Live Wealthy: Strategies To Profit In Commercial Real Estate Investing With Terry Hale
Episode 445: Live Wealthy: Strategies To Profit In Commercial Real Estate Investing With Terry Hale
Are you looking for some strategies to add to your toolbelt in commercial real estate investing? Active investor Terry Hale sits down with Mitch Stephen to give us a peek into his e-book, The 2 Best Strategies to Profit with Commercial Real Estate. Together, they discuss some strategies to profit in commercial real estate, Terry’s partnership program, and how he ended up buying one of Mitch’s storage facilities in Texas. Terry also shares the types of properties he invests in and which markets he prefer and avoid. Follow this insightful conversation as Terry shows you that we only have one life to live, so live it wealthy.
I’m here with Terry Hale. He’s over in Malibu, California, but we were just talking and he ended up buying one of my storage facilities down here in Texas, right around a place called Canyon Lake very small world. I’d also like to pay homage to my sponsor, LiveComm.com, lead generation plus mass texting. There’s a reason why I have about nine days on the market and my seller financed homes and LiveComm is a big part of that. Check out the video on the homepage. You’ll see a little bit about my strategies and it works for all kinds of businesses. Check it out. Terry, are you over in Malibu, California now?
Yes, sir. I sure am right over here in Malibu hanging out. I’ve got my podcast station behind me here in my office and got my guys in the rooms next door, doing acquisitions. Malibu’s a beautiful place, but crazy California.
Tell us a little bit about all your background and what we’re into. We’re going to be talking about some strategies on how to profit in commercial real estate. We’re also going to talk about a partnership program that you have. There’s even an eBook that we’re going to be giving away here. Where you at and how’d you get there?
I’ve been in this business for 25 years. I started doing some, construction work early on in the early years. My father was a second-generation contractor. Him and his brothers, used to do ground up development out here in California. Not Malibu of course, but, in middle of California. Long and short, I got on the other side of the table because I saw this gentleman who was extremely wealthy, pushing the pen to paper and, tell him my pop and his brother’s what to do and I said to myself, “I don’t want to be swinging the hammer. I want to be on the other side of this. How can I put it together?”
It was fortunate and unfortunate. I didn’t make any money for the first couple of years because I was out there bird-dogging and doing acquisitions for this gentleman. I made a small piece of it, but the benefit was that I got the education and that was something that was important. For me, partners they’re limited because one particular time when you’re independent, you get out there and do your own business. Obviously, you could support yourself, your dreams and endeavors. I stumbled into multifamily, and it was a deal that was not in such a great area, but I did the old rehab on it, turned it around and started doing things conventionally.
I started getting bank loans, and started improving my credit as a young man. The banks told me no flat out, they said, “We like you, Terry, but we can’t loan you any more money.” I said, “Why is that?” They said, “It’s because you guarantee too much debt, you don’t have enough income to support it.” Meaning the debt to income ratio wasn’t good any longer. I leveraged and I started looking for seller financing and that changed everything, reverse-engineered that whole, train of thinking like we did business together, small world.
I sell or finance my storage facility to Terry and a partner. You have one partner I know of. You’ve been doing commercial real estate for 25 years. You started a couple of years. You do work for knowledge, which means, you’re not getting rich, but you got to get smart before you can go take on the world. After your internship or whatever, your work for knowledge stent, tell us about like one of your first deals when you did the apartments? Is that enough to make you financially free, or was it just enough to give you a little money?It's important to join forces with the right people. Click To Tweet
It’s enough to give me a headache because of what went down with it. I was still buying too rich. That was the problem and factoring in a few things that I’m extremely knowledgeable about. I can share the knowledge like I shared it with Christie and we located a property that you had and we ended up doing business with you. At the same thing, when people start off, they forget that any repairs that you do factor into your acquisition, meaning factor into your purchase price. I didn’t realize exactly how much rehab was going to go into it. It was out of my thinking.
You make your money when you buy and you lose it in the rehab. I coined that one the money you buy and you lose it the rehab.
That is right, because out where the project was located, even though it was not such a great area, it was expected, that it had all the high-end, old school granted, the tiger at granite countertop and everything was stainless steel and this and that. It wasn’t like I could put, scratch and dent, hokey stuff inside the multifamily, 23 in it. It needed full rehab. Next thing you know, it starts eating into your profits, like crazy. It was a couple of deals thereafter that I got into. I still had other partners, not the same partner. I started leveraging. By bringing in these other partners, they were money partners. That’s where it all came together because now all of a sudden, I started doing the OPM, the Other People’s Money started getting into facilities that didn’t have heavy rehab. Started looking at product that was already built. It was good enough to put bodies or things in. At that point, with very light rehab and deferred maintenance, I was able to start making low-ball offers and then getting into some seller financing.
One thing I’m interested in. Were these people just money partners or did they have some expertise in the investments you were going into?
Just money partners, zero expertise.
You’re still learning it on the chin yet. I always like to say, if you need a money partner, try to get a money partner who knows exactly what you’re doing so you can glean from them and get a second set of eyes and all that. You’re like me, my money partners didn’t know anything about it either. I’m still out there learning, la calle, which means the street in Spanish. I’m at the street university getting the crap kicked out of me, but at least you didn’t have to worry about money anymore. I tell people this all the time, “How important is private money?” Especially until you’re bankable, but even when you are bankable, private money is going into a deal. This is not enough or smooth enough for a bank. Certainly, not as fast as private money. What are you into mostly these days? What projects?
I mostly do storage facilities across the nation because they’re the lowest on the, on the risk scale, other than data centers, it’s like apartments without the people, everything that you already know, Mitch. For storage facilities, there are other people out there talking about it and doing it. It is, white, hot people are extremely competitive in that market. for instance, there’s a deal sitting on the internet the other day and I ended up tying it up. It’s right in Dallas. Not too far from your neck of the woods and 170 unit, two partners feuding. They were offering seller financing, but then as it came down to it their seller-financed offer, it was too rich. I couldn’t buy it. They wanted too much money.
I wanted to pay premium to have them become the bank. I low-balled them. I ended up getting the deal for, $775. I’m putting it back out to my buyer’s list at $900. The deal at the end of the day, that’s sitting at 40% economic occupancy and physical occupancy and the two guys that own it has been extremely neglectful. That’s the story and the market is a little saturated, no doubt, but it’s Dallas 1.2 million population. That’s the deals that I’m doing. We’re locating those. I got one in Jonesboro, Arkansas. I was seller financing, 136 unit. I got another one in Elk City, Oklahoma, Elkridge as well. I got one in Ingleside, Illinois. I got one in Jacksonville, Texas, we’re doing deals all over the place. I have my team that sits there and pounds of phones and we locate property that typically is off the market. That has some element or distress, but we can get in there and turn it around.
Tell us a little bit about your eBook that you’re offering. You also have a free webinar. Are they on the same topic exactly or are they different?
They’re close to the same. This is what the eBook is all about. It’s in a book format too. It’s called The 2 Best Strategies to Profit With Commercial Real Estate. One is a buy and hold and then the other one is to purchase it, on paper and to sign the contract, very simple strategies. I go into depth about the acquisition criteria. I have multi-pronged approach on how I buy either net rentable, square foot, dollar per door on capitalization rate formulas, what I pay when I do seller financing etc. It wasn’t like I went author this. Like you, having the experience and knowing what’s going on is important.
When it comes from 25 years with the knowledge, how long ago did you write that book?
The first book that I authored, I was five years into my career. Finally got out of the stumbling, like you said, taking some on the chin never wanted to become, this author, guru, trainer or mentor whatever you want to call it. I met this gentleman out of Jacksonville, Florida. He took me under his wing and he was the godfather of the house buying business, Ron LeGrand.
I can call him up, we know each other, we talk, I want to go fishing with him one day because that’s what he likes to do these days.
He brought me. If you know Ron, so you know his story. We off co-authored a book together in 2003, when he brought me under his wing in the information marketing sector, not the real estate sector. The information marketing sector, he showed me how to put together systems. I looked at it in a whole different way. I’m like, “I can go and I can author these curriculums of training, offer them to people so they can get out there and they could get educated.” What I could do is create just a network of these bird dogs and train them the right information to get out there and not create competition for myself, but do it strategically. Like I had Christie be able to reach out to you and speak for purpose and clarity and be able to do business. I’m in the trenches doing the business and this right here is a medium to be able to educate people so they can get out there, learn the business. I like to partner with people and get out there and make things happen. Everybody makes money now for not making money then chances are, we’re not friends. Everybody wants to make money.The road to someday leads to the talent of nowhere. Click To Tweet
Books are great calling cards, they give you a chance show what you know, let people put you as an expert in that category. If you write a crummy book, it won’t help you. You have to know what you’re talking about, but, get it out there. Those books tend to travel around and go places that you would never go. I’m glad that I wrote the books I wrote and they changed my network a lot and it’s for the better. You’re training people out there to bring your deal so you can partner with them. You also have a course, wealth training/partnership program. You have a free webinar on that. If you guys want to see the webinar go to 1000Houses.com/THale. All the things we’re talking about, if you want the eBook, if you want to listen to the free webinar, if you want to read more about the course, reach out to Terry himself, I’m sure everything’s going to be over there. Tell us a little bit the two strategies that are in the book and in the webinar. You could give it or you saying the two strategies are given education or partner with them, are those the two choices or is there other choices?
There are other choices. Anybody can get educated. I provide an outlet for people to get really close to me and learn what it is that I do. I also bring all my strengths of being able to find the deals, pre-screen them, evaluate them, structured them, negotiate them, and then facilitate that by bringing in the capital and also management, marketing collections, third party and be able to run them. The two strategies, Mitch, is one is to take the paper from one side of the table, move it to the other side and tied up under contract and then assign it and get yourself a paid to pay that’s one strategy. The second strategy is to identify the type of property that’s in a good market, something in an area that is appreciating. A property that got tons of upside due to vacancy and low rents.
What we do is we capitalize on the upside, we close it, keep it, reposition it, stabilize it, maybe a cash-out refi, take our money back out, and keep it on the portfolio. I’ve had properties on my portfolio for decades. Those are ones that I won’t sell. There are key markets that you don’t want to sell in. Other areas where there are smaller tertiary markets where you’re like, “This looks good now.” Teague, Texas, I’m sure you know that area maybe. It’s a smaller market. I only own the two storage facilities in that market. The reason why I own both of them was because I sold them both as a portfolio. I offered them and made myself some good money because I was the big fish in the small pond there.
Do you pick a specialty, like are you only storages or are there other properties that you’ll do?
We do multifamily we do mobile home parks. We stay away from a whole array of properties that I will not stay on the one strategy for long-term hole. the only properties that we want to keep for long-term hole our recessionary proof properties, like multifamily, self storage, and mobile home parks. As far as all the other ones that are out in the marketplace, the big-box warehouse, ambulatory care, congregate living, assisted living, senior living, the hotels, motels, land, all that stuff, I will assign my acquisitions team to find that product, if we reverse engineer our thinking. I’ll give you an example, Mitch.
If I jumped on the phone and I talked to somebody let’s say, I talked to Bob and Bob was like, “I got $2 million cash. I’m looking for this product.” We’ll find that product, almost acting as a broker, but we’re not a broker. I have two licenses. I got a marriage license and a driver’s license. That’s it. The fact is when we identify someone that maybe wants that particular product, and we know that that’s an easy deal to get, maybe they want to buy on a 7% cap, maybe it’s a 7% cap that’s in a small market that’s not too hard to find. We’ll go find that and just park it with them and squeeze herself in there for a couple of hundred and move.
That strategy is get an option and sell your position, or get a contract and sell your position. You’re tying it up and then pass along the paper, like you said earlier. What’s the other strategy?
The other strategy is to identify a property that got some vacancy, because we don’t buy rent. We don’t buy property just to raise rents. That’s icing on the cake. We buy property that seriously is built like zero, deferred maintenance if anything. It’s looks good and it’s not a problem with the property, it’s a problem with the person situation. When we identify that, then we’re like, thing’s sitting at say 50% occupancy. We buy on the as-is value now on assets, whereas in its current state. What we do is the strategies to close it with private capital and we reposition it and stabilize it until we have a T12, a profit and loss on a rent roll. We know who’s occupying what and who’s paying what, and then what that T12, that trailing 12 months is showing that income. We can go back to the market traded at market cap and make a meet.
You’re turning a property around minus the rehab. You’re figuring out that it’s halfway full for a reason, usually marketing or time reasons, but it’s personal problem. It’s not the property that doesn’t have the problem. I bought all my storages that way, which was, they were having problems. I knew I could fill them up. A lot of times I bought them from old timers and they didn’t even have an internet presence. I know why they’re not full. They don’t even come up on the internet. People go to 1000Houses.com/THale and check out the webinar. Tell us a little bit about your training/partnership program, where people can join forces with you.
It’s important to join forces with the right people. That’s for sure. It’s a limited partnership. It’s not like a relationship marriage. We want to make sure that you get along with the person, you bet me, I bet you, and if we’re a fit, we can speak the same language. I can get that person educated, Mitch. What I do is I have my network of acquisitions, meaning people out there buying property already. I assist with joining forces to locate those properties. I do two training calls a week, a Tuesday training and a deal flow Friday. We go through the story, the reasons why these people are motivated to sell. When someone starts speaking the same language, then all of a sudden, I’m an extension of myself with that person and we’re able to move it forward together.
Like I said before, speak for purpose and clarity and locate these properties. Any investment that they make in themselves, they’re paid back 100%. That comes out of the net proceeds of the deal we do together. I partner up with people it’s a 50/50 deal and I provide the capital outlay, 25 years of experience and an entire team on both ends, both the buying end and also the selling end. The Commercial Buyer’s Club is something that I put together and at any given time, we have about a dozen deals rotating in and out of it. Some deals have seller financing, some are all cash. For the most part, they’re in great areas.
They’re a good product that other people haven’t identified for one reason or another, typically projects that are sitting right under people’s noses, right in their own backyard. Not everybody’s active every day. I’m fortunate enough that I have such a large network that we’re able to go into certain markets that we know are hot. Like I said before, reverse engineering, we already have the buyer, so we just find the product. It’s a seamless flow of putting it together and make the money.
I appreciate the time that you’re spending with us and you had Malibu. I was thinking it’s going to be hard to be doing stuff in Malibu. He’s got to be doing stuff someplace else because that’d be a tough place to buy a bunch of distressed property. I don’t live there, but I would just assume. I was right on my assumption, you’re a partner with people, any states you particularly like, or don’t like?
We stay out of California 100%, where does not buying on a 3% or 5% cap. For those folks that are here reading whether you understand what cap rate is or not, it’s your gross income minus your expenses equals your net operating income and we’re buying on ten-cap formula. If the thing’s pulling in and net income is all annual, I’m talking to your readers, not you, Mitch. I know you know your stuff.“You have one life to live; live it wealthy.” Click To Tweet
Let’s explain that to them. Cap rate is an NOI, which is a Net Operating Income, but it does include debt service because it’s not the property’s problem that you had to borrow the money. It’s all the expenses. Tell me if I’m wrong about this because I’m not in commercial real estate. I do all my things that I used to on a calculator that you’d hold up to the sun that I bought for a doll for $2 at the dollar store, which was the most confusing thing of the whole equation. I would do my cash-on-cash returns. How much do I got to put in and what’s it bringing it back per year?
If it was up around 25%, I started getting serious and that was it. I never did it cap rate or anything, but later on you figure out. Cap rate is all the income and expense related to the property. That is the property’s fault. Debt is not because you had to borrow the money to buy this place, it isn’t the property’s fault. You divide it by whatever the cash price for that property is. You should end up with a cap rate on the other end of that equation. I do well at that. I’m going to default to you.
It’s great. There are two ways to look at it. You’re are right, Mitch. It’s not the property’s fault that you have to bring it in your debt service. We don’t factor debt service unless you’re looking for that cash-on-cash return for your unique situation. To simplify it on my end, is there’s a funnel. Inside that funnel is here’s a property. The property is pulling in all of its income. That’s all the gross income. That’s everything that it’s bringing in. You then minus out your itemized expenses. Typically, it’s your taxes that your insurance at your electrical bill, your deferred maintenance, any vendor, if you have some vendor in that particular business model. After you itemize out those expenses, then you’re leftover with your NOI, which is your Net Operating Income.
The formula is your NOI divided by the purchase price, which equals either a double-digit or single-digit number. The double digit, the higher the number, the better for the buyer. The lower the number, the better for the seller. Out here in California, they’re selling property for 3% and 5% cap. You’re double paying for the property. There’s no reason why I’d ever do business in California, Oregon, Washington, Arizona, which is heavily saturated, Scottsdale and all that area came and went. Areas I do love are Texas, Florida, the Carolinas, Oklahoma, Tennessee and Alabama, Georgia is iffy.
There are some areas of Georgia that you don’t want to be in, but that goes with every state. I sold a project in Clovis, New Mexico, I didn’t even know where Clovis, New Mexico was. Here I was doing business in Tyler, Texas, which is great. Jonesboro, Arkansas which I never heard of other than just knowing Jonesboro. I never heard of these small little sub markets, but there’s 80,000 population in Jonesboro. I got 136-unit and it requires a $100,000 down. I got 36 month seller finance note at 4% interest only the debt service was $12.66 a month. The thing’s pulling in $79,000 net. As it sits, I got the deal under contract for $750.
They’re willing to carry that note, $650 at 4% interest for that debt service side was covered. The net income, if you look at the net, I buy on a 10% cap net so for that property, that’s pulling in $79,000, I used a 10% cap. The properties were $790,000 on paper on a 10% cap. If it was a 5% cap, then that would be double $79,000. It’s not $790,000. You’re looking at $1.5 million, $1.6 million property in a 5% cap if you were here in California. You can see why I’m not here in California, these neighboring states, because they’re ridiculous on their pricing. It doesn’t make sense.
The big class-A storages the fancy ones, they’re all selling at 3% and 4% cap rates. They’re not leaving any money. That’s if they’re telling you the truth about the expenses, and that you got to figure out, because you can’t afford any margin at a 3% cap. There can be no margin whatsoever or 3% cap turns the negative 1% cap in a heartbeat. You check it out 1000Houses.com/THale. If you’re a go-getter and don’t have any money, but you can sniff out a deal and you can find deals, you know how to put pencil to paper and do your homework and to learn and listen, because you’re going to have to figure out how Terry works and what he likes to see and what he needs. That’s what he’s trying to train you on so that you can go to work with no money, start your internship and even earn while you learn. That’s the whole point of it. Any last words, Terry?
I always say the road to someday leads to the talent of nowhere and it is about us being very proactive and the reason why we get lucky. To identify luck, luck means that you’re in the moment, you have the knowledge and you’re continuously taking action, the relentlessness for success, and people have that, then you could get lucky too. The fact is we all have the same amount of time in a day, a week, a month in a year, so make use of your time. I’ve coined this phrase, Mitch, “You have one life to live, live it wealthy.” It’s our God-given right to do so. Get out there and make things happen.
I’d like to thank LiveComm.com for sponsoring this episode. It’s all about lead generation and mass texting, probably one of the most affordable, direct, targeted way to advertise on the planet so far technology keeps changing everything. Watch the videos on the homepage and see how we’re using it to have our seller finance homes. We’re averaging nine days on the market. I’ll show you how and why that happens. I’d also like to thank Hale for stopping by. I’d like to thank all the audience for stopping by to get you some Terry Hale. This is Mitch Stephen, we’re out of here.
- Terry Hale
- Commercial Buyer’s Club – YouTube
About Terry Hale
Terry Hale is an active investor, trainer and CEO of a private commercial real estate firm, that provides acquisitions for all commercial property types and investment opportunities.
The firm executes value-add strategies through direct and joint venture investments, primarily with existing assets located throughout the U.S. Utilizing our extensive commercial real estate expertise to create value, to either wholesale to an end buyer or reposition and stabilize for longterm capital gains.