Mike Sowers 0:00
But once I figured it out and started building a network and did some deals with some people, I realized that I never needed all that cash in the first place that I could raise capital from other people. And it realized that that skill itself is really the most coveted skill of all skills in real estate investing, because once you learn how to raise capital from other people and establish credibility, for the equity piece of it, you can do an unlimited number of deals.
Welcome to cre PN radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate coast to coast whether you’re an investor, broker, lender, property manager, attorney or accountant we are here to learn from the experts.
J Darrin Gross 0:47
Welcome to Commercial Real Estate Pro Networks, CRE PN Radio. Thanks for joining us. My name is J. Darrin gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.
Today, my guest is Mike Sowers. Mike is the CEO of Commercial Investors Group, a private equity company that repositions commercial real estate assets across the United States using their proprietary software cre tools. And in just a minute, we’re going to speak with Mike about the opportunities for our listeners that you opportunities to invest in our franchise with his software, or also opportunities for accredited investors to invest passively in one of their deals.
But first, a quick reminder, if you like our show, CRE PN Radio, there’s a couple things you can do to help us out. You can like, share and subscribe. And as always, we encourage you to leave a comment. We’d love to hear from our listeners. Also, if you want to see how handsome Our guests are, be sure to check out our YouTube channel. You can find us on YouTube at commercial real estate pro network. And while you’re there, please subscribe with no one welcome my guest, Mike, welcome to CRE PN Radio. Hey,
Mike Sowers 2:21
Thanks for having me on.
J Darrin Gross 2:24
Well, I’m really looking forward to our conversation today. But before we get started, if you can take just a minute, and share with the listeners a little bit about your background. Sure.
Mike Sowers 2:34
I went school for finance and entrepreneurial studies, I ran a franchise for college pro painters for a couple years while I was in college, and then I started my own real estate and construction business. And for 12 years after college, I remodeled a little over 1000 properties mixing in flips, wholesales and some rentals built up a portfolio of single family properties. And then one day I looked in the mirror and realized that I built a system that I was completely a slave to. I had like over 50 employees and I was I just felt like I couldn’t escape. And at the end of the day, I wanted to build something that was a little more scalable, where I didn’t have to do as many deals. And I never got into commercial because I thought it was a little bit outside of my reach. And I needed way more capital than I always had. So I was looking for condos, we live in Minnesota, I was gonna move to Florida with my wife and a business broker got ahold of me and convinced me to sell my business. So we ended up selling the construction division of our company in 2017. And that’s when I had an influx of cash and started buying commercial properties at that point. And then I ran out of money and was forced to start but I still had a ton of great deals coming in. So I was forced to learn how to raise capital from other people.
And once I did that, and that that was tough. But once I figured it out and started building a network and did some deals with some people, I realized that I never needed all that cash in the first place that I could raise capital from other people on it realize that that skill itself is really the most coveted skill of all skills in real estate investing. Because once you learn how to raise capital from other people and establish that credibility for the equity piece of it, you can do an unlimited number of deals. And then the sky is the limit in terms of scaling up. So once I did my first couple of commercial deals and made as much on one deal as I would on like 30 or 40 House flips with just a little bit more work than maybe one flip. I realized that I was in the wrong business from the get go. So I got rid of all my residential properties and duplexes and things like that. And I moved full time into commercial real estate. But it was I realized it was kind of a good old boys club. So I I actually put together a podcast, a Creative Commercial Real Estate Podcast to try and interview a bunch of other people to finally get them to open up. And it worked. And I learned a lot of secrets. And I still still do that show, because I’m always learning, I truly believe you don’t ever arrive at the knowledge. But over the last four years, we built that business up and put a lot of systems in place. And we built a proprietary software and our deal flow is so amazing, we wanted to start duplicating into other markets.
So we actually set a franchise up. So now we’re officially the only commercial real estate investing specific franchise anywhere in the world. And that’s pretty exciting. We’re opening up locations in most major metros and partnering with people to basically be our boots on the ground. The idea was, we wanted to buy properties and other markets. But we don’t I didn’t, my lifestyle, I didn’t want to become a slave to the new system and be flying all over to all these markets, having to analyze deals and setting up asset managers in those locations as employees. And then if they quit, I got to go live there for three months to try and replace them. And that just wasn’t my vision. So I decided to franchise where I get a local operator, it’s their business. And we just get a small royalty on the production that they do. But we help them take their business from where they’re at now, to really scale in that thing up. And we focus on all asset classes, office retail, industrial and multifamily. But within those asset classes, our niches really value add projects where we can create some kind of value or solve some kind of problem. And that’s really how we mitigate our long term risk is because we create this equity cushion with sweat equity. That way, if the value ever drops down, it’s not eating into capital, we contributed from our investment partners, but it’s just eating into equity we created from sweat equity.
J Darrin Gross 7:01
That’s awesome. I love the the whole history spectrum there from, you know, doing the work and then and then realizing that you’re kind of a slave to it. But I think throughout all of what you said there is basically the systems that sounds like you’re you’re very systematized kind of guy to to, you know, replicate, duplicate, you know, your your success. And as opposed to the the handcrafted solution for every every option, or every opportunity. That’s That’s great. So let’s let’s talk a little bit about the the the software the the system approach you have with with in the name of the software, did I get that right, was it?
Mike Sowers 7:50
Yeah, CRE Tools, which stands for commercial real estate tools, it’s pretty basic.
J Darrin Gross 7:55
Okay. Tell us a little bit about what it is and how it works and what the opportunity is. Sure.
Mike Sowers 8:04
So it’s one day I was sitting at my computer and I had 13 tabs open in my Chrome browser. And I was doing my work. So I’d be researching and properties in one software that I’d be paying a subscription for. And I’d be researching or getting skip tracing them to get their cell phone, email and a different software. And then I’d be launching an email campaign through like HubSpot or Active Campaign. But they don’t do text. So then I do texts or a different program. And then I do ringless voicemail through sly broadcast, and then I do you know, I’d hire a marketing company to do direct mail for me. And then I’d have to go analyze a deal using a spreadsheet and then I got to write up an offer. Okay, well, now I got to get out a Word document. And so I realized that like, there was such a duplication of effort to try and streamline this and the worst part beyond the double entry issues are the left hands not talking to the right hand. So I have no way to look at a 40,000 foot view of all the properties I’m targeting, what are the different lists within those properties? How am I managing a sequence of direct marketing? Who are the brokers involved with these properties? And how are they related to all the different deals we’re doing? And so it was just it was really chaotic, right? We were working out a tons of different things. And I was spending like 4300 bucks a month on all these software’s and I was like This is nuts. There’s got to be something out there that does it all. So I went on like a three month mission it was a big quarterly rock for me was to find a software that did it all and and and I found a couple that came dangerously close, but they really didn’t hit the mark and I even reached out to them and was gonna see if I can pay them to like cost them develop some features that were missing that I wanted. And the more I thought about I kind of woke up one day and I was like, I need to build it. Because if I build it then I have have full flexibility over it. And I remembered when I sold my construction company, one of the biggest things that the buyers were interested in was the fact that I had created a software platform that made it super easy for people to estimate jobs. And so I was like, Well, I bet if I invest the money, it’ll create value for our company. And at the time, I was writing my book that I published now on Amazon, and that’s where I give away my system that I’m using to go out and do this. And so I hired a development company, and I looked at a bunch of different platforms. And we settled on a platform, a coding platform, and we built on top of their existing platform. So we kind of started 90% of the way, and then we could fully customize this series of apps. So now it’s super simple, right? My franchisees and our corporate location here and the people who are responsible for that. It’s basically a marketing, a deal analysis and a workflow, streamlining software. So we can go in, I can take, it’s loaded with all the properties, all the commercial properties with all the key data points, the owner’s name, cell phone number, and email. And then I can design and launch multi sequence. Direct marketing campaigns to brokers and property owners, generate leads track those leads through our deals app. We have a CRM built in and our contacts app. And what’s really cool is it’s a true database. That’s what was the issue with this one that we almost went with. It wasn’t like a one to many, and many to many relationship between the apps like a true database was, and we looked at like Microsoft Access, and some other things like that, that are kind of true databases, but they’re super clunky and not user friendly. So I wanted to build something that was just kind of dummy proof so that my team could go in and do their work. So now, it’s been amazing. Like, I can go in and launch a campaign in less than five minutes. Each campaign I launched generates from 50 to 100, leads for off market properties. We work the deals, I go into my deal analyzer app, I analyze the deals, I have a renovation estimator app, I basically recreated what I had for my construction company to estimate the cost of all these things on a piece rate. And then all that tells me exactly how much I can pay. And then literally all I have to do is click a button, choose what I want to merge that data to do I want a full purchase agreement offer summary letter? Do I want it to go into a lease template? Is it a property management template, depending on the deal type, I can have it merge all that data into a final document, I can even send it out for a signature. And then at that point, there’s checklists and all these other cool things built in just to streamline our workflow and make sure everybody’s on the same page. So.
J Darrin Gross 12:58
But this definitely sounds very comprehensive. And having spent some money on some of the different software’s out there to try and, you know, make things work. I know the frustration. It’s like there’s like this one does this, but it doesn’t migrate to here and in trying to get it all to talk like that. I’m curious, so that the way that you’re you’re offering the software? Is it only through franchises or somebody can buy it? Or is it a monthly subscription? Or is it a one time price? Or how’s it set?
Mike Sowers 13:36
Yeah, that’s a good question. I had a bunch of struggles with whether the software itself should be its own for profit company, like more software as a service where any commercial real estate company can subscribe and I build an enterprise value out of that company and maybe exit out of that someday. What I realized is my passion is real estate. It’s not building a software company. And the support required around building a software company. I was like, hey, look, what’s the bigger and play if I start franchising the company and I give all the franchisees This proprietary tool, they’re gonna have a leg up against everybody else in their market, hands down. And that long term is going to be worth way more than the software company ever would be. And so why would I spend all this money to basically give my secret tool to all of our competitors so I chose to keep it in house. I’m sure I’m leaving money on the table on the software side, but at the end of the day, for me, it’s not all about creating more money. Really, what what drives me now is is partnering with other people and just having fun doing deals and watching them, you know, go from zero recurring revenue to 1020 30,000 a month and passive income and the way that that changes people’s lives so that they can kind of design their own life and live it the way that they want to, you know that that gets me excited. Those are the stories that really drive my life forward. That deeper meaning
J Darrin Gross 15:15
down and so but just to be clear, so that the franchisee somebody who would buy a franchise, there’s not something that they have to sell it’s for them to find investments and create the passive income through real estate or some sort of an income stream through through real estate investing, correct?
Mike Sowers 15:36
Yeah, so when you buy a franchise, you get a series of tools that all come in a toolbox, so you get access to the software, you get full support and training. So first, you go through the online course, then you go through our three day launch bootcamp, then you have a weekly goal setting review with an accountability coach, you have access to a deals couch whenever questions come up throughout the week, and then you have the deals committee meeting, where you can actually submit your deal and have all their people in the group scrutinize it. And so you have all the support for success. And then we even fly into your market and help y’all make sure your business is set up. So that’s the support piece. And then we really train you, it’s all about training on the system and the strategy to make sure that you know exactly what types of properties to target, how to analyze them, how to estimate repairs, everything, we fill in the missing pieces, like you can learn all that stuff on your own, but I’m just going to be able to get you there so much faster. When you come under our umbrella, you’re joining our company, it’s different than like a coaching program I used to I’ve been doing coaching since 2007. And the challenge with coaching is I can give you all the systems and all the support. But at the end of the day, it’s your own business. So you have to rebrand it, you have no credibility, when you’re starting out, you have to kind of recreate some of the systems, even to something as simple as setting up your entity and doing all that when you open a franchise, like I don’t have to change anything, like it’s my same exact letter with the letterhead and language I’m sending that out. And the challenge was, if I had coaching students in all of these markets, they would be competing against the franchisees. So we actually shut our coaching program down even though it was quite profitable.
J Darrin Gross 17:19
And how long have you been doing the the franchise model here?
Unknown Speaker 17:23
We just started this last last fall. Okay, and it didn’t really officially launched until December of last year. So just a few months now. So the thing is it just in the beginning stages, and we’re going to be building this thing out, we just opened our first two locations in Denver in Colorado Springs. And we have about seven more locations coming down the pipeline.
J Darrin Gross 17:50
And in the the markets, or the the franchise, is it based on the demand? Or is that based on the information you have? Or how is it that the the territories are determined? Yeah,
Mike Sowers 18:05
Great question. We sell them by county. And and really what we’re looking for is primary markets. So large MSA is with at least, you know, 750,000 people typically, and like 10,000 commercial properties is what would comprise a market that’s kind of the minimum for a market. There’s people making buku bucks out in rural America, but that’s not our gig. Our gig is really to concentrate in higher populated areas so that you know, we have access to a large buyer pool. And it’s one of the ways that we mitigate risk, because you might get a smoking deal and be cashflow like crazy. But if that dollar tree in small town, America goes out of business, there might be nobody that ever wants that warehouse again. And that’s a huge risk that we don’t want to take.
J Darrin Gross 18:55
And I’ve come to appreciate the lower cap rates equals somebody ready to buy your deal when you want to exit as opposed to, you know, higher cap rates and there’s nobody wants to buy your deal. So definitely something to understand there. That’s interesting. So the first two, how did you? I mean, did they approached you? Did you have relations with the people before? How did you arrive at the first two territories sales?
Mike Sowers 19:30
Yeah, it’s a good question. You know, our our marketing strategy has really been one about attraction rather than promotion. And so what we do is we just focus on putting phenomenal content out that blesses people’s lives and allows them to move forward. And what we find is that some of those people want to join our team, and they come to us and they seek us out on our website, whether they want to invest passively in our fun which we have an equity fun, or they want to come take our online course or they want to come, you know, explore opening a franchise in their territory. We just we’re doing podcasts like this, we’re doing a free book giveaway, I have like a free audio book giveaway. And then some of those people read the book and are like, hey, I want to do deals with this guy, right? That’s what it’s really all about. I mean, my goal is to just partner with people in other markets to do deals. And that’s really what spawned the whole franchise system. It’s so that I have somebody who’s bought in who’s committed who can’t quit. And they’re in the market. And they’re the boots on the ground. They’re the ones overseeing construction, leasing, and property management, but I give them all the systems and the coach and the support to succeed and find deals and get them under contract, we solve two really big problems for them, we do most of their direct marketing for them. And we have our equity fund available. So if their big fear is I can’t fund my deals. That’s one of the reasons why people are really excited about this, because they’re never obligated to partner with us on the equity side, like they’ll own the property, they can raise the cash from their own pool of ambassadors and and teach them how to do that. But in the beginning, it’s hard to get started, there’s, you know, people sugar coated, I think. And so, when you’re getting started, you can just be like, just take that whole fear off the table, because we’ll partner with them on qualified deal. So if it’s like, a nice value, add multi tenant warehouse deal and a good location, like I’m all in on that deal, right? As long as we can get it at the right cost basis, then we’ll do a deal like that. So they’re never obligated to partner with us. But but in the beginning, they have the option to do that as a franchisee.
J Darrin Gross 21:53
Got it? You mentioned capital raising, you know, when we first in the very beginning, it didn’t quite catch it does the the software include any capital raising features.
Mike Sowers 22:11
It has some light features in there like it allows you to put together the statements and cash flow forecasts and what’s called the sources and uses, which is where you list out all the sources and uses a capital, we were going to build it out as an investor portal. But then I realized there was another software that’s just so much more advanced, and it would be a really, really high dollar item. So I prioritize the development of some of the other things that there aren’t good replacements for on the market. And right now we’re using a third party for our investor portal, but eventually we will migrate to that, but I gotta, I gotta sell smart franchises to fund this.
J Darrin Gross 22:48
Well, but I think the the, you know, again, chicken, or the egg kind of thing, if you don’t have the pipeline full of opportunities, having the software to manage the investors is, you know, kind of, not necessarily, so kudos to you to keep the focus on creating the pipe and how to fill the pipe, which I’m certain that that’s, you know, that that’s definitely one of the the biggest challenges is to try and, and I’m assuming being a software, you know, automation that, that these communications and you’ve got the email the cell phone. So in the mailing address, you’re, you’re doing the multiple touches with a potential buyer or potential sellers to make certain you’re in front of the seller if when they want to sell in I’m assuming the primary focus is just off deal or an off market deals. Correct?
Mike Sowers 23:51
Yeah, off market or pre market, we do buy quite a few deals that are listed online, though, from other people who we have relationships with brokers, and they’re like, Hey, I’m listing this one Monday and we just either get our offer in first or sometimes the property will sit on the market for a long time. And we can come in and see it from a different lens, you know, maybe the rest of the market house or uncover some kind of way we can get the deal done creatively. Because it’s not just all about price. I mean, that’s what everybody thinks it is. But it’s about how it’s going to get financed to I mean, if I got to go put 30% down and raise that from my Fund, which pays 15 to 20%. That’s expensive money. Right? But if the seller is willing to let me put 5% down on a contract for deed, maybe I can just do that deal. You know, with my pocket change and pay a little bit more I could probably pay 10 or 15% more if I don’t have to raise capital from other people.
J Darrin Gross 24:54
Got it? And does your your software and the the menu of Have offers or or contracts that you want to submit? Does it kind of pre formed those those options for you?
Mike Sowers 25:10
Yeah, it does. So it allows us to analyze a traditionally bank finance deal versus like a contract for deed and a seller carry back scenarios, ways out your weighted average cost of capital, what’s your cash flow, you can change like the purchase price assumptions and see how that all flows through to, you know, what’s the equity multiple and yield on the investments for under the different scenarios. And then I click a button, and it merges all of the data points into an offer summary letter with three offers, the purchase price, the terms, the payments, all that stuff, I don’t even have to fill any that auto calculate any of that my software is puts it automatically in the letter, it’s like, saves me like two hours every time I’m doing an offer.
J Darrin Gross 25:53
I love it. That’s great.
Mike Sowers 25:55
I mean, we’re doing like, you know, five to 10 offers a week. So I mean, that’s like, you know, think of the labor involved in all that. I mean, that’s like a 20 to 30 hour week job just for an analyst that our software cut out the picture.
J Darrin Gross 26:12
Yeah, no, I, I love all of the computer generated, you know, things when they work. Yeah. As opposed to, like you said, In the beginning, it was this, you know, the multiple entry thing, I it’s just a source of frustration for me how all of this stuff, all of these different programs, they’re not able to, you know, see each other and the requirement to put in the same information that I put in here and put it in there and put it in there and put it in there. It’s just like a time suck. And it’s just very frustrating. So I never
Mike Sowers 26:45
realized this. But I think I was born to be like a software designer engineer in another life. Because time just passes. Like I geek out, I get into our software. And it’s like, the platform was built on the low code platform. But it allows back end coding to change the user interface and API’s with other software, so as full, full power, but it’s easy for me to like add fields and create formulas and stuff in there. So I just geek out on that stuff. I get in there. And I love like, what if I move this, oh, here’s a field we need, I can add that. And so it’s super cheap. Like we can continue just build these things out. And so the software is is getting better every day. And then all my, you know, team members and franchisees or whatever, given me feedback, like hey, you know, what about this feature, whatever. And so it’s just a matter of time. Like, I’m building out a due diligence app right now that’s going to streamline the entire due diligence process with like checklists and dropdowns. And status, who’s assigned what’s going on with this, attach the files over here, that kind of stuff, just to de risk the process? Because there’s human error when you don’t have a system?
J Darrin Gross 27:54
Oh, yeah, no, there’s plenty has been scientifically proven. You know, trust the data, don’t trust your gut kind of thing. So can you talk a little bit about the size of the deals that you’re you’re seeing through your, your offerings, and that is it? Many, you mentioned you you cross multiple asset classes? But is there a sweet spot on the deal size that you found that works best?
Mike Sowers 28:26
Yeah, there is. And I think it’s different for each, you know, location owner, like the newer franchisees will probably target one to $3 million deals, right, just so they don’t overextend themselves. That’s where we started. I mean, I think my first property was 700 grand. I’ll still do I’ll do that $700,000 deal again, today. I mean, that thing, cash flows me five grand a month, and I got no money into it. I’ll do a couple of those a year. Why not? So I’m not, you know, I guess like if the deals 700,000 Plus, I’ll do it. But that’s not to say like, you know, look, an office condo deal came across my desk the other day, and, you know, I can pick it up for 350 and turn around sell for 425 Maybe 10 hours of work, you know, what will I do that deal? Why not? I just I love doing deals. So but but my business plan and my exit strategy changes based on the deal size and the metrics of the deal. There’s some deals that the price per square foot is such a high multiple of the rent per square foot that they gotta be flips. So if I can buy it for, you know, 70 to 80% of the as stabilized future value after and then, you know, fix it up and fill it with great tenants and then sell it and make a good margin. I’ll do that. Like we just bought a portfolio of five properties clause, September 30. chunked them off individually renegotiated a couple leases, which really was the value add on that extended Some leases out with a credit tenant gave them some discounts, and some people out of the other ones, sold them off individually made like $1.7 million. That’s an exciting deal. But that deal would never cashflow that well as a long term rental. On the flip side, I got properties where we just bought one for like 3.3, put a half a million into it, and it’s worth almost $6 million. But I’m not going to flip it, because it generates 20 to $30,000 in cash flow month. And so that’s a great long term hold. So I’d say right now to answer your question, the bread and butter is probably the one to 10 million, but I just made a $54 million portfolio offer. So that’d be our biggest deal we’ve ever done. But I’m expecting them to get back to us and maybe award a small portion if any of the portfolio was kind of it was a request for pricing by a large group in town. So they’re just such a powerful marketing engine that it’s hard to get deals when one of these big brokerage firms gets involved, which is why you got to do the direct marketing and create relationships to get in on deals before everybody in the market sucked at it because by then you’re just sent you end up in an auction scenario.
J Darrin Gross 31:14
Right? Right. Now if you if you can create their relationship and have an in based on some trust and you can execute it that’s a big win. So in as far as the the the franchise he fee, is there an upfront cost for the franchise? Is that you mentioned kind of an ongoing relationship based on deal flow, or How’s that look from a from a franchisee standpoint? With a franchisor? You?
Mike Sowers 31:48
Yeah, well think about this, let’s say you wanted to buy one commercial property, you got a couple 100 grand, somebody gave you this idea, I’m gonna go buy a million dollar building, you hire me as a broker, you’re gonna pay me two to 3% 2030 grand. And I might help you show you some listed properties, maybe negotiate the deal and help you through some of the paperwork. But that’s about the extent of what you get for a franchisee they get so much more. And it’s a long term commitment, they get me for seven years, and then they can renew again, for free for another seven. It ranges from 25 grand for a small territory, up to 150 grand for like a mega territory. And we would only sell that much territory to somebody if they already had an existing business with multiple people in place to handle the capacity. Most of the franchise, stuff skin probably land in the 50 to 100 range for the amount of territory that somebody would want to buy to get started. And our Franchise Disclosure Document outlines all of that. So nothing I’m saying on here is an offer to open a franchise little disclaimer on that, that can only be done through the Franchise Disclosure Document. With that being said, you know, if anybody’s interested, you know, I’m always happy to have a conversation.
J Darrin Gross 33:06
Gotcha. And as far as the franchise Oh, is that is that fee then? Is that like the initial purchase price? Or is that something that turned out through the, the the deal time? Or how’s that?
Mike Sowers 33:17
How the franchise fees paid upfront? Gotcha. And then these are paid over time.
J Darrin Gross 33:23
Gotcha. Gotcha. And then, let’s talk a little bit about your investor opportunities for the deals that you’re doing. Are they are you primarily do you have a fund? Or how are you doing deal specific? Or how are you going raising money?
Mike Sowers 33:43
I have a fund it’s a 506 b securities offering filed with the SEC, it’s called the CAG value add fund. And it’s $100 million equity fund and accredited investors only. So net worth of a million excluding your primary residence or you’ve made 200,000 each of the last two years and expecting to do the same this year or if you’re married 300,000 The last two years and expecting to do the same. That’s what an accredited investor is. When I first started off, I started doing like crowdfunding and taking 25 grand from Grandma’s IRA and things like that. And I realized that, like that’s not my gig, that’s where everybody wants to start. But there’s so many people out there with a ton of money that are generating four or 500,000 a year in salary. And but they’re only spending 200 And every year they got a couple 100 grand to get put to work and they’re accredited investors. This is a phenomenal opportunity for them to get in on the action. It pays a fixed dividend so they get like a debt instrument preferred return of like six to 8% per year on their money first before we ever take a penny. And then absolutely
J Darrin Gross 34:56
it’s a debt instrument. So it didn’t stress close to the end
Mike Sowers 35:01
Operates like a debt instrument. So they get paid a fixed interest rate on their money first, and then we split the upside beyond that.
So it’s an equity position in the fund, but it, the payout they get a preferred return it’s called. So if the funds generate enough cash, they get paid up to a certain percentage on their money per year first, and then whatever’s left over gets split between the investors as a whole and art group for doing all the work.
J Darrin Gross 35:37
And, and when what’s the minimum investment?
Mike Sowers 35:40
100,000 100? And that’s the minimum liquid cash you have to have to open a franchise as well.
J Darrin Gross 35:50
Gotcha. And the value add, is there a specific market you play in as an investor? Or is this does this kind of then feed back through your franchise? franchisees?
Mike Sowers 36:05
Yeah, the fund will invest in any qualified deals in any market commercial investors group operates in, but it will only partner with commercial investors, group deal sponsors. So that would be our local outfit here in Minneapolis, which is our corporate location, or any other franchise location. So so if you got a deal on the table and you came to the fund, we wouldn’t, we wouldn’t partner with you, we’re only partnering with CAG franchisees or our corporate location here in Minneapolis.
J Darrin Gross 36:36
Got it, got it, and currently, how many properties you have in the fund.
Mike Sowers 36:44
So we just launched the fund, actually the first tranche just got subscribed to so we’re on the brink of closing some deals right here for the first tranche of the open ended fund. But we’ve done 32 single asset funds up until today in the past, and that’s really our deal history. But we realize we’re getting way more deals coming in, then we have the capacity to do a private placement memorandum for each and every deal which can take like a month or two. And that’s like the whole time that I have to close on the thing. So instead of finding the property, putting together the group of investors doing a PPM doing the web pitch for that deal, and then closing, which is the way we’ve been doing it, we’re doing in reverse now, we’re getting, we’re always pitching now, and then we get people to subscribe. And then when I have the deal on the table, they’ve already been pitched and already agreed to invest, and then they wire their money in right away. But they’ve already seen a PPM and things like that and already subscribed to the font. God, we don’t take their money when they subscribe, we take their money when I have a deal for them to invest in. And I’ll call that money down as we need it.
J Darrin Gross 37:53
Gotcha. Gotcha. Now, in the, the assets, again, asset classes are, you know, all across the spectrum, value add deals as the primary focus.
Mike Sowers 38:08
Yeah, primarily value add, what makes him like, if we’re going to buy a portfolio and a couple properties are stabilized, we’ll take those two. At the end of the day, we want to be able to give people of loss of capital, it’s the only way I’m going to get the kind of returns, you know, that that are high teens returns, you know, if your goal going by and the nice mega pretty apartment building that somebody else already renovated and raised rents on if I go pay top dollar for that, I might make a decent yield and it might feel risk free. But at the end of the day, if the market metrics change or something like that, I could wind up with the the net market value being less than we have into it. And that’s really, the biggest risk that you take is that you can’t pay back your investors their money or pay your mortgage payments off the cash flow generating.
J Darrin Gross 39:03
Yeah, that’s that’s definitely some words of wisdom there somebody that’s, you know, thought about it and has experienced in it. My mike, if we could, I’d like to shift gears here for a second. Because I mentioned you before we started by day, I’m an insurance broker. And I work with my clients to assess risk and determine what to do with a risk. And there’s essentially three strategies we typically consider. We look to see if first we can avoid the risk. And when that’s done an option we’ll see if there’s a way to minimize the risk. And when we cannot avoid or minimize the risk then we look to see if we can transfer the risk and that’s what an insurance policy is. And so I like to ask my guests, if they can look at their own situation could be their clients, investors tenants, however you would like to frame the question and identify what you consider to be be the biggest risk. And again, for clarification, while I am an insurance broker, I’m not necessarily looking for an insurance related answer. And so if you’re willing, I’d like to ask you, Mike Sowers, What is the BIGGEST RISK?
Mike Sowers 40:20
I think the BIGGEST RISK is that your ego gets too big, and you think you have it all figured out. Humility is, I think, the strongest asset that any company or individual can have in life, and it’s one of our core values at commercial investors group, our system is working really, really well, our software is super sweet. We feel like we have a really good grasp on the market metrics. And we feel like we have the ability to analyze deals, but at the end of the day, we are always humble, and making sure that we’re constantly staying in the zone of learning, and getting better, and trying to find new ways to do things that might work better and trying to stay on the cutting edge. That’s the mistake, I think at a corporate level a lot of companies make is they do really well. And they’re one way and they put the blinders on and they lose sight of what’s happening in the market. And the markets change quickly. And so that’s why during COVID, a lot of people went under, especially people in offices, and we’re heavily invested in office, and we did better in COVID than we’ve ever done in any prior year. And I think I would attribute that to the fact that we maintain humility, and are willing to learn and willing to admit, in areas that we have issues. In fact, every single week, I spend 90 minutes with my entire management team, putting the issues on the table and working through.
J Darrin Gross 42:04
That’s great. Mike, I want to say thanks for taking the time to talk today. But before we wrap this up, where can listeners go? If they’d like to learn more connect with you?
Mike Sowers 42:19
Yeah, you can follow us on YouTube, or listen to our podcast or on any podcast. It’s the Creative Commercial Real Estate Podcast. If you want to check out a free copy of our book or learn more about the font or anything, or contact me and schedule a call, you can do all that through our website, which is commercial investors group.com. And in my book, I have a full diagram, I actually thought a lot about risk. I have a full diagram where I thought of all the risks related to a real estate business, and actually put together a really cool one page diagrams called risks in real estate. And it shows you all the risks and how they happen. And then it shows you how you can use system and strategy to combat short term and long term risks within that.
J Darrin Gross 43:07
Awesome. Well, Mike, again, I want to say thanks for taking the time to talk. I’ve enjoyed it. Learn a lot, and I look forward to doing it again soon.
Mike Sowers 43:18
Yeah, I’m looking forward to interviewing you on our show. And thanks for having me on yours and and make sure you book that and thanks a lot.
J Darrin Gross 43:26
All right, you got it. And for our listeners if you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow. That’s all we’ve got this week. Until next time, thanks for listening to Commercial Real Estate Pro Networks. CRE PN Radio.
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