How $15,000 Becomes $300,000 in Real Estate (I Couldn't Believe It)

0:00Be careful in some things that you're not losing so slow you think you're winning. Do your investments give you freedom or do they create a job? Your neighbor's got a nice kitchen. You got a nice kitchen. Cool. Two nice kitchens. No one really cares. They're all the same.
The only two things that will make the difference between what I will choose that the property is worth versus you or the value we can create. THERE'S TWO THINGS.
WE'RE BACK with the BelleB podcast. I'm Brett Tanner. That's Katelyn Mitchell. Katelyn, we had a crazy episode last week where we walked people through, and I quote, why their single family rentals might suck. And let's be honest, it's controversial, right? It is not uh something everybody wants to hear, but this is episode two. So, if you watched if you haven't watched the last episode or listened to it, you got to go back and catch it because it's going to be a prerequisite to listen to this one. Uh so, you know what to do. That episode is going to leave you with some math, Katelyn. Not not the math Olympics like

1:02you went through, but it's going to leave you with doing a little bit of math. Now, Katelyn, it's not algebra. It's not uh calculus. It's not, you know, it's not going to be some sort of like uh I was going to say like some sort of just really crazy mathematical computation. Katelyn, it's none of that stuff. It's going to be single addition, addition and subtraction, maybe multiplication. Uh, and that's about as far as I take my math and it served me pretty well. But today we're going to jump into Katelyn our new episode and I named it as I do with many things and this is called from single family to Starbucks from comps to cap rates.
Oh guys, round of applause for what an episode title name. I mean, That's gonna be your best. yeah. boom.
BOOM. You know what? I don't know. Um I
I I feel like Vince Vaughn in Wedding Crashers when he says, "What? What?"

2:06Yes, that's what we're going to talk about today. So, Katelyn, the last episode people were uncomfortable. Uh they wrote to us, they sent us letters, love letters, some question marks, some just lots of confusion. Uh but we walked them through and it wasn't our data. Yeah, the whole thing.
The whole thing. But Katelyn, they walked through Zilla, Zillow data, the Fed's numbers, SEC filings, lots of nerdy data. So, this wasn't Brett and Katelyn's thoughts. These were facts that we proposed on why maybe the cheese moved a little in the single family in the single family game. And so, the folks that watched and listened to that episode, uh, now we've got to go to, okay, Brett, I get it. maybe some of my single family rentals suck. And so if that's the case, what do we do? And this episode that you and I are about to jump in here um is the game. And I believe Katelyn, my perspective is that this is the game where the real wealth is created. This is the game the wealthy play. And so I want to frame it with one question as we jump in here, Katelyn,

3:10which is, do your investments give you freedom or do they create a job? just and so many folks I see, you know, the goal of business and money I believe is really really simple. I think we have two things we need to think about. Number one, everybody's got a day job. You know, I know it's probably one of the coolest things ever, but you and I, one of the things on our titles, we're podcasters. And look, don't judge me. You don't need to treat me differently. You know, you need to call me sir or anything, but um we're a podcaster, right? It's a position of great influence. you know, millions and millions of people watching and listening this worldwide. And that's a day job. And the goal of your day job is to create cash. Okay? We work for money. We create cash. Your second job in the wealth game is to take that cash and move it into things that I believe create passive income and grow your net worth, but specifically create passive income. And so really it the danger of the entrepreneur Katelyn is they take their money and they create a job for themselves with their money. And pretty

4:13quickly the money job doesn't pay enough for them to quit the day job and they've got a problem. They're spread really really thin. And that's one of the challenges you know in single family rentals is even though you've got management at some point it really is a job and it's not that passive as an investment. Doesn't mean I still wouldn't buy them. doesn't mean I don't think they have their place in your portfolio and it doesn't mean that it's not a great starting point. What I want all of our listeners and viewers to understand is that single like what got you here may not get you there. Single family rentals, I'll still buy them, but I want to roll them up into something that's bigger, better, and more efficient and requires less of my time and doesn't give me a job.
I think I I think you're hitting the nail on the head. it it buying single family residentials there's nothing wrong with it when the math makes sense. So if we look at
Did you use the word residentials? Did you use the word residentials because you wanted this? We were talking about sheeps multiple residential resials possessive.

5:16
No, it's it's residentials. It's like more than one, right? Just to describe it's like it's like it's like when you have a corona. It Katelyn when you have a corona it's corona. But if you're going to but have two, it's it's Corona is how it's pronounced, you know, in for sure in Mexico.
Brett, this is literally what we just were saying. We were laughing that someone else had made this mistake on sheep versus sheeps right before we went live and then I literally on our podcast said residentials.
Brad, this is just We're going to get into single family residentials. I feel like you somehow subconsciously made me do that. I feel like you 100% manipulated me to do that somehow. But anyway, anyway, what I was going to say was the reason we invest in real estate is two specific reasons, right? Number one is the cash flow. We want the passive cash flow. And number two is the appreciation that goes alongside it. While we have

6:21the cash flow, it allows us to pay down the uh outstanding principle or the leverage that we can produce on it, which makes it an incredible investment opportunity. And then it's underlying, you know, tax benefits. But ultimately up like when I think about that in a quadrant, the cash flow and appreciation both have to exist to make most real estate investments make sense. And in single family residential, what you discussed in the last episode is guys, we may hit a we have and may continue to hit a stagnant point on the appreciation component. So, do our investments make sense on cash flow alone? If the answer is no, how do we move to something that's going to get us that advantage? Again, both that cash flow and the appreciation. And that's where when you taught me what we're about to go over in in the next section, that's where it blew my mind that there's something so much more exciting out there and ahead of uh ahead of us. So, I'm really

7:25excited about all of the residentials that we're going to talk about today. So, I just want to remind everybody that those were the two components discussed in the last episode. You have the cash flow component to real estate which is giving you the freedom
by having that passive cash flow but it has to be matched with the right appreciation forecasts
completely. And when we're buying any it's totally fair when we're buying any asset though we should focus only on one thing
cash flow. The only thing we can control is the cash flow. And a lot of people in single family bet on appreciation. You can't bet on that. like we want it, we hope for it. And what's different about what we're talking about today is we can actually create our own value increase, our own
that's appreciation,
our own appreciation.
So let's let's kind of step through this candle. Let's talk about so let's talk about things are valued. So when we own a single family rental,
right, it's valued based on your neighbor sadly, right? If

8:28I own a home in, you know, whatever, Winter Garden subdivision and let's just say my rental is got higher rent than anyone else. But when the appraiser comes out there, you know, the one question they never ask when you're selling your because usually you're going to take your rental property when you sell it, you're going to vacate the tenant, you're going to fix it up a little bit, and you're going to put on the market. And when the you go to sell it and the buyer goes get the loan from the bank, the one question that appraiser never asks is, "Hey, how much did you rent this thing for?" They don't do that. They're going to look at another 1500 foot home across the street down the way, whatever. Little nicer, a little less. They're going to say, "This one had a pool, this one didn't." But more or less, they're going to be sold at the exact same price per square foot. And so your value is determined by all of the other homes in the neighborhood as an average. Okay? It's just a comp, right? Your neighbor has got a nice kitchen. You got a nice kitchen. Cool. Two nice kitchens. No one really cares. They're all the same. Now, we go to a commercial property. Let's just take the exact same thing. Let's just go. I got a

9:32Starbucks over here, 7 miles away. K. I got a Starbucks over here. This Starbucks has a $100,000 in net operating income. And this one has $130,000 in net operating income. Spoiler alert, the one that makes more net operating income is worth more money. you benefit from the net operating income. So we, by the way, can we control the net operating income? Well, we're going to get there on how we can do it. And so today's whole point of the podcast is to go from comps, single family, to cap rates, which is commercial. And so today, we're going to do four things, Katelyn. Number one, we're going to show you how it's valued. We talked about it, but we're going to talk about two formulas. And Katelyn, here's the good news for those out there that are stressed like, "Hey, if they told you there would be no math on this episode, they lied to you." There's going to be some math. The good news is any fifth grader can do this math. I think it's every second grader, but for sure every fifth grader can absolutely do it. So, we're going to show you number one.
It's arithmetic. Not It is It is easy. It is not a word problem. It's not even

10:36two trains leave Cincinnati.
It's going to be easy. No, cuz I got to be honest. When they give me those word problems, I just check out two trains leave Dallas. I just 50/50. It's the other one. It's train B wins. So, number two. No. Yeah. Number two, we're going to show you how big the game actually is. Okay. You've been playing in the parking lot of the biggest asset class on the planet. We're going to move you into the arena. Number three, we're going to talk about, hey, how do you get from A to B? Right? If I agree with your methodology, Brett, that maybe my single family rentals, some of them suck. Cool. What do I do with it? What's the bridge to land me over into financial freedom without paying tax? We're going to talk about that. And then lastly, Katelyn, when you decide that this is the journey that they want to take our listeners, we're going to show them. We've got a a workbook that they can go get at bealthy podcast/ comps to cap rates, which will get you the worksheet that we're going to give you on how to evaluate and underwrite a commercial deal. So, we're going to talk through all that. So, Katelyn, if you with that, we're going to jump right in.

11:39So, let's talk about value. So, it's basically your neighbor's kitchen versus your spreadsheet. So, we talked about how the rental house doesn't matter how effective you are at raising rents. You can crush it. You could be the greatest landlord of our time in single family residential. And yet it's set by the neighborhood demand, what similar homes sold for, which means Katelyn, the market controls your value, not you. Right? That's the way it's always been played, right? And then you always hear that seller that's like, "Well, I don't want to sell right now, Katelyn, because the market's a little off." I hear some of my private clients, "Well, I don't want to sell right now." And I go, "Well, let me make it really easy. You You never can sell at the top and buy at the bottom. That's not how markets work, right? If you sell at the top, you buy at the top, right? If it comes down a little, I know these are crazy concepts, but like it is em beings, right? We're all highly emotional and we make emotional decisions and then we justify them with logic. And we talked about that in a lot of other episodes. And so the argument Katelyn Day is like, well, I don't want to sell I could have got $100,000 more

12:42for my home if I would have sold it six months ago. Well, I'm like, well, you have two options. One, you go build a time machine and wrench on that thing and then roll it back a six months ago. Okay? And until Elon and until And until Elon figures out how to get time machines, which I think he's on it, we're left with option two, which is we sell today, we buy today, right? You're always going to make the money when you buy. And so, you know, rent increases have almost zero value slashnone on your like on your value of a single family residence. And you cannot force appreciation. You can only wait for it with single family. You know, the last episode we talked about um that game of waiting and hope of appreciation ended in June of 2022. We had every investor go circle that on their calendar because that's where the appreciation, the rent increase, that's where the game stopped. If you need help in your business right now, you've got a challenge or an opportunity that you really want to hone in and capitalize on it and make a gamechanging breakthrough in your business, come out to our one-day workshop. This is something we've never done before. We're now doing

13:44them at the resorts we've bought. So they could be at Apple Mountain, Georgia. They could be in Northern Arizona. Um they might even be in Bise in the future. But you get to come to a one day where there I'm not going to present slides. It's literally you and your business and you're going to leave with an action plan you can implement in your business. Go to bew wealthyodcast.com and you can click on our upcoming events and see where we'll be and book to come. We have the room is limited. We have no more than 15 people in the room. Go to bw wealthyodcast.com and you can book our one-day workshop coming up. Um, so now let's switch over to the other side. Okay, we're moving from single family market driven, it is what it is, to commercial real estate. And we talk commercial real estate, it's everything, Katelyn. Anything from apartments to retail to ground leases to storage to resorts. anything that is a business, not where it's a single family residence occupied by owner occupant individuals. And so formula one, Katelyn, is called NOI, net operating income. And this is

14:50the simplest to understand. It's your total income minus your expenses. So my rent is typically going to be driven by a handful of categories. Normally rent from the business renting my property. I may have some ancillary revenue uh that I've got uh like I'll use our resort as an example. We've got laundry. You know, we've got a few other ways that we make money that contribute to our income. Then we've got our staff and utilities and lawn care and maintenance and repairs and all of those other things. Income minus all the expenses equals profit or what's known as net operating income. And so what net operating income leaves out, and this is important. That's where I think people get lost. Katelyn, it's not your mortgage payment. That's not in your net operating income. That is not put debt in there. It's not your income taxes. I'll always have a lot of people, well, what about my taxes? Like, okay, well, everyone pays taxes. We're going to kick that to the end. Uh, it doesn't include your depreciation. So, if you think of it this way,

15:52Katelyn, net operating income is the property's raw earning power, right? is what kind of dollars can it create before anyone's personal finance enters the room. Okay, it's just the raw dollars we've got. So, let's just use an example for one we we used at our last mastermind. Property brings in $500,000 a year in income. Expenses are $200,000. We got $300,000 in net operating income, right? It's it's it's not more complicated than that. And if you've had a rental property, your income was the rent, your expenses were taxes, insurance, vacancy, management, HOA. Okay, those things. Boom. That's your net operating income. Same. So, you already know as a single family rental investor, you already have all of the things you need to know to apply the same thing to commercial.
I do I want to mention something here because you you brought that up. So, so let's look at now commercial and let's use your example of the Starbucks which is what you just mentioned. So, the

16:54Starbucks is paying a rental amount. They have a rental agreement with you as the landlord. They are the tenant and the money that is coming in is the gross revenue that's coming in, right? you if you had any expenses associated with the property, they would be deducted from that and what would be remaining would be the net operating income. You're not making Frappuccinos, right? It's just their rental payment that's coming in. So, I want to make sure that that everyone understands when Brett mentions a Starbucks, when he mentions a Denny's, right? He has a Denny's property that he owns. He owns the building that Denny's operates within and his value of that building is determined by the NOI of the rental agreement between Denny's and the pro him as the landlord. It doesn't mean when push comes to shove, he sends Katelyn in to go make the grand slams. Get it, Brett? Me flipping pancakes,

17:57flapjacks. I'm not doing that necessarily. It's I just want to make sure everyone understood that when you talk about these buildings, there's a difference between the operating business, it's the renter. Think of it just like you would the renter in your in your actual single family residential. I just want to make sure I separated that out so that people weren't thinking that it was the income from the actual operating business. It's the income rent that is paid.
It's a great point. That's a great disclaimer, Katelyn. should probably say that Brett Tanner and Katelyn Mitchell have no affiliation or relation to Starbucks other than that they're one of our tenants and we love them and we hope they continue to make great Frappuccinos of which we know nothing about.
I have a lot of stars. I have a lot of Starbucks stars. That is my affiliation. I've got a lot of
and that's where it ends and that's and and that's the stopping and starting point is your stars.
Correct.
Um so Formula 2 Formula 2 Katelyn is cap rate and I think cap rate is it's kind of like poker Katelyn. It's kind of like hold them. It takes two minutes to learn in a lifetime to understand. It's cap rate. We're going to explain in two

18:59seconds, but it's the language of value. And so cap rate means capitalization rate. And what it means is how does the investment perform if you paid all cash. Again, it's the language of value. So your value, here's a little formula, equals your net operating income. We just covered that. Total income minus total expenses, net operating income. So value is net operating income divided by the cap rate. So I know that got complicated, Katelyn, so we're going to break it down. The cap rate is what the market pays for a dollar of income from that type of asset in that market at that risk level. The safer the asset, the better the location, the stronger the tenant, the lower the cap rate will be. Okay? Higher value. The higher the cap rate, the lower the price, right? In other words, the more if we can get a crazy cap rate, right? Because we're buying it at this crazy high cap rate, it means we're going to buy it a lot cheaper. Now, the better the business, right? The lower the risk,

20:02we're going to get that seller is going to give us less money, right? Because it has less risk. So, let's go back to our example of the property, Caleb. We got 300,000 in net operating income. And let's pretend this is a worldclass tenant, super solid. And that asset trades at a five cap.
Okay?
300 thou. So we're going to go again. Value equals net operating income divided by cap rate. $300,000 net operating income divided by 05. Ready? Carry the one. That's $6 million. That's it. No comps. We didn't go to the neighbor's kitchen. We didn't go to like, oh my gosh, do they have a pool? Do they have some, you know, rope lighting? Do they've got some tungsten, you know, really cool, maybe something found in the conga for a sink? No, none of that. None of that crap matters. All it matters is the what cap rates they're going for in the area, which are kind of determined by long-term debt rates.

21:03We'll get to in a minute. But net operating income divided by the five equals $6 million. So, Katelyn, that in and of itself. So, if we can change the net operating income, we can change the value.
So, as an example, and I I've got to get my calculator out just real quick to anchor this point. So, if I take the same $300,000, I'm I'm going to raise it. Katelyn, we've tweaked a few things. We found an income stream we didn't know about. We decreased the expenses. We did some magic there. And magically we got to 315,000 in net operating income
315. But then the cap rate that it's trading for in that area that doesn't change.
That stayed the same. It was it was the same as it was grew
cuz we were we were a great operator.
Our value now went from 6 billion before we added $15,000 a year in net income to 6.3 million in value. We added $300,000 in value. with only 15,000 in income. And this is

22:06where Katelyn, my head explodes, because I get obsessed, as you know, about where's the next 15 grand? How do I cut 15,000 expenses? How do I add 15,000? This is the game you and I offline. Well, by the way, before we start this podcast today, you and I are talking about, hey, listen, we got this. We could cut this expense. How can we improve that? How can we, you know, how can we raise rents? How can we add another income stream? because we're obsessed with adding enterprise value to the asset.
Brett, hold on. Let me break down that math for a second. So, you went from $300,000 in net operating income. You then figured out how to either cut $15,000 a year in expenses or increased by 15,000, right? In in revenue. So, it came out that your net operating or excuse me, your yeah, your net operating income is now 315,000. to break it down for the group. That's a difference. That's cutting an expense or increasing revenue by $1,250 every month, which I got to be honest, in most businesses, it's pretty easy to

23:09find. Okay, that increased the value. If you went to sell it the next day, that increased the value by $300,000.
That's unbelievable to me.
It So, let's say it differently, Katelyn. So it the why this changes everything is we've got to change the formula. So let's flip it around. I'm going to say it differently, Katelyn. So at a five cap, the example we were just using, every dollar you make, every dollar you can do, every dollar you can increase net operating income by, right? So every dollar we add to income or we decrease expenses is really worth $20. Okay? So because it you just do the math, right? So again, you take the dollar, divide it, divide it by 0.05 equals 20. So if it's a five cap, you could do divide it by 0.05 or you can multiply it times 20. That's the same calculations. So you know, you find $10,000 of new annual income. Boom. 200 grand in value.

24:13You decrease expenses by 10,000. Bam.
Boom.
200,000 in value. $50,000 in improvement. We can get 50 grand a year. Every 50,000 in net operating income, it's a million bucks. It's a million dollars. So, it changes at cap rates, right? At six, at a six cap, that's about 16 to1. At a seven cap, it's about 14 to1. So, the game we're playing, Katelyn, how cool would it be if you went to Vegas and there was this really cool game that using your skills, right? And every time in blackjack, where you hit a hundred bucks, bam, if they paid you 20 times that amount. And it used your ability and skill. And it wasn't luck. And so the gambling game you and I play is a completely rigged game that all the wealthy are playing. And we're not gambling at all because we already know it's going to work. And those are the returns. And so you could raise the rents, you could add a pet fee, you could bill back utilities, you could renegotiate your insurance, you could cut the landscaping contract like we did at Roundhouse and move it inhouse and had our guys do it and they're doing

25:15a better job because our landscapers sucked. And all of that makes more money, right? That's a true story, right?
Well, yeah, but here's the crazy part. So, the reason that cap rates are used across the industry is because it's the ultimate neutralizer, right? It takes into effect the only two things that will make the difference between what I will choose that the property is worth versus you, right? Is is or the value we can create. There's two things. It's the debt structure you can put under it, but the but the real factor, Brett, the real factor is the operator's ability to create the highest NOI for the property. And you are unbelievably handsomely rewarded for it is every dollar you can save or every additional dollar you can grow it by raises the the value of the property when you go to sell it exponentially. And that doesn't exist in any other hard assetbacked

26:18investment.
So Katelyn, you made such a great point. Like so in single family, right, the market controls value. You could be the greatest single family landlord operator of our time, the greatest of all time. You can be Katelyn, what the kids are calling the goat, and you get the same amount of money as a guy that's completely checked out or girl who's the worst landlord of our time.
Totally. you go to sell, you get the same amount. However, in commercial, to your point, the operator controls value. Effort creates value. All right. So, let's move to the next thing. So, one more concept that we got to we got to talk about here. So, let's talk about the difference between a cap rate and cash on cash because people get them confused. So, you just made this point, right? People confuse them. So, we're going to keep them in their two buckets. Cap rate is the property level. It's debt neutral, right? We're not putting any debt in there. It's calculated if that there's no loan. That's done on purpose, right? So, every every buyer, we all see the same deal. Katelyn, your financing might be different than mine.

27:21It's different than Pety's. We may choose to put more down, less down. We may choose some crazy loan product, right? Like all of those are the debts personal to the individual investor. Cap rate just says, look, it's equal for everyone. Cash on cash is your return. So cash on cash is annual cash flow after the mortgage divided by the cash you put in. This is really where you're seeing how are your dollars performing. So if you put a million dollar into a deal, Katelyn, and you take home $100,000 after debt service, that's a 10% cash on cash return. Now, we need to look at both, but they're totally different yard sticks. So same building, two different buyers, two different loans, same cap rate, radically different returns. To say it again, cap rates cap rates standardize the value. Debt personalizes your return. I'm going to say that one more time, Katelyn. Cap rate makes value equal. It standardizes it. Debt personalizes it to you.

28:24
Got it? So, when you're looking at the cap rate, you're looking at the value. So, you're thinking of it when you're going to purchase the property, right? When you're looking at underwriting it. And you're also looking at it when you're looking at the total value creation that you're doing, right? So if you ever did go to sell it or disposition it, that's what the value would be when you're operating it. Are you looking at the cash on cash returns more or do you look at that throughout the entire process as well? When you when you're underwriting something, Brett, are you looking at both? One or the other?
Uh, you're looking at both. So first, right, you're going to take the cap rate and I'm going to compare it to what could I get in another investment,
right? So this is a six cap, this is an 8 cap. Well, the difference in that 6 to 8 cap is risk,
right? There's a reason why that seller is offering me a better return. Maybe there's a shorter lease from that tenant, right? Maybe the tenant is Brett and Katelyn's coffee as opposed to

29:27Starbucks. So, if it's Brett and Katelyn's coffee, believe it or not, while it would be incredible, um we have greater risk than say Starbucks, right? So, in other words, we would for us as investors to go buy it. Now, here's what's crazy. The market doesn't price it correctly all the time. Katelyn, if we went right now into Phoenix, Arizona, and we saw Starbucks, and then let's just say there's another one out there, and this is not a I'm not slamming it. You know, I love the marketing behind and it's called Bikini Beans. And you already know where I was going. And they serve coffee in bikinis. Okay, stick with me. What you would think would be the greatest marketing ploy of our time. That's what you would assume. And yet they believe that to be true because they honestly sell it pretty close to the cap rate of a Starbucks. Now, I don't know how many women want to go get their coffee from a girl serving it to them in a bikini. I don't know the answer to that. I just assume it's less than all of the humans that currently

30:29want to go to Starbucks. So if those are priced at the same cap rate, all things equal, Starbucks, you know, huge, one of the, you know, largest brands in the world, Bikini Beans, which probably 75% of our audience never heard of, those have different levels of risk in them. So in my opinion, right, you should get a much higher cap rate to compensate for the risk. So that's the, you know, in cap rates. I'm looking to compare risk against different assets on the cash on cash. You know, my debt on those two is probably the same. So I'm just looking, all right, I'm going to invest $300,000. What's my return? Right? Is that performing the way that I want it to? You know, when I'm targeting for me, I definitely want double digits cash on cash return. You know, higher the better. But the difference when I look on cash on cash, the way to cheat that game that no one talks about, you are you will have a higher return the less amount of money you put down. And this is where investors get screwed up because they take on too much risk. So,

31:31hypothetically, Katelyn, if I could buy the $2 million Starbucks with with $20,000 down, and if it makes anything at all, if it makes five grand, my cash on cash return, five grand divided by the $20,000, I'm going to have a 25% cash on cash return
or whatever it is, if 20,000 in that example, where if I put 200,000 down and I make 20 grand, my cash on cash return sucks.
Yeah. So you you you're always looking at it. So you're looking at both. And so here here's the real point. Commercial buyers, Katelyn, we we don't really ask what's the price. We ask what at what price is this a good deal. We're going to estimate the net operating income, apply the cap rate, decide the return we need, then we back into our offer, right? We determine our offer price based on our economics and the returns that we want to receive. The reason I asked you, Brett, to kind of drill down on those two is I was

32:34trying to see how you tied it into, you know, what we were talking about at the beginning of this episode and in the last episode. You know, cap rate allows us to see the appreciation factor, right? It allows us to see the growth on the appreciation for increasing our NOI. we now can control the appreciation and that's really determined by the cap rate. And then the other leg that was so important was your passive cash flow. That's the ultimate one you want us to be looking at. And so I I really thought it was interesting how you took that from our last episode of hey guys, appreciation may not be continuing to exist. Does the cash flow still make sense for you to now you're teaching us here we've got two formulas and you're showing us how those are working in the commercial world. The cap rate's going to allow you to see your appreciation based upon the NOI increases and your cash on cash return is going to show you that passive cash flow. So, just I I wanted to nail that down that that

33:38that's the reason you're really bringing these two and saying there's a million formulas you can look at, guys, but these two are controlling those components.
And Katelyn, we got to we got to stop right there and we need our listeners stop what you're doing. If you have not left us a review, if you would do me a favor and right now click the link, leave us a review. Your reviews, first of all, we read them all. Secondly, it is the fuel that fires us up and it's why we do what we do. If you've got value for our podcast, please put the squat rack down. If you're listening to the gym, don't uh do this while you're driving. So, pull off the side of the road and leave us a review. Even if you have a self-driving Tesla, don't take the risk. Pull out the side of the road to leave us a review. I had to change my I had 130 rental properties and I realized in my life I was climbing the wrong mountain. If you got single family rentals and they're not cash flowing the way you want, you want to move into commercial real estate and you don't know the steps, come join us in a one-day workshop at one of our resorts where we moved my single family rentals and I can show you exactly how I changed my cash flow dramatically and tripled it

34:42through commercial real estate. Go to bewealthypodcast.com, click events, and you can see where we will be at one of our resorts and show you how you can do it, too.
So, Katelyn, I want to talk about the biggest game on earth, which is the real estate industry. And so I'm not familiar with this global research firm, but they're called Savills. S A V I L S. Uh they value all of the real estate on the planet of Earth, the one that we're confined to do business on today. Uh at $393 trillion at the start of 2025. That's 393 trillion with a T. So to put that in context, that's roughly four times the entire world's economic output. It's more than the value of every stock of the value of every stock market and every bond market on the planet plus all of the gold ever mined combined. So real estate is not an asset class, Katelyn. It's the largest store of wealth in human history. Nothing else even close.

35:44Right? So the what we're talking about today, you and I, is the commercial real estate slice of the global real estate. So commercial real estate is 58.5 trillion worldwide. It grew 4.1 cent 4.1% in 2024. And while everyone's writing think pieces about why real estate's dying, it's not. Right here in the US, the Federal Reserve pegs the American commercial real estate market is about 22 and a half trillion. So we're 22 of the global $393 trillion. One country's commercial buildings is worth more than the entire annual GDP of China. And the reason, Katelyn, that we're bringing this up, cuz some people are like, Brett, this is billions and trillions. You know, what the hell does this have to do with me? It has a lot to do with you. So, every institution, pension, insurance company, sovereign wealth fund, family offices, the wealthiest families in the world hold enormous amounts. If not, I bet if we

36:48did the research, I don't have this yet, Katelyn, but I bet you the number one asset of the wealthiest people on Earth is commercial real estate,
right? Income producing buildings valued on income with tax treatment, which we're going to go to here in a minute. Meanwhile, Katelyn, so all the wealthiest people on Earth are in this thing. Meanwhile, the average American investor owns one to two rental houses priced by comps because houses were the only real estate on Zillow, right? The only real estate your agent knew how to sell you was the stuff on Zillow, right? We're all comfortable with houses cuz we live in one. We understand it. We weren't playing the wrong sport, Katelyn. We were just in the parking lot of the best stadium. We were at the World Cup, Katelyn. We weren't watching the g like we were out in the parking lot. We weren't actually watching the game. That's where single family is as opposed to in the game is commercial. That's Starbucks, Katelyn. So,
why do you think a lot of us Brett are worried about going into commercial? You know, a lot of people are intimidated by it. They get nervous around it. You

37:51know, there's so many of us who grew up in the retail real estate side of our career and it seemed like the commercial people were like over on the other side of the building and we didn't talk to them a lot. Um, why do you think a lot of us have been nervous about commercial real estate?
Uh, I think it's the same reason people don't um superach achieve in in areas of their life. Uh, I think it's because they believe they create a story and then they create they keep telling themselves that story and they make it reality. And I'll just speak from my own personal experience. Um, I told myself that commercial was complicated and that there were really sophisticated, savvy people that were much smarter than me, had much more money than me, and were in like this elite inner circle inner circle where they had like a private handshake at a secret door, like a really cool speak easy. And I didn't know where the door was
vest. I feel like they wear a lot of vests,
you know? They had it was like New England clam chowder and that's how you got in the door and I didn't know the password. That's how you get in. So I think we tell ourselves I'm a part of

38:54this like what I'm going to call like a high net worth individual group. It's one of the biggest ones um in the country and even in that group Katelyn less than I think it's 6% of the people have commercial real estate in their portfolio. And it's fascinating to me because you know mine would have been zero if you went back 10 years ago. And so I just think there's a story that it's so different right because we own homes we feel comfortable. It's like, oh, that's a rental property. You know, my neighbor owns a rental. I could own a rental, right? Like, that's the thing where most likely your neighbor doesn't own a a Starbucks, right? That's probably unlikely. And you like, well, how would I even do that? And that's complicated. And the truth is, it's the almost exact same process is residential. The other thing is you hear all these myths, right? You hear like, well, commercial real estate's dying. You know, like in the articles today, if you read, you know, if you go to the news today, like office buildings a disaster. This tower once sold for 300 million and now it's selling for 30 million. Some office tower. Sure. Right now, as we're filming this, you know, it

39:58office sucks. Office is not a great market. Why? People don't want to go to their office. Everybody works wants to work from home. Which does bring up a funny joke, Katelyn, that I posted yesterday on the social medias. And I said, is it is it really work from home?
Nope. Nope. You just did it. Social media.
No, I called it medias. No, I called it medias. No, I meant to do it. I I call it medias because I
meant to do the residences. I'm res.
Wait, no, you called it residentials.
You can call it social medias if you're being funny. The difference is you you weren't doing a joke.
I was being funny.
We'll run it back, guys. Guys, you know, please please leave a review and see if she was being funny. Uh the social medias, as I like to call it, and that's a term I've used often. uh the social medias I posted on there isn't really work from home if you don't do any work and I'll let the group decide right everybody wants to work from home but if you don't work you know is it work from home that's the thing I think we just call it you know sit at home in your underwear um however if you look at the news articles where you're sitting home in your underwear working

41:00from home you would see all these things right commercial real estate you know it's in the it's in the it's in the tank no office today is not doing well right because people don't want to come to their offices people are working differently companies are laying people off. So, Office isn't awesome today, but Office is like one small segment of this huge 22.5 trillion pie. So, you know, let's what let's look what actually is being said right now. These are rough numbers. So, Katelyn, here's what we want to look at. So, we want to let people know what to expect. Uh stabilized multif family apartment complexes. So, if you're going to buy larger multifamily stuff right now, those are going to trade around five to 5 and a half% cap rates nationally, if it's a world class great, the greatest, you know, multifamily ever, you might see something in the high fours, but the average right now is 5.7% in multifamily. Okay.
Okay. If we switch over to single tenant net lease retail, so think the Starbucks, Chick-fil-A, and the like.

42:04Chipotle, Katelyn. All right. Those are trading today. Now, keep in mind on these single tenant retail, they're triple net. Katelyn mean which means the tenant pays all your costs. They're paying the taxes, the insurance, and the maintenance. Average Katelyn across the country as of the first quarter of this year, 6 and a half%. the average cap rate of single tenant net lease retail. Okay, there are corporate guaranteed rent built-in escalations. Your job in this, Katelyn, you want to talk about mailbox money, you do nothing. Okay, it just drops in. Now, value ad operational assets. This is where Katelyn, you and I play. Like we went and bought a golf course and that's a value ad operational asset. There's no other way to describe it. And this is where what we're talking about income can be engineered and the returns go where you and I take them, right? If Brett and Katelyn take their baseball bats out and hit a grand

43:06slam because we were great, we cut expenses, we grew income, we get paid for that. And if we take a big swing and we buy a bunch of crap we don't need and it doesn't work out, well, we get punished with that and that's a strikeout, right? But like that's the difference is you're playing a game. Some of those games we can change. like we can change that income which we were talking about earlier. So, let's go back to this. Caleb, remember that we on our last episode we talked about this $440,000 house in Phoenix, Arizona that rents for 2,300 bucks a month. So, we're going to call that 27,800 a year gross. You take out all the expenses, which we covered is 40 to 50%. And the real net operating income is about 14 to 16 grand. Okay. Now again we covered value before which is net operating income right? Net operating income 15,000 Katelyn if we take that and divide that by 440 we get a 3.4% cap rate that's 3.4 mind you treasury bills

44:08
else we've discussed
that is so if we can't control it why would we want to buy the thing that pays us less that has greater risk by the way that 3.4% 4% cap rate is a theory. It's a theory based on historical expenses because if my AC unit goes out, it boom, my 15 grand went to 5,000 and now you take 5,000 divide by four. Now it's a cap rate that's so bad we don't even calculate.
So
I agree.
You know, your house is priced like the safest most premium asset. Like it's priced lower than a McDonald's. yet Starbucks and all those things would pay you more money. And we
and so on the on the single family rental again, tenants, toilets, and as my dad would say, toilets, tenants, and trash. I don't know where that trash comes from. Um, right. And the $32,000 roof, that's all on you. As opposed to, right, commercial income, commercial real estate where where the tenants are paying for it. So,
Sure.

45:09
It it doesn't high effort, low yield doesn't really make sense, Katelyn. It doesn't make a lot of sense. And so you just now the trick is most single family investors don't even know this. And they're they're going, you know, the quotes that my mentor says a lot, Brett, be careful in some things that you're not losing so slow you think you're winning. And that, Katelyn, is what most people in single family residential are doing today. They're losing so slow they actually believe they're winning. Brett, do you remember our trip we went to Witchah recently? And
uh and I believe I well I believe people are calling they're calling that the the Paris of America is what most people are calling it I believe. But yes, I do.
There is a Paris Texas. So yes, but it was magical. Such an incredible time. I know that's not what you're talking about. I just I was being a brat when we went there. We had a wonderful dinner and then uh we had a great event, a huge speaking event and then do you

46:11remember we went to go have a night cap and celebrate the day and we went and found a speak easy. Actually, you found it. You remember?
Oh, I listen. I'm the I'm the king of finding a speak easy. So,
I know that's why seven minutes ago you said there is no password to get into the speak easy known as commercial real estate. There's no New England clam chowder. There's nothing. It is knowing two formulas and using the information you already know of how to run a property and operationalize it. You already know how to do it. You're running single family residentials. You understand rent. You understand leases. You understand tenant law. You understand those components or you have the resources to learn it. There is much like the speak easy in Witchah when the lady looked at me and said, "What's the password?" And I said, "I don't know." And she said, "That's okay. You can come on in." Same thing here. and now you're going to show us how do we get on in.

47:13
We are We are going to show how people make the bridge and how they move it. But Katelyn, first of all, when someone asks you for a password, you always have an answer.
Rabbit's phone. I would I'm just so excited.
I know. But I would have spent I've been there. They go, "What's the password?" I'm like, "Bam." Yeah. Orangutang. Marmalade.
I I alum aluminum siding. Aluminum sighting. Pepperoni pizza. Uh, all right. So, Katelyn, how do we What's the bridge? How do we move our equity without paying the tax? So, let's think about the naive move that that could happen. So, you bought a rental in Phoenix, Arizona. You bought a rental anywhere in the country for $200,000 in 2015. Um, today it's worth $440,000. You got a roughly $240,000 gain that's taxed at long-term capital gains rates. We're just going to call that 20%. Your mileage may vary. Get with your CPA. I'm not even a CPA. I don't even play one on TV. Um then Katelyn, you got another little thing if you sold it called depreciation recapture. So we depreciated real estate along the

48:17way and so we're going to recapture it. And if we held it that period of time, on average, that's about 60 to 70,000 of depreciation over a decade. When we sell it, we pay 25 up to 25% tax on that plus 3.8% net investment income tax if you're depending on your income over a certain threshold. So all net sum game, let's call it around 60 to $80,000 per house. Okay? So when we sell, taxes represent a really, really big part of what we do. So what do the really wealthy do? They do not do that. They're anti-ax. It's against their fiscal religion. They are not going to pay tax where they can legally not do it. And so they insert the 1031. Now, Katelyn, I believed until about four or five years ago until I started working with Exchangeable and our buddy Michael Vasco, we'll link in the show notes, great dude. Um, I always believed that there was one kind of 1031 exchange, right? I sell my house or my four out and I move it to the one hotel. And the problem 1031's K, it's really

49:19hard to time it because you only got 45 days to identify the property and you got six months to close. And he looked at me and he says, "Brett, uh, did just did you know there's more than one type of 1031 exchange." And I said, "What in the hell are you talking about? That's not how it works." And he's like, "Well, as you know, is that your truth or the truth?" Well, of course, it was my truth and not the truth. There's multiple types of 1031 exchanges. There's a reverse exchange, there's a construction exchange, there's an improve, there's all and you could tie different things together. There's lots of different tools the wealthy use to accomplish their goals. So, let's look at that same house and do it a different way. So, a 1031 allows you to sell your real estate, move it into another piece of real estate. They call it like kind, which is the worst definition ever. All we should think is if I got a deed piece of real estate, I can move it to any other deed piece of real estate. Much easier. If I've got a deed, I can go to it. I, Katelyn, I can go from a house to an apartment. I can go from an apartment to a natural gas royalty deed real estate. I can go from

50:22a natural gas royalty to a car wash, right? I can go in and around. So, every time I do a 1031 exchange, I am deferring the tax. I'm not that 60 to 80,000 that we just lost, Katelyn. I'm moving it. I did not I not only did I not pay the tax, I moved it forward. Okay. So again, like kind does not mean house for house. We covered that. So the IRS does not care, Katelyn. They don't punish you from leaving the comps world and moving to the cap rate world, which is exponentially better. They don't care. Totally legal. Been around since n I did the research, Katelyn. 1921. It's been around or 1921. Even if you and like there's the phrase, Katelyn, I did not know I've heard of this phrase, but I didn't know it came from there. It's basically swap till you drop. You want to keep swapping out your properties through a 1031 exchange, moving them up until you drop. Because what happens when you drop? That means die. You actually get a step up basis. So, you would defer the gain and it would be wiped out entirely. And that's

51:25what the wealthy do, right? The old buy, borrow, and die, right? I'm going to buy something. I'm exchange it. Later, I'm going to borrow against it. One day I'm going to die. Currently, Katelyn, I'm going to give you a stat. I did not check this, but you can look it up for me. The death rate in America is 100%. Eventually, that's a fact. Okay? Eventually, we all die. Most of us make massive investments in our business and some of those investments don't pay off. So, you can come spend a day with me for $997. You come out to one of our resorts. You're going to spend a day, bring your challenge, bring your opportunities, and let's work through it in a one-on-one coaching session. You're going to be in a room of your peers. No more than 15 people are going to be there. And I'm going to coach you personally to tackle your challenge and your opportunity. Go to bw wealthypodcast.com to see the next dates for our event.
So there's five rules that matter if we're going to do a 1031. If we're going to play this game and this is like you there's no gray here, Katelyn. You got to play by the rules. Okay. There's no like
it's unlike there's no gray.
It's there. Well, and again see it's partially gray.
Visibly gray.
Partially. You see I got I got I got a black mustache and I got white coming

52:27here. I got a really white. It's it's awesome. I do it guys. This isn't natural. I dye it. So So people take me serious. So, rule number one, Katelyn, you can never touch the money. When you do a 1031 exchange, it's got to go to a qualified exchange intermediary intermediary. The one we use, it's called a QI. They actually got to hold the money. So, you can't pull it out, put it in your pocket. When you sell, it goes from title to the qualified exchange intermediary. Katelyn, from then that day, you got 45 days to determine what you want to buy. And you got to meet one of three rules, which we're not going to cover here. It's the three property rule, the 200% rule, or the 95% rule. But there, we've filmed another episode on this. I bid the one with Michael Velasco. We will link that in the show notes. You can check that out there. Next, Katelyn, rule number three. You got 180 days to close this. You sold your rental. You got a You had 45 days to determine the amazing commercial properties you want to buy. You had 180 days to close them. You basically got to move by an equal price or higher. That's rule number four. Rule number five, we got to have the same taxpayer. Okay, the this is not

53:32complicated. You just got to realize that 45 days is short. Anything else, Katelyn, we got to explain about a 1031 before we switch gears.
No, I think the key is if you're ready and you're thinking about transitioning, go listen to that podcast that Brett did with Michael Velasco. They go into incredible detail on it. And then I know Michael's done just an awesome job for for me and a lot of our private clients. If you have questions, reach out to him for your specific criteria.
So, Katelyn, it not only do we avoid the tax, it gets better. So, this gets better. So, next, write the one big beautiful bill that was brought back. So, any property that was bought after January 19th, 2025. Everyone should write that date down. January 19th, 2025. 100% bonus depreciation is back permanently. So what it it's a it's a huge deal which means everything with a lifespan of a depreciation span of 20 years or less you can write it off in year one.

54:37So, you know, so
so I mean it's just a huge huge deal, right? So, beyond the income benefits and we're billing back taxes and we're, you know, we've got the right cap rate and we've got the right cash on cash return and we've got a great net operating income, then the government incentivizes you to do this depreciation like like that Starbucks got me when I bought the Starbucks, I think it saved me around 130 to 150,000 in taxes my first year. So, not only did I not pay him, right, I would have paid I think I had like eight or nine rentals with I'd have probably paid 400 grand in tax. So, I didn't pay the 400. Then I got to write off and got another $150,000 deduction. It's a huge It's a huge deal, right? It's a totally different game. It's a totally different game. And we've got to like taxes represent our biggest expense. The transactional cost there of just selling, paying the tax and move, it's huge. And you've got to do it. That's why we put together that commercial buyer cheat sheet, Katelyn. It'll be on the website bewealthypodcast.coms to cap rates. All right, Katelyn, let's

55:44walk them through the eight steps. If people get it, they're like, "Brett, we get it. You've you've hit us over the head for two straight episodes, nearly two hours. We get it. Our some of our single family rentals suck. We're moving on." So, let's walk THROUGH THE
THEY'RE LITERALLY in their cars going, "Mercy, we get it. Mercy, just please. 10.
You know what's crazy? I'm talking to them like I had to talk to myself cuz I kept beating the single family uh drum. And I'm not saying there's not great times for it. It's just not today. And you've got to move the commercial. And here's how you do it. So number one, Katelyn, what's the investment? We've got to focus on the asset class, but what's the investment? You're not buying a property. You're buying a business inside of real estate. What is the asset? Who's the end user? How do they make money? If you cannot explain how the business that you're going to own the real estate operates inside of you cannot explain how you make money in one sentence, don't buy it. Right? If it takes like you don't understand it's this and this and then we kind of do this. We got a patent coming. No, I'm out. Doesn't make any sense to me. Like it's not very hard to figure out.
We make Frappuccinos and we make
we we make a grand slam. I think I got

56:49it. I've been to Denny's. I kind of get how they make money. All right. Step two, Katelyn. Is it passive or active? Right? What game are we playing? If I buy a Starbucks, I'm not doing anything. I'm sitting there to collect the check. If I buy a golf course, right, we've got 25 employees. That's going to be more active. We've got stuff. Things break. You know, we got an irrigation thing. We've got a thing in the clubhouse, whatever, right? That's an active investment. So, we've got to decide, right? When we look at a passive investment, you know, we're looking at that if it's high credit, four to 7% cap rates, you know, if we go active, it's a business, we might get 15 to 25% returns. So,
yeah,
we can't be looking at those together, Katelyn. Those are like the difference between a skateboard and a Ferrari. You know, both are modes of transportation, but they're radically different. So, step two, are we playing passive or active? Step three, you got to look at the market, right? What's going on in the market? Would you want to own there if this deal didn't exist? Here's what I mean by that. What about the population?

57:53Are people moving there? Are humans going there or humans going out of there? Okay, are jobs going there or going out of there? What drives demand? What's the competition like? Right? What's the mark, you know, what's the whole market like? And I I think about this all the time, Katelyn. The greatest operator on earth can't fix a bad market.
It's true.
We you you can't. So do if this wonderful Starbucks didn't exist in middle of nowhere, you know, Georgia, if that like that deal might work because it's Starbucks, but if everything else sucks, that deal sucks. Go find a deal in a great market and let the market, you know, help you and not work against you. Next, Katelyn, not all income's equal. Break down the income. We've got core income and we've got ancillary income,
right? Not odd all income to me deserves the same multiple. Contract lease income from Starbucks, super valuable. Uh a little bit of uh laundry machine revenue on the side. Okay, cool. Helpful. Love

58:56it. Not going to spend $3 million to pick up some laundry machine income on the side of a of a huge resort. Okay, so not all income, right? We got to break it down. We variable income, right? One-time events, weddings, things like that. Real, you and I are going to look at it. We love it. But we want when you and I look at it, we're like, how durable? That's the term I always Katelyn, how durable is that income?
Right? Again, laundry income.
Is it a reoccurring revenue, a rental, or is it a one time we had one party, one situation that's going to be still valuable, just valued a little bit less? Totally. Step five, we got to verify the income. Again, trust but verify. Love what people tell me. A lot of offering memorandums online. I'm going to tell you, there are a lot of I was going to come up with a great analogy here, Katelyn, which I can't think of one right now, but you know, not everything is what's said on a marketing flyer.
You know, they say all marketers are liars. On a OM, just assume that all that information is wrong. An OM's an

59:59offering memorandum that's usually prepared on nearly all commercial real estate. We're going to want to verify every part of that income. Verify meaning I love to in my game of verification, as you know, Katelyn, I like to go to their tax returns because I want to say, "You told me it made $156,000 a year. Super jacked. Love it. Show me your tax return that shows $156,000 in income.
I want to go sell the cryotherapy business." Uh, I assumed every buyer for that business was going to be like you. And so you said, you've got to get all their due diligence documents put together, work with the business broker, prepare prepare everything for it. And so I went and obviously printed out, we had reoccurring revenue, we had sales, and then I, you know, printed out the documents, circled the number, then printed out the bank account to show the exact deposit transactions to match each and every deposit for the trailing 12-month period. Right? Because I assumed the buyer was going to be like you. They were going to obviously ask

1:01:02for this. Let's just get it in advance. I gave it to the business broker who had been in business for like 30 years. And I said, "Hey, here's the our due diligence file for when someone comes in and you ready for what he said to me. No one has ever asked for this or prepared this in the history of my career." And I went like my brain exploded. I assumed everyone was crazy like you and wanted to tie out each dollar to ensure what was being said on the OM or the offering man memorandum was accurate. I had no clue That you were the weirdo. but all of our listeners, all of our mastermind members, all of our clients now all operate under that pretense to ensure that they don't buy or purchase or invest in the idea of something. It's the actual dollars and cents that are that are physically there. I can't what I don't understand when people say they don't do it like that's the thing you're buying a stream of income like when I'm buying a building a business all I'm doing is buying income

1:02:04now I believe that I can change the income right and make it better but I'm buying income to not know that it's there it doesn't make any any qu any sense to me so all of you out there don't be like the business broker 40 years that doesn't know what he's doing be better than that and know what you're doing verify The income number six
AND QUOTE and then show Tell me where the dollars hit the actual bank account. Do not take the export from a guesty or yard or wherever that might be coming from. And then I want to see where that hits the actual bank account. That's the piece I got to drill down because that's the missing piece
completely. Next, on the opposite side of that same idea, we got to rebuild the expenses. I never accept the seller's expenses, but our numbers are not theirs. Just because they they may have a handshake deal with the landscape guy who's not charging them. Well, turned around, I go to buy it and I got to pay. That sucks.
Yeah.
Right. They had a handshake deal as we know when we got into our current deal. There are certain things that weren't

1:03:06real. And you're like, "Well, I'm not going to get that deal. I'm going to have to pay. Like, we're a real business." And so, we got to rebuild the expenses and make sure like what about deferred maintenance? You know, what about staffing? What all of we want to verify. What about an insurance quote? Maybe they were radically underinsuring the building hypothetically and we actually want the correct insurance. Well, that's going to cost more money because we're going to actually put the correct insurance on. All right, step seven, Katelyn, this is where you play the game. What's the value ad, right? What is the value ad that we can do? And value is created, Katelyn, in five ways. Number one, we can increase the income. We could reduce the expenses. We can improve the asset. We could reposition it. or we could improve the financing.
Now, unlike the episode about three or four ago, which we can link to this with Brandon Turner, who bought a value ad with no value left to add, that's really tricky. That doesn't make sense, right? We're talking about real value ad that you could actually apply. Opportunity without execution is fantasy, Katelyn.

1:04:07There has to be. And fantasy ends up with you losing $15 million of your class B investor's money. So, you don't want to do that. So, what is the real value ad that you can actually do? Number eight, Katelyn, back into your price, net operating income, cash flow, cash on cash returns, irr, not your brokers. You've got to know what you want to make. That determines your buy price. Their asking price is their ask, right? They're asking. I ask for people to give me a gold Ferrari every day, Katelyn, but they don't do it. You can ask for anything. However, I'm actually going to come up with the value of how much would I pay for a gold Ferrari. So, I've got to know my net operating income, my cash flow. There's no such thing as a good deal at the wrong price. Anything you want to add there, Ken, those were our eight steps. No, I think there if you know much, you know, back to is commercial complicated. No, guys, it's those eight price eight specific steps and you already know how

1:05:11to do each of them. just take the time to slow down to do it. The cool part is we were doing some case studies Brett in our last mastermind I know as you remember in May and sitting with the group and going through and doing this. Okay, let's identify the investment. Then let's determine are we going to is this a passive or an active? Which rate of return should we be getting? Then they went through and they underwrote the actual property. They broke down the income, broke down the expenses, identified their value ad, and then we went around the room and bid on the property to see who could go ahead and uh win the bid. You know, we did it was kind of a mock bid, but we did three of these and our group left and felt completely empowered to go start underwriting all of the commercial property on their own. And it was the coolest transformation in an eighth hour period. It was absolutely so much fun. And I encourage everyone to go download Crexi, use Loopnet, whatever your access point is, and start doing this. Follow those specific eight steps that Brett

1:06:15just gave you. Because the more practice you have, the more reps you get, whether you're ready to invest today or not, that investment of time alone, will prepare you for when you are ready.
Totally. And Katelyn, last thing. I know some of our our listeners are saying, "Look, I want I don't want to run anything. I don't want to buy a golf course. I want to be more passive. And that's what I think so great, Katelyn, about commercial real estate is you could find the level of passive that you want, right? You could do a ground lease, right? Now, you wouldn't have depreciation, but you could go for Chick-fil-A and have a ground lease on it, which you talk about nothing. There is nothing to do, right? You literally they build the building, they do all the stuff, the building, they're they're leasing the building from you on the ground that you own for say 20 years. At the end of it, you get the building. like unless they keep extending. So, there's passive ways to do it. So, so Katelyn, last episode we talked about the scoreboard. You know, your single family rentals made you real money. It's an appreciation bet. You know, that decade's over. And so, this isn't to say

1:07:18your single families rentals are bad rentals are bad. And you may have ones that are great, but you won't know that unless you complete the exercise and do the single family rental check that we put in the last episode. The other game you could play was the game we talked about in this episode. It's a 39 trillion 393 trillion dollar asset class. Instead, it's based on your effort, your ability to execute. That's what changes the economics. You don't have to wait. You could do it right now. So, step one, go back if you have not done, you know, analyze your rentals. Do that. Step two, go through the checklist we gave you today, which will be located on bewealthypodcast.com/com tocap rates. Check that out. And with that, Katelyn, the world is in our listeners hands. Make your own decision. Your mileage may vary. That's Katelyn Mitchell. I'm Brett Tanner. This was another episode of the Be Wealthy Podcast. We will see you all back here next time where we show you how to play the real game with your money and your wealth. See you next time.