REIA 215 Adam Craig: From residential rentals to commercial redevelopment - living investor dream

Welcome to Real Estate Investing Abundance, the show for busy, fulfilled professionals like you to learn how to develop financial independence built on solid passive real estate investments. Now, here is your host, Dr. Allen Lomax.

Hello, enlightened investors. Glad you could be with us today. And I am looking forward to looking at Residential rentals to commercial redevelopment so that we can live the investor dream. Adam Craig is a founding member of CLE Real Estate Group, a real estate investment company located outside of Cleveland, Ohio. Adam earned his BA in finance from Kent State University, and he began to pursue his passion for real estate investing in 2013. Since that time, Adam has closed more than 70 deals and accumulated a rental portfolio topping $8 million in residential and commercial real estate. The key to Adam's success is a genuine passion and enthusiasm for real estate investing. So Adam, take us into the show by sharing an experience from your life that helped you to be who you are.

Okay. Well, thank you. And it's a pleasure being on your show. Something that comes to mind that maybe shaped a little bit of my real estate longing was when I was about 12 years old, my mom actually got some books on tape. It was a real estate investing course. I saw her listening to them and going at them. And then eventually, maybe about a year after she started listening to them, she ended up buying a property. Nothing about that worked out for her. It was a one and done, but it did put the bug in my head that, hey, you know, maybe real estate is something of the future. And I didn't really think about it seriously again until maybe 8 or 9 years later when I was in college. But I did always remember that stuck with me. She had no background in real estate. The property was in a terrible part of town and nothing about it worked. So she ended up selling it. So again, it was just the idea of real estate that really stuck in my head at that time.

Well, Adam, I'm glad that it stuck in your head, but sorry it didn't stick in your mother's head. Unfortunately, you know, there are so many Courses out there, so many supposed gurus out there, and they oftentimes lead people down some very disastrous paths. And what could have been a glowing real estate investment for your career obviously turned into a big disappointment. And that happens all too many times here, but I'm glad to see it stuck with you. Glad that you are with us today to share your experiences in real estate. You started out in life as a caddy. And you say that that shaped your worldview and your hopes of achievement. What was it about being a caddy that ultimately led you into real estate?

So I started caddying at a local country club when I was probably about 10 years old. I did that all the way through high school and into college. So almost 11 years I was a caddy. Pretty early on in the experience, I realized there's a whole nother side of life. I didn't come from a dirt poor family or anything, but we were lower middle class and we didn't experience some of the things that I saw these people at the country club experiencing. So watching that for 10+ years really had an influence on what life could be and how these people are. And not all of them are geniuses or rocket scientists. A lot of them are hard workers and entrepreneurs that worked really hard at something they did. It didn't necessarily have to be going to an Ivy League school and getting a big corporate job. There were a lot of entrepreneurs, real estate guys, and business owners. And I would overhear them talking. And not that I learned anything, but I did see how many different backgrounds you can become successful through. And real estate was certainly one of them. I definitely remember a handful of guys over the years who did real estate. And that again, always stuck with me because I knew it didn't require 10 years of extra schooling, like an attorney or a doctor. So that was big for me. I went to college, but I was never a big fan of education per se.

Well, you selected a, a not particularly easy degree to get through. So you had to have some academic acumen in conjunction with that Well, you left college with a degree in finance. Where did you go on that road after college?

So I was interning for either financial analysts or insurance sales type jobs. I didn't know exactly what I wanted to do, as most college kids don't. During that time, I actually had started an online business. I tried over the years, all through high school, a lot of online businesses. Some of them made a little bit of money for a short amount of time. Some of them didn't work out. But finally I found what I would say was my niche. This business in year number 1, surpassed $50,000 in income, which I knew at the time was about a starting salary. So it was shortly after that, that the second year I started doing it, it was going to be a 6-figure income. And then it became kind of a no-brainer that I was going to not pursue any financial job at this point. And I'm going to ride this internet business as long as I could. And not to go too much into the business because it's more of a snoozer that pays the bills than anything that really excites me. But it's an online retail business refurbishing camera and video equipment and reselling it on websites and Amazon. So again, it doesn't get me up in the morning, but it paid the bills. It enabled me to start my real estate career.

Do you do the refurbishing or you outsource that?

I don't. It's all outsourced. And a lot of these are actually older equipment. You know, for the longest time I was, I was looking to buy state-of-the-art, you know, back in college it was iPods. I know those are obsolete now, but you know, a lot of the cutting-edge technology and the competition was just too stiff. So I found a niche in older products that you wouldn't think sell very much, but they actually do have a small niche market. And with a lot of people not in the competition space, I was able to make a tidy profit.

Oh, well, cool. Interesting trajectory there. So it's given you at least an income to sustain yourself. Obviously, you knew that that was not likely to lead to the levels of wealth accumulation that you were hoping for. Adam, how did you take that leap from that online business to going into real estate?

Even before I started the online business, I had decided that didn't necessarily want to work a corporate job my whole life. Through podcasts and education, I realized that being my own boss was somewhere I wanted to go. So I figured real estate was my ticket. I decided then and there that that's what I wanted to do. But what I didn't assume was I thought I'd get a corporate job, maybe buy a property here, a property there, and over 10, 15, 20 years, maybe be able to quit that corporate job and do real estate full-time. That online business accelerated that path because I was able to put a lot of money away and use a lot of that to get into it. But I also knew that online business was at the mercy of competitors, at the mercy of technology, at the mercy of Amazon, where I did about 80% of my sales. So really the lights could be shut out overnight essentially on that business at any time. And lucky for me, I'm still doing that business. Its heyday was probably about 6 or 7 years ago, but it's still a profitable business that is worth me putting about 2 to 3 hours a day into. So real estate I knew was going to be there forever. So I just poured everything I could save from that business into real estate.

Well, what was your starting point in real estate?

So my first or second year in my internet business, I had socked away substantial money. I had making well over 6 figures in that business, but it was such a new business. I couldn't get a loan on real estate because I only had about a year, year and a half of tax returns. So that was frustrating. So in that time, I listened to every podcast I could, every book I could, and, you know, just played the waiting game. Finally, when I was able to get mortgage financing, because at the time I didn't know of any other way to buy real estate, I bought my first property, didn't know much about it other than the hundreds of hours of podcasts, which it doesn't really prepare you for the real deal. But just like anything, had some hiccups along the way. First property worked out fairly well. I think I bought my second about a year later. And I continued at that pace for about the first 2 or 3 years because I was still doing the 20% down conventional financing, paying for the rehab expenses out of my pocket. So I was fairly limited in how many properties I could buy due to the money I was bringing in. After about 3 or 4 years, after saying I would never entertained the idea of paying a hard money lender 14% interest. I decided, hey, if I want to keep going, if I want to accelerate the pace, I'm going to have to bite the bullet and do it. And I didn't realize at the time what a baby I was being because there's nothing wrong paying 14% interest if you're making a lot of money doing it. So after that happened, really exploded things. I went to 8 to 12 properties a year, most of them turning them into rental properties, but some of them we would occasionally flip and then just kind of went from there.

What are the major roadblocks that you have encountered in your single-family investing?

Well, early on, I had a property management company because I, again, I came from the mindset of maybe I was going to work this corporate job, real estate was going to be on the side, I was going to have time to manage. So property management was the only thing I would consider. After about 4 or 5 years, I realized how poor of service I was getting from the property manager. I kind of understood how the property management business worked. A lot of these bigger companies were hiring real estate agents to manage 50 or 75 or 100 properties and paying them pretty minimal wages. So they had very low incentive to work hard for you. And at the end of the day, no one is going to care for your properties as much as you do. So after about 5 or so years, I transitioned out of that. And not only were we able to achieve higher rents, but our tenants were better taken care of. We still do manage our properties, but we have now brought an in-house property manager to kind of do things 5 to 10 hours a week to help everything out. But getting over that property management hurdle, I wish I had done it sooner because I've I wasted a lot of money sticking with them for too long.

In working in single-family and purchasing homes for rental primarily is what you're doing. Some are fix and flip. You are going to work with contractors on a regular basis. How do you hire? How do you find those contractors? How do you keep them on track? Tell us about that contractor experience.

So I think on the first house, I used just some referrals that I think my mom had had at the time. They were absolutely terrible referrals. I didn't come from a construction background, so I didn't really know exactly how things took or even how to do them, had no idea how much they cost. So that was an extremely steep learning curve. But I remember on the first house, the guy whose name was Lou, he said, walked into the house and said, yeah, this is about a 3-month job. So I said, okay, 3 months, sure. Well, many times I went over and found Lou and his partner with their feet kicked up on lawn chairs, smoking cigarettes, listening to the Indians game. So we got through that rehab, but that was a big, you know, you come into these things naive and trusting until you realize there's a lot of crooks out there. There's a lot of people trying to pull things over on you. So from there, I went to the, I guess I would say, big-name contractor, the general contractor who has a bunch of subs, charges a lot of money, but at the end of the day, he's hardly ever on the job site. He has a bunch of guys like Lou working for him that sometimes need managed, and he's not there to manage them. So not only did I pay a premium for that second rehab, but I was dealing with all the headaches that I paid him to deal with. So third property, I said, okay, I want to, I want to try to cut this guy out and go to his workers. So I looked for guys that, you know, he would drop off at a job site that didn't necessarily have the tools and the vehicles and everything to do everything on themselves. And I put tools in some of those guys' hands, I would buy them. And some of those guys, you know, for my third year are actually still with me. So I went that route, I tried to find the younger guy with the low overhead that can do things and didn't need a whole lot of management.

So just kind of a trial and error experience and looking to see who's working and Who isn't and who wants to stay with you and develop their skill and their really own business. Interesting trajectory there, but that is a challenging, challenging aspect of single-family homes is actually finding contractors who you can rely on and who are going to be there for you to do the job that you ask them to do. Adam, what is the difference between residential and commercial? And why is it that you focus primarily upon residential?

Actually, I am now focusing primarily on commercial, but early on I said, maybe I want to buy 50 or 100 single-family homes and then eventually make the leap to apartment buildings. So that was the trajectory I thought I was going to go on. Right around 2018, I decided that my home office life was not so great. I just had a child and another one on the way. So working at home that I had done all these years wasn't terrific. So I went out looking for an office space to lease. In that search, I found a building in my hometown that was for sale. Ended up buying the building, not knowing anything about office space. I am sitting in that building right now. I occupy about 800 square feet of it and I lease out 4,500 square feet. That building worked out so well. It made me realize, hey, I don't necessarily have to wait around for these apartment prices to come down. I can go into other asset classes. So I've since bought 4 commercial buildings, own a total of 5. Now we're looking at anything from industrial to mobile home parks to— we haven't made any of those jumps, but I'm not discriminating against any asset class at this point. I think being a one-trick pony not only is not diversifying, but it really limits on where you can go depending on how the market is.

So you found the commercial arena to be much more friendly and much more able to enter it than what you had conceived of. And you found that by actually finding your own property that you are in and you're renting out the larger portion of that. So you're actually essentially taking your BRRRR experiences from single-family real estate into the commercial arena.

Exactly.

Yeah. Sounds like an excellent plan there. And you say that it actually has been, I guess, more lucrative and more of a wealth-building vehicle than what you had found in the single-family space.

Is that correct?

Yeah, that's correct. Instead of buying 8 to 12 single families a year, I could buy maybe 2 commercial buildings a year and still achieve superior results. So it's economies of scale. It's a time thing. Uh, you know, everything I read in the books and listened to in the podcast is true. The bigger asset is not necessarily more difficult to rehab or manage, uh, but the numbers are, are bigger.

Well, what are the risks in commercial as opposed to residential?

I think, you know, the, the bigger risk in the commercial side, especially the retail office side, is economics ups and downs. If, if 2008 were to happen again, my, my places would probably, uh, be difficult to lease. Uh, when COVID happened, I had just purchased my second commercial building. Extremely nervous about that. Everyone said office space is dead. I had just bought a large office building. So luckily that did not prove to be true. We fill tenants, we fill our spaces fairly quickly. Granted, they are mostly rehabbed office space and tenants can move right in. We see a lot of demand. So that is a big economic worry, ups and downs of that. That's why I like to hold residential as well, because people always need a place to live. So you're never going to have an issue filling your residential units.

Yeah, it's nice to have that diversity there. In terms of the office space and how you can mitigate those downturns, what are you looking for in the office spaces and in the retail spaces?

I mean, you know, we just look for a really great buy. If we get it at a really great price and I'm patient, there's so much room for things to go wrong where you have enough upside that it's going to work out for your investors and yourself. So I'm really patient on what I buy. I don't buy anything as It's, it's a substantial value-add type scenario. And another thing we've considered, which we haven't done, a lot of developers in our area and probably all over the country are converting these office spaces into residential or flex space. So that has been a thought in, in a lot of these buildings we buy is turning the upstairs into residential, keeping the lower level retail, and then you have some diversification within that asset.

How is it filling those mixed-use spaces in terms of residential? Is it easy to find that? Are people shying away from the commercial residential places?

In the last 3 years, our rentals have just been jumping off the page. Rent prices are up. People are eager to get them. And the same thing's happening, of course, on the sales price. You hear that with home sales going crazy, except for maybe the past couple months, things have started to change. But rentals have just been amazing. People are batting down the doors to get into our places. It's just really cutthroat, really competitive out there.

Well, that's good to hear. Adam, tell us how you manage your work and your family life.

So I have a 5 and a 3-year-old, 2 daughters. Prior to having them, my whole philosophy was, you know, work, work, work, outwork everyone else, and you can get ahead. And over the years, I haven't been at this extremely long, but, you know, about 11 years now, the last 3 years I've tried to bring that back a little bit because, you know, I've heard enough Whether it's on Instagram or Facebook, you see all these 90-year-old people who say, what was your biggest regret in life? And half of them will say, I worked too much. I didn't spend enough time with my family when they were young. So I try to remember that because I don't want to be 80 years old and have a great empire of real estate and not remember spending time with my family. So I know I'm going to have enough to be comfortable, to travel and do the things we want. Everything beyond that is not that important to me. So I still work quite a bit, but I definitely come home at a good hour. I spend good time with my family. And I plan on doing that until my 2 daughters are sick of dad, probably when they're in the preteen space. And that's when I can really go bonkers again.

Adam, how can our viewers and listeners get in touch with you?

So I am on Instagram, Adam the Investor. The website you can visit, you can reach me, all my details are on there, is cleinvest.com. So those are the 2 best ways to get ahold of me.

Adam, to share with us one of your major setbacks in life.

How'd you come through that time and what did you learn from that?

Well, I'd say I'd had plenty of setbacks, but in terms of real estate, the worst thing that probably happened to me in recent years was I was the defendant in a lawsuit. Without going into too many details, it was over a home we sold where I exposed myself by incorrectly filling out a disclosure statement and just not knowing exactly what I was doing in terms of protecting myself liability-wise. So it was a 2-year grind that cost a lot of money, a lot of time, a lot of stress and aggravation. We came to a I guess I would, it was, I would say an acceptable settlement. But now that that's behind me, I've really sharpened up my tools and in terms of liability exposure and getting things right. So I don't have to hopefully deal with this into the future.

Adam, I can totally relate and empathize with that litigation, no matter what side of the coin you are on, is a drain on time and energy, and I don't wish it upon anyone, but I'm glad you learned from that. Being in real estate, it may not be your last experience. So I've been told. Adam, it's been a pleasure. And enlightened investors, thank you so much for being with us today. I've enjoyed our conversation, and I know you have too. I look forward to being with you next time. Adam, thanks for being on our show. Thank you for having me.

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