Commercial Real Estate Explained for Home Service Businesses

Welcome back to the show. I'm your host, Phil Risher, and on today's episode, we're talking about how to build predictable monthly cash flow outside of your core business through commercial real estate. Joining us today is Graham Story. Thanks so much for joining us, man.

Yeah, thank you for having me on. I'm excited.

Yeah, for sure. So could you give us 60 seconds background? How did you learn commercial real estate? What exactly do you do?

Yeah, so basically I graduated from college, thought I was going to be a residential real estate broker. Went to work for a firm who started a commercial arm. I ended up working in the commercial division, thank God, instead of residential. Didn't know what I was getting into at the time. Did brokerage for 4 and a half years, switched to the current firm I'm at now, which focuses on acquisitions more so than brokerage, but they do both. And that's where I learned pretty much everything I know in terms of buying buildings and acquiring buildings. And that's, that was my goal. That's why I switched to them. And so now I I'm still a broker, but my core focus is buying buildings for myself and my business partner. And we buy industrial— so far we've been buying industrial buildings in North Carolina, and we'll look at retail too. But those are the two ones we want to focus on, industrial and retail commercial real estate in North Carolina.

Awesome. So for our listeners, they're going to be usually $1 million to $10 million home service businesses. And usually when you cross around $1 million to $3 million, you start thinking about, okay, does it make sense to rent this space or to actually buy flex space or industrial space or something like that? Can you walk us through, because I'm sure you've helped people do this, like to shift from renting to then acquiring a commercial space to then put your business in? What should they be thinking about? Is that the right thinking process? Like what all those, like anything around that?

Yeah, I think, I mean, I'm a huge real estate believer, right? So I think that if somebody, a business owner can buy, then they should 100%. I don't think just because they make a good amount of money from their business, they should go overpay for a piece of real estate. But if they can find a reasonable deal, you know, owner-users can always pay more than investors because they have the business cash flow to support. Yes. And if it's a home service business, particularly location matters a lot. So maybe they're paying for a better location, but that's going to pay dividends because they can go dispatch a guy and be 10 minutes away or whatever. So like, I don't think you should over-overpay, but I think you're like owner-users can probably pay like market pricing. Investors try to get stuff under market. But if you can find a reasonable building for a market price and you're planning on being there for 10, 15, 20 years, well, real estate's going to do its thing. It always has. So if you can buy it, use your business to pay for it, and then 20 years from now, let's say you want to retire. And this is actually who we buy from a lot. Somebody who bought a building or built a building for their business, they operate there for 20 years, and then after they operate there for 20 years, they want to retire. They turn around and they have that building. A lot of times they got it paid for because commercial notes are 20 years. Or so. And they say, well, this is my retirement. I'm going to lease this building out to a different company. And I'm closing my company down. Yes, a lot of them want to sell their business, which I'm sure you help with. And unfortunately, a lot of them don't set themselves up to sell it correctly. So they say, I want to sell the real estate and the business, and then they don't really end up selling the business, but they just sell the real estate or they lease it out. And so then it becomes a retirement plan because you own your real estate, you can lease it to another build another business.

Yeah, I literally have a guy, a guy that I've worked with for probably 7 years now who— decent business, $4 million, not the greatest profit margins, not the greatest business, but he has an awesome building, probably $5 million assets. And he's like, I don't really care much about the business. The asset is really there and it's going to be paid down in the next 3 years and then I'm going to own this thing and that's going to be my retirement is essentially what he said. And that's what you're saying. And a lot of these guys, they get 60, 70 and like that's their plan. Which I think that's a really good strategy. I think the bigger thing is how to leverage the income that you're getting from your business and how do you diversify, not just putting all of your eggs in one basket of your business, but then also like branching out and making money through commercial real estate, which I think is something that you would be able to speak to that I'm curious, 'cause I know a lot of guys like me included is like, okay, how do I even get into doing that? Like, do I have to go buy a whole building? Can I partner with people? Like, what does that look like? How do I find the right people? How much money do I have to— do? Like all those questions I'm sure you have answers to.

Yeah. Two things come to mind, two avenues. So one of them we've seen a lot of people do, like we said, where maybe they retire a little early and they lease their building out and then they realize, oh, this is like most of the time in home service, probably gonna be like an industrial building.

Yeah.

Like, oh, this is pretty cool. This is pretty easy. Now I'm going to go buy more of these things. And then they go buy more industrial buildings and they're the, now they're a commercial real estate investor. And they pick up 5, 6, 7 industrial buildings and they're playing that real estate game. But that's a small amount of people. The other side is probably who more of your listeners would be, people who are really good at their business, they're really good at making their money. So they make their money doing their business, running the home service business, and they shouldn't really be taking the time to mess around with real estate. What they should do is take their money and invest it with really good operators. So you just find whoever it is, you know, like CityPlat does this where they have, they open up investments to other people so people can come invest $50,000. They can invest $100,000, whatever, and they get a set return based off that. You know, there's a bazillion people like that. The biggest thing is that you find somebody you trust and who has a good track record. And that's probably where I'd guide most of your people. It's like if they've just got extra income because their business is spinning off a lot of money, and they want to invest in real estate and get the benefits, don't go be the operator. Don't go be the general partner. Go be the limited partner and just invest in other people's deals and focus on making the money, knowing what you know how to do. Yeah.

So find a company or platform that has investments that they're operating and then you could partner or join with them on. And then all you have to do is bring the capital and then you get a set dividend that come back to you as long as obviously it doesn't go down or, you know, all the different things that might happen. But for the most part, it's relatively steady betty. What about I'm not trying to like throw a wrench in this, but like, what about guys like Grant Cardone or someone who's like out here, you know, join my investment account. He's got this big brand and stuff. Like, is it better to work with a smaller person that you like building? Like, I guess, how do you find the right people to work with?

You know, I think it's just you got to trust your gut, right? So like, if you find somebody, there's a lot of people out there on social media. I mean, all these— a lot of people, like you said, Grant Cardone, You got like Brandon Turner and then you got all these other people going on podcasts and a lot of people come on our podcast are sponsors, which is what we call a deal sponsor or a GP, a general partner. They're going out there and they're raising funds and bringing on investors. So it's like, you know, I can get you a list of like 50 people who've been on our podcast who all just off our 1-hour conversation, I'm like, okay, I kind of get a good vibe, good sense from this guy and I'll probably would invest with this person. But I just think like, At the end of the day, it's just trusting your gut and track record obviously is massive. If they can show you a proven track record of a bunch of deals they've done and they've always done well, then that's good. But I'd say one way to vet is like ask them about the downside of deals. And if people are just BSing you like, oh, there's no downside, a good operator will be like, yeah, this could go sideways. Here's how it could go sideways. And if it does, this is what we're going to do to mitigate it. And people are just really honest and upfront because the reality is not every single investment goes perfectly according to plan, especially like in the multifamily world. There's a lot of people getting destroyed in multifamily right now who bought deals 5, 6 years ago and it's time to refinance and they're going under.

Yeah, that's what I was going to ask you. So I guess obviously asking that question and if they show you where the bodies are buried, then hopefully they're an honest person. Are there any other specific questions or things like that exact example that people should be asking? Like, hey, do you own any multifamily that you need to refinance in the next 3 to 5 years? What's the game plan for that? Like, that sounds like a good question from what you just said, but are there any other like specific things that you should ask?

I think kind of going more specific on that one. Yeah, we had a guy talking about how if someone hasn't gone full cycle on a deal, that's a big deal. So like full cycle, meaning they bought it, they held it for 5 years, and they exited. Okay. You know, that gives you the full deal cycle. So if someone successfully did that, that's great. But Another caveat is if they did that from 2020 to now, that's a very unique time period. So ideally you want somebody who's been doing it a good long while and they've gone through multiple market cycles, not just the, like they bought it in 2020 and stole it and then, you know, values doubled and then they sold it. Like that's not a really good, accurate depiction of the real estate market. But if somebody like bought something in the last couple of years and they're still operating and they sold out of it, that's pretty good because it's been a very challenging real estate market. But I think maybe just looking at like, you know, track record, but then more so specifically when it was and the length of their track record.

Yeah. Okay. That makes sense. So length definitely. And then when it was and within reason of what you know about the real estate market and like, of course you won or of course you lost, but within those buffer times, it's like who's actually the winners and the losers.

Yeah. And you should try to, you should try to learn like the basics too, so that you can sniff out if it's like— you should be able to understand if it's like a decent deal or not yourself. Like, of course you want to trust them to operate and execute, but I wouldn't just like be like, I know nothing about real estate and then I'm going to go into this deal. Like, you should at least know a little bit, probably.

Yeah. I'm thinking like maybe there's a GPT or something that can analyze your deals for you and tell you if this is a good deal or not or something like that.

Yeah, I know people building them for sure.

Yeah, that would be helpful. So let's say there's a business owner and they're making $500,000, $1 million a year. How much would you recommend that someone puts towards commercial real estate versus other assets as they're building wealth?

Ooh, I'm probably not the right person to answer that because I have all my money in commercial real estate.

Yeah.

But I think there's value in diversifying, right? And, you know, having— I know that a lot of the most successful and wealthy people do have a large portion of their money in commercial real estate. So I think that's more of a personal decision, but I would definitely encourage people to put a good bit of it.

Yeah, I think if you've never— because like, so like, I don't own any commercial real estate, but when I'm hearing you say this, I'm like, so I need to go find people and just like trust them and give them my money and then see if it makes sense and then analyze the deal. I think from what I'm hearing from you, Graham, is that it comes down to like, one, you got to get educated on this stuff first so that way you make smart decisions and like listen to podcasts, read books, study YouTube. Then you'll start to get a gauge of like the BS meter and like, what does this actually mean? What does that mean? That's probably the first step.

Yeah, I think so.

Yeah. And then you can figure out, okay, well, a percentage of my wealth that I'm willing to invest and use this as learning, or, you know, not— doesn't work out, then That's fine. I'm curious. So someone like you, I guess you go out and find deals and then you bring investors in to help. Is that right?

Kind of. So we're pretty small scale still. We've bought like 9 buildings in the last year and a half and they've all been smaller commercial real estate deals. And we've been learning and we've kind of been learning with our own money for the most part. So we actually, we've done a lot of creative methods where we haven't really put any money of our own money into it, but we've done like hard money plus seller financing. We've done where we sold residential property and 1031'd into it. We brought on like one investor really over the whole course of the 9 buildings. It was for a very small deal. They put in like $60,000. And then we also partner with the company we work with because they buy deals too. And if we find a deal and then run the deal, they will put up the money.

Wow. So how are you mostly, how are you finding these deals?

Cold calling, mostly cold calling. We send out mailers.

Just like, hey, you looking to sell your thing?

And then they reach out to you and say, yeah, basically, yeah, we'll find buildings we like and we'll cold call and be like, hey, we just bought a property right around the corner. Wanted to know if you'd be, if you can ever consider selling. And, you know, a lot of people, like, if you're in the brokerage world, then people don't like that version because they want you to like connect with them, add value, advise them, do all this stuff. But We're treating it more of like we're the buyer, we want to buy stuff. So we want to buy property and as much as we can. And so we'll call them and just be pretty blunt and just ask. And if they say no, then we'll say no worries. And then we follow up with them. And, you know, it's like, I don't know if we've ever called somebody and they've just said, yeah, for sure. And then we go right under contract. It's always like, you know, after a good long time of following up with them, they're like, I am ready to sell actually. And you've been talking to me forever. And so let's, let's do it.

So essentially you're— what you're trying to do is get to them before they go and list it with a realtor or something like that. And like you're trying to scoop it up. The reason that I'm asking is because like business owners, if they're looking for a space that they want to move their business into, a lot of times they'll just go work through a realtor and then that's what's ever on the market. But you're really trying to find stuff before it gets to the market so that way you can put some type of like a deal structure together for them.

Yeah, we haven't bought anything on market yet. People buy on market deals all the time.

Okay.

And we were actually talking about this with a podcast we had this morning with a different person. It really depends on what kind of asset, like with the industrial, it kind of fits very well with your people because a lot of times it is a home service person. They've been owning it for a long time. And so it's not, it's not that they're unsophisticated. It's not all what I mean, but they're not a commercial real estate investor by trade. So like the people who were buying like retail shopping centers, and they have 10 units and they own a retail shopping center, that is a— like, that's probably not going to be mom and pop. That's going to be somebody who's a career commercial real estate investor. And so if you cold call that person, they're probably going to say, you know, I'm not going to sell to you. If I do, talk to my broker, or I'm going to just list it. Versus if you call somebody who has their business and their whole focus is their business, they might not even think about listing. They might think, oh yeah, sure, I'll sell it to this guy directly.

Yeah, yeah, make sure it may make sense. If your bread and butter is commercial real estate, then you have things that you're going to go through. But if it's not, then it's like, hey, yeah, I'll have a conversation and maybe it makes sense. And if it makes sense for both of us, great, because they probably have other things going on that they're trying to get out of or do things with. That makes sense. I am curious about the other side of it. So once you acquire this property and then you have to find a tenant because A lot of our listeners probably are tenants of their space. You do that part as well, like finding tenants and then putting them in, I guess.

So we have been to date, but we've just recently been having a conversation about— we're brokers. Yeah, our main brokerage focus is like buying and selling, listing investment sale properties. Okay. Leasing brokerage. There's like two types of brokers. You got investment sales brokers and then leasing brokers, and you can make a tremendous amount of money doing leasing, but that's like Typically people specialize. We don't specialize in leasing, so we're like, why? We don't specialize in leasing, so why are we leasing our own properties? Yeah, for sure. We're saving a little bit of commission, but we could hire a leasing broker and they could probably do it faster, better. They've got the tenants, they've got— and also it elevates our time, right? We're leveraging another person to do it for us and we might pay them a commission, but while they're doing that, we're focused on finding more opportunities.

Exactly. So for like a business owner who's going to be leasing property, are there any specific things that they should look out for that's like a no-no with leasing? Like a bad thing or that is—

There's a ton of stuff. If you're listening to this and you're going to go lease a space, you should hire a broker because in theory it's not really going to cost you anything. The— if it's listed by an agent, that agent is representing the seller or the landlord and they're getting paid a commission and they have a fiduciary duty to that person. So they're not going to be looking out for your best interest. And if they come along and they find a tenant who's unrepresented, they think this guy probably doesn't know what they're talking about and we're going to try to get as much as we can for the landlord because that's their job. Yeah. So you should, uh, the landlord's likely already signed a listing agreement and they're already going to pay a commission. So the only thing it's affecting is how much the listing broker makes. Yeah. So you should get somebody who represents you and specializes in tenant rep. Find somebody who's been doing it a long time, represented a lot of businesses, have them do it. And then they can give you the advice of, hey, Don't do this, don't do that, you know, this is unacceptable.

Got it. So don't try to negotiate your own lease deal.

I wouldn't advise it. Yeah, you're not really helping any, like, if they've already got a broker, they're getting a commission and you're not really paying for it out of pocket.

Yeah. Okay. I think a lot of people fall into that trap, unfortunately, where it's just because in the home service space, it's so much just like trust and it's like, get to know each other and like just full blind trust that it's like, there's so, but I think in real estate there's just so much like litigation and different ways you can skew things and make things happen that you really need to have an expert in your corner. You can't just say like, oh, I trust this guy because you just never know.

Exactly. And that's not to say that, I mean, there's a lot of great landlords. We try to be good landlords. People try to be reasonable and fair. And there's a lot of great people like that. And I'd say most people are like that, but they could still put something in the lease that is something you don't even know about that's not like sneaky or anything, but just could affect you a lot that you need to understand.

Yeah.

Okay.

I want to talk a little bit about structuring these deals. So let's say someone wants to buy some commercial property. You mentioned that you did deals with not like hard money, you know, that kind of stuff. I guess that's probably the creativity piece of your occupation, which is like, now I got to figure out how I'm going to make this work.

Yeah, for sure.

A fun part, but also like a little stressful. What are some of the ways, like you mentioned hard money, you mentioned seller financing, are those like the most common ways? Are there other unique ways that people can finance these deals?

Yeah, I think for your audience, there's an amazing way. It's just going out and getting an SBA loan. You can go get an SBA loan and put down as little as 10%. As long as you occupy, you can buy a multi-tenant building. And as long as you occupy, I believe it's 51%. And don't quote me on this, but Um, you know, do your research and talk to an actual lender. But from my understanding, you can go buy a 2-tenant building. Let's say it's an industrial building that's 20,000 square feet and your business needs 10,000. Well, you could go buy the building as long as you operate 51% out of it. So like, uh, you know, let's just call it 11 grand or whatever out of a 20,000 square foot building. If you have 11,000 square feet of it, you can buy that building and then lease out the other side. That could substantially offset your cost and you can do it with this little 10% down.

Wow. So this could be like a million-dollar property. You put $100,000 down, but then you lease out the other half and you could even make that $100,000 on top back, like, you know, in the first year or two.

For sure. For sure. I don't know about first year or two. I mean, but yeah, you get the idea.

Yes. However long it takes. But essentially it will allow you to get into real estate and having a tenant in real estate space by using your existing business and only have to put 10% down. Which would be pretty attractive for people, I would imagine.

For sure. I would love to use that loan for myself. But I mean, I guess I technically could as like a real estate office or something.

But yeah, it's hard, I think, because like I would imagine for you as you keep getting more deals, it's like each one you have a different structure, like try to figure out how it's going to make sense or work and you have like one lever that you can pull on this one and then maybe one over here. Would you say that maybe the best one is seller financing?

Would you say seller financing is amazing? If you can, if you understand it, it's a great pitch. Yeah.

How do you structure that?

So there's a bunch of different ways. What we've done is 10%, we've offered 10% down, 25-year AMM and 5-year balloon with like 5 to 5.5% interest. So like, just to give you insight on relative, like normal lending, a normal lender is probably going to do like a 20-year amortization, maybe 25. You're going to have to put down probably 20 to 25%. And interest rates right now are like 6.75-ish. So seller financing, you can try to get less. We try to get less down because we're getting in the deal lighter, right? And we don't want to put a bunch of capital in. So we'll put, we'll try to get 10% down. We'll try to make sure we get 25-year ARM because that's longer, which means that's going to make your payment less.

Less.

Yeah. And then we're getting a lower interest rate, like 5.5%. So it's like almost a whole, more than a whole percent less. And then commercial real estate, there's going to be a balloon typically. So the payment's calculated over 20 or 25 years, but after a 5-year period, the loan term, you will have to pay that back. So either people don't actually go pay it back, they either refi the current rates, in which you just start the clock over again, or they sell it. Yeah.

Nice. So why would someone take that deal? Less down, less percent, and longer time.

This is a great question. So because if an older owner buys a building, let's just give an example, extreme example. Let's say they buy it in 1980 for $100,000. Fast forward to 2026, it's worth $1 million. So they had a $900,000 gain. And if they go sell the building, they're going to have to pay long-term capital gains tax on that gain. And that's all at one time at one year. And I'm not an accountant, so make sure you talk to an accountant, right? But this is just how we explain it. If we seller finance it, well, they get less money now. So they get a— let's say we do that example of 10%, so it's $1 million. We're going to give them $100 grand down. Well, they're only going to get taxed long-term capital gains that year for that $100 grand. So instead of getting taxed on $900,000 in one chunk, they're getting taxed on $100 grand plus all the payments you make that year. So let's say with the payments, it's like $130,000 or something like that. So instead of getting taxed at $900 grand, they're getting taxed at $130 grand, and then they're spreading out the cash flow. And then the next year, they're not going to have a big $100,000 chunk. They're just going to have all the payments you made, and they're going to get taxed much slower. So it's slowing down the tax rate and mitigating it. And I think technically you'd be paying less because instead of one big massive chunk, you're paying it in smaller chunks over time.

I got you. And if they were to go and just sell it for $900,000, then they would get all the capital gains right up front instead of doing seller financing route, like what you just said. Correct.

Yeah. Yeah.

So that would be very advantageous for them. Mm-hmm.

And a lot of them too, their thought is, well, I have this building and it was like, let's say it was an investment, was cash flowing me. If I take $900,000 less taxes, let's say it's like $600,000 or whatever. What am I going to do with that $600,000? Put it in the stock market and then it's not going to pay me? Or, you know, what am I going to do? So they think, well, now I'm getting cash flow.

Exactly.

I'm not doing anything. I'm not managing it. I'm not, um, paying taxes and not paying insurance. It's just pure passive. Yeah.

It sounds like it makes a lot of sense. So I could see, yeah. I mean, I could see how that would be advantageous. So when you contact someone and then eventually you're kind of like chipping away at them and then you present them with that, then it's like, hey, this makes a lot of sense. So I could see why someone would do that.

Yeah, exactly.

The hard money thing, I'm curious about that because I know that it has a bad stigma, but it can also be advantageous. What's your experience like with that and how have you used it?

Yeah, so with hard money, you have to make sure you're buying a good deal, right? It has to be a really good deal. So the way we use this, we bought a $450,000 building. We got 75% seller financing and the seller was in first position. So that's important. Like if you seller finance, you want to be in first position. What that means is if the borrower defaults, then you would get the property back. You'd have first position to get your money back, basically. And then we had a hard money note who did the other 25% and they were in second position. Now that's a lot riskier. It's harder to find a hard money lender who will do that. But we did because we built a, you know, as we talked about on the last podcast, but we built a personal brand and we built trust and people trusted us. They knew we were good operators. So they lent us that. So we came to the deal with no money. Then what we did is we stabilized it. So basically there was a tenant in there. They were paying way under market rent. We were going to bring them to market if they wanted to stay. We would like them to stay, but we didn't think they would. Or if they didn't stay, we would re-lease it to another tenant at market rate. Well, they ended up staying, which we were kind of surprised. So we signed a new lease with them and then we took that to the bank. Nice. It reappraised for a much higher value based on the market lease rate. We refi'd out the seller and the hard money note, and we own the deal for no money out of pocket. So basically, if you're in the residential world, you know what a BRRRR is. We basically did a commercial BRRRR.

Yeah, that's a great deal.

Yeah, it was a great deal.

Yeah, you got in and you got out and it appraised higher and you got— you'd have to overchange leases or anything like—

Yeah, exactly. So we made a couple hundred thousand dollars, we created a couple hundred thousand dollars worth of equity and it cash flows like, you know, $2,000 to $3,000 a month, I believe, like $2,500.

Nice, dude. Cool, man. This has been great. So y'all are in North Carolina, but you also have a podcast and other stuff. Where should people go? Because we talked about education is probably the number one thing. Where should people go to learn more about you, maybe get educated on their stuff? What's the best place?

Yeah. So if you're interested in learning more about commercial real estate stuff, our podcast, shameless plug, but it would be a great resource for people because it's literally for people who want to get into commercial real estate. It's called the Commercial Real Estate Blueprint Podcast. You can look us up on all kinds of different platforms. And then if you want to reach out to directly, you can reach out to me on Instagram, and it's just Graham, G-R-A-H-A-M, underscore Story, S-T-O-R-E-Y, or you can reach out to me on LinkedIn, either one of those.

Awesome. Well, first off, I appreciate your being very transparent because I know a lot of times when I talk to people like this or in this space, it's like there's a lot of red tape or don't say this, but you've been very open and honest about all the stuff, which is very refreshing. So thank you so much. And, um, Obviously I was just on your podcast, so you should go listen to Graham's podcast even if you just want to hear me. So yeah, thanks for having me on this.

The podcast you did with me and Jess were talking about was crazy value for people wanting to know about marketing and stuff. I mean, it's very relevant. So I think, yeah, definitely go listen to that.

Yeah. Awesome, man. Well, thanks again. Appreciate you, brother.

Yeah. Thank you so much.