The Importance of Due Diligence in Closing A Real Estate Deal

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 153 of the Insider's Edge to Real Estate Investing. This is your host, James Nelson. I am principal and head of Tri State Investment Sales at Avison Young. Thank you as always for joining and listening. And for those of you who are not taking me up on the offer yet, if you email annames nelson.com that's a N N E at james nelson.com Send in a copy of your review either on Spotify, Apple, wherever. You're listening to this now email along with your address we'll send you a copy of the book of the Insider's Edge to Real Estate Investing. This is my gift to you. I am really excited to share this with you if you have not already taken a look. And for those of you who have already purchased the book, appreciate the sport and also you're sharing it with friends. We are watching and as the book is certainly growing in popularity, we're seeing sales increase on Amazon as well as out in the various bookstores and that's because of you. So I really appreciate everything you're doing on that front to spread the word and more importantly, I'm happy that this is giving you the insider's edge to gain the advantage to outperform the market. So if you didn't hear the show last week, we were I gave you an excerpt from my interview with Jeremiah Shamus, a good friend of mine who is an investment sales broker for Colliers up in Toronto. But we collaborate, especially on Twitter. We did a Twitter spaces and for this part of the episode we're going to be talking about the importance of diligence and closing a real estate deal. So here we're talking about once again having a strong real estate team which is so important to making the best investments and how to find trusted professionals to save you time and money. We're to going to be talking about insights on financing options for real estate projects. We're going to talk about equity distributions. We're going to talk about different asset classes such as multifamily, retail, office and development and including pros and cons. We're also going to talk about how to diligence a property how to build a great investor database Find off market deals There's a lot that we're going to be covering today which is really going to help you again step up your investment game or if you're new to this, it's going to tell you exactly how to do this. So we're going to have a brief word from our sponsor and we'll get right into that interview.

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 our 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. So when I think of knowing what to look for, it starts with knowing your market and specializing it. So I'd love to hear, you know, what were you thinking when you wrote this? And maybe there's a good example when you were able to see a deal, know what to look for. Everyone else passed over the deal and you and thought you know, this is something we should buy because of X, Y and Z.

It's a the question when looking to add value, right? So unless of it we've got some listeners out there who are saying you know, I just want cash flow, I want my 5, 6% return. I'm gonna go buy you know a drugstore or a bank and just you know, make a return. The way that you can really outperform the market is to add value to buy that property that is tired, mismanaged. But then yes, understanding how to reposition it right because just because you love incredible design and these condo level finishes, what you don't want to do is over improve the asset. So it is so important to understand what are the demand drivers. Who's the audience? Is this a shares market where I'm going to get a bunch of roommates then hey maybe I want to take that oversized one bedroom and converted into a two bedroom right? So but really understand, you know, look at the best product in the market that's driving, you know, the best returns and you know, again, certainly making it your own, having, putting your signature on it, but not over improving it to an extent where you never get it back. So I think, and I see that done all the time, but you know, there's also ways to add value that are above and beyond the property. And look, it could be the ability to redevelop in the future. I remember I sold one property and it's in the book I talk about Margaret Stryker, who I've sold a bunch of properties to.

I was going to bring that up.

Yeah. She was buying this little mixed use property from me and I said, Margaret, why are you looking at this? I said, aren't you doing bigger stuff now? She says, james, just, just wait. And she didn't want to tell me because she knew, you know, she kept her, her business plan to her vest because. Close to the vest because she didn't want to share it out there and then have all the competition. No. So she closes and she says, james, I found a loophole in the zoning text where I can build a carriage house. I can build a whole nother building in the rear yard. I said, wow, I missed that one. So you know, Jeremiah, I'm sure as the broker, you know, you do the same thing. You try to paint that upside potential, you try to tell the buyer, okay, this is what you can do with the building. But even sometimes, you know, brokers, the best ones out there, you know, we're not always on top of, you know, the latest and things that you can do to improve value. So it's, it's a huge part to be successful.

That's absolutely right. We actually, I mean fortunately we were on top of a zoning change. We sold a property in the downtown east area on the waterfront where it's, it is 10 year land to develop. But a competitor firm, not to be named, sold one just to the north, thought they were selling industrial and didn't realize it actually had a condo potential kind of seven to ten years down the road. So they way undersold it and the buyers bought it and, and basically thought they were getting away with murder. So they said, oh, you did well marketing this the proper way. But it's funny because one little change can add a lot of value. But, and your example in your book is awesome because it talks about Margaret who went through a thousand pages of zoning bylaw to find this small little, have it actually written out here, archaic rule that had to do with carriage houses. It's just incredible.

That's right.

You don't see it yeah.

And you also talk about another way, and this kind of feeds in again, how to find some great opportunities is I also like the broker mismatch, where you have a generalist broker who's not a sales broker, maybe they're a leasing broker. They find out their client wants to sell, they think that they are doing it justice and they don't know the buyers in the marketplace. We also see this a lot and I call them resi mercial brokers, where you've got a residential broker who will say, hey, you know, my client who I just sold a penthouse apartment to, also owns a 50 unit apartment building, let me go try to sell that. And they just don't know who to bring it to. And so, you know, what I found is the really smart resi brokers, if they come across something like that or leasing brokers, they just refer it to a sales broker and vice versa. Even if I found the most expensive apartment in the city, I'm not going to try to go broker and I'm certainly not going to try to go lease space.

No, you're going to refer to your buddy there, Ryan Theron, right?

Oh, yeah.

Oh, that's great. So, okay, so moving on then. The, the underwriting process, something that you and I deal with basically on a daily basis, like valuing properties, getting into the numbers, digging through it. I mean there's like kind of a lot here to talk through. But I thought maybe just in your words, what, what were you trying to showcase here? Without getting into hyper details, like how do you interpret, like you're actually doing like, where's the one note I had here? Like you're actually talking about rent rolls and like how to dig through that and determining your return. And one thing I always ask investors, and I actually don't get a straight answer for unless they're, you know, hyper focused and know what they're doing is like, what is your return criteria? Do you want a cash on cash return? Are you an IRR type guy? You know, you're just looking for a pure equity multiple, like what is important to you? So maybe you could walk through how you have thought about this in determining what your return is, which is so important when looking at a property and thinking, what do I actually need to hit to feel comfortable instead of your quote, gut feel.

Jeremiah, first of all, before I answer that, I've got to say, you are so incredibly prepared. I mean, these questions I can picture even though I can't see you on screen, I'm picturing you. I mean, do you have the book open with a bunch of like, sticky notes and like.

Yeah, exactly.

Use the old school highlighter. Or you. Are you, are you more of a Kindle guy?

Yeah, I know it's straight up pen. Just writing on the book, though. And I appreciate the personalized note that.

That copy of the book must be very weathered. Let's see, turning pages a lot. But listen, you know, I knew this wasn't going to be the book to teach people how to underwrite a deal. Right. That's. You're not going to get that in a book. And I do suggest, look, if those analysts out there, those want to really learn how to run numbers, then, yeah, you've got to. Whether it's ccim, whether it's getting Argus certified again, depending on what you're looking to do. There's also a great program out there called Inventures and cre where a lot of our team members go to learn underwriting. So the book wasn't going to do that. But I think what's really important about underwriting is just big picture. Right. And Jeremiah, you already talked about it a little bit with that story of the condo development, you know, so you should always go into evaluation saying, hey, what's highest and best use? Right. And by the way, if you're not a developer and you're looking at it as a multifamily deal or an industrial deal, you're probably not going to be the highest buyer. But if you like the deal and it pencils for your use, but it has upside potential for development, that's really good to know because that's your future upside. But the most important thing I talk about in understanding values is really understanding the comps. Right. So do you really know? Sure. It sold at a 5 cap. But why was the building renovated? What? The lease term on the ground floor with the retail, what was the credit of the tenant? Right. There's so many things, and that is your knowledge, your expertise, and a great investment sale broker like you can advise and educate people in the market. So that, that was really the most important thing because, look, you can get a model to tell you anything. You know, you can make the building worth 10 million or 20 million with one keystroke. Right. But at the end of the day, what's, what's actually going to happen?

Yeah, that's 100%. Right. And actually I learned that from you and Bob and reading in those books where it wrote, they wrote about you and Bob, just how you used to take this approach where you'd have to study 3 years of comps back in the market and actually study them like an exam. And I remember when I was early on in my career and I'm twiddling my thumbs at night time, you know, when I don't have as much to do because I was first in the market, I just read planning reports in the city. Literally it was like me going through all the different like planning referral documents that the city writes out based on everything, every single site. And so then I'd go look at who bought it, how much they paid for it and then what was planning based on that? Because James, as you know, New York City has a very specific zoning and there's not a lot of sites that get rezoned, whereas in Toronto almost every single site is getting rezoned. There's barely anything that's as of. Right. So I just remember someone had asked me a comp and they said listen, like how could you explain this price? And they said, well, the land was only 10,000 square feet and the building they developed on it was 7,000 square foot pad and they did elevator parking. And so having that information has been invaluable to me in understanding the market. And I learned that from reading about you and Bob and studying comps. And that's the single greatest way to know that. Are you buying something that is worth more than the price dictates it based on the comps that you've studied. So that's a great point, spot on.

And just the only one slight correction to what you said was that originally when I started off as a broker, the period that you had to study the market was only three months, which believe me, felt like three years at the time because I'm sitting there, can't wait to start cold calling and bringing in deals. But look, you would surprise yourself if you just studied an area, an asset class, for three months, and I mean really studied it, the trends, everything out there, you're going to know more about that area in three months than all the generalists who are trying to invest all all over the city. Right. And so that's a really important key lesson as well. Because if you're looking to bring on other investors, and I'm sure we'll get to that raising capital, you have to be an expert. That means you really need to understand the market and you really need to understand these trends and really take ownership of it.

Yeah, 100%. Okay, so let's dive into the raising capital. This is my favorite chapter because it's the least talked about and it's the least known, I think. And like I, I would actually say that in Toronto we get, and especially in Montreal too, there are a lot of big check sizes that get put out in raising capital. There's not a lot of kind of the American style, GP investing, LP investing rather that I say happens pretty frequently. And I don't know if it's just the culture, whereas everyone in Toronto seems to want to flip houses and invest in single family homes. But in commercial real estate, this is something that is very common in the US is gps go out, they have a platform, they have a thesis, they raise money as LPs and they go and they have to talk about this. So I really, I didn't really know where to start here other than like the one is reaching out to others. But maybe I'll just get you to speak about this generally because this chapter is so key. And knowing how to raise capital is the single most important parcel in doing large commercial real estate, smaller commercial real estate, and just breaking into the market when you maybe don't have the money.

Absolutely. And you know, Jeremiah, I debated whether or not to put this chapter first because. Which might sound, you know, why would you talk about raising money before you even have the deal? But I think it is the number one thing that keeps people away from investing. I mean, how many of you listening right now are saying, I would jump all in? I love the idea of investing real estate. I'm seeing great opportunities, but I don't have the money to put into a deal. Right. It's the number one. It is the reason in my mind that holds people back. Right? And it is challenging, right? And especially in challenging markets like New York where, hey, you have to put 10% down hard and close shortly thereafter. So how are you going to go jump into a situation like that if you don't already have capital relationships? And then you have that chicken and egg thing where how am I going to raise investor dollars when I don't have a track record, Right? And so that's why I talk about once you know what you're going to invest in, found the opportunity, you have your business plan, you need a great partner, right? Because starting off your first investment, if you don't have the capital, finding a trusted partner who you can team up with, okay, you can bring that opportunity to their attention and say, can I join in with you? Right? You can then raise money not only based on your track record, but more likely their track record. And it will also no doubt give you credibility. And look, when I first started, and I found some incredible opportunities. I didn't want to tell anyone about them because I thought someone would just run away with them. But guess what? A hundred percent of nothing is still nothing. Right? So for your first couple deals, you might have to say, it's okay, I'm going to get a 3% finder's fee. That's my value I'm bringing to the deal. But what you're getting in experience is going to be so much more. So that's really a great way to get your first couple of deals off the ground. And then once you do have that track record. Okay, you all should listen to the interview that I did with Jordan Vogel. And he's great. Really inspiring. The title of the episode, I took this from Nike's playbook, Just do It. And he talked about how he raised money, and he went literally through his contacts and thought about everybody he knew, going back to college, friends from home, sports teams, whatever it was, anyone who he could think of who could write a $25,000 check. Right. And oftentimes I get a lot of questions, too. Well, James, I'm not sure if I feel comfortable asking a friend for money, family for money. What if things go wrong? The softer way to do it is approach them and see if they know someone who can introduce you, you to. To someone with capital. And I think the other thing is a lot of people want to get into real estate investing, but they don't have access. And if you don't ask them, somebody else will. So look, Jeremiah, for another show, we should talk about crowdfunding. And there is a whole new world now that's opened up not just for accredited investors, but also for retail investors. And so I do think that a lot of these players platforms are going to try to make the process of capital raising a lot easier. But there's still no substitute for building a great investor base and then maintaining that. Right. Once you've raised that capital, are you doing the right things? Are you reporting to them? Of course, it helps when the deal is successful, because when they are, then you see a lot of repeat investors, and then they tell their friends. And word of mouth is the best way to grow an investor base 100%.

So basically what you're saying is start making a database of everyone, even your friends and family, and then soft approach them to say, do you know someone who will want to invest? And at least they're going to tell you, oh, I might want to invest. And you're not asking them directly, but you know Ultimately, the best thing is to be honest in kind of portraying exactly what that investment is and the risk to it. And you'll, you'll do fine. I would love James, actually to break into some very specifics here because I don't think people talk about this enough. But the capital stack for what you call common equity, preferred equity, mez debt, senior debt, we have some different terms for that here. But can you walk us through some examples of this and how when you're raising money, say you're buying, you find a 10 million dollar deal, you've got half a million dollars of your own money saved up. You've looked at this property, it's say it is 40 apartment building units. You know, because you've been studying the market, you've been watching the market, you know this thing is undervalued, you think it could be worth closer to 15 million because rents have really moved up here dramatically. So you've put in an offer to this thing, you have to go out and you have to raise money. You've got half a million dollars. How do you do the rest of the deal? Walk us through that capital stack.

Right? And it's, this is certainly very relevant to today because usually in the first step would be to speak to a mortgage broker to find out what type of financing options that you have. So in that example, if you have that $10 million building that I would assume there's a value add play where you're going to have to spend money to renovate it. Let's say that could cost $2 million and there's going to be $12 million in with your total project cost. Okay. Before June of last year, if you went to a lender, chances were that you could probably get 65, 75, maybe not 75, 65, 70% loan to project cost. Okay. Today lenders are very conservative. So that lender, that bank might only loan you 50%. So if you have $6 million of equity that you need to raise, you know, $500,000 is probably about what it's going to take because most limited partners are going to want to see real skin in the game, right? So meaning at least 10%, even in some cases they want to see the sponsor with 20%. Okay. But I think 10% should work. It's a meaningful enough amount. But look, this is a great time to reach out to a partner, you know, again, that partner with a track record. If you don't want to put that whole $600,000 up, you might say, why don't we Each go in for 300,000, right? And then the rest of that is your, you know, could very well be your lp, your limited partners. And the way that works is generally that you're going to go in and you know your equity is first after the deal sells down the line. And let's say that it sells for $15 million and you've made a 3 million dollar profit. What's going to happen before that is that your limited partners, they're going to get their equity back first. Then the general partners get their equity, then you're going to pay the limited partners a preferred return on their equity, which could be 6, 8, 10% depending on the risk profile of the deal. And then after then you would get the same preferred return on your equity. And then that is when the promote kicks in. And whether again, depending on what the deal is, could be a 50, 50, it could be the general partner takes 75% of every dollar over that preferred return. No two deals are the same. It really depends on what your investors are looking for, what type of deal it is, is it cash flowing, is it value add, is it development? Right, but that's the basic premise. Now we can get super complicated if we want and we can put in preferred equity ahead of some of the LPs, you could have mezzanine debt. You know, I, again, I think for this audience, unless if you all are looking to do 100 million dollar deals, I don't think that juicing up a property today with that capital stack, with a lot of mes, you know, paying that lender every, you know, up to 70, 80% loan to value, you know, that's kind of a high risk, high reward scenario. So I think for most people it's just a straight common equity type issuance. And I realize it might be, it certainly is different from country to country, but that's the, that's the basic premise.

Okay, got it. I love the specifics because people are going to dig into that after, they're going to be like, okay, I'm going to figure that out because I, like a lot of people, don't realize that you can go out, you have money, you find a really good property, you don't have enough money to close on it, you can go raise the rest of that money and you get a disproportionate share of the property for putting the deal together, for operating on it. And kind of brings us to the next point, which I mean, because we could talk about capital raising all day long and I'm not sure James, if there's anything else you wanted to touch upon before heading to the next step.

No, I, I think if you are interested in crowdfunding, I actually just did an app, an interview with Jameson Man Wearing who actually built his own crowdfunding platform. Also Janine Yorio, I'd interviewed her about Republic. So it is the way in my mind of the future where everyday investors, not just accredited investors, want to get into this space. But look, it is heavily regulated, as it should be. There is a lot of complexity to it. But look, you also have crowdfunding platforms like Crowdsource that could also provide capital. So those are things to consider as well.

Yeah, 100%. There's lots of ways to do it, but the point is go buy James Book and figure out how to raise capital.

You're going to have to. Yes, you're going to have to go to Amazon and they did knock down the COVID price of the book. That was nice. It was originally $26 and I think it's down to 15 or $16. So hopefully that doesn't mean that it's fallen off the bestseller list and that they're. Hopefully it holds its value at that point. I promise if you read it, you will get more than 15 or $16 of value from it.

That's 100, right? Yeah. You should have done it in a tick tock video. Would have taken off.

That's for another show. Yes.

Okay, great, let's. Okay, going to step seven, closing the deal. I mean this is the fun part, right? But you know, some of the things you talk about here, the things that we as brokers deal with pretty continuously but the good offer, figuring out exactly what you want to do, how you're going to protect yourself and then the due diligence that you actually need to do in order to close the deal. So I think this is really hyper focused on which market you're in and I think it goes back to your original chapter which having the right team. But like the single greatest thing that I find and I'm going to ask you to have your via on this, James. But when I deal with people in due diligence, they don't have it set up and organized in the right way where they always have to ask for more time. You know, that happens very often. And so I think my biggest takeaway when I saw this is that the due diligence process, reviewing the leases, making sure that there's no problems with them, like give yourself enough time and allocate time in your, your period, break it down to a weekly checklist so that you're not going to go back and ask for more time because sometimes the owners won't give you that time. So I just really like the fact that you talk through the different things here of securing the financing and getting to the closing and talking through like a checklist effectively and, and kind of making sure that you're responsible on your due diligence. So maybe you want to talk a little bit more about what is important to you, James, and due diligence. And what are some of the tips that you've done to ensure that you make sure the deal is done correctly and gets closed on time?

Well, a lot of this and this, we start these steps, each build on each other. But having the right team in place, yes, having the right attorney will help avoid a lot of these pitfalls. But look, there's no substitute for someone to actually go and study because no one's going to spend that kind of time. So you really have to get under the hood. And the best investment sale brokers out there, they're going to tell you the good, the bad, the ugly. Right? Because if there's a problem with a deal, Jeremiah, I'm sure you're not hiding it till the end or not, certainly not talking about it. Right. You're putting it front and center because they're going to find out anyways. And if it's not for them and you can't over, they can't overcome it, then you're just wasting everybody's time. So hopefully a good investment sale broker will be able to weed out or at least tell you some of the problems that you need to look into. But look, sometimes you can have a great investment sale broker, but it's off market. They haven't spent a lot of time and effort to get to know the property like an exclusive broker would. And you know, you do have to kind of undercover these issues. So it's really important, certainly for the success of the deal. But also, as you're talking to investors, if there are problems, tell them up front. Right. These are. It's not all good. You know, not every, every deal has its own set of complications. And I think you have to be forthright about it. So it's just so important to make sure that you are finding out what those issues are so you can get ahead of them and come up with solutions.

Yeah, that's exactly it. It's one of the things I actually have had buyers say before. Why are you trying to scare me? I want to buy this deal, I'm like, I'm not scaring you, I'm telling you what's wrong with it. So you don't come back to me and say, oh, this is wrong with it. I want a price adjustment.

Right.

Exactly. Okay, so one of the things, I guess when we're coming up here on some of the final steps is talking about the position repositioning of the property. And so when you actually buy the property, what are you going to do? And I, the single greatest thing and the mistakes that I've seen in my experience is, is not actually hiring the right people to manage things and overestimating, underestimating, rather what you can manage yourself. So a lot of people tend to think that they can property manage the property. They can do all the work themselves, the construction and whatnot. So I, I found when you talked about things like the benefits of a property manager, like bringing someone in to do the things that you're not doing, I find that I don't know if it's just a lot of older owners that we deal with, people don't actually understand how helpful it is and how cost effective it is. And so when you talk about positioning the property, how exactly are you going to break down that work and know when to spend the money and not when to spend the money?

Right. Well, look, especially if you're new to this, bringing in a qualified managing agent is super important, right? Because they have the connections, they vetted the service providers, they understand what needs to happen to collect rents, pay expenses. Right. And have the right reporting for your investors. That being said, again, this kind of goes back to the last due diligence question. You just can't expect that they're going to do everything for you. You still need to be the asset manager. You have to be the one who's looking out for the asset and for your investors. So, and look, there is something to be said and I've interviewed a lot of people on my show where they've built up portfolios of hundreds, thousands of units and they self manage because they want to have those tenant relationships, they don't want to have that manager in between. So they're all are different levels of a manager. You know, you can have a managing agent who does everything for you, all the tenant interface, overseeing construction projects, or you can have someone who is, you know, yes, they're collecting the rent, paying expenses, giving you basic accounting, but regardless, really important that you're either watching as the asset manager, staying on top of these issues yourself, because that's really you're the one who's going to drive the success of your property.

Yeah, that's exactly it. And we, because we deal with so much development in Toronto, you see a pretty common occurrence now is that people are starting to self perform their construction and they internalize their construction teams because they're finding that the gps or rather the, the cms, the construction managers are not spending the time that is necessary to ensure that the costs are kept in line. So just in line with your comment about property managers, you know, stepping to the next section where you deal with a construction manager, a lot of these companies are starting to self perform because they find that, hey, wait a second, we actually could save quite a bit of money here and stay on top of it as it's our own project. So I'd love to hear exactly an example of a property that when you were on the co GP that you went and you had to do a major repositioning for on the construction side and did you self perform? Did you hire out someone? What was your experience with that?

Well, that would certainly fall in the category of. That is beyond my level of expertise. So I have not personally done that. And when I have invested in projects that require significant renovation, I want to absolutely have a partner who does so. And that was the case with a conversion. One of the first investments I made where took an old rundown apartment building and converted it to luxury residential condos. And I will tell you, even though there was a gc, there was no doubt that my partner Matt Blesso was there almost every single day on site making sure that things were getting taken care of on time, on budget. So that's really key for sure.

Wow. Yeah, I, I've heard that time and time again. I had a, I had a client tell me that he went down every morning. He was sweeping the construction site and then watching the construction guys to make sure they knew he was here looking over the cm.

So that's the old squeaky wheel gets the oil, right?

Exactly, exactly. Okay, so coming into some of the final stops, the, the find the right tenants, which I think is probably the, the second most undervalued section in your book is because it's really, it's the execution of the value. Right. And you know something that you know, to quote a guy on Twitter, strip mall guy, what he does a lot of is they cold call the entire market, they figure out every single rent in the market that they're going after and they find the tenants in which they, they curate into a retail plaza. And so you know, looking at this, it just reminded me of when you're going through due diligence for tenants, when you're understanding, you know, whether it's a residential tenant, it's a commercial tenant, how do you figure out exactly who they are and how they're going to be the right tenant for it? And so I'd love to hear exactly when you talk about, especially with commercial tenants, because you, I, I'm sure I have a ton of experience with this. How exactly do you figure out here's a new tenant and they're the ones who I want to put into the space because they're paying above market rent. How do I know if they're actually going to be the one that doesn't make me bankrupt or how do I protect myself? You know, what's important for finding these right tenants and ensuring that you execute on your value add position.

So unless if we're talking about a credit tenant and there obviously you can check on their performance with mom and pop tenants, private tenants, its track record. Right. It's looking at how are there other locations performing, are they expanding? Who's the backer, who's the guarantee coming from? But I'm above, beyond. I'm a big fan of references. And if you're going to take on a new tenant, calling their landlord at another one of those locations and saying how has this tenant been? And look, not to say Covid was incredibly challenging for all of us, especially for the retail tenants, many who had to shut down. So it's not to say that they never stopped paying rent along the way, but did they do the right thing? Right. And so that is so important to check references. And a great retail leasing broker is also going to really help you qualify your tenants or on the office side, certainly office industrial leasing brokers for industrial.

Yeah, that I think is exactly right. And it's interesting too because you find that depending on the market that you're in, different tenants will react in different ways. So I like what happens in New York City where you don't have a ton of credit tenants and kind of some of the off market neighborhoods. And especially because you started your career in Chelsea, you probably didn't have a lot of the credit tenants of the deals that you were transacting. Those are, that's kind of the key where you can figure out like is this tenant going to be in, you know, successful long term? Which is hard to tell sometimes. Right?

Absolutely. Yeah. Now references and relying on your professionals, your leasing brokers, for sure.

Okay, awesome. All right. So just finishing up the whole book. I mean, this book is awesome. There's so many nuggets, but the fun parts, the reap the rewards. What is your idea here? Because you talk about some things, which is the exciting part for us. We get to sell properties. But where do you find, I guess, the strategy? When you're putting together your initial investment, you always have to talk about an exit. But the argument that you and I hear continuously is, do I pay the taxes and sell or do I continue to hold on and maybe wait for some appreciation? How, what is your tip in terms of thinking versus an actual sale, a refinance or I guess in the US it's a 1031. We don't have that, unfortunately. But how do you pick your exit? Because you have a number of different examples here and obviously timing is everything. So you know, in today's market, it's not exactly an easy thing. So what, what did you think in terms of your exit strategy?

So it does start with your investment philosophy, your thesis, and then who your partners are. Right. And if you have a vision and are making a long term investment, you want to make sure that you have patient investors who are willing to go the road with you. Some of the most incredibly wealthy families here in New York are generational families who don't sell. Right. Because they've been able over time to improve their properties, to refinance, to take those proceeds and invest in other properties. So, but look, that might not be reality. A lot of the investors out today, they want to see higher returns and oftentimes to accomplish that, a refinance is not going to really hit the promote. And so in that case, you do see a lot of times when you need to trade. And yes, in, in the US you can take advantage of a 1031 exchange to defer gains and invest in other properties. So, but again, it's having the right mindset going into this because you have to have your capital aligned with your business plan.

100% align the capital with the business plan. I mean, that's the best rule you can think about. What do you want to do with your money up front when you're raising capital? When do you want to see your money? What's important to you? Yeah, these are all really good questions to answer up front. So I mean, that's a lot of the questions I had. James, I really like the fact that we could go through step by step. I love that your book puts a framework in doing basically a deal from start to finish. And it's like, it's really important because there's not as much. And I know you talked about this when we were sitting in Dallas. You said, you know, I just thought there's not one book that teaches you how to do this from start to finish. So that's why I really enjoyed your book. And, you know, I guess to finish up things here maybe before we ask if there's a few questions, but is there anything else you'd like to add about this book other than going to buy it? But what was the essence of why you wrote this book?

Well, appreciate your asking me that. And a lot of it was, yes, this book did need to be written. And this can be a very challenging business for people to break into because it is a business where we learn by doing. But the hope, and my true belief is that this book will give someone. If you're new and you have not invested or you're not in the real estate space already, this will tell you how it all works, right? It will give you the roadmap. And what's been really gratifying is getting the feedback from even master's students in real estate who are really good at understanding the theory and the capital structures and how to underwrite properties. But the actual practical how to is missing. So what's really been gratifying is hearing that feedback. And a lot of friends, clients have said, james, thank you. This is a great book. I've given it to my son, I've given it to friends. And yes, I've been out there talking in a lot of the schools and I really, you could tell, I know you're passionate about investing in real estate. I am, too. And the hope is really that this is going to not just inspire the people listening right now, but it's going to actually tell you how to do this and make it actionable. And to quote Jeremiah, I know you know, you're a big fan as well, and he's one of your mentors, Rod Santomosimo. He just wrote a book called Knowing Isn't Doing so. Again, we've given you a lot of information here. I hope you will read the book and it will give you, you know, more of a handle, but it's really putting these into practice. And Jeremiah, I know that's what you do each and every day.

Oh, thanks for that, James. No, that's, that's the single greatest thing you can always learn. I, I, and I'm trying to put together a joint venture right now with a new investor. And I told him exactly that. Just go and do it. Make sure you're smart and prudent but don't sit around and reanalyze and analyze. Get in. Okay, so we're coming up on the time. Just wanted to. We've lost a number of people here I think because it's over lunch. Is there anyone here who has any questions? James, can you stay for a few questions? If you got a jet, tell me.

But I. Yeah, I could do. I could do a couple.

See if we got any questions here. And if we don't have questions, that means we won.

Well, we covered everything. Great job of breaking down the book. And Jeremiah, I'd love to do this again. And I mean each one of these chapters I think we could have our own conversation with. So hopefully this will be not the last. I'm certainly looking forward to collaborating more with you and your audience.

Moving. Yeah. 100 and next time we'll do it at night time. We'll get a lot more people on. That's the key to Twitter space. But this is recorded so we'll leave it up on my profile. I'll tag James so you can put it on his. And if we need to find you James, where do we find you?

So James nelson.com that's where you can find my podcast video series how to order the book and James Nelson NYC is my handle.

Okay. Awesome. Across Instagram, Twitter, etc. Perfect. Well James, very appreciated. I know you're a busy boy down there in New York and you as well. And I trust things will go much better in this market. You'll get some deals done. But very appreciate you coming on and chatting here. And thank you again for sending me a book. It's been a pleasure reading this book and until next time, let's do this again.

Thanks again everybody. Wishing you all the best.

Take care.

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 jamesnelson.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.