Brokerage & Buying Deals If You're Broke with Henry Eisenstein
Commercial real estate is a capital intensive asset class, meaning it takes a lot of money to pull these deals together. But you, personally, don't have to have that cash on hand in order to pull these deals off. We're diving into utilizing commercial real estate brokerage as an income stream and how to start buying commercial real estate investments even if you're broke.
Get commercial real estate coaching, courses, and community to jumpstart your investment journey over at CRE Launch Pro: www.crelaunchpro.com
Key Takeaways:
Working as a commercial broker is an excellent way to learn the investment side of commercial real estate without risking any capital upfront
Making many offers regularly is a good strategy, even if the offers are low, because the worst that can happen is getting told no
Creative deal structures like seller financing, joint ventures, and assigning deals can allow investors to acquire properties with little money out of their own pocket
Commercial brokers should consider rolling their commission earnings back into deals to start building an investment portfolio and long term wealth
Action Items:
Make offers on commercial properties frequently, even if the offer is low, as the worst that can happen is they say no
Consider utilizing creative deal structures like seller financing, joint ventures, or assigning deals to acquire properties with little money out of pocket
As a commercial broker, look for opportunities to roll commission earnings back into deals to start building an investment portfolio
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 as a board member for the Real Estate Investors of Nashville.
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 on how to confidently buy your first commercial property today at www dot c r e launch pro.com.
0:25
Welcome back to the commercial real estate investor Podcast. Today I'm here with Henry Eisenstein. And today we're going to be diving into utilizing brokerage as an income producing stream to start your investment business. As well as buying commercial properties. If you're broke, I've got a couple of videos that are going to be coming out on this. It's always been a popular topic here on the channel. Because let's be honest, commercial real estate is a capital intensive game. And not all of us have a whole bunch of money just sitting around to get started in this and neither did I So, gotta be diving into those topics today, Henry, tell us a little bit about yourself and how you got here.
1:03
Thanks. Thanks for having me on my man, I appreciate it a lot. A little bit about me been in the business just shy of nine years. Started out in the residential space. When I was like 2021 years old, built up team to Little over 100 transactions a year I got incredibly burnt out trying to work 100 hours a week to try to make any serious money in this business kind of fell in love with the commercial world as all the all the deals I was doing was mainly in the investor world. So it was natural that as my investors grew up, I grew up as well and kind of fell into the commercial world over the last three to five years and haven't looked back since been a part of over a few 100 million dollars with deals, you know, on a number of properties as I know you do as well, and try to help a lot of people do the same.
1:44
Yeah, so Henry and I connected not too long ago on his podcast, I'm not sure if that episode is live, but if it is go check out him and his podcast, we kind of dive into my background a little bit and how I got started. And Henry has a very similar story, you know, crushing the brokerage game and utilizing that to jump onto the investment side of the business. So Henry talked to me about your goals behind the brokerage, how you built it up to where it was, and then you know, what you kind of turn it into?
2:13
Sure. So I feel like the game on the residential world. As always, like the only way to really make any serious money is to do one or two things either do a lot of volume wearing on the smaller price point properties where you do incredibly high priced luxury homes Vador to really make any type of money. And for me, it was like a lot of those small price deals. That's why we're doing over 100 a year on the investment world and kind of just fell in love with the game right just like finding great deals. In I eventually had a great I ended up building up a relationship with a good guy was an investor, which we ended up doing well over 100 flips together and I slowly started just taking instead of the commission check, I would take up front, I would just roll it into the deal, became a small equity partner, and slowly built it up into then eventually being 10%, then 25% and 50%, as I started making more and more money,
3:03
and build out the brokerage team on that end, just trying to find a lot of great deals. And then now it's kind of changed into you know, scaling through agents working with much larger properties, you know, multiple different asset classes, the game has not changed too much other than now we're just dealing with a much higher price point much bigger property and just looking for different ways to make money other than just flipping it. Right. So how do you like the how do you like the flipping world of residential real estate compared to commercial properties, I actually have come to the conclusion that I viscerally hate flipping residential houses.
3:38
The only time I've ever lost money on investment, real estate is full of analysis period, I've been a part of over 100 residential flips, we've lost money on three, I'm actually in the I'm in the middle of trying to close on the third one, which I am losing a lot of money on. And I can't seem to get out of it. So
3:58
I can say going forward, I will not be doing any more residential flips.
4:02
I mean, hey, look, 97% Strike rates pretty damn good and real estate. Yeah, I mean, thank God, you know, like, when other commercial world we've been at nearly, you know, we've been at 100%. It's kind of, you know, it's much harder, at least from our experience to lose money when you're buying at,
4:17
you know, with a long term mindset. You know, like in the residential world, if you're holding that deal for anything longer than six or eight months, nine times out of 10, you're going to lose money in the commercial world, you know, you're talking about holding that asset for, you know, what, five, 710 years at the shortest.
4:34
When it's much harder to lose money over a longer period of time, I believe, based on especially where you're buying it, obviously. That's what I've found. I mean, we've had deals that we acquired, and we ended up not being able to do the project for one reason or another. Typically, it's because of the market and interest rates. And we've of course, just went through the pandemic. Now we've got this new interest rate spike. And the last one that we had fall apart was probably two years ago and
5:00
We ended up selling it for like six or $700,000 more than what we bought it for. So we ended up walking away just five, because there's enough room and margin for error in these deals, if you're buying them right, you can always have multiple exit strategies, which I certainly appreciate. And it's very prudent for you as an investor to have talked to me about utilizing commercial real estate brokerage as an investor, how did being a broker first benefit you when you started buying properties?
5:30
Yeah, so I think one of the biggest things that it allowed me to do was learn the investment game, from the inside out without having any money involved whatsoever. And just seeing as the deal
5:43
process went on, in being able to see the entire process from start to finish over and over and over again. And I got to take my little baby check right at the beginning, because I found the deal, and I got to sell at the very end, and I got to see the whole process in the interim. And I got to see like, what what works, what doesn't work, I got to see how to find deals and not have to worry about, you know, my next paycheck being reliant on that deal making sense or not, right? So it gave me that ability that the long lasting ability to kind of understand the process wholeheartedly, we're now I understand how to find the deals, I understand how to fund the deals, I understand how to rehab the deals, I understand the long term strategy of the deal. All it's like, it's having a mentor that you didn't have to pay for it. Right, I got paid to be mentored for the last, you know, almost nine years in the investment game. So now I'm able to do you know, do it for myself. But, you know, our philosophy is we think like investors first and as Realtors second.
6:36
You know that that's that's the philosophy on my team and it served us well. Yeah, that's exactly how I approach it. I mean, I think becoming a commercial real estate broker is the best foot in the door that you could have, if you want to start investing in commercial real estate, because you learn it from the ground up, you learn it from investment groups that are incredibly experienced, you can also work with a variety of investment groups. So you can work with a team that buys industrial, one that buys multifamily one that buys office and retail, you know, you get to learn a little bit of everything, while not really having anything at stake other than your Commission's right, so you don't have any money that you could potentially lose. And it's a great way to get paid, and learn 100% It's like having an internship at these multi multi million dollar 10s of million dollar a year companies essentially being paid, right to have these internships, a crazy amount of money.
7:30
Let's dive into creative deal structures. I think that the best commercial real estate investors out there are the ones that are willing to get creative with how they fund their deals. And usually that that can arise when you've got a problem. But also it can arise when you just don't want to come out of pocket with your own cash. So talk to me about some deals that you have done where you either bought it with little or no money out of pocket. And let's break down the strategies or what about some of the audience can kind of have some takeaways from that? Sure. So one deal in particular was attend family property bought last year,
8:05
cold calling, set up an appointment, when did you go check it out? Low balled the heck out of the guy. And he just randomly said, yes. So I called up one of our werster partners. And I was like, Hey, I guess we're buying a 10 family property or he was going through a 1031 exchange. So he had some money. And I had, you know, I was gonna make, I think just shy of 100 grand on the deal. So I rolled my 100 plus his 250 from his 1031. I managed the deal. We split it 5050.
8:34
And you know, I didn't really call it dollar out of pocket. Yeah, that's pretty nice. So I will say if you're going to use this strategy, I've done it before, you can't officially be a partner in the deal. If somebody has a 1031 until one year, like 366 days after the calendar date. I mean, that's typically you know, you got to trust the guy or gal that you're working with. And we had an operating agreement that we signed a dated for 366 days later, but that's I've done that strategy before. It's pretty great. So
9:07
what was so attractive about that deal? And why do you think that the owner accepted your lowball offer? Yeah, so in a great area near in New Jersey, right by the Jersey Shore, great location. The problem with the property was that he had I mean, these are tenants that were there for 2030 years some some of them and very low rents, not the you know, super friendly type of tenancy and he was definitely having quite a lot of problems. I mean, the building was almost 100 years old and a lot of upside in the deal but he just didn't have the capital to make all those renovations that needed to needed to happen in order to squeeze any more equity out of the deal. And he felt like it just be easy enough for him to just sell it take some money and move into something a little bit easier.
9:57
So kind of replaced.
9:59
Yeah,
10:00
Right place, right top, I love looking for those deals that have deferred maintenance on them. You know, you see a lot of these older commercial real estate investors that, you know, it's it's been a while since they had to do any repairs, and then they look at pricing today. And they do not want to touch that with a 10 foot pole. For a lot of them. It's it's basically time to sell, you know, it makes a whole lot more sense for them to just take their chips off the table, roll it into something else, and move on. So, Henry, how many? How many offers would you say that you typically make before you come across a deal like that?
10:30
I love this kind of question. I think our philosophies are, you know, between you and I are very similar, which I feel is unlike a lot of real estate agents out there.
10:40
We typically make somewhere between five and 10 offers a day.
10:44
My team. And our big philosophy is the whole purpose of making an offer is again thinking like an investor first. Because they the only the worst thing I can say is no, the best thing to say is yes. And like you know, you know, in that philosophy, we have just as many offers as we can make, the better it is. And we don't really care what numbers they tell us. You know, I you know,
11:04
I had 456 phone calls today from my dial my personal dial session generated nine leads today. And it's like, I have people who tell me all different pricing all different types of asset classes saying that they want to make I'll make an offer on all the properties, right? Because I don't really care what they say, I just want to at least get my foot in the door and show that show that I'm legitimate. And, you know, we'll be ones that say yes to a great price. Fantastic. The ones that say no, we'll follow up with them and do the same thing in six to 12 months. That's I mean, that's exactly how I feel you can't, you can't go wrong making offers, you know, and I feel like so many people when they first get started in commercial real estate, almost are afraid to do that, right? I mean, there are, of course, certain cases where I'll just say to the person like, hey, my offer is gonna be so low. I feel like it's just going to insult you. And I don't want to do that. So we're not going to make an offer. Sometimes, though, I'll say that to see kind of how they react, because sometimes they'll be like, well just send me something, you know, and if they do well, then the doors open, it's time for me to go make an offer that really works for me. You know, if not, then we just move on. But I mean, the worst they can say is no, it takes you five minutes to draft a letter of intent. You know, it doesn't cost you anything, you just send the email, right? And it's funny, or you know, a lot of people will give me pushback, or they're like, Well, what happens if I don't have the money? I'm like, think about it. So the worst thing that happens, what you're telling me is that they say yes to an incredibly low priced offer that you made. And now you have to, you know, you're in this position, or you have to go raise money to buy a great price deal. Or you just lock it up, and you sell it to another investor, which I've done several times as well. Right. So it's like, you know, the worst case scenario actually will end up making you probably more money than you realize. Well, that's exactly right. I mean, you could you could wholesale that deal, right, because you know, if you've got your real estate license, you're able to just go ahead and bake a commission there on the front end. But you could also just assign it to somebody else. Maybe if you negotiated $200,000, under under value price, market up 50 grand, and we tell the guy that's buying it. Hey, I'm wholesaling this for $50,000 over what I'm under contract for, but you're getting $150,000 in equity day one. I mean, it's kind of hard to argue with that kind of stuff. You know, I mean, most investors are looking at that going, Yeah, you deserve $50,000, for putting this deal together, because I'm getting an even better deal than I would have normally come across myself. What are some other creative ways that you've structured deals like that? Yeah, so a lot of what we're doing right now, which I'm sure is like kind of like the new on term for everyone is seller financing. We do obviously been working on this a lot as interest rates rise. And I think that seller financing is also has not only commonly been used in the strategy where you might not have to put much of money out of pocket at all, where you can allow a seller to be in a second position. Where you know, the bank comes in with extra amount the opposite to use the right you know, or a bank that allows you to do this, but you can structure a deal where the bank comes in for their 6570 75%, whatever they're willing to give you based on the LTV, you can have the seller come in with 10 or 15%, and your 10% down. So you're being you know, you're very minimal out of pocket and or the instances where you know, now I'm negotiating three different deals where the seller is the bank, there is no bank involved. And we're only putting down 510, maybe 20%. And one of the instances and the seller is willing to hold the note and just wants to collect a check for the next 10 years. So they really, you know, it's finding those opportunities where opportunity arises that the sellers are willing to be flexible.
14:30
Yeah, I love seller financing. It's a huge topic right now.
14:34
And honestly, I think that the reason that more people don't do seller financing is because a lot of buyers do a poor job explaining what it is. I mean, if you are the seller,
14:45
and you don't really know where you're gonna put that cash or you know, you want some easy way to continue making money on your money. Just seller finance the deal. You know, I mean, we did that on a project last year or September through June and we collected two
15:00
would earn $20,000 in interest just for holding the note for eight or nine months, we didn't have anywhere else we wanted to place that capital at the time. So I mean, it was an easy, easy move for us to make. And you know, the great thing is if you are the seller, and you're, you have the senior debt on the property, well, you get to foreclose, right, if they don't make payments to you, or whatever, not only do you get to keep any interest payments that they've made, as well as their down payment, you get to foreclose and take the property back. So, I mean, I had I had a developer that I worked for when I first got started in the business. He did that like three times on one property, he bought it paid all cash for it, seller financed it to the next guy, he defaulted to, he took it back. So or financed it to the next guy, he defaulted seller financed it sold it. I mean, I can't even imagine how much money he made on that one deal, just because he was willing to sell or finance it. So I think that that's a strategy that, you know, we as commercial real estate investors shouldn't just employ on the buy side when we're acquiring properties. But also, when you're looking to sell a property if you don't have anywhere that you need to move that cash. Consider seller financing. Yeah, super smart. I mean, hey, I'm sure that guy got double digit, crazy, double digit returns on that property Good for him. Oh, yeah. I mean, he absolutely had to have. So what other interesting strategies have you ever seen? Right? I mean, I know you've worked with a whole lot of other commercial real estate investors, there are so many great ways. I mean, one thing that I was thinking of when you were talking about, you know, seller financing, is is joint venturing with the new with the with the seller, right? I mean, you could definitely do this and go to the bank and say, hey, you know, we're gonna buy, we're gonna put 70% leverage on his property. And, you know, we're gonna be 5050 partners moving forward, or 7030 partners moving forward, I own 70%, he owns 30. And the owner is going to look at that and go, Well, yeah, I'm getting 70% of my cash today. And I'm getting 3040 50% equity carry forward on the deal remaining. Like, that's a very creative way for you to, you know, not have to put any cash into the deal, the seller gets to cash out, you get to joint venture with him, and move forward. Have you ever seen anything like that done? Yeah, we've definitely seen a few of those instances come come through. Actually, just recently, we're structuring a deal where
17:22
we were basically about to do exactly that. And last minute, the my partner, one of the buyers in the deal, just wanted to buy the deal straight out and not deal with having an extra partner, but I think that's probably one of them. That strategy, I think is a, it's kind of like having all these different tools in your tool belt, right? Like you offering the payments over time through seller financing, offering these deal structures where, you know, you might be a partner with them or partner with somebody on a 1031 exchange and doing, you know, kind of doing a wraparound deal where, you know, be 5050 owners and 366 it like these are all different tools where we can propose them to the seller, and saying like, Hey, if you want an all cash offer, it's here. If you're open to this type of terms, it's here, if you're open to these terms, it's here where like, you can actually structure and pay more, sometimes and other investors are because the seller is open to some type of strategic or flexible terms. But no one else is typically presenting these types of terms.
18:18
Yeah, I love that. I've,
18:20
I mean, there are so many ways to get creative. And I think sending multiple offers on one property is a great way to get a good deal no matter what, right? Because psychologically, most people will pick one of the one of your offers instead of countering any of them, right? They'll just say, Oh, I like offer see the most, I'm going to accept that one. And all three of them work for you. They just have different terms, right? Like, okay, I'll buy it, you're completely out, we'll pay a million dollars, I'll buy it you seller, finance 95%, I'll pay $1.2 million dollars, you know, we JV and, you know, we'll bring in 70% debt, and, you know, you retain 50% ownership. And you know, it's 5050, right, like, there's so many ways to get very creative on these deals. So Henry, what, what advice would you have for other commercial real estate brokers out there who are looking to transition into the investment side of things?
19:16
Two things. One is pick up the phone and realize that this entire game is about finding great deals, right? Like the more great deals you come across, the more money you'll make, whether as a broker or as an investor. And also just know that like if you want to be wealthy, because there's a very large difference of making great money, right, or being rich and being incredibly wealthy. If you'd like to be wealthy, then you need to eventually start taking the money that you'd earn as commission and putting it into deals. And I've learned that I hate being a property manager. I do not like it, right. It's like,
19:49
looking about, right, we're just talking about stuff like that. So I don't want to be a property manager. What I'd rather do is work with fantastic operators, who are very proficient
20:00
at what they do on the management side and how to squeeze equity out of every deal, who are way smarter than I am, that I am, they have raised more money than I even thought about raising the very season people finding great deals to JV with them on right where they're the point, they manage the deal to take it over. And I might make a little, I might have a little bit less of an equity stake in the deal. But I have zero headache, and I'm paid like a bill, right? Where I have a pref plus a percentage of you know, above pref, or in preferred return, right? Where I'm paid like any other bills, like they have to pay the gas bill on the property, they get to pay Henry. Right. So like, I like that type of setup, where I'm also an equity owner, I'm paid every single month without fail. And, you know, I know that I trust somebody who's way smarter than me to run this deal and make more money with it than I am. But it starts by just like taking, taking a an opportunity, a good deal that you come across. And instead of making that commission, think long term and say, Hey, am I going to be better off by roll a couple bucks into this deal and play the long game? Or do I really need the upfront cash today? Yeah, I think that's so smart. I mean, you know, consider your investment sales, if that's your side of the brokerage, consider every investment sale as a portion of equity, right? Just see if you can roll that forward with your clients, and then you know, keep the leasing as your cash flow for yourself personally, or flip flopped, and however you want to do it. But I think it's always smart to kind of be thinking of I mean, as commercial real estate brokers, you don't have a retirement plan, right? You've got to get out there and start building that equity in order to get that. So Henry, this was a great conversation, man, I'm gonna give you a moment to plug where our, our audience can find you. And also, you know, let's talk about the podcast. Where can they find that too? Cool. So you can follow me on every social media platform at Henry Eisenstein. You can look me up in every social media platform out there. Or any questions you can go to info at Henry eisenstein.com. And the podcast should be live on our YouTube channel, if not already momentarily. That's awesome. Henry, thanks for joining us today man. Appreciate your time. Likewise, thanks for having me.
22:04
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
Each week, I'm going live at 8:30am CST for my "office hours" to answer your questions about commercial real estate on the show. Let's hear what you'd like to know when it comes to brokerage, investment, and development!