Today’s REI Classroom Lesson

Getting funding for your first commercial deal isn’t the easiest. As Kevin Bupp explains, banks want to work with people they’re comfortable with and have experience.

REI Classroom Summary

Kevin Bupp elaborates on how to approach possible sponsors, including the need to step out of your comfort zone.

Listen to this REI Classroom Lesson

Real Estate Investing Classroom Show Transcripts:

Mike: Welcome back to the flipnerd.com REI Classroom, where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.

Kevin: Hey, guys, Kevin Bupp here from themobilehomeparkacademy.com and the Real Estate Investing for Cash Flow podcast. Today, I’ll be the host of your REI Classroom tip. And in today’s show, I’m going to share with you three simple tips on how to find a qualified deal sponsor for your first commercial real estate deal.

Mike: This show was sponsored by passiverental.com.

Kevin: So when you’re first getting started in the commercial real estate game as an investor, it can be quite difficult to get financing when you don’t have a track record. Most banks or lending institutions want to see that you have experience and have a healthy balance sheet before they’ll consider lending you money on a deal because really, at the end of the day, their business is to lend money. They don’t want the property back. So they want to make sure that you’ve got some reserves and that you have got experience in running that type of property because they don’t want it back. And this doesn’t really matter whether it is an apartment building, an office building, a mobile home park, or a shopping center or any other type of commercial real estate property. It just doesn’t matter. The same challenge will be present.

So a way to solve this issue is to bring someone on to your team who has the relevant experience and the financial stability who can help put the bank’s mind at ease. Because you just want to make them comfortable. They want to know that if something should happen with this property and you were to default, that you’ve got someone on your team that has got deep pockets or has the experience to possibly turn the property around. So the challenge is how do we find this person? Well, that is really the million-dollar question, but I’ve got three very simple ways to help you accomplish this.

Number one, what you’re going to do is you are going to make a list of every property management company who specializes in the asset type you’re buying, and pick up the phone and call them. You want to introduce yourself, tell them about the property that you are looking to purchase. And then explain your dilemma, and let them know that you’re new to the business, that you found a property, you have underwritten it. It looks like a great deal, but you’re brand new, you don’t have a track record and you need to find a sponsor.

And you were wondering, since basically all their clients are individuals that already own the properties like you want to buy, you were wondering if they might have an introduction that they could possibly make for you. They might know of a client that might have an interest in potentially partnering. It happens all the time so this is not out of the norm for you to do this.

So make a list of all the property management companies in that area, and give them a call. Introduce yourself because at the end of the day, you’re going to want to make a relationship with them anyway because they might end up being the property management company that manages the property for you. There are only so many property management companies. So go ahead and build the rapport, start it now, and whether you do business with this property management company now or down the road, at least you have already reached out and made the introduction.

So that’s number one. Number two, the second method is to call each and every commercial real estate broker or commercial real estate lender in that particular marketplace that specializes, again, in the asset you’re looking to buy. So if you’re buying an apartment building, don’t call on commercial brokers or commercial lenders that specialize in financing or finding office buildings. You want to call on the ones that specialize in apartment buildings because that’s what they do. Every day, they’re working with clients that are buying apartment buildings, or they’re financing clients that are buying apartment buildings.

So you want to call them. Again, introduce yourself, tell them who you are, what your challenge is. And your challenge is that you’re new. You’ve got this property under contract, you just don’t have a track record so you need a deal sponsor. You need someone that has experience and you’re wondering if they might have some suggestions for you. Really, you’re just trying to probe and find out if they might know someone they could introduce you to, an owner-operator that might become your deal sponsor.

Again, a very common strategy to reach out to these types of individuals. Again, that’s commercial real estate brokers or commercial real estate lenders. Both of them have clients that they work with on a regular basis who can potentially be your deal sponsor.

Now, number three, tip number three, this is my favorite of all of them. And this one was actually given to me . . . it wasn’t really given to me. I just talked to an investor not too long ago that utilized this exact strategy to buy his very first 250-unit apartment building. His very first one. That was his very first deal and the bank wouldn’t lend him money. But he went and found a deal sponsor by doing this tip that I am about to give you.

So he made a list of every property within a 50-mile radius of where his particular asset was. And it was an apartment building so he made a list of all the apartment buildings within a 50-mile radius of the one he had under contract and he tracked down the owner’s names and telephone numbers. You can use services like TLO.com is a great one. That’s my favorite. That is how we track down owner’s cell phone numbers. I don’t know what he used, but that’s a very good one. And so he literally just picked up the phone and started dialing for dollars, basically. And he started calling every property owner that owned a similar type of building within a 50-mile radius, and I forget how many he said he called, but it was a lot. I think maybe 40 or 50 of them, probably got yelled at a couple of times, probably got hung up on. He met a guy, had a great conversation, something clicked, that individual became his sponsor on that deal. It was someone that had a track record, 30-plus-year track record, owned tens of thousands of apartment units, and became his deal sponsor on this deal.

Well, guess what? Not only was he his deal sponsor on that first deal, but they’ve become partners on two or three other deals. So I know that this works. I’ve used every single one of these methods and that is a true testament that it’s a method that works. Number three, just calling these different property owners, that just proves to you that it works because this is a recent case study that I am giving you here.

And it just means that you have got to get out of your comfort zone. That’s really the whole strategy. All three of these are just getting out of your comfort zone and making these phone calls. And if you’ve gone as far as finding a deal and procuring a deal, and all you really need now is a partner to bring in that has a track record, pick up the darn phone and make some calls, okay, guys? That’s all I have for today’s REI Classroom tip. I want to thank you for listening in and being a part of our great community here. And until we meet again next time, I want you to get out, take massive action and make some cash flow happen.

Mike: Passiverental.com is your source for turnkey done-for-you rental properties. If you’d like to be an investor and not a landlord, please visit passiverental.com to learn how to purchase cash flowing, professionally managed rental properties in the hottest rental markets across the country. We can also help connect you with financing for your next property. Invest the easy way today and get started by visiting passiverental.com.

Please note, the views and the opinions expressed by the individuals in this program do not necessarily reflect those of FlipNerd.com or any of its partners, advertisers or affiliates. Please consult professionals before making any investment or tax decisions, as real estate investing can be risky.

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Kevin Bupp
My specialty is investing in Mobile Home Parks but I've owned apartments, offices, and a large portfolio of single family homes throughout my career. If it were my choice I'd prefer to focus my discussions on the niche of investing in and operating mobile home parks.