Buying Land in Cash, Industrial Outdoor Storage, Is Syndication Worth It? (Office Hours)
Let's dive into whatever questions you have around commercial real estate brokerage, investments, etc.
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Key Takeaways:
It can be advantageous to pay cash for land/property and then take out a construction loan against it rather than bundling acquisition and construction into one loan. This makes the financing process easier for banks.
Industrial outdoor storage is a good "covered land" investment that provides cash flow while waiting for future higher/better use development.
When evaluating value-add deals, Tyler looks for 18-22% IRR and 20% annualized cash-on-cash returns over 3-5 years.
Tyler sees opportunities in high-end residential house flipping over the next 2-3 years given the strong housing market, with margins of $50k-$150k per flip.
If Tyler had unlimited funds, he would not syndicate deals and prefer to execute them solely with partner(s) who handle the capital/financing aspects.
About Your Host:
Tyler Cauble, Founder & President of The Cauble Group, is a commercial real estate broker and investor based in East Nashville. He’s the best selling author of Open for Business: The Insider’s Guide to Leasing Commercial Real Estate and has focused his career on serving commercial real estate investors.
Episode Transcript:
0:00
This episode of the commercial real estate investor podcast is brought to you by cre launch Pro. This online commercial real estate program is designed to take you from beginner to pro commercial real estate investor with access to all of my courses, our online community and monthly group coaching calls. Learn how to confidently buy your first commercial property today at www dot c r e launch pro.com. Welcome back to another episode of the commercial real estate investor podcast Office Hours edition. If you have questions on commercial real estate want to get advice on a specific deal that you're working on.
0:36
Jump in live with me Tuesdays 8:30am Central Standard Time super chats and super thanks get top priority and bumped to the list. We've had a few episodes where I've had far too many questions to get to in the first 30 minutes. So we're going to start prioritizing those looks like Michael Parker is already jumping in with a super chat, Michaels saying I bought three pieces of bare urban land with 100% equity, and would like to borrow against them. Is that common? And what are the steps? Michael, that's a great question, you're in an awesome position, it's actually one of the best spots that you can be in whenever you're doing a deal. I always prefer to pay all cash for the property, and then take out a construction loan against that property if possible, for a couple of reasons. One, if we don't know exactly what we're going to be doing, or need to finalize our plans for the development or for the project, that gives us a little bit of time without having to worry about debt service. So really, really smart there. Banks also much prefer that you come in with
1:43
the property already acquired. So they don't have to go through the acquisition and development loan process, they can just do a simple construction loan. It's also I mean, really, at the end of the day, it's kind of the same, because you're gonna have about the same amount of equity and loan to value ratio. But for whatever reason, banks just prefer that they're giving you just the construction loan, you already own the land. So I think that that is a great way to go about the investment process. So as far as is it common, I would say it's probably less common than a typical acquisition and development deal where you're you're bundling the property acquisition with your development and construction loan into one. But it is it's not uncommon. I mean, it's it's a pretty good strategy if you are able to pay all cash for these for these properties.
2:34
So what are the steps? Let's talk about that. Because this is something that I think a lot of people are going to be interested in. I mean, I'm actually looking at doing this on a residential piece of property right now we're paying all cash for the house, I'm just going to take out a construction loan against that. So what I am doing is I'm working on my plans. Now, before we pay for this property. I mean, I've also done this on raw land, I've done it on other buildings before too,
2:59
it makes the process a lot easier, you don't have to worry about raising capital, you don't have to worry about securing the debt in order to close, it's a far less stressful way to do it. Now what I do typically recommend, it sounds like you've already bought the property before you buy the property, go through the typical due diligence checklist that you would as if you did have the winter in place already. Because eventually you will have a loan from a bank, probably a traditional winter.
3:24
And they're gonna require you to have all these things. So make sure that you get a survey, make sure you're still doing that phase one environmental report, make sure you're doing a title check all of the all of the fun traditional things. But what I would do is closed on the dirt, make sure that you have a an appraisal done, or at least know what the market value of the property is going to be, that's going to be very important when you're going for your loan. Because they're going to look at it
3:51
from a traditional loan to value, you know, perspective. You know, if you're looking at building
3:57
$2 million worth of buildings, and the land is worth a million dollars, then you're going to be sitting pretty well in that loan to value ratio perspective there and a bank is going to be very comfortable giving you that debt. Now if the land is only worth 200,000, and you're looking at building $2 million worth of buildings there, then you will have to come out of pocket additional equity in order to do the construction loan or the bank will probably require you to put in the first you know X amount before you can start tapping into their construction line.
4:31
That's a pretty good way to go about it. You know, the other thing that you can do to which we have done this before is phase out the development. So let's say that the land is only worth $200,000 And you have the potential to build up to $2 million dollars worth of buildings there. Just start smaller, you know, look at that and you know $200,000 will get you 20% of a million dollar property right so you can build an $800,000 building for
5:00
Your first phase, lease it up, then basically refinance because the property is now worth significantly more, since you have gone through the lease up process, you've now got leases and cash flow in place. And then they could release phase two. And then you can kind of just rinse Wash, rinse, repeat, as you go through the entire process. So the steps are pretty similar to what you would expect in an acquisition and development loan, a traditional loan.
5:29
It just gives you the added benefit and ease of going through the process without having to worry about the acquisition side of things, which makes your life so much easier. We had to do this on a hotel, you know, we ended up paying cash for the hotel, then we got to construction live, it was next to impossible to get that deal financed without having done that. So big fan of that strategy. That is one thing that we're looking at doing moving forward on, if not 100%, at least over 50% of the deals that we're doing, because it makes our lives so much easier.
6:04
Hunter saying Hey, Tyler found you online about three days ago, welcome to welcome to the show, want to get into industrial real estate and have $30,000 good credit, where should I start? Hunter, what I would be doing, if I were you, you know, $30,000 isn't gonna go a long way. In industrial right, because even if you're putting 20% down, you're still only going to be able to get about what is that $120,000 property. I would spend money on your education, I would go all in on learning everything I could about industrial real estate. So go to networking events, go to industrial real estate, courses, classes, I know that CCI M, the Urban Land Institute, they've got some really good opportunities around industrial specifically si por is a very good organization for that as well. So I would dive into those
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and spend time learning everything that you can because, you know, money is pretty much everything in this business. But the second most important thing is your skills and knowledge. You don't have to have the money if you have the skills and knowledge around how to do these deals. And it's also about who you know, right? So the more you're learning, the more valuable you'll be to the people that have the cash. And going to these events, you'll be meeting those people and network being networking with them and rubbing elbows with with the right people, right. So if you can find a deal, and you know exactly what needs to be done to make it happen, then you're going to be very valuable to those individuals. So hope, hope that helps there.
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So yeah, y'all jump into the live chat with any questions that you have.
7:46
It feels good to be back in the studio right now. I have been gone for, I guess I was gone last week for about six days, flew out to Palm Springs, then then to Chicago, then in Milwaukee. And finally back to Nashville. And it was a lot of work, which was a lot of fun. Palm Springs was nice and relaxing. But it was for a goal planning retreat for 2024. So you know a lot of lot of good things came out of that. Like I said on the last on last week's office hours, I will do a live stream here about our goals for 2024 here soon so that y'all can start to see what we're looking at doing for next year and what we're planning on Hunter saying thank you, sir. Absolutely. Hope that helps. Let me know if you have any other questions around that.
8:33
felt really good. We've got a vlog coming out this Sunday on my trip to Milwaukee. Really interesting deal. Ross, my partner on that started off as a coaching client. And he bought his first property. He lives in California, so he bought it out of state up in Milwaukee was a 300,000 square foot deal with tenants already in place. They've just finished expanding one of the buildings for self storage. So it's, that'll be a fun one for sure. Also, it is predator season hockey season baby. I am a big hockey fan. I love going to all the Preds games been a season ticket holder now for I guess this is my third year. And if you are trying to find ways to entertain investors, entertain clients, vendors, you know, whomever you're trying to build good relationships with.
9:26
Get season tickets to some sort of sporting event and be very intentional about taking people out there because I mean, think about hockey games are what up to three hours. It's a great time for me to just sit there and talk with them, get to know them in a more personal way outside of business. And we've gotten a lot of deals done just because of that you just build a deeper relationship with people. So you know, it's not a cheap endeavor. But if you think about how much you know you're investing into it. You're getting three hours with a new individual, you know, one
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once or twice a week, to really dive into that, I think that it is such a phenomenal thing to do some people do golf, I do predators games.
10:09
Michaels saying, are you planning any industrial outdoor storage? Great question. Yes, I love industrial outdoor storage. I think that is an incredibly lucrative side of the business right now. And it's also a great investment strategy from a covered land perspective. A, you know, especially in today's market,
10:29
I would be looking for deals where I could invest the absolute minimum today to get it cash flowing, to make it work for the next two to three years, or five years or 10 years depends on what your strategy is, and then develop it into something else, right, a covered land plays really where you're just buying dirt that has really good long term potential for something else, but it's making money today, right? So industrial outdoor storage, is a phenomenal way to do that. You're basically buying raw land, you're gonna put some fencing up around it, you'll probably have some some lighting, security cameras, you know, whatever. That's really, I mean, that could be the absolute extent of the improvements that you make on the site. So minimal dollar investment for a potentially cash flowing asset. And then, you know, like I said, three 510 years from now, after you've cashflow it for a little bit, you could then justify building a flex space or retail building, it depends on where the location is. But it's a great way to get a cover of land play, there's a lot of demand right now for industrial outdoor storage. Because if you think about it, it's in a similar vein as flex space.
11:41
Over the last 10 years, a lot of these these, you know, raw land pieces that are closer to the core closer to the interstates and, you know flexspaces had been torn down redeveloped into something that's higher and better use, because there's more money to be made doing multifamily or retail or office, whatever it is. So yeah, I think I think industrial outdoor storage is great we are we actually sent out a letter of intent yesterday,
12:09
on a site within an hour of downtown Nashville right off the interstate, where we will be up there are probably 30 or 50 self storage units on it right now. There's a 6000 square foot flex building on it, but it sits on like 11 acres. So we have potential to add another 40,000 square feet of flex space, and 150 storage units on it. But we're not going to go do that day one, we're going to just rent out some of the land, right we have a lot of
12:38
you know, very easy paths to take without having to invest a lot of a lot of money. You know, one, we'll just probably do a little bit of grading on the land, throw some gravel down, and you know, rent it out to RV and boat storage for the time being that's a minimal cost for the amount of cash flow that we could get on it.
13:03
Let's see here justified, have a question on Broadway and I've recently bought it's 30 acres in a city commercial property. It has a current built in egress, ingress and egress with a concrete pad. I planned on putting
13:19
an ice and water vending machine but the state blocked me saying that the egress is too close to the city won't let me put gravel down to make it a food truck Park would love your advice.
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Justified it's tough for me to really give good advice on that because I don't know a lot of the details about the land.
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You know, one thing that we could do, you're welcome to email me over the survey and stuff like that. And on next week's office hours, I'd be happy to pull it up and we can actually dive into it. That is one thing I'm willing to do. If you if you want to jump in on the office hours and you have a specific project you want me to take a look at, feel free to email me office at the Cabo group.com, whatever you want us to go through, I'll pull it up on this live stream and we'll go through it. But it sounds to me. Like if you've got 30 acres, surely there's a way for you to relocate the ingress and egress somewhere else. So that you're not having that issue. But like I said, I unfortunately, I'd have to take a look at the site plan to see exactly what's going on there.
14:21
Rich with cars. Hey, Tyler, great work, man. Appreciate it. It's a lot of fun. It's funny, we are pumping out content now doing two to three, sometimes four live streams a week, and we're about to redo this whole studio. So hopefully next time we're doing office hours, this will look completely different. But I'm looking forward to that. He's saying what's your minimum cap rate IRR cash on cash requirement when looking into value add deals.
14:47
So
14:49
my minimum cap rate IRR cash on cash cap rates difficult right because typically the properties that I'm buying are not cash flowing
15:00
And there's a couple of reasons for that one, I want to be able to have I want zero leases in place so that I can come in and do what I want to do to significantly add value to the property and having a lease in place. I know that's funny, right? A lot of investors like no, I need the cash flow, having a lease in place to me, actually makes that more difficult.
15:21
And so I typically don't like to buy assets with tenants in place. The other reason is that if somebody is trying to sell something on a cap rate, they're they're trying to squeeze the maximum amount of value out of that. So I can typically get a better deal on a property if it's vacant.
15:39
And since that's our strategy, that's what we'll go for minimum cap rate, though, I mean, especially today with interest rates, where they are eight 9%. You know, last year, two years ago, I would have said, probably 7%, but that's obviously much more aggressive or higher than what you're seeing in the market. So again, we're going for those value, add opportunities, maybe there's some vacancy, maybe there's some tenants rolling over, in terms of the IRR or cash on cash requirements when I'm working through these deals.
16:10
You know, IRR 18 to 22%, over a three to five year period, with a 20% annualized cash on cash return. So notice how I said annualized cash on cash, that means that, you know, if we do a deal over five years, it might only get 8% cash on cash for that five year period. But when we sell and you you annualize the total returns over five years, it ends up being about 20%. That gives us about double our money every three to five years.
16:42
Justified is saying it was point three acres. Oh, yeah, point three acres. It's really tough. That is a lot smaller than 30 acres. I thought it was a lot bigger. Yeah, I don't know. I mean, what,
16:55
hopefully you can move the ingress egress. But I mean, the city has to be able to provide you with access to your property. They can't just completely prevent you from using it. There's got to be some sort of way for you to do that. I would talk to an engineering firm and see if maybe there's a way for you to get a variance or something like that.
17:15
The empowerment channel is saying I'm a commercial real estate agent. I have been looking for deals for this billion dollar fund. Sounds like a good client to have best of luck. Let me know if you have any questions on on how to find some deals for them.
17:28
Obstacles to opportunities, I learned industrial real estate from you and chat. Love hearing that Chad's the man, Chad is such a good dude. Chad Griffiths, if you if y'all don't know him, go check out his YouTube channel. He's He's very similar to me. But he goes all in on industrial real estate. Chad's actually the one that kind of got me into the content creation. Originally years and years ago, I probably met him in 2016 2017.
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And back then he was like, do the best marketing that we do is run a blog every week. And it's like, how are you getting real estate, commercial real estate business from a blog. And he was he was crushing it. So I took a little feather out of his cap and started running a blog. And, you know, that became the YouTube channel became the podcast. And here we are. Said, I was completely self taught Acquisition Manager and combat vet, I was able to scale the company to $100 million in assets under management in year one thanks to you, that is awesome to hear 100 million dollars in assets under management is a huge, huge accomplishment. Kudos to you, congrats on that and glad that glad that we could be a part of it.
18:31
So earlier, I mentioned that we're looking at some residential deals and wanted to talk about that a little bit. Because I had somebody say, when I first mentioned that they're like, are you can you talk about that on the YouTube channel on the podcast?
18:44
Because they they meant like, you're the commercial real estate guy. You know, you you often talk bad about residential real estate, or not very highly of it. Let's I don't talk bad about it. Not very highly of that, that strategy. I was like, Well, I mean, it's a little bit different. We're not doing single family homes. And also I'm an opportunistic investor. Right. I mean, you guys have seen me do everything from a food hall to a hotel to massive mixed use projects. To me, I'm going wherever it makes sense to make money, and where, you know, we can have fun doing it and put our little spin on it.
19:21
And I see an opportunity and the residential house flips and new construction world right now, that I think is pretty appealing.
19:31
So we're looking at doing some house flips, and they're not going to be your traditional house flip. Right? I mean, I would not just get into flipping houses, just for the money because you know, residential is a bit of a different world. Now. I did do my first project, which was 42 residential townhomes that we sold.
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And so
19:54
I, you know, I just think that with where the market is today
20:00
ate the next you know, Brian Adams said this on our on our investors roundtable podcast not too long ago that, you know, the next two to three years is about who's going to survive and residential flips and new construction is a great way right now for us to keep the lights on keep the team busy and make some money doing it. Right.
20:20
The market is also still relatively strong for residential houses, especially in the sector that we are working in, which is
20:30
kind of your your mid to high end. I mean, I guess you know, now if you look at it, like the average residential home in Nashville is like over $400,000, which is crazy. Because not not that long ago, it was 250 or 200. But we're looking at you know, 750,000 to $1.2 million homes, and we're gonna pay cash for the homes do a really high end flip, we're not going to be picking the the cheap engineered flooring and, you know, painting the walls and also covering the, the sockets and, and the light switches with paint. I mean, this is going to be very high end it will look like new construction.
21:09
And then there's some decent margins on that, you know, we could make 50 to $150,000 on each one of these. And so if you think about that, I mean, my team is accustomed to doing much larger commercial deals, we could probably do three to six flips like that a year, you start adding up the profit margins for doing three to six of those in a year. And you're very quickly at a point where you don't really have to worry about, you know, how much money you're making. And it could be as much as as commercial real estate sometimes. Now, you have to do more volume, right? So there's that problem. Now we're going to have to look at even more deals in order to accomplish the same thing that we're doing in commercial real estate. And I don't know that this opportunity will be around forever, right? I mean, it is very possible that this is just a today thing, or for the next two to three years. And then as soon as everybody else jumps back into the market. There may be too much competition, people are willing to pay more for these homes, and I am and it wouldn't make a whole lot of sense. So
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that's what we're looking into right now. I mean, that's why I think that there are some opportunities for
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you know, for residential development in today's market.
22:26
What else we got going on? Let me know what other questions you'll have.
22:29
This week's been, it's been good. I've been absolutely slammed and looking back at my calendar right now. And I'm just like, Man, I haven't had any time to do anything. I was out this past weekend for a leadership Nashville retreat, which was a lot of fun. I
22:45
ended up getting a sinus infection on Friday, of course, like writers were about to go up the mountain for this retreat. And so I get to the top and the pressure just completely kicked my ass. It was it was not a fun time. The funny thing is like I'm from Nashville, I've been here my entire life. And I still get hit every single year with an insane amount of of just seasonal allergies twice a year, spring and fall. I guess it's just part of what I got to deal with. Heart what's going on, dude? He's sad morning, dude. Good to see you, man. Thanks for jumping in. Robert is saying in LA residential below one and a half million would still would sell. But anything above 2 million is sitting on market with higher days on market increasing residential real estate still works. While I'm figuring out commercial here. Absolutely. I mean, look, if you're, I am anti single family residential
23:40
rentals. Like I just don't, I don't want to deal with that. And a lot of these a lot of the people out there that I see doing that are making 100 or 200 bucks a month in actual cash flow. And if a water heater breaks, you lose your cash flow for the whole year. That to me is not worth it. But if you're doing flips, there's a lot of margin in that. And I think it's just looking at what is going on in your specific market to see what is still selling. What is still moving. Because, you know, in Nashville, there's a gap in the 3 million to $6 million home Ranch, right? You know, anything above that is moving pretty quickly, anything below that it's moving pretty quickly. But in that three to $6 million range, nobody's building those houses. So I guess they're moving so fast, that nobody can, nobody can build them fast enough. So you know, I mean, that's we're always tracking that kind of stuff. You know, I'm not above doing residential, I'm not above anything. If it makes money, and we can put our spin on it and have a lot of fun doing it, then we're going to do it. And also, it'll be interesting to document that process and do a bunch of vlogs while we're going through the home flipping process. I've never flipped the home. So you guys are gonna see me make probably some really dumb decisions and interesting mistakes, but you know, we're gonna bring our spin to it and I've got a really good team so
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we shall see what I
25:00
how that goes.
25:03
Power missing I'm a commercial agent. Okay, repeating his billion dollar fund thing. Instead of acquiring and cash, they do it in a 721 exchange, how can I ask for my commission cash or equity? I'm not familiar with a 721 exchange, let me look that up real quick.
25:21
Oh, it's an upgrade exchange, okay.
25:25
I mean, I would go for your commission and cash, they're probably not going to want or be able to take on an additional equity partner. You know, traditionally, when you're doing these exchanges, you have to keep it in the exact same entity as to what is going on, or as to what sold the original property. There are some ways around that. Typically, if you're working with a group that that that's that big, they're not going to readjust their entire process, just to give you a little bit of equity, I would just go for cash, it'd be the easiest thing. And you can always just turn around and invest somewhere else.
25:57
Hardest thing if you had to play a song right now and that guitar, what song would you go with? Ooh, that's a good question. I like these personal questions. That's fun. Nobody asks me anything like that. So if y'all don't know, I've been playing guitar since I was 12. I probably have 10 or 12 guitars now. I love playing guitar.
26:16
That's interesting. I would probably like if I had to pick a, I usually just riff and play my own songs. But if I had to play somebody else's, I love crazy on you by heart. That's just a really fun guitar song to play.
26:32
And then also empty by Rayleigh Montaigne, what an awesome song. And the chord progression is just so much fun.
26:39
Michael Parker, I notice of several opportunity zone properties for that billion dollar fund if you're into Alabama, lowest taxes in the lower 48.
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So there you go, Michael, you all should, y'all should connect, see what kind of deals you can get done together.
26:55
Caleb, how should I go about getting my first flex space? What kind of winning? Should I get? What would you recommend keeping it or flipping it?
27:03
will break these down one by one? How should I go about getting my first flex space? Caleb First, I would make sure that you know exactly how to underwrite and dive into all of the numbers behind these deals. That way, when you look at something you just automatically know if it's a deal or not. So you can move on and not waste any of your time.
27:21
Let's see, what kind of winning should I get? I mean, I would go for a traditional loan. I mean, I don't you know, I know a lot of people use hard money lending, especially in the residential world, I am very anti hard money lending, not that there's anything wrong with hard money lenders, they serve a great purpose. If you're in a space, and I have used hard money in the past, however, it is very high octane debt, and you can very quickly get yourself into a bad position using it. So I like to go the traditional lending route. It's it's more of a process, but it's often worth it.
27:55
And then, you know, right now, I'd recommend flipping it, you know, keeping it you could probably get a six to 8% cash on cash return. Maybe better, right? It just depends on on exactly. You know, if you're if you're buying or if you're you're building and developing. And of course, there are so many different ways for you to really juice those returns. But you know, if you check out the the interview that I did with Hamza Ali, in the subsequent vlog that I did, which I think was like the easiest commercial property for beginners to buy or something, something along those lines.
28:26
I mean, you could, you could build them and flip them make two times your money in three to five years. And you can't go wrong making two times your money. So highly recommend taking that round. Robert, Hey, Tyler, your thoughts on keeping equity fund your own deal versus syndication? If you have the money? Would you prefer not doing syndication 100% I've been talking about this so much offline with with friends of mine and partners. If I had the cash, I would never syndicate a deal ever again.
28:56
That being said, Well, let me talk about why it is so much easier for me to just go through my process, my development process, my creative process, and not have to worry about fundraising, right? I'm really good at finding deals, coming up with a vision and executing on them. I just don't like the fundraising side, I don't like the capital stack, the equity and debt side of things. If I had a partner that was really good at that, we'd be syndicating all the time. But right now, it kind of falls on me. And every investor phone call that I have to take raising cash for a deal means I'm taking my time away from the creative deal execution side of things. So if I had the funds, I wouldn't do syndication. However. I don't have the funds, right? I mean, we don't I don't have $100 million sitting in the bank where I could just go do whatever I want. So syndication is an incredible stepping stone is it is a great way for you to build everything up. And, you know, really get your business off the ground. It's also good for scaling your brokerage business if you have your property management company if you
30:00
You have one, your development firm if you have one, there's a lot of different things and benefits that come from syndication. So we'll get it globally. We'll get it more holistically. And that is all the time that we have for today's Office Hours. Join me next Tuesday 8:30am Central Standard Time and ask your questions. As I said, super chats super thanks get bumped to the very top of the list. So if you didn't get your question answered, and you want to make sure that happens next time, feel free to jump on that, but we will see y'all in the next one. This episode of the commercial real estate investor podcast is brought to you by cre launch Pro. This online commercial real estate program is designed to take you from beginner to pro commercial real estate investor with access to all of my courses, our online community and monthly group coaching calls on how to confidently buy your first commercial property today at www dot c r e launch pro.com
In an upcoming discussion with Jacob Kromhout, my project manager from Bentwood Construction, we'll share the latest construction updates at Salt Ranch, my boutique hotel in East Nashville.