$700 Million Tenured CRE Pro seeks to "Fastlane" existing biz

[elliotth27]

I have read the Millionaire Fastlane book, and loved it ! In fact, I have now read it 3 times.
I am seeking some advice from the "real" fasteners on this forum, who are truly executing and earning.
I'm specifically interested in hearing opinions or suggestions for how to "Fastlane" my company, and if it is even possible, from any of you who might have commercial real estate background, or success in doing so.

This is not only my first Fastlane Forum post, but my first post in a Forum of any kind.
Therefore, let me qualify myself to the audience:

I'm a commercial real estate professional with over a decade of experience.
Prior Job: Broker (for Nat'l firm, commission only) = 7 years, over $700MM in transactions personally orchestrated by me, average net annual earnings approx $250k-$300k/year during this time period.
Prior Job: Sales Manager of Major National Brokerage Office w/ ~40 direct reports (agents) (salary + bonus) = 2 years
Current Position: Founder/Owner of Commercial Real Estate Syndication Business = 2 years

Since leaving the slowlane and starting my own investment company in Feb 2011, here is what I've executed on:
Raised a total of $4,000,000 in cash from high net worth individuals
Purchased 5 houses and 6 commercial properties.
Renovated and Sold houses in 11 months - $60k profit to me, 15% yield to investors
Own 6 commercial properties (5-7yr hold strategy) - 1 retail, 1 medical office, and 4 senior housing facilities (2 nursing homes, 2 assisted living facilities).
Personally Earned about $300k from syndication fees in 2012. Allocated about $140k into the properties for a fractional ownership share, which give me monthly passive income:
Earn about $21,000/yr in passive income from my own personal participation in these investments.
Earn about $100,000/yr in passive income from property management fees.

I have hired 2 full time staff for my investment co:
1) Executive Assistant
2) Acquisition Manager (tasked with finding properties to buy: filtering, analyzing, and presenting to me)

I have formed a property management company, to manage only properties which we own and hold in our portfolio. I now have approx ~60 individuals on payroll under that company.

I am also a commercial real estate developer, and recently kicked-off a $15M development project (new assisted living facility)

Initially, raising the money for our investments was the biggest challenge (new company, no track record on the sponsor side, etc). 24 months later I have 50+ clients who are very happy with the returns they are receiving from the investments i've sponsored (currently, the portfolio is averaging ~11.7% annual yield, paid monthly to investors. NOW, my biggest challenge is finding enough great investment properties to keep up with the investor appetite !

I've found myself in a job, working IN the business far more than ON the business. This is a complete NO-NO according to the Fastlane mentality which I believe in, and am hoping to apply to my company. I have authored a training manual which spells out the "system" in a highly detailed format, so that I may hire additional acquisition managers to find more properties to purchase, and to take the purchase through to closing.

Is there a way to leverage my background and experience through others which I am missing, which would enable me to put the gas pedal to the floor? Or is real estate truly the "Wealth 1.0" as described by MJ DeMarco in his book, and I should be seeking more fertile lands? The way I see it, is I need to have a team of people finding properties to buy, coordinating the due diligence process through to closing, and managing the assets, so I can spend my time raising large amounts of capital from the private equity firms who are now noticing me (and calling on me!) so that I can deploy more equity and have more assets under management? Each time I buy a new property, I typically earn around $100k net syndication fee plus I add about $30k - $40k/yr in recurring management fees. This creates a great snowball effect for recurring passive income, however there is a problem: In order to hit $200k/month I would need to purchase another 42 properties which would take me about 10-15 years at the current rate.

It appears my model has scale limitations in a couple of critical areas:
1) my ability to purchase properties is directly tied to time of an individual human calling property owners/brokers to uncover acquisition opportunities, and then analyzing those to see if they meet our criteria.
2) there are a limited number of commercial properties out there, including limitations on geographical proximity to our headquarters (meaningful regarding property management) as well as product type focus (a finite # of senior housing properties in existence).

Based on my own interpretation of MJ's book, here are my assessments of problem = solutions:
1) Limited time / human resources for finding new properties to buy = some TBD method of marketing which would bring leads to me (i.e. property owners who want to sell), and not be tied directly to my team's time (cold calling & meetings).
2) Can only process a finite # of acquisitions/yr = Work on much larger projects (i.e. $20M+ deals vs. $4M deals)


If any of you fastlane entrepreneurs have had success in TRULY & SUCCESSFULLY fastlaning a real estate investment company, or if you've been down this road already in a similar fundamental business, I would welcome any guidance, suggestions, or constructive critiques you could offer! Thanks in advance!
~E

 

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[theag]

Try to contact zen*******, he has "some" experience in taking RE to the fastlane And he's very helpful and open. If you join the inside there is a conference call he did where he talks about his background and RE business, while you wait on his response

 

[elliotth27]

Thanks theag!
I will definitely reach out as suggested. hopefully there will be others to comment as well.
I really appreciate you taking the time to read my post and respond!

 

[JustOneBreath]

I'm not a realestate developer but I do have a few questions just to stir the pot -

-Are you developing nationally or locally. Again I've never done this sort of thing so I have no idea but 11 properties in 2 years doesnt sound like a whole lot. It sounds like more of the thing you do when you start to run out of money. From those I've spoken to in personal realestate dev, between them and a partner alone they owned 8 properties. So if its a company running year round, I would expect more like 30-40 on average being managed annually.

-Are you taking any of that money form the $121K passive income and investing in advertising? I feel like an averaged $11.7% return on investments wouldn't be a difficult sell at all. Perhaps people are still skeptical of the real estate market but still, just curious.

 

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[elliotth27]

I'm not a realestate developer but I do have a few questions just to stir the pot -

Thanks for the response, JustOneBreath.
To answer your questions, I mainly purchase existing properties, however I have just started my first major ($15M+) ground up development. Our core business is investing in existing properties, and those 6 currently in our portfolio are in 3 states in the southeast region of the US. The company is still relatively new (founded Feb '11) and was profitable in it's first year, and more profitable in the 2nd, with a trend continuing in that direction Y3. Yes the average yield is compelling and you're right it's not a tough sell - raising equity is not a problem... in fact I have had to turn some investors away b/c the investments fill up so quickly. The main challenge is finding properties to purchase, as we are very selective, and analyze about 50+ properties for every 1 we ultimately acquire. I'm hoping that some of the fastlane minded individuals on this forum may have some suggestions on how to improve upon my acquisition process, or other areas of the company, which will allow this quickly growing company to hit the fastlane --- catalyzing the growth of passive income, and more speedily adding value to the company itself, which is to be eventually sold.

 

[Pete799p]

Sounds like things are going really well for you so far. I would recommend starting to deal directly with the banks and consider buying packages as a way to increase deal flow and lower the acquisition costs if you aren't already. Also consider purchasing nonperforming note portfolios as well, they will take longer to deal with as you will have to perform the foreclosures yourself but you can get a nice discount. Since, capital doesn't seem to be the issue this might help you increase the number of deals or the size. You can also target larger assets as a way to scale.

I have been working in commercial real estate for sometime and have been thinking about getting into commercial real estate sales. It seems you have been very successful as a broker and was wondering how long it took for you to establish yourself and what products you specialized in as well as any recommendations for somebody new. I am looking to focus on land and investment properties but I also have some experience with smaller industrial as well.

 

[elliotth27]

Pete799p thanks for the post, and those are good ideas. Actually one of my properties was purchased from a bank through short sale. I've not seen any bulk bank-sale portfolios other than single family homes or lots, and I do not deal in that space currently, strictly commercial. ( I did the initial 5 houses only b/c of a short non-compete agreement i had w/ my prior employer which precluded me from purchasing commercial property during that period). I have also looked into non performing note purchases as well, but haven't been successful there yet. Still, both of your suggestions are good places to supplement deal flow. Now if I can nail down the systems needed to fastlane the process!!

Regarding your questions about a career in commercial real estate investment sales (aka brokering), PM me.

 

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[CommonCents]

How about networking w/ CPAs and attorneys to pitch sale/leaseback deals with existing businesses. Many of them are looking to raise cash and might be a win/win.

 

[elliotth27]

Another great idea, CommonCents. And yes in fact we already do that (neworking w/ CPAs & Attorneys).
I think what I'm looking for is not necessarily "where" to go to source new product, but how to systematize the process within my organization to help it become more of a 'fastlane' type of model, and comments on whether or not this is even achievable. I greatly appreciate the responses!

 

[PopEmersen]

Great first post, I am also doing RE but on a much smaller scale. I just manage and complete rehabs in the ATL are.

There are about 6 guys that do RE on a pretty big scale on this site:

Runum
zen*******
Cash Flow Depot
Hattterusguy
Rickson9
JScott

Those would be the guys to speak too as all 6 of those guys are firmly entrenched in the fastlane.

 

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[elliotth27]

Wado1, thanks for the response and your kind words. I will absolutely reach out to the individuals you listed, and thank you so much for the suggestions and reply.

 

[Yussef]

The one true scalable asset that you have that pops out to me is your knowledge base.

This is the age of information and although real estate may seem like the obvious choice, your knowledge of how to acquire real estate and transact deals is the true commodity here. And that is certainly scalable.

You need to start keeping a vlog on the unique things you do to structure deals and find high value investors. You have real world results and later on down the road you could hold a few newbies hands through a few small transactions and boom you have a testimonial and will be on your way to becoming an authority in your niche on line.

Get a good SEO guy to rank your site online for terms like commercial real estate investing yadda yadda, create a list by giving some free (opt-in how-to vids), build trust by giving superior free content about things you're doing already everyday, email them when you have a product (ebook or regular book) to sale and soon you will be racing MJ in your lambo.

Drops mic and walks away:icon_super:

 

[elliotth27]

Yussef you win most creative response of the day! this is very thought provoking, and although I had previously considered writing an ebook about how to succeed in commercial real estate brokerage (my prior career, as mentioned in my original post), I have never entertained the thought of trying to sell my knowledge base surrounding how to structure your own investments and raise capital. I know there is one guy (a real estate attorney) who has done something similar to this online, and I purchased his book for somewhere around $300 when i was originally conjuring up my current business model. His book talks about the real estate syndication business, and is essentially a legal guide talking about what types of ownership entities to use, and what kinds of legal docs you need (with examples included in the book), regulations to follow, etc. He earns money by selling the book, and also then offering his legal services (starting at $10k to put together docs) to newer entrepreneurs trying to break into the business after reading his book. He does not really get into the specifics about raising capital or using creative ownership/partnership structures to mitigate risk and increase upside. This means there is some good opportunity to improve upon what he's currently offering (here's his site). I would just need to research and consider how many people are ultimately interested in that specific business. MJ DeMarco has an unlimited audience for selling his 'knowledge' because building wealth is something that EVERYONE can at some level relate to a dream/desire, which is one of the brilliant things about his model. Real estate knowledge applies to a smaller audience size, but it is certainly worth looking into! Thanks for the thought provoking and valuable response!!

 

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[Yussef]

A small bit of research for you.

The exact match (local) number of searches for the term real-estate investing is 4400 per month. The EMD url http://real-estateinvesting.com is available right now on godaddy for $12.99.

One dash in the name will not hurt the domain's ability to be optimized at all. Just a thought.

 

[elliotth27]

Thanks, Yussef!

 

[CashFlowDepot]

Elliott

Your resume is impressive but you're going this the traditional way which is ALWAYS SLOW LANE.

Check your PM for a much faster way to accomplish what you want to do for a fraction of the time & money.

Also keep this in mind. People will always need a house to live in. They can even run a business out of a house.

But commercial properties are only necessary for "some" businesses. That limits your playing field. These days (in the USA) a vacant commercial building is a dime a dozen because so many people are going out of business. With no rent coming in from these commercial buildings, you have no income and can't pay your investors. Be extremely selective to only acquire buildings that have a business need that can't be done from a home based business.

 

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[LightHouse]

Why not get into much larger deals? You can co-op those deals with other firms or investment companies to acquire much higher end buildings. If you have enough cash flow to rehab them and clean them up (goes a long way in commercial RE for leasing space) and can chop and lease the space quickly. If you are savvy enough and have enough contacts this shouldn't be an issue to get into, otherwise you'll need to start looking heavily into networking with other owners in the area, not their 3rd party prop management companies.

I have a background in commercial RE but not a fastlane version, its more slow wealth. You could cross into the internet, but unless you have tons of cash to throw around, you will end up having two jobs and negative amounts of time to do anything.

 

[elliotth27]

Thanks CashFlowDepot !!
For clarification, my primary product type I invest in is Senior Housing Facilities (assisted living, independent living), so I'm not typically dealing w/ retail businesses as you suggested. I am in fact working with multi-residence buildings, and I acquire the business operation within at the same time as the real estate. I really appreciate your feedback and will check my PM. Thanks so much !!!!

 

[Yussef]

Thanks CashFlowDepot !!
For clarification, my primary product type I invest in is Senior Housing Facilities (assisted living, independent living), so I'm not typically dealing w/ retail businesses as you suggested. I am in fact working with multi-residence buildings, and I acquire the business operation within at the same time as the real estate. I really appreciate your feedback and will check my PM. Thanks so much !!!!

Interesting.

I actually own a home health agency and we work alongside the facilities you mentioned as a part of the natural transition of care and care coordination process.

I was at a training 2 days ago, hosted by the state, and there were several administrators and staff members there from facilities asking questions that helped me identify several needs just in the compliance and regulatory arena that these facilities desperately need.

In their defense, I have worked with so many social workers and discharge coordinators that I have experienced how overwhelming the workload can be and many don't have time to stay up to date on the regulations, new software, service definition changes etc. and most of the administrators are simply delegators and meeting commandos (these guys really love meetings).

Medicare and Medicaid (top payor sources for many facilities) are both politically volatile. You can bet your last dime that any time there is an administration change (local or federal) rates and regs will be changed as well.

I know it sounds like I am rambling but here is my point. These facilities (at least in my state) are sitting ducks for state auditors as they are always short staffed and overworked. I know of one in particular fighting a 1m payback right now. Undoubtedly they will follow the typical game plan and hire an attorney to get the fine reduced to a couple hundred thousand and the cycle continues on and on. But it doesn't have to be that way.

The need: A compliance team that saves them tons of money. It wouldn't take but 1 or 2 contractors to start (many ex state auditors jump at the opportunity because they make a lot more money) to hold internal audits and prepare key staff members in the event of an audit.

You have a captive customer base in my opinion this would be a perfect side business that would make someone a killing.

 

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[elliotth27]

Interesting.

I actually own a home health agency and we work alongside the facilities you mentioned.....

Yusef that was a very interesting post. My facilities are all 'private pay' and we do not accept any medicare / medicaid, for the exact reasons you stated. I am lucky enough to have a regional director in my Property Management company who is an expert in regulatory matters, and of course we are audited each year and have never had issues. Nevertheless, you are correct that most administrators are not well versed due to the fragmentation of the industry (on the ownership side), and I think your side business idea is extremely interesting if it could be fast-laned! Thanks for the great post.

 

[elliotth27]

Why not get into much larger deals?

LightHouse, that is exactly what I am doing. I started off small ($700k property) and my 2 most recent acquisitions were both around $5M each. My development project is about $15M, and I'm negotiating a $16M deal currently. It seems that, as per TMF book, I can substitute scale for magnitude, and achieve the same results. Still, I have a lot to learn about what areas of my company can be fastlaned (process wise)....and how to execute that. Some good feedback here is definitely helping!

 

[GuestUser8117]

This has turned out to be a very interesting thread. How could this turned into a fastlane business? Well, outsourcing. Human resources that do the job for you. Assistants that leverage your investments. I think you must hire people to help you. Experienced investors. How about that? You could sell investment franchises with investment strategies already in place. Investing is definitely a good system.

 

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[Steve37]

I can substitute scale for magnitude, and achieve the same results.

That's pretty much the bottom line on making it big in real estate. As you know it's very difficult to truly systematize deal flow since deals rarely look alike. Hiring some good people as you grow will help your free time tremendously and let you focus on big picture items. Sounds like you're doing great and in fairly short order your deals are snowballing into bigger and better.

Any chance you'd be willing to do a progress post on developing these health care facilities as you go? I've always been interested in that and have access to a decent high density site that could easily get the right zoning.

 

[elliotth27]

This has turned out to be a very interesting thread. How could this turned into a fastlane business? Well, outsourcing.

Omerta thanks for your post! I agree I need to leverage myself through others, and I have recently hired 2 individuals as per my original post. I have decided that I need to hire more acquisition managers, who ID and analyze the deals. My ideal candidate would fit one of the following profiles:
1) an experienced commercial real estate broker w/ solid track record,
2) an experienced commercial real estate analyst who desires to do more 'front office' work in identifying deals and getting them closed.
3) an experienced investor (as you suggested)
I believe the first 2 would be the best and most natural fit. Two weeks ago I met w/ an analyst who used to work for me during my brokerage days. He could be a great fit. I've also tasked my assistant with building a list of top local brokers whom I can canvas.
My current acquisition manager works on 100% commission. If I can convince others to do so as well, then I have no additional overhead while ramping them up, which is ideal. Basically I need to build a commission based sales force!
Thanks for helping get the ideas flowing, Omerta!

 

[elliotth27]

Any chance you'd be willing to do a progress post on developing these health care facilities as you go?

Steve thanks for the confirmation there, regarding magnitude. It's helpful to hear from others that I'm at least approaching this with the right mindset. In response to the progress post question, I will definitely consider it!!!

 

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[jtmoniii]

I was wondering if we could get an update on this strategy?

 

[elliotth27]

jtmonii thanks for the inquiry.
Since posting, I have been hard at work recruiting, asset managing, and closing deals. I have been seeking 1 - 3 additional acquisition managers, and after posting the job online and sifting through piles of resumes, I invited several candidates to an informational 'career night' where I discussed my background, the company, and the job, and engaged the group in interactive, industry relevant conversation. Those who were still interested after the meeting signed up for a 1 on 1 meeting. This method allows me to relay the general information at once to everyone without having to spend 1hr for each individual applicant, as well as weed out the individuals who don't fit what I'm looking for as quickly as possible. I begin the 1 on 1 interviews next week and hopefully will hire at least 1 individual. I have also been closing deals in the meantime. We have closed on nearly $20M of commercial property since my original post, mostly through portfolio acquisitions. I have also been interviewing to find a higher level executive who can oversee asset management as well as oversee the sales team I am trying to create. Two extremely solid candidates, both expensive ($200k+ compensation req.), so I am formulating a smaller ($100k) base salary + incentive bonus (profit sharing) based on production benchmarks, which the candidates seem to be happy to consider. My goal is to hire someone for this role by September at the latest. The Development deal progresses, with rezoning application submitted and GC bids coming in. Shaping up to be about a $16M project. Exploring traditional financing through one of my current banking relationships, as well as municipal bond financing. I still do not feel like I have a fast lane style business as I find myself working IN much more than working ON the company. I'm hopeful that the potential new hires will help free up my time to better systematize.

 

[LightHouse]

jtmonii thanks for the inquiry.
Since posting, I have been hard at work recruiting, asset managing, and closing deals. I have been seeking 1 - 3 additional acquisition managers, and after posting the job online and sifting through piles of resumes, I invited several candidates to an informational 'career night' where I discussed my background, the company, and the job, and engaged the group in interactive, industry relevant conversation. Those who were still interested after the meeting signed up for a 1 on 1 meeting. This method allows me to relay the general information at once to everyone without having to spend 1hr for each individual applicant, as well as weed out the individuals who don't fit what I'm looking for as quickly as possible. I begin the 1 on 1 interviews next week and hopefully will hire at least 1 individual. I have also been closing deals in the meantime. We have closed on nearly $20M of commercial property since my original post, mostly through portfolio acquisitions. I have also been interviewing to find a higher level executive who can oversee asset management as well as oversee the sales team I am trying to create. Two extremely solid candidates, both expensive ($200k+ compensation req.), so I am formulating a smaller ($100k) base salary + incentive bonus (profit sharing) based on production benchmarks, which the candidates seem to be happy to consider. My goal is to hire someone for this role by September at the latest. The Development deal progresses, with rezoning application submitted and GC bids coming in. Shaping up to be about a $16M project. Exploring traditional financing through one of my current banking relationships, as well as municipal bond financing. I still do not feel like I have a fast lane style business as I find myself working IN much more than working ON the company. I'm hopeful that the potential new hires will help free up my time to better systematize.

From someone in commercial RE, it may not be fastlane as described by scale or magnitude, but it is a great path to take. Commercial RE is a lot more stable then residential, especially if you lease to the right tenants and hire the right staff. If you want to hire the best people, incentivize people away from their long term positions in other companies (like the tech companies do) in favor of traditional hiring. Smart people are of huge value in CRE.

Get PM's that keep tenants happy, and smart engineers that love their jobs.( make them like it) You will see much longer retention and company loyalty.

Good luck with the bigger deals, I am sure more and more money will open up to you as you make more successful deals.

 

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[LTL]

I've read every single post made here and realize the true value lies within your knowledge/due dilligence process in finding deals. I believe you coined it perfectly as a 'system' and with all the years of experience you have (including the phenomenal 10%+ returns) you have something that is tried, tested and proven. Which leads me to ask why you haven't sought to license this to other developers even REITS for hefty upfront fees and backend royalties ?

I know you are specialist CRE company with interests only in assisted living but i'm sure other companies with a focus in warehouses, office blocks, apartment complexes and shopping malls would find your deal-sourcing process very lucrative. Those returns are pretty good to be honest.


I have to ask as the deals get bigger and you develop bigger projects will you look to become a public REIT ? That is afterall the fastlane exit strategy.

 

[Dsal]

Elliotth27 I am a young aspiring RE developer and I would love the opportunity to ask you a couple questions about the business if possible.