What's your favorite CRE asset class and strategy? Why?

Question

Goal: Own Commercial Real Estate - BE THE BEST AT IT - Go all in & Let Things Compound. MASTER ONE.

Challenge: Picking Asset/Strategy

I source off-market RE for SFRs (wholesaling). I'm really good at it. But I want to own RE.

Here's my plan

Phase 1: I have and am still in the process of completely transitioning my team to start generating Off Market CRE Deals

Phase 2: Assign the Deals / Partner

(#1 this allows me to create solid relationships - I provide the 1. deal +  2. hustle and they provide the knowledge; or the buyer if its a JV)

(#2 this allows me to get really good at finding deals in CRE)

(#3 this allows me to see what exit strategy and asset class I like best)

Phase 3: Vertically Integrate, Start Taking Down Deals & Operating with Own Capital using Creative Finance Strategies (was initially thinking (NNN - Industrial, Retail, Office)

I'm still committed to it, however, I am having second thoughts because there was someone I was really looking up to doing NNN who claimed to go from 0-150M in 3 years, I will not name him, however, it seems like he might be in trouble. I'm hoping I'm still on the right track! What I am looking for 3 things

1) Near Guaranteed Absence of Downside

2) Low Operational Drag

3) Extreme High Upsides due to leverage of magnitude x time (Compound Projects - I'm 19 years old, I know when do this for very long I can create true wealth)

What's your favorite, and why? Would love to hear it!

Paul Moore · Answer

Hi @Ryan Phu! Sounds like you have a great plan there. I recently published a BiggerPockets  book about self storage, so I am biased. The last 1/3 of that book details 7 unique paths to enter the commercial real estate business and I see some of those thoughts in your initial post. It sounds like you are off to a great start. Before I saw more I want to comment that just because someone you know of went through $150 million in 3 years and is now in trouble doesn't really mean a thing. He might have had too high leverage. Been overpaying for deals. He might have had floating rate debt. It has little or nothing to do with your future plans. As others mentioned there is always risk. There is no return without risk. I would try to think about risks you can mitigate rather than look for assets with "near-guaranteed absence of downside."

My favorite strategy is to acquire a mom-and-pop asset and professionalize it. This means doing the upgrades and to add value into increase net operating income. Increased NOI directly leads to increased value.

Some of the asset types with the most mom-and-pop operators include self storage, mobile home parks, and RV parks.

The second half of that strategy is once you put together a portfolio of professionalized assets, you market the portfolio to an institutional investor like a REIT or life insurance company or family office. They often pay a premium for these types of assets. Good luck!

Ronald Rohde · Answer

Industrial NNN, we're buying industrial outdoor storage.

Offmarket CRE can be done, but its not the same as SFR. I posted a YT video on how

Michael K Gallagher · Answer

My favorite at the moment is 2nd generation retail space.  We've been having a ton of success repurposing massage envy's and single tenant bank buildings with drive throughs.

Brock Mogensen · Answer

My favorite asset class currently is value add industrial, specifically sale leasebacks.

Aaron Gordy · Answer

There is no guaranteed absence of downside. One can mitigate that risk via hedging but even then there is risk. More than likely the person who went from 0-150 m in 3 years used high leverage which is very possible in real estate. High leverage equals high risk and hopefully high reward. Real Estate has historically increased in value along with inflation but there are cycles. Its the cycles that bust folks if one isn't prepared for it. The cycles has humbled many a real estate "star" historically.

Commercial is risky too even if one has Grade A tenants. Due to more folks working from home, the office sector is riskier than it had been a decade ago. For example, Google could buy out their remaining lease or utilize a buyout clause. Then that office building that was low risk and have a low cap rate could become very risky if there aren't any other tenants willing to take that space.

Personally, I like retail and multifamily.

Dave Overall · Answer

@John McKee

How do you find the local meet ups?

Tanh Truong · Answer

Personally, I'm a fan of value add retail and industrial. In retail if you have service based tenants they could be internet resistant. And for industrial, those big companies will need storage space.

Joseph Gozlan · Answer

@Ryan Phu Here's my .02: Don't marry yourself to ONE asset class!

Learn about all of them, understand the advantages and disadvantages of each asset class and learn WHEN to use each.

You could say that in the last 6 years we specialized in MF. We owned, operated, managed, brokered and syndicated multifamily properties. In the last year, we sold most of our MF assets and transitioned into NNN Industrial assets and are also looking at retail deals.

Does it mean we'll never do MF? No. It just means we believe the economy conditions are favorable towards long term leases with less risk (in our opinion). At the same time I can tell you I know a lot of MF operators that think I'm crazy and that MF is still a better asset than others.

My point, do you want to have the best hammer in the world or do you want a tool box with all kinds of tools to help you in all kinds of economic conditions?

John McKee · Answer

Go to local meet ups and mingle with people in the business.  Just keep hanging around people that have the same interests and you will eventually find your partners.

What's your favorite CRE asset class and strategy? Why?

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