Richard

Strong demographics have fueled the U.S. demand for housing over the last several years. As millennials, now the largest generation alive in the country, hit their peak home-buying age, demand for home purchases and rental units has surged. This demographic strength has been one of the several variables that have pushed up home prices since prior to the pre-pandemic period. 

But demographics isn’t everything when it comes to demand—economics matters too. And with persistently high inflation, and a great deal of economic uncertainty, there is the risk that demand for housing could slow in the coming years. What happens to demand over the coming years will have big implications for real estate investors. 

As such, in this article, I’m going to break down recent demand trends, provide a forecast for national demand over the coming years, and give a list of the top and bottom 10 markets for housing demand growth. 

Measuring Demand 

There are several ways to measure demand for housing. We typically look at total sales volume, mortgage purchase applications, and some conglomerate metrics like inventory and months of supply to measure the balance between supply and demand. In the rental market, we typically use a metric known as “absorption”, which measures the total number of occupied rental units in a given market. To combine these different markets into one useful metric, I like to track the total number of households and the growth rate of that number.

If you’re unfamiliar with the formal definition of a “household,” the census website states, “A household (or “ordinary household”) in the sense of the census survey describes all the persons sharing the same main residence, without these persons necessarily being blood-related.”

In other words, any housing unit occupied as a primary residence is a household. If you live with your parents, that’s a household. Live with a partner and your kids? That’s a household. If you live with one or more roommates, even though you’re not blood relatives—it’s still a household.

This definition makes sense because it helps us measure the total demand for primary residence housing units. If you add up all of the households in the U.S., that should, in theory, be equal to the total demand for primary residences in the country as well (this analysis doesn’t include demand for second homes or short-term rentals). 

Over time, the total number of households tends to grow because the population is growing. The birth rate in the U.S. has slowed considerably, but it will take decades for that to be reflected in household formation numbers. In fact, right now, we’re at a high point for household growth. 

According to the 2020 U.S. Census, the biggest age brackets in the U.S. are 25-29-year-olds, followed by 30-34-year-olds. This population distribution aligns closely with the age at which most people start their own household, which is typically when a person reaches their late 20s or early 30s. This demographic reality has driven strong demand for rental units and housing for several years. 

But as I said at the beginning of the article, population is not the only factor that impacts household formation. It is possible for household formation to slow, even with a strong demographic. And the opposite is true as well—household formation can speed up even if the population trends aren’t particularly strong. Economics plays a large factor in household formation. People won’t take the financial leap to form a household unless their financial situation supports it. And right now, as we all know, the economic picture is cloudy at best. 

For the last several years, rent growth and home price growth have made housing generally unaffordable in the U.S. The U.S. is now “rent burdened” for the first time, and housing affordability has hit multi-decade lows. All of this is happening at a time when inflation is eating into the spending power of all Americans, and there is fear of further economic pain in the future. Basically, it’s not a great time to start a household if you don’t have to, and the data supports it. 

As shown by this data from CoStar, household formation has been on a wild ride over the last few years (as has basically all housing market data). Following a brief period of negative growth during the beginning of the pandemic, housing formation rapidly recovered—leading to strong demand for houses and rental units. But the frenzy peaked in Q3 of 2022 and has come down sharply. CoStar provides a forecast (shown in orange) of where they expect household formation to be over the coming years, and it’s markedly lower than pre-pandemic. Personally, I think there is some more downside risk in the short-term than is seen in this forecast, but I think the 5-year average is probably about right, given demographic trends.

This slowdown in demand will, of course, impact real estate investors, as it will likely lead to slower appreciation and rent growth in the coming years. But, it’s important to recognize that demand is still increasing, and most experts believe we are still under-supplied for housing in the U.S., meaning demand can slow down, but the market may not reach equilibrium anytime soon because supply is low. 

The data shown above is on a national level, and as we all know, real estate is local. Using CoStar’s historical data and 5-year forecast, I found the 10 markets with the strongest forecasted demand and 10 markets with the weakest forecasted demand over the coming years. I filtered only for markets with greater than 100,000 households because a lot of the smaller markets are less recognizable (and probably less interesting to all of you reading this). 

Top 10 Markets for Forecasted Demand

Bottom 10 Markets for Forecasted Demand

These lists are not comprehensive but should give you a sense of the range of outcomes projected over the coming years. For the top markets, like Provo, Utah, and Austin, Texas, the total number of households is expected to grow by 2% per year for each of the next five years. On the side of the equation, we have Charleston, West Virginia, which is projected to decline by 1.2% per year for each of the next five years. 

Conclusion

For investors who are considering what market to invest in, I highly recommend you study the household formation patterns in your city. Population growth is a good start, but if you really want to understand what’s happening with the demand for housing, look at household formation. The Census Bureau has free data you can analyze to see historical performance, and you can Google projections for your city to help you get a sense of what might be coming in your area. 

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

They are majestic and beautiful and critical to the world economy. Coral reefs, often called the “rainforests of the sea,” support roughly 25% of all known marine species. They are vital not just to sea life, but to human life. And the planet has lost half its coral reefs since the 1950s due in large part to climate change.

The total economic value of coral reef services for the united states alone, including fisheries, tourism, and coastal resilience, is over $3.4 billion annually, according to the National Oceanic and Atmospheric Administration. That includes $1.8 billion a year in flood protection benefits from averting damage to property and economic activity. The annual value of U.S. commercial and recreational fisheries dependent on coral reefs is $200 million.

Now, an unlikely pair is teaming up not to save existing reefs but to create new more resilient reefs: Marine scientist Dr. Deborah Brosnan of the Ocean Shot Project, and John Paul DeJoria, co-founder of John Paul Mitchell hair care systems and Patron Spirits. Brosnan has been studying coral reefs for more than 25 years, with a specific focus on the Caribbean.

“Coral reefs are at risk. We have lost more than a third of coral reefs already,” Brosnan told CNBC. “And the prognosis for losing more is high. So right now today, we lose more coral reefs in a day than we can restore in a decade.”

Coral reefs are one of the most important ecosystems on the planet, according to Brosnan, who explained that while they occupy a fraction of the sea floor, they support more than half a billion people a day. A living coral reef will break 95% of a wave’s energy, which means it creates a calm lagoon and protects us from storm surge. Reefs are mitigating sea level rise.

Brosnan’s solution is not to restore damaged reefs, but rather replace them with manmade reefs designed to be far more resilient to climate change.

 “We came up with the technology to figure out the shape that a reef should be and the size that the reef should be in order to promote biodiversity and to protect the coastline,” explained Brosnan.

The reefs are made of a PH-neutral concrete — calcium carbonate, which mimics the natural makeup of reefs. It’s a dead skeleton, but then the team attaches corals grown in a nursery — 300 of them from 3 different species. Fish then move in. 

Last fall, the first project was installed off the coasts of Antigua and Barbuda. It was neither easy nor cheap, but Brosnan found a billionaire backer, DeJoria, to fund the project, which cost about $1 million.

“It’s my way of paying a little bit of rent for being here on the planet earth,” said DeJoria, who has a real estate project on Barbuda.

“I’m doing a billion-dollar project of fine beautiful homes. Incredible. It’s a big project,” he explained. “The people, they are very wealthy people, and they love the fact that everybody’s getting a good job, making good money, and that we’re bringing the reefs back.”

While DeJoria touts the jobs he’ll bring to the islands, restoring the reefs has a much wider economic impact.

“When you lose a coral reef, you lose extraordinary beauty, so when that disappears, tourism goes down because it’s not a nice place to go. Added to that the fisheries. Coral is vitally important for fisheries,” said Brosnan.

 Brosnan and DeJoria intend to build a facility on Barbuda to manufacture these reefs, which could then be installed anywhere around the world. They have two more ready to go. The technology is there, but the ability to scale it is a larger financial hurdle.

 “The question is, will the world listen?” asked Brosnan. “This is very doable. This is doable in the region, it is doable globally. What we need is the investment in the technology, the investment in the deployment, and the recognition that there is a return on that investment in terms of our own health, our own safety on the coast, and the livelihood of at least a billion people on the planet.”

Every business faces setbacks at some point. Whether it’s a campaign that didn’t perform as well as you expected or a product that experienced major delays in production, setbacks seem to be part of the everyday entrepreneurial experience. What really makes a difference is how you respond to them.

Here, 11 members of Young Entrepreneur Council share how they respond when they experience setbacks in their businesses and what steps they take to effectively reset and move forward.

1. Lean Into The Failure

We pull every team member involved into a retrospective and encourage everyone to dump every failure they can think of on a board. Once that happens, the group sheds ego and is able to learn from the failure, which is the only thing you can do once it has happened. The opportunity to learn through failure is the single most impactful driver of growth for any company. – Anthony C Johnson, Stellium.co

2. Reflect And Identify The Root Cause

When facing a setback, I prioritize taking a step back to reflect and analyze the situation. By identifying the root cause and learning from our mistakes, we turn challenges into opportunities for growth. This approach allows us to adapt and implement new strategies, ensuring continuous improvement. Embracing a resilient mindset and focusing on lessons learned fosters a strong, agile team that can navigate setbacks effectively and drive Velvet Caviar toward long-term success. In a dynamic business environment, resilience and adaptability are key to thriving amid challenges. – Michelle Aran, Velvet Caviar

3. Analyze Data And Evaluate Individuals

Take a two-pronged approach: analyzing data and evaluating individuals responsible for key performance indicators. First, collect and analyze data at every level of the organization. Identify areas costing the company significantly with little return on investment, make informed decisions about where to cut back and invest more resources in growth drivers. Second, evaluate individuals associated with underperforming metrics. Understand why this has happened and whether it’s due to a lack of training or poor performance. Address the root cause, provide necessary support or take disciplinary action as needed. This step ensures a culture of accountability, allowing the business to bounce back from setbacks and maintain a growth trajectory. – Jinny Hyojin Oh, WANDR

4. Maintain A Positive Attitude

I know that setbacks are a natural part of the entrepreneurial journey and it’s how I handle them that defines me. By staying optimistic and persistent, I can overcome any obstacle that comes my way. Maintaining a positive attitude is effective for several reasons. First, it helps me maintain a sense of resilience in the face of adversity. Rather than giving up or getting discouraged, I can stay motivated and focused on finding a solution to the problem. Second, a positive attitude is contagious. When I’m able to maintain a positive outlook, it can inspire and motivate others around me. This is especially important when working with a team, as a negative attitude can quickly spread and lead to a toxic work environment. – Sujay Pawar, CartFlows

5. Look At The Full Picture

The first thing I do when our business faces setbacks is a fast zoom-out to see the full picture and not only fix the issue, but also see the opportunity out there so we win from that situation. It’s been effective for the past 14 years. It led me to realize that any recession, attack or business problem came with something good at the end of the day. – Alexandru Stan, Tekpon

6. Check In With Your Mental State

When I experience a setback in business, I first take care of my mental state—my motivation and confidence in my abilities. It is important to stay positive and remind yourself of your bigger purpose, the impact you are trying to achieve and that this setback is simply feedback so that you can improve. It is also very helpful to reread thank-you letters from your customers or even positive Google reviews of your business to remind yourself of your past success and that your work matters. This usually cheers me up, helps me to refocus my attention on my mission and build a growth mindset. – Feruza Djamalova, Sobirovs Law Firm

7. Take A Moment To Pause

Pause and reflect! Running a business is a game of “go, go and go.” However, it is important to take a step back and reflect when setbacks happen. You can do this by going offline, asking the team to take a breather or just focusing on other things besides the setback at hand. In those moments of reflection, you begin to understand that some setbacks could be a function of your product, others might be a function of your strategy and more. Once you are in a much better headspace, you can reenergize and make the right decision with the team. – Paul-Miki Akpablie, Akos Technologies Inc.

8. Adopt A Growth Mindset

Setbacks are an inevitable part of the business journey. While it can be discouraging to encounter obstacles, I have learned that the best way to deal with setbacks is to adopt a growth mindset and approach them as learning opportunities. One thing I do when faced with a setback is to take a step back and analyze the situation objectively. I ask myself questions such as: What went wrong? What could I have done differently? What can I learn from this experience? By reflecting on these questions, I can identify the root cause of the setback and develop a plan to prevent similar issues from happening in the future. Finally, I remind myself of the big picture and focus on the long-term vision for my business. It’s important to not let setbacks derail me from my goals and to stay motivated. – Kelly Kercher, K3 Technology

9. Maintain Perspective

Acknowledging the setback and keeping it in perspective is key to moving on. It’s not productive to dwell on what went wrong. Spending time figuring out how to correct the problem and making sure it does not recur is essential. – Evan Nierman, Red Banyan

10. Take Full Responsibility

Taking full responsibility is effective because it helps me avoid blaming others or external factors for the setback. Instead, it allows me to focus on what I can do to improve the situation and move forward. I also reset my vision by revisiting my goals and objectives to move forward. This helps me stay focused on what’s important and avoid getting sidetracked by setbacks. – Renato Agrella, Acerca Consulting

11. Slow Down

Slowing down is the hardest thing for me to do. However, when you slow your roll, you are already head and shoulders above everyone else. Reacting instantly or reflexively rarely results in a good choice. Once I have slowed down, I examine the situation from every angle to determine where I could have done something differently. Where did I ignore my intuition or stray from a closely held value? Where did I presume I was the exception rather than the rule? Both of these are incredibly effective because they are things you can control. You can control how quickly or slowly you react to a situation (and often your pace will impact those around you) and you can control your accountability and what you learn from a setback. Otherwise, you’re just putting out fires. – Maren Hogan, Red Branch Media

Let’s face it, Seattle isn’t about to land itself on any hottest lists of affordable places to invest any time soon. But a lack of bargains doesn’t mean that there aren’t opportunities to be had. For those who own Seattle property or find a suitable investment in this area, homes attract high average rents and opportunities for consistent returns and appreciation. With single-family homes enjoying similar returns to the stock market without the same level of volatility, stable “Tier 1” markets like Seattle could be an attractive option for your portfolio. 

Late last year, Redfin reported that Seattle was the fastest-cooling market in the U.S. As an already expensive city to buy into, the extra heat in the market turned out to be unsustainable as interest rates and inflation began to bite on large mortgages. The good news is that more bargaining power was finally available to those that do have the capital to get into the Emerald City.

So does it make sense to try and invest in Seattle in 2023? BiggerPockets has teamed up with Belong to bring you a snapshot of the Seattle rental market. Belong is a modern alternative to property management companies that is humanizing the rental experience and making it easier for individual homeowners to manage real estate investments in popular cities like Seattle and San Francisco. 

Only you know your financial situation and what you can take on, so this report is designed to support your research with an indication of average rents and the current state of the rental market in Seattle, including:

• Are Seattle’s cooling real estate prices enough to lower the barriers to entry?
• How does the median price of homes in Seattle compare to similar Tier 1 cities?
• What kind of rental income can I expect from a property in Seattle?
• When is the best time to list a Seattle rental to achieve the highest rate?
• Will the tech downturn affect real estate in Seattle? What are the other macroeconomic factors to consider?

Are Seattle’s Cooling Real Estate Prices Enough to Lower the Barriers to Entry?

Like most Tier 1 markets, investing in Seattle can be challenging due to high entry costs, especially for those needing a mortgage. This is why the market is cooling, with debt costing twice as much as in recent years. A price reduction in a hot area should be a cause for celebration for would-be investors, but not in this instance. Even a 5% drop in prices isn’t going to make the area more affordable if you need to take out a mortgage at a 6% – 7% interest rate. 

Additionally, demand exceeds supply, making Seattle a seller’s market with low inventory. Homeowners with good fixed interest rates are unlikely to sell unless necessary.

How Do Median Prices in Seattle Compare to Other Tier 1 Cities?

According to realtor.com, the Median Listing Home Price in Seattle is $780,000, with the Median Sale Price of $750,000. Most homes are selling for close to ask, indicating a seller’s market. 

If you look at other Tier 1 west coast cities like San Francisco, the Median Listing Home Price is $1.3M, some $520k higher than Seattle. 

Although Seattle may not offer a quick profit, it’s a viable option for investors who can’t afford other Tier 1 cities. With stable renter demand and long-term growth potential, owning a home in Seattle could be profitable, but less so for short-term cash flow.

What Kind of Rental Income Can I Expect in Seattle?

The ROI and cash flow of a Seattle property depends on mortgage expenses, appreciation, and tax benefits. Despite recent fluctuations due to the pandemic, Seattle properties have generally appreciated very well over time. 

According to NeighborhoodScout, Seattle real estate has appreciated by 137% over the past 10 years, with an average annual home appreciation rate of between 5.69% and 9.02%, placing Seattle in the 10% for appreciation in the U.S. 

With interest rates still climbing at the time of publication and some areas hotter than others in terms of demand, you will need to run a new cash flow analysis on any rental property or potential purchase to get an accurate view of your ROI. Below we have compiled some averages across the Seattle metro area to get an understanding of what you might expect to see. 

Belong, who partners with owners of single-family homes, apartments, and condos, has seen average rental rates between $2,476-$3,305/month for the Seattle market over the last 12 months. 

How does this compare to other Tier 1 markets? Looking at San Francisco again, single-family homes and condos on the Belong Bay Area network rent for an average of $3,754. When you consider that the average price of a home in S.F. is around $520,000 higher than in Seattle, it highlights the favorable cap rates and potential for a strong return on investment. In the Bay Area, you would be hard-pressed to find a neighborhood with SFHs that average for less than a million dollars, whereas Seattle still has cheaper entry points around the $500k – $600k mark.  

According to Belong partner, Zumper, median rents are up 6.2% YoY in March 2023, trending up from last month. The breakdown by housing type is:

• Studio: $1,477 (+14% YoY)
• 1-Bedroom: $2,021 (+7% YoY)
• 2-Bedroom: $2,795 (+4% YoY)
• 3-Bedroom: $3,330 (+0% YoY)
• 4-Bedroom: $3,700 (+6% YoY)

According to the latest U.S. Census data for Q4 2022, rental vacancy rates in the Seattle/Tacoma/Bellevue area are sitting at 4.7%, down from 5.7% in Q1. This is consistent with neighboring cities of Portland/Vancouver/Hillsboro, with a vacancy rate of 4.8%, down from a high 6.1% in Q1. 

When is the Best Time to List a Seattle Rental?

Like most cities along the west coast, Seattle rental prices are seasonal. As the chaos of the pandemic cools off, we’re seeing a return to peaks and troughs of seasonal pricing that weren’t experienced during the up-and-up rent climbs. 

While Seattle is famous for its rain, it’s also famed for its incredible outdoor lifestyle and walkability, which sees a peak in demand across summer when there’s plenty of sunshine and blue skies. Seattle enjoys the same peak in rental pricing around August that we witness in other Tier 1 markets across California. In fact, August is the best time to attract top dollar for your property in Seattle, according to Belong data (pictured below), with the average rent peaking at $3305. Seattle is also home to many desirable school districts, so larger family rentals in these areas attract hot competition and rents in the lead-up to Semester 1 in September.  

Comparing Belong’s data to a wider data source such as Zillow (which includes multifamily and apartments in their numbers), their market trends show the same peak in Summer, with average rents peaking between $2,450-$2,461 in the August/September period.  

That’s not to say that investors renting out a Seattle home in winter will take a huge hit. Even as the average rate dips seasonally, Belong homeowners still get an average monthly rate of $2,500-$3,000 during low months like December. 

March is also a strong month for rents, and if this trend continues, rents will remain stable before peaking in August. If you plan to enter the market, you have time to prepare and benefit from higher prices in a few months. 

What are the Other Macroeconomic Factors to Consider?

Interest rates aside, what other macro factors should be considered before investing in the Seattle metro area?

The Seattle metro is:

• One of the top five cities for household income.
• A city with a low unemployment rate but is experiencing anxiety around layoffs.
• Being hit harder by inflation, with rates higher than the national average.
• Still experiencing low rates of mortgage delinquency and foreclosures.
• Investing in transportation to close gaps and improve accessibility.

Seattle is an affluent area, with residents earning a median household income of $105,391, according to the latest Census data. This ranks the city fourth among the 100 largest metro areas in the U.S.

This is largely fuelled by a lucrative job market. If you look at the Redmond area, median income jumps to $147,006—unsurprisingly, given it’s where Microsoft is headquartered. It’s hard to look at macro factors influencing the Seattle real estate market without discussing the current tech downturn. Could industry layoffs put pressure on homeowners or lead to distressed inventory on the market? 

Microsoft, Amazon, Meta, Salesforce, and Google have all made employment cuts affecting Washington-based workforces. In fact, Seattle is said to have some of the highest layoff anxiety. But while tech has driven much of Seattle’s growth in recent years, the local economy isn’t vulnerable to this industry alone. 

U.S. News recently examined the Seattle unemployment trends and found that the rate of unemployment in Seattle is lower than the national average and that the rate of foreclosures remains low. Only 1.5% of mortgages are reported to be delinquent in the metro area, and 0.1% have active foreclosure filings. 

The Economic and Revenue Forecast Council released their March 2023 results, stating that while the overall unemployment rate began to rise earlier than anticipated in 2022, employment also increased by 16,300 in November and December—3,800 more than forecasted. They also noted that consumer price inflation in the Seattle metro area continued to exceed the national average in the year ending in February 2023, adding to the cost of living pressure for residents.

For existing landlords, this high inflation, layoff anxiety, and uncertainty in the market may cause workers in the industry to postpone trying to buy a home and rent for longer. Seattle is already home to more renters than owner-occupiers, sitting at 55% renter-occupied in the last Census. For those looking for an in, these layoffs haven’t yet created a flood of distressed housing stock on the market. That may change if economic conditions worsen, but it’s worth noting that the tech industry typically employs skilled workers and gives generous exit packages, which softens the blow to the local economy. 

Another notable factor is transportation. The SoundTransit system expansion will see improved accessibility across Seattle, impacting the value of local real estate as it becomes easier for people to get into the city. Investing in real estate in these areas (such as Lynnwood, Shoreline, Everett, and Marysville, for example) before the transit system is completed could provide a lower entry point with an opportunity for higher rent and home appreciation over time as access to amenities improves. ??

How Real Estate Investors Can Keep a Pulse on the Seattle Rental Market

Whether you’re new to the real estate investing game, dealing with a problematic property management company, or burnt out on self-managing your rental home, BiggerPockets, and Belong can help. 

From ebooks to podcasts, BiggerPockets offers educational resources for every level of real estate investment experience and strategy. When it comes to managing your home, Belong is not a property management company but a residential network offering industry-leading services to both homeowners and their residents. 

From not charging hidden fees for the essentials to industry-first fintech solutions to manage your cash flow more effectively, to guaranteeing rent, Belong will partner with you to make owning a rental property worth it. And you’ll never need to lift a finger. Learn more and find out if your home is eligible (even if you’re mid-lease!) here!

This article is presented by Belong

Own a rental property? Say goodbye to property management and hello to Belong. Belong brings end-to-end home management services to your fingertips. 

Enjoy guaranteed rental payments, vetted residents who love your home the way you do, 24/7 support for you and your residents, innovative cash flow solutions, an industry-leading mobile app, and maximized rental value. 

With Belong, you can create long-term wealth while earning passive income.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

There’s more to building positive street cred than a catchy commercial, a snazzy brand name or a top-selling product. Corporate social responsibility has become a way for companies to stand out and show concern for matters other than boosted sales. For some businesses, giving back to the community goes beyond a few Saturday afternoon fundraisers. Even so, efforts must be authentic and thoughtful to be worthwhile.

“Making a difference” has become the preferred term for charitable efforts, but as a business owner, you don’t have to invent an earth-shattering way to give back to those around you. At the same time, you want to do something besides making yearly United Way donations. Here are three additional ways to help out the communities you call home.

1. Support Local Nonprofits

What constitutes a community goes beyond a shared dot on the map. People come together because of common values, experiences and world views. But they also form bonds because of shared hardships from the area’s natural disasters and social problems. The need for neighborly support can also come from what it means to be human, including unexpected illnesses.

Local nonprofits exist to lend helping hands to community members in need of financial and emotional assistance. Yet the people behind these organizations rarely carry out their missions alone. They rely on the generosity of others, whether it’s through donations of money, time or other resources. Businesses can provide those resources to local nonprofits involved in causes important to community members.

For example, giving back could involve forming partnerships with nonprofits that help breast cancer patients undergoing treatment. Pink Fund, which supports cancer patients with grants to cover nonmedical expenses, offers ongoing sponsorship, partnership marketing and fundraising opportunities for businesses. They’re looking to help patients fight financial toxicity. Lending support to a cause that touches so many can give employees purpose beyond their jobs. Partnering with local nonprofits offers your team members a compelling way to get involved while building relationships.

2. Give Employees Paid Volunteer Time

Your employees want more from their jobs than a paycheck. And these desires may not only involve learning what it takes to move up the corporate ladder. Your staff could be looking for social meaning and purpose. While these workers may score points for their altruism, every job doesn’t offer the chance to work directly with the community.

Fortunately, companies can back employees’ philanthropic impulses in other ways. Sponsoring volunteer programs and offering paid volunteer time are examples. Paid volunteer time lets staff members assist organizations they want to support without having to use their personal time or take PTO. An individual employee might devote a few hours to the Boys and Girls Club, or an entire team could spend an afternoon distributing donated groceries at a local food bank.

Paid volunteer time removes some of the barriers employees face when pursuing community activities. These obstacles include missed time from work, especially for hourly staff who can’t afford to lose a day’s pay. Businesses with paid volunteer time can also boost employee engagement, productivity and retention. A 2022 survey found about a third of workers want employers to offer volunteer days so they can make meaningful contributions to their communities.

3. Offer Discounts for Community Caregivers

By nature, some professions involve personal sacrifices. Examples include first responders, teachers and the armed forces. Usually, people who choose these careers aren’t in it for the money. Instead, they feel a call to serve. But attending to the needs of their hometown or their country can take its toll.

Businesses can recognize this with discount programs for the community’s do-gooders. Say your company sells telecom services. You could offer permanent service discounts for subscribers in industries such as healthcare and education. Other ways to give back include offering free products and savings for personal celebrations, such as birthdays, or on holidays. Starbucks, for example, gives complimentary coffee to veterans, military members and their spouses on Veterans Day to recognize the contributions of these vital community members.

Another impactful way is to donate gift cards to individuals who work in the local nonprofit and public sectors. Having $50 to spend at a craft store chain would be meaningful to teachers who too often pay for classroom supplies out of their own pockets. You can reach out to these community members at community events and through org sponsorships.

Making an Impact

Consumers prefer to do business with socially responsible companies. Giving back to the community promotes a positive image, increases customer and employee engagement and fulfills humanitarian needs. While they should be careful about coming off as too self-serving, business owners don’t have to keep their compassion under the radar.

Joining forces with nonprofits, giving employees paid volunteer time and offering discounts to local caregivers are ways to extend community support. These activities make your company more than a name to buy from. Lending a hand builds community connections that have a lasting impact on your neighbors and your brand.

David:
This is the BiggerPockets Podcast Show, 750. You’re trying to find cash flow and what you said was quick or easy cash flow, that is even harder to find than regular cash flow. Now, I’m not going to deter you from real estate investing, but what I am going to say is we’re going to have to tweak the mindset a little bit here. You got to have time on your side in a situation like this, especially because the deal has to be extra good to not only cash flow, but to cover the money you’re going to spend on the loan when you take it out on the HELOC. I would probably lean towards house hacking, but not a situation where you’re sharing parts of the house. Look for something that your family can be okay with where you’re renting out different parts of the property, and the reason I say that is house hacking is going to allow you to reduce risk more.
What’s going on everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast here today with a Seeing Greene episode. If you’re unfamiliar with these, they’re a little different than our traditional format where we interview a guest on how they built well through real estate. In these shows, I take questions directly from you, our listener base as you ask me what I would do if I were in your situation, or you seek wisdom and guidance in the decisions that you have to make. We have an incredible show for you today and I know you’re going to love it.
In today’s show, we cover why your financial foundation is more important than what you’re thinking and how looking to real estate to be the way that you make money as opposed to investment you’ve already made can be a mistake. We talk about when to pay off a HELOC and why, how HELOCs work, when to use them, and what to be aware of when using them, and we talk about how waiting tables may solve your systems problems in business and real estate investing, which leads us right into today’s quick tip.
Today’s quick tip is write down the steps or make a list of everything that you’re doing in your real estate investing business. Stick around and you will hear why you should do that. It’s at the end of the show, so make sure you listen all the way to the end, and I give you a very, very compelling argument for why you need to be systemizing the work you do in business and in investing. All this and more in a great show. If you’re watching on YouTube, don’t think it’s weird, you’re about to see a light turn blue. That happened because I keep forgetting to turn the light green before I do a Seeing Greene episode, but be patient with me, and if you’re listening to this on a podcast, you have no idea what I’m talking about and that is fine. You don’t need to. Pretend you didn’t hear that and I don’t make any mistakes. Let’s get to our first question.

Pat:
Hey, David. My name’s Pat, big fan of the show. I was listening to the episode from the other day about investing in expensive markets and it reminded me of the question I have about doing just that but as a recent college graduate and a first time real estate investor. I’m graduating this spring with a master’s in accounting and going to be working in the New York metro area, and I want to house hack something as soon as possible to get started investing in real estate. But New York’s high prices, their high taxes and the tenant-friendly laws made me hesitant to do that. I’m going to have a decent amount of money saved up and I’ll have a nice starting salary when I begin work, but I do have a little bit of student loans to pay off, so I was wondering what your opinion is on someone in my situation. Is it too risky to invest in New York as a first time real estate investor? Should I just save up money and rent as cheaply as possible? Basically, what are my options? Thanks.

David:
All right there, Patrick, very good question. Let’s dive into this. First thing that I want to say is don’t let that money burn a hole in your pocket. It’s okay to hold onto it. There’s nothing that says you have to make a huge decision right now. You’ve set yourself up. You put yourself in a really good situation in life, saving up a chunk of change and getting a really good job. I don’t want to see you lose that momentum that you’ve already built rushing into a deal. So, let’s start it off by just saying there’s no rush to go buy a property. I also like that you’re house hacking and you’re asking the right questions. You’re saying, “Hey, are the tenant-friendly laws in New York going to be something that is too much to overcome?” A lot of the laws that protect tenants do not apply when the landlord lives in the property as their primary residence.
I don’t know specifically New York laws, I’ve never lived there. I do think that that’s something you should look into. Just do a Google search about these tenant-friendly laws and see if they apply to someone who’s house hacking because many times, in many municipalities, when you live in the property and you’re renting out rooms or you’re renting out units, the laws that are against landlords don’t apply. It’s a weird little loophole in a lot of different cities, but I would look into that certainly.
The last thing I’d say is there’s other people that are house hacking In New York. The tenant-friendly laws are not always an issue. They typically become an issue if you’re buying in an area where you’re going to get less desirable tenants. There may be laws that protect tenants that make it harder for you as a landlord to get an eviction. Maybe you have to wait longer. Maybe it’s harder to raise the rent. I understand that. However, there are still consequences to tenants that don’t pay their rent or have to be evicted. They just take longer to come about.
One of the things that I’ve found in my journey of real estate investing is if you’re renting to people that have something to lose, they don’t want the consequences that come from an eviction, just like you don’t want the consequences that come from being a landlord and having to evict somebody. You have something to lose. You want to rent to tenants that have something to lose also. People with good jobs who care about their credit scores who make a decent income are much less likely to force you to evict them if they can’t pay their rent. Most of the time, if they can’t pay their rent, they’ll just leave. Worst case scenario in those cases is you get a broken lease. That’s not the end of the world. What you really want to avoid is the eviction or even worse, an eviction when they trash your property. So, keep that in mind. If you’re buying in a good area and you choose your tenant carefully, you pick someone who has a good job and they have something to lose, they’re less likely to cause these problems.
Now, as far as your limited capital, I don’t know enough about your finances to give you a straightforward answer, but I would like to see that you have a cushion of money after you put the down payment on the house. Now, I don’t know how much money you have, but I don’t think you should buy a house if it’s taken up all the money you’ve got. I want to see you build up 20, 30, $40,000 in savings in addition to the down payment of a property before you get in, just in case you do come across some of those first time landlord woes where you make some mistakes that are going to cost you a little bit of cash.
I also would like to see you get a running start and do well at your job before you put on the stress of being a landlord. It’s very important that when you start a new career, you make a good impression with your boss, that you learn your trade, that you build skills when it comes to that. I wouldn’t be opposed to seeing you throw yourself with abandon into being the best you can at your new career, and once you can finally exhale and you feel like you got that down, then look into real estate investing and just keep saving money in the process.
Last thing I want to leave you with, there’s no rush. You’re in a great situation. We don’t know what the market’s going to do. There’s deals out there, there’s opportunities out there, but there’s also, at this stage, no sign that it’s going to go back to being a fury anytime soon. So, you’ve got time on your side. Keep saving money, keep focusing on your career, keep hitting the fundamentals right. If you do see interest rates take a massive dropdown, maybe we make this more of a priority of finding a property. But if that’s not the case, just hang tight, stay the course, things are going your way, my man. All right, up next, we have two different HELOC questions. Let’s check them out. Our first question is a video from Brandon Diet in Denver.

Brandon:
Hey, David. Love the podcast and thank you for taking my question. Really looking to get involved in the investment property game. I got a $50,000 HELOC loan and I’m trying to figure out what is the best way to cash flow right away. I know you always say the first investment’s not going to be a home run. I would like to at least make it a double or a triple. So, I’m looking at a couple opportunities. I actually do live in Denver, Colorado, as you and I both know tough market to do anything with $50,000 in. So, I’m looking at places like San Antonio, Texas, and I’ve even looked into these short-term properties in Tula, Mexico. I kind of wanted to get your thought on terms of what you thought was the best way to go for a quick cash flow so then I can in turn use that money and get into the next property. Thanks, David.

David:
All right, Brandon, thank you for your question. Also, love the hairstyle. All right, you are in a bit of a dilemma. We’re just going to be honest here. You’re trying to find cash flow and what you said was quick or easy cash flow. That is even harder to find than regular cash flow, like clean cash flow is even harder to find than dirty cash flow. This is a very tough market to be investing in. You’ve got 50 grand to work with which isn’t going to give you a whole lot of breathing room, especially when it comes to down payment, closing costs, and money you want to keep in reserves. You mentioned in the video you have about $50,000. That doesn’t give you a ton of breathing room to make a down payment, pay your closing costs, and have some money set aside for reserves in case something goes wrong.
You also mentioned in the notes that I have here that you’re not into house hacking because you have a growing family. As if this wasn’t tricky enough, now you’ve got the additional payment that you have to make on that $50,000 loan that you’re looking to take out. So, this isn’t the same as just 50 grand that you’ve saved up. This is taking a loan of 50 grand. The cash flow has to be even stronger to cash flow after you pay back that second mortgage of the HELOC. Now, I’m not going to deter you from real estate investing, but I am going to say is we’re going to have to tweak the mindset a little bit here. This is going to be a very difficult endeavor. This isn’t just a, hey, what city should I invest in, what properties should I look for. You are competing with a country of people that are all trying to find cash-flowing properties right now and having a very difficult time due to the raised interest rates that we’ve had and the lack of supply that’s allowing sellers to not have to drop their prices.
This might be something that’s more of a marathon than a sprint. Okay? You’ve got access to that HELOC, that’s great. You’re listening to the podcast, that’s awesome. You’re gaining this information. It can be tempting to think, “I got to go do something.” You don’t got to go do something. There will come the right deal if you wait. You got to have time on your side in a situation like this, especially because the deal has to be extra good to not only cash flow, but to cover the money you’re going to spend on the loan when you take it out on the HELOC, and by the way, those are adjustable rate mortgages most of the time, which means that they can go up if rates go up.
Here’s what I’m getting at. You can use HELOCs to buy investment property, but it is more risky and an environment where it’s already really thin margins and it’s tough to make it work, I don’t like you taking on additional risk at this stage. I would probably lean towards house hacking, but not a situation where you’re sharing parts of the house. Okay? Look at some creative things where you buy a triplex and live in one unit or rent out the other two, or you buy a main house and rent out the ADU and rent out the basement. Look for something that your family can be okay with where you’re renting out different parts of the property, not sharing living space, and the reason I say that is house hacking is going to allow you to reduce risk more than anything. There’s also an inherent value in that you’re eliminating or reducing a mortgage payment so you’re not relying completely on cash flow to make the deal make sense.
Whichever road you take, I just want you to remember, this is a marathon, not a sprint. Take your time. All right. Our next video comes from Cory Budak.

Cory:
Hey, David. Quick question. So, we are in the infancy of our investing career. We have a pretty successful little short-term rental and currently doing a live-in flip to just buy and hold and rent out. With that, we have put a lot of money into this and also increased the value a lot. So, we took out a HELOC and we continued to add to the value of the home. We’re probably, we’re in about 355,000, but the home is probably worth closer to five, but our HELOCs went for 50 grand and we’ve only used about 30, 35,000 of that. My fiance is a real estate agent and she has closed some deals, so we have some money saved up as well that would actually be able to pay off the HELOC. My question is, should we do that because the credit line will be there for us any way to use that money to keep investing, or should we hold that money and just pay the interest down on the HELOC over 10 years and then maybe refinance it?
Our payment’s less than $200 a month which we can easily make, but I just wanted to know what would be the best case scenario because it’s kind of we don’t have to pay the interest if we don’t want to because we have the money to pay off the HELOC, but I just don’t know what the best case scenario would be for us. So, should we pay off the HELOC with the money that we have and use that to invest moving forward, or should we keep the HELOC at its current $35,000 and just pay the interest until we want to refinance in 10 years? Thank you.

David:
Cory, love this question, man. Thank you very much for reaching out here and asking it, and I’m actually able to give some practical advice finally, which is great. Yes, you should pay that thing off. Let me give you the logic behind why. First off, you’re currently paying $200 a month or close to $200 a month which you can afford, so you don’t have to pay it off, but you don’t need to be spending that. Over six months, that’s $1,200. Think about how many hours of work it would take to be able to earn $1,200. Also, think about what else could you invest that money in that would get you more than 200. If you’ve got opportunities, maybe consider spending it and buying some more property, but most likely you don’t have opportunities, so I’d pay that thing off.
Now, here’s, like you mentioned, you’ve got access to line of credit. You’re not actually losing anything by paying it off. You could just go take it back out again if you do come across a deal. So, it’s all in how you look at money. Money is a store of energy. I’ve been saying this a lot. When you keep that store of energy in your savings account, you’re going to pay interest to have access to it. When you put it back into the equity of your house, you now don’t have to pay interest, but you still have the store of energy. Whether you’re keeping it as equity or you’re keeping it as in savings, it’s all the same. The HELOC is just the door that allows you to move it from one to the other.
So, my advice would be to put it back into the equity of your home, pay off that loan, but keep the door open so if you do see an opportunity, you just pull it out and you use it then. This is a pretty straightforward solution and I love that you’re thinking this way and you ask that question. Make sure you keep us up to speed with what you ended up doing and if you found something else to invest that money in, I’d love to hear it.
All right, at this segment of the show, we are going to turn to the YouTube comments and I am going to share what you and other BiggerPockets followers have all been saying on YouTube. Reminder, I’d love to hear what you have to say. So, as you’re listening to the show, head over to YouTube and leave your comments for me to read on a future show. Our first comment comes from Professor X who says, “This was just perfect. The answer to the question/scenario about paying off properties was exactly what I needed. I’m going to keep working and enjoying living at the same time.”
I don’t know for sure, but I believe that this came from episode 735 and this was a person who was a real estate agent and was trying to figure out should I keep working or should I try to retire off of a handful of properties. They had some of that like work guilt that I call it where people feel bad that they’re working and they think that the point of life is to avoid work at all costs. So, when they have to go to a job and make some money, they think they did something wrong.
That’s just not my philosophy. I don’t think you should slave it away at a job you hate and I don’t think you should do something you don’t like. I do think you should pursue your calling in life, but that’s still a form of work. So, whether you’re working in a cubicle, you’re working in a commute, you’re working from home, or you’re working to help other people, it’s all work. You got to be doing something. So, in this case, they liked my advice that you should continue working, selling homes, helping people build wealth in real estate, and adding to your own nest egg in the process. Worry about quitting work when you no longer have a passion to do it. Thank you, Professor X.
Our next comment comes from EC. “David, I must commend you on the excellent and sincere advice you have provided as a real estate expert. Your analysis of the practical realities of the situation and the importance of avoiding complacency in our thinking can greatly enhance our portfolio growth over time. You are truly remarkable.” Well shoot, EC, you are welcome to follow me around and talk about me to other people as much as you want. I kind of like having this hype man here. Make sure you submit a video at biggerpockets.com/david. I’d love to answer one of your questions. Thank you.
Jared Hackston says, “Hey, David. Is your company able to offer loan product that allows a seller to carry part of the mortgage in second position? For example, I’d buy a primary residence for 700,000 if I get a mortgage for 400,000 and the seller carries 300 in second position. Can it happen? Challenge question. If not, how could a loan company or business make it happen? Thank you.” This is a very good question, Jared, and I’ve looked at this a few times. Most of the time, conventional loans will not let you do this. They just won’t give you a loan if there’s also going to be another loan in second position, and the reason is it’s going to affect your debt to income ratio, but that doesn’t mean that it cannot happen. Occasionally, we can find lenders that will do it or you can structure it after the loan is done, depending on what the terms of the loan are.
So, what I’d encourage you is to reach out to us at [email protected] and literally paste this into your email and I will have one of my loan officers see what products we have, and if they don’t have, they’ll bring that to me and my partner and we will go look for a lender that will do something like this so that we can help people like you. Great question and love the way you’re thinking. Thanks, Jared.
All right. Our next comment comes from S. Sue who says, “Thank you so much for the generous sharing of your knowledge. Could you please talk about how to prevent someone from stealing the title/deed to your property?” I’m so sorry that this happened to you. This is a very good question and it’s happening more and more in real estate. I’m working with our production team on trying to find an expert, maybe an attorney who could come onto the BiggerPockets’ main show and talk about how this happens and how you can be protected. So, thank you for your comment there.
And our last comment comes from Shalin7023. “First time in your channel. So far, good information and delivery. Very smart responses to the questions. We’ll check the channel out again.” Well, awesome. We got a first time listener and a new fan, so welcome Shalin to Seeing Greene. We are glad to see you here, and you just reminded me, once again I forgot to turn the light green behind me. All right, and we’re back with a green light. Welcome to the green light special of the BiggerPockets podcast, also known as Seeing Greene, where your host, David Greene, which is me, routinely forgets to turn the light to a different color behind him. Thank you for your patience. I will someday, I will someday remember and I’ll work this out.
Thank you for all the love and support as I share my own trials and tribulations. We’re a community and we help keep each other strong, and that’s something I love about BiggerPockets and this podcast. So, thank you for listening. Thank you for submitting your comments. Thank you for asking your questions, and thank you for making the show possible. If you would like to make sure that the show continues, please go to bigger podcast.com/david and submit your real estate questions.
Also, take a quick minute to like, comment, and subscribe on this YouTube channel. If you’re listening to it on a podcast app, take some time to give us an honest rating and review. Those help us a ton. We’re trying very hard to keep BiggerPockets the top real estate ranked podcast in the world, but there’s plenty of competition, and there’s always some new young gun trying to take us out, so with your support, we can maintain that top spot.
All right, let’s get back to the questions. We’re going to start with a reading question from Caleb Bryan in Salt Lake City. “Hi, David. I’m looking for advice on how I should start my investing career. I currently live in the Salt Lake City market and I’m renting a basement apartment for $1,100 a month with my fiance. I’m not in a great financial situation. I currently have about 12,000 in consumer debt and have no real assets to my name or a large sum of money for a potential down payment on a home. My fiance and I are currently qualified for an FHA loan in the 300,000 range, but that gets us very little here in Salt Lake. I’m in the process of getting my real estate license as a way to boost my income while holding onto my current W2 job as long as necessary. I’m struggling to decide on if I should focus all my energy and money on getting me and my fiance into a primary home as the area is booming and I would hate to lose out on all the potential equity, or if I should look into out-of-state investing where I can get into high cash flow rentals or is it not a good idea at all to look into investing until I’m completely out of debt?”
Well, this is a great question, Caleb. Thank you for asking it. Let’s get into this. First off, no, I don’t think you should go out of state and buy a property somewhere else because finding a high cash flowing property in this market is incredibly difficult and you might actually end up losing money, which is not a thing that I want to see happen, especially if you’re already not in a strong financial position. I am writing a book, it should be out in maybe a little under a year called Pillars of Wealth, How to Make, Save, and Invest Your Way into Financial Freedom, something like that. This is going to be a book written specifically for people like you, Caleb. I’m very excited about finally getting this book out. It’s not quite an autobiography, but it’s close to one as it shares examples from my life, stories of what I went through, how I looked at money, how I thought about money, how I saved money, how I made money, and giving advice for how you can make more money, save more money, and then ways you can invest it.
Long story short, I want to see everyone, not just you, but everyone, first put themself in a position of financial strength, then worry about real estate investing. I think it’s a mistake that people try to put themself in a position of financial strength by investing. You should do it first, then invest the money that you have. So, you’re house hacking right now. You’re spending $1,100 a month. You’re living with your fiance. You admit you’re not in a great situation. You got $12,000 of debt. You don’t have an amazing W2 job, and you’re working on getting your license.
Let’s break that down. First off, great job working on getting your license. You’re taking some positive steps in a good direction. Here’s a tricky little trick that I’ve seen get into people’s heads that screws them up. It’s when they have one plan to move forward. Okay? People say, “I am going to find an off market deal. I am going to buy a bunch of cash flow in real estate and retire. I am going to get my real estate license,” and they put all their chips on one bet. I have a path to get to financial freedom, and while you’re waiting, because it’s a long time to get that license or it’s a long time to find that off market deal or it’s a long time to find your first client as an agent, you have all of this potential to be making more money that you’re not taking advantage of because you’re only thinking about one thing.
Let’s break that. You’re studying to get your license. Cool. What are you going to do with the other 22 hours of your day? Let’s say you have eight of it for sleeping, which leaves you with 14 hours. Are you busting your butt all 14 hours to be the best version of Caleb that you can possibly be? When you go to your W2 job, are you bringing incredible energy, an amazing attitude, and a hunger and a thirst for excellence?
I don’t care if you’re standing at 7-Eleven ringing people up who buy Slurpees and chewing tobacco. Okay? Are you trying to upsell them sodas? Are you telling them about a special of chips? Are you stocking the store in between customers? Are you doing whatever you can to make your boss think you’re the best? Because here’s what I’ve found. If you’re not excelling and giving your very best at where you are in life right now, the real estate gods, the financial gods, however you want to look at it, they tend not to smile on those people, and what happens is when those people do achieve wealth, they lose it incredibly quick because they haven’t built a foundation with which to keep it.
So, what I tell everyone, this is not just for you, this is for every single human being listening, when you want more, the first thing you should look at is what are you doing with what you have. If you’re going to work and you’re striving for excellence, you’re doing the very best you can at your W2 every single day, you should be really good at that job, which means you can actually start looking for a job that pays better in the same field, and you’ll probably get it if you’re really good, or you could ask for a raise.
If you hate your job and you’re sandbagging it and you’re not given your best at what you’re doing, it’s going to be very difficult to pay off that $12,000 of debt. You’re probably not going to crush it as a real estate agent. You’re probably going to have the same struggles when you get your license that you had with the W2 job, plus now you have all the licensing and all the broker fees and the desk fees and the MLS fees and the lockbox fees and the national association, the California association or your state association and the local association. There’s a ton of money that comes with being a real estate agent. You’re going to be losing more. All right?
So, this really comes down to the approach we take to life, and I don’t want to see you pushing yourself to try to buy a property before you’re in a position of financial strength. Okay? So, you’re in a good situation. You’re only paying $1,100 a month. Let’s think about what we can do in life that will allow you to make more money in the situations you have now, before you worry about trying to bring real estate and get that involved when you don’t have a big cushion. I would love to hear what you think about this. Send us another video or give us another submission and let us know how your progress has been. Also, if you’re going to be getting your license, checkout my top producer series with BiggerPockets, Sold, Skill, and Scale. You can get those at biggerpockets.com/store.
Okay, and our last question of the day comes from Manny Escobar. Manny says, “My wife, Yvette, is a high producing real estate agent in San Antonio, Texas. She has come to the point where she needs to delegate. For example, she has three offers she needs to submit. Currently working with an attention-intensive client. It’s 8:15 PM and she has two more to go.” Oh, how I remember those days, Manny. “What are some tasks she can delegate to VAs or other staff for max efficiency? She does not necessarily want to be a broker, although open to it, but even as a loan agent, I know there are some tasks she can delegate to free her up for what she’s great at, client interaction, negotiating, et cetera. She’s been a one-woman show for three years and has a hard time conceptualizing the idea of not doing everything.” Been there before too. “A breakdown or list of tasks she can delegate and to whom would be greatly appreciated. Also, where can she find these team members? Thanks for your time, brother. You and BT changed my life and continue to, so I’m forever indebted.”
Oh my gosh, Manny, such a good question, man, and I’m excited for your wife. She’s probably going to hate you at first when you implement these changes and then really love you after they get put into place. All right, let’s break this down. First off, your wife needs to read my book Sold, Skill, and Scale because I talk about this ad nauseam in those books. Second off, there is a couple principles that I think your wife can benefit from. I learned a lot of this stuff, oddly enough, working as a waiter in restaurant. I’ve realized there were these patterns to waiting tables because I was always trying to wait as many tables as I could with as high ticket of people as I could as efficiently as I could because that’s how I made money.
So, when I became a real estate agent, I thought the same way. How do I work with as many clients as I can buying the most expensive houses that I can as efficiently as I can? You hit it right on the head when you said she’s good at client interaction and things like that. She’s not great at paperwork or filling out forms. Couple rules of thumb that I picked up working in restaurants, I could handle a lot of tables. I was what they called a strong server. I could get up to 12, 13 at a time and I did that many times. I could not take 12 tables all at the same time. I couldn’t even take five tables all at the same time.
There is a very big difference between when the tables come in. So, what you have is these bursts of what you called attention and intensive stuff. So, when a table first gets sat in a restaurant, you have to go get their drink order. Right? You have to hope that the hostess remembering to drop off their menus or they’re sitting there with nothing to do. You might want to start some appetizers. That’s usually the first interaction. You introduce yourself, you get their drink order, you ask about appetizers.
Once you put their drinks in or their appetizers in, assuming you’re at a restaurant where other people walk the food to the table, which was not the case the first restaurant I worked at, it was in the second, you bought yourself some breathing time. Now you can walk food to your other tables, you can take orders from other tables. There’s these things that get you really busy at one minute, like I can’t be taken the order from a six-person table and also be getting a drink order for another table or bringing them more sauce or making sure that their steak was cooked correctly or helping them get more wine. I can only do one thing at a time. But then after I get the order in and I put it in the computer, I got a long period of time.
So, part of being a good agent is spacing out when you do certain tasks. So, for instance, when your wife is writing an offer, I know this because I’ve trained agents for years now, they don’t plan ahead. They wait until there’s an emergency and then they try to get it all done in that moment. So, she’s probably getting on the phone and saying, “What do you want to do for an earnest money deposit?” And they’re saying, “What’s an earnest money deposit?” And then she’s explaining it. It takes a long time. Then they’re saying, “Well, how much do we have to do?” “Well, I don’t know. Let me call the listing agent.” Then she calls the listing agent. Now it’s 8:45 instead of 8:15. Then she calls our clients back, but they just put their kids in bed so they can’t answer the phone. Now it’s 9:30 and they finally answer the phone and they explained the earnest money deposit. Then they ask the question about the down payment and so on and so forth.
What we did, because this was a problem for me too, was when I gave a buyer’s presentation when I first started working with the client is I got the answers to all these questions then. I had a form I would fill out, the earnest money deposit is typically 3% of the purchase price, but oftentimes we can get away with much less. Are you okay with half of that? So, we’ll do about 1.5%. On a $300,000 house, that would be $4,500. Yes, that sounds good. Okay. I’m going to need you to give me your proof of funds right now so that when we write the offer, I have it on deck.
What your wife’s probably doing is waiting till it’s time to write the offer, then her client is having to get the proof of funds, which is a bank statement showing that they have the down payment, and your wife’s walking her through how to get on Chase or wellsfargo.com and get that paperwork, and they’re doing it at the same time that all the other tables are coming in. You see what I’m getting here? You got to be able to space this stuff out. That’s the first thing your wife can do before she even hires anyone is to not wait until the client is saying, “I want to do something.” Be the leader. Take the wheel. Get the information you need ahead of time.
The second thing you can do is make a list of everything that has to be done and see which of those things can be delegated. Now, writing an offer is one of the easiest things to delegate. You have somebody fill out all the paperwork and then you go and review it and make sure it’s good before you hit send to send it to the client. It doesn’t need to be your wife that fills in what the earnest money deposit’s going to be, what the address of the house is, what the parcel number is. You can easily have a virtual assistant or even an intern from her office.
If she’s a top producing agent, there’s some agent in her office that hasn’t sold a house for two years that’s saying, “Can you be my mentor? Can you be my mentor?” They’re running around looking for a mentor. Your wife needs to be that person’s mentor. Have her tell that person, “I’ll teach you real estate, but when I need something done, you’re going to do it. When I need offers filled out, you’re going to fill them out.” Have your wife show the person how to fill out an offer and then let them see how they do, and if they make mistakes, get rid of them and get another one.
But that’s pretty simple. The things that are probably killing her are going to be the conversation she’s having last minute. “We just looked at the house, we have to get the offer in by tonight,” and now she’s trying to do it at 10 o’clock at night. Smooth that stuff out by being more organized and doing it ahead of time. Another reason that your wife probably can’t fathom having other people help her with her work is that she doesn’t have a system already lined out of what’s going to happen. So, in her head, she has to do it herself because she doesn’t know how to delegate something to someone else.
What I did when I started the David Greene team is I took everything that I had to do in a listing and I made a list in a Google document. Okay? We were talking about buyers. Let’s talk about a listing, all the stuff I have to do before an appointment, all the stuff I have to do at an appointment, all the stuff I do after the appointment, then all the stuff I do to put the house in the MLS, then all the stuff I do once the house is in the MLS and it’s active, then all the stuff I do when it goes escrow, then all the stuff I do when it closes. Every time I had a transaction where something went wrong, I would go back to my list and say, “Where can I put something in here so this wouldn’t happen again? Where could I prepare the client for this earlier?” And so, I would put, have conversation about blank, right after a different step in the process, okay, and it smoothed itself out over a long period of time.
I then took this very long list and I color-coded it for all the things that my first assistant could do. Everything that was blue is what I did, everything that was red is what she did. So, we were working off the same list for all the different listings that we had, and it was very clear what I was doing and what she was doing. Then I finally ended up getting a CRM that would take that list, and it would, instead of us having to look at the list, it would delegate to her the 75 things out of the 125 things that she could do, and it would delegate to me the 50 things I could do. That CRM is called Brivity. It’s for real estate agents. That’s what we use. And then what would happen is she would just show up at work and in her tasks list would be her being assigned all the stuff she was doing for every single property we had, and it was very clear what she was doing that day. She didn’t have to say, “What am I supposed to do?”
That’s what your wife needs. Now, is that going to happen at once? No, but if it doesn’t happen, she’s going to be running in this hamster wheel for the rest of her life and you’re going to be wanting some wife time at 10 o’clock at night when she’s writing offers and you’re not going to be living that life of financial freedom that we’re all pursuing through real estate. It’s going to suck. So, we have to be disciplined in the beginning so that that doesn’t happen. Just like it sucks when you get sat with seven tables at one time, but you don’t say no because you want that money, you want to teach a hostess they can wait five minutes before seating you and make it more smooth.
Now, let me tell you how this can work if you’re a real estate investor. My friend, Andrew Cushman, who is a multi-family investor, and I routinely buy apartment complexes together, and we have a system that works very similar to this. There’s three phases, phase one, phase two, phase three. Phase one, we have a list of eight things that we do to analyze the area that the apartment’s in. We go to certain websites and we look to see what the median income is. We look at a flood map and see if it’s in a flood zone. We look at a crime map and we see what kind of crime it is. We look at rents of other apartments around and see if our rents are higher than theirs or lower than theirs. It’s all very high level stuff, but it’s documented very simply to do.
After that, we analyze the actual property. We look at the T12. We look at the demographics of who’s moving into the area. We look at the vintage of the property. We look at the size and number of units, the vacancy in the area, a little more detailed stuff. Okay? And then in phase three we get in really, really deep. The beauty of having this analysis numbered out on a document is we can have interns or people that work for us do the work and then report to us, well, really it’s reporting to Andrew because I’m busy making podcasts like this for you guys, what they found. Pretty cool, right?
So, once you have it spelled out everything that needs to be done and we even put links in the Google document, click here to go to the flood map, click here to check out the crime, click here to see what the Census Bureau says about where people are moving to. We can have another person that goes through, fills in all the information for us. Andrew looks at it and it takes him 30 seconds to give it a thumbs up or a thumbs down before moving into phase two.
Your wife could do the very same thing. It is all about being disciplined enough and doing the same things over and over and over. When you don’t know your process, when you don’t know what you’re doing, when you don’t know what you’re looking for, you just trust your gut and you end up waiting for the customers at the restaurant to raise their hand and say, “I want this, I want that, I want this, I want that,” and you run around trying to get them everything they need with no system in place. I’m a big fan of this. It’s one of the reasons I wrote the book Scale, which is the last in the top producing real estate agent series so that agents can learn how to turn their job into a business so that they’re not working until 10:30 at night every single night.
Manny, thank you so much for submitting this question and all of you who are listening, thank you for doing so. I want to see you make money in real estate, but I want to see you enjoy your life at the same time. It doesn’t have to be one or the other. Systems allow that to happen. If you like this show, please do me a favor, give us a five-star review wherever you’re listening to this podcast. Those mean a lot, and don’t forget to comment on the YouTube because I want to know what you thought about what I said, what questions people had, what questions you have, and what do you think about me forgetting to turn the green light on again. I’m definitely not going to be called the Greene Lantern if I keep forgetting this all the time.
All right, everyone, love ya. Thank you for being here. Thanks for choosing to get your real estate knowledge from me and BiggerPockets. We know you could be getting it anywhere and it means a lot that you come to us. You can find me at davidgreene24.com or on social media, @davidgreene24. You can also leave me a comment here on YouTube. Our production staff will check it out and will hopefully get you featured in the show. If you have time, watch another BiggerPockets video, and if you don’t, we’ll see you next week.

Regardless of whether you are a well-established company or a startup, the consequences of a weak business model are the same. For the existing company, it’s the inability to recognize that the company’s business model is no longer relevant and the subsequent failure to pivot will eventually doom the company. For the startup, its convincing yourself and potentially investors, that you have a business model that will ignite or disrupt an industry, but without any early revenue, and that is potentially dooming.

The graveyard of startups is full of companies that failed to get to revenue early. Failory lists 67 startups that failed, possibly due to a poor business model and a lack of early revenue. For startups, the difference between survival and running out of runway always comes down to taking your eyes off of cash flow. Why? Because when you’re in the middle of the startup run, it’s pretty easy to fall into a trap of wasting time on feel-good tasks that feel like progress but don’t bring in any money. Perhaps its building partnerships, or focusing on good PR. Maybe you are focused on “wins” that look good, like 40,000 website downloads but don’t bring in any real revenue.

If you believe that the odds of startup survival depend on how fast you can generate revenue, then getting to revenue fast is to do nothing else but seek it out. Here are some of things you should consider in getting to revenue fast.

Don’t raise investor money early. Raising money is not the same as generating revenue. Look for ways to generate real revenue with an early customer to test out not just the business model but the product or service. No one pays you for a business model. Test your product or services benefits with early customers willing to pay and adjust accordingly on the customer feedback. Plus you will keep your valuable equity for when you might really need it.

Build out the product not the company. Don’t waste early time and effort building out a company with an expensive website, an office space, a cool t-shirt and a host of other unnecessary things. Work out of home, a co-working space or a friend’s office (for free) and focus all your energy on building out the product or service. Test that with paying customers. Remember, no matter how cool your brand is, your mission or how far out your business plan goes, you’re not an entrepreneur until someone pays you money for something you’ve sold them.

Go to work. In the early days, you are the product developer, marketer and project leader. Don’t get ahead of yourself and hire several employees before you have revenue. Use friends, freelancers if you have to but don’t build out a team until you can afford it. Utilize SaaS tools, simple financial software and sales hutzpah to get your first paying customers. If you have them, lean on mentors and advisors for advice.

The first version is supposed to be ugly. Don’t try and create the perfect product or service as you will launch with that mentality. Get it to good enough and test it with early customers. Reid Hoffman, co-founder at LinkedIn once said that if you are not somewhat embarrassed by your first version of your product/service, then you are launching too late. You need the early feedback from the first customers to create the next refinement or possible pivot. Narrow it down and get to an important feature set for your first segment of customers. Then collect the money, figure out the next priorities based on what works and what breaks, and move on to building the next feature.

Execution before innovation. If you think about successful startups, they started simply by doing or testing something. In the early days, it might not be about innovation but more about execution. Airbnb’s co-founders rented their own bedrooms on a busy weekend in San Francisco to test if someone would actually pay them for their rooms. They did not have a fancy website, a sophisticated algorithm, other cross sell services, etc. They simply tested the notion that people would pay to rent their rooms for the weekend.

Focus on your first 10 customers. In the early days, focusing on TAM (Total Addressable Market), SAM (Service Addressable Market), or SOM (Service Obtainable Market), might look good in a pitch deck, but to get early revenue fast, you need to really focus on your first 10 customers. Who are they, where are they and how can you close them? You might be in a multi-billion marketplace but you need early paying customers. Learn from the first ten customers, then go to 20 customers. Learn from them, then get to 30, and so on until you have definitive, repeatable, scalable revenue streams.

Ashley:
This is Real Estate Rookie episode 276.

Annie:
There’s literally no reason not to use a broker. They’ll negotiate for you, they have a better sense of what’s going on in the market, what valuation is the right valuation, what to come in at, how to negotiate, so that’s number one. Find a broker, and they’re out there. And I would search for specifically a commercial broker. Some dip in both worlds, but if you’re doing commercial all day long, you just have a better sense of what’s going on in the market.

Ashley:
My name is Ashley Kehr and I’m here with my co-host, Tony Robinson.

Tony:
And welcome to the Real Estate Rookie Podcast where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. Today I want to shout out someone by the username of Kell Bell Atwell, who left us a five star review and says, “My husband and I both started listening to this podcast in October of 2022 and have been so inspired by Tony, Ashley and all of their guests. With the help of this show, we were able to jump into action and purchase our first home by mid-December. As raft guides, we spend half the year in Colorado and the other half in St. Louis, so the game plan now to utilize our other St. Louis home as a midterm rental for traveling nurses during rafting season in the fall months we’re out in Colorado. Thank you so much all for the great insight.
Kellbell Atwell, we love hearing stories just like that, so we appreciate you giving us a shout out and that five star review. And if you’re a Rookie audience member and you haven’t yet left us a review, please do. The more views we get, the more people we can help. The more people we can help is what we love doing here, so there you go. Ashley, what’s going on? You got a different background today. You’re just traveling the last couple of weeks. Every time I see you, it’s a different scenery behind you.

Ashley:
Yeah. Well, this one is because we usually don’t record on this day, so I’m actually at what is going to be my future office. I did a full kitchen in here, so it could be a residential unit too that I didn’t need as my office anymore, but I’m currently sitting at the kitchen counter where the dishwasher goes and I don’t have the dishwasher yet, so my legs are just under that opening of the cabinets. It’s actually pretty convenient sitting here just on a stool.

Tony:
And you’ve got a beautiful view behind you, these picturesque windows.

Ashley:
And then there’s a driveway out there and a concrete pad, but then on the other side of the driveway is a beautiful pond out there. It’s actually pretty nice, so the kids can play out there and stuff while I sit in here and work.

Tony:
Well, we got a good episode for the people today, right? We’ve got Annie Larner on, and Annie is a commercial real estate broker. She’s been in the game for a while and she is just such a wealth of knowledge and she gives, I don’t know, think of James Dainard’s episode when it came to estimating rehab costs, this is the equivalent for working with the commercial broker. She has so much information on how to be effective in that relationship and what to look for and what works and what doesn’t work, so I really enjoyed this conversation with her today.

Ashley:
And I think a key takeaway away, as Tony mentioned, working with a commercial broker your first thought was I’m going for off market deals. I’m not going to use an agent, she goes into exactly why you should use a broker when you are buying commercial. And I think that they’re great examples and it’s can be such a benefit to you. I didn’t even realize that there was websites. She talks about different websites like LoopNet and CREXI, which C-R-E-X-I, you should be signed up more if you’re looking for a commercial real estate. But she talked about a couple other ones that you only have access to if you are a commercial broker, and it’s not like the MLS where you can go and see what’s on the MLS on Zillow or realtor.com. So I found that really interesting and it’s just one of the benefits, but lots of great information. Annie, welcome to the show. Thank you so much for joining us. Can you start off telling everyone a little bit about yourself?

Annie:
Yeah, you got it. Thanks so much for having me. My name’s Annie Larner and I’m a commercial real estate broker in Colorado. Northern Colorado, specifically the greater Boulder area, as we say. And in Colorado, real estate brokers can practice whatever they want, residential or commercial, but generally what happens is you fall into one or the other and end up specializing in one or the other because they’re somewhat different worlds, and we’ll I’m sure get into what that all means. I specialize in commercial, so we do sales and leasing of commercial properties.
And I’m on a team with about six other brokers and I got into commercial real estate by way of marketing, actually. My background is marketing and consulting for businesses. I’ve always been in B2B. I love working with businesses, I specifically love working with small businesses. So commercial when I started working for real estate and my clients became real estate brokers, my interest with real estate combined with my love of working with businesses and now investors often combined both worlds, so that’s how I landed in brokerage.

Ashley:
And what about investing yourself? Can you tell us a little bit about your personal experience as an investor?

Annie:
Totally. When you jump into real estate, you end up just seeing a lot of deals by accident. I didn’t really have a ton of intention to invest a lot in real estate, but we stumbled on some properties and was able to combine money with other brokers and work out some deals. I have a friend who has a lot more assets than we do, and so he works out deals with us and brings deals where he will put down the majority of the money and then we come in as a minority share owner of a property and we put together an LLC and buy it. And so we found a residential property in this area that was kind of a flip, and we ended up buying it and we put maybe $40,000 into it and then we rented it for a year and just stocked away some money.
We didn’t treat it as an income property really, it was more just savings, whatever. We maximized the rent as much as possible, and then we were able to put that back on the market a year later and I think we bought it for $382 and rented it out, covered all our expenses for the year. We put $40,000 in and then the next year sold it for… now I’m trying to remember… $650,000-something one year later, so it was a good little project. Those are kind of the deals that we’re looking at. It was lucky, but they don’t all work out.
We just got lucky with that one. It worked out really well and it just was in this perfect spot and three bedroom, two bathroom, a yard, which around here, three bedroom, two bathroom and a yard is everything you need because you have space for dogs, because if you don’t have a space for dogs, you eliminate so much of your renter pool. And with three bedroom, two bathroom you can get a group of young adults that can all put up a little bit more of a budget. If you make it somewhat nice and not super college whole type of thing, then you can bring in a few more people. So that’s what we focused on.

Tony:
Annie, I love that you have experience on both sides of the spectrum. And you talked about this a little bit already, but there are obviously benefits to both the commercial and the residential space, but for our rookie audience, a lot of them maybe don’t have any deals yet. Do you think that there are enough benefits for them to jump into commercial as their first deal or do you feel that a lot of the people that you work with, are they usually more experienced investors that have worked their way up to commercial? What are your thoughts there?

Annie:
Good question. Definitely, commercial investors tend to be a little bit more savvy because they’ve maybe been doing it a little longer, and mainly the big difference is they have a little bit more capital. I think that’s probably the biggest barrier to entrance if you do want to start investing in commercial. I think it’s just as easy if not easier and there’s a lot of benefits for buying commercial property over residential that appeal to me even, but the problem is you just need a little bit more capital because commercial buildings not always, but they tend to be a little bit more expensive and you need a lot more capital to sustain them in terms of maintenance and vacancies that you have to deal with.
But the deals are longer, so if you can absorb a lot of that, you can set yourself up for commercial. But there’s certainly workarounds and I think if you can pool money with groups and work with a good broker broker who can help you work through all of those deal structures, it’s a really good opportunity and I’d love to share more about how to look at commercial deals and what to watch out for, how it’s a little bit different.

Tony:
Just one follow up question to that, Annie, because you said that it’s just as easy if not easier to get a commercial deal. Elaborate on that because I think for most of our rookies that are listening, they think of the word commercial and just they’re overwhelmed by everything that goes into that. So elaborate on what you feel it might be actually easier to get a commercial deal.

Annie:
Well, the pool of buyers is smaller, just simply put. With residential at least around here, we have a strong market here and you have a lot of buyers lined up even in this weird downturn that we’re experiencing right now. And with commercial, they sit on the market a long time, nine months. It’s unusual for a commercial property that’s for sale, especially one that’s in the more accessible range, we’re talking about something maybe $500,000 to $1.5 million, a building like that sometimes, especially if it doesn’t have the income that a lot of the investors want to see, will sit there for a while and there’s actually room for negotiation.
You can actually put in an offer what you can afford and then go to the table to negotiate, where sometimes with investors, when you’re investing in residential properties or looking to do flips, I think that there’s a longer line out that door and you have to get a little bit more aggressive. So I guess acquisition is what I mean by that with commercial. You have a few more options, you just got to know what you’re looking for and be ready.

Ashley:
Annie, for a rookie investor that’s going to be listening to this podcast and thinking, “You know what? I think I would actually like to try investing in commercial real estate,” where is the first place or the first thing they should do to actually start that action to propel themselves into the commercial side of investing?

Annie:
Great question. Caveat, I’m a broker, but I would say find a broker. Number one, in the commercial side properties we are not as readily available to search and find in commercial the way that they are in residential, and the biggest reason is that we don’t really have the equivalent of an MLS in the commercial world. This multiple listing system, they’re so nice. I You can love them, you can hate them, but one thing they do do nicely is syndicate all these properties to these different websites that are totally available to the public. On commercial we have LoopNet, and I’m sure if you’ve ever looked up commercial properties, you’ve used LoopNet. LoopNet’s great. It’s the public-facing version of CoStar, and CoStar’s by far the market leader in the property data exchanges. But other than LoopNet, everything else is behind a wall that’s accessible by licensed brokers.
So all of these property exchange databases that we call, like Catalyst, CoStar, LoopNet, CREXI. CREXI you can use with a login, and I would recommend that for investors who are looking to just browse properties. But ultimately, you’re going to have brokers who have access to the pool of properties that are available and they’re going to be more networked with other brokers in the industry and know what properties are coming up, what’s available. They’re going to be more likely to be able to access off-market deals for you. So just finding a property alone, just use a broker. If you’re a buyer, it’s just the same as it is in residential where you don’t pay for your broker and you don’t pay their commissions, the landlord or seller pays the commissions.
The only time when you might pay commissions to a buyer’s broker is if you bought an off-market deal, which is something you got to be ready for, and they might want to sign a exclusive with you so that you do cover their fees if it’s off market. And that does tend to happen depending on what you’re looking for, but for the most part you’ll find something on the market, and so there’s no literally no reason not to use a broker. They’ll negotiate for you, they have a better sense of what’s going on in the market, what valuation is the right valuation, what to come in at, how to negotiate. So that’s number one, find a broker. And they’re out there, and I would search for specifically a commercial broker. Some dip in both worlds, but if you’re doing commercial all day long, you just have a better sense of what’s going on in the market.

Ashley:
To follow up with that question, and you already answered part of it for me as to what value can you expect a broker to bring to you? So you said negotiating, help you figure out where the market is at, what this property is actually valued at, things like that. What are some other things that a broker would help you with? So maybe during the acquisition side, are they helping you with here’s the items like a lease agreement, things like that that you should be getting from the seller and then after you’re under contract, are they assisting in the due diligence? And so what are those pieces that someone should ask if a broker is knowledgeable in those areas and provides those services?

Annie:
Definitely. A broker will, number one, help you find out what’s on the market, if you get under contract, get under contract at the right price. And then due diligence is pretty long. We tend to be under contract for 30 to 90 days in commercial. I have a deal closing next week that’s almost 90 days that we’ve been under contract and it wasn’t even complicated, it just takes a long time to get environmentals done. Inspections, there’s a lot of title work. And then of course tenants, so that’s the next thing that I’ll speak to. Actually, if you’re buying a building with tenant or tenants in it, there’s a level of complexity there. Imagine this, you had an owner that’s had a commercial building with a bunch of tenants in it for, I don’t know, 10 years. And over those 10 years, they’ve signed five different leases or six different leases releases, and some are gross leases and some are net leases and some are modified gross.
Some have a deal with the guy that if he cleans the closet and gives foot massages on Fridays, that he gets $200 off of his rent that month. And all of this stuff survives closing, so that has to be captured and recorded and represented through what are called estoppels. And I’m sure if you’ve bought houses with renters, you’ve had estoppels, but with commercial they can get really complicated because it’s these it’s businesses and it affects their bottom line. And it’s important that whatever security deposits and all kinds of stuff, that all has to be transferred in your settlement sheets later at closing. So these estoppels can get a little complicated and you want to make sure you have a broker that’s helping you take a look at those and make sure everything checks out, that that transfer into that landlord role when these tenants survive closing is smooth and that there’s a really strong understanding.
I have a building right now that we closed on in December and it had 12 estoppels, 12 tenants and it was like an 8,000 square foot building. It wasn’t big, so lots of tenants for it. And we’re now however many months later and there’s questions coming up again about estoppels and security deposits and last month’s rents and things that weren’t accounted for. And in theory, nothing has to happen because that those estoppels are legal documents that survive closing, but we now have questions about that, so we got to be super diligent about how that’s handled and a broker will come by your side. And then, sorry I’m talking a lot, but just to answer your second question about what happens when you do become a landlord and how a broker can help you. Again, leasing.
Leasing is an ongoing thing. If you have tenants and you are going to have to keep tenants and that’s part of your investment strategy, you’re not actually occupying it, you’re trying to just gain, you’re just doing it for income, you’re going to want a broker that knows a lot about the market and what rents are in the market and how to negotiate a strong tenant for you, how to vet the tenant that comes to the table, how to get longer deals for you, and leasing is just an ongoing thing. Renewals, leases start to expire, people are going to renegotiate that and it’s really nice to have a broker on your side who can just handle that for you.
You can do the leasing yourself and I would recommend doing a lot of good research about how to negotiate good leases, but I can’t tell you how many times I’ve worked with sellers who come to the table and you could tell they weren’t working with a broker because their leases are all super under market, rents are really under market. You have messy lease documents that are hard to make heads or tails of, and that affects you when you go to sell the building and you get under contract and you have to do due diligence and everybody starts looking at these messy leases and says, “Oh my gosh. These are way under market, the value of this building’s not here. These cap rates don’t check out,” and then you have to renegotiate your price. So having really strong leases in place with rents that make sense that are either at or above market will help you when you go to earn your money back at sale.

Tony:
Yeah, Annie, so much valuable information there, and I just want to call out because I know for so many of our rookies they can probably be listening to this and their heads are spinning, but I think that goes back to the point of why having someone that has the experience is so important if you do want to get into commercial space. But just one last thing on the due diligence period. I think we all are somewhat familiar with what happens with a single family house during escrow and the inspections you need to pull, but with the commercial property, what are some of the additional inspections that someone should be looking at to make sure that this property’s a smart one to buy?

Annie:
Almost always you’re going to see an environmental done. So we call that there’s a phase one, phase two there. There’s different phases of environmentals that you do. At a minimum, you’re probably going to want to do a phase one. And so that’s going to go through the building and test for asbestos and other toxic materials that might be throughout the building, and those can get really complicated if you have a building that has changed ceiling tiles. If you have a multi-tenant building and in each of these different units, the tenants have done different buildouts for their business, you’re going to have a variety of different materials throughout the buildings.
This same property that I mentioned that was this roughly 7,000 square foot building, we did an environmental and I think they took 90 samples for the environmental. So it took all day and it was really long, and that’s just a phase one. And then if you’re sitting on a property that’s an industrial property that has more complexities, you might get into a phase two depending on the what comes back from that phase one, and you could end up buying a building that’s a brown site. When it comes to commerce, you have businesses doing a lot of different things on these properties, and so environmentals are really important and that’s usually what causes the you to be on a contract for so much longer on commercial.

Ashley:
I had a property under contract that went into a phase one. It was self-storage but it also had a commercial building with it, and the phase one failed because there was a mechanic shop operating out of it and the phase one notated that there could have been oil spillage. So wanted to go to a phase two, but the seller wouldn’t allow it. He wouldn’t allow the phase two to be done on the property, and our broker told us that that could be because if there is an issue and we back out, he is now aware of that issue and has to disclose it and most likely would have to remediate it.
So we actually walked away from that deal because the seller wouldn’t even agree, and he ended up reimbursing me for the phase one and I gave him that report so he did have it for another buyer. So that kind of worked out okay and I didn’t lose a lot of money in doing my due diligence, but that’s something else to be aware of too, is that you’re ready to move forward and the seller actually puts a stop to it and says, “I don’t want to know what’s wrong with it.”

Annie:
Totally. These commercial deals unravel in the final hour so often. Because most of the buyers are investors and the sellers are investors, you have first of all, maybe a lot of ego, but also oftentimes if the deals, the numbers don’t make sense, they’re just going to walk away and walk to the next one. So it’s really tenuous. The process can fall apart at inspection resolution or in that final hour so often, and I would say that’s another thing to really be ready for, just like with your story, Ashley.

Tony:
So Annie, one thing that you mentioned that I just want to make sure we go back to was cap rate. You very briefly mentioned that word, so can you break down or define exactly what a cap rate is and what role it plays in commercial real estate?

Annie:
Absolutely. So in commercial real estate, we value properties by a few different methods depending on the situation. And this is real estate 101, so everybody bear with me. But you can look at just purely comps or you can look at underlying land value if the property is a piece of crap and ultimately someone wants to just redevelop it or do some urban infill, so there’s really no value in the structure and you’re looking at under underlying land value, so you do a per square foot or per acre basis. And then there’s income, and that’s the most common one because most people invest in commercial for the income, you look at income. And the way we value an income property is through this capitalization rate. It’s just this dumb formula that can be really confusing, but basically, you take your net operating incomes, your NOI, which is your income minus everything it takes to operate and run the building.
So taxes, insurance, maintenance, and you even take your loan out of there, so cap rates don’t account for your loan, it’s really just trying to look at the building itself, and we get that NOI and you divide it by the value of the building or what you want the value of the building to be. So if it’s $1 million, if it’s on the market for $1 million, you would take the NOI and divide it by 1 million, and you ended up with this percentage that’s somewhere between 4% and 10%. And really what it is, it’s not really a return as much as it is a measure of risk, risk and return. So a cap rate that is in that 4 to 5% is going to tell you that this is a property that has a high value, it’s probably in a more urban market, like in our case Boulder, where value is sustained and continuously increases, but the rents as a result against that value are not as high.
And so you’re getting a lower cap rate on that, but it’s a more safe, long-term investment. It’s going to grow steadily. It’s like the bonds of commercial real estate. And then a higher cap rate is simply going to tell you it’s a riskier market, like the value is lower as compared with the income, but the odds of you finding really good long-term tenants might be a little lower because you’re out in more of a rural or a suburban market that is a little less of a surefire bet. So it’s just riskier, so it’s the stock of real estate investments. So cap rates, you’re going to hear it all the time and a lot of times you’ll buy a building that there is no cap rate listed and you’re like, “What’s the cap rate?” Well, it might be empty.
Or in the case of a building I’m under contract right now, half of it’s rented and the other half isn’t, and so in that case, cap rate’s irrelevant. You could do a proforma cap rate and estimate based on market rents and the number of square footage, the rentable versus usable, we would estimate that you could get this cap rate if you bought it for this. But ultimately, there is no cap rate, so you have to think about how it’s valued. So in that case, we’d rely on comps and look at price per square foot of similar buildings that have sold in that market and estimate this is what it could be, but it’s not quite there so we’ll give you a discount for that, and this is how we’ve arrived at this price per square foot.

Tony:
If I’m a new investor, Annie, how do I figure out what the cap rate is for any given area?

Annie:
Well, I would just go to LoopNet. Go to LoopNet and first of all, pick what do you want to invest in? Retail, industrial or office? Industrial tends to have more of those lower cap rates because you have really long-term tenants and the value’s always high of industrial buildings, like warehouses and stuff. But pick one of those and then do a search for all 10 to 20,000 square foot warehouses in a certain market and just filter it by that and start looking at brochures and listings and see what they’re listing the cap rate at, and usually they’ll call it out. They’ll be like, “This is an eight cap. Check it out, eight cap.” You’re like, “Yeah, but it’s in Salem,” so duh, of course it’s an eight cap.
But if you go into a more of an urban area, like a college town or somewhere like that, and you’ll see this often on multifamily and a college town where rents are always really steady, you’re going to mostly see four multifamily always has the lowest caps because again, it’s so steady and everybody needs a place to live. And so if you’re buying a multifamily property, even four units, you’re going to expect that four to five cap. If you see a six cap on a multifamily in a college town for example, that’s probably a good buy, but you’re going to have a lot of people lined up for a buy like that.

Ashley:
Annie, when looking at a cap rate that’s on listing, is there anything you should be doing to verify that the cap rate is actually calculated correctly? Are there some common things that you see that maybe the seller didn’t tell the broker about or whatever that is, but are there just a couple things that we should be looking for when analyzing a deal that might have been left out when the cap rate was configured?

Annie:
Absolutely. Great question, because the cap rate is a good thing to verify. One, because they might have not calculated it correctly and there’s actually a higher cap rate and you discover that and that’s a total nugget, or that they’re totally bloating the cap rate. So the first thing you’ll do, you don’t even have to be under contract actually, when something’s for sale and you’re interested in it, ask for rent roll. And so that’s going to be a spreadsheet that you’re going to get from the brokers listing it or the seller, and this is going to show all the different tenants, what rent they’re paying, when their lease ends, some other high level strokes there on their terms of their leases. And then on that rent roll, it should show all expenses as well. And from there you’ll see taxes, here’s what insurance is, here’s what maintenance is.
And sometimes, often you can tell pretty quickly how savvy a seller is and how good of track they’ve been keeping of these expenses based on whether those are estimated. And if you think they’re estimated, you can just start asking some questions like what are really the expenses here? Did this guy get out and shovel the snow by himself every day? Who fixed the roof? Did you pay a roofer or did you get up there and play with some tar? Really find out what the expenses are going to be when you take this on, how much you’re willing to do yourself. Check the taxes and make sure that those are listed correctly. And you can quickly look at all that stuff to make sure that the cap rate was calculated correctly, and then you can start playing with your offer. So if it’s listed for $1 million and you know you’re not going to buy it for anything more than 850,000, then you calculate the NOI against your anticipated purchase acquisition price and figure out what your cap rate is that you’re going for.

Tony:
Annie, I think that’s one of the things that makes commercial real estate so enticing for so many people is that you have more control over the value of that property because if I buy a single family house, most of our portfolio we buy short-term rentals, and we can take that property and make it perform tremendously well, but the value of that property is always going to be tied to comparable sales of other houses in that area. But if I go out and I buy a hotel and I can take the NOI from $500,000 to $1 million, now I’ve significantly increased the value of that property. So I’m just curious, Annie, from the clients that you’ve worked with, have you seen them utilize that strategy effectively where they buy an underperforming asset, they’re able to stabilize it, improve it, and dramatically increase the value of that property?

Annie:
100%. That’s the goal. That’s ultimately our goal, is to buy an underperforming piece of property and stabilize rents. And if you can find an opportunity for that and then get it for the right price, of course every seller thinks that their property doesn’t stink at all so you got to get it for the right price, but once you do that, and then over time. This stuff takes time, because commercial leases are usually two to five, sometimes seven, 10 years long, and it might take time to get it to a stable enough place to take it back to market. But again, another reason to work with a broker who can work on stabilizing that property and getting some nice rents in there for you. But yes, that’s exactly the goal. Stabilize it, add some value. Make sure you’re taking good care of the building too, you don’t want it to have any major problems that can be uncovered in due diligence, and then bring it back to market. That’s exactly right, Tony.

Tony:
I love that. We got a campground under contract in West Virginia right now, and that’s a big goal of ours is that they’ve dramatically underutilized this property and there’s some big upside there, so I’m excited for that. You mentioned another word that I want to go back to, Annie, which was proforma. Can you define what that is? And also, proformas aren’t always the best source of information to really understand how a property might do. You might have some sellers that have proformas that say this is the world’s best property, but you do a little bit of digging and you find something else. So what exactly is a proforma and how can a rookie real estate investor use that to make a smart decision about buying a property?

Annie:
Totally. Don’t be intimidated by a proforma. Actually, you could use a really simple one. You can get really complicated and get really out of control on it, but a proforma is basically a spreadsheet that you’re going to use to calculate how you think this property can perform, what kind of income you can really get from it if you did everything that you want to do in the end, if all things are perfect. So if you buy a building that’s 80% leased and you know that you want to get it up to 95% lease, you want to get these longer term deals in, you want to get the best rents can, what is your rate of return when you do that and what’d you buy it for?
And then in your proforma, that’s where you do want to start playing with loan money. So you throw in how much you’re financing, how much cash, when you want to refinance. You can get really complicated with these, but ultimately a proforma’s just saying this is what the picture is today and in the future, this is what it’s going to look like if I can do everything that I want to do and create the value that I want to create.

Ashley:
Annie, when doing the proforma, what are some things that someone should be aware of? So for example, if the seller prepared proforma as to here’s what the property’s doing now but we know that it can do this, what are some things even if you’re creating the proforma on your own that people should watch out for that might not even be on the actual? So one thing I’ve seen that’s common around Buffalo is you’re buying from a mom and pop, the pop goes and he does the snowplowing, so there’s nothing that’s listed on the expenses for snowplowing, or maybe their insurance policy doesn’t even cover anything. We toured a campground before that had wood-burning stoves in some of the cabins. Their insurance policy did not cover if something happened with those wood-burning stoves, so that just showed that the premium was probably going to be a lot higher than what they had that was on their current profit and loss. So can you touch on maybe some of those other things that we should keep an eye out for?

Annie:
I think honestly, you just nailed it. Expenses. I think expenses is the biggest thing. Everybody can bloat their rents. One, be conservative on rents. You don’t know what’s going to happen in this world. We’re having a crisis in office right now, so a lot of people had proformas that are not working for them in office at all right now. So be super conservative on your rents and be liberal on your expenses. Just know that however that seller’s running the property right now, you’re probably going to spend way more than they did, even if you don’t. But in your proforma, pretend like you are.
You’re going to hire out that snow removal company. You’re going to work with the roofer. You’re going to get overinsured, umbrella, everything, and then you’re going to have to deal with financing too, because nobody has $2 million laying around. And it might be that you don’t make money on this property for five years, it might be only value for seven years. Especially when you’re in a market with those lower cap rates, it takes time to make money. And so I would say just be liberal on the expenses and conservative on your rents and just try to work with the worst case scenarios, and if it’s still working, it might be worth taking a look at.

Tony:
So you mentioned, Annie, about office being in a crisis right now. I guess I’m just curious, with all the experiences you have, how are you seeing investors in the commercial space pivot given where we’re at in the economic cycle today?

Annie:
It’s a big one. Here in our market in Boulder, our office vacancies are at 12.6% right now, and that’s still not that high, it’s just really high for us. I think New York City’s at 15% potentially. And in Boulder, just by comparison, our historic rents over the last five to six years have been around 6 to 8%, or vacancies, excuse me. So 12% is double and we’re definitely feeling it. It feels like there’s just office everywhere. So I think that sellers and landlords, so on the rent side, are getting there. They kind of understand the state that we’re in, that they’re going to start needing to make more concessions, that prices and rents are going to need to reflect the market, but we’ve had such good rents historically that it’s going to be slower than we want it to be for sellers to respond, landlords.
Meanwhile, buyers and tenants expect the world. So in office, we’re just getting offers. We’re getting proposals for rents that are half of asking, and we’re seeing offers where you can tell the buyers are just expecting this fire sale and sellers just aren’t there yet. So we’re in this gap period, and I think sellers are waiting for things to bounce back or level out of it. Buyers are sitting on cash and thinking that they’re going to get the best deals in the world, and only time will really tell. I’m not sure if that answers your question, but that’s kind of what we’re seeing. And that’s mostly in office. It’s still really healthy in industrial. Good luck buying a warehouse, everybody’s lined up for those. Good luck buying multifamily, it’s still really strong.
Retail kind of goes up and down depending on where it is and what type of retail you’re talking about, but offices, a little bit of identity crisis. We’re just not seeing it come back yet. We’re still seeing a lot of work from home hybrid models, so it’s a weird time. I just think we’re going to need a little bit more time. And overall, commercial just moves a little slower because these deals are longer and leases are longer and so the response rate, and you have a lot of institutional investors and they have really long deals, so it just takes a little bit more time for us to see exactly how it’s going to pan out.

Tony:
I’m curious, Annie, given you have such a wide exposure to all these different types of commercial real estate, if you were a rookie investor and you were starting fresh today, which type of commercial real estate would you go after? Would you go after industrial? Would you go after multifamily? When I think for myself of which commercial asset class might have the most upside, right now we’re looking at hotels and motels because we’re already in the Airbnb space, so there’s some upside there for us operationally. But I also love the idea of the strip mall that has the dentist and the nail salon and the barbershop because those are things that you can’t do virtually, so to me it’s like you’re going to have some upside there. But I’m curious, what are your thoughts? If you had to start today, which way would you go?

Annie:
Well, it depends on your budget and I would say it depends on your interest. You’re going to have to deal with these tenants and you want to know their business, so if you’re going to go after warehouses or if you’re going to have something in heavy industry, I would suggest you understand a little bit about the types of businesses that will be your tenants. Do you know about autobody stuff? Do you know about manufacturing? Do you know about storage? If you understand their business, you can work with them a little bit better and know your market and what makes a qualified tenant, where retail is quite its own thing too. So versus office, we see a lot of small office owners are people with an insurance agency or businesses that have had to rent these types of spaces before themselves and understand what goes into an office or what makes you a good office landlord. So if there’s something that you already maybe have a little bit of knowledge or interest in to begin with, maybe start there.
Industrial’s just a higher price point. It’s just harder to buy. Even the smallest big warehouse, they’re out there, but ultimately you’re going to need several million to get in on a warehouse. They have a lot of maintenance, they’re just bigger and it’s just bigger animal versus maybe a small multi-tenant professional office building that’s a little bit more bite size for your first time investor, especially if you can occupy one of those and be on site. Retail also tends to be really big because you get these, like you said, strip malls, but everybody has that cute little downtown district that has the boutique retail building that you might be able to buy for under $1 million. And it’s a little bit risky because you may have one tenant or two tenants and so you’re really dependent on those businesses, but it starts somewhere. You just got to buy one and get it going and stabilize it. So if your small town is what you love and you’re interested in that and you want to see success in your downtown business district, start looking there and you’ll be a really good landlord.

Ashley:
That’s exactly what happened with me. There was just this beautiful mixed use brick building in this super small town and I just loved it so much, and I waited over two years to buy this building because they first then wanted $90,000 and I ended up getting it for $20,000. But part of my holdup of actually purchasing it was that I didn’t know what to put into it. It was such a small town, what would people need in there? Could I fill both units? So what we did was we actually put in a liquor store in there because there wasn’t one that was close to that town at all. So we opened a business and bought the building, and then we had the two residential units upstairs, which we had other units in that same town and there was still a high demand for units.
So that was kind of our safety net of getting into commercial was going with that mixed use, where we were so familiar with residential that we knew the residential units could carry the building in case our liquor store business failed and we couldn’t rent the other side. And we ended up getting a cute little boutique gift/clothing store that went into the other side, and it really does make it nice in that main street. But that was a big hold up for us too, is to what could actually even go in there and delayed us from actually buying it. But one thing I want to ask is with the leasing process and finding those tenants, is that something your commercial broker can help you with as far as doing the vetting, writing up the lease? And maybe you could even talk about triple net leases too with commercial tenants.

Annie:
Great. Absolutely. In my work I do about 80% leases and 20% sales, so we mostly do leasing, which is so valuable for all of our sales because tenants and leasing are so relevant to the buying and selling of commercial deals. Completely relevant, so we have an idea of where the market’s at, what rents are at, what people are asking for, what tenant demand is, which all plays into it. So yes, your broker will continue to do all of your leasing if you want them to, and it works just like sales in terms of commissions. Generally, a broker will get somewhere between five and 6% of the net value of the lease, so your brokers incentivized to bring in a longer deal. If they bring in a five-year term with higher rents, then they get a little bit higher commissions, they’re working on your behalf. So they’ll do the marketing, put it out there on all those property exchanges that I was talking about that other brokers see.
In our firm, we’re pretty obsessive about putting stuff on Craigslist and everywhere we can to reach tenants even who aren’t represented, because so many tenants are not represented by brokers, and then bring those tenants in and vet them. Very important. I’ve had my horror stories from the past. Even this past year, I toured a tenant that turned out to be a second degree murderer and a total con artist who’s indicted in the state of Colorado. And we toured it and it was this deal, it was the deal from heaven. They wanted everything. It was too good to literally be true. So you want your broker out there doing some vetting for you, and then when they can bring a qualified tenant the table, they can help that with that proposal process of putting together here’s what we propose for rents, terms, everything, come to terms with that, and then move into the lease phase.
And then when renewals come up, your broker can help you renegotiate renewals or maybe put it back out there if that tenant’s going to move out and find the next tenant for you. And keep in mind not just vacancies, but the time that it takes to find a tenant in a commercial deal is months. It’s not something that happens overnight. The absolute fastest deal I’ve ever been able to do, a lease deal that was the perfect place, it was the first thing we saw. These tenants moved so fast, they were awesome, they were on it. Everything I told them to do, they did it immediately and the absolute fastest we could close, this was like two and a half months from the time they said, I want this place to when we signed the lease. So it does take time.
Sometimes it takes six month, and I know landlords get frustrated and after a while they’re like, “What are you doing for me?” But it’s just finding that perfect match. Depending on the landlord and how picky they are, it can take long too, so there’s a lot of dynamics. What was the second half of your question? Net leases. So let’s talk about leases. In commercial, you’re going to see there’s a few different types of leases, and it’s really important because it plays into later your rent role and your proforma and your cap rate and everything that we talked about. Landlords tend to favor what are called triple net leases, and what that means is you divide up the rent and you take base rent, and base rent is just all the money that goes straight into landlord’s pocket.
That is just the pure rent, and that’s usually represented in a price per square foot per year. It’s so annoyingly confusing, but bear with me. Let’s say you have a 1,000 square foot space and it’s $10 per square foot per year. Well, how do I figure out my monthly rent? You take $10 times 1,000 and that’s your annual rent, and you take that annual rent and you divide it by 12, and that’s how you find out what you’re going to pay monthly. So that’s just what’s called base rent. And then there’s this other, what’s the word? Not fixed rent, but-

Tony:
Variable.

Annie:
… Thank you. Variable rent called the triple net or the OPEX, operating expenses, triple net nets, whatever you want to call it. And that is the three ends, so it’s insurance, taxes, maintenance. Common area maintenance, CAM. And so that’s like all the stuff that you have to do to maintain hallways and bathrooms and sidewalks. Everything that’s shared between the tenants is our common area maintenance. And so we have that, we have insurance and taxes, and these are pass through costs. Landlords do not like to pay those things because that’s on the tenant. They say, “That’s on the tenant.” So landlords pass this cost through to the tenant in a price per square foot basis. Usually it’s somewhere between $4, and if you’re down in the Pearl Street Mall in Boulder, it’s $25, really expensive. So you have to add that triple net number on top of your base rent.
So let’s say your base rent is $10 and your triple net number is $5. Your total rent is $15 per square foot per year. You times that by the number of your rentable square feet, we talked about that, and then you divide it by 12 and that’s your monthly rent. That’s everything you owe to your landlord every month. And landlords like this because taxes and insurance and maintenance are variable costs. They can’t predict those. They don’t like things that are unpredictable. They want to know what kind of money they’re going to get at the end of the month. So they take all those expenses that they think will add up to X over the year divided by 12, and then each tenant pays their pro rata share. So if you occupy 10% of the building, you pay 10% of that, and if you occupy this, you pay whatever.
And so at the end of the year, landlords have to do a little bit of accounting and add up all those expenses, all the income they got from the triple net and reconcile that. Was I right? Was I wrong? Was I overestimating? Was I underestimating? And if you overestimated, you owe that money back to the tenant, and if you underestimated, the tenant has a bill and pays you. So all of your variable expenses are covered and then you have the base rent that you just get every month. So that’s why with the NOI, going back to that, why we take those variable costs out, because we really just want to know what the rent is that you’re getting, the hard rent. Anyway, so dumb, so confusing, but just know if you’re out there looking at what rents are, there’s usually base rent and then there’s operating expenses.
Now, you can also run a gross lease, and a lot of landlords prefer this just for simplicity’s sake, or they’ve owned the building 1 million years and they don’t care anymore. It’s all paid off, whatever. They want to be a good landlord, they want to have long-term tenants and they’re buddies with the guy that’s in there, so you just run gross leases. And so you can just do a per month gross and include utilities even, and a lot of tenants of course love that because it gets really predictable what their expenses are every month. You can do a modified gross where it’s all of your rent minus utilities, you have to go pay that separately, or you could do a gross per square foot.
There’s a lot of different ways you could skin the cat, but ultimately gross leases are a little bit easier on landlords because they don’t have to do all that counting and reconciling at the end of the year and maybe pay an accountant to do something that is really annoying, so some people just like how simple it is. But generally, if you’re trying to really build value and build a good income property that’s going to sell for a lot later, you want to run net leases because your savvy investors will understand that and it’s more predictable for everyone.

Ashley:
Thank you, Annie. That was a great breakdown on the leases and I think that’s very valuable for us all to hear as to that side. Not just the acquisition piece of a property, but when you’re actually looking to lease out the property, you do have different options. And as a reminder, all leases are negotiable, whether you’re the landlord or the tenant. So as long as it’s a legal contract you want to have that, but any other pieces and parts, that’s up to you and your tenant to negotiate and can be changed. Annie, in my notes I have one thing that I should have asked earlier but we didn’t get to it, and I want to make sure that we ask you this. I want to know about zoning for commercial property. So if you’re looking at a property and it’s currently used as one thing, how can you get creative with the zoning of properties when looking to purchase to use it to your benefit as the buyer?

Annie:
Super important. Zoning is so important. Well, sometimes it’s not important, but it mostly is really important. As an example, today I was showing a property to a tenant, and this property is in this area of East Boulder called Flatiron Park, and it’s this industrial flex area. And a flex property, by the way, is where maybe you have a warehouse, it’s like the mullet of commercial where it’s party in the front or party in the back and business in front. You have an office, maybe 40% or 30 or 20% of his office and the rest is warehouse. So you might be e-commerce or who knows what, electrician, flex space and industrial. And this area of Boulder is all IG, which is general industrial. And there’s so many offices over here because it’s flex space, and in an IG zoning, you can’t put a pure professional office.
And so you can’t put in an insurance agency that has clients that come and see them because the parking’s not set up for that, and there’s all these different zoning things. But an architecture firm, are they professional service? Are they not? It’s kind of this gray area. So when you’re buying a commercial property, you got to look at the zoning and figure out how that’s going to limit you with what kind of tenants you can put in to your space, especially if you’re looking in maybe a flex area or industrial. Most of the time it’s just commercial. It’ll just be commercial, and it’s like what is that? I don’t know. Pretty much anyone can go into commercial, but downtown districts a lot of times…
I live in Longmont, Colorado and in our downtown, we don’t a allow pawn shops, but we do have a lot of pawn shops on the main drag, and that’s because they’re grandfathered in. But if you bought this based on the proforma of this awesome rent for a pawn shop, when that lease is up, you’re going to have to kick them out because it’s grandfathered in. So make sure you know what those different zoning is and what kinds of tenants can go into it, if you’re in a more permissive zoning, if you’re in a less permissive zoning, and that’s something you can call up your municipality and ask them those questions. Usually it’s listed in great detail on the website or your broker should know. Super important though.

Tony:
Annie, you’ve been a wealth of knowledge and I feel like you’ve given us such a great introduction into the world of commercial real estate investing, but obviously there’s so much more, so if folks want to maybe follow up with you after the podcast episode, where can they go to get in touch with you?

Annie:
Great question. You can email me. My email is [email protected] Our brokerage is Market Real Estate and it’s marketboulder.com, so you can find some more information there. Instagram, annielarner. Talk about real estate sometimes, but also kids, fair warning. I’d love to help anyone.

Ashley:
Well, Annie, thank you so much for coming on. We really appreciated it, and I think this is really the first time we’ve had a commercial broker on that talked about the commercial real estate, and we’ve had very few rookies that have come on to talk about it too, so thank you so much for joining us. (singing)