Mar 15, 2022
Should you jump from residential to commercial real estate?
Adam Craig has done it, and he’s here to tell you why you should follow him and many other investors who have jumped to commercial already. Adam is the Founder of CLE Real Estate Group, an Ohio-based real estate investment company.
Since 2013, he has closed over 80 real estate deals and acquired a rental portfolio worth more than 8 million dollars. Adam's success is rooted in a genuine passion and enthusiasm for real estate investing.
[00:01 - 02:19] Opening Segment
- Adam Craig talks about his journey into the real estate industry
- He talks about the asset classes they’re investing in right now
[02:20 - 11:21] Why Jump From Residential to Commercial
- Adam reveals their secret in underwriting properties on sale
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- How to raise private money for your deals
- The importance of drawing your investor or lender profile
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- Listen to Adam’s explanation
- The reason Adam’s team is self-marketing and self-managing
- The disadvantages of following Adam’s business model
[11:22 - 13:50] Closing Segment
- A tool or resource you can’t live without
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- Their property management software, TenantCloud
- A real estate mistake you want our listeners to avoid
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- Don’t be too intricate on your properties
- Make them basic, clean, and neat
- Your way to make the world a better place
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- Helping new and experienced investors through social media
- Reach out to Adam
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- See links below
- Final words
Tweetable Quotes
“Once you get past that initial group of friends and family in your immediate network, [you] just had to sharpen up [your] presentation [of the deal].” - Adam Craig
“We're not typically concerned with credit score, but cash on hand, income coming in, the ability to pay, obviously, are the big determining factors [in vetting tenants].” - Adam Craig
“I'll get together with any investor looking to talk real estate and I'll give my two cents on whatever issue they have…It tends to pay back tenfold in relationships and networking and issues down the road.” - Adam Craig
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Email adam@clerealestategroup.com to connect with Adam or follow him on LinkedIn and Instagram. Visit CLE Real Estate Group to find value-add properties in the residential and commercial spaces!
Connect with me:
I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.
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Email me → sam@brickeninvestmentgroup.com
Want to read the full show notes of the episode? Check it out below:
Adam Craig 00:00
The offering to do the build-out obviously takes more management. We end up dealing with a lot more headaches because tenants aren't happy with X, Y, or Z. So if we can, we encourage them to get their own people to do it, but we will sometimes assist with the cost of that because a lot of the mom and pop investors that we work with don't have the budget for first month's rent last month's rent, build-out, no income, so we try to ease the pain of that any way we can as long as we get our money somewhere down the road. Now another drawback of that would be if the tenant doesn't perform certainly wasted a lot of money, building up their space. But so far, we've been pretty lucky with that.
Intro 00:35
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 00:43
Adam Craig is a real estate investor since 2013. He has more than 80 deals completed in residential and commercial. Adam, welcome to the show.
Adam Craig 00:51
Hey, thank you for having me. Excited to be on.
Sam Wilson 00:53
Hey, man. Pleasure’s mine. Same three questions I ask every guest who comes to 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?
Adam Craig 01:00
Sure. I started just outside Cleveland, Ohio, I went to school for business finance, right after school finished up a degree that I thought I'd be using, but ended up starting my own business. From that business. I invested everything into real estate started with some single family homes, eventually evolved into the commercial side of things. 2018 was when I made my first commercial purchase. Since then been doing a mix of residential and commercial with the focus being primarily on commercial. So right now, that's where I'm at and looking to eventually leave the single family space in the rearview and concentrate solely on commercial.
Sam Wilson 01:34
Right. What kind of asset class are you buying right now?
Adam Craig 01:37
Mostly, office, mini strip plazas, things of that sort, I didn't think I'd be getting into that. I thought maybe apartment buildings was where I saw myself, but kind of fell into that in 2018. And it worked out. So well. We've kind of been going after that asset class ever since.
Sam Wilson 01:50
Are there buying opportunities in office right now?
Adam Craig 01:53
Yeah, in my market, there certainly are, and it's not strictly office, it's a combination, sometimes flex space. But yeah, when COVID happened, office space was definitely on sale. And in my market, there's still some really good deals.
Sam Wilson 02:04
Yeah, what is flex space? Can you define that for us?
Adam Craig 02:06
So we always say we're rehabbing office space. But I mean, we've had you know, guys who build furniture to banquet centers to, you know, all kinds of businesses go into our space. So they're not technically all office space, we have just about everything that goes into it.
Sam Wilson 02:20
Okay, very, very interesting. So things went on sale, I guess, talk to us about how you underwrite something that is on sale? And then how do you get financing for it, because it's on sale for a reason.
Adam Craig 02:31
Yeah. So just like we did on the single family space, everything in the commercial world that I buy is distressed. So it's either vacant or nearly vacant, meaning, you know, banks don't typically touch it until it's stabilized. So private money is how we finance that, I have a hard money lender that I used for a lot of years. And since about 2017, I started developing some private lending relationships. And that's really grown considerably. So I finance them all with private money, refinance them with the bank after they're stabilized.
Sam Wilson 02:58
Right. So talk to us about that private money. Is there, what advice would you give to somebody, you know, looking to kind of repeat your process? What should they be doing in order to go out and find especially private money, you guys are going to need large sums of money. So how do you secure that?
Adam Craig 03:13
So I would not say I'm an expert at raising private money. I've only been doing it for about four years. But I've certainly learned a lot considering it's, we're only about four years in and I've probably got about $2 million left out to me on the private world right now. The biggie is, once you get past that initial group of friends and family in your immediate network, I just had to sharpen up my presentation. At first, it was pretty easy. I just told people what I did. They know me, they trust me, they like me, you know, they give the money. I, after that, you really need to sharpen up just the whole presentation of the deal. You can't just say this deal is great. We're going to make a bunch of money, which I was naively thinking in the beginning. So now I have just a brokerage company would have a nice flashy presentation showing some returns showing pictures of the building a lot more insight. And I like to prep them before the deal. So I don't just come at them and say, “Hey, I need $85,000.” I say this is the deal coming down the pipeline. If you're interested, let me know. I'll get you some more information. And that has that's worked a lot more than just bringing them on when I need the money.
Sam Wilson 04:10
Right. Yeah, that's really intriguing. Are these going to be typical syndication type deals when you say private money, or are they just strictly lenders in your projects?
Adam Craig 04:19
Right now, we're just doing strictly lenders on the projects. We're doing mostly million and under deals right now. So as I grow and I start to need bigger amounts of capital, I can see that need to syndicate and partner and share equity. But as of now, if I'm able to raise it on a strictly loan basis, that's the route I've been taking.
Sam Wilson 04:36
Yeah. When it comes to that, I would assume that you know, there's a certain investor profile or call it investor or lender profile, what's a typical return that you would offer on a project?
Adam Craig 04:48
So we average about 10% returns and a lot of times we'll offer a point or something for the logistics of closing. I would say the investor profile for me tends to be an older investor looking to diversify, and someone who's not looking to put their money into something that's, you know, a low-risk return, we don't advertise the saying it's a low risk, but we always say, you know, we're not the rollercoaster of the stock market, it's a nice steady 10 to 12% return. And for younger guys, that doesn't really appeal, they're aggressive, they want to be in aggressive assets. So it's pretty rare where we get a young guy that gets excited about 10%. But you never know, we do have a few guys that, you know, around my age or younger, who are very happy with 10%.
Sam Wilson 05:26
Yeah, you know, you're right. You never want to pigeonhole anyone or any demographic, you know, for that matter into saying, “Hey, this is what they always do.” But it does seem to be the older you get, the more predictable those cash flows become, the more important those predictable cash flows become, the less of you know, hitting a home run. Tell me about what your strategy is when you find an office building or a flex space for turning it around. What are the other owners done, or not done that you plan on doing?
Adam Craig 05:53
I think a big asset for us, our big advantage for us has been self-marketing and self-managing, I thought I didn't want to get into the weeds of real estate. When I first started investing, property management was kind of how I started. And ever since then, I've evolved out of property management more into self-managing with an employee that I can oversee. So I have spaces down the street from some of my buildings that have been for lease for, you know, six months or a year, if not longer, will come in there will rehab the unit. And then we'll have at least up while their property is still on the market. There's combination of reasons why we're able to lease them quicker, obviously, rehab space is more desirable. But I'm just on top of the leasing a lot more than a broker who has dozens and dozens of properties typically is. Facebook has been a huge way that we've been actually leasing places. Unfortunately, they don't have a commercial section, but we have been posting some ads in the residential section and we typically have a picture of the office with office space in the actual pictures so people don't get confused. So far, Facebook hasn't kicked us off, thank God, because you know, we're technically you know, misrepresenting the category. But I would say like 80% of our commercial applicants and tenants have come from Facebook in comparison to Loop Net and drive by signs.
Sam Wilson 07:02
Wow, that's intriguing. Do you think there is a price point where that makes sense to advertise a base like that on Facebook?
Adam Craig 07:10
The advertising we're doing is free. So if you're saying the price point for the least yeah, I think it's a lot of the smaller businesses and mom and pop shops that are out there, mostly everything we have is maybe 23,000 square feet or less. And we tend to break those up into considerably smaller units, because the areas that we're buying in has a lot more small businesses than they do big corporations or LLCs, trying to move into the area. So we tailor it to the smaller business a little bit higher turnover. But in return, we can charge a little more per square foot.
Sam Wilson 07:40
Yeah. And you said one of the things you guys are doing, what the other owners didn't do was you're self-managing. Is there anything else you find where you think I can add value here, or I can turn this property because you know, where's the kind of completion of those sentences maybe.
Adam Craig 07:53
So we're adding value to the building, typically, because they've been distressed for so long. So it's a lot of properties near us, it's a shelf space, and they're telling their tenants, you know, you have to build out you have to do everything, our buildings are typically partially rehabbed or white box-ready, and then in addition to that will offer to do build outs for attendance and amortize the cost of that build out over their lease. So we try to be really flexible as the landlord to fill these things up. So we can get them refinanced in the banks' hands instead of our private lenders. So I don't think a lot of my competition is as aggressive doing that. They tend to hand over the space and say this, is it.
Sam Wilson 08:26
Right? Yeah, that makes a lot of sense. What are some downsides to doing that, you know, amortization of the lease, or the build-out or being aggressive? Is there some downsides to that?
Adam Craig 08:36
Well, that the offering to do the build-out, obviously takes more management, we end up dealing with a lot more headaches, because tenants aren't happy with X, Y, or Z. So if we can we encourage them to get their own people to do it. But we will sometimes assist with the cost of that because a lot of the mom and pop investors that we work with don't have the budget for first month's rent, last month's rent, build out no income. So we try to ease the pain of that any way we can, as long as we get our money somewhere down the road. And another drawback of that would be if the tenant doesn't perform, certainly wasted a lot of money, building out their space. But so far, we've been pretty lucky with that.
Sam Wilson 09:09
Yeah, that's interesting. How do you vet the tenant to make sure they are going to perform or at least vet them as well as you can.
Adam Craig 09:15
Similar to our residential single family space, the application we want to see get we're not typically concerned with credit score, but cash on hand, income coming in, the ability to pay, obviously, are the big determining factors and a lot of our, they're not micro-units, but a lot of our units that are maybe 1,500 or 2,000 square feet or less, we're not betting the tenant is the same. We you know, we just signed a lease on a commercial restaurant, and that was $4,000 a month. So we've rented that tenant a lot differently than we did the $900 a month tenant. So the smaller space is, we're not too concerned about it. Typically a partner a couple of partners can afford $1,500 a month without a problem.
Sam Wilson 09:52
Right. Yeah, absolutely. The research and time spent vetting that tenant isn't worth it because it's 900 bucks on month, and there's not the same eviction laws commercially, that there are residential, it's just much easier to get out and stop paying and to replace that tenant to. So obviously, it's like you're saying, you know, 900 bucks a month, that's an easy tenant to find somebody else to fill that gap.
Adam Craig 10:15
Yeah, yeah, the bigger spaces tend to take longer, obviously better rewards for waiting it out for a bigger tenants. But with our buildings financed on higher interest loans, we’re much more, I would say, aggressive and filling them. And with that comes maybe converting some of the bigger spaces to small spaces if the tenants want that.
Sam Wilson 10:30
Right. Yeah, absolutely. Talk to me, once you get these stabilized and refinance, what sort of debt terms are available in the office and flex space right now?
Adam Craig 10:41
We’re pretty much seeing right now the rates are anywhere from four to four and a half percent, 20-year amortization with five-year adjustable, so pretty standard across the board with what we're doing. I have been trying to break into getting bank financing right off the rip, which has been an uphill battle. But I've got some relationships with some banks now who said, you know, I recently had a deal that I wasn't able to get an offer on quick enough, and it's under contract. But this was a 100% vacant building. And I talked to my lender enough about the building to possibly get some 70% financing right off the rip, which I didn't think could be done. But being on shows like this and talking to other investors. I know people are doing it. If you can get ground-up construction, you should be able to get bank financing on vacant buildings.
Sam Wilson 11:22
Right. Yeah, you should. And especially once you've developed a track record that says, Hey, I know how to turn these around. I mean, that's the, they're betting on the jockey as much as they are the horse. So you know, getting a few of those reps under your belt is certainly helpful as well. Adam, I've enjoyed this. It's been lots of fun. Thanks for taking the time today to come on and chat. Let's jump into the final few questions. What's one tool or resource, think digital, think software, maybe that you find you can't live without?
Adam Craig 11:46
I would say our property management software, there's a million of them out there. The one we use is called tenant cloud. But when I think back to the 90s, or days where I wasn't managing properties, or even alive, I don't know how they did it, picking up checks and picking up applications. The ease of the software we have these days just makes managing a lot of doors for one or two people pretty simple.
Sam Wilson 12:04
Right. Yeah, that's exactly what it does. It cuts down on manpower. That just simplifies the process as a whole. I love that. What is one mistake you can help us avoid? And how would you avoid it?
Adam Craig 12:14
I guess I would throw this back to single family by single family days. For a lot of years, I was over-improving a lot of our single families, you know, really fancy finishes, over-detailing areas, thinking a little bit too much about the rehab at the end of the day. Just put in something clean, something nice, get it ready to go. We've had customers we flipped houses too and I later found out they ripped out our beautiful tile design only to put it in their own. So that was kind of a wake-up call. Don't get too intricate. Make it basic, make it clean, make it neat. Move on.
Sam Wilson 12:41
Right. 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?
Adam Craig 12:47
So I wish I could say it was something more impactful than offering my real estate information. But right now I'm offering a lot of help to new and experienced investors through social media outlets and other avenues and I'm not charging anything for the service. So I'll grab coffee. I'll have a phone call. I'll get together with any investor looking to talk real estate and I'll give my two cents on whatever issue they have or just a job about real estate. It tends to pay back tenfold in relationships and networking and issues down the road.
Sam Wilson 13:11
That's awesome, man. I love it. Adam, if our listeners want to get in touch with you, what's the best way to do that?
Adam Craig 13:15
You can visit my website, CLEinvest.com. I am also on Instagram as Adam The Investor.
Sam Wilson 13:21
Awesome. Adam, thank you for your time today. I do appreciate it.
Adam Craig 13:25
Thank you.
Sam Wilson 13:26
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.