Advice for Jumping in to CRE

[Mike Jeski]

Hi everyone,

What advice do you have for a small-scale investor interested in scaling into CRE? I have two residential rental doors with a fair bit of equity, which I've not yet leveraged. I'd like to leverage this into a mid-size multifamily via cash-out refinance. The other complicating factor is that I currently reside in a different area of the country than that in which I am interested in investing. Without having a tremendous network of professional contacts in my desired market already established, I'm finding there to be a little challenge in growing this network remotely, though I know this is an important aspect in getting to the next stage in investing.

Lots more questions, but I'll start there.  Thanks so much for any pearls you can share!

[Arn Cenedella]

@Mike Jeski

You are welcome.

Evaluation of partners:

Over a lifetime, one develops an instinct about people. It’s not an exact science, of course. And occasionally, I am wrong about a person. But by and large I trust my gut about people. It’s a sixth sense. There are people one gets good vibes from and from others one gets bad vibes. One can sense authenticity and one can also sense lack of authenticity. One can sense someone trying to sell you something. One can sense someone trying to help you. Is someone trying to make a transaction or develop a relationship? Is someone coming from a place of abundance?

Bottom line for me is that I trust my gut. Yes face to face is best but over phone or emai, one can also get a sense of another.

Moving to something more tangible:

Is this person knowledgeable about the location and property type?

Do they have market knowledge at the tip of their fingers?

Does what they tell you make sense to you? Is the rational behind their statements seem logical to you? Is it confirmed by your life experience? Does it ring true?

Find people who work the territory you want to play in.

A broker who routinely sells 200 to 300 unit properties is probably not the right broker if you are looking 20 to 50 unit deals. Same with property managers. A PM who does Class A stuff isn’t the right PM for a class C value add.

Plus it takes time. My most recent acquisition was through a broker I met a year and a half ago. We met for a burger and beer after a phone call or two. Over this period, they brought me 5 or 6 deals, got into contract on one but cancelled after DD. They didn't lose their mind they said OK, we understand let's find you another. The broker finally brought me the right one and then I let them lead me through the process. My approach was "What do I need to do now?" and let them advise. I got agency debt for the first time - a loan process unlike any other I have done in over four decades of REI. I paid almost $9,000 to CBRE to get the loan started. I didn't argue with them. Or think I knew better. They explain the process and next steps, I would ask questions, and if their responses made sense to me, I followed their counsel.

So I guess the other part of the equation is find someone you trust and then let them guide you in the process. If you are buying your first MF and you are working with  a broker who has closed 50 MF acquisitions, they probably know what they are doing. I can tell you if a client is going to “fight me” every step of the way and just be difficult, 1. It’s not worth my time (One bad client takes up the time five good clients do) and 2. They are probably going to screw themselves and mess up a good acquisition because they know it all or at least think they do.

Of course, there’s a fine line to all of this. Ask questions trust but verify.