How Real Estate Agent Became Commercial Investor

Discover why Sam, a real estate agent, sought the help of a mentor and how he became a successful commercial real estate investor.

 

Why Real Estate Agents Make Great Investors

After seeing their clients generate wealth through real estate investments, many real estate agents want to invest in properties themselves. And why not? They are in a great position to take that step into commercial real estate investing. They have access to deals, property managers, lenders, and all the industry contacts to get a deal done. But even professional real estate agents need a mentor to be successful because although they are skilled at sales, building relationships, and closing deals, many lack the necessary knowledge to identify and manage the risks of investing in commercial real estate.

And even though agents deal with owners and tenants all the time, they are not always good at managing the property manager effectively. Since asset management is where the money is made, it is one of the most important aspects of owning commercial real estate. At Commercial Property Advisors, we have a system in place to manage the manager, money, maintenance, and the marketing. And you need to have one too if you want to be successful.

The final reason real estate agents need a mentor is that they don’t have the expertise to set up and execute the exit strategy. Every deal is unique and needs an exit strategy to be set up and then executed wisely.

Meet Real Estate Agent Sam

Sam is a commercial real estate agent in Austin. Right out of college, he started working in residential real estate and it didn’t take long for him to notice that commercial agents were making a lot more money than him. He recognized their skill, work ethic and wealth of knowledge in the business and wanted that for himself. He worked hard to get into the industry, and although he loves his job as a commercial agent, he knew that to create long-term wealth he needed to invest in his own commercial assets. In fact, Sam has been watching my videos and learning from us since he was eighteen!

Managing Risk with Experience and Wisdom

With all his knowledge and experience in the commercial real estate sector, why did he need a mentor to begin investing in his own commercial properties? Why did Sam join our Protégé Program? Here’s what Sam had to say about it,

“You really don’t know what you don’t know, and we didn’t know much about investing in real estate and properties. We work with landlords, we work with owners, we work with tenants all the time. But it’s a different ball game. Once you start investing your own money and taking some of your own risk, I mean we still have a job just like everyone else. Maybe it’s on the commercial side, but it’s still a lot of risk to take on and you don’t want to make any mistakes. Bringing a team like you guys to share that expertise and give us your knowledge made such a big difference for us. We wouldn’t be where we are today without you.”

Sam’s 8 Unit Multifamily Deal

Sam found his 8 unit multifamily off-market using the marketing techniques we teach in our Protege Program. After negotiating directly with the seller, he purchased the property for $550,000. And it was a win for the seller as well, who used a 1031 Tax Deferred Exchange to purchase another commercial property.

Financing

The financing required a 25% down payment, so Sam found an investor to partner with him in a 50/50 split. Once the cash flow is stabilized, the rents increased, and he has more equity in the property, he will do a cash out refinance, pay back his investor and hold the property long term.

Value-Add Plan

Sam purchased this 8 unit because it had tremendous value add potential. He successfully implemented 3 value-add strategies:

1. Raise the Rents: The rents were below market at $625/month. Since purchasing the property, Sam has raised the rents in all 8 units to $800/month.
2. Implement Ratio Utility Billing System (RUBS): Sam implemented the RUBS system to help manage expenses and increase cash flow. By billing the electrical and water back to the tenants, he was able to add a thousand dollars of cashflow to the property every month. That pencils out to $12,000/year in added cash flow!
3. Contest Property Tax Increase: When Sam was faced with a $150,000 tax increase, we recommended he contest the increase. He followed our instructions and went through the contesting process resulting in substantial tax savings. He was able to get his taxes reduced $100,000 dollars! That’s substantial savings! You can learn more about how to contest your property taxes here: How to Lower Commercial Property Taxes

Value Increase

After implementing these 3 value-add strategies and increasing the Net Operating Income (NOI), the property value has increased from $550,000 to $850,000-$900,000.

Property Management Challenges

One of Sam’s biggest challenges in the deal was with his property manager. Starting out, she was personable and commutative. However, they started getting some expenses that didn’t make sense. When they brought it to our coach’s attention, there were huge red flags. The first red flag was that turn overs were costing $4,000 to $5,000. Well beyond the expected costs. And it was also was taking too long to market and rent the units. Because Sam’s expertise isn’t in managing the property manager, he didn’t know what to do. We knew the steps Sam needed to take and advised Sam to switch property managers. This was difficult for him to do, but when you have repeated expenses that don’t make sense and are killing your cash flow, you need to take action.

After he hired a new property manager, he saw a substantial rise in rental income. In fact, the new property manager discovered a homeless person living in one of the units!  They also started getting reasonable prices on quotes. It was a complete 360 from what he was dealing with before and it made a huge difference in the operations of the property. As a beginner investor, you don’t know what to look for or how much expenses should be. Which is why we provide coaches like Julia Sheehan, and others with decades of experience, that can train you to hold your property manager accountable.

Next Steps: Real Estate Agent or Commercial Investor?

Sam is already a successful commercial agent, and he’s not even thirty years old! But he isn’t satisfied with being a professional broker and investing in just one multifamily deal. By leveraging his job as an agent, he is saving up money to invest in properties and add to his portfolio. He is excited to build on his first deal and purchase one commercial property a year.

7 Keys to Sam’s Success

Mentorship: Sam found an experienced mentor even though he had access to all the data to do a deal himself. With his life savings on the line, he knew he didn’t have the expertise and experience needed to identify risks, manage property managers effectively, or set up and execute an exit strategy.

Market Selection: Sam found a thriving market. Again, even though Sam is in the business, we helped him confirm that the downtown in the city is a thriving market. As you know, thriving markets have high prices, which means good deals are hard to find. How do you find the best deals?

Off-Market Deal: The best deals are found when you go direct to the property owners. Sam is an agent, but he needed our expertise in finding off market deals and communicating with the seller to develop rapport and negotiate the deal.

Deal Evaluation and Risk Assessment: Sam did a great job of deal evaluation and risk assessment. We helped him stress test his deal as part of his financial due diligence. This is done by decreasing the occupancy, increasing expenses, and applying other what-if scenarios into the deal to make sure it can handle a stressful time. Then, understanding all the factors, we helped him decide if it was worth the risk. In this case, this deal passed the stress test and was worth the risk.

Managing the Management: Sam did a great job of holding the property manager accountable through our system of management, money, marketing, and maintenance. This system must be in place, or you will fail.

Raising the Net Operating Income (NOI): With a new property manager in place, he immediately saw his cash flow and NOI increase. And as the NOI goes up so does the property value. Sam optimized the properties performance by raising the rents, implementing the RUBS System, and getting his property taxes reduced.

Exit Strategy: Sam went into the deal with a solid exit strategy in place. Once the cash flow is stabilized, the rents increased, and he has more equity in the property, he will do a cash out refinance, pay back his investor and hold the property long term. He plans to repeat the process, buying a commercial property every year for the next ten years.

Every Successful Commercial Real Estate Investor Has a Mentor

Sam’s advice for aspiring investors:

“Whether you’re a commercial broker or just a regular Joe, you really need to find someone who has the expertise and understands the process. I mean, it makes such a big difference. You don’t want to go out with your entire life savings and spend it and not have a grasp on what’s going on with the property. Make sure that you’re looking at good investments and good assets.”

Every successful commercial real estate investor has a mentor. Get your mentor here:  Commercial Property Advisors Protege Program

If you have any questions, post a comment below or text PETER to 833-942-4516.