David: Alright guys, welcome back to the Discount Property Investor podcast, I'm your host David Dodge. Today I am joined by fellow investor Tim Bratz. I have been following Tim on social media for the past several months. I am very excited about this episode today, guys. Tim is doing big things. When I look at what I'm doing, I feel like I have done a lot and I feel like I'm doing a lot, but when I hear and talk to Tim about some of the things he's doing, it is truly amazing. So Tim, welcome to the show and thank you for coming on. How are you today?

Tim: Dude, I am doing awesome. David, excited to be here, man, appreciate you and all the value you provide. I am pumped to be here.

David: Hell yeah, awesome. So the reason that I was intrigued with Tim to begin with is he is a multi family investor, I would imagine you do a lot of syndicating, is that correct?

Tim: Yeah, in a different capacity. I don't do the traditional old school method, mine is a little bit different. We can get into that if you want to later.

David: Sure, sure. But anyway, Tim has a portfolio of properties would over 250 million dollars, is that correct?

Tim: That is.

David: That is awesome.

Tim: A little over 3200 units. Got another 600 under contract and closing within the next 60 days. By the end of the year it will be about 300 million dollars.

David: Holy-- wow.

Tim: I am selling some stuff off too--.

David: Absolutely, so again guys, let's welcome Tim. He is doing big thing. I would imagine specifically in the multi family space. Do you do in type of commercial in terms of strip malls or anything like that?

Tim: 95% of my portfolio is multi family. The other 5% I have a little bit in office, and a little bit of self storage as well. It's minimal, it's the deals you talk about all the time, right? If it's like just so stupid of a deal that I couldn't possibly screw this thing up, I will get into other asset classes, but me, I am very focused on a single thing, on a single activity, on a single asset class. I see a lot of people getting involved in real estate thinking, oh I am involved in all sorts of real estate because that's my focus. I am like, dude, real estate is not a focus, real estate is an entire industry, right? You need to boil this down to a certain type of real estate, and really focus on that. My certain type of real estate is apartment buildings, mostly in the Mid West, South and South East portions of the United States, A and B class areas, but value added. It might be distressed physically, distressed managerially, a hundred units or bigger, but it's in a good school district, safe location, good economic anchors in the area. We come in, we fix it all up physically. We are into it the same way a lot of residential investors are in, all in for 65 cents of the after repair value, right? It's just different words in commercial real estate. They called it stabilized value instead. You are just adding a few zeros.

David: --after repair value is just a stabilized value, but it is still after repairs typically, right?

Tim: Yeah.

David: So it's the same thing, just a different verbiage. Guys, I love this, this is great. So Tim, couple of nuggets that you have dropped on us already, real estate is massive, there are so many different ways that you can go. I at this point in time have my focus on single families and small multi's. Tim is a hundred plus units, that's okay that we are different, but the fact we both have high level of laser focus on each I think is very important. That was a really good nugget, Tim. If you guys are listening or you're watching this particular episode, take that as some advice from two guys who have been doing it for a long time. Try not to bounce around, pick something that you want to go with, and give it your all. So that's awesome. Next you have mentioned that it is very similar to the single family game that we are buying at a discount. In order for the strategies that I use which is typically the BRRRR strategy to acquire my rental properties, same strategy that Tim uses in a lot of his deals. You are buying at a discount, so you have to buy your properties at a discount. We all know that you get paid when you sell your buildings or your properties, but you make your money when you buy. You have to buy at a discount. So, Tim, you mentioned that you are in the Mid West, South to South East, you are buying A to B class properties--.

Tim: Areas, good areas.

David: That's my question.

Tim: -- the ugliest house on the best street, I look for the ugliest building in the best neighborhood.

David: Okay, very similar. So we do that as well. You are looking-- your A and B class areas, but you are essentially looking for a building that is kind of like the diamond in the rough, a C or D rated building, however it has the potential to be a B or even an A after improvements, because typically-- now let's back up a second. What would be the causes that you would have an area that is A or B, but you have a building that is C or D. What would be some of the motivations or the reasons that the building would get to that point?

Tim: Yeah great question. What I will say is that a lot of real estate investors are very intimidated by commercial, right? They are very intimidated by the apartments and the bigger stuff. There is no reason to be, it's the exact same play as the residential exact with different verbiage, which we hit on a little bit earlier. The way that I find deals is the same way that I found deals when I used to wholesale, I come from the residential realm, I was residential for 8 years. I overlapped for a couple of years and focused exclusively on apartments for the past two years. But, I come from the residential world, I am thinking from a third grade level, dude, I am from a B class neighborhood outside of Cleveland Ohio, right? If it's not simple, dude, it's too complicated, too complex for me and I just don't do it. When I got from residential and I started getting into commercial, I just took the same strategies that I used to find deals on the residential side. So I did the direct mail, I did the driving for dollars, just like there are houses with tall grass and boarded up windows, there are buildings with tall grass and boarded up windows. I call 'For sale by owners', I call 'For rent by owners'. Hey I am not interested in renting your property, I am interested in buying it, do you have any interest in selling. It's the same stuff.

David: Right.

Tim: The RVM's are real big right now, ring-less voice mail and the text message, direct mail and postcards and all that. Bandit signs, all that kind of stuff, social media, building up a database and doing e-mail drifts, all those kind of things are the things we still use today to find deals in the apartment realm. To go back to your original question though, what are the motivations a lot of the times that I see is, they usually fall in one of three categories; one is an estate sale, some sort of probate deal, the kids inherited it, they want nothing to do with running debts or mom's real estate portfolio, they just want to liquidate, take their money and--.

David: I'm going to interrupt for a second, Tim. When that happens, I would assume that is not happening everyday but I would imagine it's happening quite often, do they typically list that with a broker agent?

Tim: Many times they do.

David: Okay.

Tim: Many times they do, or they will talk to their attorney, or they will talk to a probate attorney, or they will talk to their CPA. Then, there is a referral made there. I have had some conversations there.

David: Usually you do some of your marketing towards those people that get those pocket listings essentially, right?

Tim: Yeah.

David: We do that too.

Tim: Here is the thing about real estate agents and commercial real estate; a lot of the gurus out there teach you to go out and build broker relationships. The thing is, a new real estate investor into apartments is not going to get those pocket listings, right? There are not many big investors, it is a very small community once you get to a certain level. There is a top 10, 15, 20 buyers in any given city who are buying all the apartment buildings. The brokers who are actually doing deals in those communities, they know who those top guys are.

David: Right.

Tim: And so-- you think about it from this perspective, in residential a real estate agent gets a listing, there is a lot of red tape, regulation in real estate to protect the little old lady who inherited the house from her husband who just passed away, and never really handled the family finances, right? We don't want any big bad realtor or real estate investor take advantage of that person. So there is a lot of maybe unsophisticated landowners who fall into that circumstance in residential real estate.

In commercial real estate it is assumed that you are there because you are a sophisticated investor. You're buying because you're buying for investment purposes. You don't have all the red tape. In residential when a real estate gets a listing, they have to list it within 72 hours, because that is the typical law in any MLS district, right?

David: Let me interrupt for a second. Did you heard they are trying to get away with the coming soon's?

Tim: Are they?

David: They are trying to get away with it completely. I think it's just B.S but whatever, beside the point.

Tim: There is a lot of that going on in the residential. In commercial there is none of that, right? It's like, hey you're a big boy/girl, go out and do deals. You should know better if you get had, right? What happens is that you will give a listing to a broker, I have done this, I have given listings to brokers, and I am like, dude how come it's not on the MLS? Where is it? They keep it as a pocket listing. They will shop it for 30 days because there is no timeline associated with it, because they want to earn both sides of the commission.

David: Absolutely.

Tim: Right. So they will try and shop it, you won't see a lot of things hit the market until the top 20 buyers in town all said no to that deal.

David: Already saw it, right?

Tim: Already saw it, already said no to it. If it was a good deal it would have got bought, so when it hits the market, chances are because it's a crappy deal, right? So don't go build broker relationships until you get to a level where now you are one of the top buyers at the top.

David: Great piece of advice, Tim. Are you getting a lot of your-- so you have been doing this a couple of years, primarily longer than that in real estate. What percentage of your deals come directly from the off market motivated seller versus the broker? Is it about half at this point?

Tim: I mean, dude-- I am one of the bigger buyers. I am probably one of the top five buyers in all of Georgia. I get a lot of broker relationships in markets that I have been in for a while, then in new markets it is usually off market, direct seller, or I meet someone who is a wholesaler like you who is like, hey man I have this deal in Dallas. I got this deal in Louisiana, wherever it is. You send it over because it is something that maybe you're not that familiar with. You send it over to me, my team, we will underwrite it. If it makes sense we will pay you a wholesale fee, or give you some equity in the deal, right? So now it's a way that wholesalers even on the residential side can get involved in projects in the commercial side, whether that be actively, passively. What I've found is that a lot of residential wholesalers, a lot of residential investors come across apartment deals and residential deals, they just don't know how to underwrite them, they don't know what to do with them, so they just discard them. I have build a reputation on telling everybody that I buy apartment buildings. So whenever there is an apartment building that comes across their desk, they don't throw it away now, they send it over to my team. My team can make a deal happen. We fulfill that, we pay them a fee. Cool thing about a wholesale fee on apartment buildings is that we are talking about tens of thousands if not hundreds of thousands of dollars for a single deal, right? Or getting some equity in it and really building that long term wealth that way. Yeah, man, there are motivated sellers just like in a lot of things. What I found a lot of motivated sellers in the commercial realm come from are the probate stuff, it was a mom and pop that bought the building a long time ago, they actually ran it, lived off the cash flow, sucked every dime out of the property, never reinvesting anything back into it. Dude, you do that for 30 years, guess what? Plumbing goes, the mechanics go, the roof goes, the windows go, the parking lot goes. They don't have any money, they are not bankable enough to get a loan to go and make those improvements. They have painted themselves into a corner, so the only option is to sell the property. That's number two. Number three is smart entrepreneurs. This is probably who I buy most of my properties from. Smart multi millionaire entrepreneurs who made money in some other industry, then thought, oh I can just passively invest in apartments. They go throw money down on an apartment building without having a joint venture partner who knows what the hell they are doing.

David: They basically mismanage it, right.

Tim: They just get taken, they get taken because there are a lot of scum bags out there, right? They don't have a local partner, local boots on the ground, anything like that. They just-- they take their eye off the ball on the primary business, then they are trying to keep this thing afloat over here, and they don't realize they are going to miss out on their millions of dollars of income from the primary business, let me just dump this--.

David: Yeah just let me get rid of it. It's not even so much about the money most of the time at that point, it's about the focus. -- this is pulling them from all different angles. I am in the process of downsizing some of my business ventures right now because it is taking away from the focus of what really matters. Tim, I love it.

So guys, take that as a lesson here. If you are getting into this industry and you are new to it. Building some relationships with brokers is obviously going to be beneficial to you, but a lot of these deals are going to come off market. Learn how to get good at marketing. If you don't know how to market to motivated sellers, guess what? We have a free course, FreeWholesaleCourse.com. It teaches you lots of ways to market to these motivated sellers. So Tim, love it. So now that you have marketed to your motivated sellers, or you have found it through a broker, but let's assume you did it through marketing to your motivated seller. What does the process look like? When I go out and buy a property, I use a simple formula, start with ARV, multiply it by a discount rate, which is obviously going to vary about crime, school district, location and so on and so forth. Then we take into consideration repairs and a fee in there as well. Are you using a similar formula? What is the underwriting process look like after that deal comes in?

Tim: Same thing. We do the same exact thing. The only difference is how the property is valued. In residential you are looking at the houses down the block, what they have all sold for in the past six months, and what you think this property is going to be worth once it is renovated, right? It's more of a comparable evaluation method. In commercial real estate, properties are 100% based on the income approach, meaning how much income does the property generate? You take your total income minus the total expenses equals your net operating income. Depending which market you are in, there is a multiplier, it's called a cap rate. Essentially a return on investment is what a cap rate is. If you're in a first tier market, your cap rate is probably 4.5-5%. In San Diego, Miami, New York or Boston, those kinds of areas. A second tier market like Cleveland Ohio, Metro Atlanta area. You might be closer to a 6.5% or 7% cap rate. If you are in a third tier market you are probably 6.5-7.5% cap rate. As the cap rate goes higher, that means the value comes down a little bit. If the cap rate is lower the value is higher, it's an inverse relationship.

David: When you're buying are you looking for high or low cap rates?

Tim: I don't really-- it's like-- residential. You don't care what the property is worth right now, you care about what it is worth when it's fixed up. That's the number I'm looking for.

David: Okay.

Tim: So a lot of people are like, oh I'm not going to buy it at that cap rate.

David: That is kind of irrelevant though. You are not just buying it to sit on it. You are buying it to rehab it, renovate it, increase rents, get higher occupancy, do all those things that add the value, so therefore as you mentioned earlier, it's not so much an ARV, it's more of a-- what do you call it? The established?

Tim: The income approach.

David: No you said something about--. There it is, the stabilized value. So the ARV is really going to be similar to a stabilized value which has a lot to do with what you plan to do to that property, which might be a couple of things. Let's talk about that real quick. It could be renovating the units, upgrading and updating those units, increasing rents and or increasing occupancy, so decreasing the vacancy. What am I missing? What am I leaving out?

Tim: There are two ways to increase the net operating income. That is the main thing you want to do. One is to increase the income, and two is to decrease the expenses, right?

David: Okay. Ideally in a perfect world you want to do both.

Tim: Both, absolutely. Then you make even more of a delta there, which increases the value of the building. It is very predictable about what my buildings are going to be worth. I know exactly what they are going to be worth prior to me ever even buying a property, because-- I am not subject to market shifts as much as maybe someone who is flipping houses is, because that can shift pretty quickly on seasonality even, right? Mine is all based on the income approach and how much income can the property produce. What I'm looking at is income. How do I increase income? Exactly what you said, David, is renovating the units, when you renovate the units you can attract a better tenant, you can charge more in rent, right? It is more aesthetically pleasing. There are other amenities you can put in. You can charge for storage, you can charge for parking, you can charge for covered parking. There is a whole bunch of different stuff like that. Laundry income, right? I have even seen other services like valet trash, put your trash out every night at 6pm and one of the maintenance guys comes through and takes it. It's an extra ten bucks a month, twenty bucks a month or whatever that looks like. So depending on the market-- I've seen valet car service. You pull up, the valet takes your car and parks it for you.

David: Wow, yeah.

Tim: There are things you can do from a perspective of cable and TV and internet, where you can run a cable through the entire building and sign some deal with ComCast, or Time Warner or whoever and say, it's going to cost thirty bucks per unit per month, the tenants would be paying $75 per unit per month. You charge them 50, right? So now you are able to make an extra $20 per unit per month. If you think about it-- here, let me show you impactful it is, I am pulling up a calculator right now.

David: Do your thing.

Tim: If you had a hundred unit apartment building, and you were able to bump the rents, not even do anything to the building. Let's say you were able to bump the rents by $15 a month, which is--.

David: That's nothing!

Tim: I don't care what market, even if you are in a C or D class area. $15 a month times a hundred units is $1500 per month times 12 months is $18'000 a year. If you divide that by let's say-- most of the markets that I'm in, most of my properties are appraising at 6.5% cap rate. I am in like second or third tier markets.

David: Okay.

Tim: $15 a month times a hundred units times twelve months is $18'000 a year, divided by a 6.5% cap rate increases the value of my building by $275'000 for doing something that doesn't even change. Okay so now if I add on an extra $20 per month for cable service, plus let's say I am able to bump rents by making some improvements, maybe I can bump it by $65, right? All of a sudden you are talking about 85 bucks a month times a hundred units, times twelve months, divided by .06 cap rate. That's increasing the value by 1.57 million dollars.

David: By only adding $65 a month?

Tim: Over the course of a hundred units. That's how this stuff multiplies. It's insane. I have never seen anything like it. It is very predictable. I know that I can buy a building, I don't need to speculate on what it's going to be worth. I can create appreciation by increasing the income, by decreasing the expenses. Knowing what it's going to convey on the back end. We do stuff like that to increase the income, then from an expense stand point, taxes. If we can buy the property for less than the assessed value, we will appeal the taxes. If we can shop insurance around. Think about insurance, you are able to save five grand a year on insurance, let's multiply it out. By just shopping insurance to making a couple of extra phone calls, divided by 0.65--, you are increasing the value of the building by almost $80'000.

David: Just by shopping insurance?

Tim: Just by shopping insurance, you know?

David: Wow.

Tim: You start adding all these things up and compounding it, it makes a big difference long term, you know? Your maintenance, depending on how you renovate units. We don't put carpet in. We only put luxury vinyl tile, right? It wears better, you don't have to wait a day to steam clean on it, to walk on it again. People don't put their cigarettes out on it like they do with carpet, like crazy. It will last longer than carpet does. We can turn units faster. Now all those things reduce out maintenance cost, reduce out turnover cost, it attracts a better tenant, we can charge more in rent. By doing things like that to harden the unit, increase the value long term as well. There is a lot of stuff you can do to increase the income, decrease the expenses and expand on that operating income.

David: Love it. So guys, take that right there. Increase the income, decrease the expenses. Those are two of the best ways to add value to these buildings. It is an exponential add too, because you are dividing it by the cap rate, right? So you increase rents by $15-20, and once you do that throughout the whole building, you have increased the amount of value in that building by maybe $100-200'000. Very cool.

So let's talk a little bit about the process of buying. Whenever I go buy a single family home, I am going to add it to the rental. Again, we do a lot of wholesaling here, but we cherry pick. Wholesaling is a job. We did this almost on every episode. Wholesaling is the best place to start in my opinion, because it teaches you how to negotiate, it teaches you how to find the off market deals. We all know that you can find a deal on the MLS, but it's rare, right? Your best deals are going to be off market direct to the seller. The reason I love wholesaling so much is because A, you can make quick profits, high profits quickly, but B, it allows you to cherry pick the very best of those deals. When I go buy a property, I have a private lender, a couple of them that I will borrow the purchase and the rehab, assuming I am going to add it to my rental portfolio. I do the renovation, I get it rented, I go talk to my banker, he is going to give me a loan based on my appraisal. I am going to refi that back and pay back that private lender of all the money he lent me which was the purchase and the rehab. So how is a little bit different, or is it not at all when you are doing a hundred plus units complex at once versus me just doing a small three bed two bath house?

Tim: Yeah, are you going to hard money lenders? Giving you 100%--.

David: I don't use hard money, I use private. It is essentially the exact same thing, right?

I don't pay any points. Typically pay 10 or 12%, and we actually give our private lenders the option, hey do you want to make 10 or 12? The only catch is the 12 is in arrears. It's all in arrears. Whereas we will pay 10 but it's monthly, that last month will-- the interest will be paid at pay off. So is it the same? Is it different? Whenever you are dealing with these hundred plus units.

Tim: It gets expensive if you are going to raise all the money at 10 or 12% for-- a building that is worth ten million dollars, I am going to be all into it for six and a half million dollars, right? So my entire model is-- reverse engineer of exactly what you are talking about. My model is, if the building is going to be worth ten million dollars, I need to be all in for 65% of the stabilized value, so that will be six and a half million. I back out all the expenses for renovations, holding costs, those kinds of things. Let's say it's another million dollars. That means I have to be able to buy maximum allowable offer, five point five million bucks, alright? If I can get it for less than that, guess what? There is even more spread in the deal.

David: Right.

Tim: When I'm doing that-- let's say on this deal I am total all in cost is six and a half million dollars. I will go and get a bank loan, usually called a bridge loan or a construction loan, or gap funding or whatever. I will go and get that short term loan for about 80% of the cost, okay? So 80% of six and a half million, a little over five million bucks. Then I have to go and raise about one point three million dollars in that scenario for my private lenders. Mine is similar to what you do, I pay 10% preferred rate of return. While I am going through that value add phase. Mine is-- these buildings are a lot bigger so they take a bit longer, it's usually--.

David: I was going to say, mine might take two to four months if I am doing good. If it's a long one, maybe four or five months or whatever. Yours are going to average 12-24 or something like that?

Tim: About 12 months on average, 12-18 to do that, then what we do is that we don't sell it, we refinance it. I will go and get a loan, BRRRR method, right? Buy Renovate, Refurb, Refinance, Repeat. We will go in, we will get a 70-75% loan, and refinance it back out. That is about a three months process once that property is stabilized. Stabilized means it is 90% occupied. Once it is 90% occupied at market-rate rents, we can go and show that for the next three months, then we can refinance it. That is a total seasoning period. I could refinance it sooner if I stabilized the building sooner. But for the most part, you can't take out any refi proceeds until after you have been on title for twelve months and a day. My model is always to refinance between that 12-18 month time frame, make sure the building is stabilized in 12 months. Once it is stabilized I can refinance 15-18 months down the road. They give me 75% of the new value, that's seven and a half million dollars. I am only into if for six and a half. With that six and a half, I have paid off the five million dollar bank loan. I paid over the one point five million I borrowed from private money. There are a million dollars of refi proceeds non-taxable.

David: I was going to say, that's the coolest part. This is non taxable, it's not income, guys. That extra-- I didn't mean to interrupt, Tim. That extra though is a loan, it's not income. Yeah you can deposit it in your bank account and spend it like you could any money, but it is non taxable, because it is not earned, it's on a loan.

Tim: The best part is, your tenants are the ones paying it back, not you and me, right?

David: Not you and me, right.

Tim: So we can go take that money out at 4.5% interest, because we know how to go and make a better return than that. So it makes sense to pull that out, right? If you're going to be financially savvy, financially competent and responsible with it. I wouldn't do that just go and buy a bunch of liabilities.

David: No not at all. But, if you do that--.

Tim: You could if you want to.

David: But if you do that one or two times, now you have the seed capital for your 20% to go do it again, then you don't necessarily need to go ask investors to put up your 20% for that preferred rate of return. If you are really savvy you will make more money doing it elsewhere than pretending to do that, but you don't have the ability to do that, or I'm thinking some scenarios some investors are going to say, how much skin do you have in the game? If you say, oh I am putting a hundred, two hundred grand of my own, you are going to give me three hundred grand, it is going to appease them, they will feel more comfortable that it's not just their skin in the game, it's someone else's too.

Tim: I get that question once in a while. One, I have a track record, right? I don't really need too, I can show people the track record. Even early one, man, like-- technically I do have skin in the game of investing all my time and signing an acquisition loan. A lot of times the acquisition loan is personally-- I'm personally responsible for it. Once the property is stabilized and you re-finance it, then it is a non recourse loan, which means I am not personally guaranteeing it, the only recourse against that loan that the lender has is taking the property back itself. They can't come after me. Now there is some-- they are called bad boy carve outs, if you lie, cheat, steal, if you are fraudulent they can come after you. Otherwise--.

David: If you do it right, ethically and like you should-- yeah that's really cool. Let me ask you the difference. Whenever you go get the loan originally, how is that different that the second loan? I get that the second loan you are paying back lenders, it's a refi versus a purchase. Can you not get a loan in the beginning without some skin in the game? Whereas at the end you have increased values, your skin has been built in. You are using added value, equity that was gained. In the beginning I guess you just don't have that, and that's why you would need to put money down. Or are there scenarios where you don't?

Tim: -- it's not a stabilized property, right?

David: So they know that? They know that you're buying something that needs to be stabilized and that's why you're coming to them?

Tim: Yeah.

David: Got it.

Tim: So there are different kinds of lenders. The most conservative lenders, the agency lenders. That's insurance companies, CMBS which is commercial mortgage bank securities. Fanny May, Freddie Mack, those lenders will only lend on things that are maybe 85-90% occupied or better, okay?

David: Okay.

Tim: If you get below 85% occupancy--.

David: And those are the ones that are giving you the non recourse loans, right?

Tim: Yes.

David: Got it.

Tim: If it's under 85%, let's say down to about 60%, you can usually go to a local bank, or a regional bank, there are couple of debt funds and stuff out there, hedge fund or real estate trust that does hard money lending on this kind of stuff. You are going to be paying a higher interest rate, because it is perceived as more risk, because it is a lower occupancy, and there is some work that needs to be done. If you get below 50 or 60% occupancy, there is not a lot of shops in town or across the country that will fund that without seeing a significant track record on your part as the operator. They want some money, some skin in the game. They want it as such a low cost basis, that is the only way that they will do it. Fortunately I have that track record, and I have been able to do that over and over again. So it is pretty easy for me to find a way to finance that stuff. But it is really tough if you are just new into that space. Really that sweet spot is somewhere between 60-80% occupancy range where-- a lot of lenders will see the long term value, like the stabilized value of what it could be, without taking on all the risk of having something that is 20% occupied that could get broken into it. I mean you-- usually it's a short term loan, two or three years max on the acquisition loan. It's a recourse loan that I am personally signing for. My investors bring in the money, I create appreciation via the sweat equity that I put into these properties. I don't just speculate on it like a lot of people do.

David: Right.

Tim: You see a lot of these syndicators, they are buying a ten million dollar building for ten million bucks. Hoping the value goes up 5% over the next five years, then at that time they can sell it. One, it's a job, it's a high paying job. You got to go do it again to make money again. Two, speculation, that's why everyone gets their asses handed to them, they thought they could buy here and tomorrow it would be worth this much. When values came down, they lost everything. My entire business model is based off what I saw go down ten years ago, right? Buying for cash flow not appreciation. Buying it wholesale prices not retail prices, right? It's doing all these things, putting recourse debt on your loans instead of recourse. A lot of fixed interest rates instead of variable interest rates. A lot of those kind of things--.

David: How long are the terms? Are you doing 20, 25, 30? I got a friend in town here that does FHA commercial, so like multi family commercial. He does FHA 40 year loans, not recourse.

Tim: Those are a total pain in the ass to get. It will take six to twelve months just to get that loan.

David: It not more, right.

Tim: Usually on works-- works best for development projects--.

David: Yeah they are big. He is not typically doing the hundred units, they are like 600 units plus.

Tim: Probably building the, right?

David: They are, he isn't.

Tim: That's common, because the process of getting all the approvals and permitting, all those things in place, development is going to take your six months at least anyways. So it makes sense to kind of run both of those on a parallel path. When you're buying an existing building, a seller is not going to sit and wait six or twelve months for you to--.

David: No I get it. So tell me about some of the loans you get in terms of like-- on the refi, right? What's the terms? What's the rate? And so on and so forth.

Tim: Yeah the sweet spot right now is in that 10-12 year term. You can get shorter terms. The thing is, I don't like the shorter terms because you don't know where the market is going to be in five years, right? We could have different president, we could have two different presidents over the next five years actually. We could have three presidents in the next five year period, so who knows? We could be in an economic war with somebody, we could get in-- international foreign trade war, whatever.

David: When you say term, are you talking about the fixed amount of time you would have a rate? Or are you talking about the amortization table?

Tim: I am talking about the fixed amount of time you have the loan before it balloons.

David: Okay, so when I do mine, again they are not non recourse, they are recourse loans, I am personally guaranteeing them. I shoot for 20 year amortization with a three to five year term, but it renews for like 50 bucks, it is so cheap. Yours are not-- I guess whenever you shift from the recourse to the non recourse world, it doesn't work that way anymore I'm assuming? Balloon versus renew.

Tim: So some of my short term acquisition loans will turn into a long term loan--. It is not always the best terms for me on the acquisition and the refi though. I usually use two different lenders. At the time of the refi I usually go to one of the agency. Life insurance companies, CBS, Fanny and Freddy. They will appraise it, comes in at ten million bucks, they will give me 75% LTV. It is usually a 30 year amortization with a ten to twelve year term on it. At the end of the ten or twelve years I can either re-up with the same lender, or I can refinance with a different lender, or I can sell the property, or I can figure out what I want to do at that time, right? I am going to let future Tim make that decision. I don't know what the market is going to be, I don't know what's going on. My thing with that is, even if you bought in 2006 at the peak of the last market. If you went at least ten years, going through the worst recession we have ever been through, by ten years later the market came back and it was even better than it was.

David: Higher than it was before. It dipped but it came back up and it exceeded where it was, correct.

Tim: Because all my investors were all paid off, I didn't need to give them their money back. So I can sit on this thing longer term. I could get a 15 year term, but the interest rates are popping.

David: So your sweet spot is ten to twelve--.

Tim: I just closed 500 units in August. My loan was 3.88 I want to say. Something stupid. Long term, fixed interest rate, ten years, like insane. The stuff I am closing now is going up a little bit, but I am still in that 4.2 range when I refinance a lot of my properties. That is fixed for ten years. They usually give me a couple of years of interest only as well. It is amortized over 30 years. So my payments are pretty minimal, and I have a lot of cash flow as well. Now if I decide this is an A plus location, something I want to hold long term, I can pay down that principle faster by making a couple of extra payments per year, and still pay it off in 15-20 years if I wanted to. Thing is, I don't want to be responsible for recovering a big nut every single month in case the market does shift, and I need to be a little bit more liquid with my cash flow, does that make sense?

David: It makes absolute sense, absolutely.

Tim: That's why I push out the amortization as far as possible. I do a long term right now at that sweet spot of ten to twelve years. I only do fixed interest rates. A lot of them bridge loan stuff and short term stuff is variable, but interest rates are so low I am not too worried about it, it's only a short term thing anyways. Yeah and it's not recourse loans. I can sit on it, my investors are all payed back, I am hanging out. By the way , one of the things I didn't mention, I make it so sexy for my investors when I pay them the 10% return, and I still give them 10-20% equity in [00:39:26.26 - inaudible], even after they--.

David: Even after they got all their money back-- now do they have--.

Tim: Now they get a chunk of the refi proceeds, now they get a chunk of the cash flow, they get the appreciation and the principle pay down and the equity that is still in the property. Here is why I would do that, because I don't have to do that, right? Why would I do that? The reason is because as soon as I give them their money back, there is so much loyalty there.

David: They are basically like, hey use it again!

Tim: I tried giving one of my investors money back last week and he would not take it back. You have to put it into another deal. Just send me the paperwork, you know?

David: That's awesome.

Tim: It's insane, dude. This business is all about finding deals and finding money. You do those two things, it doesn't matter what's going on with the market, doesn't matter what's going on with the economy. You can do real estate deals. You can find deals and find money. So if the money is taken care of, now all I have to focus on is finding deals, right?

David: Love it. Guys, you heard it direct from the man himself, Mr. Tim, I am going to screw up your last time, Bratz? Tim Bratz. Tim, I appreciate you coming on the show today. You dropped a ton of gold nuggets. I have been doing real estate 14 years, I learned a couple of things today. So this has been amazing. Guys, I started following Tim on social media. It's probably been every bit-- three or four months ago, I highly recommend you guys check Tim out. Tim also has speaking engagements or seminars. I believe they are called Commercial Empire, is that right?

Tim: Listen, I'm an operator, right? But because I have a lot of people hitting me up wanting to do deals, and wanting-- hey do you mentor? Do you coach? I partnered up with an education company. I show up, I do four events a year.

David: People ask me all the time, Dave, how do you wholesale houses? I have a book, it just makes it easier. So you guys have an education product too. Tim, tell us a little bit about it real quick. I have seen the social media highlight reels and clips. Man these guys are doing great. I am interested to hear more. Tell us more about it real quick.

Tim: It's called Commercial Empire, I partnered up with some people in the invest and education realm. These guys, they take off all the heavy lifting from the education side. I can go back to being an operator and running my business. I come in, I teach people how to go out and buy properties, how to scale up into apartments and buildings, that long term legacy wealth. I think a lot of people got into real estate for, that passive income, that residual income instead of the transnational stuff, right? We go over how to raise money, how to find deals--.

David: How long are the events? Is it a two or three day event?

Tim: Three days.

David: Three day event, that's a lot of even, man. That is a ton.

Tim: It's all content, no sales. We have a mastermind and that is invite only. There is no up sale, nothing goofy like that going on. Just pure content, dude. How to find deals, how to fund them, how to raise private money, how to get the financing, how to close it, how to do all the due diligence. What the value ad plan looks like, the construction process, managing the management company, asset management long term, what the refi looks like, how to build a business, how to build out your team. Literally everything, dude. It's not for the newbie who has never done this before, it is for someone who is doing deals, and they are looking to scale up.

David: Basically somebody like me, I already own 53 rentals, so I now the business quite well. We do eight to ten wholesales a month, I got five or six flips going. If you are like myself--. You want to pivot into doing more of the commercial stuff. Man, so Tim, what's the website?

Tim: It is CommercialEmpire.com. My goal with it-- there is a lot of people like you, David, who come out and they are like, Dude I know how to out and find the deals, what I need some help with is raising the money or structuring it, or just like-- dude just help me out, I don't want to get my ass handed to me--. They call me up and say, hey Tim can you help sponsor the loan? Can you help raise the money? Can we JV on something. It gets you into a deal that maybe you couldn't have gotten into before. It gets me into a deal-- dude I don't need 100% of a grape, I want a quarter of a watermelon, right?

David: Right, me too.

Tim: There is a lot more juice in a squeeze, you being able to do what you're really good at allows me to do what I'm really good at and what I like to do, you do what you like to do, all of a sudden one plus one equals three in that scenario. It gets me into more deals. We raise a lot of private money, we partner up with a lot of students. We help build a lot of wealth together. The reviews are off the charts. The results, the student results are off the charts too.

David: I have been following you guys for a while, man. You guys are doing really cool things. So Commercial Empire, is it dot come?

Tim: CommercialEmpire.com.

David: CommercialEmpire.com. Check it out. I have personally not been to one of these events, but I am excited to come to one soon. They look amazing. You guys fill up a room with people. Three days is a lot of content but that's awesome, guys. You are going to get a lot of value out of these events. So definitely check that out. Then of course go follow Tim on social media. He is always dropping gold nuggets about what he's doing. I love how when you are out in the field at a property, you will pull out your phone and make a little video and point out things there. I will tell you right now, I am-- I love seeing you online, you are always providing value, so thank you for that.

Tim: I appreciate it.

David: Very cool. Tim, thanks for coming on the show today. We appreciate it guys. Don't forget if you want to learn more about Tim, go to CommercialEmpire.com, how often do you have the events, Tim? Is it quarterly?

Tim: Once a quarter.

David: Once a quarter. He has four events a year. Do they move around the country at all? Or is it always in the same spot?

Tim: Usually between Cleveland Ohio, Tampa Florida, and I have a house in Charleston. So we are going to start doing some events there too.

David: Well guys, thanks-- I want to thank Tim personally again for coming on. Tim it has been great. Don't forget, check out CommercialEmpire.com for the next event that might be in your area. If not, come check him out either way. Tim, thanks again for coming on. Until next time, guys.

Tim: Thank you for all the value you provide, man.

David: Absolutely. Guys, don't forget, you make your money when you buy, you get paid when you sell. Until next time, signing off.