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Podcast Transcription
Dave Dubeau [00:00:09] Everyone, Dave Dubeau here with another episode of the Property Prophets Real Estate podcast today, zooming in from beautiful Malibu, California, we’ve got Terry Hale, Terry, how are you doing today?
Terry Hale [00:00:20] Excellent, Dave, how about yourself?
Dave Dubeau [00:00:22] Fantastic. Now Terry is very experienced real estate entrepreneur who focuses on the commercial space, so I’m excited to find out all about that. We’re also excited to find out a little bit more about seller financing in the commercial space. So that’s something about very, very curious, Bob. So very well. Get into your back story and a little bit to get started with. Why don’t you just give us your definition? What is commercial real estate mean to you? What is that for somebody who’s relatively new to the real estate investing game, right?
Terry Hale [00:00:55] Well, someone new to the space. They may look at commercial and think it’s big and scary. Big, tall buildings, right? That’s kind of the perception that’s pushed out there, and you have to have perfect credit and tons of money and really have all that, that wherewithal and credibility to get into it. And so that’s a misconception. That’s not that’s not the commercial is commercial in my role, Dave. It’s anything. It’s five plus units for multifamily. There’s different sectors within the commercial estate business. So we have everything from, as we know, multifamily, right? Those are apartment buildings five plus we have self-storage, which I’m very heavily invested into the mobile home parks, which aren’t typically my favorite property types. Because, you know, during COVID, in situations with lack of stimulus checks and 50 million people unemployed, they might want to ask for forgiveness a little hard to get the rent money out of them. But the ambulatory care, congregate living warehouses, retail office space. All of that is commercial, but I focus on recessionary proof properties, the ones where during a cyclical downturn and history repeats itself, which we know that that happens. I want to be able to have a portfolio property that actually can stand up to that recession. And that’s why I love the multifamily and there’s a little niche within that and also the self-storage. Those are my two main property type of expense.
Dave Dubeau [00:02:11] Perfect. And why would you say that those two are fairly recession-proof or recession resistant?
Terry Hale [00:02:19] People always need a place to live, and it’s unfortunate when people lose their houses and you know, the house buying business, that’s like a feeding frenzy during a down cycle. So a lot of people, if they go into a foreclosure status, they move into affordable housing, which is your apartments. And of course, you got, you know, a class which is the expensive stuff, the B class, which is middle of the road, the C class is C minus, which are in the smaller tertiary markets that are on the outskirts that are like low income housing. And so that’s a recessionary property type because people always gravitate towards that affordable housing. And then the self-storage, it’s like a nuisance rent. People keep stuff for the darndest reasons, Dave. I mean, I’ve had customers that are in there for like five years. And finally, when they go and really check and see what they’re paying money every single month for that nuisance, you know, 50, 60, 70 bucks, they find out that it’s just a bunch of garbage. And so that’s like the little known secret is to set it and forget it model. And people nostalgic value, sentimental value or people, they just like to hoard stuff. Self-storage is definitely recessionary proof because of the small payment.
Dave Dubeau [00:03:24] Well, yeah, not only that, but I mean, like you’re saying, when times are tough, people have to downsize. Affordable housing. But they they’re loathe to get rid of their crap. So they where do they have to put it? They have to put it in self-storage, right? And when times are good, they’re buying more crap and they have to put it somewhere. So they put out a self-storage. So it’s kind of a win.
Terry Hale [00:03:44] Let’s forget about the businesses that get shut down due to, you know, these corporate conglomerates in this online take down. I mean, mom and pop. I love shopping a mom and pop. I support all of our local stores. And any time I travel, I always support the local stores. I try not to buy online. That’s just the way I do things. But you know, the fact is, man, we see empty boxes all over the place. So these businesses and they shut down, they have to put all their stuff somewhere interesting.
Dave Dubeau [00:04:08] Yeah, it’s unfortunate, but very, very, very true. So Terry talked to me a little bit about seller financing and the kind of deals that you’re doing where you’re piqued my interest there when you’re talking about. You like to focus on multifamily, but there’s a niche within that niche that you really like to look at. So tell us a little bit about both of those.
Terry Hale [00:04:28] Sure, sure. And just a tad bit of just my backstory because I think it’s important that people, they understand that, you know, I have 25 years in this business day, and when I started out, I met this person who was doing commercial, but they were doing it the conventional way. And this really transitions right into the seller financing and the reality of it. So, you know, I worked with this gentleman for about five years and I finally got my financial legs. So I was independent and I could actually walk in and get a loan because that’s what I was taught how to do the business. And I did that for an additional two years and then the banks to treat me like, we know you know what you’re doing. You got a great portfolio. Great credibility. But we just can’t own any more money. And I said, why? They said, Because you’re getting. Come ratio sucks, and I said debt to income ratio, they don’t you guarantee too much debt and those properties you’re buying at retail, you’re not producing enough income to cover the debts, your risk. So I hit the wall and I had to reinvent myself, and that’s why I reverse engineered my thinking. I started looking. Instead of buying retail property on a capitalization rate buying property at retail, I started looking at more of the distressed property that are not bankable. These are properties that couldn’t qualify for bank financing. You know, Banker would laugh at you any hard money lender, Alaska
Dave Dubeau [00:05:38] Properties you’re talking about. What are we looking at here?
Terry Hale [00:05:40] I got one right now at 30 percent occupancy. It’s a Class A self-storage facility right outside of Jonesboro, Arkansas. It was built in 2018. A developer built it. They don’t know how to market it. It’s sitting right now at 30 percent economic occupancy. It can’t qualify for a bank loan. It’s got three additional acres on the back side. So I ended up getting the thing with seller financing because I told those two ways, I could buy it one way. Here’s the price they didn’t like the price I gave because I was trying to buy it at 20 cents on the dollar, and they said, This is a brand-new bill. I said, Yeah, but it’s not filled and it’s all about the numbers on the income. And they said, Well, what do you propose then if we’re not going to take that offer? I said, you become the bank. So how does that work? I said, Well, we create a seller finance note. And they said, Well, we have debt already on the property. I said, it’s OK. We write that it stays and see your first line position, which is senior debt. Then I put down a down payment and then the difference goes into second position on the seller finance note. And I told them everything that I do is non-recourse. I never personally guarantee loans because when I got hit by the bank and they told me my debt to income ratio, but I didn’t like that and I knew that I was in harm’s way with risk. So now everything that I do is all non-recourse. All your listeners non-recourse means no personal guarantee and structuring these deals in a way with seller financing is amazing. I got on that deal. It’s actually in Brooklyn, Arkansas, right outside of Jonesboro, eight minutes away. I got that deal for 36 months at four and a half percent interest, no personal guarantee. And yeah, and I snagged it.
Dave Dubeau [00:07:04] So then your goal, if I reading it right, is obviously bring your expertise to the table. Bring it up to 80 90, 100 percent occupancy. Get it revalued with the bank of that time. It’s going to be worth a crap ton more than what you paid for it. Even with the seller financing cash, everybody else get the conventional financing at that point. Is that correct?
Terry Hale [00:07:25] Yeah. And still, there’s a multi lending so we can still go after non-recourse, and that’s the difference. So it’s an actual formal closing. So now I’m not doing LCP, which is a loan to purchase when I go to that alternate lender who does non-recourse. It could be a point or two higher on the interest, but it’s great because it’s non-recourse and then it’s on the LTV, which is the loan to value, just as you said, locking in for this price. I create the value by filling vacancy, raising rents and adding profit centers and lowering my expenses. We don’t have management on these. We automate and modernize them. So there’s a fraction of the actual cost for management. So all that value add, I mean, the property will be worth like one point three, and I take it for like seven and change. Nice.
Dave Dubeau [00:08:05] So, Terry, back in the day when you first got to figure this out, what were some of the other examples of kind of properties that you’re finding that were just dress like that?
Terry Hale [00:08:14] So when I started out, I was actually buying retail. That was the
Dave Dubeau [00:08:18] problem when the light bulb went off and you realize that you’re you hit the wall and reinvent yourself, then what kind of properties are you finding?
Terry Hale [00:08:26] Well, that was the struggle. When I first started out, I was competing and competition is fierce in all businesses. So when you start looking at things in multiple dimensions and you start thinking out of the box, that’s exactly what I did remember I said earlier about the multifamily with a niche. So what I started focusing on was not the small stuff that the starter investors were looking at. I stayed away from buying with a capitalization rate formula, which is basically your gross income minus expenses equals NOI, which was a net operating income. And the formula is, you know, I divided by the purchase price equals a cap, which is a double digit or single digit, and people are looking for high double digit, you know, caps because that way they’re buying aggressively. And so I stop looking at that formula. I started looking at costs per net rentable square feet and I started looking at dollar per door. And I knew that if I could buy it for a certain dollar per door, an apples to apples with light deferred maintenance, I can get it to market rent and market occupancy to a neighboring actual building that was double the kind of quality. I know that I could create tremendous amount of value. So I had to get away from competition. I had to get away from the rights. The real estate investment trusts any Wall Street money dealing with huge property. So I found this little cookie cutter niche and then I started looking at OK, ownership. If somebody owned that thing for about 20 years, then at that point in time, they’re probably more than likely ready to retire. So I started focusing on those properties for ownership of that length of time, and we focused on anywhere between a 20 unit to 60 unit and that was really the sweet spot and that it only takes one manager a little bit of salary to have them on site. And of course, they would be like, we refer to on the East Coast as super, where they can actually turn a ranch and work on running toilets and things of that nature. And those people are not horrified.
Dave Dubeau [00:10:12] Very, very cool. So we found that sweet spot 20 to 60 units. And then I would imagine if I’m reading between the lines, right, you’re going directly after the owners of these kind of properties that have had them for 20 plus years. That’s really what you’re focusing on and that helps. So they’re item listed, yet you’re not competing against anybody else. You’re going direct to the owner. Would that be?
Terry Hale [00:10:34] Yeah. At that point in time, yes. But then we also found another hidden niche within that and finding is, say, one of the key pillars to success. You know, there’s six steps you got to find it, prescreen it, evaluate it, structure it, negotiate it and then facilitate it and bout facilitating. I always say educating delegate. I’m not one to do. You know these collection calls listen to crocodile tears. And that’s the thing about self-storage is they put it on auto pay, where multifamily, you know, you’re dealing with someone who’s living in that space. And the other one, there’s just boxes and garbage in there, right? For the most part or precious items, might I say. But you know, the fact is, if you’re doing collection calls and doing management and running over there, you want to buy close to your house. You go there, water the lawn on a Sunday. Change light bulbs. That’s a rookie move. I always say, hire the professionals. Let them do what they do best. Focus on what you do best. And here in my firm, here in Malibu, what we do here we consider ourselves transaction is what we’re doing is actually handling the transaction or picking up our phone. We’re using the computer relocating property. And when I started really doing that type of an approach to end, what I started realizing is that brokers don’t want to list these distress properties because there’s too many tire kickers, too many lowball offers. So I created all these relationships across the nation in key markets, not everywhere, just in the key markets where I know more you holes are coming in than going out. You know what I mean? Growing it, appreciating it markets and creating those relationships with those brokers, they say, Look, when you’re ready to hear about a deal, you don’t want to list it, you want to put it on your website. You want to spend time, energy and money marketing it, dealing with tons and tons of tire kickers on LoopNet. Just call me. Call our firm and we’ll deal with you direct. We’ll help facilitate that project on a on a seller finance deal. And they know it’s not bankable. They know they’re going to get a lowball offer. But with me, they know that I can pay a little bit more because there’s an old saying, you know, I’ll give you your price if you give me my chance. Right, exactly. I did a 60 unit apartment building right outside of Austin, Texas, which was distressed. It was literally operating at about 15 percent. And there are problematic tenants. I bought it for one million three hundred and ninety five thousand. It was 15 for Plex’s on eight acres. That was a very low purchase price to buy this property. But I also got seller financing. I got a twenty nine year seller finance note. I put down five percent. It was like it was like fifth, like three thousand dollars I put down. I brought in a capital partner that put in three hundred thousand two in that property around sort of millions of dollars and you had to get all the tenants out. I gave free rent to a sheriff. There was a sheriff car park right there on our campus and we went to work on put lipstick on the pig and turn in that property around
Dave Dubeau [00:13:10] that very time. Time flies were having fun. I. I think you’ve written books, and I think you’ve got all sorts of great stuff. You showed me a copy of the books that you’ve got
Terry Hale [00:13:20] to the two best strategies to profit with commercial real estate. One is a buy and hold. One, is it? Take it, wholesale it and collect your check today kind of approach.
Dave Dubeau [00:13:29] Yeah. And if people want to find out more about the box, find out more about you. What should they do?
Terry Hale [00:13:34] Oh, it’s easy. I’m one of the easiest guys to get in touch with. All they have to do is go to my website, which is my name, which is Terry Hale right here. Terry ELLE.com. All right. You go to Terry ELLE.com and scroll to the very bottom. There’s a number you can reach me at. I’m big on support, Dave, so if they want to contact me via email and shoot me another support at Cherry Hill dot com and yeah, we can talk, shop and see if we’re fit. I do partnership consideration and I always look to bring on new partners and duplicate myself. That’s what I do. That’s what we’re doing here in Malibu and I can do it with you. I can show you how to do the business.
Dave Dubeau [00:14:05] Awesome. Thank you very much. It’s been a lot of fun. Thanks for your insight.
Terry Hale [00:14:09] Thanks, Dave. Appreciate it. Thanks for having me.
Dave Dubeau [00:14:10] All right, everybody. Take care and we’ll see you on the next episode. Bye. Well, hey there. Thanks for tuning into the Property Profits podcast if you like this episode. That’s great. Please go ahead and subscribe on iTunes. Give us a good review. That’d be awesome. I appreciate that. And if you’re looking to attract investors and raise capital for your deals, I mean, I invite you to get a complimentary copy of my newest book right back there. There it is the money partner formula. You got a PDF version, an investor attraction book dot com again. Investor attraction, book dot com. Take care.