5 Ways to fund your first commercial real estate deal

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All right, welcome, guys. Today we are going to be talking about five ways to get your commercial real estate deal funded. How to fund any commercial real estate deal, five different ways. This is just to be transparent. You know, we got Larry here, Randy, you know, we are biased on the multifamily front. We've primarily built portfolio off multifamily, but we've done several different types of deals and we've helped many of our investors and students to be able to do larger commercial real estate. And so today we want to walk you through these things because we get this question a lot. You know, how do I creatively do different things to bring more money to the table, or how do I get these deals funded? And so we're going to walk straight through those together. We have over 500 million in assets under management with our team. And we have been through a few deals. All right, so we know how to get these deals funded. So let's jump right into it. First, we're talking about traditional financing from a bank.

Yes. So with that, you know, we've got an example here of Brandon, one of the team members here. You know, he's got a construction background, family guy, two kids, you know, really didn't have experience in larger deals. So he brought a partner in with him. And again, that's, you know, part of the beauty of being in a group or being connected together with other folks, but in a traditional sense, working together with a bank to get the primary funding. So this was a deal in Arkansas, 27 unit portfolio. 27 units comprised of, you know, duplex style buildings. You can see there in the picture 750,000, all in cost. You know, so again, when you take a look at that, you know, your traditional bank is going to provide anywhere from 70 to 80%, you know, you know, probably 21, 22. It was more like 80%. In today's environment, depending on numbers in the bank's desire level, it could be, you know, 70, 75, maybe 80, depending on the deal you're getting in the cash flow and etc. In the bank. You know, some banks are more hungry than others. This particular instance, they provided 75% loan to value at a 7% interest rate. You know, down payment was 210,000. You know, what would be needed on the property. And then, you know, focusing on being able to do a cash out refinance, kind of two years out would be, you know, his overall gain plan. And again, now you may have different plans and different approaches. It's just his plan. And then ultimately again brought a partner in together with him in order to get the loan, you know, history there, so to speak, so that the bank sees that they have the, you know, experience. And that's one of the things that when you're dealing with the bank, they're going to want to see. And you can say the same thing. If it's a larger size dealing with Fannie Mae, Freddie Mac, they're going to want to see that you have experience in managing multifamily. And so if you presently don't, you're going to need to have a partner who does. And that's exactly what Brandon did on this transaction, right?

Yeah. So if you can have the equity, but if you don't have the experience, you're going to need somebody on the team with experience. This is one of our students that didn't have the experience. So if that's you, you know, this is something you want to be doing is getting that partner in place to help you secure that. So yeah, yeah.

So good for Brandon. He got 75% of the money, needs to close the deal, but he's still got a problem on the next slide. You'll see how he got it. He still needs $210,000 in equity to close this deal. So one option is a HELOC or cash out refinance on existing properties that you currently have. You know, real estate values have gone up dramatically in the last five years. So, you know, a lot of people are sitting on that equity. You can go to a lender and get a new loan, cash out that equity you have in the property. And that's what he did here and was able to come out with that 210,000, come up with that $210,000 he needed to get this deal closed.

Yeah, exactly. So example, he had a $400,000 home, $125,000 of debt he owed on that home. So that means 400,000 minus your 125, you have $275,000 in equity that you can borrow against. And then obviously they're going to give you just say 80%, that's 220,000 he could pull out and put in that down payment. So, you know, another note, don't use chat GPT. You need expert advisors if we wouldn't be good coaches here if we were to just say, just go out and run with it, right? Make sure you have experts on the team that are, that are advising you. We don't want you to lose a bunch of money, right? So yeah, that's another way to do it. And look, seller finance. So seller finance, big thing here, guys. If you don't have all the money you want to, you want cheaper debt, you know, to make the property work, whatever the reason is, these are the deals that people are wanting now, okay? These are the deals that I would even advise that you seek more of in today's market. If you really want to make deals work, if you really want to find deals and beat the circumstances of the market, you got to find sellers willing to carry some part of the deal back. I mean, it's going to be rare. You find sellers carry the entire thing, but at least some part of the deal. So this is a guy who just closed two weeks ago, one of our students, Janiel, he's a pizza restaurant owner, family man with a newborn. He had no experience. And this is wild case, you know, I know a lot of you watching, you do have experience or you, you know, but this guy had no experience. He closed on a 48 unit apartment deal, $3.65 million for the purchase. And he seller financed $500,000 of that, all right, at a 6% interest rate, okay, the seller carried back 500,000, they got 6% interest. And then so that was the, the loan was actually 70% loan to cost and then 6.75% interest 30 year AM. And you know, he used one of our syndication attorneys. That's very important because he syndicated the deal. So obviously we're going to show another example of seller finance and how to do maybe the whole thing. But you know, you can do part of it, right? And then you can syndicate the other part or you can do the other methods on the other part. Right? And so we use syndication attorney, very important, get sec, you know, securities Exchange Commission attorney. They regulate any kind of, any kind of bar raising capital. And then he did the same thing, use a partner to get the loan, bring the experience and raise 200k. So another way to do it, seller finance. And it's a very popular way and an important method.

So number two, yeah, so this is another seller carry example that we did. And Jonathan's right, you know, you're not likely to find somebody that owns a $10 million building that's going to finance 80% of it because probably they don't own it free and clear. If they did own it free and clear, they're probably savvy and experienced enough to go out and refinance or leverage that property in another way. But we like these smaller deals in our local market because when you get this type of seller finance and it's a long term play, the tenants pay the loan and one day you own this property free and clear. So it's a smaller deal, but one day, this property sitting free and clear, worth a million and a half, we purchased it for 800,000, 16 unit apartment. The seller actually financed 95% of the deal. He did own it free and clear and he doesn't want to pay taxes on all of the proceeds from the sale. So that's the advantage to a seller. One of the advantages to seller financing it, they're only paying capital gains taxes on the proceeds as they receive them. So we're able to lock in a 4 1/2% interest rate for the life of the loan till it's fully paid out. Our down payment was $40,000 that we had to bring to the table. We could have got an investor to put that 40,000 up. They would love to be a part of this deal, but we didn't have to. Uh, and just another note, this was found from a cold call, one of our VA's calling to sellers in it. But it also took a lot of follow up. I think it was a year plus after that initial phone call that we closed the deal.

Yeah, and that's a, that's a big method a lot of people ask us about is, you know, how do you, how do you find these deals? And obviously we're talking about funding them, but you know, va, just a side note, VA virtual assistants, you can hire out of the Philippines. They do an amazing job. We have a whole VA recruiting arm to our group. And that's a, that's a really good way to find them. So great deal.

Yeah, right.

Deal, Larry. All right, 1031. So 1031 exchange. Let's go through it. If you don't have all the money to invest, but you have other rental properties, it has equity in it, but you're not happy with your current returns. All right, you can. The great thing about 1031 is you can defer or avoid paying capital gains taxes. If you do it correctly. That's parentheses. If you do it correctly, you're buying a larger deal. You know, Janiel, like I mentioned earlier, had 48 units, $3.65 million price. You know, he had one limited partner that has $250,000 to invest, but he offers if you do 500,000, you know, we can do a 1031. If you can do a 1031 exchange, you know, they bring 500,000, right. And so the person has a single family home, a rental or something similar in real estate, you know, it has to be like kind and must be a rental. Right. It has to be similar to the asset and must be a rental. So can't be your personal home. Right. And wants to sell that property. Okay, so if you, you got to understand, 1031 exchange is essentially selling a property, and then to avoid capital gains, you have to take that money and put it into the next deal within a certain timeframe. Now, it's very important to understand this is if you're going to have them come into a syndication or come into a property, you have to have their name on the deed. Okay, so what he did was he set up a tick agreement, all right? That means tenants in common. The person was using a 1031 exchange, and, you know, again, they must be on the deed. You know, and so the timelines, again, you know, for you to avoid those capital gains, you have to identify that property within a certain amount of time, and you have to close on that property within a certain amount of time. So those rules are, you know, 45 days to identify the property, 180 days to close. And then listen to this, because I'm over here talking about all the rules. But you need to ultimately get with a 1031 exchange, you know, title company, and you got to use someone that knows everything about it and is advising you. So it's very important that you have advisors walking you through it as well. Use one of our syndication attorneys. Again, somebody very credible, you need on the team, very important.

So, yeah, we've done these before where we've had folks invest with us, and, you know, it is a little bit more complicated, but then they can bring a bigger chunk of money through the 1031. And you do have to use a qualified intermediary. That's what Jonathan was referring to with the 1031, you know, title company, meaning that you never touch the money. The money from the sale goes to the qualified intermediary. You. And then when the now the property, the new property's being purchased, they fund that money to the new closing. So again, it's definitely possible to do. People do it all the time. And then, you know, it's also an opportunity of an area that you could bring People in, like Jonathan mentioned, you know, like there was folks in California, they bought a house a decade ago for 350,000. Now it's worth a million bucks. And you know, but even as a rental, it's still not getting, you know, a great return. So they're interested to sell it, but they're not interested to pay taxes on $650,000. So again, that's something that you're able to work together.

So it's good.

The other area, you know, that's an, excuse me, an area of funding can be retirement accounts, self directed ira. And that's something that you've got to begin to familiarize yourself with. You know, a lot of people, of course, familiar with, you know, 401k or Iraq, but a self directed IRA you can use. There's multiple companies out there, there's, you know, dozens that, it's not like Fidelity, but they, you know, Advanta, IRA Quest, ira, you know, there's multiple other companies that came a plan, just to name a few, but they provide retirement account services. They don't provide the investment, but they allow for you as a qualified retirement account to be able to invest in real estate or other, you know, tangible assets like gold or precious metals, things of that nature as well too. But real estate, of course, is a big one. Both physical real estate notes and, you know, limited partnerships. So, you know, this example here, There was a 88 unit, $4 million purchase, 3.4 million of debt, need to raise 1.2 million. And one of the LPs wanted to invest 500,000, but it was from a retirement account. Now again, this is also something where you can, you know, you're not an advisor, but you can help serve and educate people. So again, that person, you know, they've got their retirement account at Fidelity or Schwab or, you know, whoever, Vanguard. Well, they can't invest that money from Vanguard. But then what you can do is introduce them to multiple of the self directed IRA companies, inform them about what that is as an option. Many people don't even know that that exists as an option. Then they can open an account directly with the self directed ira. The self directed IRA company will then reach out to their current IRA holder, custodian, and with the proper paperwork executed, they'll transfer over that $500,000 to the self directed account. And then now you can execute the proper paperwork to allow them to invest through that self directed IRA into that real estate or apartment. And that's handled through the custodian, handled through that person. With the ira. And of course, you know, in this particular example, they use the syndication attorneys associated with the REI group. And then again, additionally, they were new in terms of their experience and so they also brought a partner on to qualify for the loan. You notice in this stream. And again, these are examples of newer people jumping into the mix. There's other people that are, you know, already experienced that are closed. But again, you've got to have that experience regardless as it relates to the loan. And so that's where again, that partnership element comes into play. And you know, I would also say that, you know, with using these different methods, you've got to recognize, you know, you're not likely to just go out and buy a property and pay cash for it. Because when you're dealing with larger property, you're using some or one or all these different techniques, whether it's bank financing or, you know, seller financing or, you know, using some of these down payment strategies that we're sharing with you as well. But again, the real need of having and gaining the experience and that's also where you're working together with partners as well.

It's good.

Yeah. I love self directed ras and like Randy, most of the custodian, self directed companies have great education and they'll walk everybody through it. So you're really just having to make the introduction show, show the person the benefit. And it's easy to show the benefit in going from a mutual fund portfolio to, to a partner in a. Oh, for sure, Yeah.

I mean, like just, you know, again I get in the near term we're shooting this now, you know, the markets, you know, reasonably back up, but again, very chaotic this year for sure. You know, and so somebody that had a million dollar IRA account in, you know, March, when the, you know, tariffs are kicking off and all that stuff with Trump, it's like, bam. They're, you know, value could drop by 25%. So that's, that's pretty choking for a lot of people. Just where it's like their million dollar account dropped to 750, it's like, holy crap. And then some people, you know, they sold, they're like, oh my God, I want to sell before it goes down. And then a month later when the tariffs started coming, you know, more news on it, then the market jumps back up and they're like, oh crap, I missed out. You know, so again, there's a lot of value, as Larry said, that people can receive through the, you know, fixed asset of real estate.

Right? Yeah, that's good. Yeah. And so the next one is 120 days to close. This is a partnering up, using a loan sponsor. So partnership is huge, guys. If you want to go fast in commercial real estate, you want to build and safe for that matter, you know, you want to have experienced partners. You want to be in, in a group or in a, in a deal where you have experience. And so here's an example, Stephen, he was a defense attorney and a data for one of our good friends and clients. No experience on larger deals. Again, within four months, stepping in, he locked up a deal. 51 units. He closed on a deal. He didn't just lock it up. He locked it up within a few weeks and then closed on it. 51 units, 5.7 million, all in cost, 70% loan to value. So the down payment was 1.7 million. And I'll say this, for those of you who's never raised capital before, never done any of these methods, he said, directly, I have no access to capital partners. I've exhausted all my friends and family. Like that's not possible, right? I have no access. And within four months, he had raised $1.7 million. Never done a big deal at all and was able to do that. 8.5% preferred returns is what he gave to the limited partners who invested that. And he gave him 25% of the deal. So 25% equity ownership of the deal. And again, we can't stress this enough. You need attorneys, you need the syndication attorneys are going to set up your private placement memorandum, your limited partner agreement, make sure all the rules are in writing, right? You can't. Limited partner can't just call you up and say to sell the property. Right? There's got to be. You need to protect yourself, you need to protect them, and you need to disclose those things because at the end of the day, there's nothing that doesn't involve risk. All right? And you got to understand that and you got to disclose that you want people that are joining your team, right? You know, we always say, you know, going into business with someone is like a marriage, right? You want to know that you can trust that person. And so it's very important you choose your partners wisely. And so attorneys will help you do that. You know, being a part of experience groups will help you do that. But just give you another example there. Hope that was helpful. Hope that was helpful. It's good being with you guys. Looking forward to seeing your, your growth. We're going to be going in depth on a lot of these methods here soon. We're going to be going in depth on the 1031 on different things. So be staying tuned. Be be watching out for more videos. And we look forward to seeing you guys soon. All right. God bless.

God bless.

Take care.