Stop Renting: How to Buy the Building for Your Salon or Shop | Paul Neal | Owner, Vantage Point Commercial Capital | Host, The Brick & Mortar Money Show Podcast

Robert Hughes: 00:00:00

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

Robert Hughes: 00:00:04

eal estate transactions since: 1998

Robert Hughes: 00:00:11

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

Robert Hughes: 00:00:16

Welcome back to the Hairdresser Strong Show.

Robert Hughes: 00:00:18

My name is Robert Hughes and I am your host.

Robert Hughes: 00:00:20

And today I'm with Paul Neal.

Robert Hughes: 00:00:21

How you doing today, Paul?

Paul Neal: 00:00:22

Hey Robert, doing great, buddy.

Paul Neal: 00:00:23

How about yourself?

Robert Hughes: 00:00:24

I'm good, thank you very much.

Robert Hughes: 00:00:26

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

Robert Hughes: 00:00:33

It was your publicist.

Robert Hughes: 00:00:34

Is that, is that right?

Paul Neal: 00:00:36

Yes.

Robert Hughes: 00:00:37

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?

Robert Hughes: 00:00:45

And I said absolutely.

Robert Hughes: 00:00:46

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.

Robert Hughes: 00:00:57

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

Robert Hughes: 00:01:01

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.

Paul Neal: 00:01:11

Sure, sure, absolutely.

Paul Neal: 00:01:12

So high level.

Paul Neal: 00:01:13

nsactions since, as you said,: 1998

Paul Neal: 00:01:19

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.

Paul Neal: 00:01:30

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

Paul Neal: 00:01:35

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

Paul Neal: 00:01:41

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.

Paul Neal: 00:01:53

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.

Robert Hughes: 00:02:04

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.

Robert Hughes: 00:02:28

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

Robert Hughes: 00:02:31

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

Robert Hughes: 00:02:34

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?

Robert Hughes: 00:02:46

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

Paul Neal: 00:02:53

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

Paul Neal: 00:02:55

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.

Paul Neal: 00:03:08

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.

Paul Neal: 00:03:39

And so I want to sort of plant my flag.

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

Paul Neal: 00:03:48

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.

Paul Neal: 00:03:59

It's how virtually every business starts.

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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.

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

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

Paul Neal: 00:04:17

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.

Paul Neal: 00:04:36

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.

Paul Neal: 00:04:46

And so your business has to live somewhere.

Paul Neal: 00:04:49

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

Paul Neal: 00:04:56

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.

Paul Neal: 00:05:06

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

Paul Neal: 00:05:09

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?

Paul Neal: 00:05:18

One, you get control over that.

Paul Neal: 00:05:19

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.

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You have this thing called equity and wealth accumulation.

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

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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.

Paul Neal: 00:05:49

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

Paul Neal: 00:05:53

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

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The property is going to generally appreciate over time.

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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.

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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.

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

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You're getting some tax advantages.

Paul Neal: 00:06:28

All these things are inherent in owning versus renting.

Paul Neal: 00:06:32

Right?

Robert Hughes: 00:06:34

Sorry, could you.

Robert Hughes: 00:06:35

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

Robert Hughes: 00:06:39

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

Robert Hughes: 00:06:41

Would you just give them like a example or.

Paul Neal: 00:06:45

Yeah, yeah, sure.

Paul Neal: 00:06:47

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.

Paul Neal: 00:06:58

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

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So you only owe 285,000.

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So you have this $15,000 in equity.

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

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

Paul Neal: 00:07:26

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

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

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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.

Paul Neal: 00:07:57

There's no equity accumulation for you.

Paul Neal: 00:08:00

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

Paul Neal: 00:08:03

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

Paul Neal: 00:08:07

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.

Paul Neal: 00:08:17

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

Paul Neal: 00:08:19

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

Paul Neal: 00:08:23

So similar idea on your business, right?

Paul Neal: 00:08:25

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

Paul Neal: 00:08:29

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

Paul Neal: 00:08:32

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.

Paul Neal: 00:08:41

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.

Paul Neal: 00:08:51

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

Paul Neal: 00:08:56

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

Paul Neal: 00:08:59

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

Paul Neal: 00:09:02

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.

Paul Neal: 00:09:16

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

Paul Neal: 00:09:19

So same kind of an idea.

Paul Neal: 00:09:21

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

Paul Neal: 00:09:25

Great example.

Paul Neal: 00:09:25

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.

Paul Neal: 00:09:34

Well, they paid it off over 12 years.

Paul Neal: 00:09:36

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.

Paul Neal: 00:09:42

But the thing is 12 years is going to pass.

Paul Neal: 00:09:45

15 years is going to pass either way.

Paul Neal: 00:09:47

Right.

Paul Neal: 00:09:48

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

Paul Neal: 00:09:52

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

Paul Neal: 00:09:57

And so a funny thing happened.

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

Paul Neal: 00:10:05

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

Paul Neal: 00:10:13

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

Paul Neal: 00:10:14

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.

Paul Neal: 00:10:22

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

Paul Neal: 00:10:26

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

Paul Neal: 00:10:31

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

Paul Neal: 00:10:38

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.

Paul Neal: 00:10:46

So she got a big payout.

Paul Neal: 00:10:48

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.

Paul Neal: 00:10:56

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

Paul Neal: 00:10:58

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

Paul Neal: 00:11:03

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.

Robert Hughes: 00:11:15

Nice.

Robert Hughes: 00:11:15

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.

Robert Hughes: 00:11:31

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

Robert Hughes: 00:11:35

So the qu.

Robert Hughes: 00:11:36

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

Robert Hughes: 00:11:40

Is there anything that we should add?

Robert Hughes: 00:11:42

And if not, let's talk about how.

Robert Hughes: 00:11:45

How does this happen?

Paul Neal: 00:11:47

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.

Paul Neal: 00:12:08

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

Paul Neal: 00:12:11

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

Paul Neal: 00:12:16

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.

Paul Neal: 00:12:25

For a couple reasons Robert.

Paul Neal: 00:12:26

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.

Paul Neal: 00:12:37

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.

Paul Neal: 00:12:45

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.

Paul Neal: 00:12:52

You can then rent the space to them.

Paul Neal: 00:12:55

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

Paul Neal: 00:13:03

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

Paul Neal: 00:13:06

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

Paul Neal: 00:13:11

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.

Paul Neal: 00:13:23

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

Paul Neal: 00:13:27

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

Paul Neal: 00:13:31

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

Paul Neal: 00:13:34

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

Paul Neal: 00:13:41

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

Paul Neal: 00:13:47

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

Paul Neal: 00:13:48

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

Paul Neal: 00:13:55

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.

Paul Neal: 00:14:01

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

Paul Neal: 00:14:05

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.

Paul Neal: 00:14:20

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

Paul Neal: 00:14:27

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?

Paul Neal: 00:14:33

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.

Paul Neal: 00:14:40

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

Paul Neal: 00:14:44

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

Paul Neal: 00:14:48

And so they're important to the bank.

Paul Neal: 00:14:50

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

Paul Neal: 00:14:55

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

Paul Neal: 00:15:00

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.

Paul Neal: 00:15:12

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

Paul Neal: 00:15:16

It's $800,000 or some number.

Paul Neal: 00:15:19

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

Paul Neal: 00:15:22

You need to get to them.

Paul Neal: 00:15:24

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.

Paul Neal: 00:15:40

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

Paul Neal: 00:15:46

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

Paul Neal: 00:15:51

Commercial is not like that.

Paul Neal: 00:15:52

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.

Paul Neal: 00:16:00

Okay.

Paul Neal: 00:16:00

So people do the math pretty easy.

Paul Neal: 00:16:03

Like, oh, okay, great.

Paul Neal: 00:16:04

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

Paul Neal: 00:16:11

And the term is going to be shorter.

Paul Neal: 00:16:13

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.

Paul Neal: 00:16:23

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.

Paul Neal: 00:16:29

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.

Paul Neal: 00:16:41

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

Paul Neal: 00:16:43

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

Paul Neal: 00:16:48

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.

Paul Neal: 00:16:58

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

Paul Neal: 00:17:03

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

Paul Neal: 00:17:06

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

Paul Neal: 00:17:09

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

Paul Neal: 00:17:11

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

Paul Neal: 00:17:18

And maybe you want to use it for something else.

Paul Neal: 00:17:20

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

Paul Neal: 00:17:25

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.

Paul Neal: 00:17:36

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.

Paul Neal: 00:17:45

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

Paul Neal: 00:17:49

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.

Paul Neal: 00:18:06

But again, the reality is they have many masters.

Paul Neal: 00:18:09

And the client is not the master.

Paul Neal: 00:18:12

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

Paul Neal: 00:18:20

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

Paul Neal: 00:18:28

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

Paul Neal: 00:18:35

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.

Paul Neal: 00:18:40

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

Paul Neal: 00:18:44

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?

Paul Neal: 00:18:50

You know, what do you do?

Paul Neal: 00:18:52

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

Paul Neal: 00:18:56

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

Robert Hughes: 00:19:03

Wow, that's so interesting.

Robert Hughes: 00:19:05

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

Robert Hughes: 00:19:09

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

Robert Hughes: 00:19:18

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

Robert Hughes: 00:19:21

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

Paul Neal: 00:19:26

Yeah, yeah.

Paul Neal: 00:19:27

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

Paul Neal: 00:19:32

There's two things to know.

Paul Neal: 00:19:33

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

Paul Neal: 00:19:38

Okay.

Paul Neal: 00:19:39

Most people buy homes that they live in.

Paul Neal: 00:19:43

Residential real estate, even investment.

Paul Neal: 00:19:44

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.

Paul Neal: 00:19:55

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

Paul Neal: 00:19:59

Okay, commercial is not like that.

Paul Neal: 00:20:02

Commercial is all over the map.

Paul Neal: 00:20:03

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

Paul Neal: 00:20:10

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

Paul Neal: 00:20:20

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

Paul Neal: 00:20:23

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

Paul Neal: 00:20:28

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.

Paul Neal: 00:20:41

So it goes all over the map.

Paul Neal: 00:20:44

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

Paul Neal: 00:20:52

Let me make it really simple.

Paul Neal: 00:20:53

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

Paul Neal: 00:21:00

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

Paul Neal: 00:21:08

And so you ultimately will pay less interest.

Paul Neal: 00:21:12

But it, sometimes it can be difficult to do.

Paul Neal: 00:21:16

Right, because you have a high payment.

Paul Neal: 00:21:17

And so business survives on cash flow.

Paul Neal: 00:21:21

It's all about cash flow.

Paul Neal: 00:21:22

Right.

Paul Neal: 00:21:23

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

Paul Neal: 00:21:27

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

Paul Neal: 00:21:35

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

Paul Neal: 00:21:42

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

Paul Neal: 00:21:45

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.

Paul Neal: 00:21:57

Okay.

Paul Neal: 00:21:58

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.

Paul Neal: 00:22:06

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

Paul Neal: 00:22:11

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

Paul Neal: 00:22:19

So you have this giant balloon payment.

Paul Neal: 00:22:22

And so now you have to refinance.

Paul Neal: 00:22:24

If you still qualify, okay.

Paul Neal: 00:22:27

And hopefully you will the loan and most people do.

Paul Neal: 00:22:31

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

Paul Neal: 00:22:35

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

Paul Neal: 00:22:39

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

Paul Neal: 00:22:41

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

Robert Hughes: 00:22:46

So what are the balloon.

Robert Hughes: 00:22:48

These balloon paint.

Robert Hughes: 00:22:49

Are these, those are common with banks.

Robert Hughes: 00:22:50

Are they also common with all these other parties?

Robert Hughes: 00:22:54

I guess this are the balloon payments a pretty con?

Robert Hughes: 00:22:58

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

Paul Neal: 00:23:04

Yeah, a lot of them are actually.

Paul Neal: 00:23:06

It's very common.

Paul Neal: 00:23:07

It's not the only way to do it.

Paul Neal: 00:23:08

We don't really recommend it.

Paul Neal: 00:23:10

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.

Paul Neal: 00:23:16

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

Paul Neal: 00:23:18

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

Paul Neal: 00:23:21

Particularly for a small business that's local.

Paul Neal: 00:23:22

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.

Paul Neal: 00:23:26

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

Paul Neal: 00:23:30

There are some 30 year cases, but generally 25.

Paul Neal: 00:23:33

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

Paul Neal: 00:23:38

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

Paul Neal: 00:23:42

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

Paul Neal: 00:23:46

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

Paul Neal: 00:23:50

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

Paul Neal: 00:23:54

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.

Paul Neal: 00:24:00

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.

Paul Neal: 00:24:08

But you at least have the decision.

Paul Neal: 00:24:10

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?

Robert Hughes: 00:24:19

And so one question.

Robert Hughes: 00:24:22

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?

Robert Hughes: 00:24:34

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

Robert Hughes: 00:24:38

I have two questions.

Robert Hughes: 00:24:40

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.

Robert Hughes: 00:24:50

I didn't know that.

Paul Neal: 00:24:52

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

Paul Neal: 00:24:57

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

Paul Neal: 00:25:03

But it's a case by case basis.

Paul Neal: 00:25:05

Right.

Paul Neal: 00:25:06

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.

Paul Neal: 00:25:13

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

Robert Hughes: 00:25:18

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?

Paul Neal: 00:25:26

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

Paul Neal: 00:25:28

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.

Paul Neal: 00:25:41

But it's not impossible.

Paul Neal: 00:25:42

And we do that from time to time.

Robert Hughes: 00:25:45

Interesting.

Robert Hughes: 00:25:45

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

Robert Hughes: 00:25:51

It's not that simple.

Paul Neal: 00:25:53

It's not that simple.

Paul Neal: 00:25:55

No.

Paul Neal: 00:25:56

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

Paul Neal: 00:26:00

Yeah.

Paul Neal: 00:26:00

It sounds like it also depends on the timeline.

Paul Neal: 00:26:03

Right.

Paul Neal: 00:26:04

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.

Paul Neal: 00:26:21

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.

Paul Neal: 00:26:30

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

Paul Neal: 00:26:35

And so, and we're hoping that.

Paul Neal: 00:26:37

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

Paul Neal: 00:26:40

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

Paul Neal: 00:26:43

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

Paul Neal: 00:26:47

You know, a fix, a fixed level here.

Paul Neal: 00:26:49

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

Paul Neal: 00:26:52

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

Robert Hughes: 00:26:54

So, okay, so my question was, shoot.

Robert Hughes: 00:27:00

It keeps coming in and out.

Robert Hughes: 00:27:03

So we got the balloon payment.

Robert Hughes: 00:27:05

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

Paul Neal: 00:27:16

In.

Robert Hughes: 00:27:16

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?

Paul Neal: 00:27:29

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.

Paul Neal: 00:27:41

Right.

Paul Neal: 00:27:42

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

Paul Neal: 00:27:44

To answer your question, I.

Paul Neal: 00:27:47

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.

Paul Neal: 00:27:57

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

Paul Neal: 00:28:01

You shouldn't.

Paul Neal: 00:28:01

This should not be 30 days for lease expiration.

Paul Neal: 00:28:04

This should be 12 months out, 18 months out.

Paul Neal: 00:28:07

Six months kind of is where we start.

Paul Neal: 00:28:08

The pucker factor starts to build at about six months.

Paul Neal: 00:28:11

But you should always approach them because you never know.

Paul Neal: 00:28:16

You don't.

Paul Neal: 00:28:17

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

Paul Neal: 00:28:18

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

Paul Neal: 00:28:21

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

Paul Neal: 00:28:31

They want to sell.

Paul Neal: 00:28:31

Maybe they've had a run up.

Paul Neal: 00:28:32

They're like, this is great.

Paul Neal: 00:28:33

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.

Paul Neal: 00:28:42

It's not part of their plan.

Paul Neal: 00:28:44

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.

Paul Neal: 00:28:57

I really like this space.

Paul Neal: 00:28:59

Have you ever considered selling it?

Paul Neal: 00:29:01

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

Paul Neal: 00:29:07

Have you ever considered it?

Paul Neal: 00:29:09

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.

Paul Neal: 00:29:15

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

Paul Neal: 00:29:19

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

Paul Neal: 00:29:21

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

Paul Neal: 00:29:24

Or maybe I hadn't really thought about it.

Paul Neal: 00:29:26

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

Paul Neal: 00:29:31

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.

Paul Neal: 00:29:41

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.

Paul Neal: 00:29:52

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

Paul Neal: 00:29:58

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

Paul Neal: 00:30:05

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.

Paul Neal: 00:30:18

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

Paul Neal: 00:30:23

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.

Paul Neal: 00:30:36

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

Paul Neal: 00:30:39

And so you own it.

Paul Neal: 00:30:41

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.

Paul Neal: 00:30:45

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

Paul Neal: 00:30:53

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

Paul Neal: 00:31:00

So it's a no brainer for them.

Paul Neal: 00:31:02

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

Paul Neal: 00:31:09

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.

Paul Neal: 00:31:15

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.

Paul Neal: 00:31:22

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

Paul Neal: 00:31:26

No big deal.

Paul Neal: 00:31:26

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.

Paul Neal: 00:31:44

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

Paul Neal: 00:31:48

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

Paul Neal: 00:31:53

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

Paul Neal: 00:31:58

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

Paul Neal: 00:32:01

So you just don't know unless you ask.

Paul Neal: 00:32:03

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

Paul Neal: 00:32:06

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

Paul Neal: 00:32:13

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

Paul Neal: 00:32:18

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

Paul Neal: 00:32:23

So much of commercial is off, off the market.

Paul Neal: 00:32:25

It's not listed.

Paul Neal: 00:32:27

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

Paul Neal: 00:32:30

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

Paul Neal: 00:32:38

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

Paul Neal: 00:32:41

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.

Paul Neal: 00:32:52

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

Paul Neal: 00:32:58

So they're, they're really invaluable.

Paul Neal: 00:33:00

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?

Paul Neal: 00:33:07

Is that something?

Paul Neal: 00:33:08

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?

Paul Neal: 00:33:19

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.

Paul Neal: 00:33:27

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.

Robert Hughes: 00:33:45

Nice.

Robert Hughes: 00:33:46

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

Robert Hughes: 00:33:53

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

Robert Hughes: 00:33:59

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

Robert Hughes: 00:34:04

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?

Robert Hughes: 00:34:17

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

Robert Hughes: 00:34:22

Like, well, I like this.

Robert Hughes: 00:34:23

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?

Paul Neal: 00:34:29

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

Paul Neal: 00:34:32

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

Paul Neal: 00:34:40

Excuse me.

Paul Neal: 00:34:42

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

Paul Neal: 00:34:46

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?

Paul Neal: 00:34:56

umber one is if you're paying: 3000

Paul Neal: 00:35:13

e now in, you know, August of: 2024

Paul Neal: 00:35:22

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

Paul Neal: 00:35:26

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.

Paul Neal: 00:35:36

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

Paul Neal: 00:35:39

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

Paul Neal: 00:35:43

How much, how much Loan will that get me?

Paul Neal: 00:35:46

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

Paul Neal: 00:35:50

Okay.

Paul Neal: 00:35:50

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

Paul Neal: 00:35:54

Right.

Paul Neal: 00:35:55

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.

Paul Neal: 00:36:04

10% is a good number to stick with.

Paul Neal: 00:36:06

That's where most people kind of fall.

Paul Neal: 00:36:09

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

Paul Neal: 00:36:16

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

Paul Neal: 00:36:22

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

Paul Neal: 00:36:23

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

Paul Neal: 00:36:26

Okay.

Paul Neal: 00:36:27

Unless there's a very good reason for it.

Paul Neal: 00:36:28

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

Paul Neal: 00:36:31

And it's like the pandemic.

Paul Neal: 00:36:33

Yeah, well, the pandemic.

Paul Neal: 00:36:34

Right.

Paul Neal: 00:36:34

And like one, like.

Paul Neal: 00:36:35

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

Paul Neal: 00:36:38

You know, we.

Paul Neal: 00:36:39

The most important year is the most recent year.

Paul Neal: 00:36:41

Okay.

Robert Hughes: 00:36:41

Okay.

Paul Neal: 00:36:42

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

Paul Neal: 00:36:43

The most recent.

Paul Neal: 00:36:44

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

Paul Neal: 00:36:48

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

Paul Neal: 00:36:54

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

Paul Neal: 00:37:01

Right.

Paul Neal: 00:37:02

Half a year to get a sense.

Paul Neal: 00:37:03

Are you on track with what you did last year?

Paul Neal: 00:37:05

Are you ahead, you behind that sort of thing?

Paul Neal: 00:37:08

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

Paul Neal: 00:37:15

So we want to know two things.

Paul Neal: 00:37:18

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.

Paul Neal: 00:37:31

Okay.

Paul Neal: 00:37:31

So that would be the new mortgage.

Paul Neal: 00:37:34

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

Paul Neal: 00:37:37

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

Paul Neal: 00:37:42

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

Paul Neal: 00:37:45

Okay.

Paul Neal: 00:37:46

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

Paul Neal: 00:37:51

Right.

Robert Hughes: 00:37:51

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

Robert Hughes: 00:37:56

So like, for example, if I have.

Robert Hughes: 00:37:59

Let's just make the math easy.

Robert Hughes: 00:38:01

Like it's.

Robert Hughes: 00:38:01

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

Robert Hughes: 00:38:08

Or do you call it a mortgage in commercial?

Robert Hughes: 00:38:10

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.

Robert Hughes: 00:38:24

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

Robert Hughes: 00:38:29

Look healthy.

Paul Neal: 00:38:30

Yeah.

Paul Neal: 00:38:31

Your net cash flow.

Paul Neal: 00:38:32

Yep, net, but net.

Robert Hughes: 00:38:34

Not including payroll?

Paul Neal: 00:38:36

No, no net including payroll.

Robert Hughes: 00:38:38

Okay.

Paul Neal: 00:38:38

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

Robert Hughes: 00:38:41

Okay.

Robert Hughes: 00:38:42

Oh, okay.

Paul Neal: 00:38:43

Yeah.

Robert Hughes: 00:38:43

I got you after all your expenses.

Robert Hughes: 00:38:46

Okay, Got it.

Paul Neal: 00:38:47

Right, Right.

Paul Neal: 00:38:48

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

Paul Neal: 00:38:50

Right.

Paul Neal: 00:38:51

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

Robert Hughes: 00:38:53

Totally.

Robert Hughes: 00:38:54

Yeah.

Robert Hughes: 00:38:55

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

Robert Hughes: 00:38:59

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

Paul Neal: 00:39:04

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

Paul Neal: 00:39:07

Right.

Paul Neal: 00:39:08

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

Paul Neal: 00:39:12

Right.

Paul Neal: 00:39:12

And like.

Paul Neal: 00:39:13

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

Paul Neal: 00:39:14

Right.

Paul Neal: 00:39:14

You have a seasonal kind of adjustment.

Paul Neal: 00:39:18

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

Paul Neal: 00:39:22

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.

Paul Neal: 00:39:33

Right.

Paul Neal: 00:39:34

So.

Paul Neal: 00:39:34

And we could work.

Paul Neal: 00:39:35

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

Paul Neal: 00:39:41

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

Paul Neal: 00:39:42

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

Paul Neal: 00:39:50

Okay, Robert, how about your personal life?

Paul Neal: 00:39:53

What debts do you have?

Paul Neal: 00:39:55

So what's your personal income and debts?

Paul Neal: 00:39:56

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

Paul Neal: 00:40:02

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

Paul Neal: 00:40:08

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.

Paul Neal: 00:40:16

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

Paul Neal: 00:40:22

Right.

Paul Neal: 00:40:23

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

Paul Neal: 00:40:26

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

Paul Neal: 00:40:30

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

Paul Neal: 00:40:34

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.

Paul Neal: 00:40:43

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

Paul Neal: 00:40:48

Those are the big things.

Paul Neal: 00:40:49

Credit's got to be decent.

Paul Neal: 00:40:50

You don't have to walk on water.

Paul Neal: 00:40:51

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

Paul Neal: 00:40:53

If someone had a.

Paul Neal: 00:40:54

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

Paul Neal: 00:40:58

Okay, that makes sense.

Paul Neal: 00:40:59

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

Paul Neal: 00:41:01

hide anything from lenders in: 2024

Paul Neal: 00:41:08

Okay.

Paul Neal: 00:41:09

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

Paul Neal: 00:41:13

They know.

Paul Neal: 00:41:13

I.

Paul Neal: 00:41:13

They find things.

Paul Neal: 00:41:14

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

Paul Neal: 00:41:16

I'm like, I.

Paul Neal: 00:41:17

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

Paul Neal: 00:41:21

So.

Paul Neal: 00:41:22

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

Paul Neal: 00:41:25

We.

Paul Neal: 00:41:26

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

Paul Neal: 00:41:30

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.

Paul Neal: 00:41:38

But we start with about a 50.

Paul Neal: 00:41:40

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

Paul Neal: 00:41:46

People say these are a little bit redundant.

Paul Neal: 00:41:48

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

Paul Neal: 00:41:51

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

Paul Neal: 00:41:55

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.

Paul Neal: 00:42:08

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

Paul Neal: 00:42:10

Like surprises.

Paul Neal: 00:42:11

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

Paul Neal: 00:42:14

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.

Robert Hughes: 00:42:20

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

Robert Hughes: 00:42:24

Or anything on your, like, credit report.

Robert Hughes: 00:42:27

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

Paul Neal: 00:42:29

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

Paul Neal: 00:42:33

One.

Paul Neal: 00:42:33

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

Paul Neal: 00:42:39

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

Paul Neal: 00:42:44

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

Paul Neal: 00:42:48

And like, hey, what's all this?

Paul Neal: 00:42:50

And.

Paul Neal: 00:42:51

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

Robert Hughes: 00:42:55

Totally.

Paul Neal: 00:42:55

Yeah.

Paul Neal: 00:42:56

And that's what it.

Paul Neal: 00:42:57

And that's what it is.

Paul Neal: 00:42:58

It's not necessarily the isolated.

Paul Neal: 00:43:00

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

Paul Neal: 00:43:03

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.

Paul Neal: 00:43:14

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

Paul Neal: 00:43:17

And so you got to put your best foot forward.

Paul Neal: 00:43:19

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.

Paul Neal: 00:43:26

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.

Paul Neal: 00:43:38

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

Paul Neal: 00:43:40

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

Paul Neal: 00:43:46

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

Paul Neal: 00:43:48

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

Paul Neal: 00:43:52

Here's another one.

Paul Neal: 00:43:53

Here's another.

Paul Neal: 00:43:53

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.

Paul Neal: 00:44:08

Right?

Paul Neal: 00:44:09

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

Paul Neal: 00:44:11

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

Paul Neal: 00:44:13

And lenders want to get paid back.

Paul Neal: 00:44:14

Right?

Paul Neal: 00:44:15

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

Paul Neal: 00:44:18

Everyone gets that.

Paul Neal: 00:44:19

But you know what I'm talking about.

Paul Neal: 00:44:21

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

Paul Neal: 00:44:24

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.

Robert Hughes: 00:44:38

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

Paul Neal: 00:44:43

Right, right, exactly.

Paul Neal: 00:44:44

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.

Paul Neal: 00:44:54

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

Paul Neal: 00:44:56

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

Paul Neal: 00:45:00

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

Paul Neal: 00:45:02

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

Paul Neal: 00:45:06

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

Paul Neal: 00:45:09

That's what local business professionals do.

Paul Neal: 00:45:11

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

Paul Neal: 00:45:14

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

Paul Neal: 00:45:18

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.

Paul Neal: 00:45:26

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

Paul Neal: 00:45:29

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.

Paul Neal: 00:45:39

Same thing.

Paul Neal: 00:45:40

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

Paul Neal: 00:45:46

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

Paul Neal: 00:45:48

And so you have to learn that skill.

Paul Neal: 00:45:50

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

Paul Neal: 00:45:56

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

Paul Neal: 00:46:01

And it makes kind of sense.

Paul Neal: 00:46:02

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

Paul Neal: 00:46:09

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.

Paul Neal: 00:46:18

Like maybe they have more cash.

Paul Neal: 00:46:20

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.

Paul Neal: 00:46:31

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.

Paul Neal: 00:46:39

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

Paul Neal: 00:46:46

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

Paul Neal: 00:46:48

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

Paul Neal: 00:46:50

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.

Paul Neal: 00:47:06

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

Paul Neal: 00:47:08

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

Paul Neal: 00:47:12

It's a big investment.

Paul Neal: 00:47:14

It's a big commitment.

Paul Neal: 00:47:15

It's, it is.

Paul Neal: 00:47:16

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

Paul Neal: 00:47:20

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

Paul Neal: 00:47:22

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

Paul Neal: 00:47:25

I mean, for breakfast.

Robert Hughes: 00:47:29

Well, this is, this is awesome.

Robert Hughes: 00:47:30

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.

Robert Hughes: 00:47:53

And so if anybody is thinking about.

Robert Hughes: 00:47:55

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?

Robert Hughes: 00:48:04

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

Robert Hughes: 00:48:07

Yeah.

Paul Neal: 00:48:07

So, so I wrote a book they can get.

Paul Neal: 00:48:10

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

Paul Neal: 00:48:18

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

Paul Neal: 00:48:22

You can get a free copy there.

Paul Neal: 00:48:23

We'll ship it to you and print it.

Paul Neal: 00:48:25

You just have to pay for the shipping.

Paul Neal: 00:48:26

It's like 60, 95 or something.

Paul Neal: 00:48:28

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.

Paul Neal: 00:48:34

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.

Paul Neal: 00:48:42

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.

Paul Neal: 00:48:53

Then we do an ownership strategy session.

Paul Neal: 00:48:57

We don't charge for it.

Paul Neal: 00:48:58

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

Paul Neal: 00:49:02

Could this make sense for you or not?

Paul Neal: 00:49:05

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

Paul Neal: 00:49:10

And we do that.

Paul Neal: 00:49:12

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.

Paul Neal: 00:49:22

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

Paul Neal: 00:49:31

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

Paul Neal: 00:49:34

Right.

Paul Neal: 00:49:35

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

Paul Neal: 00:49:39

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

Paul Neal: 00:49:44

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.

Paul Neal: 00:49:57

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

Paul Neal: 00:50:00

It's like 90 days.

Paul Neal: 00:50:01

So you're already at three months.

Paul Neal: 00:50:02

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

Paul Neal: 00:50:06

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

Paul Neal: 00:50:09

You know, in that process.

Paul Neal: 00:50:11

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

Paul Neal: 00:50:15

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

Paul Neal: 00:50:18

Right.

Paul Neal: 00:50:19

Assuming you have the land.

Paul Neal: 00:50:20

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

Paul Neal: 00:50:25

So there's a.

Paul Neal: 00:50:26

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

Paul Neal: 00:50:30

We can do it in like a week.

Paul Neal: 00:50:32

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.

Paul Neal: 00:50:43

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

Paul Neal: 00:50:47

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

Paul Neal: 00:50:50

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.

Paul Neal: 00:50:57

We're going to ask some questions.

Paul Neal: 00:50:58

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.

Paul Neal: 00:51:04

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.

Paul Neal: 00:51:13

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.

Paul Neal: 00:51:19

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

Robert Hughes: 00:51:22

Nice.

Robert Hughes: 00:51:23

Awesome.

Robert Hughes: 00:51:24

Well, thank you so much for this conversation.

Robert Hughes: 00:51:27

Sorry.

Robert Hughes: 00:51:27

Thank you so much for this conversation.

Robert Hughes: 00:51:29

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.

Robert Hughes: 00:51:41

And so that's cool also.

Robert Hughes: 00:51:43

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

Robert Hughes: 00:51:48

You'll have links and all the.

Robert Hughes: 00:51:52

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

Robert Hughes: 00:51:59

Is that what ownership strategy Call?

Robert Hughes: 00:52:02

Yeah.

Robert Hughes: 00:52:03

So this sounds awesome.

Robert Hughes: 00:52:05

So thank you so much.

Paul Neal: 00:52:06

Yeah, Robert's great.

Paul Neal: 00:52:07

Thanks for having me on today.

Robert Hughes: 00:52:09

Absolutely.

Robert Hughes: 00:52:10

Well, until next time.

Robert Hughes: 00:52:11

I'll see you later.