Commercial Real Estate Course - Part 5
In 2005 I wrote an introductory course on commercial real estate investment. This 5-part course was received via email in daily installments. Here is the final part.
Commercial Real Estate: How To Invest Like The Rich
Part 5: How Can YOU Get Started?
There’s such a difference between understanding something and living it. So, how do you start being a commercial real estate investor?
5.1 The Importance Of Prompt Action
I once spent a great weekend with about 400 people in a real estate course. The presenter kept drilling home the point: “You’ve got to get excited about it! You’ve got to open the paper, find interesting properties, and get on the phone. Start making calls!”
The course ended on a Sunday night. Afterwards, I flew home to the other side of the country, and looked at the local paper that evening. I had made an offer on a property by Tuesday morning. Within three months, I had purchased two properties (one residential, and one commercial - my first).
I would love to know what percentage of people at the course went home and actually put all their new knowledge into action. I suspect that it’s pretty low. A lot of people like to arm themselves with all the facts, all the knowledge, but then STILL DON’T ACT!
I tell you - I learnt a lot at that real estate course, but it was only the basics. You get to a certain point where the best way to learn is by doing it yourself. That is where the real lessons start.
I can’t stress how important it is to act on your new knowledge. Otherwise, it all becomes a memory, and you gradually talk yourself out of taking any action (or worse, allow other people to talk you out of it!)
5.2 Things That Will Stop You
When I began investing in commercial property, there were a lot of people around me who tried to talk me out of it.
My family, my friends, even some of my fellow investors, could all see ‘problems’ with the deals I found. The most common things I heard? “Why would you buy that?”, “You have to be careful”, “Do you know what you’re doing?”, and “That sounds risky”.
The thing is, I had very little personal experience to support my beliefs. I mean, everyone has to start somewhere. I was sure that the deals were good, but I couldn’t prove it. It really took courage to go against what well-intentioned people around me were advising.
Now, after investing in commercial property for a while, it is much easier. I haven’t gone bankrupt, I have money flowing into my accounts, and I continue to buy commercial property. Now, friends and family are more likely to say things like “well, you seem to know what you’re doing,” which is big difference, when you think about it!
But it’s really interesting to see how the human minds work. A lot of people just aren’t prepared to take action. Their reasons may change, but their actions don’t.
Take the shops I talked about back in Part 3. I’ve got a friend who, back then, said “There’s got to be something wrong with them. I wouldn’t buy those. There’s got to be a catch.”
Now, years later, when it’s easy to see that the shops turned out to be great deal, he says “Well, if I could find a property as good as those shops, of course I’d buy it. But you have to be lucky to find those. That’s why I havn’t bought anything yet.”
Now, what he’s telling himself is not actually true. These deals do come along, regularly. But when they do, he’s gripped by doubt and fear. In hindsight, when he’s missed the deal, he can see it was great. But put a great deal in front of him, and he can’t see it. Doubt and fear arise, and all he can see are the things that might go wrong.
Do you know anyone like this?
Are you like this?
If so, are you interested in breaking through this?
5.3 Learn To Talk The Talk
One of the most valuable things I can tell you is that you should learn how to ‘talk the talk’. This is not so you can sound like a big shot, it’s so you can converse with a seller and ask the right questions, and understand the replies.
My wife is a doctor. When we sit down and watch a medical show such as “ER” on TV, I’m always struck by how she understands much more of what’s going on than I do. She hears a doctor speak, and it makes sense. She picks up a lot of details that I don’t even notice. It’s because she’s trained in the field, she knows the jargon, so she can process the information as it comes in.
It’s the same with commercial property. As you get more and more familiar with it, you get better at spotting interesting details, that might go straight over other people’s heads. And spotting these might make the difference between seeing the bargain and completely missing it.
Gradually, you get to know the numbers. For example, if someone on the phone tells you the building rents for $15 per foot, it might not mean much to you. But if you know that all the similar buildings nearby are leased at $30 per foot, you might start to get excited about the chance to buy a property at half-price. That’s a possible bargain you wouldn’t be able to see if you were not familiar with the numbers. And you learn the numbers by making calls, and getting experience.
Here’s what I recommend you do in the next 24 hours: find the commercial section in your local paper, spot an interesting property, and get on the phone about it. See what the seller can tell you about it. Decide whether it sounds like a good deal, a bad deal, or a mediocre deal. I’m not asking you to go and see the property, I’m not asking you to make an offer. I’m asking you to take an action which will have you learn something new, leaving you more experienced than you are right now.
You see, something magic happens when you phone up about a property. You start hearing details that did not fit into the ad. The seller has a new job on the other side of the country, and is getting desperate; the seller is willing to lease back the building; the seller will do $20,000 of work on the building as part of the settlement; the seller is willing to help finance the property; the seller will defer settlement for 18 months; you start to get a feel about whether there’s a deal to be done. Your creative juices start flowing.
You’ll find that commercial property can actually be exciting!
5.4 Where To Now?
This is the fifth and final part of the course.
I certainly don’t expect everyone who has followed along for the last five parts to rush out and buy a commercial property by next Tuesday.
I once spent a fascinating evening talking to a guy who concentrated on doing property ‘wraps’. He told me that each week he put in more than 100 offers on residential properties, and usually bought several properties each month, way under market price.
While I could see that he made a lot of money using this approach, I decided that I was not interested in investing that way. Apart from the fact that estate agents got completely sick of him and his constant low-ball offers, it was practically a full-time job for him, and I did not want an approach which took that much time. So it was not for me.
Similarly, commercial real estate investment may or may not be for you.
But you should now be at a position where you can either say:
- “OK, I see how commercial real estate works - but it’s not for me”, or
- “OK, I get it, I’m excited - let’s get started!”
5.5 The Importance Of Education
If you’re serious about investing in commercial real estate, I recommend education, education, education. After all, a commercial property is a big purchase, so it is worth making the effort to educate yourself. I’m not talking about ‘analysis paralysis’, where you learn more and more and act less and less. But arming yourself with knowledge about commercial real estate is a smart thing to do.
I believe the best way to learn something, apart from doing it yourself, is to listen to and observe other people who have done it, or who are doing it. If I consider the people who have taught me the most, they are active and seriously wealthy commercial property investors. In general, they have come from ordinary families, and their fortunes are entirely self-made. That is what makes them so inspiring to me.
Actually, I believe the absolute best way to learn is to do it yourself. But in a serious venture like commercial real estate investment, it’s good to learn as much as you can before getting started.
5.6 It’s Important to Control Your Own Destiny
I want to tell you about an older couple I know. They retired a couple of years ago. They both worked really, really hard all their lives. They were very careful with their money - they have lived modestly, within their means, and they have carefully saved money all through their working lives.
In the last couple of years of their working life, they enlisted the help of a financial planner, to help them manage their money into retirement. Naturally, all of their savings quickly went into the Stockmarket.
Within two years, their savings were cut in half. Unfortunately, their financial planner put their money in some IT stocks, just before the IT bubble burst. Also, he put a lot of their money into “blue chip” stocks. But one of these had an accounting scandal, and halved in value overnight. And another blue chip stock put out a profit warning, and lost significant value. In fact, if you saw the list of the stocks they were in, it was a list of what not to own in the late 90s. Of course, that’s with hindsight - their financial planner was no fortune teller.
Half of their savings represented many years of working hard and saving carefully. And they lost that within about two years.
They recently nearly missed an important family funeral, because they simply couldn’t afford to travel to it. The rest of the family had to pitch together to help them attend.
As their financial planner told them: over the long run, the stock market generally goes up - any financial planner can tell you to ’stick with it for the long run.’ But that doesn’t help them in this case. The husband has developed some health problems, and needs expensive care. They’ve had to pull a lot of their remaining funds out of the market. With their money out of the market, they can’t recover the massive losses they took. They are going to live out their remaining years with very little money. In fact, the wife now bursts into tears whenever they talk about finances. And that’s after an entire lifetime of hard work, responsible saving, and using professional advice. It makes me feel very sad, and not a little outraged. How can good, responsible, hard-working people end up in this situation? It doesn’t seem fair.
I really want to encourage you to take full control of your financial future, so that for your family’s sake, you are not able to be completely sunk by outside forces. I believe commercial real estate is a very safe, secure investment - it’s what I’m banking on.
5.7 Stick a fork in me, I’m done
Well, we’ve covered a lot of information in this 5-part course. I really hope you’ve got some valuable information which will help you look at commercial property in a new light.
If you’ve followed along, congratulations! Remember, what we’ve covered so far is just the starting point of a journey which never really finishes. But you have to start somewhere, right?
I hope that you are inspired to build wealth in commercial real estate, and your financial future is improved because of it.
Until next time, then, remember: EDUCATION, AND TAKE ACTION!
Good luck!