Non-Negotiables Analyzing Commercial Deals | Office Hours
In this episode of the Commercial Real Estate Investor Podcast, we’re breaking down the non-negotiables—the must-have criteria that every smart investor should consider before closing a deal.
From location and zoning to cash flow and environmental risks, I’m diving into the key factors that could make or break your next commercial investment. I’ll share insights straight from my own deals, plus lessons from other experienced investors, so you don’t waste time—or worse, lose money—on the wrong property.
If you’re serious about making smart, profitable real estate decisions, you won’t want to miss this. Let’s get into it!
Get commercial real estate coaching, courses, and community to jumpstart your investment journey over at CRE Central: www.crecentral.com
Key Takeaways:
Location Matters: Choose a location that fits your specific investment strategy and asset class.
Cash Flow is Critical: Aim for properties that can cover debt service, especially in the current interest rate environment.
Environmental Due Diligence: Always conduct a phase one environmental report to identify potential contamination risks.
Property Age Considerations: Older properties can have expensive maintenance issues, particularly with plumbing, HVAC, and infrastructure.
Zoning Verification: Always double-check zoning with the city, as local tax maps can be inaccurate.
Parking and Accessibility: Evaluate parking needs based on the specific market and neighborhood.
Surrounding Neighborhood: Assess the condition of nearby properties and potential for future development.
Tenant Compatibility: Consider how surrounding businesses and potential tenants align with the property's intended use.
Feasibility Study: Do quick initial calculations to determine if a deal is worth pursuing further (e.g., price per square foot, potential rental rates).
Investment Strategy: Look for opportunities to potentially double your money in 3-5 years through a combination of cash flow and appreciation.
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:
Tyler Cauble 0:00
This episode of the commercial real estate investor podcast is brought to you by my cre accelerator mastermind, where you'll get access to my step by step investment blueprint, essentially a library of resources on how to invest in commercial real estate. You'll get connected to a supportive community of other commercial real estate investors that are doing projects just like you. You'll get personalized coaching and feedback from me every step of the way. Go to www dot cre central.com to learn more. Welcome back to the commercial real estate investor podcast live from the cobble group Studios here in Nashville, Tennessee. Back for another round of office hours. You've got questions around commercial real estate, and I might have the answers, and if not, we're gonna have a discussion around it. Either way, that's what this is for every Tuesday morning, 8:30am Central Standard Time. So jump in, get live, and let's talk about commercial real estate. Today's question of the day, what are your non negotiables when analyzing a potential real estate investment, what would immediately make or break a deal for you. We had a great discussion about this in the mastermind last night, and I'm going to bring some of those takeaways to the table here in just a minute, while we are waiting for those questions to come in, give you guys kind of an update on my week. What we've got going on this past weekend was my first full weekend in town in a month and a half. It's been a lot of travel, a lot of work out of town, which is always fun, right? I mean, it's it's talks or events or things like that, and and I always enjoy them. But you know, this may surprise a fair contingent of you all. I am very much an introvert, and so going to events and being around a lot of people can be very draining for me, so I have to definitely come home decompress. And it was, it was nice to be able to get to do that this weekend. Unfortunately, whenever I get into work mode, like I've been in for the last month and a half, the minute I get some downtime, I get sick. Of course, it's probably my body saying, Hey, we gotta just chill and do nothing for a little bit. But this weekend, I mean, it's, it's the seasonal change. I get my ass kicked by allergies every single year, and this past weekend was no exception. So I'm feeling a lot better now. Shout out to having a a Steam Sauna in the house. I'm very grateful that I built that a couple years ago. It has definitely helped with with the allergy season, for sure, coming up this Thursday, I'm giving a talk, basically an Entrepreneurs Organization version of the TED talk called EO talks 10 minutes on the one thing that completely changed my business. Some of you all that have been listening for a little bit know that I'm gonna be giving a talk on how YouTube changed my commercial real estate business, and it's gonna be fun. Maybe we'll really sit on the channel. I'm not entirely sure we'll see, because it's not exactly in line with everything that I talk about here. It's going to be more on the business side of things. But who knows? Maybe, maybe we'll take more of a business slant to this channel in the future anyway, and it would make a lot of sense for us to do that. So we shall see, working through some future planning. Right now, we've announced to the mastermind our next in person meetup here in Nashville. It'll be a weekend long event Friday through Sunday. So really excited to be doing that, based on feedback from the members of the mastermind, we're going to be doing all underwriting that weekend, and it's going to be an intense underwriting, deal analysis learning session, which I'm excited for. And this is really cool. I'm hoping that the timing works out, because we should be done with the hotel with salt ranch in May, we'll be able to fully book out the hotel for everybody in the mastermind for this event, which would be awesome to be able to do for for one of our first like, fully booked out hotel events. So that'd be pretty cool. I'm looking forward to that diving into the non negotiable. So the conversation that we had last night was pretty interesting. It sparked some really interesting conversations, some some more controversial than others, but I've got a list here of some of the members, non negotiables. I would love to hear y'all non negotiables as well. Up first is location. Obviously, you got to have a great location, but I would go deeper into that, right? It depends on the type of asset class that you're looking at and what you are, what your strategy is, but location is not always equal. Depending on what kind of deal that you're doing, right? You don't necessarily need to be at Main and main if you're doing flex space. So it really comes down to, does that location work, specifically for the investment strategy that you are looking. To deploy there. I think that's the important way to look at that. Another point that some members made was not enough cash flow, especially considering today's interest rate environment. If you are going to be buying real estate, you really want to aim for something that's going to have cash flow. I mean, otherwise, in my opinion, you're probably overpaying for something unless there's a significant value add component to it, I just wouldn't be looking for anything that doesn't cash flow. I mean, even if it's a little bit you want to make sure that these projects are at least covering their debt service, or there's a very quick path to that. I see far too many people, and we're actually gonna be recording a video on this today, far too many people that are willing to buy horrific properties just because they think that it's good. And I'm looking at you apartments, right, everybody. There's so many people that are still interested in buying apartments today, and I genuinely don't understand it, because, you know, these, these deals are, you know, class C at a four or four and a half percent cap rate, and there's not really any value to be added, and so you're just going to lose money and hope that your rent increases enough over the next three to five years for you to be able to flip it to the next guy who's going to lose money at some point. It's a it's a really bad game of hot potato. At some point somebody's going to get caught holding that bag, and you want to make sure it's not you, so don't even play that game. In my opinion, environmental that's a big one if you're just getting into commercial real estate. You know, environmental is not something that you've really had to worry about on the multifamily or residential side of things, but you have to do what's called a phase one environmental report. You don't have to, but you really, really, really, really should. If you are getting any sort of loan, you will be required to get a phase one environmental and essentially, that's, it's a it's a survey, you know, somebody comes in and does some research on the site. Your environmental engineer will to determine if there is any possibility of some sort of environmental contamination that could have happened on the site. Generally, they're not super in depth. They're like two, three, maybe $4,000. Depends on the size of the property. But that's a good range for you to kind of estimate, and it will help you understand better that whether or not there are environmental issues with the property that you're going to have to remediate. Because if you are buying a commercial property, you will be 100% responsible for that environmental remediation whether you caused it or not. Doesn't matter if there are tanks underground from 30 years ago or if somebody just dumped a barrel of oil in the back of the lot. If you buy that property, you are assuming that liability, so you need to make sure you know what you are buying. Age of the property was another one, and I think it's a good point age of the property, because I see this more often than not, in being a bigger issue in multifamily. It's obviously, of course, an issue in commercial real estate as well, but typically, the really old buildings not as big of a deal in commercial to fix the issues as it can be in multifamily, right? Because, you know, there are times when businesses aren't open, or you could wait until a space is vacant, whatever, and kind of deal with it. Then, unfortunately, if you're dealing with some of the issues that will come up with an apartment complex with regards to age, like Plumbing, right? That's going to impact a lot of your tenants, and it's going to be tough to kind of work around. But plumbing is an issue. Think about your HVAC units, your roofing, all of that kind of stuff that can be very expensive if you're getting into the wrong type of property. And also keep in mind, you never know what you're going to get into behind those walls as soon as you start opening things up. If you have been following the journey of salt Ranch, the boutique hotel that I'm doing here in Nashville, you know that? I mean, there's so many things that we found behind those walls, you know, and I mean that literally and metaphorically, that once we started doing the project, we had no idea what we were getting into in some respects. And so there were just things that, you know, continually added on to what we had to do there. Zoning
always double and triple check the zone and get confirmation from the city. I have seen the local tax maps have the wrong zoning before, compared to what the city has, or they don't have the full picture. We bought a piece of property, or I was under contract on a piece of property back in 2021 that looked like it was, I mean, based on the zoning, was permitted for 18 residential units. And when I had my civil engineer go in and do a site survey, right? So, so not like an actual physical survey, but they just review the site, they said there's actually an overlay that we found in some you know, document with the city that states that if it meets these certain crowds. Interior, you can only have 11 units here, and so that's what it ended up being. So we put it under contract, paying a price for 18 units, ended up only being able to being able to get 11 units. We had to fully rezone the site. So that was a big, big pain. And it can be expensive if you don't know what you're doing, and you can still go six months through the rezoning process, spend a bunch of money and still get nowhere. So that's one thing to keep in mind whenever you're buying these assets, parking. Parking can or can't be a big deal. Depends on, again, a lot of factors, just like everything else that we talk about in commercial real estate, it always depends. That's everybody's favorite phrase, I'm sure at this point for you all to hear me say, but it depends. East Nashville doesn't really need a lot of parking, but if you go out to Madison, where it's not as walkable, which is literally the next neighborhood out, not nearly as walkable, you have to have a ton of parking, right? It all depends on what is the accessibility in the area. Because, you know, downtown Nashville doesn't necessarily need any parking. It's more of what is the market going to accommodate. So in Nashville, we actually have, in the downtown code, you don't have to build any parking. There are zero parking requirements in downtown. But these buildings still build it because it is still a market demand, like the market demand is driving the need for parking spaces in these buildings, which is pretty interesting the surrounding neighborhood. You want to make sure that if you're going to buy a piece of property that you are looking at the surrounding neighborhood. I know that's obvious, but go through and check out what's going on in the immediate area. Are there other buildings that are starting to renovate and turn around? Or is everything kind of run down and, you know, just not in great shape? Is this the one bad building in a good area? Is this the one good building in a bad area? Right? You want to see what types of businesses are coming into the neighborhood, and also just to determine what would best fit your property right, what type of tenant would make the most sense to go in your building based on what else is around in the surrounding area. Because if you can compliment what is going on, then it's going to make your life a lot easier as an investor. And then, of course, the final point that was made the surrounding tenants. What other businesses are in the area? Are they complimentary to the type of customer that your tenants are going to bring in, or are they kind of the antithesis of what you were looking for? Because that can make a big difference as to whether a business is successful or not within your area. So there you have it. Non negotiables in commercial real estate. Those are all great points. We'd love to hear yours if you want to jump into the live chat and let us know. Vicin is saying good morning, Tyler, good morning. Vic and thanks for joining us. As always, craftsmanship is saying best contract clauses to have for wholesaling a deal. NO CLUE craftsmanship. I have never wholesaled commercial real estate. It's certainly possible. I've done one video on it, on the process. It's going to be the exact same for the most part, as residential wholesaling. You'll just need to make sure that you have a commercial real estate attorney help you put everything together, so that you're also including whatever causes that you need from a typical commercial real estate contract to be in that agreement, I will say for the most part, there's no point in even trying to wholesale commercial real estate. It is very difficult. Unless you really, really, really know what you're doing, you're probably just gonna be wasting time and money because it's it's commercial real estate isn't as easy to flip as residential s, you know, you can go find a residential home for 50k flip it for 100 you know, and it's worth 150 right? Generally, if somebody owns commercial real estate, they're not going to let it go at such a steep discount, but to the amount of due diligence that you have to do, and I just did a whole 30 minute video that we released last week on due diligence. You know how to know if a commercial property is actually a good deal. You have to do all of your due diligence on these assets. And if you're going to wholesale these deals, that burden is really going to fall to you because which is a financial risk that you're going to have to take as a wholesaler. That's why the wholesale fee, fees and commercial real estate can be so much higher than in residential, you are having to do a fair amount of the work, because when that buyer finally comes along, they're still going to have to do all of that due diligence. It's not like something in residential where you can just knock it out. And you know, a week can be done. Typically it'll take 30 to 60 days. So if you go ahead and get the Phase One environmental you go ahead and get the survey, you go ahead and get the civil engineering or whatever else you need to do. Maybe you do the soil test as well, then you'll be able to, you know, better, flip it. But still, at the same time, most commercial real estate buyers are not buying. You know, in 30 days, I mean, they're still a. Up. They like to slow walk it, because they want to make sure that they know what they're getting into. So probably not the answer that you wanted, but it's the right one. He is saying, any tips for an 18 year old interested in real estate? Not in USA, probably India. I don't know anything about real estate in India, but I will say if you're 18, you're interested in getting into real estate, I would just take that time. I mean, I didn't go to college. Well, I did. I pretended to for a year at the University of Tennessee. I would go and basically apprentice for somebody, right? Go get coffee for someone, you know, do anything that you can, just to assist somebody that is doing exactly what you want to do, so that you can be around them on a day to day basis and learn everything that they're doing. That is the it's the best way to do it, my opinion. Scott, what's going on? Man, good to see you, buddy. He's saying, hey, everyone turning on from Tokyo, Japan. It's 10:30pm these are how important these are for me. I learned something new on every show. It's awesome. Scott, Well, cheers. I hope you're enjoying Tokyo. That sounds awesome, man. I'm not quite headed out that far next week, but I will be flying to Hawaii. So I don't know it's probably what, four. I don't know how far of a fight is Hawaii from Tokyo. It's got to be four hours, give or take, maybe six. I've gone out to Australia before. I've never been to Hawaii. And I'm not a I'm not a fan of flying like at all, not even remotely close. So jumping on a plane for like, 10 hours, or however long it's going to take us to get to Hawaii is pretty much my worst nightmare. So wish me luck. This is going to be fun. Ryan is saying New to commercial real estate question, do you make the money on the front of the deal, or is it cash flow monthly? I mean, Ryan, it depends on your investment strategy. I mean, you can use the same investment strategies in commercial real estate that you use in residential real estate. So you can go 100% for cash flow. Could be a bad deal in terms of what your potential exit could be, but it could cash flow pretty well. If you buy, you know, the right asset in the right place, it'll probably appreciate, and you'll make way more money off the appreciation than you ever will off cash flow. The Cash Flow doesn't hurt, right? So I mean, generally, the types of deals that I'm going for, I want to be able to double my money in the next three to five years. And so that's, that's kind of the criteria that I look for. Generally, they don't cash flow a massive amount. It will cash flow enough to cover the debt service and get us a 678, percent cash on cash return, nothing super high. But because we're able to increase the value so much, we end up getting about a 20% annualized cash on cash return. So say 8% comes from cash flow, and then 12% comes from the actual appreciation of the asset. So a pretty big, pretty big jump. Sunny is saying, what's the top factor for you when considering if a warehouse on sale could work as a potential flex space. I mean, Sunny to me. It's just, does it easily, like, does it wind itself to being split up easily, right? I mean, if you're looking at 100,000 square foot warehouse, and it's not very easily divided into something that could accommodate multiple loading docks or roll up doors, single entrances, stuff like that, then probably not a good candidate, right? Chances are good though, that it's going to be very It could very easily accommodate flex, flex based conversion. For me, it's more about what's in the immediate area and what I mean, are there other flex spaces out there? Right? We looked at a deal when we were down in Birmingham for our last mastermind that would have been ideal for converting it was like 87,000 square feet would have been ideal for converting into flex space. The immediate area had very low vacancy. But the problem was even at, I think it was like 70 or $75 a foot to buy this building, still couldn't make the numbers work. Still couldn't make a pencil. And so it's a testament to just making sure that you're digging into
digging into the market, digging into the numbers, doing your full underwriting to make it make sense. Craftsmanship is saying, awesome. I appreciate the feedback. Of course, happy to help. Mark is saying, what was your first commercial deal? Great question. It was a little 6000 square foot, two tenant building. We bought it basically fully renovated. It was just vacant, and I bought it for $575,000 we brought $120,000 as a line of credit to the table for any renovations that would come up. I brought on two investors. They gave me $50,000 each. I rolled in my commissions as the broker of the deal into equity. So I got, I want to save 15% from rolling my commissions in, and then I took another 10% equity for finding the deal and putting it together and running it. We ended up having to pay about $20,000 for an HVAC unit, which is crazy. That's just how big the HVAC unit was. And also it was like, in the basement, had to be, you know, had to, like, figure out how to get a crane. Though it was a mess. It was a total mess, but it was, it was a great little deal. We sold it two years later for 750,000 so not a crazy deal, not a crazy high return, but a really good deal overall, and a great first project for me to do. Scott is saying eight to nine hour flight Hawaii to Tokyo. That is a lot longer than I thought it would be, I guess, considering, you know, Hawaii is just so far from the States, but awesome, man. Well, Scott, enjoy buddy. Tokyo is definitely on my, on my bucket list. I can't wait to get out there. Eddie is saying, good luck with the flight. Hawaii is amazing. You're gonna have so much fun. Yeah, I'm excited, man. I mean, it's, it's for, I'm on the board for the entrepreneurs organization here in Nashville, and so it's kind of, it's like the Global Leadership Conference for the Entrepreneurs Organization. So we're gonna be on, I think Waikiki Beach maybe, I mean, whatever the main island is, you know, there's, there's a whole bunch of different islands. And so we're gonna have fun. I think that we'll get out, we'll be able to have a little bit of fun too. It's gonna be, you know, some conference stuff and some work and all that kind of stuff. But hey, hard to hard to have a bad time working in Hawaii, right? I'm looking forward to that. Tu Fang is saying, What is your feasibility study process before you even decide to start on a deal? How much detail do you go into? How much does it cost you? Well, I mean, my feasibility study process before going into a deal cost me nothing. I don't go super far into the details. I mean, for me to understand whether a deal is going to fly or not, you know, one, I have to understand the neighborhood and what's going on around it. Right? Most of my investments are within the same areas, so I understand those areas very, very well. So it's very easy for me to just quickly look at a deal and know whether I should spend any more time on it or not from there, I really kind of just do a back of napkin math, right? It's okay. How much am I paying on a price per square foot basis for the building? How much do I think that it's going to cost me to renovate this on a price per square foot building, and then I multiply that by a 12% cap rate. So for example, and I know some of y'all are listening on the podcast, and this will be tough to follow, but I'm going to try and break it down really easily. Let's say I'm paying $80 a square foot for a building, and I think it's going to cost me $20 a square foot to renovate him, right? So I'm all in at 100 bucks a foot. I multiply that by a 12% cap rate. So point one two, which gives me $12 a square foot, if I can get $12 a square foot, triple net on that deal like if the market cops in that area are $12 a square foot or higher, it's worth looking into and doing more diligence on if the cops in the area are below $12 a square foot, probably not a deal. Depends on how much lower they are than $12 a foot and how nice I think that this product is going to be. So that's really it. I mean, that is my initial feasibility, and it takes me two minutes to run. And from there, I can kind of determine whether something's worth digging into or not right now, after that is when it starts to get, you know, a bit more in depth. I'll go through and do a full market study. I'll do that, you know, I have correct see Pro, so we'll look at some information on there. I have my brokers. We'll talk to them. I just, I know people in the area, so I'll call. I'll make phone calls as well, depending on the type of asset, I may have a market study done, right? So like self storage and boutique hotels. Whenever I'm doing those, it's very easy to have a full market study done relatively cheaply, and then, or for free, if you're talking to management companies. And then from there, full underwriting, and then if the underwriting checks out, we're putting it under contract, and we're starting our due diligence process. Vicin is saying, if you buy, let's say, 10 acres of land and you build a building, would lenders give a loan? Yeah, absolutely. Vicin happens all the time. I mean, if you it's even better if you go out and you actually pay cash for the dirt and then you get a construction loan. Lenders like that because they're really just giving you a construction loan instead of an acquisition and development loan, which makes their job a lot easier, makes it far easier to collateralize the loan. They're a lot safer. They're only giving you that money as you draw it down. So. So Evan is saying, Can you think of new trends with designing flex space? What are people looking for? I don't know if there's, there's not really any trends necessarily in flex space. I mean, the the great thing about it is that they're it's not, it's not trendy, right? Which I think is, is a very positive thing for it as an asset class. Like, there's no trends. Like, it is what it is. The space is very utility focused. Yeah, you want it to look nice. I would say one thing that can really differentiate a flex space from others is if it has bigger garage doors, right? And we talked about this on the deal that the story, the deal that I did with Marcus Kittrell on his flex space down in Birmingham. You want 12 foot by 14 foot roll up doors right? The bigger, the better. Just because they can fit more stuff in there, you don't have to worry about any people hitting your walls. He also fully insulated and conditioned the warehouse space. That's one thing that I don't see a lot of people do, but when you fully condition and insulate the warehouse space, tenants are typically willing to pay you more money for that, because they're not working in the office, they're typically working in the warehouse. And especially if you're in the southeast, there's like a one month period of time throughout the entire year, both in the spring and April. It's probably two weeks each where you can work with the doors open and it's fine. Other than that, it's either freezing cold or it is way too hot, and they're working in the warehouse, so the more comfortable that you can make that, typically, the more a tenant is willing to pay you for that, or you could just lease it up faster. It's really not that much more expensive to fully insulate and condition those spaces, because you could do a little mini split, you know, a few 1000 bucks. And you know, insulation is really not all that expensive. You're building the walls anyway. So that's kind of what I see. BC is saying, Hi, Tyler, I recently got my real estate license, and I'm starting with commercial I have zero background in this outside of the training. What is one thing you would advise for getting started, BC the training that they give you, if you went through the same training that I did, which hopefully you didn't, but basically, when you're getting your real estate license, at least in the state of Tennessee, you only go through, like, I want to say it's like 90 or 120 hours of residential training, which is horrific. It has zero application to the world of commercial real estate brokerage, and which is why we started the brokers mastermind, because I just there's no training out there on how to get started as a commercial real estate broker. So with that being said, what I would do, BC, is I would go and find another commercial real estate broker that is doing the same type of brokerage that you want to do, that's already established, that just needs somebody to help them out with the deals that they're working on, and just go Junior broker for them for a couple years. We've got a guy on our team right now who is, he's working as a junior broker for two senior guys. And the amount, I mean, one, he's getting paid to learn, but two, the amount that he's learning is insane, because he's getting access and exposure to deals that he would not have normally seen, because he doesn't have the experience to go and land those listings yet. So he's getting to work on some much bigger opportunities. And so it's really accelerating, is learning. So that's what I would do, is just go find somebody that is doing what you want to do, and just shadow them for a couple years. Two Fang is saying, Thanks, appreciate all that you do. Of course, that's what I'm here for. I appreciate all of you. I'm still humbled and amazed that people want to jump in and listen to me ramble about commercial real estate for 30 to 45 minutes every Tuesday, depending on the day. So appreciate you guys tuning in. That is all that we have for today. Appreciate you guys again, as always, if you're watching on YouTube, Like and Subscribe. Let me know in the comments what you are enjoying about these office hours. It always helps me out. If you're listening on Spotify or Apple podcast, please leave us a review. I appreciate you guys, and we'll see y'all in the next one. This
episode of the commercial real estate investor podcast is brought to you by my cre accelerator mastermind, where you'll get access to my step by step investment blueprint, essentially a library of resources on how to invest in commercial real estate. You'll get connected to a supportive community of other commercial real estate investors that are doing projects just like you. You'll get personalized coaching and feedback from me every step of the way. Go to www dot cre central.com, to learn more you.
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