work with you, considering that you've got the credit of KFC backing you up here. You've got a long term lease, and it's a brand new lease to talk about that, right? So now we're actually looking at positive cash flow, $35,815 of positive cash flow that first year. Again, nothing to write home about. You know, that's you know, especially since we're talking about bringing how much equity down? Let's see, what were you talking about, trying
Tyler Cauble 17:36
to figure out where my my actual down. Okay, 1.27 8 million right on basically a $3 million purchase price. So, I mean, we're talking about, you know, like that's what's crazy about, how all this works, 35,000 divided by essentially 1.3 million. That's a 2.7% cash on cash. All right, not attractive, but if you're just looking at cash on cash. You're really not assuming, or you're really not understanding the full picture of the deal. Now let's, let's say, Okay, well, yeah, I'm only making $35,000 in cash flow, but according to this cost segregation study that we have done, I actually end up making $175,000 you're not technically making that. It's just what you're not going to have to pay, right? 175,000 plus 35,000 because, again, those are our tax savings there. From doing a cost set, we're able to depreciate about $473,000 on this specific property. All right, so that really brings us to a net gain of 210,000 divided by 1.3 million. That's a 16% cash on cash return in year one, if you wanted to look at it from that perspective, right, which is pretty damn high. Now you'll see a lot of that is due to bonus depreciation. It ends up being closer to about, you know, 47,000 give or take, for the next few years, until it falls off after year five, then it drops to 17,000 right? But that gives us a pretty good picture of like, okay, well, here's our actual tax savings over that time period, and then here's our cash flow. Really, it's, I guess, this line right here, we're making about, you know, roughly $40,000 a year. On average, we're saving about $47,000 a year. So we're bringing in roughly $87,000 a year in net gain divided by 1.3 million. Whoops, messed up. My calculator helps if you do the math right, guys, that brings us closer to a 6.7% cash on cash return, right? And again, I know that's not super exciting, and this is a deal that we just randomly went and grabbed. But if you start to look at how much of a loan payment you're paying down the fact that this is a literal mailbox deal, right? I mean, KFC is not going to call you for anything. It's absolute net. If the roof collapses, they're going to fix it. You couldn't get a bond that's going to perform at that level for you. You certainly couldn't have any other type of hard asset, right? Everybody's talking about hard assets right now, you know, you look at, you know, the price of gold and silver over the past, you know, few weeks, it spiked pretty substantially. That happens when people have fear that the economy is not going to perform as it should, or that the dollar is not going to perform as it should. So people want to get into hard assets. Into hard assets. The problem that I have with those assets, they're fine. They're good investments, or they can be good investments. I'm not a huge fan. I don't have any of that in my portfolio, because while it does provide you with a strong hedge against inflation, it's not going to provide you with a 6.7% annualized cash on cash benefit. You don't get any benefit from gold and silver or, you know, other other like assets, unless you actually sell them. The nice thing about a commercial property, especially in this case, you don't have to worry about hiding it in a safe somewhere and having access to it at all times, somebody is going to be paying down your mortgage, and you're going to be getting the benefits of having that as well, you know, for the cash on cash returns. So really, really, you know, I think that understanding the why behind the underwriting and just going through the process will give you a much clearer picture, not only on how commercial real estate works, but how to properly compare this to other investment opportunities? You might be looking at residential real estate, you might be looking at commercial real estate, you could be looking at gold, silver, crypto stocks, bonds. It doesn't matter if you understand how to properly go through this process and figure out, okay, well, how much cash Am I actually putting at play, how much risk Am I actually taking? And then what are the actual benefits that I'm getting from this investment? In return, you are able to then go in and and properly compare, you know, these, these investments. Let's get to all his comments, by the way, guys, this is office hours. If you have any questions on any of this stuff. Feel free to drop this into the chat. That is what we're here for. Yes, I want to teach you guys something as well, and hopefully you have some serious takeaways from having gone through that. But let me know what you guys are working on, what you're curious about, what you have questions on Cherry what's going on? Good to see you. She says, saw you demo this last night in the accelerator, and I thought it was an amazing tool. But seeing it again today. I think it is an absolutely amazing tool, and I can't wait until it is available to start using, yes, cherry. I was up all night last night working on this. So really excited. I think that we're pretty close to being able to release this to you guys. It's so you know this, this piece of software is so much easier to utilize than a spreadsheet, that's for sure. What I've found is that a lot of investors just get intimidated by spreadsheets, right? I mean, look, I'm not a math whiz. You know, I learned how to utilize a spreadsheet because I had to. And, you know, I've always thought, well, there's got to be a better way, but nobody's ever had one, so that's, that's why we created this tool. Cassidy is saying I'm doing single family burrs consistently pulling all of my capital back out pretty new into looking into commercial real estate investing. With my strategy, it is pretty streamlined to not have any capital into deals. But is there any equivalent in commercial it seems like it's quite rare to be out of pocket. Nothing in this space that Cassidy. I mean, the burr works perfectly fine in commercial real estate. You know, if you're looking to have literally zero capital in any deal that you're doing that is pretty rare. It's going to be tough to pull that off, really, from the perspective of, you know, sometimes lenders just want you to have money in the deal, but it is entirely possible to pull 100% of your capital out, depending on how you decide to approach and structure these deals. So for example, I bought a property for $400,000 last year, it appraised for $890,000 and my bank gave me a loan for about 560,000 on it. So, I mean, I pulled all of my cash back out, plus $160,000 right? So, I mean, it's, it's entirely possible for you to go and do stuff like that, especially if you're willing to get creative, dirty. Home diaries is saying, Please zoom in your browser like 10 or 20% please. Yeah, next Hey, next time I will, they're saying we're currently buying value add properties in secondary markets and installing our brand into it, then refiing out having an issue finding something with 20 plus amortization. Any suggestions? Yeah, dirty homes. So if you're looking at owner occupying your own commercial properties, right as long as you occupy 51% for most lenders, some lenders may, may do it as low as like 30 or 35% but if, if you are occupying, typically 51% as an owner occupant, then you will be able to go for owner occupied terms, right? And so banks have a completely separate bucket for commercial properties that are occupied by the actual owner so you might be able to get away with only putting 10 or 15% down, as opposed to 20 or 25 Percent, you can typically get away with a 25 year amortization as opposed to a 20 year amortization. So you know, it's you get a lot of benefits by doing owner occupied real estate. I like to call it commercial house hacking, right? If you've got a business, the best first property that you can buy is one for you to own or occupy at least half of it and then rent the rest out and start getting the mortgage covered, right? Have somebody else start paying down the debt that you have on that property. And then every couple of years, you can go ahead and and, you know, move to another location, buy another one. They're saying, Yes, we occupy it with our brand, but I'm not physically in the location. They are asking if I have an office there. Yeah. I mean, look, if your brand is physically there, and you know, I mean, you don't personally have to be out working out of that office, but if you have, you know, a warehouse there, or your team's operating out of there, whatever that is, as long as it's an actual physical location that you guys are occupying 51% of, generally, yeah, you're pretty good to go. Cherry saying, Cassidy, I can help if interested in Georgia commercial real estate, guys, cherry is a commercial real estate broker in the Georgia area, specifically right outside of Atlanta. So reach out to her if you have any questions. Let's see Kevin saying Tyler in the national market. What skills do acquisitions or analyst teams value most for someone breaking into commercial real estate. I'm transitioning out of the army this year and trying to prepare. Man, the best skill that you can have is underwriting, which is actually exactly what we're talking about right now. So if you understand how to go out and underwrite a deal, how to analyze it, how to compare it to other deals in the market. How to Pull comps right. Look at rental rates in the market. Look at, you know, for sale cops in the market. Look at vacancy rates, all of that kind of stuff. That's an incredibly valuable tool. And I have so many videos on this channel teaching you how to do that, so you don't necessarily need to go pay for any formal training. You could get all of that here for free on this channel. Go check out my 30 deals in 30 days playlist. I you can get that spreadsheet that I use in that underwriting for free. You just download it and go through the process with me. Watch those deals, learn how to underwrite them. Look at how I look at them. I mean, there's 30 deals, dude. You know, the great thing about that is that by the end of just watching 30 videos of how to underwrite something, you're gonna have a pretty damn good idea of how we go about it.
Tyler Cauble 27:32
Nasio is saying thoughts on self storage, brokerage, work. I think it's great. There's a lot of money in it, you know. I mean, there's, there's a lot of people out there that are, that are, you know, weary on self storage right now, and I think there's a good reason behind that. You know, self storage, especially compared to 10 years ago, there's a lot more of it out there. It has been very much built up. However, if you are a good broker and you understand the investment side of why people buy self storage, what makes a self storage facility a good investment? You'll do just fine, right? That's the biggest thing, is making sure that you understand how to properly approach all of that. So again, as a broker, that one of the best skills that you could have is underwriting a deal analysis. Because if you understand how to look at these deals from an investment perspective, you will be able to, one speak the language better to potential buyers, but two, help show sellers when they're overpriced or when their deal doesn't make sense, or how to lease up a couple more units, and based on a cap rate, add several $100,000 more value so that you get a bigger commission when you do go to sell it, right? So, very, very incredible approach there. Just understand how to underwrite the deals. But yeah, I mean, you can make great money doing anything in commercial real estate brokers, not just self storage. I do like self storage, though dirty home diaries is saying that makes sense. Thanks, dude. Found you about a month ago. Really been enjoying your knowledge. Hey, appreciate it. Thanks for the kind words. We've got like 700 videos on the channel at this point teaching you how to go about doing this. So, pretty much anything that you have questions on, if you go to Google, you type that in and you type in Cobble. You know my last name, it's we've probably got videos on it. That's the fun thing about it at this point, garage is saying I am Director of Sales for a general contractor looking to switch to commercial real estate and get licensed. Any suggestions for roles to seek while I pursue a license I'd like to get in the industry now garage, the most value that you will bring to the table immediately is as a project manager, right? Because you understand the construction process, you will be able to serve as an owner's rep as they're going through the construction process. So you could look at joining the project management team at a big firm. You could go work for a developer directly as their project manager. That's what I would be going for. Yes, of course, if you want to get your license, super helpful. If you want to learn how to underwrite. That will also help. I mean, we so put it this way, Tim is one of our members in the commercial real estate accelerator out of St Louis, just west of St Louis, and he has a pretty big general contracting firm, and he went out and learned how to underwrite with us, right? And had a client that was saying, hey, you know, I think I'm actually not going to build this property. I just can't make it make sense. It make sense. Tim actually sat down. He's just, he's the dude's contractor. He sat down, underwrote the deal for this investor, put it in front of him and said, Hey, actually, based on my construction numbers coming in here, and these comps go verify these cops. But these are the comps that I found for you, if you build this deal, you're going to make a lot of money. You should do it. And a guy ended up saying, yes, moving forward, and they're under construction on that property right now, right? So even if you are adjacent in the business, if you are a broker, if you're a contractor, if you're a CPA, whatever having underwriting as a skill is is very, very helpful to you landing other deals, right? So Ironwood is saying better for commercial real estate, investor, agent, cloud brokerage or a boutique, I'm going to be honest with you, Ironwood cloud brokerages are really kind of a thing in residential. They are not a thing in commercial, right? Brand is kind of everything when it comes to commercial real estate, especially if you want to be able to land, you know, the bigger clients, not just the ones that will work with any kind of commercial real estate broker. Unfortunately, like it kind of is what it is, until you have a reputation in the industry and you, you know, you could do what I did, and just leave, put your name on the door and start your own thing, you're not going to be able to compete with a CBRE or with a Cushman, or with, you know, the other boutique firms in your area. So I would recommend, as a commercial real estate broker, going out and working with a boutique firm at least for three to five years, get your feet underneath you, build up that list of clientele, build up a track record of being a successful commercial real estate broker and then go out and do your own thing. Cloud brokerage is great, obviously, because you get to keep the commission splits. But here's the problem, if you're not able to land the deals, because you don't have brand recognition and people don't have trust in you, which is very, very common, right? Like residential agents really struggle with this, because investors in commercial real estate are very different than investors in residential they're typically very professional, right? This is a full time job. We are raising capital from investors. We are reporting to private equity firms, right? And so I could never go back to my investors and say, Hey, we decided to hire an agent from Keller Williams to manage or to manage the lease up or manage the investment sale of our deal, all of my investors would look at me like, I'm crazy. Why are you hiring a residential real estate firm to do this? And yes, you could make the argument. Well, Keller Williams has a commercial real estate division. It doesn't matter. That's not the perception in the industry, right? So you kind of got to go with an established commercial real estate firm, at least to start right three to five years, then go do your own thing, get the better commission splits and make it work that way. Guys, great episode. Hope that that was super helpful for you guys, for understanding the importance of going through the underwriting process, you need to have this information, not just for you to understand that a deal is a deal, but also to be able to pitch it to your investors, to pitch it to lenders, and then to understand, okay, if we get to this point, what levers can I pull to make this deal work, if I really want to try and figure that out, right? Because the last thing that you want to do is put your money into a deal that just isn't going to make sense, right? You think about the opportunity cost, the time value of money, it is more important that you take your time, you underwrite it properly and get into the right deal than it is to just get into a deal. All right. In other news, salt Ranch is opening on April 1. I am beyond excited to finally be getting the hotel out there. We are doing all of the cool, fun things. Now I've got the artwork going up at the hotel. All of the furniture is there. The pool furniture is being delivered here in the next couple of weeks. We've got events and meetings already scheduled. We've got the Nashville association of short term rentals coming out and having an event there on April 7, which will be really cool. And I'll be telling the story of why we decided to go do a boutique hotel compared to short term rentals, right? So it's going to be a lot of fun. I can't wait to get it out there. You guys know, it's been a long time coming, all right, so if you're coming to Nashville anytime soon. Check out salt Ranch, salt ranch hotel.com, salt ranch.com they both work. I bought them both. Highly recommend you do that kind of stuff when you're building a brand, by the way. And give us a shot. We're really excited to host you. Appreciate you guys for joining me on this week's office hours. I go live every tuesday, 8:30am Central Standard Time. If you have questions, if you're going through a deal, you can submit a deal as well. By the way, for me to take a look at, there is a link in the description of this video that goes to a Google form that you can fill out. I'll pull up your deal and we'll look at it in one of these office hours. I'll see you guys in the next one. You you. 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 dot cre central.com, to learn more you.