I have been buying commercial real estate since I was 19 years old
My name is Tom Mckay I wrote a book called "Wake Up and Smell The Real Estate"  I also mentor and have had great success with both book and mentorship.   I am frustrated however that so many people try to chase easy money scams and end up getting even further from their goals.

People gobble up fake stupid crap on YouTube I just wondered what other investors thoughts are on this when trying to explain to Millennials and Gen xers they need to get their shit together.  Your thoughts?
[{"id": "h96av0c", "text": "Hard truth? Let the best teacher teach them these rules: Losing. \n\nI fall under the Millennials category, and I've been lucky enough to surround myself with friends that all invest and actively talk about investing. The trend I've found (within this friend group and outside of it) is that people need to learn to lose, in order to start winning first. This usually means letting them hit the ground running and be humbled, whether by the stock market, real estate, schooling, and in general. Only then do most people realize why it's called \"hard-earned cash.\" \n\nUnfortunately, the way most people gather and receive their news is through flashy YouTube videos, created by people that usually don't know more than the average Joe and are in it as more of a scam. \n\nThis sounds pessimistic, but I believe you've gotta figure out the root cause of a problem in order to provide a solution. My solution (so far) that I've used with my friends when they become interested in investing, is that I tell them to put into the market only a small percentage of what they're wanting to invest, and feel out the market for a while. Usually, they tend to buy into the hype stuff seen on Reddit - The Cryptos, EVs, SPACs, Cannabis, etc. When they inevitably experience a large drop (and this usually needs to happen a few times) do they finally engage in a sustainable, and more importantly, fundamental approach to the market.\n\nHopefully this helps, or provides some perspective to the thought process of my generation and 'getting their shit together.'\n\n&amp;#x200B;\n\nQuestion for you - How did you start investing into CRE at only 19?", "replies": [{"id": "h96citr", "text": "Thank you.  You, unlike many, have some positive influences around you.   What I find with many of the people I mentor they bought in to some of that fluff lost money and then are jaded.   \n\nQuestion for you - How did you start investing into CRE at only 19?   I dropped out of high school at 17 started a cabinet business looked for a place to rent and one of the properties turned out was also for sale.  The agent wanted a commission explained they could owner finance.  So I got a 6 month escrow with the right to occupy (no rent) so in that 6 months I easily saved the $10,000 for the down.  Week later somebody offered me $20,000 more and I was hooked.  I was a millionaire in the 80s 10 years later and did not need the business. Full time investor ever since.  You can read or listen to the beginning of my book for free on Kindle, Amazon and Audible.   Only been out 18 months and have some newbies that have already made their first million.  Im not hyping this but it is true.  I appreciate the thoughtful response.\n\nThanks Tom", "replies": [{"id": "h96g5i1", "text": "Appreciate the response Tom - I'll definitely check out your book!", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "h96b0mq", "text": "I've told so many of these young kids to buy duplexes instead of houses and they just look at me with blank stares. One kid did do it but his family already did multi-unit so he knew what I was talking about. \n\nI love multi-unit but am thinking about making my next purchase a commercial property. But I'm not sure what good metrics are. I'm seeing two buildings now and both are around 8 caps. They're both around $550-600K. Both would cash flow after the mortgage around 18-20K. One has a liquor store and one is filled with dental offices. \n\nOne question I have is appreciation. My multi-units have appreciated like crazy although I have been \"forcing\" the appreciation by renovating units and increasing rents. Not sure how it's done in commercial. If I can't increase the rents the property really won't appreciate. Not sure I bring anything as a value add to commercial and I'm too old and impatient to hold it for 20 years.", "replies": [{"id": "h97cu2s", "text": "I would tell you don\u2019t get hung up on duplexes.  That was the popular thing pushed for years buy a duplex live in half and let your tenant buy it for you. \n\nThe key to making money quickly is buying under market.  If you don\u2019t do that you\u2019re just gonna be an average investor and although you\u2019ll still do OK you\u2019ll only be making a fraction of what you could make.\n\nI just close on a property I paid 1.6 million for and it has a 9 cap but I could resell it for a higher amount because someone would buy it from me at a 6 cap and could make around 700k. But instead I\u2019ll borrow 75% of the value at 3.75% and keep it and still make 99k rent annually which is a 24% return on my $400,000 equity. \n\nOn your multi family units. That does not sound like appreciation that sounds like value add.  \n\nI think you can do better.  I have had 3 apartment complexes made millions in them but never did anything other then repaint replace carpet occasionally.\n\nI like your commercial property you are considering dentists and Liqour stores are pretty stable tenants. \n\nThank you\n\nTom", "replies": [{"id": "h98x50c", "text": "I don't buy duplexes. I recommend them to kids who are starting out because they can buy them and live in them for one year and get the low downpayment and because you can find them for 110K in this area. Instead of buying a $300K condo I talk to them about buying a cheap duplex as a starter.   \n\n\nI've been buying multi-unit off the MLS and one off market deal. Smallest is a four. I do rehab units but I've also just ridden the rent up with new tenants as well. So I've seen some great appreciation.", "replies": [{"id": "h9df2r8", "text": "I gotcha. There are some good finance deals for first time buyers. Thanks", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "h96c5dg", "text": "It\u2019s painful. I work in PERE and look at multiple hundreds of institutional and middle market deals every year. Guess how much RE I personally own (besides my residence) - $0\n\nThis asset class is not set it and forget it. It\u2019s not get rich quick. It\u2019s time and capital intensive and there is unlimited money flowing into the space. The thought that unsophisticated no body\u2019s get into RE is frightening.", "replies": [{"id": "h977mk7", "text": "It really is not exclusive to the \u201csophisticated\u201d you\u2019ll defeat yourself believing that.  It\u2019s basic math and work but it is really well paid work. Don\u2019t give up.", "replies": [{"id": "h98foid", "text": "? I\u2019m not talking about me... I\u2019m talking about the unsophisticated guys who are thinking this is a way to FIRE. I\u2019ve closed about $3B over the past decade. I\u2019m good.", "replies": [], "depth": 3}, {"id": "h9cy9p7", "text": "So I'm in a position where I do get asked \"hey, why don't YOU own any real estate\", and the answer is that I don't want to do that work.  Any of it.  I understand that REIT personnel get paid out of the profits that flow to the owners.  I'm willing to pay that management fee, such as it is, to avoid the work and gain the diversification.  \n\n\nI'll happily admit that the returns, if you're good/lucky, will be way higher if you're providing equity on actual deals, but it's not worth the hassle to me.  I'll keep my day job.", "replies": [{"id": "ivg0j7n", "text": "&gt;REIT\n\nThat's interesting, I don't own anything either, but I know how to get CF (cashflow) by rental arbitrage, however, I was looking into commercial real estate as a broker, coming from saas selling investment management solutions. I thought about alternative ways to invest in real estate and people mentioned REIT. I don't know much about it, but I'm curious to know, How has REIT been performing for you recently? and how much did you start off with? What's your objective in taking this vehicle?", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "h96f6py", "text": "Hey Tom, I\u2019m a fan of your channel and really like your straightforward approach to real estate investing.\n\nI\u2019m a millennial myself and I try to surround myself with likeminded peers who are making smart choices with their money. I think it\u2019s hard to eliminate the luck factor of who you\u2019re exposed to initially. Even if you cultivate your ability to make good decisions and recognize opportunities, a large setback at the beginning of your career can be devastating and turn you off from real estate entirely. I think the only way to consistently reach our generation is to grab someone\u2019s attention early on using avenues like social media. The problem is that fake gurus know this too, and they don\u2019t care about the tactics they use, while you want to continue providing educational content vs putting all your effort into marketing to make a quick buck.\n\nGood to see you joining Reddit, there are a lot of millennials on here you can reach :)", "replies": [{"id": "h97dayp", "text": "Thank you for the input.  The clownish goofy approach does seem to grab people before they are lead to the slaughter by fake gurus.  I suppose I could do the same to lead folks to something better but I\u2019m just not feeling it.  \n\nThanks again Tom", "replies": [], "depth": 2}], "depth": 1}, {"id": "h96jwyr", "text": "Hey Tom,\n\nWith the higher cost of commercial real estate, which would be a better path for starting a RE portfolio? Duplex/multi-family residential real estate, or some version of commercial real estate?\n\nCheers", "replies": [{"id": "h9773bd", "text": "It really doesn\u2019t matter.  I almost always look for commercial property or industrial buildings. I also buy houses when I find a very good deal.  It is easier to find a bargain on houses because there are so many of them.  Commercial is great because profitability is tied to the assets performance where houses are an emotional purchase.", "replies": [], "depth": 2}], "depth": 1}, {"id": "h96y0km", "text": "Are you the guy on Youtube telling people to raise their cap rate?  That makes no sense.", "replies": [{"id": "h975jgc", "text": "I tell investors not to settle for a low cap rate on the purchase.  You would need to be more specific.", "replies": [{"id": "h97rgql", "text": "What do you mean by settle?  Cap rates come from an income approach to value called direct capitalization.  The formula is V=i/r  In a 9% cap rate market investors are paying $11.11 for each possible dollar of NOI.  in a 5% cap rate market they are paying $20!  That is all a cap rate is telling you.  You cannot tell which market is more profitable from that except to infer that for some reason the market thinks the NOI in the 5% market is more valuable.", "replies": [{"id": "h9dea3j", "text": "When I say don\u2019t settle for a low cap rate I mean don\u2019t settle for a low return.  I\u2019m not sure why don\u2019t understand that immediately but that is what I mean by don\u2019t settle.", "replies": [{"id": "h9hei1k", "text": "A low cap rate does not mean a low return.  That is what you are saying that doesn't make sense.  Cap rates measure value.  A low cap rate means the NOI is in high demand and investors are willing to pay more.", "replies": [{"id": "h9m43lk", "text": "It\u2019s not that important to me to explain it. Thank you", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "h9767c9", "text": "On my Youtube channel I tell investor not to settle for a low cap rate on the purchase.  You would need to be more specific for me to understand your comment.", "replies": [], "depth": 2}], "depth": 1}, {"id": "h97nde0", "text": "My experience is mainly in shopping centers and what I'm teaching my kids (now 17 and 19) is very simple - buy at high cap and sell low. But it's very hard to find a stable 100% occupied asset at a high cap so you look for oppurtunistic deals where's there's 10-15% of vacancy assuming this is something passive you are doing at the moment. I didn't start until I was in my early 40's but there's no reason I coudn't have started earlier. So start early with assets that don't require too much capital - mainly small multi-family and then move onto commercial which generally requires a higher upfront capital. Thoughts?", "replies": [{"id": "h98mgd4", "text": "The capital to begin with is about same as far as 25% down etc. I have had apartment buildings in the past and they increased in value as rent increased.  But they are more costly on fix up repairs and \u201cmake ready\u201d as in make ready to rent when someone moves out. So I think those maintenance costs can easily exceed commercial rental costs. I don\u2019t pay for tenant improvements because I can not anticipate what they want so the get a clean white box. \n\nThe banks have been the same in my experience loaning and of course interested in stability of income length of leases.  \n\nI bought a 10\u2019 store strip center that was 30% vacant with a 7.5 cap rate. Once leased up it was about a 10 cap I still have it and have not lost a tenant in 4-5 years.  \n\nYou are teaching your kids the right thing to look at the numbers and see how you can make them better. \n\nThanks for sharing.", "replies": [{"id": "h9arrzs", "text": "Thanks! Interesting idea on not paying the TI on commercial properties which can be upto $20+ psf. Instead you'd just clean it up to make a white box which will definitely be lower cost. The other point I have mentioned to my kids is that if you do need higher capital, parterning can be an option although it has it's own problems. For my first deal, it was a $3M class A retail center and I wasn't in a shape to pay 25% down on my own. I had two friends join me and we've held that property for 7 years now and have trippled our initial investment.", "replies": [{"id": "h9detvv", "text": "Thank You. I started with partners too when I did not have the money on my own.  If ever I do participate in TI I let the tenant pay for it but will take a portion of TI that I will cover by discounting the rent over a year or two.", "replies": [{"id": "h9z65na", "text": "Hmm that's defintely one way. Generally I see LLs doing the opposite, that is, pay higher TI and but rent at a slightly higher rate in order to inflate the NOI  a bit just to sell at a higher price. But your method defintely reduces the upfront cash you have to put up for a tenant turn over and it's a non-issue if ou don't plan to sell the place right after.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}]