Commercial real estate experts Slocomb Reed, Ash Patel, and Joe Cornwell share their best and worst experiences in real estate investing. They offer valuable insights, lessons, and strategies that every investor should consider.
Key Takeaways:
- The Importance of Reserves: Slocomb Reed discusses the necessity of having sufficient reserves in real estate deals, especially when working with inherited tenant bases or C-class properties. He highlights the importance of staying disciplined and not compromising on the quality of contractors to avoid costly mistakes.
- Staying True to Your "Why": Joe Cornwell delves into the challenge of managing capital and the temptation to rush into new deals. He emphasizes the need to focus on your "why" in real estate investing, staying patient, and not letting idle cash dictate investment decisions.
- Lessons for All Investors: Ash Patel shares invaluable advice for real estate investors. He stresses the importance of comfortable idling large sums of cash, finding partners or selling deals if necessary, and understanding your "why" to maintain focus and purpose in your real estate journey.
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Transcript
Narrator:
Quick disclaimer, the views and opinions expressed in this podcast are provided for informational purposes only and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to bestevershow.com.
Ash Patel:
If you find a good deal, jump on it. Track down the listing broker at all costs. I don't care if you call their family, their previous employer, get them on Facebook, get them on LinkedIn, whatever it takes, get that deal done before somebody else.
Narrator:
Welcome to the Best Ever Show, the world's longest running daily commercial real estate podcast. Our hosts interview commercial real estate experts every day to get you the best advice ever with none of the fluffy stuff.
Joe Cornwell:
Welcome to the Best Real Estate Investing Advice Ever Show. Today we are doing part two of our round table discussion. I'm joined by Ash Patel and Slocomb Reed. And in part two, we are gonna cover the best deals we've done.
We're going to focus on the commercial real estate. Slocomb, why don't you lead us off with your best deal ever.
Slocomb Reed:
Thanks, Joe. Slocomb here, best ever listeners. Most of you who have listened to the show for a while now will know I'm an apartment owner operator in greater Cincinnati. You may know that I started as a house hacker when I was a full-time professional youth minister. So as much as there are other commercial deals that I want to talk about, I have to say that my first house hack is the best deal that I've done.
First of all, just making the decision to make our first of our owned primary residence, a financial investment was an incredibly solid decision. We found a great location. We had very lucky timing, but also that FHA loan and putting down three and a half percent to be able to buy multifamily rental property that you can live in and cover your expenses. And back in 2013, 2014 also have some cash flow while living there for free. It's just an unbeatable combination when you're first starting, but let me put some perspective on that.
That was the deal. The four family close to downtown Cincinnati, three blocks south of the new TQL stadium, if you want to Google maps it.
That's the deal that set me off into real estate investing and becoming a full-time real estate professional. Two and a half years after we bought that property, we put a HELOC on it, my wife and I did, to tap into $100,000 of equity in a property that two and a half years ago, we spent $10,000 to purchase between down payment, closing costs and due diligence.
With that HELOC, we paid off some other higher interest debt, but then we bought our second property, which was a BRRRR deal, a three family right around the corner, four blocks south of TQL stadium. And it was a proper renovation, but as time went on, it put us in a position where we could refinance those two properties to buy a third, which was for us another house hack. We currently live in a three family, raise our two daughters in a house hack in a neighborhood called Northside, there was one more refinance event for all three of those properties.
We use those funds in the fall of 21 to buy a fourth property here in Northside. So that $10,000 investment that was made in early 2014 in my personal balance sheet, I keep a record of that. When you count just the equity, no cash flow, just the equity in the four properties that I have now in the fourth quarter of 2023, the average annual return on those $10,000 in 2014 is 711%.
Joe Cornwell:
That's awesome.
Slocomb Reed:
So as much as I want to talk about a 24 unit or a 26 unit or a big cash out refi, a 700 plus percent average annual return over just under 10 years. That's the number that people need to hear. If you know someone who is in a position where they could go buy a house hack, you should definitely either talk them into it yourself or connect them with one of us.
Joe Cornwell:
Yeah, you're absolutely right. I cannot agree enough as an investor and as an agent, house hacking is absolutely the most powerful way to get started in real estate investing. And the thing I always tell new investors, no matter where they are in life, whether you're 20 or 40 or 60, if you were trying to become financially free, house hacking is one of the most powerful ways to do that. And you have to be willing to sacrifice to do that. As Slocomb just mentioned, he has a family, he has kids, he lives in a house hack to this day. And I can guarantee you that is serving him well financially and has over the years.
Ash, you want to take over on the next one? What's your best deal leverage?
Ash Patel:
Yeah, I'm going to share two. And the reason is there's some important lessons on both. The first one was maybe year two or three of my real estate investing career. It was a strip mall that I found on a Friday night, back in this day, I was relentless looking for deals. So three, four, five times a day, I would look at all the new commercial properties that came online in a hundred mile radius of where I lived. And I was relentless. And I actually won a lot of deals because of that first mover advantage.
So Friday night, I don't know why I was home early, but Friday night, about to go to bed and it was too late to make any phone calls, but I happened to see this listing. It was advertised strip mall on the west side of Cincinnati. They advertise $114,000 NOI, triple net property, offer price was $650,000. So just the initial numbers, it's like a 20 cap, doesn't make sense. So the deal was too good to be true, but I wanted to dissect it. I didn't sleep that night.
I came downstairs, went to my office, I stayed up the entire night, researched everything I could find about the owner, the tenants, the previous tenants, the neighborhood, the town, the politicians, everything, just full CSI on this thing. 7.30, 8 o'clock the next morning when it was acceptable to start making calls, on a Saturday morning I start hunting down this listing broker. I couldn't get a hold of him, ended up reaching one of his former colleagues who gave me his cell phone number, got a hold of him.
And I said, is this really triple net? He said, yes. I said, can we get it under contract? He said, have you seen it? I said, I've seen enough. He said, no, drive by, take a look at it. My office is down the street, we'll sign a contract. So we did that. Sunday evening, we had an executed contract, not for the 650 asking price, but for 625, which was negotiated down. And the seller executed that contract Sunday night, Monday morning.
All of my competitors waited until Monday morning to hunt down this deal, and they were offering $800,000 cash. $150,000 over asking price cash. So the broker, we end up doing lunch shortly after and he's like, I screwed up. He's like, I'm getting cash offers for way higher than what you got to own a contract for. And I'm like, yeah, all right. He's like, let's do more deals together. I'm like, yeah, let's do it.
So I kept this property for one year just so I can get the capital gains instead of short-term income and ended up selling it for a million dollars. Did nothing to it.
Joe Cornwell:
Wow.
Ash Patel:
Made the $114,000 in that year of net operating income. So 196% cash on cash return. I screwed up though because two, three years later, the buyer out of New York that I sold it to ends up selling it for 1.6 million and did nothing to it. So the lesson there is just be relentless looking for deals. Look where no one else is looking. Look at the residential MLS for commercial deals. And then everyone waited till Monday morning.
No, if you find a good deal, jump on it, track down the listing broker at all costs. I don't care if you call their family, their previous employer. Get them on Facebook, get them on LinkedIn, whatever it takes, get that deal done before somebody else.
Next one's a little bit of a quicker story. All three of us mentor a lot of people. And there was this young kid in high school that I didn't really mentor as much as I pushed. And I'm like, you're in college, you got this free time, start learning real estate. Many years later, I find out after they graduated college, him and his cousin, and I kind of, they ended up buying a couple of duplexes, a quad. They're house hacking, they're real estate investors, but they each have their own careers. One of them turns out to be a civil engineer and I mentored him many years prior, we ended up finding a land deal. Residential broker says, Hey, we've got 79 acres near CVG Kentucky, Cincinnati international airport. And at the time I'm like, I don't know what to do. I'm not a land guy.
Let me call Daniel. Daniel's the guy that I pushed in high school. And I'm like, Daniel, 79 acres, here's the address, anything we can do? And he drops what he's doing. He sets up meetings with the biggest developers in the world in U.S. And we ended up getting an option to buy this property for $8 million. And Daniel ended up getting us the buyer selling it for $12.4 million. So we had $100,000 in this deal, just to lock up the option.
But it was somebody that I mentored. And now I get to learn from him. And he's been an incredible resource. So build your network. When you mentor people, the goal should be to have them level up beyond you. So you get to learn from them.
Joe Cornwell:
That's incredible. And I took a bunch of notes on the things you guys said, and I will summarize those here at the end. And I think we have a lot of overlap on some of our lessons we took away from our best deals.
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Joe Cornwell:
So for my best deal, similar to Slocomb's by the numbers, by just strictly percentages, I'm going to go with a small multifamily deal. I did obviously for talking gross numbers, like the larger numbers are on the commercial deals, but as a percentage, I bought a triplex in the city of Norwood, which is just outside of downtown Cincinnati. It's its own city. And this deal was listed for 60,000 had been sitting on the MLS for a while, had a ton of really, really major structural issues. The main beam in the house needs to be replaced. The entire house had fallen almost two feet in the middle from the sagging. So it was the type of deal that no one else wanted to touch.
So for the listeners who hopefully have gotten to know me a little bit the past couple of months, I have a construction business. I'm a value add investor. So for me, this was right up my alley in the types of deals I was looking for at the time. So I was into this deal for about 200,000. I had a construction note for the rehab through a commercial bank and my appraisal on the back end came in at 455. So much higher than I had underwritten. I had put it about 350 best case on the ARV and the appraiser actually made a mistake because the comps that the appraiser pulled to comp my building were in a different part of Norwood that was much, much higher end. These were a little bit larger properties. They were all brick construction. Mine was vinyl. They were in a better location, proximity to some of the highest and most expensive real estate in the city of Norwood called Rookwood. So it wasn't really a good comp, but it worked out really well in my favor.
So on the deal, I was able to actually pull out 150K in cash in excess of my costs that I had put into the property. And it's still cash flowing pretty well. So I think I net about 800 a month on that deal. The market rents in that area are pretty high. I was also able to get a corporate tenant to take the four bed, two bath apartment. So I have a corporate backed guarantee. It's a double net lease. They have 5% annual increases in their lease. It's a long-term lease. So all of those things were the best of mixing commercial world with residential.
I know I've talked about this deal in the past, so hopefully you've heard it, but by the numbers, definitely my best deal with the BRRRR strategy. It was an infinite return after about a 12 month hold period. And I have that deal to this day. It's continuing to increase in value. It continues to cash flow well.
And some of the lessons that I would take from that is be willing to do the deals that others are not and be willing to do the things that other people are not. So to summarize all of what I've taken from you guys today, just like Slocomb's deal, he was willing to sacrifice a little bit of comfort to house hack. And that is one of the things that goes with house hacking because you have to share your space with other people. You're going to live in an apartment in most cases instead of a single family house, so you have to be willing to be uncomfortable sometimes to succeed in life and in real estate. So be willing to do what others are not.
You have to be first like Ash mentioned. He jumped on that deal right away. He didn't wait until Monday. He spent his whole weekend being relentless and being first and getting the deal under contract. And one thing that I took from your deal, Ash, is the who, not how ideology. Because you looked at this piece of land and you said, I have no idea what I can do with this. I don't know what it's worth. And you found the right person because you've spent so many years networking and helping others and meeting other people, you found the right person to help take down that deal.
And you don't always have to know everything about everything to be a good investor. Sometimes it's finding the right person, the right partner, the right lender, the right mentor, and that allows you to hit a home run deal with relatively low capital and time, it sounds like. So that would be my summary to the listeners. Hopefully you all learned as much as I did.
Ash and Slocomb, any other final thoughts for the listener?
Ash Patel:
No, but I think this is the first time, it's not the first time, but this is nice to hear that the appraisal was a pleasant surprise because normally we're fighting with them. So good job. And to Joe's credit, here's Joe's mindset. When he does a rehab, he would rather do something that just requires a complete gut renovation versus just putting lipstick on because he wants to know that everything was done correctly and it minimizes the problems he'll encounter in the future.
So great philosophy. Joe's a great trades person, great craftsman. So glad to be partners with you on your worst deal and great job sharing your stories today. Slocomb, what are your final thoughts?
Slocomb Reed:
There is money to be made in residential real estate. Ash.
Joe Cornwell:
Yeah. Absolutely.
Ash Patel:
Just not at the scale as commercial. Listen, we need a referee cause we're going to get into it.
Slocomb Reed:
What I will say to Ash's credit is that he is absolutely world-class at finding and taking down unicorn deals. I've had enough opportunities to get around Ash to know that unicorn is one of his words that I'm borrowing from him. Let's give him a little bit of praise, but Ash is fantastic at finding those unicorns, even if he has to do it in the middle of a night on a Friday when everybody else is waiting until Monday. There's definitely a lot of opportunity for unicorn deals in non-residential commercial real estate, I'll give you that, Ash.
Joe Cornwell:
Yeah. And my challenge to the listeners would be, be open to doing good deals. That's my philosophy. And I know we like to joke a lot on the show about the residential versus commercial, but I think a good investor is going to understand both and be willing to do good deals as they come. And I think in the market we're in today, that's the most important trait to have is to look for good deals, regardless of what they are.
And I will admit I'm looking at commercial and mixed use deals right now because in the market we're in, I have to expand my horizons if I want to continue scaling. So as much as I hate to admit it, I am looking at those deals as well.
Awesome, guys. Well, I appreciate you guys joining us. Hopefully you all learned as much as I did. Listeners, if you learn something from today's show, please leave us a five star review on the app of your choice. Please follow us on social media, and I hope you all have a best ever day.
Narrator:
Hi, best ever listeners, Joe Fairless here again. And one last thing before you go, would you like to receive a short weekly email with proven tips from experienced investors, free tools and resources, and a roundup of the week's most relevant news and best ever content? Well, if so, join the community of nearly 15,000 commercial real estate passive and active investors who receive the best ever newsletter. Just go to bestevercre.com forward slash access and you'll get the very next one. I hope you enjoyed this episode, and as always, thank you for listening, and have a best ever day.
