Mar 3, 2022
Can foreign investors invest in the US real estate market?
Absolutely, they can, and we have Terry Yonker to tell us how. Terry is the Lead Broker at Buckeye Realty, which helps its clients from all over the world build wealth and financial freedom through real estate properties in the United States.
He joins us in this episode to talk about his role as a real estate broker for foreign investors, the unique challenges that they needed to overcome, and some tips for those outside the United States who also want to take advantage of the country’s promising real estate market.
[00:01 - 04:01] Opening Segment
- Terry Yonker tells us why he’s in the brokerage aspect of commercial real estate
- How he came up with the idea to bring foreign real estate investors in the US
[04:02 - 09:37] Brokering For Foreign Investors
- How was Terry’s initial experience working with foreign real estate investors?
- The role of a real estate broker in a foreign real estate investor’s life
- What investors should know about master lease programs
[09:38 - 15:38] Investing With Foreign Investors
- The challenge you need to overcome if you also plan to bring foreign investors to the US
- Terry shows a sneak peek of what’s happening in the backend of their fund model
- How Terry and his team send money abroad
[15:39 - 18:56] Closing Segment
- A tool or resource you can’t live without
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- Mindomo
- A real estate mistake you want our listeners to avoid
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- Being afraid to work with real estate companies first
- Instead, try to learn from them
- Your way to make the world a better place
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- Being involved politically as a registered libertarian
- Reach out to Terry
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- See links below
- Final words
Tweetable Quotes
“We talked about scaling to that next level to foreigners that really, without a relationship, I don't even know how that's possible.” - Terrence Yonker
“Don't be afraid to go with one of the big [real estate companies] where you can learn the ropes and then you put your own spin on it.” - Terrence Yonker
“These [foreign investors] were losing a lot. They didn’t know about taxes, they didn’t know about [homeowner’s association], they didn't know about all the things that we take as second nature and they were losing their life to taxes. So what we started doing is assembling them...” - Terrence Yonker
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Email info@buckeyerealty.com to connect with Terry or follow him on LinkedIn. Visit Buckeye Realty to see how they help clients all over the world in investing in the US real estate market.
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Email me → sam@brickeninvestmentgroup.com
Want to read the full show notes of the episode? Check it out below:
Terrence Yonker 00:00
Our biggest thing is just they have the trust in the initial phases. You know, and this is where we are in ours, it's the trust of them to invest in our fund, you know, and I don't know how without working with people for years, you can have that again, maybe that's what you guys do a little better. Maybe we could talk offline to see that part, you know, but these are guys that we've been working with on the broker side for years and years and have relationships and unwinding and going over there. We lived over there for three years, three months in France to where most of our investors were met with all of them. So that was a challenge that we overcame. And so I would be curious how to scale, we talked about scaling, you know, to that next level to foreigners, that really, without a relationship, I don't even know how that's possible because we'd like to have relationships with all of our people.
Intro 00:39
Welcome to the How to Scale Commercial Real Estate Show. Whether you are an active or passive investor, we will teach you how to scale your real estate investing business into something big.
Sam Wilson 00:51
Terry Yonker brings a wealth of experience and industry-specific knowledge to every new venture, whether he's facilitating deals or bringing innovative programs to the market. He currently serves as the Lead Broker for Buckeye Realty. And even more fun, they are working with foreign investors to bring foreign investors here in the United States real estate market. Terry, welcome to the show.
Terrence Yonker 01:11
Thank you. It’s glad to be here.
Sam Wilson 01:13
Hey, man pleasure’s mine. Same three questions I asked every guest who comes on the show. In 90 seconds or less, can you tell me where did you start? Where are you now? And how did you get there?
Terrence Yonker 01:20
Where we started, I was in a small town of Punta Gorda, Florida, Southwest Florida, love the lifestyle but couldn't figure out how to make any money. You know, ‘cause it was a small days before remote work, you know, now remote work is like a piece of cake. But back then you couldn't do it. So started getting into residential real estate. That was about 18 years ago. Since then, morphed into commercial, on the commercial side of the business, my wife and daughter, we've since moved to Orlando, we're here in downtown Orlando right now, and just moved into the larger markets, larger products and still have some of that same core from 18 years ago in southwest Florida. So it's been a great ride.
Sam Wilson 01:52
That's really, really intriguing. So you guys moved more into the brokerage side of things in the commercial space. Is that, that I follow that correctly?
Terrence Yonker 02:00
Yes. In a small town in those small towns, you know, it's like some of your residential people and your Chamber of Commerce people are the same guys that own the commercial buildings. So, you know, as opposed in the big city here in Orlando, a lot of guys are niched out. But what we found in a small-time when you're on the Chamber of Commerce, and these are your guys, these are your guys and whatever they need, or gals, and whatever they need, they need.
Sam Wilson 02:19
Right, talk to us about launching a brokerage firm, and then why did you ultimately end up deciding to get into the fund model and bringing foreign investors? What's the story behind even the iterations of that, those ideas?
Terrence Yonker 02:33
Oddly enough, it’s just when I was being just a regular broker for land, I ran into some French guys in southwest Florida, and they came in, and that's one of my languages is French. And there weren't many in Punta Gorda that spoke French at that time. So they came in thinking that they had a great deal and what I discovered is that there was a French guy in the United States buying lots for like $5,000 selling it to them for about 50 telling them what a great deal it was. So as we dove on, peel that onion, I mean, there are hundreds and hundreds of people that got taken like that. So after I unwound them and a lot of my loss, but we unwound them, and we had to move into a model of how can we have them come in and invest rather than taking it in their names. I mean, these people were losing a lot. They didn’t know about taxes, they didn’t know about HOA, they didn't know about all the things that we take as second nature and they were losing their life to taxes. So what we started doing is assembling them and saying, Hey, there's got to be a better model. So we first started with their LLC. And basically, I was managing like a whole bunch of LLC for them again, a little bit inefficient, and I was you know, is a lot of how can I say judiciary duty for them? You know, they trusted me like a brother at that point. And then so that's how we started exploring this fun mob and syndication because that's built as like you guys do, it's built for that where they can come in, you know, the limited partner. And so that's how we've evolved just out of necessity to be honest because at one point I could only handle so many you know, Florida LLC is owned by these foreigners and I'm a statement of authority and there's just chaos. So the model now is a lot cleaner and tighter.
Sam Wilson 04:02
Yeah, that's intriguing. So you had all these people with all these properties tied up in LLC, they weren't doing the right things with them. You said, hey, look, I can help you straighten all this out. And then eventually said, You know what, Baggett, we're not doing this anymore. Did you guys have them, I don't even know how that would work. How did you end up not managing, you know, continuing that management of all the LLC, or just finally say, Hey, guys, I can't help you anymore. Good luck.
Terrence Yonker 04:23
Well, no, that, we did the opposite of that because they had stuff as I discovered in Detroit, Vegas. I mean, it was chaos. So we started just unwinding them from all these pieces, and then maintain their LLC here in Florida, this foreign-owned LLC, which then becomes the investor into the fund or the syndication. And so that's kind of how we kind of, and something you know, some had it in their own name, and they have to pay FIRPTA, which is 50% and do all those things. And they're good, they got burned and they don't come back in, you know, but fair enough, but we have a good pool of the people who still wanted to, especially with what's going on now where you can't get across borders or you have a hard time with the COVID law. and everything. You know, I think they appreciate having an American here that they can trust doing that stuff is more valuable. And I mean, it's always valuable. But I think it's more valuable now than ever.
Sam Wilson 05:10
Right. Yeah, absolutely. What is your fund investing in now?
Terrence Yonker 05:12
It's a master leases for vacation rentals here in Orlando. So we work primarily with a company called Sonder but there are a handful of other ones will they'll do a master lease for 50, 80 units for five to seven years, we provide the product, they do a master lease, and then they try to make a spread, you know, from the fixed fee that they're paying us to what they can get on the vacation rental market. And it's pretty standard. We're kind of we're copying it, you know, it's not anything necessarily revolutionary, but we're just dabbling into it and putting it together, you know, so we're trying to do a copycat model on what's already working.
Sam Wilson 05:43
Let's dig into the master lease. So there's a company, this company, then goes out to property owners and says, “Hey, look, I'll do a lease on your property for five, seven years, this one will pay you,” right? Correct, the property owner of one end, and then they come to you guys for the investment capital, what are they using that capital for? Furnishings? For staffing? for overhead? What are they using it for?
Terrence Yonker 06:04
They don't come to us for anything, we buy the units. So they're sitting here saying we need to invest in 30 units in this area. But we don't buy we're ready here for a lease. So we purchased the units and provided it to them, they do all the improvements themselves, almost like a bond. So that's where they're here, right and ready to expand their market. And not just them. There's other companies like that, that will buy bulk. And they say we're just we just need units, can you give us units and then we go out, provide them, have our spread? And then you know, ours is almost like a bond, you know, where we have a fixed amount, and they try to make it on that?
Sam Wilson 06:36
Did they come to you with the properties they want to buy?
Terrence Yonker 06:40
We've worked with them for years. So yeah, we kind of have an idea, you know, the criteria because we help them source them initially, that's how this whole thing got started. They said, Hey, you can help us we can't, you know, we don't hire you as a broker. But you can help us go. And so we put together a couple of deals, the broker didn't get paid, by the way, but you know, just kind of like googling the long game. And so that's how we found the targets. And then it's kind of open because they're like, hey, we want to expand if you can help great. And again, and then when we call other vacation rental companies as well, you kind of find a hot spot. And they say, Yeah, we're good to go on that as well. So we prefer the master lease for a bunch of units, but we can even do onesies, twosies, with the traditional, you know, vacation rental ones.
Sam Wilson 07:18
Right, right. Yeah, that's intriguing. So you guys go, you find the unit, you find a bunch of units. And then you go to this group and just say, “Hey, guys, we want to sign a master lease with you.” What are some of the things you like and don't like about the master lease program?
Terrence Yonker 07:32
Well, what we do like about it is that, again, it's fixed, almost like a bond, you know, to where you're you don't have to worry about vacancies, you know, we use a multifamily model. And we're filling out the pro formas. You know, vacancy rate, zero escalations built-in already, long term, you know, management fees, and almost nil because they just take care of it all. So all those variables that come out of our model with the traditional multifamily go in are great. We like that. What we don't like too much is that you know, it adjusts to CTR, but with this guy, Joe in there and the Fed print and I don't know with all you got me, I guess if you have annual leases in the multifamily space, you can raise rents, but boy, inflation just puts a crank in everything longer term, especially with these longer-term leases. So that's the one piece where we have to just make sure we build in big enough inflation escalators and when they can manipulate that with CPI and things like that. It's almost like you know, grasping and ghosts, as you know, and your business as well.
Sam Wilson 08:24
Well, for sure. Is there a way moving forward to tie your leases to whatever the CPI number is to where you say, “Hey, look, annual rent escalator isn't 2% It is CPI plus 50 pips,” I mean, what is their way to do that?
Terrence Yonker 08:39
Sure, absolutely. They'll agree to not having a cap, right? Because that's the thing, you have a cap because both sides are kind of getting squeezed. So it's like a dance, right? Like, if you can do that without a cap or a limit per year. I mean, that's the ultimate idea. We haven't quite been able to negotiate that strongly yet, perhaps you have, you know, to where, hey, if it goes up to 10% and we're 10% plus, you know, and that's tough, that's what we're all dealing with right now.
Sam Wilson 09:03
Yeah, that's a super intriguing point. Because, yeah, there's not a lot to be done with that in the long-term lease space. I mean, you look at this, you know, industrial warehousing, it's a hot topic right now, but you're signing five, you know, you might not renew for five years. And it's like, if we continue, which again, with you know, with the unprecedented printing of money, we continue doing this and every year we're going up potentially seven, I think on the low end 7% I'm getting like even they say 6.7% but on the low end, you're going up 7%. Gosh, I mean, compounded over a five-year period and suddenly that triple net lease is not so attractive anymore.
Terrence Yonker 09:38
Right? And it's not unprecedented, you know, I mean, we're a couple of decades away now but you know, got if you got a guy like Paul Volcker back in the day that came in and squash, you know, for maybe our parents or grandparents, it's cost inflation. I mean, they'll tell you stories of 18% and menus being on paper because you had to change it's hard for us to imagine in the world that we've come up in but I guess to the core that's the number one thing that we're looking at, but cuz when I like when I say it's like a bond if we're signing almost like a bond for bonds or but good question inflationary environment, right, you got like bond at 7%. And interest rates are at 12. And you know what? That's the value of the bond or the fact of bonds.
Sam Wilson 10:12
Yeah, absolutely. Absolutely. What have been some interesting things you've discovered, in building a fund that brings in foreign investors. I can only imagine that there's quite a bit of paperwork and reporting.
Terrence Yonker 10:25
Yeah, well, we're just putting our toes in it right now. So we're, you know, we're not full onboard to where we've filed all the reports and had to do it all. So right now we put together with them. So our biggest thing is just they have the trust in initial phases, you know, and this is where we are in ours, it's the trust of them to invest in our fund, you know, and I don't know how, without working with people for years, you can have that. And again, maybe that's what you guys do a little better. Maybe we could talk offline to see that part, you know, but, you know, these are guys that we've been working with on the broker side for years and years, and have relationships and unwinding and going over there. We lived over there for three years, three months in France to where most of our investors were met with all of them. So that was a challenge that we overcame. And so I would be curious how to scale, we talked about scaling, you know, to that next level to foreigners, that really, without a relationship, I don't even know how that's possible, because we'd like to have a relationship with all of our people. And that's been the biggest thing I think that we've overcome has been the most important to our fun.
Sam Wilson 11:18
Right. In talking about that fun, where there's some filing things upfront that you found were different. We said, hey, you know, what, we're taking important investors' money. This is, you know, I mean, even all the way down to exchange rates. So if somebody's sending you euros, right, yeah, how does that process work?
Terrence Yonker 11:32
We do it through, Oh, there's a couple of companies on there can do that we use, it's currencylive.com, which is a currency exchange function. So they actually use US Bank coordinates for wiring. So we've done that where they put money in, you can switch it to US dollars, their currency exchange company, or money corp currencies, direct is another one. And that's what they do is they get the best rates that go on the market, and then bring it in to the US. So that's fairly simple. And we like to use it because it documents as well, that I want guys coming over briefcases boy, dad, you know, yeah, you bring it in and do that. And then the structure too like what that US LLC is another one we found when they were investing with those, if you're a foreigner, everything is great, Florida, LLC, but there's an estate tax risk. So the government passed a law that said if you're a foreign owner of the LLC, and you pass away, there's a huge estate tax, and they take almost the whole LLC, which again, doing this as a hack. When I first started, I didn't know. And then we started getting in with the attorneys and said, “Hey, you have to bounce it with a foreign company and then it's all protected.” So those are like the two big items, I think, the oopsies that maybe we made that we corrected and now have some expertise in because like we were just doing it wrong and hustling. And then now you get the attorneys and structure correctly and it's been great
Sam Wilson 12:46
What about sending money back when it's time for money to go back to France? I mean, what are the…
Terrence Yonker 12:51
Well, the same thing, the same thing applies the wise we and that's where I alluded to earlier like when you can send it to there with US coordinates in New York bank, it's in the wise calm or currency direct so that men have a bank account, and it sits there, they can convert it and bring it back. Now our guys typically don't like to bring stuff back to Europe, again, I mean it with the tax rates and everything. So we have a sitting in there. And when they've come here as well, we've opened a local bank account because they have to be present to sign so for their LLC, they'll come over will go in present themselves in person have a US LLC US bank account, they can just have it here, and it's all legit. And I'm a signer on the account, and we just do it that way as well. So ideally, they come over, if not, we let it season in that you know, currencylive.com account and take a look, you can look it up that way calm when you're offline, see what they're all about.
Sam Wilson 13:37
Right. That's tremendous. What are return profiles? When you guys are doing a master lease on 50 or 80 units? You said those units are going to go Airbnb properties or some sort of short-term rental properties. Is that what you guys are working on right now? Yeah. So what's our return profile look like?
Terrence Yonker 13:52
Well, you know, we do it right at 8% cap right off the get, you know, so 8% prep, 8% cap rate, like when we come in, or we won't do the deal, you know, we have to come in, and we have to have our basis at that because they're coming in on their side, they're good, they're gonna sign it this amount. So we have to acquire there. So that's what it looks like. I mean, we're, we do 8% prep, we split it 50-50 up to that, and we're looking at about 12 or 13% with appreciation when we exit and but it's pretty straightforward in that regard that that's, you know, and for the foreigners as well, you know, we like to do it at 8% and a lot of multifamily. I think right now it's six, maybe seven. So given the, you know, increased risk with this product that people aren't as familiar with, we like to go with eight and then even if it's not for us with as I mentioned, as we've been, you know, shopping these, and that's another thing with the fund model, you can't just blast it out to be like private as a broker. That's like, you know, nails on the chalkboard for us. We like to scream from the rooftops. So one of the things we can do is when we broker these, its seller, even if say your group or a foreign group says, Hey, I don't want to be in your fund. I just want to buy them ourselves. Well, then we can broker that deal and say, “Hey, because these people will sign with whoever gives them the 20 units.” Right. So that's an that's more my wheelhouse like I can breathe easily without like screaming from the rooftops, I can do all the performers and everything. So that's kind of how it looks either for an individual investor or with our fund.
Sam Wilson 15:11
Man, that's absolutely intriguing. I love how your business has grown and changed over the years and moving with your investors. And also just moving where the opportunity is, I think that's really, really intriguing. Thanks for taking the time to break down the master lease on us. And I mean, this is kind of a little bit different spin on the short-term rental game. But you know, you're bringing in foreign investors, you're doing master leases, and it's a different ballgame, really, actually entirely. So that's certainly unique. And I appreciate you taking the time to share with the details on that. Terry, let's jump here into the final four questions. The first one is this what is one tool or resource you find you can't live without, think digital, software, something along those lines.
Terrence Yonker 15:48
There's a program called mindomo.com. And it's mind mapping. And so I didn't realize I was a visual person until I got a hold of this, you know, I have lifts and I would strike. This is a mind map where you can make, connect all the dots. And we have since put our whole Procedures Manual into this visual representation of how our deal flow goes how our thought process goes. It's visual. And so yeah, you know, if you're a person like me who’s visual and likes conceptualizing it and the list of checklists don't quite do it for you. This has been a game-changer for us in our business as well, because everyone's on the same page.
Sam Wilson 16:20
And you said mind, M-I-N-D, domo, D-O-M-O?
Terrence Yonker 16:23
Yes. All one word. M-I-N-D-O-M-O dot com.
Sam Wilson 16:27
Excellent. I look forward to checking that one out. That's really unique. If you could help the listeners avoid one mistake, what would it be and how would you avoid it?
Terrence Yonker 16:34
You know, one mistake going in when I came out of I got my MBA at Ohio State and I came out anti-demand, if you will, right. So all the big companies and this and that I said, “Oh, you're silly to do that. Let's get a, roll up our sleeves and get in the weeds.” I would say especially if you're coming out again, in the business, don't be afraid to go with one of the big, CBREs or some sort of big company like that, where you can learn the ropes and then do you put your own spin on it. So that's, you know, if I could go back and do it again, I'd maybe take some of their tools of the trade because I see what they do. And you know, it's good. But you can put your own twist on it without being a slave to the machine. You know, when you come out.
Sam Wilson 17:10
Right. I love that question number three, when it comes to investing in the world, what's one thing you're doing right now to make the world a better place?
Terrence Yonker 17:15
You know, right now with what's going on with these COVID lockdowns and our, take on freedom, I have to admit, I'm a registered libertarian. So I just went to Canada training this weekend. And I think now with everything we're doing, the biggest thing you can almost do is push back against these tyrants because having lived in other countries around the world like this is recognizable as tyranny. Right? Fair enough. If you're an American that's had generations of relative peace, it's not recognizable, and you say, Oh, they just want our safety. They're not letting us have meetings because they want to be safe. So I don't necessarily believe that. So it's at that point where I think I almost have to get involved politically on libertarian side to try to push back on this because if you don't push back, it just goes to your China, you know, example, if you want to see the end game, go to China and see their social scores.
Sam Wilson 17:58
That is the end game. You're absolutely right. Terry, if our listeners want to get in touch with you, what is the best way to do that?
Terrence Yonker 18:06
Buckeyerealty.com. Go there, we got a link to set up a call or talk about some of this stuff. I'll put a link on there, Buckeyerealty.com/bricken. And then we can continue on but this specifically what we're talking about here that's going to have the video here that we're doing a link to this podcast, and then also where we can talk specifically and elaborate a little more on what we covered here today specific
Sam Wilson 18:26
Fantastic. Thank you, Terry, for your time today. I do appreciate it.
Terrence Yonker 18:30
No problem. Thank you. Great being here.
Sam Wilson 18:31
Hey, thanks for listening to the How to Scale Commercial Real Estate Podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen, if you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners, as well as rank higher on those directories. So I appreciate you listening. Thanks so much and hope to catch you on the next episode.