Paul Neal is the owner and chief funding strategist of Vantage Point Commercial Capital.

He has been funding real estate transactions since 1998 and as a serial entrepreneur has owned six businesses.

Today we're going to hear about how and why you should buy the building you run your business out of.

Welcome back to the Hairdresser Strong Show.

My name is Robert Hughes and I am your host.

And today I'm with Paul Neal.

How you doing today, Paul?

Hey Robert, doing great, buddy.

How about yourself?

I'm good, thank you very much.

So for all the listeners and viewers here today is, you know, I got a message from.

It was your publicist.

Is that, is that right?

Yes.

And, and we were going back and forth about a topic and you know, we were talking about like, is this something interesting to our audience?

And I said absolutely.

Like I've already interviewed a couple people who have bought the buildings and, but you know what, like they, they, they didn't really dig into the weed, get into the weeds on how or why.

I mean other than just people want to own stuff, you know.

So anyway, Paul, tell us a little bit about like what it means to get into what you do just to kind of give a little people a little bit of context.

Sure, sure, absolutely.

So high level.

So we, we've been funding real estate transactions since, as you said, 1998.

And specifically what we're talking about today is this opportunity that a lot of business owners and entrepreneurs miss because their heads down in their business.

There's a lot of ignorance out there about this topic because it's more like the wild west.

It's just there's no one real source you can go to get a definitive answer.

And that is this idea of, hey, buying the physical real estate that you run your business from, why you should do it, when it makes sense, how you do it, what are the options, that sort of thing.

It doesn't make sense for everybody, but in many cases it does make sense and I'm excited to get into, you know what, some of those cases are awesome.

So I have, I guess I don't know if we're like starting in the right place here, but like, you know, whenever I think about buying a commercial building, I think of, you know, I've thought of it always being something that I would go and find a commercial property, find some investors to buy the property, and then I run the business out of it and try to get a piece of the property as well.

So I'm like partially a landlord, that's all.

I've always kind of imagined that I would do it.

However, this whole concept of like, how and why to buy the building that you already run your business out of, now that's something like, you know, I, I think of my landlord and you know, are they going to sell it to me?

So what are like for the people who are already running a business and what do you say to that?

Yeah, so I mean, here's the thing.

If you have a business that has a need for a local presence, right, it's not some virtual business and all you need is a, you know, room in your house or apartment and you can, you know, outsource everything all over the world, that's not for you.

But if you have a business that you have clients or employees or patients or customers or whatnot that are coming to a physical location and you are sort of staking your claim in that area and you've had a successful run, three, four, five years in business, so you've weathered some of the startup, you've got some systems in place, you've got some profitability and a track record of that and you've got Runway ahead where you think, hey, I'm going to be in business for the next 5, 10, 15 plus years.

And so I want to sort of plant my flag.

So that's first of all, sort of the first requirement to have to say, okay, if I can check those boxes.

And now it's something I need to consider this idea of sort of being the eternal, you know, tenant from somebody else and you know, and having landlords.

It's how virtually every business starts.

Because let's face it, you know, you don't start a business generally with large amounts of capital unless you're, you know, it's venture capital.

And that's, that's not who we're talking about here.

We're talking about Main street service based businesses, hairdressers, salon owners.

We have a lot of accountants and veterinarians and physicians and chiropractors that all kind of in the same boat that are local service professionals providing value to people, then you really need to consider that because here's the deal.

So time's going to pass over, you know, as you run your business, right, and you're going to make money and hopefully with a successful business you're going to make more and more money over time.

And so your business has to live somewhere.

And so what you, I ask people is like, well, why do you buy the house that you live in, right?

I mean, similar to buying the building you're most people Rent in the beginning, before they buy their first home, because they don't, you know, they don't know where their career is going to take them yet.

Maybe they're learning they're not making a lot of money, don't have, have down payment, that sort of thing.

But at some point along the way, you say, hey, I want to buy the home, you know, that I can call my own for, for a whole number of reasons, right?

One, you get control over that.

Nobody tells you, you know, outside of your hoa, if you have one of those, of course, but nobody's telling you, you know, what you can do in your house, what you can do to your house, what color you can paint your house.

You have this thing called equity and wealth accumulation.

Instead of paying rent to a, to a landlord who's going to escalate your rent payments probably every year.

And then when your, your lease comes up for renewal, at some point, they might, you know, raise the rates even more based upon the market dynamic.

They may decide not to renew the lease because they might want to sell the house.

So, so by buying the house, you lock in generally a fixed payment on that property.

The property is going to generally appreciate over time.

Nobody has a crystal ball for the next one or two years at any period of time, but generally over 5, 10, 20 years, it's going to be worth more, is today.

And so every payment you make to your home versus to a rent, some portion of that goes to paying down that principal balance in addition to some appreciation on the property.

So you're getting equity there in two different, two different ways.

You're getting some tax advantages.

All these things are inherent in owning versus renting.

Right?

Sorry, could you.

For the people who are listening and watching, I'm.

I don't want to assume that they know what equity is.

Would you just give them like a example or.

Yeah, yeah, sure.

So equity is the difference in the value of the piece of real estate, whether it's a home or a building that you run your business out of, but the difference between that and what you owe on it.

So let's say you bought a home for $300,000 and you put 5% down or $15,000 down.

So you only owe 285,000.

So you have this $15,000 in equity.

Well, five years later, that $300,000 house might be worth, let's just say, 400,000, but make the math easy.

At the same time, you've paid your loan down from 380, 285,000 to maybe 260,000.

And so your equity has grown from that $15,000 investment to now $400,000 value minus what you owe, 260 or $140,000.

So you've, you've grown your wealth just by living somewhere and making the house payment.

Whereas if you're in, if you're renting, let's say an apartment or a house or whatnot, you're making the same payment every month, but none of it's.

There's no equity accumulation for you.

What you're actually doing is you're building equity for the landlord.

So you're taking care of their future and they're very happy about that, right?

And they hope you don't call very often and they hope you don't need your toilets like plunged or they have a shower issue with a leak or whatever like we were talking about Robert, and stuff like that.

And they hope you're low main, low maintenance, right?

And you're just in there and you're making the payments and whatnot.

So similar idea on your business, right?

So you have a business and your landlords are going to want that too.

In fact, a lot of times they actually put it in the lease, right?

Sometimes in the lease, like in a commercial space, you are responsible as a tenant for the air conditioning unit, you're responsible for the maintenance.

You're responsible for the taxes and insurance sometimes on your lease, not all of them, but depending on how you negotiate, guaranteed to have rent increases every single year.

Not sure they're going to renew it should, you know, renewal come up and so forth.

But so you've got this business that's generating cash and you're paying them and that's great.

It's, I mean, at least you have a place to house your business.

But by owning the space, you could have literally two businesses, one passive, one just like the home, where you're, you're writing the check to pay the mortgage on the building every single month, where part of it's going into your quote unquote equity account or savings account.

And then your value of the property is growing over time as well.

So same kind of an idea.

Like the house we talked about growing to 400,000.

Great example.

A friend of mine, Kathy, she's a physician and she, her husband and kind of forced her into buying this building about 15 years ago.

Well, they paid it off over 12 years.

And the thing is that I tell people it's like 12 years seems like a long time, or 15 years seems like a long time.

But the thing is 12 years is going to pass.

15 years is going to pass either way.

Right.

So I know plenty of business owners that have had businesses for 12 or 15 years that still rent.

Well, so Kathy and Jim made the decision to buy and they literally paid off the building.

And so a funny thing happened.

Now they've got this building that's worth a couple million dollars and grown substantially in value over the 15 years.

Well, she was recently approached by a larger practice to buy her medical practice and she's getting close to retirement.

She's like, hey, I think it's a good deal.

So they wrote her a big check for the business and she negotiated staying on with them for the next couple of years just because she's not quite ready to retire.

So she became an employee, you know, of the new company.

But the cool thing about it was she owns this building free and clear that her business paid for over 15 years.

Instead of paying somebody else's rent, you know, paying another landlord, she paid it to herself.

Now the company that bought her company is renting that building from her to the tune of like, you know, five figure monthly sum every single month.

So she got a big payout.

She gets to keep working if she chooses, and she gets a monthly retirement stream just on the asset, which she could turn around and sell if she chose to at some point or whatnot.

So she's, she's totally in control.

So those are things you can't do when you rent and either way you're going to spend it.

And we, we both know that if you own a business outside of payroll, typically your largest or one of your largest expenses is going to be that rent payment, particularly as your business grows.

Nice.

So, so everybody out there, if you are running a business and you are renting, wouldn't it be awesome to not only sell your business but also charge your, the people who bought your business from you, charge them rent and still make money off of it.

It's pretty easy, simple like concept right there.

So the qu.

So the how I think people understand, should understand why.

Is there anything that we should add?

And if not, let's talk about how.

How does this happen?

Well, there's a lot, a lot of whys actually get to like for example, another thing, if you're looking to help accelerate your wealth opportunity, if you're a business owner, salon owner, we have a lot of people that go in after they've got, you know, a business that's successful and they want to buy a space, either they try to buy the space that they're currently in, which is a whole.

And that could be a great opportunity for a lot of people.

But sometimes they want a new space or they want a bigger space or they want a custom design space.

So we have people all the time that will, will build or find a space that's much larger than what they actually need for their business.

For a couple reasons Robert.

One, so they can expand into it over time as their business is growing or it could be an andor they also want to be a landlord like you mentioned.

They want to bring on other businesses in the space that they own and they can be the landlord to those tenants whether they're a complimentary business.

Like maybe if you're in, you've got a salon, maybe you want to bring in massage people or a chiropractor or some other related type business.

You can then rent the space to them.

And a lot of times the tenant cash flow will pay the freight or a lot of the freight on the mortgage itself.

Great friend of mine, he just built what he's building now.

We closed a little while ago on a 12,000 square foot like flex warehouse space.

And he's a high end remodeler and he didn't need 12,000 square feet but he thought, well my business is growing and maybe one day I will, but what I would like to do is lease some space out.

So long story short, he's going to use a little bit more than half of the space space.

He's got two, two additional spaces that he's already rented out.

They've already signed leases even though construction is not finished yet.

Those two spaces, those tenants are going to pay, I mean almost the entire mortgage on this million dollar plus building.

And so he's, his rent's coming down because he's not going to have that payment going forward.

Plus he's going to have the equity and all that.

And if his business continues to grow, he can non renew one or both of their leases should the time arise.

You know, if he needs the space or he could keep that building, go get another building and do the same thing over and over again.

So there's some of the whys there, but you know, the hows.

I think, I think here's the thing, the biggest issue that people have with buying commercial space is when business owners, business owners are busy and they get this notice that their lease is coming due.

And what they do is like oh my gosh, maybe it would be cool to own something because now my lease is coming due.

I don't want to really want to sign another three or five or seven or ten year, God forbid, term on a lease, right?

And so they saunter on down to the local bank and it's the same bank that they set up their original accounts with when they open their business.

And so they've got a pretty good relationship maybe with the person that helped them with that.

And now they're running a decent amount of money through their, you know, their business bank accounts.

And so they're important to the bank.

And what most people don't realize is the bank, they really, they like that.

They want your deposits, they want your cash flow, they don't really want to loan you large sums of money.

They just want you to deposit and move money through their account because then they can loan it out on smaller quantities in a fractional manner to many more people at higher interest rates, and it reduces their risk.

And so you go into them, you're like, hey, I just found this building, it's great.

It's $800,000 or some number.

And the banker says, awesome, here's what I want and gives you a litany of documents.

You need to get to them.

And they're going to tell you, okay, what we're going to offer you is generally a five year, three or five or seven year balloon loan with a 20 year amortization, which is different when most people are used to residential.

Most people get like a 30 year fixed rate term on a residential because that's all pretty boilerplate and pretty common.

It's pretty much ruled by Fannie Mae, Freddie Mac, they write the rules and everyone kind of follows.

Commercial is not like that.

So you go to the bank, you're going to get a shorter term and they're going to say, oh, by the way, Robert, we're going to want 20 or 25% down.

Okay.

So people do the math pretty easy.

Like, oh, okay, great.

On $800,000 building, it means I need 160 to $200,000 cash to put into this building, into the bricks and mortar.

And the term is going to be shorter.

So my rent payment or my mortgage payments can be pretty high and I've got to refinance it and requalify in the next three years or five years because I've got a balloon.

And so they start thinking about that and like, that's a whole lot different than what I was hoping it was going to be.

And so what happens is they just kind of go back into the mode, what they're comfortable doing, and that's kind of where they leave it at that point, like I think I'll just renew the lease and move on.

But the truth of the matter is that doesn't have to be the case.

You can get into a commercial building with your own business if you're going to put your business there.

If your business is cash flowing for as little as 0% down, you can generally do a 25 year amortization and a lot of times a 25 year fixed rate.

Most of the time we see people coming in the 5 to 10% range down payment, not zero.

We can do it and we do it a lot, but it just depends on the situation.

But we don't like people putting 20% down.

We don't think it's a good idea.

We would rather you have cash in the bank and operating capital, just drive powder reserves just for whatever.

And maybe you want to use it for something else.

Not stuff at all in the bricks and mortar in the building that you can't get it out very easily.

So when people realize that they have an option to do that, it's like, oh, okay, now we're changing the conversation a little bit because there are other, other ways to do this that I didn't know about.

And so once you cross that threshold, then it opens people's eyes and then, you know, we can get into kind of the how and the process and all that.

But I just think that's a, that's a big myth and I hear that a lot.

And that same story plays out over and over and over again with people going to their banker and they get told, you know, it's going to take this, or they get told no because their particular bank, banks, you know, they market that, they're for the small businesses and I know they try and a lot of times they are.

But again, the reality is they have many masters.

And the client is not the master.

It's the regulators, it's the board of directors, it's the portfolio management, credit officer, all of that.

And so their sort of appetite for different types of loans, whatever changes day to day, month to month, year to year.

And so you might happen to show up when they just don't have any appetite for that type of loan at this point.

It doesn't mean they wouldn't have six months ago, or they might not 12 months from now, but just today they don't.

You take it as a denial, you don't know any other bankers and what are you going to do?

Where are you going to go to get, you know, an $800,000 loan or a million dollar 2 million loan, who do you trust?

You know, what do you do?

So, so, so that story gets played out over and over and over again.

But once people realize they don't have to do that there are other options then they become very interest what that looks like.

Wow, that's so interesting.

So this, we'll just kind of ask a couple questions.

So you were talking about the typical payment is like a, is a three to five year balloon and then in the term.

So tell, can you tell us what that is that is for?

I mean I think I know, but I don't think I can do a good job as you I'm sure explain.

Yeah, yeah.

So basically so the conventional lending or bank loans are going to be.

There's two things to know.

There's, there's a term and then there's a, what they call an amortization.

Okay.

Most people buy homes that they live in.

Residential real estate, even investment.

Residential real estate is generally a 30 year fixed term and a 30 year amortization meaning you make payments on it every month for 30 years.

And at the end of 30 years you've got a zero balance and you own the home.

Okay, commercial is not like that.

Commercial is all over the map.

You will not find hardly anywhere a 30 year term with a 30 year amortization.

And the reason is, is because the, it's, it's, it's not regulated per se like, like the residential real estate.

And so there's all kinds of ways that you can fund commercial real estate.

There's local banks, community banks, federal banks, large banks, you know these national banks.

There, there are venture capital funds, there's insurance company money, there's private investors, there are SBA backed loans and some of those are bank loans, some of those are non bank depository loans.

So it goes all over the map.

And so what when we say a three year term or a five year term from the bank with a 20 year amortization essentially.

Let me make it really simple.

The shorter the amortization, if we come shorter than 30 years, then the payment goes higher.

You're paying more principal than it you paying more principal in every payment than you want in a 30 year period.

And so you ultimately will pay less interest.

But it, sometimes it can be difficult to do.

Right, because you have a high payment.

And so business survives on cash flow.

It's all about cash flow.

Right.

And so when you get a business loan, we want to make sure cash flow.

So the longer the amortization you can get the lower the payment generally and the more it helps your cash flow for the business.

Now you can always pay the loan off faster if you choose to, but you're not forced to.

When you get a shorter amortization though, you're forced to do it.

So it's almost like if you were to go get a 15 year loan on your home versus a 30 year loan on your home, your payment's going to be significantly higher, even though the rate might be a little bit better.

Okay.

And when I say term of three years or five years or whatnot, what that means is you're going to make over a 20 year amortization.

You're going to make the payment like you were paying the loan to zero over 20 years.

However, at the end of that three or five or seven year term, the bank is going to say your loan is due.

So you have this giant balloon payment.

And so now you have to refinance.

If you still qualify, okay.

And hopefully you will the loan and most people do.

But the reality is who wants to go through that again after three years or five years or seven years?

And they might be new terms, rates could be different at that point in time.

Now if rates are lower, that's a good thing.

But even if you get a longer term loan, you can, with rates come down, you can take advantage of that.

So what are the balloon.

These balloon paint.

Are these, those are common with banks.

Are they also common with all these other parties?

I guess this are the balloon payments a pretty con?

Like, like are you are you basically are commercial real estate owners just constantly refinancing their properties?

Yeah, a lot of them are actually.

It's very common.

It's not the only way to do it.

We don't really recommend it.

I mean in some cases that makes sense based upon the profile of the business and the goals and cash position, what they're trying to do.

And so it's an option and we make that available.

But for most people it's not what they want.

Particularly for a small business that's local.

They're focused on growing their business and they're like, I don't want to deal with this in three years or five years.

I want to get the longest amortization I can get, which is generally 25 years.

There are some 30 year cases, but generally 25.

And honestly the difference between the 25 year payment of 30 is not that much different anyway.

So it's really a good thing for the, for, for the business owner and borrower.

And there are fixed Rate options as well that will carry that entire term.

And we like those too, because we like to mitigate risk as much as we can.

We're like, hey, if you can make the payment today where your business is, you're good, right?

And if your business gets, you know, better and better, which we hope and believe it will, then it's going to be easier and easier for you to do it.

And again, if you want to pay it down faster, then, you know, more power to you, or if you want to take that extra money and invest it in something else, then more power to you.

But you at least have the decision.

You're in control, not some banker or whatever saying, oh, you got, you know, you got to come deal with this, your balloon is coming due, you know, what are you going to do about this?

And so one question.

So in the event that somebody is sitting in a balloon payment situation right now, listening to this and well, one, I guess, what would your advice be to them?

And you know, they're going to have to refinance at a certain.

I have two questions.

I don't want to forget the one, but I am curious to know what you would say to somebody who is currently sitting in a balloon payment situation and they're hearing you and they're like, yeah, there's other options.

I didn't know that.

Yeah, I mean there are some, there are some options to take that out.

There are some ways that you can get into a longer term financing situation.

But it's a case by case basis.

Right.

I mean, if you're in a situation where your business is strong and your cash flow on and you're doing okay now, then you're probably going to be okay.

It's just one of these things that you ideally don't want to step into if you can avoid it.

So once you're in it, is it harder to deal with getting out of it than versus setting up yourself from the beginning without that, that kind of a situation?

Yeah, it makes it, it makes it a little harder.

Just because you're limiting some options that you could have taken some different roads, the roads less traveled upfront, that now that you're in this, it's, it's just a little bit harder to go sort of the other way.

But it's not impossible.

And we do that from time to time.

Interesting.

So you, someone wouldn't just refinance out of the one pipe alone into the other.

It's not that simple.

It's not that simple.

No.

Again, like I said, the commercial side is A little wild, wild West.

Yeah.

It sounds like it also depends on the timeline.

Right.

If they have a few years left on their, their current one, then in the business is strong and growing, then it might not make sense to even want to do that because if they've been making the payment on the shorter term and the shorter amortization, then they might be best suited just to stay in that, you know, because they're, they're drilling it down.

But it's really from, from our perspective, we like to look at the first couple of years of someone, you know, taking ownership of a building.

We want to make sure they're cash flowing good and strong, and it's a positive, not a negative for them, Tom.

And so, and we're hoping that.

And believing they're going to be stronger down downstream.

And so then they have all kinds of additional options downstream.

But we want to sort of set the, set the stop loss, so to speak.

You know, a fix, a fixed level here.

And like, if you can handle this, you're good, man.

And if it gets better, then that's awesome.

So, okay, so my question was, shoot.

It keeps coming in and out.

So we got the balloon payment.

Oh, so if somebody is currently in a lease and they are like, I want to like, buy my building.

In.

Your experience, do they usually go and find a new building and move their business into it to buy it, or have you seen a lot of people buy making an offer to their landlord?

Yeah, well, I think, I think it starts before even going to that stage, making sure that you're financially in business in a position that you can actually buy the space.

Right.

But let's assume you've crossed that bridge.

To answer your question, I.

If you like the space you're currently in, I always suggest going to the owner of that space and making an offer or having a conversation.

And you should do it well in advance of your lease expiration, by the way.

You shouldn't.

This should not be 30 days for lease expiration.

This should be 12 months out, 18 months out.

Six months kind of is where we start.

The pucker factor starts to build at about six months.

But you should always approach them because you never know.

You don't.

Somebody taught me a long time ago, you don't.

If you don't ask, you don't get.

And there are people that own commercial spaces, landlords that for one reason, another, are more than willing to liquidate.

They want to sell.

Maybe they've had a run up.

They're like, this is great.

I want to get out now, maybe they want to retire and maybe they inherited the space and they don't want to deal with it anymore.

It's not part of their plan.

And so if you go to the seller directly or the tent, the landlord directly, and say, hey, I'm considering buying a space, I've, I've had my financials looked at, I'm strong enough to do that.

I really like this space.

Have you ever considered selling it?

So that's all you gotta do, you know, it's just a very, very easy, non threatening approach.

Have you ever considered it?

It's nice that they know that you'd be qualified to buy it, you know, and when you kind of drop that, that's why it's kind of important to know.

Plus you don't want to open that can unless you know that you could do it.

And so they're going to say a couple of things.

They're like, yeah, absolutely or no, absolutely not.

Or maybe I hadn't really thought about it.

And so you're planting the seed of potential opportunity for yourself.

And what that creates is potentially opportunity if they are warm to it or willing to warm up to it or even say yes to it.

Now you're looking at, well, they're saving real estate commissions because they don't have to list it on the real estate market and you know, pay big commissions if they sell.

And also a lot of times the sellers are willing to negotiate the financing.

So sometimes a seller will sell, but they don't really want a big lump sum of cash.

And so they might say, well, we'll give us a 5% down payment or 0% or 10% or some number you can negotiate and, and then they'll write up a note.

You have to get legal people involved for sure, definitely get your attorney involved in this.

But they can write up a contract, basically a sales contract that says, okay, we're going to finance it back to you at some interest rate, 6, 7%, some number over the course of 5 years or 10 years or whatever.

And this is, this is what the payment's going to be.

And so you own it.

Just like you would go to the bank and you know, get financing there just happens to be the ones that are going to finance it.

And so they get a stream of payments directly from you, almost like a retirement stream of income or an annuity.

And for them, if you, whatever reason, stop making payments on the loan, then they get the building back.

So it's a no brainer for them.

They get a cash flow and you get into the space without having to go through, you know, heavy duty qualification, all that.

And you might be able to get better terms than you could get, you know, from the bank or from a lender of some site, some sort.

So it's worth asking Robert and you know, and again, you'd be surprised at how often it's, some people have, you know, spaces.

Their, their landlords own a ton of space and they're like, yeah, okay, I'll sell this one to you.

No big deal.

And interestingly enough, to successful real estate investors that have developed like a portfolio over time, they, they tend to like business owners and business people and entrepreneurs and they do want to help them succeed because that's what they are.

And as entrepreneurs and business owners, we like other people like ourselves, it's kind of our tribe.

And so a lot of those people are wanting to give kind of a step up to business people.

And so they may already have tons of money, they may not need that much money.

So like, yeah, absolutely, sell this to you, you know, what not.

So you just don't know unless you ask.

So if that's off the table, then you can start looking in the market.

And, and that's when you, you would engage a, like a local commercial real estate agent who knows the market.

It's important you go with commercial versus residential just because commercial world is completely different.

You're not going to Zillow your way to finding a property for commercial.

So much of commercial is off, off the market.

It's not listed.

They know what's coming available in the next six months.

They know city council just had a meeting three months ago and approved a project out on I, you know, 40 here.

And they know that's where like all the development is gone.

And so they can help you position your business where it needs to be for the future that you're probably not aware of unless you're going to city council or following the local news, you know, very carefully.

And then they're really good at helping you negotiate the terms and you know, working with sellers and sellers agents.

So they're, they're really invaluable.

So you would, you'd find them and then, you know, one of the options that they're going to discuss with you is do you want to, you know, building something new?

Is that something?

And you know, what, where's the land available and you know, what's the cost of the land and cost of the build and so that, so I would say make sure your financial house is in order and you Know what?

You know, what you could legitimately buy, what you'd be comfortable buying and what that would look like in terms of, you know, down payment, monthly payment, that sort of thing.

Then have the conversation with your current landlord or not based upon what you want to do and at that point engage that commercial realtor who can now start talking about needs assessment, location, traffic counts, things like that that are going to be important to your business.

Nice.

Okay, so I feel like at this point people who are interested are still watching and listening.

And so now I feel like unless there's something else, I feel like I, we gotta know.

Like, you've said it like five times and I haven't asked you about and that is qualification.

So like, can you tell us about, like, how can we, I don't know, is like this something that we can figure out on our own or is there like some back of the napkin stuff that we can do?

Or like, how can you, like, what can you say to anybody listening or watching?

Like, well, I like this.

So how do I know if I'm even a candidate or if I'm even ready or where do I need to get to or whatever?

Yeah, it's, it's a loaded question, right?

It depends on a lot of things, but, but essentially you're looking at the cash flow of your business.

Excuse me.

And what we're going to do is we're going to a couple things.

Number one is if you're already paying rent, we're going to take that out of the equation because if you're going to buy a space, you're basically going to replace that rent with a mortgage, right?

So kind of litmus test number one is if you're paying 3000 or 4000 or $5000 a month already in rent, you've been doing that for some time, then you could easily back, sort of back calculate how, how much of a mortgage that you could afford if nothing else changed.

So if you take a current interest rate, we're now in, you know, August of 2024, rates are actually about to start coming down.

The Fed has signaled this is, you know, we're heading into a nice rate environment.

But right now let's just, if you take like 7% as a number, then you can do a calculator online or if you have a financial calculator, basically say, okay, 5,000amonth as a payment.

You know, I've got, I've got 7% interest rate.

Let's figure a 300 month term or 25 year term.

How much, how much Loan will that get me?

And that can kind of give you an idea from a back of the napkin standpoint.

Okay.

Then add anywhere from 0 to 20% for a down payment.

Right.

And the down payments based upon how much you want to put down, how much cash you have, you know, what type of program you go with that sort of thing.

10% is a good number to stick with.

That's where most people kind of fall.

But the other thing that we look at is your business, the last three years of your business and personal financials.

And so what we want to see is your business either stable or growing.

It doesn't have to be going off the charts.

But what we don't want to see is it declining.

Okay.

Unless there's a very good reason for it.

Like you, you know, you closed one location or whatever.

And it's like the pandemic.

Yeah, well, the pandemic.

Right.

And like one, like.

Yeah, you look back a few years and there was that year or whatever.

You know, we.

The most important year is the most recent year.

Okay.

Okay.

So that's really what we're looking at.

The most recent.

The other just kind of building the case in the history and then the year to date performance.

So year to date P and L, year to date balance sheet to see how it's trending still.

Because like right now we're beginning of August, so we should have at least six months of 20, 24 performance.

Right.

Half a year to get a sense.

Are you on track with what you did last year?

Are you ahead, you behind that sort of thing?

So we're looking at that, we're looking at the big number after that is what we call global debt service.

So we want to know two things.

We want to know that your business, the net cash flow from your business will be at least 25% greater than all of your debt service payments for that business.

Okay.

So that would be the new mortgage.

That would be if you have equipment leases you're paying.

If you have any other, you know, debt obligations, it doesn't count.

Payroll and things like that, operational expenses, just debt.

Okay.

And again, we can add back things like rent, because you're not going to have rent anymore.

Right.

Well, 25 net cash flow needs to be 25% greater than debt service.

So like, for example, if I have.

Let's just make the math easy.

Like it's.

Let's call it $10,000 for my, my mortgage payment and.

Or do you call it a mortgage in commercial?

Yeah, mortgage payment and whatever debt I have, whatever the services are like you said, like, maybe I bought like a fancy machinery or something to do something new with.

So my, my cash flow has to be 12,500 in order to be.

Look healthy.

Yeah.

Your net cash flow.

Yep, net, but net.

Not including payroll?

No, no net including payroll.

Okay.

We're just not including payroll in that $10,000 debt.

Okay.

Oh, okay.

Yeah.

I got you after all your expenses.

Okay, Got it.

Right, Right.

So we want to see that ratio that, that's called margin.

Right.

And you want that too because you want some breathing room.

Totally.

Yeah.

Well, our business, everybody knows our business fluctuates seasonally.

So, yeah, it's good to have some money and some room to breathe, for sure.

And seasonally is okay because we're going to look at the annual performance.

Right.

So you know, it's going to be, it gives you chance for the up and the down.

Right.

And like.

Okay, because you're going to have that every year.

Right.

You have a seasonal kind of adjustment.

So but if you're like year to date, we just finished June, you know, for the.

In terms of financials close out, maybe your big, your big quarter is, you know, the third quarter September, you know, August, September, October, whatever, then that would have to be taken into account too.

Right.

So.

And we could work.

Those are those kind of, you know, marginal cases that can be handled for sure.

But that's what we're looking at, cash flow.

And then the other thing is the global cash flow beyond that business and servicing that particular building is we got to look at.

Okay, Robert, how about your personal life?

What debts do you have?

So what's your personal income and debts?

We want to make sure that there's enough cash flow to meet those obligations and the business obligations.

And oh, by the way, generally speaking, if you own other businesses, we have to look at the cash flow of those two.

And that adds in because what happens is sometimes you might have one business that's generating a great profit, but another business that's losing money.

And so that has to be taken into account because that, that loss has to be covered somehow.

Right.

So your profitable business is paying for the one that's not profitable.

So it's a lot of paperwork and analysis, and that's why most people don't do it.

It's like, I don't even know where to start because it is a lot.

But essentially the last three years of business and personal, all businesses that you own, generally at least 20% or more owner in and personal.

And then from there we can Make a pretty good determination of the global cash flow.

Those are the big things.

Credit's got to be decent.

You don't have to walk on water.

You know, you just have a history of paying your bills.

If someone had a.

Had a life event three years ago, you know, but they recovered.

Okay, that makes sense.

What I tell people, though, here's the thing.

A lot of people try to hide stuff, and you're not going to hide anything from lenders in 2024.

Okay.

Whether you think you have anything that's private in your life or not, you don't trust me.

They know.

I.

They find things.

I'm like, how in the world they find that?

I'm like, I.

They have databases and resources and, you know, and whatnot.

So.

So what we do, because our role is pretty simple.

We.

We work with business owners that want to get buyer ready.

And this is where we walk them through this process and we analyze their financials and we seek feedback and we get questions and then we come back.

But we start with about a 50.

It's a 52 question questionnaire to ask a whole lot of questions that sometimes are.

People say these are a little bit redundant.

Like, yeah, but we've seen deals blow up or go south.

Because this stuff comes up, and it always comes up, and you never want it to come up.

Like three weeks before you close and you've already told your staff that you're moving and you've got plans and you got all this, and then all of a sudden your deal blows up because something showed up midstream or the end that no one knew about.

And in the commercial world, they don't let nobody.

Like surprises.

I'm gonna tell you, you want to get it out up front.

So then nine times out of 10, we can address it, get it dealt with, and everything's cool and everybody's good with it.

But you're talking about, like, debt or, or, or.

Or anything on your, like, credit report.

Like, what are examples of things that you're talking about?

Yeah, like, let's see, one example.

One.

One guy had a fire in his business, and he had some.

Some payment issues on that and collection issues with the insurance company.

It didn't show on the credit, but it did show up on the background and all that.

And like, hey, what's all this?

And.

And it was like, now, what else aren't you telling us?

Totally.

Yeah.

And that's what it.

And that's what it is.

It's not necessarily the isolated.

It's the question that goes like, what else aren't you tell.

And what you have to realize is, as commercial lenders have stacks of deals come across their desk every day, and if you give them a reason to stick the file in the corner, they're going to stick the file in the corner and they're going to move on.

And they don't really want to go back to that one again.

And so you got to put your best foot forward.

And even if it's, if it's got tarnished, if you had, if you had a bankruptcy, you had an issue, you had a default on something, it's okay.

You got divorced and your spouse, like, you know, ran your credit in the ground or did this or that, we want to know about that so we can document it and address it up front.

And then everyone knows and it's like, no big deal.

It's nothing to be ashamed of or whatever or afraid of because everyone's got issues of some type, right?

And so we don't blab it out to the world.

It's kept very private, but it just has to be addressed upfront.

Here's another one.

Here's another.

Not just credit, but what a lot of people don't realize is lenders and investors today are going to check your business reviews because, yeah, because they don't want to lend money to someone who has terrible customer reviews.

Right?

Because they're like, well, they don't treat people very well.

They're probably not going to treat us very well.

And lenders want to get paid back.

Right?

So I'm obviously not talking about a bad review here or there.

Everyone gets that.

But you know what I'm talking about.

I mean, just a string of bad reviews and that sort of thing.

It doesn't serve you well when you go looking to borrow money, particularly large sums of money from, from people at a decent interest rate, you might be able to get it from, you know, Uncle Louie around the corner, but, you know, better not miss a pain with him or he's going to break your knees.

Right, well then, like, what's the state of your business anyway, you know?

Right, right, exactly.

You need to get that operational systems in place, customer service in place, because when that's all working well, you've got lots of repeat business, you've got referrals and all that.

And that's, and that's where you're building your future.

And that's how you can have confidence in, hey, I'm going to buy a building.

I'm going to be here in five years and 10 years.

Because my, I've already got this base and I've got, you know, I treat people well, they know it.

And, and you know, that's, that's what local businesses do.

That's what local business professionals do.

Sometimes it takes a little while to figure it out, right?

Because, you know, most of us were good at some technical piece.

Maybe a salon owner loves to do hair or whatever and they're just, just awesome at, just an expert, but they've never owned a business.

And so now they say, I'm going to open the salon.

Well, there's a huge leap, right, from being a great, you know, hairstylist to a business owner that now does hair or has hairstylists or whatever.

Same thing.

If you're an H Vac company or a plumber, you might be great at plumbing, best plumber ever.

But you might be awful at running a business, right?

And so you have to learn that skill.

But once you get there, if you're in it long enough now you're like, okay, we've crossed that Rubicon.

And now, and now I've got consistent growing business.

And it makes kind of sense.

So those are the things, the financial house, the credit situation, the cash flow we're looking at and then collateral.

We've got some situations where, you know, some borrowers don't have all those pieces put together, but they're maybe really strong in one area.

Like maybe they have more cash.

Their business is not showing a great profit, but they're the way they're doing their financials or whatever, you know, and it's okay, but they have more cash to put into the building.

Then that's, that's something we can work with as well, you know, or someone who's got great cash flow but they don't have a whole lot of money to put down.

That's again, that might be a candidate where 0% down is a great opportunity for that person, right?

And they're going to pay a little higher interest rate for that, right?

So, you know, there's, there's trade offs.

So what we like to do is once we get all this information is we like to come back and say, okay, based upon your situation, your goals, where you're trying to go, you know, three years, five years, 10 years, and where you've been, then here's three or four options in the market that, that would make sense for you.

And here's the good, the bad and the ugly on each one.

So you're educated in the market because you need to know it's a big deal, right?

It's a big investment.

It's a big commitment.

It's, it is.

And that's another reason why a lot of people don't do it, is because it's a big commitment, right?

I mean, buying a space, you're like, you're, you're married to this thing.

You're, you're the, you're like the pig, not the chicken, right?

I mean, for breakfast.

Well, this is, this is awesome.

This has been a great conversation and I know we're at our time, so I really do appreciate you taking the time, but I wanted to give you a chance to, if you, is there any like last pieces of advice or, you know, I'm assuming like, you know, you mentioned that when you work with people you have this like 50 point questionnaire that you do.

And so if anybody is thinking about.

I guess first thing is if anybody's thinking about this is that should they reach out to you and like ask you questions about this?

Is that something that you would do, that you do for them?

Yeah.

So, so I wrote a book they can get.

You can go to our website, ownyourbuildingnow.com ownyourbuildingnow.com the book is Unleash youh Business.

Unlock wealth, autonomy and control by buying your building and firing your landlord.

You can get a free copy there.

We'll ship it to you and print it.

You just have to pay for the shipping.

It's like 60, 95 or something.

But it, you can sit down on a Saturday morning in about an hour and a half and read it with a cup of coffee or cup of tea.

It's not Moby Dick and it will outline, to go over in more depth, a lot of the things we talked about, a lot of stories, different people experiences, that sort of thing.

That's a great place to start, quite frankly, just to get sort of a high level overview for those people who have done that or are seriously considering this.

Then we do an ownership strategy session.

We don't charge for it.

15, 20 minute conversation to kind of high level check some boxes.

Could this make sense for you or not?

You can schedule that on, on the same website, ownyourbuildingnow.com for me or my team.

And we do that.

But, and I would say in terms of tips and last minute advice, the one thing that I always like to say is this is a process.

So you know, when do you, when should you start this idea, this concept, this process of, or discovery of buying a building.

It's not 30 days before your lease comes due.

Right.

It's six months, 12 months, 18 months, maybe 24 months before your lease comes due.

Because if you're going to build something, you know, here's the timeline.

From the time that, that we, we or somebody credit approves you and you get a contract on a piece of Property, it's probably 90 days before you close.

It's not a 30 day process like you would on a house.

It's like 90 days.

So you're already at three months.

Well, let's say it takes you three, four, five, six months to find the property.

Okay, so now you're at six, seven, eight, nine months.

You know, in that process.

Oh, if you decide you want to build instead of six months, make that 12.

So now we're, you know, 15 months out.

Right.

Assuming you have the land.

So you know, you may have to find a piece of land that might take 30, 60, 90 days.

So there's a.

And it's going to take us 30, 60 days, 90.

We can do it in like a week.

But most people, it takes a while to connect with their CPA and get documents and things like that and then go back and forth on those questions that we talked about to really uncover any issues.

So figure that the financial piece is 30 to 60 days as well.

So you add all that up and there's a little bit of time involved.

The good news is though, like if you work with us or somebody like us, then we do most of the heavy lifting so you can focus on running your business.

We're going to ask some questions.

We're going to hopefully get connected with your accountant or CPA and get 90% of what we need without you having to do it.

And then we're gonna, we're gonna be very focused with your time so you can focus on what you need to do, but you need to allot 6, 12, 18 months in this process.

So if you just signed a lease and it's a three year lease, now's a great time to start thinking about it, you know.

So that's my, that's my last bit of advice.

Nice.

Awesome.

Well, thank you so much for this conversation.

Sorry.

Thank you so much for this conversation.

And I know that there's going to be a number of people who are interested in this and, and I feel like we should have mentioned the author in the, in the beginning when we introduced you.

And so that's cool also.

So Everybody own your buildingnow.com and everything will be in the description below.

You'll have links and all the.

Everything you need to know so you can get in contact with Paul or check out his book and set up this owner strategy.

Is that what ownership strategy Call?

Yeah.

So this sounds awesome.

So thank you so much.

Yeah, Robert's great.

Thanks for having me on today.

Absolutely.

Well, until next time.

I'll see you later.