Caleb Richter, CEO of MyEListing.com.
It’s no secret that commercial real estate has been a means of building generational wealth for hundreds of years, but knowing how to differentiate between good and bad deals can spell the difference between providing for your future family and flogging yourself with bad debts.
As a commercial real estate agent, it’s not just your job, it’s your duty to help your clients learn this difference. Regardless of how much cash they have to spend, spelling out true value starts with learning their goals, getting granular with strategy and owning the outcome.
Throughout my own personal experience working as a commercial real estate broker, here’s what I’ve learned to work the best.
Building Truly Transparent Client Relationships
You can’t plot a route to your destination without first knowing exactly where you’re trying to go. In your career, you’ll find that you’ll meet people who know exactly what they want, people who sort of know and people who have absolutely no idea.
For CRE agents, this starts with truly getting to know your clients. Very rarely do CRE deals come down to simple money-making: They stretch far beyond that into the world of creating long-term stability. Clear, concise and thorough communication, even when it’s awkward or difficult, is the key to discovering what that specifically means for your clients.
For instance, I had this client a while back who had about $30 million in commercial real estate assets. His desire was simple: “I want to travel for the rest of my life.”
We worked together and concluded that to make this happen, he needed about $250,000 a year in cash flow. I helped him sell some of his land to provide upfront cash, then tailored his investments accordingly to help him supplement that with annual, passive income.
Needless to say, there’s a lot of conversation that lives in the middle of “I want to travel” and actually being able to make that happen. That’s where you, as the agent, need to get granular with strategy.
Getting Granular With Strategy
No one wants to work with a real estate professional who only cares about their commissions. Yes, putting food on the table is important, but creating a healthy lifestyle for yourself involves looking beyond your own profits and into the individual situations of your clients. This is where thorough research and granular strategic planning come into play.
Another client of mine, a doctor, wanted me to help him place $4 million into commercial real estate investments, leverage that money up into a portfolio value of $12 million and bring him as close as possible to making truly passive income; in other words, he wanted very stable assets regarding his tenants.
We started by looking at what he already owned. In his opinion, his best asset was a car dealership located in Texas. Upon further investigation, I discovered that he had signed an 18-month sale-leaseback for this dealership.
Historically speaking, this company is a great tenant, but car dealerships tend to stay in a single location for 15 years or more, so the 18-month lease term caught me by surprise, and it was clear that they were planning on leaving. To the uneducated eye, it was a good deal: The property’s cash flow was very high relative to the purchase price, bringing in about $40,000 a month after paying the bank. It was as good as it gets cash flow-wise.
The issue, however, was that he hadn’t thought about replacing them when that 18-month lease term expired, and the city was adjusting the highway in front of the dealership, a project that was completely destroying its ingress and egress. The property could eventually end up costing him $40,000 a month instead of making him that money.
Based on his desires, I ultimately concluded that it was better to sell that dealership now and put the money into more stable assets. This would reduce the amount of passive income he would be making in the short term but greatly improve his chances of building wealth through more stable investments.
Unfortunately, their payouts of $40,000 a month had him hooked, and he couldn’t let that money go. He was also a lot less likely to find a new tenant for the dealership willing to pay him that much money in such a short period of time once their lease ended.
It was against my better judgment to help him in the way that he had wanted me to because I knew he would be setting himself up for failure. I ended up telling him that I couldn’t help him buy $12 million in new assets at this time.
Sometimes, the best thing you can do for a client is walk away, and that’s what happened here. It’s difficult to do, but if you take your time with due diligence and granular strategy, owning the outcome will be that much easier. Sadly, he called me two years later, saying he couldn’t lease out the dealership.
Owning Every Outcome
Your clients don’t need you to bring new deals to them, they need you to bring them deals that support their goals. I can’t say that enough. When your mission statement as an agent does not involve making as much money for yourself as possible, you’ll often make more.
Extreme ownership is key when your clients’ money is in your hands. That means saying no when the time is right and saying yes when your professional expertise warrants it.
When times are good, there’s no pressure to be a good agent: It’s easier to stumble into success than it is to create it. When times are bad, you need to go above and beyond.
How do you do that? You build truly transparent relationships with your clients, you get granular with strategy and you own every outcome. Do that, and I am certain you’ll find yourself having to turn down new business because you’ll have so many people on your hands who trust you.
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