What Did She Say?
Jan 4, 2025
There’s a YouTuber out there who does some really great work teaching people how to buy a business. She’s a brilliant woman and is providing a great service. Her videos are very inspiring for a lot of people. She has a course that teaches how to buy a business and she promotes buying the non-glamourous businesses like landscaping companies, plumbing, HVAC, power washing, and laundromats, etc. In doing this she is also helping those millions of business owners who want to sell their business.
But I have to push back here on this particular conversation she had in an interview I watched recently. And unfortunately a lot of people saw this and will likely believe her because she has credibility on YouTube.
The topic of real estate came up and she said real estate is an awful way to make money. She talked about buying a house and making low profit and not having the ability to increase the value of the property. And she is correct about that. But here’s the problem. She is flawed in her thinking about real estate. And she’s not alone in this. In fact, probably 90% of what you see about real estate is the product of limited vision.
She was talking about residential real estate. Single family houses. She, like most people, had her real estate blinders on. Those blinders completely block out commercial real estate.
Residential real estate is probably the worst kind of real estate for investing(my opinion backed up by math). It’s easy to get into, it’s in everyone’s comfort zone because it’s a house. Most of us grew up in one. But everything she said about houses is correct. Now let’s look at the rest of the story.
Most people fear owning commercial real estate. Look at the details and that fear will start to fade.
1. Leases are longer. A lease on a house is typically 12 months. For a commercial property it is measured in years. Typically 3 to 5 years and in some cases 10 to 20 years.
2. Built-in rent bumps. Most commercial leases have built in periodic rent increases either annually or in the renewal option.
3. Triple net leases. Many commercial properties use triple net(NNN) leases. The tenant pays the base rent plus the property taxes, insurance on the property, and all the maintenance costs. So if those expenses go up you the owner are not stuck with decreasing profit. You don’t see this on residential properties. Not yet anyway (topic for another article).
4. Higher cash flow. When done properly commercial real estate will produce higher cash flow than residential properties.
5. You can increase the value of the property! This is the key to commercial real estate. The value of commercial real estate is based on the amount of income the property generates. That means when you increase the net operating income of the property you increase the value of the property. Check out my article from Dec 16, 2023 talking about leasing a vacant building. The owners wanted to sell it but it was vacant. It would have only brought around $800k. But with the tenant that we put into the property at $100k per year the value increased to at least $1 million, a $200k increase in value. In residential real estate the value of a house is based on the value of the other houses in the neighborhood. Period. It does not matter how much income is generated from the house.
When you hear about real estate from the “experts” and they make statements about something similar to “real estate is an awful business” dig a little deeper. Just because someone with a following says something is so, does not mean it is so. I have a lot of respect for this woman and what she does. But she’s made the same mistake here that a lot of other people have made and failed to look at the $20 Trillion commercial real estate market as something other than an awful business.
If real estate is right for you (it isn’t for everybody), then look into commercial real estate and learn to do it the right way. It can be a great investment, a great retirement plan, and a great business to own and operate.
Thanks for reading!
Click here to see the YouTube video mentioned above