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The Real Estate Guys speak with Tom K Wilson About Getting Started In Commercial Real Estate

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Moving up from single-family homes into bigger deals usually means multi-family. But there's a lot of big opportunity in commercial real estate investing too! In this episode, we visit with a seasoned investor who's found success in single-family homes, multi-family apartments, and commercial properties. So tune in and discover how you can go bigger faster by cashing in on opportunities in commercial real estate investing.
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Welcome back to the real estate guy, his radio program. Thanks for tuning into the show. Today. We talk about all kinds of real estate today, we're gonna talk about making the jump into commercial property. A lot of folks start out in single family and they say, well this is great and it works, but there's a lot of different types of real estate. And our guest today has experienced in a lot more than just commercial, which is well on the ground of the program. We've known each other nearly 20 years. He's done a half a billion dollars with the real estate, thousands and thousands of units and lots of different places. Please welcome back to the Real Estate Guys radio program Mr tom Kay Wilson tom roberts, always nice to be on the program. Well, it's always nice to see you. It's good to have you. And we just of course got off the investors summit at C I think this was your eighth time. It was, wow, just keeps getting better and better. Amazing, crazy stuff. I still don't have my voice fully back, but, uh, you know, some years better than some years, that's for sure. You know, a lot of paradigms get broken on the summit. And, uh, that's true, That's true. Yeah. You don't you don't necessarily have to start with a single family home, although that was kind of the area that you started, you know, when we met, you were in real estate and the single family market place, but prior to that, you were a high tech executive. You spent a lot of time working in Silicon Valley and meanwhile piling away some real estate. So talk about when you were fully employed, how you brought real estate into your life Certainly was not on my early radar when I arrived and what was to become Silicon Valley in 1969, I went to pick up the keys from the landlord for my first house, learned he lived next door, had no college education. He's 38 years old. He owned half the street. He was independently wealthy. So you know, I always liked reflecting on and asking others about crossroads in their life that maybe aren't obvious at the time. There's a big crossroad for me, Holy smoke, you could be independently wealthy by starting to buy real estate. So way we went, we started buying houses until we got the point where it was a little pain to manage it. It didn't occur to us at the time. This was not an asset class at the time. This is something very eccentric that a few people did. And it didn't occur to us that you can get help from somebody else. You don't have to do everything yourself. Young engineers like to do everything themselves. So that was a mistake. And but you know, we made a good decision, be amazing how many people advise not doing it because it was this eccentric then for someone to buy rental houses, a batch of them as it might feel to some people today to buy commercial properties in, you always gotta got to be willing to walk through that door and kind of expand your mind and opportunities that are out there, you know, and buying a whole bunch of single family houses in the Bay Area in the late sixties, looks pretty smart today, right? But at the time, you know, it was just the thing you did, you you rented a house to start because you were new to the area and then you thought, wow, I could I could buy a home to live in, I could buy another home to, to rent out. And before you know it, it makes sense. And over the course of a career, you finally got the bug and decided this is something I could, I could turn my full time attention to potentially that, you know, I had many people back then that thought that was a big, I was taking a big risk because that was really out of the comfort zone amongst people. Maybe even more so than it is for some people today to consider going out of their current comfort home or maybe a rental houses multi famine to commercial. You know, I find most of the time when I've gone out of my comfort zone and done things that were mothers may be considered risky. But the logic added up to me, uh, they've turned out to be good. Well, that's part of having the engineer's mind right? You're always applying logic to the situation. And I see that today as it relates to your business, you're very prudent, you're very methodical, you have a system to get things done. And so uh no matter what your predisposition is, your personality style, there's a way to figure it out in real estate. And I think watching you kind of blossom as you've gone from asset class to asset class has been awesome. But let's talk about another paradigm that that folks maybe uh need to break a little bit. You know, I say live where you want to live and invest with the numbers make sense. When I met you in the Bay Area, you were living in the Bay Area, but a lot of your investment property was in a completely different state. Most people want to be close. Like your example, the landlord living next door. And this idea I could invest several states away is foreign from some folks. Why did you seek out greener pastures if you will back in those days? Well after my very nice high tech career that I enjoyed felt like I made some contributions to the market and industry that I was in. One day I woke up and realized that my real estate appreciation wise was contributing more towards my financial independence while I was sleeping than my day job was while I was working on my stock options work. But I went and looked at the numbers. I realized my return on equity wasn't so good anymore because that at that time the 30 K. House that I bought when I started was now worth half a million, but it was only making one third as much rent per value dollar as it had before. Sure you know, I was focused locally, had didn't really have any concept that markets throughout the country had appreciated at different rates. So I did what what I think everyone should do when you want to learn about something you go surround yourself with really smart people who have already done things that you're considering doing, pick their brains. And what I found was that most investors that we're getting good returns, we're investing in other cities. So I spent a year studying the different markets and I found lo and behold there were places like Dallas Fort Worth that we're giving three times the rent per invested dollar. So I took that first house that was worth half a million dollars, had 100 K. Alone on it. And uh 10 31 that into a 68 unit apartment house down in Dallas Fort Worth that. I just sold for $4.7 million. So, and it spun off 100 K. Cash flow during all those years. So you got to just what worked yesterday doesn't necessarily what's best tomorrow. It's easy to stick to something I think or what feel like you should stick to something that's worked in the past. It's really, you really have to talk to yourself and work hard I think to move to something different. But I did and it uh, and it paid off for many years in the Bay Area. You were known as kind of the Dallas guy because you had single family homes there. You had a bunch of in your own account, uh, some multi family as well. And then you were helping investors in the Bay Area, highly appreciated market move some of that equity into much more landlord friendly state. And the state that had better cash flow in the state of texas. And There we were proud to have provided, uh, 650 turnkey rental houses before the term turnkey was really coined well and based on the timing. Remember we did some tours and things there, anybody that bond back then has done pretty well in Dallas texas. So they look, they look pretty smart in the review mirror. And even more important than cash flow. And appreciation was that during the crash, Not a single one of my clients and nor I lost a single property. It wound up now, I didn't know it was going to be the best, but in my research, I thought it was going to be pretty resilient to downside. So Dallas dropped 7.7%,, Everything kept cash flowing. It worked well. This is another paradigms, you know, people look back at the last crash and let me talk about that because we both went through that and uh, you know, we saw values of assets go down, but we didn't see rents go down as much, nowhere near as much. And so this is a resilient product type, real estate rental, real estate for sure. And you're still a multi family guy and still believe in that part of the, the real estate world. Um talk about what you see the attractions are in multi family versus maybe single family today. Well, I think multi family in general is just good as and it is, it is a part of the commercial class of assets. People don't think about that, but commercial is route is commerce and it means when you purchase something for the intent of income as opposed to living in it. So multi family is part of that. And general all of commercial including multi fam just has the benefit of economy of scale and along with that you tend to have higher level professional management. And I think it's if you have good management you can control control your returns better. and I've owned 11 multi fans and still have three today. But it's the problem is that when the expansions happen it doesn't make sense because the land values usually to build Class B. And C. Property. So everybody who's building developers build class A. And what happened post crash was that uh it just got over built in most primary and secondary cities in the United States. It doesn't mean the product wasn't good but no longer was a cash flowing as much it got a little overheated. So what I learned was that even though I like multi family, if I can find a return, which is uh, you know, as good as anything else, I'd like to keep some of those my portfolio. But I found that non multi fan commercial starting about five years ago, We're giving about 2% higher returns, cash flow and a few percent higher i. r. s. and average annuals. Then multi family. So I I always believe in moving your money from assets that have peaked over into assets that are still in expansion and change your model as time goes along. I like the always like the story of Sizzler back when people started eating more healthy or at least what they thought was more healthy at the time. And a lot of the steak change when out of business, but sizzler added salad bar and they added fish and chicken and they stayed alive. So you've got to change your model, just worked before. Whatever works best before doesn't necessarily work the same today. Well there's come reasons for that part of it is cyclical and tastes change and so forth. But also there's been a lot of emphasis on apartments and certainly we've seen cooperates compress a lot of folks go out and bid on these things. Typical multi family deal comes up today. There might be 2030 bidders and let's face it, if we're all bidding the price up on the same amount of income that drives the returns down. And there's a lot of reasons to like multi family because of the diversity because it tends to be a recession resistant part of the real estate world because people always need a place to live, especially in that kind of be class area. We are seeing the returns suffer from that. So this idea to open up your mind to other real estate, not just a multi family makes a lot of sense. So you started to get into some commercial properties. Talk about the mindset of going from a guy whose own single family and multi family, who your tenants have always been residential to now. Well we're going to look at different real estate where our tenants are businesses. Well actually when I expanded into texas, I had a broker that I've done a lot of business with that you and I both know and at the time he was also showing and promoting that maybe I should consider some non multi famine parallel with multi family. And I remember going by some of these buildings that he showed were you know, really good numbers and even I know it's going to shock you, but even this, this engineer can can have some emotion at times. And I remember going by some of these commercial buildings with these metal sides with no windows in them and he's saying this is this is really a great properties, like doesn't look that great. And what the heck are they doing inside there anyway. But so the motion side of me um actually kind of kept me from getting started sooner than maybe I should have and, and diversifying my investments and assets. So about five years ago, six years ago, I was part owner of a $10 million class, a multi fam. That was a pride of ownership is a gorgeous property. His name was ascension Point in Arlington, great, uh, great market. And uh, we realized that the garden get overheated cap rates were down to six and at the same time in the same metro, uh, my broker pointed out that there were non multi fam assets like industrial in office and we made decision to sell the multi fam at what was now a compressed rate. We sold it for Caprica six and we exchange it into a multi tenant industrial or the cap rate of eight and a single tenant office for Capri of nine. That was one of those, you know, when your skins in the game, it's amazing how much more you learned from it, how much more you take away. So that was kind of the, the moment I said, okay, I can see this really works. So that's when we decided to start syndicating, that was pretty close to the time you were starting to provide education in that arena. And I know it came to that and that was the timing was perfect. It paralleled our decision to go in that direction and we started buying non multi fam commercial properties and it's done very well Now. Fast forward before I don't want to I want people to get alarmed by these numbers because before we're done, you're going to realize you can invest in commercial assets for less than $100,000. So don't let the big numbers scary. But in in those times since in those six years, uh talk about the syndication volume that you guys have done Well in the last four years, we've done 23 uh syndications, and last year we did $95 million 078 million in the first quarter of this year. So back when we started the commercial syndication business, if you told me we'd be at this level right now, I have told you, just like I would have before I started buying houses, you're out of your mind and I can't see how that could happen. But it's but it's happening. It's funny, we had a similar conversation at least 10 years ago. I remember we sat down and you showed me your portfolio of hundreds of single family houses and you're like, Wow, how did I get here? I just bought a couple of houses. And before you knew it, I've got all these assets, same thing when it comes to syndication. And that's the law of compounding that we see not just in numbers, but in education in wisdom and relationships. And if you, as you continue to build relationships with investors, there's more demand for these types of syndication opportunities. And as you continue to form relationships with providers and sellers and brokers then other deals come to light it's as you evolve as an investor, so does the world around you. And you certainly promoted the value of having outstanding partners. And that's even more important than where you invest, what market and what kind of product that you're in. And indeed, I think partnering with those that have a proven track record, who have established credibility, have the integrity, are ones that you had a long term relationship with, are those that, and indeed, they need to have competence to as well as character like Beth Clifford promotes. But if they do, then they get this compounding of comfort level with those that want to partner with you. And that's certainly what's happened. You know, I've been 16 years building up my brand and client base. I have some new folks are getting into the syndication business and they sometimes ask me, Sir tom how long does it take from the time you meet somebody new to have them actually write a check? And I said, well, sometimes, you know, pretty quickly, because we have built a high quality brand. But I said, one of our top clients I've known for 25 years before they wrote a check. In fact, I have another investor recently that I've known for 40 years before I wrote the first check. So they weren't real happy to hear that answer, but, and certainly it doesn't always take that long. But I'd say our typical investor has been following us for five years. So they keep seeing success. They keep seeing, uh, consistency and, and what we provide in service and education and not being, uh, pushy. I'm blessed to not have to be doing this business. Now. I do it because I'm passionate about it and everybody says it's pretty clear you're passionate about it. It's, uh, it's great having a team that you inspired by and can provide a venue for them to grow and then have a client base that, you know, deep down your heart, you're providing a real value to them. You're contributing toward their financial independence. You know, you're getting some of the best value products in the country, filtering through, vetting them, underwriting them conservatively and making them available to others, and word gets around.
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