Podcast Episode 11 Transcript

This is the transcript for Podcast # 11 “Learn from Your Mistakes To Become a Successful Commercial Real Estate Investor – With Spencer Cullor”

How did you get started investing in real estate?

I grew up in a family business, we were in mixed concrete, quarries, etc. I'd go to work with him, we'd look for land for rock quarries. I went to college, and I went to work for a large sports marketing company and also software company. I'd also been interested in real estate investing and development. We talked about this, and started on the side. We started a SFH construction business in the Kansas City in the 90s. We were doing some rehabs and flips.  I was working at the software company. The business was going well. I was prepared to quit my job but saw the market change so I stayed at the job and do all of this on the side, nights and weekends. I did that for about 3 years.

Then the market started to change and they took longer to sell and for less. So we looked at alternate investments, which was commercial real estate. We wanted something that provided an income throughout the life of the investment so that I could quit my job. It also needed to provide growth and appreciation potential. But we didn't know anything about that.

So we started looking into commercial real estate. We ended up going to a seminar that covered all kinds of commercial real estate. After studying for a while and figuring out how value is created and what you could with commercial real estate, we lost interest in the SF houses. The opportunity was much bigger.

How were you finding deals back then? How about now?

It took us a long time. My dad used to buy little chunks of land when they extra money left over, a little bit each year. For him it was a long-term appreciation. He owned some of this land for 20-30 years. We sold one of these in a 1031 exchange. A year of educations and then it took about a year to find a property. At the time we were looking at retail and multi-family.

But retail has disadvantages. A year after we purchased, the economy turned down. So it was extremely difficult to find new tenants. I felt like there was much less I could do to change that. It's also much less forgiving, in that one tenant can have a significant impact on the value of the property. That property did not perform as expected. Our broker wasn't as educated and we didn't know what we didn't know. We still own the property. It didn't yield what we wanted. But it slowed us down. That's when I learned my first lesson: you're not buying the building as much as the leases and the income.

We were maybe too aggressive in the underwriting. We thought we could fill the vacancies real quick.

Seminars are great and they teach you a lot. But I think there's no substitute for experience. We learned so much from this one property so that it made the next deals so much more successful. How to underwrite and value, how to operate, how to attract new tenants, how we could add value.

Why multi-families?

We felt we could influence or control the performance of the asset. We're conservative investors and would like to be in control as much as possible. We also thought it was safer, especially given how it performed in the recession. Multi's fill a basic human need, and that doesn't go away in the recession.

How about that First Multifamily Deal?

It was a 40-unit in Kansas City through a letter campaign. It was owned by a doctor who owned it since it was built. We also wholesaled that deal to another investor for a $60,000 profit because we thought it was too small. In the last 3 years we created $1.2M in value.

This was a value-add property, built in the early 80's. It's been paid off and he didn't manage it optimally. It was definitely ugly, overgrown landscaping, roof and decks needed to be replaced, the interior was dated. We knew what it would take to rehab that property, and we knew we could raise rents once we were done. The average rent was $475, now $575 to $595. It was individually metered for water and electric, so our utility bill is minimal, which is unusual. We put in a capital improvement budget that we needed for the next years. The average occupancy was 87% but the delinquency was higher. When we first took over we were chasing rents. The financials we got were light, so we took a risk. The first 6 months were not smooth sailing. We had to evict a lot of tenants. We interviewed and hired a property management company but had to fire them after 3 months. Then we fired the next company after 4 months, now we're down to 65%. We then formed our own property management company. We now we try to manage our own properties for the properties in our area, otherwise we'll hire a company.

How were you funding your deals?

On the first several projects we did it through 1031 Exchanges from sale of land that wasn't producing income. We hadn't considered private money until we saw the opportunity to grow our business. We then had some business partners who saw what we had done and asked how they could get involved. So we started to considered it.

We formed a private equity company that does only multi-family investments. We put together private investment groups, and we do preferred returns. We do all the work and then put the deal together.

The structure and returns depend on the property. Most of our investors are looking for a long-term stable investment but they don't want to deal with the hassle of owning the properties. We provide a turnkey solution for these investors. The investors are looking for a certain cash on cash return (6-8%) and then an annualized return anywhere in the 12% to 20%. We do a preferred rate of a certain percentage and then profit sharing. Investors get paid first, and the only way we get paid if we get higher than the preferred return. We make our money on the operators. We don't do a ton of projects.

How are you finding deals these days?

It's definitely getting tougher. There's a lot of out of state money chasing deals, creating potentially unsafe levels, that would make them too risky for us. We work through brokers primarily. We work with brokers, also off-market. But we're not going to relax our underwriting guidelines. We may have to wait. It's much funner to have a provide a property that is performing than one that is struggling. Especially when you're just getting started, you can't afford a bad first deal. You have to be OK with walking away from a deal.

What are you most excited about right now?

I'm excited about the future about our company. I'm excited about the new investors coming on board with us which will allow us to do larger deals in nicer area.

Talk about any kind of “aha” moment you had, and how that impacted your life?

It was when I figured out how value was created and destroyed, how small changes can make huge differences. When I fully understood that I was blown away. Increasing the rent $25 would make the value go up $250,000. When I finally got it, that's when I never looked at residential real estate.

What do you think sets apart successful investors from those who fail or never get started?

Never getting started is a huge one. I've gone to several of the Real Estate Investor Group. People present on a different topic. People go from topic to topic and they're looking for the best strategy. You have to pick your path and becoming really really good at it. You have to put the blinders on. You have to pick your path for specific reasons and stick to it. Then there's analysis paralysis. And you need to stick with it. It took us years.

One of the things that turned the page for me, I sought out a mentor, an investor who was older and was doing what I wanted to do. And that opened my eyes, and kept me from making some bad decisions. I also meet with some brokers and talk shop.

The second pitfall is waiting til they know everything, which will never happen. You have to take action and learn as you go. It's not easy to learn but it can be done.

Do you have a favorite online resource you’d like to share with our listeners?

Our blog of course, also The Bigger Pockets, seeking out a mentor. There's tons of resources around raising money. Books: Rich Dad Poor Dad, I re-read that book recently. The Magic of Thinking Big impacted me, it changed my thinking of what I wanted out of life. Another one Crossing the Chasm.

What's the best way to find you?

The best way to find me is on our web site www.apartmentvestors.com, we have a blog and contact. The phone number is 913.324.5900.


  1. Thanks Michael!
    Great interview. Spencer. Is doing it the way I think we all are striving to do it in real estate.
    I will reach out to him with some follow up questions.

  2. Awesome Kyron!

  3. Very quickly this web page will be famous among all blog visitors,
    due to it’s fastidious content


  1. Learn from Your Mistakes To Become a Successful Commercial Real Estate Investor Podcast - […] Read the Transcript of the call here. […]

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