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14: The Four Keys to Successful Commercial Real Estate Investing with Ethan Offenbecher

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Show Quote

“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.”

-Warren Buffet

Resources

Marcus & Millichap– A real estate investment firm that can help you reach your real estate investment goals. 

The Bible — Ethan Offenbecher finds motivation through his faith and the Bible is his top book recommendation. 

Good To Great by Jim Collins — A book recommended by Ethan Offenbecher for the wonderful stories it shares that can provide insight into how to solve problems and overcome obstacles.

Key Takeaways 

1) When investing in commercial real estate you need to begin with a goal that will motivate your actions and decisions. 

2) When looking for an investment broker, focus on finding someone with experience that you have a good rapport with.  

3) Doing your due diligence is of paramount importance when considering an investment in commercial real estate. Choosing the right broker with the right team of professionals will make this part of the process go more smoothly.

Show Notes

**Click the timestamp to jump directly to that point in the episode.

[1:58] – When did Ethan begin his career as a commercial real estate broker?

  • He started 20 years ago.
  • He graduated with a degree in business and started his career as an accountant.
  • He became a salesperson when he learned about incredible commission opportunities.

[3:36]  What specifically drew him into commercial real estate?

  • It’s important to remember that commercial and residential real estate are very different.
  • He wanted to be able to help businesses or individuals who wanted investment opportunities.
  • 98% of the licensing requirements are based on residential real estate.

[5:50]  Are there any designations in the commercial real estate world that people should look for when hiring a professional?

  • In the industrial and office segment there’s the Society of Industrial and Office Realtors (SIOR) designation.
  • Ethan pursued the investment segment, so he has the Certified Commercial Investment Member (CCIM) designation.

[6:50]  Does Ethan find that many brokers go through the certification process?

  • 6-8% of commercial agents have a CCIM designation.

[8:12]  What skills did Ethan develop over time that led to his success in commercial real estate?

  • He learned to have a comprehensive worldview of how developers, tenants, investors, and lenders look at investment sales.
  • Many people don’t know how to read a financial statement. He can dissect a deal very quickly.

[11:22]  Learn more about Marcus & Millichap.

  • Ethan was attracted to Austin because of the many job opportunities and entrepreneurial spirit there.
  • If you have a team, you’re an entrepreneur.

[13:15]  What does Ethan’s typical client look like? Are they looking for a specific type of investment property?

  • Ethan’s focus is on retail and triple-net properties.
  • Triple-net properties are single-tenant properties with long-term leases where all nets are passed through the tenant.
  • His ideal client is someone who owns commercial real estate, has cash reserves, and they’re looking to diversify or increase cash flows.

[14:44]  Is there a particular area of expertise that his firm has?

  • Each one of their agents has a specialty.
  • Ethan’s specialty is shopping centers and single-tenant retail.
  • They work with people from all over.

[16:46]  What is the general size of the transactions?

  • They focus on investments between two and twenty million dollars.
  • Their clients are seeking commercial real estate for their portfolio to provide an income.

[19:10]  What are the top two mistakes investors make when investing in commercial real estate?

  • People are comfortable with what they know. People focus on the cap rate.
  • There’s a huge opportunity to look at leverage.
  • Cap rate doesn’t factor in debt.
  • Risk is different after 2008, but with leverage, you can increase your return.
  • The value-add buyer is very hot right now.
  • The second mistake is the “if it ain’t broke don’t fix it” mentality.
  • You can leave millions of dollars on the table by choosing not to change anything.
  • Identify risks and opportunities.

[29:14]  What are the keys to successful commercial real estate investing?

  • Understand your why.
  • If you’re thoughtful and you know what you need to achieve, that gives you a goal.
  • Your goal may be income generation, cash flow, tax shelter, growing wealth, diversification, and making your money work harder for you.
  • If someone is actively managing their money, they should be actively managing their real estate.
  • If you don’t have good triple-net leases, you are sitting on an asset that is losing net operating income every year.

[32:37]  What’s the second key to success?

  • Start with a team.
  • Have a lender and a mortgage broker on board to assure you’re getting the right type of financing.
  • You need a good commercial real estate attorney.
  • You also need a good dealmaker.
  • The most important thing is to hire an experienced investment broker.

[35:31]  When looking for an investment broker, how should you go about that process?

  • Look for rapport. Do you like the person?
  • Look at their track record.
  • Ask how many transactions they’ve done. Ask how they go about maximizing the return on investment.
  • What sort of access to listings do they have?
  • Having access to inventory and a great ability to negotiate will help you execute your deals.

[38:35]  What is the third key to investing in commercial real estate?

  • Be diligent about your diligence.
  • Get someone on early to look at the worth of your portfolio.
  • Great dirt in good markets will always be better than great dirt in a tertiary market.
  • Do your homework.
  • Always read the leases.
  • If you mess up with due diligence, it can be the difference between a great investment and a terrible investment.
  • You make your money on the buy.

[44:27]  How long is the average due diligence process?

  • Poke holes in the deal before you ever write a non-binding letter of intent.
  • Once you go into contract, then you’re in the due diligence period.
  • If you have good underwriting you can be in a position where you almost always close deals you put under contract.
  • Know what questions to ask upfront.

[45:58]  What’s the fourth key to investing in commercial real estate?

  • Know your exit strategy.
  • Remember to be flexible with changing market conditions.

[47:13]  What’s Ethan’s advice to someone who has never devised an exit plan for their investment?

  • Call him. They’ll get to know where you’ve been, what the asset is, what it’s valued at, and what your goals are.

[50:21]  What’s the best way to contact Ethan?

  • Ethan’s website, LinkedIn, Facebook.
  • Text him at (832) 544-4460 and mention that you heard him on this podcast.

[51:14]  What does Ethan do to keep his edge?

  • He likes to workout. He tries to eat healthy. He listens to podcasts and has a goal to read one self-improvement book each month this year.

[52:21]  Who has had the biggest impact on his life?

  • His wife. They are celebrating 25 years of marriage this year.

[53:38]  What book would he recommend to listeners?

 

 

[54:39]  What does Ethan do in his free time?

  • He is passionate about golf. He loves hiking with his dog. He enjoys road cycling.

[54:59]  What does financial freedom mean to Ethan?

  • Having the freedom to mentor, to invest, to give back, and to do the things that you love to do.

[55:46]  How does he want to be remembered?

  • Ethan wants to be known as an influencer, as someone who helps others achieve their goals and dreams.

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