Are you getting bored with residential real estate? Do you want to do the exact same thing in the commercial space for ten times the profit with no extra time, money, risk, or corporate red tape?
Most commercial real estate books leave you with plenty of information but no idea where to start. That’s why Commercial Real Estate Investing provides one simple proven step-by-step roadmap for doing your first commercial deal.
The new book by Mike Sowers will help you stop competing against rookies who watched an HGTV episode and decided they were house flippers. Step up to the big leagues with Commercial Real Estate Investing and cash your first seven-figure check. Everything you need to find and fund your first deal is right here.
Drew Appelbaum: Hey Listeners, my name is Drew Appelbaum and I’m excited to be here today with Mike Sowers, author of Commercial Real Estate Investing: A Step-by-Step Guide to Finding and Funding Your First Deal. Mike, thank you for joining, welcome to The Author Hour Podcast.
Mike Sowers: Hey, thanks for having me, it’s a pleasure.
Drew Appelbaum: Let’s kick this off. Can you give us a bit of a rundown of your professional background?
Mike Sowers: Sure, I ran a franchise for pro-painters in college where I was going to school at the University of Minnesota for entrepreneurship and finance. During my time as a franchisee with college pro-painters, I learned how to run a business, scale a business, and utilize other people to help grow and be able to leverage my time with other key systems and people and places.
After I did that, I spun off on my own and ran my own remodeling company for the next 12 years. We grew that into a multimillion-dollar business, had a little over 50 employees at the peak of that business, and ultimately, while I was doing that full-time, I was also flipping houses, wholesaling, and doing residential rehabs and on the side. We were doing basically construction by day, real estate by night.
I got burned out on that and I was ready for the next step, so I ended up selling that company in 2017, at which point I started doing commercial deals. Once I realized how much more fun, how much more fulfillment I got out of interacting with business clients, as opposed to residential tenants, and how much more I could scale up quickly without being so transactional–we only had to do one or two deals a year to just have a mega year.
I got really excited about commercial real estate, so I broke off the rear-view mirror, sold all my residential properties, and went full-time into commercial. Something amazing happened and I ran out of money. When I ran out of money, I realized that there was a secret that most people including myself don’t understand, and once I unlocked this secret, it really changed my perspective on my ability to scale up an investment business, which was, “Hey, I’m going to buy this property and own it for cash flow.”
Kind of transitioned that into, “Hey, I’m actually going to build a business, it just happens to be a commercial real estate investing business,” and really being able to scale up the marketing, scale up the analysis systems, and scale up the funding systems, which was really the key piece there. You can fund multimillion-dollar assets with very little of your own money into the deals by partnering with other people and structuring new companies to buy these properties. I figured out how to split the profits with them, how to find these people, how to pitch these deals to them, and how to get them just as excited as we are about buying these old tired assets, which is what we do.
Basically, we buy tired assets that have vacancy, they usually have some renovation problems, they usually have people problems of some sort, divorce, dispute, inheritance property, and environmental problems, so there’s people problems or property problems. We see both and we’re in the business of creating value, and that’s really the name of the game.
Once we figured out how to do that, we have just been building the business around that and that is what we do now. I’m the founder and CEO of Commercial Investors Group, which is a business that is going to be expanding here over the next few years geographically. Right now, we’re buying properties in Minneapolis and Saint Paul. We are in the process of setting up our business as a franchise system and will be offering franchises for our company in 132 major markets starting in the fall of ‘21.
Commercial Investing Mastery
Drew Appelbaum: Why was now the time to share these stories in the book? Did you have an “aha moment,” was there something inspiring out there, did enough people come up to you and tell you, “Hey, you need to write this down, you need to create this play book and bring more people in the fold.”
Mike Sowers: Yeah, that’s a great question. I’ve been coaching and mentoring people on more of a one-on-one basis for over a decade, and helping people flip houses primarily or figure out how to estimate repairs, and then I started doing boot camps. I’ve done a variety of speaking engagements over the years, and I just generally have a passion for helping others and teaching people.
In the last year and a half or so, I decided that that passion I was going to turn that into another business for our company. So, we launched a new business called Commercial Investing Mastery and it’s a content-driven business. I’m also the host, as you probably know, of The Creative Commercial Real Estate Podcast. That was something we started a few years ago because there’s something unique about the commercial real estate industry and anybody who has dabbled in it will attest to this.
It’s still a good old boy’s club, and you have to get on the inside and to get on the inside–getting people to warm up to you and trust you is very difficult. Most people hold their cards a little bit tight to their chest, nobody’s doing the secrets, and when you look at all these gurus out there teaching these systems, they’re all residential people.
There are very few people that actually teach people how to structure large deals and how to find large deals. Not only is the information systems–the technology behind commercial real estate lagging compared to the residential market but just the general mindset of the professionals that work in commercial real estate tends to be more of “Hey, I’m going to do my thing,” right? There’s not a lot of movers and shakers that are giving back, and that’s where I really saw an opportunity to start the podcast.
Then after having interviews with a lot of people, I realized that there’s so much knowledge out there. I started taking that and revising my business plan, and what I realized is that I had a system that was repeatable, duplicatable, and scalable. So originally, when I wrote my book, I actually set out to basically clarify my own process, so that I could teach it to my team members in a way that was super concise.
I made a decision that was founded from my faith, and it was founded in an abundance mindset and that was, “I’m going to give this system to the world.” I’m going to give it to my competitors, I’m going to give it to starting investors, I’m going to give it to people who are doing 10 times as many deals as me, I’m going to give it to everybody in hopes that they will be able to take something out of the book to improve their system, to improve their lives, so they can do the things that they were called to do. That fulfills my larger life mission, which is much more important to me than my career-driven mission.
That’s why I made the decision. Because people come to me and they’re like, “Dude, you’re crazy, you’re literally giving away all the inside secrets of how you do what you do. Aren’t you just going to create a bunch of competitors?” I just chuckled because that’s just not how I live my life. I live my life believing that there’s plenty of deals out there and that everything that we have that comes into our life, only comes into our life as a result of how we interact with God.
Nothing is done by us, it’s given to us from a higher power. That’s what we believe and that’s why our team is very mission-driven in what we do, and that’s why now, is the right time to give people this system.
A Needed System
Drew Appelbaum: Now, when you sat down to write the book, who in your mind are you writing this book for? Was it for people already in the real estate game like you mentioned before, maybe residential, or is this book something where folks who are new to real estate, in general, could have takeaways?
Mike Sowers: Yeah, it’s both, we have four market segments. Our primary audience is people who are already flipping houses or doing residential wholesaling. These are people who understand how to find deals and understand how to market, they understand how to analyze a deal from a basic perspective, and they really understand how to get a hard money loan or fund a smaller deal.
What those people are missing that my system teaches them is how to find off-market commercial deals, which is way more difficult than just scouring the foreclosure list or free and clear list for residential. You have to use a lot of different tactics in commercial that you just can’t use in residential. That’s the first thing.
The second thing we can teach house flippers is how to raise equity funding, going and getting a hard money loan is one thing, but being able to structure, create a partnership, be able to split the profit, and raise a million dollars in 30 days is an entirely different world. You’re learning a whole new skillset and that particular item is the fear that I believe truly prevents a lot of people from getting into the commercial space, because they think they need to have the cash, or they’re not confident that they can raise that cash from other people.
The third thing we teach house flippers is how to find really good tenants and how to get those lease deals done. Everybody at some point has probably rented a property, so scaling up from single-family homes into doing apartments is people’s natural pathway because they understand and feel comfortable mentally with the end user on an apartment building. But when you say, “Hey, let’s go buy an industrial building or an office building or a retail building,” most people who are house flippers have never actually ran a business that has rented a unit like that.
They weren’t in the corporate world, so they don’t understand that and what you don’t understand, you fear. And when you fear something, you tend to avoid it. We give people not only the system, but then through that education, they grow the confidence to actually be able to take action on that.
Those are the three biggest pieces that we can solve for those people, so they can go on and find deals and analyze them confidently.
We do analyze them a little bit differently than we do in residential. In residential, what we’re doing is projecting the future value of the building by looking at what other nice pretty houses are sold for, and then we’re deducting our cost of repairs and our desired profit back into how much we can pay.
We do a very similar thing on the commercial side, but instead of projecting the future value by looking at comparable properties, we project the future value by looking at an income stream and applying a cap rate to it, to drive a future value.
From there, we not only have to deduct the cost of the renovation, but we also have to deduct the cost of the leasing and the holding cost, which are two major cost that typically you don’t have at least at a scalable level in the residential game, because most house flippers are selling to somebody who is just going to move into the property and occupy it as their primary residence.
Whereas in the commercial game, you’re usually filling and building up with tenants and then you are selling it to somebody who is buying it to make a return on their investment, so you are selling to a different end user than when you’re flipping a house. That’s the primary audience.
If you are out there, if you are flipping houses, if you are doing wholesaling, I’ll tell you right now, there is a whole other crazy world of commercial that you can make literally ten times profit for roughly the same effort.
To give an example, the average wholesale deal, you might make five or 10 grand. You might hit some homeruns and do a 20 or $30,000 deal and those are great deals. The average wholesale deal in the commercial game is six figures. I’ve done wholesale deals where we’ve pulled in $200,000 at one time.
On the flipping side, the average profit from a flip right now–and it’s so much harder to find deals on the flipping side because everybody is watching HGTV and going to these overnight seminars and everybody thinks they’re a house flipper these days.
You got all of these people that have no business making offers and overpaying for properties because they don’t know how to analyze them properly, or they are so desperate to do a deal to try and hit their goal of being able to call themselves a house flipper, that is really tough to find inventory.
That was one of the reasons I also wanted to get into commercial because there are so many less people that are playing in that space because it’s not any harder to do deals, they are just more complicated.
You have to be able to analyze more data points and things like that. That’s why my book teaches you how to do all of that in a very simple manner. For house flippers, being able to really understand how you analyze the deal, how you find the deals, and all of that stuff, all plays a big role, but you can make 10 times the amount of money by just learning a couple of these key tweaks. We can give you all of that in the book.
You Never Truly Arrive
Drew Appelbaum: How long in your journey, starting out in residential and moving over to commercial, how long did it really take you to understand and become a pro at the commercial game? Was it months, was it years, was it a dozen deals?
Mike Sowers: Yeah, that’s a great question. I learn every day. I’m always learning, I’m always going to continue listening to other podcasts, watching YouTube videos, and continuing to grow. I don’t think you ever truly arrive.
I would say that the term expert is something that somebody else places on me, but I’m always continuing to grow and expand. Am I out doing deals successfully, is my system improving? Am I repeating it over and over and seeing success?
Yes, but does it have room for improvement? It always will, and I think that the mark of humility is something that if you bring it to your investing game, you will always ensure that you are staying sharp, because it’s when people think that they have it all figured out and there’s nothing left to learn, that’s when the market changes and they don’t change with it. Then they find themselves on the wrong end of the learning curve.
To answer your question, if somebody read my book, they will have learned in a couple of days reading what took me three to four years to put together. So, with that, if your goal is to go from New York to the West Coast, you can walk barefoot and if you stay pointed in the right direction, you’ll eventually get there but your feet are going to hurt really bad. What the book aims to do is put you in a car and help you get there.
If you want to get in a jet plane and fly across there, you sign-up for a coaching program. We offer some one-on-one and group coaching, and we have an online course that is a companion course. What that does is it allows you to get your questions answered because as humans, it is one thing to read the content. It is another thing to be able to actually apply the content and so the book gives you everything that you need to know.
We literally held nothing back, and I have free resources that come with the book because again, I’m not giving you the book to profit off of you. I want you to benefit from it but there are going to be some people that realize, “Well, I have questions on this.” So, we do have an online course that answers a lot of those questions. Then we also have a mastermind group that people can join where we do weekly calls and to help people get their questions answered.
Drew Appelbaum: Now, the book is divided into two parts, strategy and then systems, and the first part of the book, you form your strategy and create a plan. When someone is opening the book and they are reading through it, how long should someone plan on, pardon me with this one, on having to make these plans, and is there a cost associated with getting started?
Mike Sowers: There is no cost to make the plan but there is a cost to doing your first deal. It is not a cost, it’s that you need working capital. You need to do some advertising to generate deals, and then you need money for due diligence and earnest money on your first property. It’s going to be really, really difficult to raise the 20 or $30,000 in earnest money and due diligence within a few days. You need to have that money in your back pocket, so when you’re out making offers, you know that if somebody accepts them and you got to drive a $15,000 check across town to the title company that you have it.
It does require some capital. Going back to your last question, my primary audience is the house flippers. The secondary audience is people who are already in the real estate game as an agent–so residential agents and commercial agents. What we can do is teach them how to stop being transactional and serving meals to others for a tip, and actually sit down and finally eat the meal. Because the real money and the real net worth and the real freedom comes from owning the properties, not transacting on the property.
They understand the industry, we just need to tweak their mindset to get them in the mindset of, “Hey, you’re not representing buyers, you are representing yourself looking to buying out.”
My third audience is what I call corporate refugees. These are people who would have minimal if any real estate experience, but they should have good business acumen. They should have general business skills and they should have again, the minimum amount of capital to be able to get started in this game.
If you are living paycheck to paycheck and you’re in college and you have a dream of doing real estate, starting and buying your first commercial property is doable but you still need to find a partner, initially to come up with 20 to $50,000, and have that sitting in a checking account ready for you to draw on within 48 hours before you get started. You also need to spend probably five to $10,000 on direct marketing to property owners to generate enough deals to really get your first deal done.
Meeting People Where They Are
Drew Appelbaum: You briefly touched on this before but I’d love it if you can go into it in a little bit more detail. What other resources do you offer readers and listeners that they can find on your site?
Mike Sowers: Yeah, so we believe in meeting people where they’re at, and we are growing our business through the law of attraction not through promotion. I firmly believe in giving people quality valuable content and meeting them where they are.
With our YouTube channel and our podcast, we give away tons of unscripted, absolutely free content. If you are just looking to dabble or learn or understand more about commercial real estate, those are great resources.
If you want to adopt a strategy and a system to actually be able to go out and do this, and a step-by-step–because here’s what all the other books in the market that I read, which most of them are awesome books, but what they lack was a step-by-step process. They all left me feeling excited and wanting to go buy property, but I just didn’t know where to start. That’s why I wrote my book with the beginner in mind and the people that are either agents or house flippers and how they actually start.
That’s why I gave them the seven steps to freedom, which is how to go find a property, figure out what to pay for, fund it using debt and equity partners, and then fix it up, fill the vacancies, drive the financials, and then seller refinance for freedom. That’s where you’ll free up your capital, pay your partners back, and then either hold for long term or cash out and move on to your next project. With that being said, the next level I would say after the free resources would be the book.
The book is if you want the system, everything that you need to do to go be successful is right there. If you want to go deeper into it, we have the companion course, which is available on our website. The benefit of the course is that there are certain things you can’t teach in a book like how to actually go into a spreadsheet and analyze a deal, or how to walk through a property and notice certain things, and then be able to translate that to a renovation cost.
Those things are very, very difficult to teach in a book format, so we put together the online course. We spend a tremendous amount of money and resources and I’m firmly convinced that it’s the best online course available for commercial real estate investing on planet earth. It truly is. We did our market research, there are actually no commercial real estate investing courses out there that are worth anything and ours goes super next level.
We have very, very detailed steps and homework and it just takes everything that’s in the book and puts it on mega-detail mode with step-by-step action items.
Beyond that is our mastermind group, which is where you can get involved in the weekly coaching, the forum, the deal trading, the funding network, all of that stuff. That’s for people who are really serious about investing.
Then the highest level to get involved with us is to purchase a commercial investor’s group franchise, with our logo and market under our stuff and we go next level. We have custom proprietary software we spent multiple six figures on, it’s really, really sweet software. We do direct marketing and help the franchisees generate deal flow. We allow them to use our software to analyze deals and create offer packets.
It also allows them to fund and then we have a funding network that we use to invest and partner with our franchisees on all of their qualified deals. It is certainly more of an upfront commitment but you are going to be doing deals way faster and have way more support.
Drew Appelbaum: Well Mike, you know, we just touched on the surface of the book here but I want to say that writing a playbook and a path to commercial real estate success is no small feat, so congratulations on having the book published.
Mike Sowers: Well, thank you. Thank you, yeah it’s been a long journey and honestly, there were multiple points along the way where I was thinking, “Man, is the juice worth the squeeze?” That’s where I have to think back, “Okay, I have to think about the avatar, the people who are going to benefit from this book,” and being able to give them this system so that they can really change their life, create passive income, and free up their time, which is really what it’s all about.
It’s about having enough reoccurring revenue so that you can buy back your time and then inspiring those people to go do the things that inspire them with that additional time that they buy.
Drew Appelbaum: Mike, this has been a pleasure and I’m excited for people to check out the book. Everyone, the book is called, Commercial Real Estate Investing, and you can find it on Amazon. Mike, we mentioned the website and well, of course, the book but is there anywhere else that people can connect with you?
Mike Sowers: Yeah, you can find me on LinkedIn. Our YouTube channel is Commercial Investor’s Group, I encourage you to check that out. You can also check out Creative Commercial Real Estate Podcast, available wherever you listen to your podcast. It’s the one with the blue cover art and you’ll see my face on there.
Drew Appelbaum: Awesome. Well Mike, thank you so much for coming on the show today, and best of luck with your new book.
Mike Sowers: Thank you.