271: Buying a Commercial Space for Your Business 

Michele Williams: Hello, my name is Michele, and you're listening to Profit is a Choice. Joining me today on the podcast is Paul Neal. He's a financial strategist and author dedicated to transforming the way entrepreneurs view commercial property. He has a book called Un-Lease Your Business: Unlock Wealth, Autonomy and Control by Buying Your Building and Firing Your Landlord and it is a very informative book. He is an amazing speaker who is going to help us understand more about the commercial buying process for our businesses. Enjoy the podcast.

Every day, empowered entrepreneurs are taking ownership of their company financial health and enjoying the rewards of reduced stress and more creativity. With my background as a financial software developer, owner of multiple businesses in the interior design industry, educator, and speaker, I coach women in the interior design industry to increase their profits, regain ownership of their bottom line, and to have fun again in their business. Welcome to Profit is a Choice.

Hi Paul, welcome to the podcast.

Paul Neal: Hey Michele. I'm excited to be here. Looking forward to it.

Michele Williams: Oh, I am so excited. I have to tell you, when it was pitched to me for you to come on, I was so excited because I read your bio, of course, in your one sheet and all the good information that the podcast company sent over, but what really intrigued me was you have an expertise in an area that I don't, which is always fun to talk about and to gather more information. It's such, a parallel to the work that I do and then working with my clients, they are asking for what you're offering. I'm going to just mention the comment of what we're going to be talking about, which is commercial buildings and buying commercial buildings and when is the right time and how do you know how to go through that process, and we're going to talk through all of that. But I'd love to start by you just sharing a little bit more of your background, so everybody knows a little more about you and why you do what you do.

Paul Neal: Yeah, sure. Absolutely. So, my background is very entrepreneurial. I started off thinking, that I was going to go off and be an engineer and study engineering and all that, but really my motivations were, creating and building businesses, and I started my first business when I was in college. Six businesses later have been in and around that space and so everybody I know, it seems like in my circle has been a business owner, an entrepreneur, or something like that. Around 1998, I first got involved in, real estate finance and started on the residential side, and it really started to open my eyes to that space and that world, and, really fell in love with it and more so on the commercial side and over time, I sort of noticed two different camps of business owners. There's the one group that, you know, focused on building their business, their heads down and, you know, just building it, looking to be profitable, scale, that sort of thing. But they sort of went over time, lease, to lease, to lease with their spaces, and then the other camp, kind of the same idea. But at some point in their business evolution, they made the decision to buy the space that their business was operating in or living in. I just kind of noticed this divergence of their lifestyle and wealth and, opportunity as time went on because of that asset, that real estate asset, that the second group had pursued. And so being fascinated by that and curious, you know, I wanted to understand, why more business owners didn't do it. And, you know, really the, the big answer for most is there's not sort of a definitive place you can go to learn all about it. It's a different experience, it's a different world. Most people have bought their own homes and maybe some rental properties and things like that. They're very familiar with that process. It's pretty boilerplate no matter what you do and where you go. Most of that industry is regulated by Fannie Mae, Freddie Mac, and the agencies, and they pretty much write the rules for everybody, no matter where you go and get your loan. But commercial is completely different and so there are a lot of myths and confusion. What I found that the real experience that people were engaged in is they get to a point where they'd have this idea flash across their brain and they think, okay, let me consider buying commercial space. They might talk to a friend who might potentially be in residential real estate, no offense to residential realtors, I have a lot of them that are friends and they're great people, but they don't really know commercial. They just kind of hurry along in the process and they go talk to their local bank, who they maybe when they started their business and opened their business accounts, it's the same person they've worked with, developed a relationship with, and they go there and they find out that, wow, it's a little overwhelming. The terms and conditions and the things that the local banks will generally offer are not very good. They're staring at a very large down payment and, just a lot of confusion. Most of them at that point, sort of turn around and just say, hey, it's just not really worth it at this point, and then move on, and then it flies out of their brain, and they just continue down the road. So, I was fascinated by that. I love to help business owners win, and because I think when business owners win, everybody wins, their family wins, the community wins. Just a lot of great things from that. That's why I developed a passion for helping these people understand the process, learn about the process, and see the opportunities around it, if it makes sense, and then help them in those situations actually achieve that.

Michele Williams: So, you just described exactly the experience that a lot of the clients that I have worked with have had that have gone down and pursued their own real estate. Many in the industry are looking. They either have outgrown, working in their home and so, then that next step is, normally, do I rent a place outside of my home, or do I buy a building? I would say probably the majority go into rental first, just to make sure that as they scale the business out of the home and into a brick and mortar they can afford it and the business is growing with it, for sure. And then, of course, we know all of the ideas about how to. Well, I'll say this. If they are looking for street traffic, of course, then they're looking for a certain type of commercial, whether it's a build or rental, and or whether it's more of, a fabrication type of place that can be a little bit off the beaten path. So, they're trying to figure out what is the right mix for their business. Many of them go straight into rental right out of their home. And then after they pay the rent over and over and over and over. I know that I'm in the Atlanta area, and I've seen some spaces that started off at, I don't know, $25, $35 a square foot in rental, and they're jacked up. Now they're $65, $75, and nobody's moved. They're just sitting in the same space, but the rent has gone up. Then when they add in all the community fees, like the cam fees and everything else, the prices are getting so expensive, they're getting so much that a lot of people stop renting. I've seen a few who closed down and went back home because they were like, I can't. It was outpacing their ability to earn around it. But I have seen those and do have some that either are looking to buy or looking to build a commercial property simply for the reason that you said I can then own it. I can maybe rent out. Like they're looking at the space differently than just a space for them. They're looking at a space for them and maybe other tenants to come in as well. However, I'm going to tell you the first challenges that we've run into, and let's see if you can help us decipher that. It was “I don't have a commercial real estate agent”, and “I don't understand”, exactly what you said. That's exactly the experience they've had. Then I would say as much as you said residential agents love them, we do. We love them. I have about 5000 friends that are agents all there. However, on the commercial side, it's a different person, a different personality, and a different process. And I don't mean that in a bad way, it's just different.

Paul Neal: Yeah.

Michele Williams: And so many of them don't know where to start. I would say even just to hire a good commercial real estate agent to help them through the process. How do they go about just starting there before they even go into meeting people and understanding everything? You got to have a really great guide somewhere around you.

Paul Neal: Yeah, you do. It is different as you said. It's like, you know, chocolate and vanilla are different. They're both good, but they're completely different flavors. Residential agents are great at what they do. They operate on a different timeline. There's generally more emotion involved in that transaction than commercial is more of a numbers kind of a thing. It's more of a logical side. The community of commercial agents is a lot smaller than residential. They all generally know each other and you're not going to go do a Zillow search for commercial real estate like you can on homes. You're much more dependent on the commercial agents to know the market, know the trends in the market, and know what's going on in the market. They might know. I mean they're dialed in the good ones to like the city council meetings and what's going on in your area. They know, you know, a new shopping development is going to go in, in a certain area in three years. But we might want to position you in that space, that area. a lot of them are dealing with off-market opportunities. They know leases are coming due in six months, or twelve months. And you have owners that may be willing to sell. So, there's a whole litany of reasons beyond even the contract negotiation. The contracts are completely different. In a residential, you can literally, you know, on a whim with your husband, say, oh, we found this house we want to buy over the weekend, and, you know, work with your real estate agent, residential, and be in contract and close within 30 days. And, you know, it's like a whirlwind. Commercial does not work that way. You know, it's generally, you know, 60 to 90 days, sometimes even 120 after you get a contract, because there's other due diligence things that have to happen. And you have to be careful there too, because there are larger, earnest money deposits and things you make generally in commercial that operate differently from residential. In Commercial, your deposit money, it'll go hard, which basically means that after a certain period of due diligence, whether you don't get approved for the loan or you back out or whatever does come in, you don't get your money back, whereas residential is not the case. So, it's really important to understand that before you go in and start sort of willy-nilly at signing deals and whatnot. But I would back up even a step further beyond engaging that commercial real estate agent.

You said something great where you said, and very truthful, that most designers and most businesses, quite frankly, will start small in the beginning, the first couple of years or whatever. That is definitely not the time to be looking to buy commercial real estate. You're not a good candidate at that point. That's the time to your point, figure out the area you need to be in, your customer, your systems, your employees, and your team. You know, get some repeat business and maybe make some changes to get to the point where you're profitable and you have some consistent profitability, and then you have sort of a glide path ahead. And you can see, hey, I'm in this business for 10, 15, 20 years. I mean, I'm positioned well, and I want to grow or at least get to the point where I get to a level that's consistent and predictable. You might not want to conquer the world. You don't have to be a world-conquering type of person, but you have to have stability. So that's checkbox number one. But the next one would be that you really need to understand before you start going out looking for properties and engaging real estate agents, sort of the costs, the opportunities, your own financial situation, what you would be comfortable paying, what you would qualify for, because there's a huge variance, obviously what you might want versus what you can afford versus what, you are willing to pay kind of thing. So, again, compared to residential and residential real estate generally, if you go to a lender, they're going to want to maybe the last couple of years of your personal tax returns and maybe your business returns if you're self-employed. Commercial, we're going to want the last three years of that. We're going to want a personal financial statement, which is something that most people, a lot of people have never done, but basically, it's your profit loss and your balance sheet for your personal life and that's kind of the starting point. You have to be prepared to do that. That's why I wrote a book on it called Un-Lease Your Business. I don't know if we mentioned it or not, but anyway, how to unlock wealth autonomy, and control by buying your building and firing your landlord to kind of set the high level expectation. It's a coffee table book. You can read it an hour and a half on a Saturday morning and find out sort of the benefits and the challenges and then the options that are available to you and the process so you can get a high-level, sort of 30,000-foot view of what's involved in one place to kind of understand before you take that dive in.

The other thing is a commercial real estate agent is not going to spend a lot of time with you if you have no clue if this even makes sense. You might be looking to buy a million-dollar building and you might have a $400,000 financial ability kind of thing. But to your point, about buying more space than you need and things like that, I mean, and that's one of the things that we discuss up front is kind of the strategy because it's not just your financial situation. It's like, okay, where's your business today? Where do you think it's going to be? What's your vision for the next three to five to ten years? What are you trying to accomplish? Are you just trying to grow into one space? Do you want to grow into multiple locations? What's the plan? Are there any sort of skeletons in the closet that we need to pull on out and shed some light on and figure out how to address them? Because most people have them and you're not going to hide anything at all from lenders today? Not a thing. Zero.

Michele Williams: Let's stop right there for a second. Identify what some of these skeletons might be. Like a bankruptcy in the past or something.

Paul Neal: Yeah, a bankruptcy. Some kind of default on a loan in the past. Perhaps a lawsuit that, that's hanging out there that hasn't been resolved yet, or there's a judgment out there that hasn't been satisfied. One of the most common things I see is when someone does a personal financial statement. You know, the lenders take that really seriously. When you put data on there, it needs to be relatively accurate, because if it's not and we get down to closing, it causes major problems. Again, 99 times out of 100, if there's any issue upfront, we can handle it. We can mitigate it. We can put it out in the open.

Michele Williams: And work around it.

Paul Neal: Yeah, exactly. But if it shows up downstream, it's nine times out of ten a deal killer, because they just assume that well, they lied about this so what else? They don't think it's a lie.

Michele Williams: It becomes a risky thing, right?

Paul Neal: Yeah, yeah, yeah. They don't think it's. I mean, you don't think it's a lie. You might have just, you know, been busy or whatever. You didn't think about it. You know, nobody questioned you on it. You forgot to put this down, you forgot to put down that you own this other property or that you had this other business you're in partnership with, and it shows up later and becomes a major problem. And so, things like that, the other things are like credit, is obvious. Everyone knows there's a credit score, but you have a business credit score, too. So, if your business is not paying its bills, well, then they're going to find that out. But here's one that a lot of people don't know about, Michele. Lenders today are checking, like, your client and customer reviews. They want to see that your customers and clients look favorably upon your business and what you do because they feel if they do, then that's a good sort of market indicator. And of course, everybody has a bad review here and there. That's not what they're looking for. It's consistency. It's a trending of that sort of thing.

Michele Williams: Right.

Paul Neal: So, it's important to go through this process, you know, early and upfront before you get under the pressure of identifying a property. Trying to figure out, you know, when your lease is coming due in 30 or 60 days. Do I need to do something? Should I buy a bigger property? Because there are opportunities there. For instance, we had a high-end residential remodeler. We just closed a couple of weeks ago on a new building. He's building a 12,000 sqft. steel building. So, part office, part flex warehouse for his equipment and whatnot supplies. And so, he's going to occupy 8000ft and then he's got the other 4000ft. He's divided into two sort of expansion phases. He has other contractors that are that are not competitors, but they complement what he does. They've already signed leases to move into the space and it's not going to be ready for twelve months. And the rent that they pay to your point earlier about escalating rents is going to carry most of the freight of the entire mortgage on this building.

Michele Williams: That's right.

Paul Neal: And so, as his business grows, and this is the one thing we didn't get into about leasing and we talk about control. When you're a tenant, you sign a lease, and not only can your rents go up every year but generally they're indexed in that you have built-in escalations, not to mention the renewal, you might not be able to renew the lease when the term comes due. Your landlord might have different plans than you do, or they might escalate significantly that cost because wow, this area has really grown and you know, you're getting a below-market rate.

Michele Williams: I have a client right now who has been in like a building for ten years and the landlord has come up and sold to another agency and they're like, you got to get out. We want this building. I've actually got two that are like, we really want to use this for something else or somebody else or another way. And they're just like, okay, so now I got to go. I mean, they've at least got some months ahead of them. Yeah, they're like I've got to go. And they actually have it in the lease that they can come up and give you 120-day notice and you got to pack up an entire business and get it out, find another place, and relocate. And some of them don't even get the 120 right? No, so we literally are sitting in the position right now where we're now going, okay, the business is established, we're going to be here for another amount of time. Are we going to go lease again or are we going to go purchase? I mean, that is exactly where we're sitting today with what you said. Let me back up and ask a question because, you know, I jumped right in with how do we find the real estate agent?  I love that you backed up and said, go do some work beforehand. And I do think that is a difference between, residential and commercial, at least on the outside looking in, because I know the first time that my husband and I went to buy a house 30-something years ago, we just found an agent. And then the agent guided us to go to a lender to get our score, to figure out how much we could afford. Like there was more of an educational process to help us get the things we needed to then guide our agent on which homes to show us.

Paul Neal: Yeah.

Michele Williams: And what you've described is really, and I get it, it's a little bit more onus, on us as the business owner, to go do some of that upfront legwork, first of all, to know what it is. I'm thankful for your book. I'm absolutely getting a copy, and I'll put it in the show notes. But even knowing what's expected and can I pull those things together? Like, how do I start thinking about it before I engage myself in a process with somebody that could whirlwind me, right, because it could go slow, or it could whirlwind? And really just knowing how I am prepared with my own numbers, my own understanding, because I've got a couple of people that they're even talking about, can I buy the building by myself or do I get other lenders to go in with me and jointly buy the building and then my business. So, to your point, many ways we can do it, but even having an idea of what is going to be required and what is, what's the process look like? That's the first question that our clients ask us when they hire us as designers or anything else. What is the process? Knowing that, before we engage is important. Let me ask this though, with that idea in mind, let's say that all the listeners here who are thinking about buying and renting and all the things we all buy your book, what do you suggest as a timeline? Because, like, we know some of these can be long, some can be short, some are looking at my current lease is up in three months, six months, nine months, or a year. I've had some that we were looking one and a half years and two years in advance because the market was so tight where they were. Is there a general timeline or a way to build the timeline based on the individual kind of restraints and constraints in an area?

Paul Neal: Yeah, yeah, absolutely. I mean, obviously, it varies based on the situation, as you say. I can tell you when the wrong time is to be definitive as a starting point. And that is, again, when your lease is renewing in 30 days because this is not going to be a 30-day process and I would say even 60 or 90 days because it creates too much stress to do things too quickly that cause problems downstream. You don't get a great experience. You probably won't get the best terms. You probably won't get the best space.

Michele Williams: Well, and it feels like you're almost settling because you can only take what's on the market within that 30, 60, 90 days versus watching and waiting for something that's going to come up. To your point where the agent has an idea that these things are going to become available, you don't even have the ability to wait for that in many cases, if we've shrunk the timeline down, it's like people who ask me, how can I retire out of the business? And they come to me and go, I want to do this within a year. And I'm like, we need three years to plan to get you out of it. This is not a one-year thing. Unless we're turning off the lights.

Paul Neal: That's right, that's right.

Michele Williams: We're not doing that. We have to have time. So, what are some other things we should look at?

Paul Neal: Well, I would say a couple of things in terms of, like the end of the lease, if you need to buy some more time, one of the things that you may be able to do is negotiate a month-to-month or maybe a six-month window with a landlord. There's no guarantee you can do that, but it's something that can maybe give you some opportunity there. I would say, honestly, if you are at a minimum of three to six months out, you definitely have to look but within a year is really a good time to do it. Let's back up from the beginning of the timeline. So, let's suppose you're going to buy a space that already exists. Okay.

Michele Williams: Okay.

Paul Neal: So, you have to get your financial house in order to know again how much you're going to be able to afford, what that looks like down payment, payment wise, your strategy and all that. That might take a little bit of time, but let's just take that out of the equation for now and just say you're at that point and you're like, okay, I'm ready to roll. Well, you engage in a commercial realtor, and let's say they find it on day one, which is not going to happen. But let's say, all right, now you're 90 days away from closing. So, you are already 90 days from when everything is green-lighted to close. It might take 30, 60, or 90 days to actually find a space that's going to become available. And to your point, they might say, well, this property we know is going to come on the market in six months or three months or whatever. There could be some properties out there right now, but just about everywhere right now, unless you're, in a city that's bleeding people because they're going to nicer areas like Atlanta and there's a number of other areas for whatever reason, there's not a lot of real estate available, just like on the residential side, there's not a lot of supply. So, you got to plan on some time there. At a minimum of six months, I think is where you need to seriously take the dive in. And I recommend to people really at about twelve months, because if you're in a three or four or five-year lease, then, you know, it's coming up. You know, if your business is stable enough to start considering this idea, that's when you really need to start considering it. Because here's the other thing that people don't think about. You know, it can be a very stressful experience, or it could be an easy experience and it's just like, okay, we'll take the design world. Okay, so my wife and I just bought a new house. We know what we like, but we're, there's no way we can figure out how to put things together and make it all look good like you guys do as designers.

So, we hired our own designer to do that. And, if we tried to do it ourselves, we could maybe watch YouTube videos and learn and, you know, but we'd have to get really involved in the process and we would sort of muddle through it, and at the end of the day, it would probably be okay, but it wouldn't be at the level that a professional designer would come in and do it and the thing is, like, when our designer, Catherine came in and she just, spent an hour or so going through everything. We just kind of described what we wanted, and then that was it. I was done. My wife was done. We were back to doing her own thing, and she showed back up four weeks later and said, okay, here are six options or whatever based on that. And we're like, yeah, we like that. And that she's like, okay, I'll come back again. Came back another 30 minutes, and boom. And the next time I saw her, they were coming in and, you know, doing their decorating thing, and it was like, this is great. Well, buying a building is, is extremely involved, and there's a lot of moving parts and there's a lot of issues. And so, you're going to have your lender involved, you're going to have your CPA involved. You're going to have a commercial realtor involved. You might have an attorney involved. There's a lot of moving parts. And so you can either sort of try to do it all yourself or you can align with the right people that can take that off your plate. And by giving yourself some more time and breathing room, it makes the process a lot more enjoyable. And when you get to the point where you finally get a contract on a property, then it's a piece of cake. There's no issue. You're comfortable. You can tell your team, hey, we're moving now. You know, it's going to happen. You know, there aren't any, you know, gotcha. Surprise going to come up because you did your due diligence, you did your homework, you worked with people, and, versus, you know, coming in and like, we got 90 days, we're going to have to move or the landlord said we've got to move because, you know, they're not going to let us renew the space. And, you know, and then everyone gets frantic, and then customer service goes in the toilet. Your employees get stressed, everyone's stressed, and it's just an ugly situation.

Michele Williams: You know, when we look at the timeline as well, rarely would, especially in the interior design side, would a building be fit out the way they need it fitted out to step in. Most of the time, they're going to have some type of a build-out or upfit that is going to happen. And that takes time as well. So, we have not only the time to find this building but time to then to go after that 90 days to go through the process of purchasing it. We might have another couple of months of just getting the building ready, especially with designers, because they want the space to look like what they sell and what they do.

Paul Neal: Right.

Michele Williams: So, there is a lot of, they're redoing the flooring, the walls, they're putting in lighting. If it's a drapery workroom, they're putting in all kinds of extra, voltage and wattage and stuff for it to run. All the machines that they're running, maybe different air purifiers for different things. Like just, it's a whole different thing. These aren't just move-in ready in most cases. I just want to point out for those that are taking notes here, it's the time to find the time to get yourself ready, the time to find it, the time to go through the purchasing, and then the time to get it up fit and ready for you to move in, and then the time to overlap the business move. Because when you move, there's a shutdown and a start, unless you've got the type of business that has to keep going, and then you've got, you know, pockets of workers in both places until you can do the move. So, this is like a, huge project accounting system, you know, where we are accounting for all of the time and all of the effort and all of the money and all of the pieces and parts. To your point, a year almost feels like a minimum if we're trying to build ourselves a plan that doesn't feel overly stressed and so time-bound and so restricted sometimes. Again, we are not going to have that. That's not going to be open to us.

Paul Neal: Right.

Michele Williams: Because we focus so much on the financials here. I feel like I would be remiss if I didn't ask a couple of questions. I tell people all the time to keep their financials in order. You cannot make decisions without your financials in order, or you're making it on a gut feeling and that doesn't always support us. Do you have any information, or can you shed light on if you own the business like all of us do, and we're looking to buy a building and they're coming in, I know you said they look at three years of financials, they're going to really look at that balance sheet. Everybody ignores the balance sheet, but they're going to ask for that balance sheet, right? And they're going to ask for profit and loss statements, and they're going to actually look at them. So, all of my listeners who do the obligatory check, I got it this month. And then they glance at it and say, I looked at it. Yeah, unless you've got the best bookkeeper and accountant in the world who might not support you when you hand over those documents. I really just want to emphasize the goal here is that we have to be profitable with what we have, and then provide ourselves as a stable business, meaning stable sales, and stable profitability. So that when we are going in with these documents, they look at what we have and they say, it's worth taking a risk on you to buy this building, to be able to put money into it. Because again, it's not just the money for the down payment, it's the money for the up fit, the money to set everything up for the first time, there's a lot more investment that goes into that building than just here is a $100,000 down payment or some amount. Right. Can you speak a little bit about the financial aspect?

Paul Neal: Yeah, for sure. For sure. And that, and that's all true. So, and that's honestly where we spend about 50% of our time upfront with a new client helping them get that squared away and interfacing with their CPA and bookkeeper to square some things away so that it looks good before we start to seek funding. Because, you know, again, you know, your first impression is a lasting impression. If you submit to the end funder, the bank or whomever that's going to fund the loan, you know, crappy financials, then what happens is it just goes, it goes off to the side and then they just, you know, you're not a priority because it gets lost.

Michele Williams: We didn't get it. Could you send that again?

Paul Neal: Yeah, I mean, banks only approve about 24%, I think, the last statistic I saw of applications. And then you go into purgatory. And what's even worse is if you have a contract on a property and you're in purgatory, you don't know why it's taken them so long to get back to you. But, so anyway, that's super critical, but let's talk about some ways to buy. I say there are five ways to buy commercial space. You can pay cash, which most people don't do. You can do seller financing if you find the right seller, which can be a great opportunity. You may have someone who owns a building, and they just want an annuitized stream of income, and they want to, they want to keep that building and generate a cash flow. Got a great client friend, Kathy, who's an OB gyn, and she sold her practice a few years ago, but she still works, because she's not ready to retire. She negotiated the deal. But the thing is, she bought the building like 15 years ago. She owns the building, she and her husband, free and clear. And so now the company that bought her practice is paying her a five-figure monthly rental on this building that's paid for the stream of time. So, she's, in a sense, she's not seller financing, but she was a seller leasing back her building. You have conventional financing where you go to your local bank, and typically they're going to want 20-25% down. They're going to give you a 20-year amortization. You're familiar with your home loans. Those are 30-year fixed-rate mortgages, generally speaking, but you're going to get probably a 20-year with your bank, and they're going to do a five or seven or maybe a three-year term, balloon upfront. So, what that means is every three or five or seven years, you're going to have to requalify and go through the loan process again. Generally, not the best solution for most people, but that's all they know to do. They go to a local bank, and they say, I'm going to buy a $500,000 or a million-dollar building. And the bank says, great, I want $250,000 down. And you're like, what? Because that's my operating account. I don't want to follow my working capital into the building.

So, it's an option. And there are some other reasons why we don't generally recommend it, although sometimes it is a good deal. covenants and things like that we can get into. But private lenders are another one. There are individuals who will fund money. There are insurance companies that fund commercial real estate, venture capital, and family offices. There's a lot of commercial, again, is wild, wild west. It's completely different than residential. Some of the most common tools that we use are SBA, Small Business Administration. They don't fund loans; they just guarantee them. So, they have a couple of programs, a 7(a) and a 504, that are different. They both allow the acquisition of real estate, and generally, they can be really good for business owners because they're really, it's designed not for investment real estate, but their programs are to help what we're talking about. You know, owner users buy the space and move into it. And as long as you own, you know, you're going to take 51% of the space, then they're good with that, and if you build something new, you have to have 60% of the space. But they'll also allow, like you're talking about some of the build-out dollars and whatnot. After the fact, they'll, they'll allow you in some of the programs to finance part of that in from an interest rate and terms and whatnot. So, when you go there, you're generally looking at a 25-year term versus a 20-year term, which is better from a cash flow standpoint. They have variable rates and fixed rates. Most of the time when you get into commercial, it's going to be a variable rate, and people aren't used to that, but you can get some fixed rate options. They do exist in the market, and here's the kicker, though. With some of those programs, you can get into a commercial space that you're going to run your business in for as little as 0% down, not 20 or 25. Most typically we see five to 10%, and on a new build, generally 15%. But people are amazed, and we always suggest to get in with the least amount of down payment that makes sense, because then you've got your money that you're not putting into the brick and mortar you can use for other things. Grow the business to just cash reserves or whatever. The last thing you want to do is put every penny into a building, because the thing is, we all know business. It's not a straight line or straight line, up or down. You're going to have some ups and downs and fluctuations and needs and things like that, and so you need some dry powder to access. Interest rates are different right now. They're obviously on the higher side for everybody. we believe that's peaked, and we think we're seeing them start to relax and start coming down. So, you know, right now, you can get in a commercial space for about the mid sixes, which is not too bad considering, some of the other things we've seen in the world and in times past, not 2% like we had a few years ago, but that was an anomaly that we'll probably never see again.

Michele Williams: So that was a beautiful anomaly for many of us.

Paul Neal: Well, it was. But if that happens again, you just refinance the building. It's like people say, why should I buy the building that my business runs in? Well, there are a whole lot of reasons, but think about your own house. Why do you buy your own house? You don't rent forever. You know, you generally rent for the first couple of years until you figure out where you're going to live and your career and your income and all. But once you get some stabilization in your life, you're like, we want to buy space because we want to personalize it. You know, we want to stick, you know, stick our flag in the ground. We own this thing. There's, we want to be able to modify it, decorate, add on. As you know, a lot of people don't like HOA associations, right. They could be very, very limiting. But, but then from the financial side, you have properties that are going to appreciate or get more valuable over time. Typically, I can't speak to tomorrow, but generally, if you look back ten and 20, and 30 years, homes today are worth a whole lot more and more expensive than they were then and probably will continue into the future unless you're in a really bad area. So that's a pretty safe bet. Every payment you make, you're going to, some of that's going to go to pay down that principal. Some of it's going to go to interest, which is a taxable thing that you can get tax benefits from that. So, you're building equity. And I think, the word I understand is that the bulk of Americans' wealth, particularly as they approach and reach retirement age, is in the home that they own. So, the same thing with your business. If your business is going to live for 10, 15, 20, or 30 years, you're going to make, if you get out of your house and you're at a point where you need some space, you're going to be paying somebody, you're going to pay the landlord, and you're going to pay their increases and deal on their terms, or you're going to pay yourself. But you're going to look back, right, in 20 years and say, like, Cathy, I have this building that's paid off, and now I can sell my business, maybe because I've got systems and people in place. And as you talk about, Michele, how to do that, you got that plan and rent this building, maybe to the new owners if they want to keep the clients and whatnot there. I could sell the building, and I could take the capital gain and I could roll it into some other real estate if I wanted to through something called 1031 exchange and defer taxation and maybe even avoid it. There are ways eventually to do that. Maybe you have this large asset that's appreciated over time, and you want to expand your business or acquire a competitor, and you've got all this equity in your building. Well, you could utilize that equity to buy that competitor or expand your business. And it's built-in, so, there are a lot of reasons why you'd want to do it. Oh, here's another one too. If you want maybe outgrew your space and want to grow into a larger building in five or ten years, you can take that money out and use it for the down payment on the next building. Or you could, go in on a low down payment on the next building and put tenants in this building. And now you've got a commercial real estate. Many people would argue it's better to have tenants in commercial than residential because they sign long-term leases. You're not plunging toilets. And most of them will pay for the AC units and the taxes and all that and so it's a pretty good gig.

Michele Williams: Yeah, not bad at all. Oh my gosh, this is so good. Paul, tell everybody where they can find you to get more information. How can they follow you to learn more about this?

Paul Neal: Yeah, absolutely, Michele. So got a simple website, ownyourbuildingnow.com. It's ownyourbuildingnow.com. They can go there. They can pick up a copy of the book. I mean, it's on Amazon too, but you have to pay for it there. At our site, I think we charge six or $7 to pay for the printing and shipping. You can go there. We also have a little two-minute calculator. It's like an assessment. Asks 20 questions. Yeah, it's free. And it kind of helps you assess where you are in some key areas in terms of the process and gives you a detailed custom report based on that. Then they can also, if they feel like they are seriously looking at this point where they need to look for some guidance because that's really what we do. I mean, our main focus is the education piece. You can't educate until you understand where someone is financially and their goals. We have a deep dive questionnaire; we go through and try to uncover all this stuff. And then from there we can present, hey, this is what the market will bear. Here's the different types of programs, here's the types of down payments, here's the interest rates, here's the pros and cons. This one you're going to have to pledge your house. This one you're not going to have to pledge your house. You know, here's the fine print here. And then at that point, , you're on your own. You can go do your thing, or if you want, we can help facilitate and get, get a deal funded for you because we work with national funders and lenders all over that, that we feel like, have, do a really good job and have great terms for our folks. So, you can go there and schedule an appointment. We have a 15-20-minute strategy session, see if it makes sense for you. So that's, that's it.

Michele Williams: That's awesome. Well, I really appreciate you shedding light on this. I feel like I learned so much already. I'm certainly. Don't worry, I'm not coming after your job or anything.

Paul Neal: It's okay.

Michele Williams: Don't worry about that. But, no, it was just really good information. Like I told you, I've rented commercial space, but I've not owned the building commercially. I know the process is different just from the conversations that I've been through with a lot of people, but you don't always understand what you don't know that you need to understand. So, I really appreciate you just kind of opening up the door for us to think about that and look at that. And I'm excited to read your book.

Paul Neal: Awesome. Well, I had a great time. I enjoyed it. I love interior designers. I've had, I've had several. And when we had our space, our commercial space, we built out a big space a few years ago. We had my decorator from the house come out and do all that, and it was amazing. And people were like, wow, this looks great. I'm like, yeah, thank you. I did it all myself. I wrote checks, it is all I did.

Michele Williams: That was my part.

Paul Neal: I wrote, that was my part. Yeah, that was my part.

Michele Williams: So, I love it. I love it. Well, thank you again for your time, Paul.

Paul Neal: Yeah. Have an amazing day. Thanks, Michele.

Michele Williams: Thanks.

Paul Neal: Paul.

Michele Williams: Thank you so much for joining us today. As I said, I'm excited to get a copy of the book and to learn more about the process. I also want to invite all of you that might be thinking about growing your business and perhaps renting or buying a space, if you don't know that you have your financial house in order, you heard him say how important it is and you're not able to get your personal financials in order if your business finances are a mess. And so, I would love an opportunity to talk to you about some of our programs and how we can help you get your financial house in order. Specifically, I'm thinking about our CFO2GO program. In addition, we also offer strategic planning that then we can build marketing and financial plans to support. So, reach out with a discovery call, and let us see what is best for you. You can find out our information on scarletthreadconsulting.com. You know what, if you don't plan to be profitable, chances are you won’t because profit doesn't happen by accident.

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