BPI Episode #15: Behind the Deal: What Smart Investors Know Before They Buy

Welcome to Building Passive Income, the podcast for professionals, entrepreneurs and investors who want to build wealth, diversify beyond Wall street, and create financial freedom through passive commercial real estate investing. Your host is Wayne Courageous iii, a seasoned investor and founder of CREI Partners, a leading commercial real estate investment company. He spent nearly two decades navigating and educating others on the commercial real estate, from multifamily to storage to retail. Each episode is under 15 minutes, intentionally short, easy to understand, and packed with insights that help you grow your income and protect your capital without becoming a landlord or sacrificing your time. If you're ready to learn fast and invest smarter, you're in the right place. Let's get started.

Welcome back to Building Passive Income Podcast. I'm your host, Wayne Courageous iii. I am excited to share news about an upcoming investment that we're closing over the next few days. I'm going to go off script here a little bit in that we have been trying to do a lot of great, valuable educational insights since we started this podcast over a week ago. And so now I want to share an exciting investment opportunity that really filled up fast. And it filled up fast for our investor standpoint because were doing the steps and doing things that you're doing, and that's listening to podcasts and attending our meetups and listening as much as possible and learning as much as possible about passive real estate investments. So this property came to us through a broker relationship and it didn't go out to the market. There was no offering memorandum. It didn't go out to the world to say, like, hey, you know, we're bidding on properties, et cetera. We were so fortunate through a broker relationship that has really been built over the last, I don't know, four or five years. And you know, that opportunity came to us and we underwrote it and we looked at the deal and thought it was fantastic. There were really several reasons why we loved the deal. One is the basis that we were buying it at was tremendous. This property, unfortunately was part of a distressed portfolio. Even though this property was doing extremely well with occupancy and collections, it was tied up in a portfolio distressed cell. And so because of that, we were able to buy the asset 3 million less than what they had purchased it previously. And to me, that's just incredible. We have been very, very fortunate and very blessed to find opportunities that make sense in this type of environment. Whether we do a loan assumption last year at 3.82% fixed rate, which was incredible, or we did a seller financing deal prior to that, you know, there's just been a lot of great opportunities. And this is one of those opportunities where we're like buying, you know, a few million dollars less than what they pur purchased for. And so our cash flow and the equity upside is just going to be tremendous. And so that property is 100, about 125 plus units, Class B, 1985, built in a great submarket of San Antonio. And so when we went out to our investors, the sort of the process that we have developed is that we'll share upcoming webinar opportunities, investment opportunities, and we'll do a webinar. And that webinar typically lasts for about an hour. And we go through the full presentation, market overview, why we like the deal, what's the, makes it different than other properties that we've underwritten, what's the performa, what's the projections and the assumptions, you know, all those things, right? And, and then at that point we open it up to our investor portal. In our investor portal, investors such as yourself would just go in, look at the deal, the private placement memorandum, which we talked about on a prior podcast. But you know, those documents are there. And so you can go and you can soft commit or, you know, commit the investment. And so when we have these deals that come up, they go by really, really quickly. And so what I tell investors is when, when there's an investment opportunity, that's really not the time to be learning about real estate syndications. Maybe use that as an opportunity to strengthen your knowledge and maybe you wait till the next deal, but you really want to be educated and be to a point where you're like, okay, I can evalu deal, answer questions to the sponsor, get comfortable with them, get comfortable with the business plan and make a decision pretty quick because what happens is it becomes oversubscribed very quickly and then you miss that opportunity and then you're waiting to the next opportunity, which at CRI Partners, typically we're only doing two or three deals a year. And a big part of that is because we're so heavy on the asset management side, we don't want to be doing a property every month, which we could, but we don't, and we don't do it on purpose because we want to make sure our properties are stable, that they're hidden, business plan, et cetera, before we're jumping into our next deal. And so whether you're investing with us or maybe others, you know, you may not know when that next opportunity will, will come, right? And so you're taking the right steps on that, but it hit all the, all the boxes. Location matters. Being in an area that is low crime rate. You know, for us, we don't want to go into an area and renovate a property when the outside neighborhood has, you know, crime issues or a lot of low income. Because you can't change an area. You can change property. I can make a property extremely beautiful with money, but I'm not able to change the neighborhood, which means I can't really drive the business plan that I'm looking for from that standpoint. The other point. So location was important to us. But number two, like cash flow day one, you know, we have our reserves, we have our capex budget, but we're not going in having to feed the property money because we are not able to hit our debt service or operating expenses. So. So in this case, we had a 1.8 debt service coverage ratio at closing. And so think about this. For every. If you had a 1.0 debt service coverage ratio, that means for every dollar you had, you paid a dollar towards your debt service, meaning you have no extra money for payroll, management fees, anything like that. The typically Fannie Mae and Freddie Mac were these lenders. What they typically want to see is a 1.25. So for every dollar of debt service, there's 25 cents left over in debt service. For us, we well exceeded that at $1.80 or 1.8 DSCR. The break even on this was like 70%, which is fantastic. And so when you look at all the different, you know, talk about risk and stuff and you know, when your property is able to sustain cash flow and be able to provide investor distributions day one, that's something we can all be excited about. The other thing that really was great for us is that we did our due dilig, did the electrical, plumbing, H Vac Roofs foundation, over $10,000 on all these different inspections before we even went out to our investors to raise capital to buy this deal. Those are sort of sunk costs or hard costs that we put into it as risk capital. But it was important to see like what if anything is wrong with the property. And really the property came back extremely clean. There, there are always going to be a few things that were, you know, need to be found. One of them was like some rodents, some raccoons I guess is getting under the foundation and stuff. So there's going to be a little foundation work and a little bit of pest management. But you know, those are the eye openers that you want to ex. You know, you expect and that you're going to go in and address very quickly. The other things we look at and you know, these are some check boxes for you too to think about is, you know, what is the reputation of the property. You know, when you go to Google, you know, it had 4.2 stars, so like already really well managed and residents seem to be happy with the property. The few 1 stars that we received or that was at the property were not related to H Vac or any exterior stuff. It was really related to personnel at the property. You know, those are things that we can change through third party property management and bringing in a new management team to build a better community, better customer service and those things. So that was another thing too. I just really liked. I've had properties where you, you know, one property in particular, we started off at a 1.7 star so that that seller really struggled on, you know, having, you know, good reviews. And so we went in and had to, you know, really spend like 12 months getting that up and that just, it's, it's hard to do. So when you're buying an asset and you're looking at an asset from an investment perspective is check out those Google reviews, see what they're doing, see what they say, check out to see, you know, what complaints is there. A lot of H Vac complaints, a lot of rodent issues, you know, crime, whatever the issue is. And you know, going back to that, looking at that capital plan on a prior podcast, like that business plan, hopefully that business plan is there and it helps offset some of those concerns and addresses those issues that were in those Google reviews. But for us on this particular property, the property is doing really great. Great location, great cash flow. And the other thing too we loved about it is we were able to get a fixed rate, five year deal on it. So, you know, there's not a, you know, a bridge debt. You know, we stay away from bridge debt. All of our deals that we have under our ownership at CIA Partners is fixed rate debt. So it was just another, another checkbox. But really excited for our investors. We've got another deal that we're about to launch Shortly that's about 10 minutes from this one. And so that will be. And the timing is interesting because I mentioned, you know, we typically do two or three deals a year and we like to wait. But you know, because they came so close together and because they're synergies, because they're only 10 minutes apart, we just thought it would be a fantastic opportunity to take on both, Both are similar age 80s product, 100 plus units that you know, obviously our third party management company will manage. But when you're finding properties nearby that can support and help shield shed some of those expenses, it does everybody extremely well, especially for our, for our investors. So this is a team sport and you know, shout out to our team. You know, Shelby on our team handles our investor relations. She's done an incredible job building relationships with our investors and working with the team. If get into our circle at CRI Partners, you will definitely get to know Shelby and build that relationship and she'll help guide the process. The other great team member we have on our team is Will. And Will is our senior portfolio manager who handles our asset management. So he's dedicated to working directly with the boots on the ground property management on a weekly basis to ensure that we are hitting our business plan, hitting our distribution goals to our investors and really just handling day to day at an ownership level. Again, all this work is being done so you as a passive investor don't have to worry about that. And then we've got our vendor partners, our property management team and their, their group that came in and did the lease audits and worked with Will and doing due diligence, having the plumbing, electrical, roofing, all these different vendors. So it's a lot of work and it's a lot of people that are involved before we even close. And then when we close, we have weekly calls and ongoing work to help exceed the projections and the goals that we have for the property. So I just wanted to do a podcast here on an episode on what we have currently in the pipeline, why we decided to go with it and sort of the team that is all aligned to ensure that we have a successful investment. One last thing I'd like to also mention is that once we close on a deal, so we close on this deal next week in a few days and at that point, you know, we'll start doing monthly updates and all this is through our investor portal. And so we have these investor updates that's communicated. We provide the monthly financials and so there's full transparency on the deal, good, bad or ugly on what's going on. We have hit every distribution on the last several deals that we have done and it's because we're, we're, we're rinse and repeating on cash flowing type opportunities that we're buying at a great basis. So keep your journey of learning as much as possible. If you want to learn more, check out passiveinvestorcoaching.com we're going to continue doing these daily podcasts, but at passiveinvestorcoaching.com is a free resource. It's over like five hours of content that's broken out in short videos, but it'll help accelerate your your path to learning about passive investing and get you confident and comfortable into it. And then it also just puts you in our fold of C partners. And when there's opportunities, we'll let you know and we can just build the relationship. Whether you're connecting with me directly or Shelby or Will on our team, you know we're excited to build a relationship and help grow your wealth, diversify your wealth and as we move forward on future investment opportunities. Thank you all for for listening and please like and subscribe and help this PODC it is. It makes me so happy to do these things because I love educating and I hope that whether you're investing with us or anywhere else that you feel like you are knowledgeable and sophisticated enough to feel like you can invest confidently in a deal and ask the right questions. So thank you for liking and subscribing and keeping this podcast going to others who could benefit. Have a great day everyone.

Thanks for tuning in to Building Passive Income. If today's episode helped shift your mindset or gave you a new tool to grow your wealth, do us a favor and like, subscribe and share this podcast with someone you care about. Want to go deeper? Join our free Passive Investor coaching program@ passiveinvestorcoaching.com it's the perfect next step to start building wealth through commercial real estate the right way. Remember, financial freedom isn't a dream, it's a decision. And it starts with Building Passive Income. We'll see you in the next episode.