Step 3: Spot the Gems

Welcome. This is the Insider's Edge to Real Estate Investing with James Nelson, the principal and head of Avis and Young's Tri State Investment Sales Group. In this program you'll learn game changing strategies to outperform the market. James will teach you how to source, execute and capitalize on the best real estate opportunities in New York and around the world. Now here's your host.

Welcome everybody to show number 118 of the Insider's Edge to Real Estate Investing. This is your host, James Nelson. I'm principal and head of Tri State Investment Sales at Avis and Young. Thank you as always for joining. It means so much to me. On this week's episode we're going to be talking about spotting the gems. Yes, what makes for an incredible opportunity. Continuing a series that coincides with my upcoming book and name of the podcast, the Insider's Edge to Real Estate Investing. And in this show, this is the fifth of a 12 part series, we're going to be talking about discovering properties that can produce returns which outperform the market. And so if you've missed the last few shows, in the first show, Rachel Hartman, my writing partner, interviewed me on my story. Then we talked about why real estate as an asset class over other alternatives. And then in step one we talked about what to buy all the different types of properties. Step two was creating the team to go and execute on those transactions. So now we're talking about how to find these opportunities which I believe is the most valuable part of a real estate investment. There is the old saying that the only thing you cannot change about a real estate investment is where you bought it. So you want to get the basis right and, and that is your value add for a deal. For those of you, and maybe this is your first investment you're looking to make. The value you bring to the table is the deal is finding that opportunity, bringing it to a partner who can help you execute on it. So today you're gonna learn why it's a great idea to ask about the seller's motivation, how to find deals that aren't readily listed and visible to the public eye and ways to build a great relationship with brokers who are an essential resource and, and can lead you to hidden deals. And this is not just a plug for myself and working with investment sale brokers. But yes, we do handle the majority of transactions in the market. But in addition to the properties we list, oftentimes there's other things that are in the pipeline or off market and you're cultivating a great relationship with an investment sales broker will help you find these incredible opportunities. So my writing partner Rachel Hartman talks with me about pursuing these off market opportunities, why neglected properties might be a great fit, and how to decipher sales information. In addition to helping with this book, Rachel has penned content for Fortune 500 companies and is a regular contributor for US news and world Report. So, so excited to be doing this book project with her. We have sent it to the public publisher. The goal is to launch this in January of next year, so stay tuned. It is on its way. So we're going to have a brief word from our sponsor and then we're going to get into this discussion on Spot the Gems. Before I do though, just a reminder, if you have not already, please connect with me at James Nelson NYC. That's a great way, especially on LinkedIn. Thank you to many of you who have sent your questions. I try to answer them on these shows. And thank you for recommending this podcast to your friends and sharing it, your subscription, your ratings. This is what helps others find the show. So it means so much to me, your support. Appreciate it. Again, we're gonna have a brief word from our sponsor and we'll get right right into the conversation on spotting the gems. A Different Approach to Putting Our Clients First Avis and Young's Tri State Investment Sales Group sells multifamily office, retail, development and specialty sales throughout the New York metro area. As experienced thought leaders in their industry, our 35 member group is available to help you make informed investment decisions by advising you on your current holdings or identifying new opportunities in the marketplace. Our one unified team is built on an industry unique platform which promotes unparalleled collaboration and teamwork. We share core values of hard work, integrity and expertise. We put our clients first, providing tailor made strategies to achieve superior results. Please Visit us at aytristateinvestmentsales.com and follow us on Twitter, LinkedIn and Instagram amesnelsonnyc to learn more. Welcome back everyone. This is James Nelson, your host of Real Estate Investing Live from New York and I am here with Rachel Hartman, my writing partner. We are working on an incredible book together and we are making really good progress. So we are, we are committed. One way or another we are going to deliver this book by the first quarter of next year. It's super exciting. The goal here is to give you the inside edge to real estate investing. So this is everything you're going to need to be successful, build your own portfolio. And so I'm just really so excited that we can share this information with you and be helpful. So I'm working with Rachel, who's got an incredible background and expertise and has written for some of the Fortune 500 companies and some of the top publications out there. So we've really enjoyed our conversations thus far. And if you have not already, go back and listen to the first couple episodes that we did together. We started with an introduction with the question why real estate? So why would you even consider investing in real estate? What are the advantages over, say, investing in the stock market? We then talked about what to buy, the different types of assets that exist, the different types of opportunities out there. And then in our last show, we talked about the team. Who do you need on your team? The professionals to make you as successful as possible. So today, now that you've got, you've hopefully bought in by now, you're obviously listening, so that's a good start. So hopefully you're open to the idea of investing in real estate. If you have not already begun to build your portfolio, hopefully you have a sense of what you're looking to buy and then you also know who to be working with so you can execute on those opportunities. So now, most importantly, we're going to talk about how to find those opportunities. So, Rachel, welcome back. Really looking forward to our conversation today.

I am too. It's such an amazing project and I think it's coming at a great time as well. There's so many shifts going on. What better time than now to make a change, learn about this space and go for it? You know, today's topic has to be one of your main areas of expertise. I feel like you could probably write an entire book on this subject. Just as I look at your past in your credentials, you know, you've seen or been involved with literally thousands of deals and I know you have a long list of awards as well. You know, just for listeners sake, you've been named dealmaker of the, you know, in the number one actually deal maker in New York City, an incredible honor. Also won the coveted deal of the year award. So clearly we are talking to someone who knows how to find the deals.

Rachel, thank you for saying that. And no, I did not write that. That was not that scripted. I didn't even ask you to say that. But I appreciate that and I would give full credit to my team for that. And as if, again, if you listen to the last episode, I can also attest for my personal business, there's nowhere near the amount of success, the number of sales it would not have happened for an incredible team. And you mentioned one of the awards from the Real Estate Board in New York for deal of the year. That is a team award, which again, would not have happened if it were not for the incredible people I work with. So thank you for mentioning that.

Exactly. It just further emphasizes our conversation from last week, actually. You have to build that team. So I'm really looking forward to this educational discussion as we dive into how you go about finding those opportunities, especially as we think about coming into it new. There's so much to be done. Let's take this step by step and walk listeners through. I know I'd like to start with, for example, when we talk about the process, let's look at what we mean when we're talking about residential properties, what we mean when we're talking about commercial properties. Is it the same looking for these or not? And let's talk about those differences.

You know, Rachel, it's a great way to start off because most, you know, most of our listeners, you know, if they've had experience buying real estate, it probably started with residential either buying an apartment, buying a home. And it is important there are similarities, but there's also a lot of differences. So it's really important to understand kind of the dynamics. Okay. So for residential and I've spoken to many of my friends here, not only who sell properties here in the city, but my, even my brother in law, Brian Amen, who is my broker as well up in Greenwich, Connecticut. You know, it's very similar in his market as well. You know, when owners want to sell their properties or when buyers want to buy homes or apartments, they work with brokers and it's a very efficient market. Right. You know, you have a multiple listing service that, you know, the cities typically have and if not, there's a de facto multiple listing service. So for example, in New York City, you could go to the Real Estate Board of New York. Rebny has these listings, you know, for their members who are the residential brokerage community so they can all log in to see where the opportunities are. There's rules if you are a member of rebny, just like if you were a member of the national association of Realtors, that if you get a listing, you need to make it publicly available to put it on that, that listing service within a certain amount of time. Right. There's also services like Street Easy here in New York where you could research listings. You might even have that down in Miami, if not Trulia Zillow. It is now possible for you to see what is on the market, I would venture to say, and I don't have the exact statistics, but I would say that 90, if not 95% of the homes are on the market, meaning on this multiple listing service. Or you could find that, you know, on a Trulia, on a Zillow. And even if it was for sale by owner, which is what the brokers call fizbos, those owners still in many cases have the ability to publish that listing on their own. Okay. To make it available. But what do all these situations have in common? The property is listed, it is public, it is out there for everyone to see. Which, look, if you are selling property, that is the way you want to sell, right? You don't, you know, there's this, you know, sometimes people say, oh well, if this is a quiet, you know, opportunity, it's exclusive, we can, you know, we might find some who will pay more because it's not available. I do not, you know, subscribe to that for residential or commercial. Okay. And I started in the business in 1998 and I started working for Massie Nackle. So I'm very grateful to Paul Massie and Bob Nacal. And you know, they understood, you know, very early on in their careers the inefficiencies of the commercial real estate market. And so they were really pioneers and they started the company back in 1988 and they said, look, we are going to represent owners to sell their properties to get the broadest exposure and we're going to do that. Back then we didn't have multiple, you know, the Internet, we didn't have, you know, blast email, but, but you know, maybe it was by multi facts, but you know, we said, look, we are going to put the information out there for not only buyers to see, but brokers to see. We're going to promote this in any way that we can. Right. So we've, you know, I've always believed that when you're selling, maximum exposure is the way to go. So for those of you who are listening right now who are thinking of selling property maximum exposure, make sure your broker is putting the property out there not only, you know, online, but also, you know, through a variety of channels. You know, you can see the stuff that I'm handling on my social media channels. But again, the idea is to get it out there to the world. Now conversely, when you're a buyer, right, you want to buy opportunities that are not widely distributed because you don't want to have to compete with the whole world. Right. So, and we can, we've discussed in the past, kind of the advantages and disadvantages of on and off market. And so, you know, I don't want to say that there's not great opportunities on market, but I think the point is, and to answer your original question in a very long way, and apologies, is that when. It's important to understand when you're buying commercial property, investment property, that unfortunately, there's not one place that you can go to with all the information. Sure. You can go to LoopNet. LoopNet, which is owned by costar, is the de facto multiple listing service for commercial. Okay, so you all could go on to LoopNet right now. You could search. Rachel, you're down in Miami. Search Miami. Search multifamily search. 5 million and under. You'll probably get 20 matches. I will probably tell you that a lot of those matches might not be real opportunities. The brokers might not actually have the listing, right? So it might be something they just put out there. Maybe it doesn't even have the address. And, you know, I do Love LoopNet and Costar, and I think that people work very hard to make sure the data is good. But still, it's. It's never perfect, right? But then there's so much product out there, Rachel, that is not on there. And you might say, why would someone not if someone is selling a property, right? Why a broker? Why. Why wouldn't they put it out there? Well, look, you know, the, the. The dirty little secret, I guess, of the commercial brokerage world is that, look, there are a lot of investment sale brokers out there who don't want to widely publicize the listing, right? And because they might want to keep it quiet, right? Listings in our business are currency, right? So I have an opportunity that is exclusive instead of just blowing it out to the whole world, maybe I'd rather show it to my five preferred clients who maybe they've given me listings to sell. So I'd rather call them first and say, hey, I don't need to blast this thing out to the whole world. I want you to buy it right now. If I'm a seller representative, I'm really not doing my job. But it happens every day, right? So it's really important to be aware of that, that there's not just one hub for commercial where you can see all the opportunities. And that's why it's really important, Rachel, to cultivate relationships with multiple commercial brokers. Because you can't assume that it's going to be out there. You need to be checking in with them. You need to be Calling them, asking them. And I know we're going to get into some of the tips of working with brokers, but I think it's really important to kind of establish the landscape because on one hand you could say, you know, James, this sounds impossible. You know, you're giving me a lot of work to do. Why can't this just be easy and all in one place? Well, listen, here in lies the opportunity, okay? The inefficiency in the market is where the opportunities are. Because those deals that you can find that are not broadly listed and not put out there could be the opportunities where you can buy them. Right. And when you're the buyer who has that inside relationship with that broker, it's good to get that call. And you know, look, sometimes there's also listings that the seller doesn't give the exclusive. Right. So if I'm the broker and they say, look, just bring me a buyer. It happened to me last night, I was on the phone with the family and they say, look, just bring me a buyer. You know, so look, they, they have not engaged me to go out and do a full marketing campaign. So I'm not going to, you know, blast something out that I don't, you know, control and have all the information in that situation. Yeah, I'm only going to make a couple of calls. And for those of you who are listening, you want to be one of those phone calls. So sorry, Rachel, before I burn up all our time, I'll pass it back to you. We've got a lot to go over.

It is just fascinating.

I love it all.

These are such great points. I think it's really important to point out that it's not always clear. I think by instinct we often think I'm going to start a search and we're online. So it's really important to point out that it might not necessarily be that way. Doesn't mean that it's worse. Could be actually those better opportunities. So we've talked about hitting the neighborhood, building your team. It's knowing people, obviously working with brokers. Have I missed any other ways to find those great opportunities? And are there some that you prioritize?

Yeah. So I think we might have talked about it on an earlier episode how important it is to physically walk the streets, get to know people. Right. This is not. If you want to be a successful investor, you can't just do this by running searches on Google. You just, you can't. You need to be out in the neighborhoods, you see things and, you know, maybe it is a for sale Sign, but maybe it's a for lease sign. We talked about where, you know, you call the broker and you say, look, I know you've been trying to lease this store for the last year or two and you know, the reason why it hasn't rented is because there needs to be work done on the space. Right. Would the owner consider an offer? Right. You might uncover an opportunity just because you saw something. And again, that property's not even out for sale, but because you made that call, you know, and you would never have seen that if you weren't out there. You know, we talked about, you know, also reaching out to people in the neighborhood, Right. You know, maybe it's talking to the super on your block, hey, do you know what's going on with that building, you know, down the street? Why is, you know, it's been abandoned for years, who owns it? Right. And trying to get that information. We also talked a little bit about reaching out to owners directly. There is nothing stopping you, Rachel, from calling that owner directly and saying, you know, hey, I live down the street and I, you know, I noticed it seems like there's not much going on at the property. Would you consider selling? Right. And this is a plug for my friends over at Reonomy. You can subscribe to reality and you can find that owner's information and call them. Right. I mean, on the residential side, it happens as well. I know when we were looking to buy a house and there was very little on the market, we put a couple letters in mailboxes. Right? That works too. If you listen to a recent episode I did with David Shorenstein on sourcing, he had a whole team of interns sitting there writing handwritten letters to send out saying, hey, save money on a brokerage fee and sell to me direct. And it worked. So again, it's getting out there. This is really an in person business. There are other ways to find listings than online. Again, we talked about the brokerage, which is still the majority of opportunities, but for those direct owner opportunities, it's really reaching out to them directly and seeing if they might be open.

Excellent. Great points. So when we talk about working with brokers, let's walk listeners through a little bit what that means. Do you have an ongoing relationship with one broker, multiple brokers? How do you go about building those relationships and really making them a success?

Right. And so this is also where it really differs from residential. So if you're buying a home or an apartment, you work with one broker, right? You, they, they, you retain them, they go out, they're your representative, they show you everything that's out there because again, they have access to everything out there. Okay, but the fact that, you know, no one broker has access to all the commercial listings, you need to work with multiple brokers. Okay. And you know, unless if you are a buyer who has a very specific requirement, right. So if you're an end user and you've got a restaurant and you need someone to go out and find you that restaurant, it does happen occasionally in commercial that you would retain an exclusive buy side broker. Okay. That can happen again if you have a very specific use or for you, 1031 buyers out there, if you have, if you're looking for a triple net property across the country and you need that advisor to go out and represent you to find opportunities, do that work for you? We see a lot with that. But what we do here, you know, I can count on one hand the time that we've represented buyers for specific requirements because what buyers, especially investors do is they work with multiple brokers. So they're calling me, but they're calling 10 other brokers the same day if they're doing their job right. So there's nothing wrong with that. You know, in fact, a lot of my friends in the business, you know, will send buyers back and forth to each other. You know, hey, I don't have anything right now that matches your criteria. But, but you know, speak to David. Right. And so there's nothing wrong with that. You need to cultivate those relationships with multiple brokers. And I know we're going to be talking about some of the ways to do that. But you know, I would also go back and listen to that podcast that I did with Bo Barry on multifamily investors who dominate. And he talks a lot about this as well as how to cultivate those relationships with brokers. And again, the goal is to be their first call.

Excellent. I love those thoughts and I think relationship is so important. We've talked before about the value of having that team approach to this. And you even mentioned earlier in this conversation, you know, the right team is the team that can take you places. So let's go over some of those tips on building relationships with brokers.

Perfect. So you know, the first thing is routinely connect. Okay. So don't expect that you're going to reach out and call a broker, ask them what they have for sale. And I mean, sure, if the broker's doing their job, they're going to add your contact information to their database. Hopefully you'll get on their email List, you should ask, you know, send me what you have in the future. But you know, a one time conversation is not going to certainly lead to, you know, a relationship where you know you're going to be the go to. You need to consistently reach out, you need to introduce yourself and check in with them. Don't check in every day, maybe don't even check in every week, but you know, every couple of weeks. Hey, just checking in, wanted to remind you, this is what I'm looking for. I've got my partnership all lined up. We're looking for opportunities. You would be surprised how few buyers do that. Right Again, and this is the opportunity, this is your inside edge, is you know that when you're doing this outreach you want to be top of mind, right. So you might call that broker and they say, hey, you know, I was thinking, thinking of you the other day, I've got this opportunity, I'm glad you called. Right. And so you just, you want to be there and just continually reach out to see what they have. I also say don't make it a one way street, right? So if, you know this business is about relationships, if all you ever doing is calling the broker saying, hey, send me your best deals, right? Maybe you were looking at something down the street for one of my listings and it was off market and you passed on it, so you don't want to buy it and you say, James, hey, by the way, why don't you call this owner? It's not for me, but sounds like they need help. Maybe it's a listing like that's a huge, you know, that's an incredible thing if you can make that introduction for a broker, right. And that broker is going to remember you, right. So I would say also, you know, show that you are credible, right. So that goes back to your team, right? And if you have the right team and whether that's having the right attorney, you know, the right, you know, broker on board. I mean again it's, it's showing that you are ready to transact and ready. I think also working with brokers, you want to show that when you find a good opportunity that you are willing to move and willing to strike and you know, especially for deals that are on market. So if I've got a listing, I'm pulling materials together and I'm about to blast this out to thousands and thousands of people. But hey, Rachel, we've been talking now for a while. Hey, I just want to give you a heads up. We're about to, you know, go live with this property on the Upper west side. You said it. What. It's what you were looking for. You know, 50 units. You know, I've got a rent roll. I don't have the big fancy book. But, you know, maybe you get an early look at that and you. You give me an offer right off the bat. Look, I'm really, you know, you don't need to go to market with this. I'm ready to transact. Here's my bid. You know, go quickly, right? And I actually like written offers. I know there's a school of thought where. Because a lot of the stuff we do is verbally, where you might just say, you know, james, I like the deal at 15 million. I know you're looking for 18. Let me know when, you know, when we get closer. That's okay. I'm not saying, you know, if you're at 15, and I'm telling you it's got to be 18, you know, you don't need to generate a written offer for every single thing that you do. However, what happens is when you put that offer out there in writing, and some buyers don't like that, right? They think, oh, well, my offer's going to be shopped. You know, the broker is going to take my offer, show it to someone else. That never happens. I mean, well, maybe it does happen. It doesn't happen if you're dealing with a reputable broker, because if that broker does it, they're never going to get another bid from that person again. But the point is, when I have that written offer, like, two, three months might go by and I might say, hey, I know I said the deal was at 18, but that 15, actually, if you're still there, that looks pretty good. And I know, because I've got your offer and I've presented it, you might get that phone call because there's, you know, you're documenting that, I think. Also ask questions, dig deeper, right? So when you're calling me and you're saying, hey, James, what do you have available? And you say, you know, that's good, but I'm really looking more for this. Can you. Is there anything you can think about? You know, whether, you know, maybe you don't have it today, but maybe you're pitching it now or anything, maybe you were selling it before, but it didn't trade, maybe the owner would still consider an offer, like, you know, jog the broker's memory, right? There's always another opportunity that's somewhere there in the mental Rolodex. So, you know, you want to dig deep and ask those questions. You know, just like I said, in some cases you want to offer early. Sometimes it's better to be the last buyer and so to really wait. You know, in that situation where I gave you, where there's a huge disconnect in pricing, you might want to wait, but you're going to stay in touch with that broker. You know, hey, any, any movement in that price, you know, any more flexibility? I love the asset. I just, you know, I can only get to this number. I think the other thing is to be creative. You know, sometimes, you know, Harry Helmsley was this famous New York real estate investor and he always said, you know, the saying was your price, my terms. So, you know, sometimes it's not all about the price. It could be, you know, asking the broker, hey, can we get creative? Is there a way maybe the seller could give me some seller financing? I could get a little more aggressive in price or hey, does your seller really need to close in the next month or two? Maybe if you could give me some time, I could get a little more aggressive in price. Right. And then the following thing is just to kind of engage with them online and like I said, get on their mailing list, but follow them on social media. I mean, so many brokers now are showing there's stuff on whether it's Instagram or Twitter or LinkedIn. I mean, I will tell you now that I get better feedback for my listings when I, you know, when I put something up on Instagram as opposed to doing a blast email.

That's excellent. I also find it has to be interesting from your experience too, to see how these have changed and developed over time. You know, you bring up Instagram and that's certainly an excellent way to connect. Now, that wasn't necessarily available before. I know in the past we've talked about different asset classes. Classes. We even went through those main property types of multifamily retail office development. I'm curious from the specialized perspective, if there are different approaches to looking for those different property types. For example, do brokers tend to specialize in one area? Not necessarily. Should you be carrying out a specific method if you're looking for multifamily, that doesn't necessarily apply or not. I'm curious on your thoughts on that.

Yeah, it's another great question. And I would say most brokers out there try to be generalists. So they try to do different things. And sometimes that's a good situation. Especially when you have someone who's maybe predominantly a multifamily broker, but they have an industrial deal fall in their lap. And maybe you're an industrial buyer and that broker might not know how to price it. Right. And so that could actually be a good opportunity. You might say, hey, I want to buy a property from the best broker who knows everything about multifamily sales. They might be too good at what they're doing. They might price that listing to perfection. They know all the people to call. Whereas if you get that broker who isn't so experienced in that space, they might not know kind of the logical players to go to. And that might be an opportunity for you to buy at a lower price. I also love the broke the broker mismatch. When there's a residential broker who says, oh, this is amazing, I just got this 20, 30 unit apartment building. But they're selling apartments, they don't know what they have, they don't know who to call. And again, that can be the opportunity where as an investor and look, you might say, James, that sounds like you're taking advantage of the situation, but we're here talking about giving the inside edge. Right? So you want to know how to be successful. How do you find these opportunities? And sometimes it is going to that broker who does not necessarily know what they're dealing with. Right. But yes, most, you know, you'll find that as many generalists there are certainly specialists and you know, there's positives to dealing with them too. They know everything about that property, the good, the bad, the ugly. They know how to vet out opportunities. You know, they're not going to take on listings at sky high prices because they know the reality, they know where it's going to trade. Right. And so, you know, I can make arguments for both. I think what's interesting also, and I kind of already alluded to this about finding opportunities out there is, you know, sometimes finding leasing brokers. So, you know, you might want to buy apartment buildings and you're talking to the multifamily brokers in your area. But getting to know the rental brokers too, right? They might have clients, you know, hey, you know, I've been working with this family for a while, I think they're going to sell, you know, great. You know, let's. You can be the broker on the transaction and you can continue to rent the apartments. Right. And so that might be another way to find opportunities that you haven't even thought about. Just like approaching that retail leasing broker on selling the whole building. Right. So different ways to approach it, for sure.

Exactly. Different approaches. And it doesn't have to be a win versus lose situation. I think there can be ways that everybody benefits in a certain way. Even the example you brought up of the broker selling something that's outside of what they tend to specialize in, that actually makes it easier all around for them too. So I definitely see benefits there. I want to point out something when you mentioned working directly with a seller, I think that's a great and interesting method to think about. I'm curious on how, as we think about those who are new in the industry, how when you're working directly with a seller, can you find properties that really have that value? You know, we've talked about a team and I look at this and I think, are we actually dropping some of the team off when we work directly? And then how do I know if I'm getting a great deal if I'm working directly with the seller?

Yeah, I mean, just because it's off market or just because you're buying from the owner does not mean that it's a good deal. In fact, there's a risk to doing it. Right. A brokered transaction. That story that I gave you where hey, I'm at 15, but you're at 18, maybe it took a marketing process to educate that seller to realize that 15 was a good price. Whereas that off market seller who doesn't have that education might just say, you know, Rachel, I'm not selling unless if you give me 20 million. So just because there's not a broker, that doesn't mean that it's a steal. Right? So that's why it is important for you to understand how to underwrite. Right. And how to value. You cannot expect, you know, that the broker is going to do your job for you. When, even when I'm brokered listing, you're going to get a broker set up, right? It's going to have the income, it's going to have the expenses, right? You're going to see a lot of projections that make the numbers look really rosy. The expenses are going to be very thin. You know, you need to understand what it costs to run a building. And that's why when we talk about the team, it's like, you know, you need, if you haven't done this before, you need to be working with a managing agent. You know, hey, can you tell me what it costs to really run these buildings? What are repairs really like for 20 units? What, what? Talk about heating costs, right? What I've got oil or I've got gas, what is that going to cost? You know, in really understanding, because most of the time you're going to see projections on this stuff. So you need to understand what it really costs to run a building. You also understand, you know, what are the achievable rents here, Right. Everyone loves and we talked about value add deals and adding value. Okay, so that's great. So working with a rental broker to say, okay, well this owner is only, and I put in quotes, you know, because I'm talking to a New York City audience now, only getting, you know, 2,800 for a one bedroom where, you know, if you put in proper work, maybe you get 4,000, right. But then obviously then you need to understand how much it's going to cost to renovate that apartment, right? So to do all this, you need to understand how to model properties. So whether it is, you know, going, and there's a course called Adventures in Real Estate that you can go and get modeling courses. There's also a book, the Art of Commercial Real Estate that kind of takes you through some of the modeling and you know, or taking a course, a class, right? So if you're here in New York, it might be taking some, some classes at NYU or Fordham or Baruch where you're going to understand how to underwrite properties. So, you know, again, we are talking about investing in real estate here. You do need to understand the numbers behind this, right? Unless if you're, you know, you've got this massive portfolio and you can afford to have an analyst, a full time person who's going to underwrite. But yes, you need to come up to your own assessment of value, right? So you're going to underwrite it for your business plan, right? So your, your valuation might look radically different from that condo developer, right? You might say, hey, I want to just improve these apartments and rent them out and maybe that, maybe you're going to get an outbid on that property because you're competing against a developer who's going to sell condos. And maybe that developer is right or maybe that developer is wrong, but you don't want to buy that property on a condo valuation when you're only going to do rentals, right. Does that, does that make sense?

It does. It's excellent. You know, you, we touched briefly on being that last buyer. So I'm curious, you know, we gave an example of offering 15 when 18 was offered or was the original price and then it came down, you know, to closer to 15 and then that buyer could get in the space. So I'm curious when we talk about the advantages of Being the last buyer, if it's significantly on price that you might get a lower price, or if there's other ways that that value can be added by being that last buyer.

So. So I love these questions, and it is important to understand the landscape. So I don't know if we talked about this on previous episodes, but if we did not, it's really, really important to understand seller motivation, okay? That is the number one thing. If you do not know why someone's selling, then you should not be buying the property. Right? Because that whole idea that I'm going to wait, try to wait the seller out if they're a discretionary seller, right? Which is someone's like, hey, I bought the deal for 10 million. If I can sell it for 20, great. You know, you're never going to get a good deal from that person. Okay? But if you're dealing with an estate sale, okay, so let's now say this is a family, and maybe they don't understand values of real estate. And they've started at $20 million, right? Because they just, you know, they interviewed three brokers. One broker told them 10, another told them 12. And then the third broker said, 20 million. Hey, why not? Who wouldn't want to ask? 20 million. And it happens, right? And so, you know, but, you know, it's an estate, and, you know, they're going to trade because the family does not want to have anything to do with the property. I just told a story of a sale that I did last year. Actually, it was in 2020, in the deepest, darkest days of COVID and the pandemic. I mean, and we didn't know what was happening. And, you know, before, you know, right before March of 2020, before this all happened, we had a contract out on an apartment building downtown for $32 million. Covid hits, you know, everything was off the table. We had an estate that had to sell. They had to pay their estate taxes, and the building was a mess. It had issues that, you know, Con Ed was in there, had turned off the gas. I mean, it was a real problem. And there was a buyer who said, look, I'll step up and I'll close for $22 million cash, you know, on the spot. And, you know, that was, you know, 60, 90 days. So if we were not dealing with an estate, you know, would the discretionary of seller have dropped $10 million in 60, 90 days? Absolutely not. Right. But they needed to sell. And by the way, they very. I mean, who we didn't know back then, if it was the End of the world. I mean, who knows? I mean, 22 million could have been more than they could have ever gotten and they had inherited it. The property had been in the family forever, you know, so, you know, for them it was the right move at the time, but it was because of that motivation that they were willing to make that sale at that time.

Great points. That's so helpful. You know, you mentioned 60 to 90 days, which makes me wonder what's typical for timelines when it comes to deals. Maybe. Maybe I'm asking the wrong question. Maybe.

No, it's a perfect question. It's a perfect question. And commercial, it's a little tougher than residential because on residential you have that days on the market. Everybody knows once you go on the market, the ticker starts. So, oh, this has been on the market for 672 days. This thing's a white elephant. Why isn't this selling? The funny thing about commercial is no one tracks this. No one really knows how long a property's been on the market. And it's very rare that I get asked the question, hey, James, how long has this been on the market for? What I will tell you, Rachel, is the really good stuff goes really quickly, right? We've had situations where we've brought to market and closed within two weeks. Two weeks from start to finish, right? Because the buyers, you know, again, we had to move quickly. There was a situation where the property, you know, if the seller didn't sell it, they were going to get foreclosed on, lose the building. So they said, look, whatever you can do. This is my minimum to get out from under. Bring it to me, first one wins. And so we just put it out there at this incredible price. We had two dozen offers within the first day and it was who could step up and close the fastest. So for something really good, you need. And that goes back to why you need your team in place. Because when the right opportunity strikes, you need to be able to move. And you might not have time to go and get financing and go get approved by a bank in 69 days later. So that's why when you hear all cash transactions, all cash transaction, what that means for most people is non contingent on the ability to obtain financing. So you're willing. And this happens in residential too. And it can be a way, if you have the ability where you can just, you know, you know, you're going to get to find the financing to buy this, or if not, you've got enough money in your bank account to truly buy it all Cash, you say, I'm all cash. I don't need a financing contingency. You know, I will tell you, and this is obviously market specific, but in New York, if you come in and say, hey, I need a financing contingency, you'll get laughed at. No, you know, you better be ready to bring a hard deposit day one. And sure, you can go get financing, but if you're not successful, you're going to lose your deposit. So, I mean, there is certainly risk here. So you got to, when you get into these situations, you need to understand that you can perform. Okay now outside of New York. And I'm kind of, I'm going to get back to your question, but I got to finish this arc because it's important. You know, the question also is, is there due diligence in this contract? Right. So due diligence is a study period in the contract where you can actually go in and vet the opportunity. But if you don't like what you see, you can get out of the contract. So most of the buyers listing right now, you know, again, you're not going to be able to get away with it in New York. You probably wouldn't be able to get away with it in Miami. But if you're buying in not to pick on Cleveland, you know, a secondary or tertiary market, it's standard to get 30 to 45 days. So typically the way these things happen are, okay, I'm going to put up a good faith deposit of $25,000, maybe it's even for a $10 million deal, just to show that I'm real. But it's fully refundable for the first 30, 45 days until I say, okay, I'm ready. And now I'm going to put down my 10% deposit. So this is a long way of answering your question that the time it takes to buy and transact is really market dependent. It's really supply and demand. Because in New York, if you have a lot of interest, which is tough when you buy, but it's great when you're a seller because you have that liquidity from start to finish. I mean, I said the shortest could be two weeks, but on the longer side it's probably six months. The broker is going to take the listing out the market for six to eight weeks. They're going to call for bids, you're going to sign a contract which is going to take a couple of weeks to negotiate and then you'll get hopefully 60 to 90 days to close when you can go and get your financing Secured, even though the process is not contingent. Right. But you still have from start to finish, you know, several months. Right. You know, if you're in a secondary tertiary market, you might be able to take that out six months or a year. You might say, hey, I'm going to buy this, but I will only buy this if I can get certain approvals. You know, right now you've got a commercial building, and I'm only going to buy this if I can get it residential and I need to go in front of the town. Now, again, it's all about the competition and the demand drivers. If I'm a seller, I don't want to give you contingencies. I don't want to give you outs of the contract. I don't want to give you time while I have to wait. And I don't even know I have a deal. But if you're the best buyer and Rachel, this might be your strategy, maybe say, hey, I know you got offers for $3.2 million, but I'll give you 3.6. But I need six months and I need the ability to get approvals. Because if I get approvals that I can, I can afford to pay you three, six, I can pay you more money. Right. That goes back to the Helmsley, Harry Helmsley. Your price, my terms. Right. So very market dependent, though. So, you know, it could be weeks, it could be months in a few cases. I've actually done transactions that took years to complete.

Wow. So it can really be across the board. I think it's key when you say, keep in mind that the good deals, the great deals tend to go fast. I think that's important to know. And it also plays into some of these other things that we've talked about. Know the market, know the people, build those relationships, know what's out there so that you can act and are ready to act. I think especially when we talk about moving fast, I see potential risks, including that overpay. Now, I know you brought up recognizing the seller's motivation. There's the due diligence process. So not necessarily saying that we haven't covered it, but I'm curious if there's other general tips that you give to make sure you're not overpaying for a property.

So it's really important because I don't want everyone to hear you're going to listen to this and say, the great deals happen fast. If I see something, I got to jump on it. And you can also make tremendous mistakes doing that. Okay, so if we need a warning on this or a caveat, it is really, really important that you understand the asset and you can do what you want with it. I give that example where, and I see this all the time, where I get buyers and they come and they say, oh, I love this office building, I'd love to do residential condos. Well, guess what, you don't have the zoning for that. And I tell them, because if not, they're going to find out anyways. They're going to, you know, we're going to go back and forth, they're going to make a bid and then their attorney is going to get a hold of it and they're going to say, what are you thinking? You can't, you know, so it's really important. You can't skip the important steps to understand, you know, especially you know, if you're buying, you know, as is, where is that's, that's that hard deposit day one. So look, if this is your first acquisition, right, you know, maybe the answer is, you know, New York is just too fast to market, it's too competitive. I'm going to start maybe outside the city. I need a situation where I can have 30 to 45 days due diligence, where I can take the time to study it to make sure that I can do what I want and raise the capital or get the financing. And if not, I can get out of the deal, not lose my deposit. But if you are ready to really jump in and you see this incredible opportunity and you need to be all cash and non contingent to win, you better know what you're doing. And that is really, that's why, you know, stressing, you know, the people in this business and having the right team. You know, I've been doing this close to 25 years. I just know the right questions to ask. I just know I can look at it, I can look up on my screen, I can understand what are the right questions to ask, right? And what you need to know their property diligence that, you know, if you have a transactional real estate attorney where all they do is buy and sell buildings and you know, help their clients get financing, they understand what are the due diligence items, what are the things you need to do in a lease review? Right, Send me copies of the lease. I need to look this through, you know, because God forbid you buy a property where, you know, you think you're getting this great opportunity because this cafe is paying half of market, they're paying you 5,000amonth and you've got a tenant in your back pocket, it'll pay you double. But then you find out that the tenant has a right of first refusal or they have an option to extend. Like, you got to really be able to look through, you know, the leases and understand what you're getting. You know, certainly understanding the condition of the building. You know, it's not like residential, where you get, you know, the seller gives you kind of a disclosure form, right? Where, okay, this is all you need to know about the property. I replaced the roof three years ago. I did the boiler. And. And hey, if they're wrong, you know that. Sellers on the hook, right? You know, these commercial sellers, they're going to say, hey, that's your problem. This is as is where is. But you could ask them, okay, I want to see documentation, right? And I want to see, you know, where is that? Show me when you did that roof. Show me that roof warranty. And by the way, if they misrepresent the information, then, yes, that. Then you've got recourse. But again, the burden to do the diligence is really on you and your team. So it's a long way of answering, yes, there are mistakes of moving too quickly because you can skip some of these vital steps.

Exactly. They're really important steps. And I think in the book, you do a great job of laying out the whole process. You know, it's step by step, learn all these things, do your research, know what you're doing, and then move forward. So I feel like you give listeners and you'll be giving readers those tools that they need to go about and do that. My last question that I wanted to go over, you touched on this earlier. You said that it's important to have credibility in this space. I certainly agree. Do you have any tips on ways that especially newcomers, can help build credibility?

Rachel, you are really bringing it home strong. I mean, this is, you know, these questions are so. Are so dead on because it is so essential to maintain credibility in the market. Right? Because these, again, if you are relying on these brokers to give you great opportunities, if you don't perform and you don't deliver, or worse, you retrade, right? Your reputation is everything in this business. And if you don't think, brokers don't talk about this like, because that broker is putting you on the line in front of their seller, and they're likely vouching for you, and if you let them down, I mean, that's bad for everybody. So, look, if you're starting out, there's nothing wrong with that. You know, but you don't want to over promise and under deliver, right? So the last thing you want to do is throw out an offer that you can't perform on, right? And look, there's this whole notion of tying up a property, right? So don't listen to this episode and say, oh, James told me that I could go tie up a property with $25,000 in 30 to 45 days. I can get out if I don't like the deal. No, no, no, no. If there is something materially wrong with the property that comes up during your diligence, yes, you can get out. But if you just didn't have your act together and you couldn't get the money together, so you just use that as, you know, a rip cord to get out of the deal. You know, again, do you think that broker is going to show you another opportunity? So that's why, especially if you're buying in these markets where you haven't done it before, because when I'm interviewing you, qualifying you as the buyer, you can say, you know, hey, James, I love your building on one two three Main Street. I'd love to buy it. Great. Rachel, tell me, what else have you been working on? What else do you own? I don't own any other properties. Is my first acquisition. All right, well, that's okay. Let's talk about it. What are you working with? Well, I just sold my tech company and I just cashed out for 10 million bucks. All right, now we're in business. Let's talk. Or better. Hey, this is going to be my first acquisition in New York. For that reason, I am partnering with Joe Smith. And maybe you've heard of Joe. He owns a dozen buildings. This is exactly what he does. I, I'm, you know, I'm running down some of these opportunities for them. I'm bringing them in, we're ready to transact at the right numbers. Okay, now you can leverage someone else's track record, right? Because that's really important. Again, if I'm going to put you in front of one of my sellers, I need to understand that you have the ability. The other way, if you want to call it getting pre qualified, and this happens on the residential side, is working with a mortgage broker. Right? So if you had that good fortune to just sell out of your tech company. Okay, well, unless if you're going to just put it all in cash, I mean, one of the beauties of real estate is leverage, right? And financing. And we're going to get to that in future episodes. But Speaking to that mortgage broker who can also vouch for you and say, look, I've spoken to Rachel. You know, she's got a credit line with this bank. We're ready to go. We're looking for very conservative financing. You know, 60%. We can achieve this. We're ready to go. We need 90 days to close, because that's, you know, we're dealing with a conventional lender. That's how long they take, you know, but that way we can give you a better price. If you're telling us we gotta close quickly, then, you know, we can do that. But our price is less because our cash has value. If you're gonna make me close all equity, you know, so those are the kind of things to show you're real. And then, you know, last but not least, it comes back to your team again, you know, because if I know you're represented by one of the most active attorneys you know, in town, and oftentimes they'll call me, hey, James, I got a new client. We're ready to go. We got money dedicated. You know, let's, you know, help them out. You. You know, that we can transact. So, you know, that that's why it's really important to have a team to vouch for you as well.

Exactly. I love it all. So, in closing, you have such a great collection of podcasts. I'm curious if there's one you recommend for listeners or an example that really hits home, what we've talked about today, finding those great opportunities.

Yeah, you know, I've got to go back to David Shorenstein's episode of sourcing, because the guy is just a machine, and he racked up over 100 properties in Brooklyn in a matter of years by this, you know, this process and reaching out. And it was really remarkable. But look, there's other certainly great episodes out there. Stephen Kashanian from Closed with a K. You know, really, really smart in the way that he has gotten out there to do volume. And we haven't even talked about this, but one of the things that Steven does very well, and I was actually on the line, and I got to get him on my podcast shortly. Sean Lefkowitz from Davion Holdings. What they do a tremendous job of is being top of mind. And, yes, they're reaching out, and we're in conversation, but they're out there. They've got a social media presence. They're putting out content. Hey, we just bought this. We just bought that. I mean, brokers see that. They say, first of all, they say, wow, they're buying the properties that I'm selling. You know, I don't need to call a thousand people. I can just call them, right? So, but they're also, you know, they're putting that out so they get that, that first phone call. So, yeah, I would go back and, you know, listen, listen to those episodes and, you know, all these buyers, if, you know, the people I've had on, you know, on my show, you know, these are accomplished, seasoned investors and they, you know, the biggest part of this, and I know I've said this on the show before, the only thing you cannot change about an investment is where you bought it, you know, at what price. So, you know, and not that, you know, Jordan Vogel, and I love his podcast, too. He'll tell you, you know, James, there's not one deal that I've ever bought where I didn't think I overpaid for it. And look, he certainly say I've made mistakes and even you can be the most savvy investor out there. But this, you know, real estate is still cyclical and sometimes it's timing. But, you know, in large part, the reason why these investors are successful is because they know how to buy great opportunities. They know how to create value. So, you know, you're buying a property, maybe it's even near the top of the market, but it's imperfect, right. And it's got issues. And because you've been able to add value and grow the cash flow, even if you can't sell at the same low cap rate that you bought it, right. Because you've added so much income. Right. And bottom line, that when you go and sell it, you still, you know that that's going to give you the advantage when you're looking to capitalize that. So a lot of great stuff to think about. Rachel, this has been a ton of fun. I'm really enjoying going through the steps here, and hopefully our audience is getting a lot out of this as well.

Me too. Thanks again. Thanks for the great discussion and we'll look forward to the next steps.

Perfect. I'm going to give one last shout out and I referred to his book before, but the book that you can find the link to on my website, James Nelson is Mastering the Art of Commercial Real Estate Investing, how to successfully build wealth and grow passive income from your Rental properties by Doug Marshall. So if you look up Doug Marshall, I think he was on my second and third podcast and he has one of those courses, Remember I said it's really important that you go take those courses, learn how to underwrite so you can do that with Doug Marshall. Adventures in Real Estate have a program as well, but I wanted to make sure that you had that information here. So so that's it for this week. This is your host, James Nelson. I'm principal and head of Tri State Investment Sales of Avis and Young, and thank you as always for tuning in and subscribing your comments. I really, really appreciate them. It's what helped others find this show to become the most successful real estate investors out there. And if you have not already, please also connect with me at James Nelson NYC. Whether it's on Instagram, LinkedIn, Twitter, a lot of content, a lot of opportunities out there as well. So really look forward to being in touch. Until next week, this is James and Rachel signing off.

Thank you for listening to the Insider's Edge to Real Estate Investing. We appreciate your subscribing and sharing with your friends. If you haven't already, please connect with James at James Nelson NYC on LinkedIn, Instagram and Twitter. Please also visit jamesnilson.com where you can find the show notes and other episodes along with an exclusive video series and other helpful resources so you can gain the Insider's Edge to real estate investing. Until next week.