Today, my guest is Dan Brisse. Dan is the co founder and principal at Granite Towers Equity Group, where he oversees the Operations, Acquisitions, Investor Relations and Asset Management. Dan is resident of southern Washington and is also a former professional athlete. As a professional snowboarder for over 13 years, Dan took home multiple X Games gold medals, and was known as one of the top urban snowboarders in the world. Dan's drive for excellence and success transpires into Granite Towers real estate portfolio. Dan is also the co host of the podcast, Keeping It Real Estate, and the co author of Four steps to Successful Passive Investing. In just a minute, we're gonna speak with Dan about the multifamily marketplace for 2023.
J Darrin Gross
I'd like to ask you, Dan, Brisse, What is the Biggest Risk?
Yeah, I would say that there's a couple boats the the one biggest one is get your debt right. In this market, particularly if your debts wrong, they can blow up the deal, and you can lose the entire deal lose all investors equity. So I'd say that that right now is the most important piece if you're looking for the one biggest risk.
Today, my guest is Doug McKnight. Doug has over 30 years of experience in capital markets. He specializes in maximizing portfolio performance while maintaining balanced risk versus yield relationships. And in just a minute, we're going to speak with Doug about the future of the commercial real estate market in 2023.
J Darrin Gross
I'd like to ask you, Doug McKnight. What is the Biggest Risk?
Well, you know, when I think of risks, just in general, I think of what I said earlier, I think of what is my mission? What is my purpose? What's the end game? And then I try to measure the risk that's involved in achieving that.
Today, my guest is Jay Conner. Jay is a proven real estate investment leader and is known as the “Private Money Authority”, without using his own money or credit, Jay maximizes private money to buy and sell properties, with profits averaging $71,000 per deal. And in just a minute, we're gonna speak with Jay about how to find and access private money to grow your real estate portfolio.
J Darrin Gross
I'd like to ask you, Jay Conner, what is the biggest risk?
So let me get a little clarification on that there. And so are you asking what's the biggest risk from the standpoint of the borrower or real estate investor? Or what's the biggest risk from the standpoint and perspective of the lender, the private lender?
J Darrin Gross
There's no no framing of this. It's how you choose to frame it.
Well, so I'll quickly I'll quickly answer both. All right. So what's the biggest risk for you, the real estate investor, that you're borrowing money? Well, one big risk is you better know what the real value of that property is? How are you determining what the value of the property is? Well, in my case, I've been doing business with the same realtor since 2004. My realtor tells me the after repaired value of my property, so you've got to have a firm grip, and and credible way of establishing wants to value the property number two, what's the risk? You need to know? What's the maximum that you should pay for a property all cash? What's the maximum you should pay? I mean, what is your formula? Right? You know, so you need to know. And of course, I got the formula. What is the maximum you should pay for a property? What's the third risk? Who's on your team? Who is on your team? Like, I still don't do this business by myself? My team. I mean, I'm like the orchestra director. Right. So who's on my team? Well, I can't do this business without my realtor and a relationship there. I for sure can't do this business without my real estate attorney. I mean, my business is that big risk, if I don't have a good real estate attorney, I've been doing business with the same real estate attorney firm since 2003. I get my title searches in less than 24 business hours, you know, speed, you can't make money in this business and you know, in slow motion, right? So I gotta get my inform, I gotta get my title searches quickly. Thirdly, if I'm in doing rehabs, who's who's on my team, as far as my general contractors, who's getting the job done. So my biggest risk, your biggest risk is number one, who's on your team number, and the team member is gonna give you the value. And number two, you got to have the knowledge on what's the maximum that you should be offering on a property, those are the risks for you, the real estate investor and borrower. Now let's talk about the risk for the private lenders, right? Number one, the private lender, better know what kind of loan to value they're loaning on that property. Right? You got a property that's worth $300,000. But they better not be loaning $300,000 on that after repaired value. That's why we give them we're only borrowing 75% of the after repaired value. Number two, what kind of security and again, are they really getting a deed of trust or mortgage, it's recorded on public record. I mean, I'm a private lender, I don't care who my relationship is, whether I'm not borrowing unsecured funds, I want my funds secured by the mortgage or the deed of trust. Thirdly, as the borrower I want and I require to be put on the insurance policy as the mortgagee. And guess what, as the as the as the lender loaning money out. If there's a claim against a house, I want my name on that insurance check. Along with the owner of that property, as the mortgagee, I want them to have the right to sign off on that check. Before who I loaned the money to get set check, I want to be named as the lender on the title policy, I want to be protected. And here is my final word on that. And that is depending on my relationship with the borrower, I may require as the lender a personal guarantee. Okay, so you know, when I loan money out, depending on my relationship with the borrower, I may or may not require them to sign a personal guarantee. Again, that's going to come down to how well you know that person and you know, in this world of private money, I don't care how many safe safeguards you got in place. There's this thing called trust, tr ust between the borrower and between the lender and so that level of trust is going to determine as to whether I require a personal guarantee on that note or not.
Today, my guest is Dr. Pranay Parikh. He's a medical doctor serial entrepreneur and a podcast host. His unconventional journey to medicine helped him learn the skills to excel in entrepreneurship and real estate. Over the past 16 months, he's bought over 200 million in real estate and helped hundreds of others invest in real estate without being a landlord. And in just a minute we're going to speak with Pranay about time management, real estate and entrepreneurship.
J Darrin Gross
I'd like to ask you, Pranay Parikh, what is the biggest risk?
So for commercial real estate, it's always debt, right? I mean, if you think about it, that's your biggest obligation every month, right? Every month doesn't matter. If there's a fire, there's a tornado, you have to pay the lender, right? Otherwise, they take the property back. So you can get that risk to zero by paying all cash. And that's possible, but you're gonna get a couple percent return. So you got to figure out where in the risk spectrum Am I comfortable, you know, and we, our last deal was about 60%. So we put a downpayment of about 40%, which you know, you and I would put down about 20% for our house, so this is much higher, but what that does is it decreases your loan payments, so your obligation is a lot less, right, you can get fixed debt, or adjustable debt, you know, within adjustable debt, you can get up by a rate cap means you pay money upfront, almost like points, so that the interest rate won't go above a certain amount. And you could do that for two years, you can do that three years. So you could make that very tight. So you know, that you have an interest rate of three, and it can only go up to four, or you can get looser, where you get have started off at three and it could go up to six. So there's a lot of ways to try to, to, one, get rid of it pay cash, pay as much cash as you can to, to mitigate it right? Doing a fixed interest rate. So the rate, the risk of interest rates going up is on someone else. Or you can transfer it to someone else by buying a rate cap where if it goes above a certain amount, someone else is going to pay that interest. So I think debt is super important. In 2008 multifamily commercial real estate actually did okay. But the people that did have problems were the ones that had bad debt, or they had debt that was coming due, and they couldn't refinance or get out of it. I think we've learned a lot of lessons. And I don't think that's going to happen again. The debt markets are a lot better. 2008 was just we, we didn't know what to expect, you know, and it was an issue with the debt because the debt was the biggest issue. No one else was giving out debt. Now we have supply chain war, all this other stuff, but it's not the debt markets that are having issues. So if you're looking at your own properties, if you're looking for an investment, really dial in focus on the debt and ask them about it like what what about this, do you think is going to minimize our risk of the bank taking the property back?
Today, my guest is Xiao Yuan Xiao is the managing director of Hagmann Capital and manages the day to day operations as well as leading all bond structuring and negotiations or Hagmann capital portfolio. And in just a minute, we're going to speak with Xiao about TIF bonds. That's the Tax Increment Financing bonds, and what they are and how they're used.
J Darrin Gross
I'd like to ask you, Xiao Yuan what is the biggest risk?
Yeah, you know, like any financial product, I mean, it truly is interest rate risk. So, you know, it's not something that you can eliminate, you can, you know, transfer to some extent, you can minimize, to some extent, but, you know, on a day to day perspective, I mean, we do have a fee, it is, you know, anytime we buy a bond, anytime we, you know, look at look at any type of these financings day to day, you know, proceeds can essentially get diminished simply because, you know, 10 year Treasury goes up by 1520 basis points, right. And so, you know, that's something that, at least we spent a lot of time thinking about is just how do we minimize the interest rate risk, and we do have kind of a few vehicles that we, we utilize that minimize interest rate risk, both for ourselves and also for the developers that are, you know, seeking our capital. And, you know, kind of a big way that we do that is, you know, we created a rate lock mechanism, anytime we buy a bond. So, you know, whatever the interest rate is on the bonds, what we would do is, you know, we can say, hey, we can lock in the rate for the next five to six months, and typically, the way we do that is through kind of a series of different slots, and, and then, you know, sort of other interest rate management tools, right. So, but, you know, on any given day, I mean, what I think about the most is, you know, how do we minimize interest rate risk, because that's ultimately sort of the, you know, volatile interest rate risk is really the sort of the enemy of, you know, slow, solid, consistent return.