Transcription
Hey guys, I'm going to share with you how to buy your first piece of real estate. This is called my sequence strategy. I'm telling you this is simple. If you haven't hit notifications, hit them. And if you hadn't subscribed, you know that helps the algorithm. Also, put some comments in there; I really appreciate and look at everybody's comments. Okay, look: the sequence in which you find a piece of real estate and then what you do after you find a piece of real estate is, I believe, the most important thing in real estate.
There's five things that I look for in doing a deal. If you don't have, if you have any one of these five things missing, you will not get a deal. First, you need the deal. When I talk about the deal, I'm talking about the property itself; okay, where it's at, what it does, how it functions. The second thing is the debt on the deal. This is not my sequence, but this is the things involved in a deal: it's first the deal, then the debt, then it's the cash or equity. Okay, I don't have to have the cash. I wish I had known that. Okay, I've been buying real estate for 5 years and didn't realize I did not need cash, my cash to buy real estate.
The fourth thing you need is a network, and there's no way to do real estate by yourself, ever. So don't think you're going to own it all by yourself, because you're going to have the government involved, a bank involved, probably going to have investors, definitely going to have a residence involved, you're going to have an insurance company, got property taxes; there's no way to do real estate by yourself. And the fifth thing is you need confidence. Okay, now the confidence thing, I don't know how you get confidence. I know this: there's no pill for it, and it's worth buildings. Confidence is not something you hype up like, "I'mma fake it till I make it." Do not try that in real estate. Faking it till you make it in real estate means you're going to fake it, and you ain't never going to make it, because everybody's going to tell that you're faking it.
So I'm going to show you that in this sequence, the perfect sequence, confidence ends up being your biggest problem. Okay, now the thing that will handle the confidence issue more than anything else is making sure that number one is right: the deal. If you've never been through my hour and a half training on finding the perfect piece of real estate, my team's going to put a link below; it's completely free, no strings attached; you don't have to buy anything; it's about 90 minutes long. And when you have 90 minutes where you can just watch that, I'm going to show you how to find the perfect deal and know, with a check sheet A through Z, exactly what makes the perfect deal. Okay, but that's not this video; this video is the sequence: once you find a deal, what do you do?
Okay, now remember the deal itself, the property itself, is about 80% of the work. Okay, goes like this: 80% the deal, 15% the debt; we're at 95%; 5% the cash. Okay, both will come from my network, and the deal itself builds a bigger network faster. Okay, so first we find a deal. Let's say I'm on my phone and I find something on CREXi, or I find something on LoopNet, or I find something on CoStar. CoStar, I had to pay 15,000 to have that; CREXi, I could get it for a lot less, couple hundred bucks a month. Uh, LoopNet, it's a junkyard, it's a garbage dump; we call you Loopers if you're using it, because you're finding all the loopy stuff: the stuff that got on the market, got off the market, got on the market, didn't sell, got back on the market, didn't sell; it's loopy, okay, cuz they're—and by the way, CoStar owns that—uh, and the CoStar thing is just too expensive for most people. So if you don't have CREXi, check it out, because it's a great place for you to access data. We also have a deal finder; there's a lot, tons of places to find real estate. The best place is the brokers themselves, literally—uh, Cushman & Wakefield, CBRE, HFF, JLL, uh, we got uh, Colliers—um—uh, things that have sold, things at the bank, things that are maturing, deals that are maturing—uh, but if you go and find the brokers themselves in your market, who are the kings in your market, who's selling most of the commercial real estate in your market, you're going to find the deals and when they're coming due.
Okay, so number one is the deal. Okay, the second sequence in this is to quickly call the broker. Now most of you, what most of you do is you get hung up in whether it's a good deal or not, because you don't know what you're doing; that's why you underwrite the deal, then you're going to call for insurance, and you're going to call for taxes, and you're going to do anything and everything but buy a deal. Why? Because the only thing you need to do right now is pick up the phone and call the broker. So the moment I see a deal—Jared could pull up, pull up a deal right now; he'd bring me the deal and say, "Oh my God, there's this deal right now in Sarasota, Florida; it's freaking amazing." Okay, oh, Ryan brings me another deal: there's a deal in Houston, there's a deal in Austin, there's a deal in San Diego, there's a deal in New York. See what you guys are going to do is stop everything you're doing and maybe research the deal. Okay, I'm not going to do that; what I'm going to do is call the broker. It's at the bottom of the sheet; you're going to go to the bottom of that sheet, and the bottom of that sheet's going to be probably six or eight names that builds number four: network; you probably forgot that; that builds your network. Okay, it's going to have four people involved in the real estate sale itself, and there's probably going to be two other names in there that provide debt. What is debt? Debt is number two on your list of five things.
Okay, so first thing we do is what? Find a deal. How do you find deals? You look at deals all the time; you need to be on every one of these lists, everywhere, every day, looking for deals. I look at probably a 100 deals a day, every day. I look at a 100 deals, and I know what I'm looking for; I know what markets I'm looking for; I know what age I'm looking for; I know what size I'm looking for; I know what exact, precise markets I'm looking for. So most of the time it's this: delete, delete, delete, delete, delete, delete; I throw it in a file, and then I take that file and I share it with our mentoring group on Fridays, so they can look at my leftovers. Okay, because most of the people in our mentoring group and even in our club are not buying the same size deals that I'm buying. All right, so look: first I find a deal, then I call the broker. While I'm calling the broker, I'm underwriting the deal. This is called our underwriting napkin simplicity, Grant Cardone style, with a pencil and a piece of paper: bang, bang, bang; literally seven entries, and I'm underwriting a deal to understand the bottom I can pay and the top I can pay and the exact return I'll get on that deal, so that I can have a conversation with this broker. But it goes like this: the deal, call the broker, underwrite the deal, and the fourth thing we want to do is I want to get control of the asset.
Okay, now this phone call right here with this broker, I cannot tell you how important it is to talk to this guy about the market and set hooks. So it goes like this: I found a deal that I love; Jared showed me a deal; I called the broker: "Hey, Robert, Grant Cardone; I see your deal in Fort Lauderdale; uh, uh, I see that your call for offers is in 45 days; I love this asset." Okay, I'm setting hooks; I'm selling him on picking me as the buyer. Okay, that's why I don't want you to do your underwriting yet. Now if you don't like the asset, don't make a phone call. Okay, why? You just want practice, you could, but if you don't know what you like and don't like, you need to get clear on what you like and don't like before you make phone calls. I'm only going to call somebody about something I'm interested in, at which point I'll be like, "I love the asset; I don't know anything about the price; I'm not going to ask about price right now, cuz I haven't done my underwriting yet." While I'm on the phone with him, I'm literally on the phone with him, and I'm taking notes. Okay, I have this piece of paper here; I'm taking notes on the left side, and over here I'm doing my underwriting, and I can do both; I can actually do three or four things at one time. I'm like, "Okay, I got 200 units; the rents are 2,000 bucks a month," okay, times the 95% occupancy, less my expenses, because I know what they are, and boom, that's my cap rate. Okay, I can offer X dollar for this property. "Hey, Robert, over here, what do you like about it? What don't you like about it?" This is my phone call right here, this very powerful phone call number two: "What do you like about it? What don't you like about it? What else do you have that you have coming on that you like better? Okay, uh, what cap rate do you think it'll trade for? What's the expectation by the buyer—uh, I'm sorry, by the seller—what's the expectation, not what's the price? Okay, have you got loan proceeds uh, provided on the deal yet?" Okay, and I'm going to ask him a series of questions, none of which are negative. And when I get the price, it's going to be, "Hey, what's the price expectation? And if they don't get that price expectation, will they still be sellers? What if they don't hit their number?" Okay, I might ask them other questions like, "Why are they selling right now? Why right now? Market's not great right now; rates are going up. What other kind of buyers do you think you're going to have on it? Who do you think the actual buyer is? How many different offers do you think you'll get?" There's a litany of questions that I'm going to ask this broker; that's why deal, why is deal number one? Look, if deal wasn't number one, number one would be called a broker, but if I don't have a deal, then why would I call the broker? Right, unless I'm inviting him over to my house to have a party. And the truth is, if he's a serious guy, he's out selling real estate; he won't come to my party. So first the deal, then call the broker. As I call the broker, I'm going to underwrite the deal. Now the bigger you go in real estate, the less you have to worry about the money. Listen to what I'm telling you: the bigger you go in real estate, the less you have to worry about the money, because this guy and the marketplace that's buying that asset is going to determine the value of that property. This isn't about what you think it's worth; it's about what the marketplace believes it's worth, and the marketplace will set the value on that asset.
Okay, now once I get control, I underwrite the deal, then I get control. Get control means what? Get control basically means an LOI. Okay, I'm going to write an LOI, which will turn into a PSA. And again, if you, you don't know these terms, guys, just go watch that 90-minute video that I did, laying out the basics of buying real estate; my team will put the link there for you. Okay, control the deal with an LOI. "Robert, I'm going to write an LOI up on this property." Okay, let's say it's coming to market; it's on the market, and the, the offers, call for offers are today or two days or three days from now; these are all terms that you're going to hear from the broker. I'm going to get my LOI in; my LOI will basically be one sheet, including two other things that you have to know that I'll share at the end of the video. I share these two things at the end of the video in the LOI to separate you from everybody else. Okay, I'm going to have an LOI; if they accept my LOI, then we worry about a PSA later. Now notice two things I haven't done: I haven't called my lawyer yet; I don't have an LLC; I don't have a company; like, I don't do any of the dumb stuff that you guys do. You guys are running around getting LLC's, calling brokers, calling other people, getting other people to underwrite it; I don't do any of this. All this could take place in one phone call, and I could have the deal in an LOI. The PSA is a purchase and sale agreement; this cost zero, and this is going to cost money, because I'm gonna need a lawyer for this. Okay, now we have an exact LOI and a PSA in our resource book. If you've never seen our resource book, it's about this thick, and it shows you all the stuff we do at Cardone Capital to actually buy a deal, get it under contract, underwrite the deal, manage the deal, all the way down to the LOI, the PSA, even our lease agreements.
Okay, now what am I going to do now? I'm going to get an LOI; if they accept the LOI, then I move to number five, which is I get debt quotes. Okay, make a note, if you're taking notes: here, never ever ask a bank, never ever ask a bank to quote debt on a deal you don't have under contract; they're going to give you a number, okay, just like insurance; they'll give you a number, but they're never ever going to give you a real number. Do not call a bank; you look like an amateur, unless you have the deal under contract. Well, how am I going to know what to estimate? Because you're going to be working on 30 or 40 or 50 or 60 or 100 deals a day, like I do, dude. I get debt numbers served to me every single day; there's not a day in my life that somebody doesn't send me over debt numbers and say, "This is what Fannie's doing today; this is what Freddie's doing today; this is what regional banks are doing; this is what HUD's doing," boom; it's free data; it's all of it's all over the place once you're a serious player and that you've committed yourself to the proper sequence. Okay, so what am I going to do? I'm gonna get debt quotes right here. Now I can actually price my debt out. Many of you are worried about the debt before you even worry about the deal. The sixth step I will take here is to start buying equity. Okay, or getting—the sixth thing I'm going to do is start raising money; or equity could be referred to either one of these: my joint ventures, my equity, my partners, my LPs, my limited partners, who's going to help me finish this deal out. And I would just tell all of you, all of you should be looking for equity from other people; you should be looking at deals bigger than you can fund; that's right; you should be looking at deals bigger than you have the money for, because that's where the good deals are. If you're in the right neighborhood at the right time, buying the right kind of real estate, go big. Okay, you're going to regret later going small. In 2010, 11, and 12, and you went, bought—let's say you went and bought 12 units—okay, and you're like, "I made a bunch of money in 2012 buying 12 units." What if you'd have bought 1,200? What if you'd have gone bigger? You'd have made more money. Okay, and I'm telling you it's easier to buy big deals than it is to buy small deals, because there's less competition for the big deals.
Okay, now you're going to get a debt quote. Let's say I deal—let's say the deal was 100—and let's say $100, 100,000, 100 million, 100 billion, whatever—the banks are going to give me 65% of that; this is 100%; don't worry about how much the number is; 100%; I don't have to eat the whole 100; I get a bank to give me 65%, and now I get equity from other people to give me the other 35; I'm going to eat this in little chunks. Okay, maybe I don't need 35%, cuz maybe I have 15% of this; now all I need is 20%; see, I'm eating it in little tiny pieces, and then I can manage a much bigger deal that's easier for us all to make more money on. Okay, so I get a debt quote, then I start raising money. Now, why is this important? Why is this sequence important? "Hey, guys, I got a deal under contract." Okay, I have it under contract; I already have a PSA, and I already have a commitment for 65% of the money, plus I'm putting in 15; I literally have only 20% of the money left to raise. Okay, now if you don't think I know what I'm talking about, I've raised, up to today, not including tomorrow, next week, next month, next year, $1.5 billion—do—of equity from people I don't know: friends, family, employers, investors, customers, people that watch me on social media; raised $1.5 billion using this exact sequence. Okay, this is a $1 billion video that you're watching right now; you could do the same thing if you have your sequence right. Okay, so I got a debt quote; I start raising money. Okay, this is all happening over a period of about 45 days; my LOI gave me 30 days; my due diligence gave me—which I hadn't even started yet—my due diligence will get me 30 days, which brings me to due diligence.
Okay, now I'm going to start doing my due diligence. What is due diligence? Due diligence is me actually looking over the property: roofs, plumbing, kitchens, the rent roll; okay, who's there, how they're managing it, what needs to be fixed, what problems we have; it's called due diligence. I'm going to spend about $26 per unit doing my due diligence; 200 units is going to cost me about 5,200 bucks to do that due diligence to figure out what do I have. What I'm going to do is my due diligence on the rent roll; this is basically forensic on the rent roll to be sure this guy selling it doesn't have a niece and a nephew over there, uh, maybe not even paying rent, which would make the property more valuable, right, if they're not paying, and and I'm buying it based on this NOI, and and and they're not paying, then then that would be data for me to know; or maybe he's been adding paint—he paints his house—okay, out of a paint bill that he has for his apartment bill. I'm going to do due diligence: fiduciary responsibility to me, to my lender, and to my equity, my partners, to do a good due diligence and make sure that anything and everything that needs to be done to this property that I do or do not know uh, is validated. Okay, now what am I going to do after that? Yeah, number eight thing I'm going to do: if everything's a check, everything's a go, there's probably going to be some renegotiating, and then I'm going to close a deal. Okay, I'm not big on renegotiating, but I will if I have to. Okay, trust me, I'm built to renegotiate when I need to; I am not built to renegotiate if my deal is good; if my deal is good, I don't pay extra, but if my deal, based on what I wanted to pay, something comes up: plumbing, something that wasn't disclosed, a roof problem that wasn't disclosed, forensic discovered that there was some fraud in the books—I've seen all this happen, by the way—okay, there's some hair—this is referred to as hair on the deal—hair being a bad thing, that there's something, some complication, maybe, "Hey, you can't do X, Y, or Z with this property for 10 years," years, or there's some kind of passage into the property where you got to give these people access, something that created some complication that was not disclosed to me. Okay, now what do I do now? Boom, shut this deal down; close this deal; get it done. Okay, close the deal; have a celebration; tell your investors, "We're good to go." I've now raised all the equity; the debt's ready to go; close the deal, and then I take over and I manage.
When you manage the deal, uh, you know, Robin Kosaki got very, very upset with me once; he says, "Oh, the biggest problem in real estate is managing it." I said, "Not if you have some big deals; if you have big deals, managing the deals is not the most difficult part, Robert; I promise you." Okay, I have 15,000 units; I'm going to 150,000; the biggest problem in real estate is finding great deals; number one is the biggest problem; it is the biggest challenge; it is the hardest thing to do; okay, is finding great deals. Once you find a great deal, the debt's going to come, the cash is going to come, the network is automatic; okay, like I can meet almost anybody now that I got $5 billion worth of real estate, and number five, freaking confidence starts blowing up when you do the right thing over and over and over again. Okay, now I'm going to do everything I can to manage, improve the property. How do you improve the property? There's only one way to improve the property. Okay, this is what I want you to take away from this video more than any other thing: the sequence, the five things, the sequence, the exact sequence, and there's one way to improve the property; only one way; it does not include paint; it does not include kitchens; it does not include floors; it does not include any of the things you think it does, except this: only way to improve a piece of real estate is to raise the rents and lower the expenses. Okay, the last thing you're going to do could set you up for number 10; bet you guys didn't know that; y'all thought I had to put in backsplashes and toilets, right? Most people over-improve their properties and actually hurt their NOI, just so you know. Number 10 thing we're going to do is this: oh, by the way, a great piece of property cannot be improved because you manage it better, just so you know; no matter how good the management company is, that is not what improves the value of the property; the only thing that improves the value of commercial real estate is improving your rents, getting the rents to go up and the expenses to go down, of what's called the NOI; when the NOI goes up, value of the property goes up; when the NOI goes down, uh-oh, the property value goes down. The 10th thing you want to do—now I'm going to save this for another video—the exit. Okay, there's not one exit; you never buy a piece of real estate where you have one exit; Warren Buffett taught me this 40 years ago: "Never buy something," he says, "I never buy something where the only way I can make money is by selling it." And I'm thinking to myself, "Why not?" I thought that's why you bought the stock. He's like, "Grant, if I, I buy a stock and then sell it, what do I have to do? I got to go buy another stock." Okay, he's like, "All that does is give me a job; I want to buy something where I have multiple exits, one of which would be never to sell the asset." I told you earlier, stay to the end of the video; I was going to share with you two things to put in your LOI. Okay, if you can pull this off, you want to do it. Number one, you want to put an LOI together that'll be a small sheet of paper, basically says your terms: number one, what you're paying; number two, when you're closing; number three, how long your due diligence; anything that you want on that LOI. There's going to be a second letter; okay, there's going to be a second letter of your schedule of assets, plus a list of everyone you have bought from—I'm sorry, anyone you bought from; if you don't have anybody on this list, that's why you need partners; you need some other people that play the game with you. Okay, so you need a letter; this is your due diligence letter; it's in our resource book. The second thing you need is basically a resume, a bio of deals you've done with other people. And the third thing, okay, is your ability to close right now. Now this is how I write up deals. Okay, I basically send the guy I've done business with these companies; if you don't have that, you don't have that.
Sorry, okay, but you need to figure out how to start partnering with other people so you can create that look.
You don't know what you don't know, right? And if you don't know what you don't know, you're not going to even use it when, when you have it. So I'm trying to prep you for the day where you're like, let's say you do two or three deals, make sure you have a letter there. Said, "I've done deals with this person, this person, and this person. You could call them; here's their references, here's their numbers, and they're going to tell you I am a saint to deal with." Okay.
The other thing you want is your ability to close this deal. "Here's my money, I'm ready to go; here's a check. I've been doing this for 40 years, folks, even when I didn't have the money." Yes, that's right, I showed him the money. Okay.
There was a lot in this video; I hope I didn't take too much of your time. If you have not yet hit the Subscribe button, do me a favor. If you enjoyed the video, hit the Subscribe; make sure you hit notifications. Comment below what's your big takeaway here, and I appreciate you watching. [Music] a