Snapchat Q&A Part 2: Commercial vs Residential Real Estate - which one is better?

I know what it's like when you first start and you see this. It's basically like you're at the bottom of the mountain. You look at the very top and you're like, "How could I get to the top of that mountain? What do I do?" It's really overwhelming to see that. You see how far you have to go, but the easiest way—it's—and this is like, maybe this is a terrible metaphor, I don't know—but you realize that all you have to do to get there is like take one step forward and then you're one step closer. And then you just take another step forward and you just repeat the same thing. Just take a step, and that's how you get that. And all of a sudden, you're up there like a few years later.

Next question is from Ariane. What are the differences between residential and commercial, and what are the pros and cons between the two? So, let's call him up. You're gonna be on the YouTubes right now. Believe it or not, I actually wanted to do commercial real estate first. That was my initial plan because someone had told me when I was going to the open houses every Sunday that—I'm gonna just name drop because you know this company never hired me—but Markus and Millichap here in California, I was told they had the best training for any real estate thing ever. It's Marcus and Millichap. Multiple agents kind of told me, "Go and interview with Marcus and Millichap because their training is 10 out of 10." And my initial approach was like, "I want to get into commercial real estate. I hear their training is really good." They wouldn't even give me an interview. I reached out; there were like three different offices here in LA. I reached out to every single one of them and nobody would even get back to me. I actually went up to one of the offices in West LA, and I showed up there in a suit, and, you know, I somehow got into one of these, like, orientation meetings. And then they kind of called me out at the very end; it's like, "Dude, you shouldn't, you shouldn't have been here. You weren't invited." So, I kind of gave up on that, but initially, I wanted to do commercial real estate. I'm glad I didn't. I'm glad I didn't.

The thing is, commercial is very much like a numbers sort of career. It's typically a little bit more conservative. You see a lot of the commercial agents dressing in suits, and it's very much, it's very much just business and numbers. There's very little emotion, I feel, and personality that goes into commercial real estate because you analyze the deal based off of, you know, whatever the deal looks like on paper. That's really what it's about because you're dealing with these very, you know, strict investors who just care about the return. They don't care about the property; they care about what it's making and what it is and where it's located, what type of tenants going to be there, what it's grossing, and what the expenses are, and you know, who's the anchor. It was not for me; I hated it.

And not only that, but because commercial real estate especially—this is a lot of leasing and commercial real estate—but there's a lot of, like, legal aspects to commercial that needs to be hammered out. So, oftentimes to do, like, let's call it a $10,000 a month commercial lease that's five years long, it might take two to three months negotiating this deal with lawyers going back and forth for everything because you have to think like, "What purpose is the business gonna be, and is it gonna mesh well with the other tenants in the building? What sort of signage is gonna be allowed? What is the parking situation gonna be like? What about tenant improvements? What can and can't they do to the property? Who's gonna be responsible for that? Is it going to be a triple net lease?" There's so many different aspects to commercial real estate that need to be worked out versus residential. It's generally how long the lease, when do you want to move in, how much are you offering to pay, and it's more personality to it.

So, I enjoy dealing with the people side of things. When you know you're closer to clients and then—some—an emotional decision and, you know, really getting something them that they're happy with versus something where it's like, "Oh, the numbers make sense on this deal; let's do this one." That's what it is. I mean, it's not like there's more money or less money involved in each. I think there's an equal amount of money to be made in both. For my own personality, I feel like residential was a much better decision. The emotional and personal connection with an individual—yes—and it's a lot more conservative. Generally, generally of an industry, it's a lot more conservative of the commercial agents. I meet most, I would say, are in their 40s, 50s, and 60s. Most are wearing suits and most work the typical 9:00 to 5:00 Monday through Friday. You call a lot of commercial agents; do you call them at like 6:00 p.m.? They won't pick up. Like 6:01, they clock out; they won't pick up weekends—they won't pick up. It's just, it's a more nine-to-five based sort of career, generally speaking.

So, as you know, I'm also a real trial here in LA. The reason I got my license initially was to learn, you know, the other side of the real estate game apart from the investing side. So, as someone who's—and the goal is to be a full-time investor rather than a real estate salesperson—would you recommend them to take on commercial real estate? I don't think it's—I don't think it's necessary to be honest with you. And my other—this is my wild theory here, and maybe I'm totally wrong; I don't know—but my personal belief is that commercial real estate is not gonna be a good long-term play. That's just my personal theory here; it's the theory for all of you guys watching, so don't take this as a fact—it's just my opinion here. I'm thinking a lot more as going online, and I think online is gonna kill retail. I think online is going to take over a lot of the brick-and-mortar businesses, and it's gonna free up a lot of commercial space.

So, I think overall for 20 years—I think commercial is not gonna be as strong of an investment as residential is going to be. The way I look at it: everyone needs a place to live, but you don't need a place on Fairfax that, you know, sells socks, for instance, you know? Or, you know, even—here's a good example. When I was remodeling the duplex, like, I was looking for tile, right? And there's so many tile places along, like, Venice Boulevard that you can go to or LaBrea and stuff like that. I ended up going online and finding the same thing for like a fifth of the price. It just got shipped the next day; I saved a ton of money by doing that.

I don't get it because sometimes it's like these places have to pay rent; they have to pay employees to sit there throughout the day, and they maybe only have like three people come in the entire day, but they're paying this employee like 120 bucks just to stand there all day. Like these are expenses that ultimately get passed on to the customer because they have to turn a profit. So, I just don't get it. I don't get it. Besides restaurants, I think you're gonna be doing really well, and maybe places like Walmart, grocery stores, things like that, or like maybe, you know, industrial sort of buildings where people really need to work from— even office space, I'm seeing go more towards like a lot of home-based careers or creative workspaces.

I think overall, I think we're gonna have a lot less office space in the future. I think that's very much like an, you know, an older people thing to have that office they go into. So, I think commercial long term—again, wild theory—is not gonna do as well. But again, that's just maybe I'm wrong; you know I’m wrong, you know, like crazy, but that's what I think.

Yeah, so basically the cap rates that we saw here in LA, California, they're not as attractive. The thing is, I think as long as you really understand the area, I don't really have a problem going out of state. For me, the reason I buy close by to where I live is just because I can drive through the area. I see what changes are going on. I see over years or over, like, you know, decades the changes from when I grew up in a certain area—what's happening, what's going on, the types of people moving there, and where people are going and what's going up and what's being planned. I feel so much more involved and knowledgeable about what I buy because I see it every single day, and I have been seeing it my entire life.

So, for me, maybe that's just a comfort thing where I feel more sure of myself because I see these changes going on and I know what to expect. That's kind of why I like buying here. And also just like if you need to be present for anything for whatever reason, it's easily accessible. Now, for me, it's never to denote, to be honest with you. I haven't been to San Bernardino in probably years. Tenants move out; I had people take care of it for me remotely. I have not driven down maybe, so probably one place I haven't seen since I bought it. You know, I just had people go through every year and just kind of check it for me. I haven't been down there, so in terms of that, like it wouldn't have made a difference if that was in Florida on the East Coast or if it were here. I think as long as you understand the area and that's the most important thing, and you don't just go in blindly because it has like a ten cap, but then you figure out like: wait a second, all the meth heads are moving in this area, and now we get, you know, the prostitutes that are all right across the street. I didn't know this because I don't live in.

As long as you understand the area, I think you should be okay. Yeah, definitely do your homework, and really you're gonna have to rely on other people a lot to make sure it gets done. And the thing is, this is it, at least from my experience, it's very rare to find somebody that you can really trust to do the work exactly as you want without you physically being there to tell them what you want done. Like you can explain something a million times, but their interpretation of, you know, put like my example: you know, gray grout between the backsplash— their idea of that was like black, and it looked terrible.

So, it's like you can explain something, but a lot of things get lost in translation. I would just be paranoid to tell them, "Let's change out the floors," and the floors were not what you expected, okay? So, let me—do you recommend also for first-time investors? I think it really just depends on what you can get, what's available to you. I wouldn't necessarily rely on it, but if it's available to you, if you can get a deal with 5% down FHA that makes sense, that the seller is willing to accept, I think by all means, as long as you have the reserve, as long as you're not like, "I have five grand to my name and I buy a hundred thousand dollar house with, you know, four percent down." That's a terrible idea.

But I think if you can qualify for that and you have significant reserves on the side in case something comes up, and you know the risks that are involved and the property can cash flow—sure! If you find a seller that's willing to carry a note for like five years at like three percent interest rate or something and a deal makes sense, sure! Usually from my experience, in a hot market, FHA loans are not considered very serious offers when you're competing with people 20% down, 30% down, cash offers. They look at the FHA, at least here in LA, like a joke—like we're not even gonna consider this.

So, I think it depends on the market. Obviously, I know some people have bought places with like 5% down that cash flow really well, and you know, that's amazing for them. But at least here in LA, I don't see it very often. Same with like creative financing, I wouldn't rely on it, but again, if it's available, I think go for it.

So, dude, thank you so much for the questions! I really appreciate it. I think, so good questions, man! I'll talk to you soon. Last one by John Jude 900, and his question is: what do you do when you feel stuck and hopeless after getting your license?

I'm actually, I'm actually reading the Florida real estate principles practicing law. Right? If you call me—yes—oh, that's not a sign, I don't know what is. Alright, so anyway, your question was, what do you do when you feel stuck and hopeless after getting your license? Are you worried different names answer searches? Because I have so little experience, I don't know if I should obviously come up and become an agent because I mean, with the rights to this stuff, I am, yeah, the workload that would be involved.

Yeah, this thing is that I feel oftentimes it's a self-fulfilling prophecy too because it's like, you feel already stuck and hopeless, and you haven't even got your license yet. So you're like, you're worried about being that way and feeling that way without even being at that point yet. So, it's almost like you're going into it expecting to be stuck and hopeless, and like that is so, like, it just—it's so weird that you generally end up creating what you believe will happen. And I know this is like, this might be too deep for like, you know, this YouTube Snapchat Q&A, but I feel like that's something that's so important, and that really does happen.

If you feel the way, you end up creating moments that kind of reinforce what you believe. So, that would be my first thing is to kind of work on that. And I know it's overwhelming, and I know it's something that you're going into it being like, "How am I going to do this? What do I do?" And the thing is, I know what it's like when you first start and you see this; it's basically like you're at the bottom of the mountain. You look at the very top and you're like, "How could I get to the top of that mountain? What do I do?" It's really overwhelming to see that. You see how far you have to go, but the easiest way—it's—and this is like, maybe this is a terrible metaphor, I don't know—but you realize that all you have to do to get there is like take one step forward and then you're one step closer. Then you just take another step forward and you repeat the same thing—just take a step—and that's how you get that. And all of a sudden, you're up there like a few years later.

Yeah, so I don't see—I wouldn't see it as like this huge thing that like this big hurdle that you have to overcome. It's just taking a step forward. Now, as far as, like, practical advice, because I feel like everyone's like, "Yeah, you got to get a good practical, you got to tell me what to do." That's all my comments. Yeah, okay! So, as far as like being told what to do, I think that is the best approach: just to go and meet as many people as you can.

And if—and this is what worked for me, and then I’ve said this and other people who have watched me say this do the same thing and I've had great results—go to an area that you want to work in; it's maybe within a 30-minute radius from where you live that you want to work and go to that area, and every single Sunday go and talk to other agents and just say, "Hey, my name is John. I want to get into real estate. I'm practicing to be my life, and, you know, starting to get my license right now. Do you have any advice for me? What are your recommendations? What do you think of working in this area? How did you get into real estate?" Just to ask questions. Asking any questions as possible, and obviously, do this when they're not busy.

Like if they're talking to like 50 people, don't just, like, you know, go up there. But maybe you can say something like, "Hey, you know, I want to ask you some questions if you have time. Will you have time maybe after?" or like, if they have time now. And you're gonna get a lot of people that just don't have time for me; that was probably like majority of the people, just kind of brushed it off or told me, you know, some generic stuff. You just have to do it enough because the thing is, there are people out there that will really help you. It's just you have to go through a lot of just crap to find those people.

I actually went through a process like that. I went to local brokers, and it was—it was Remax. You just got to keep going because most people brushed me out too. You know, I tried to get into another real estate brokerage—Marcus and Millichap—they didn't give me the time of day at all; they did not want me there. So, you go through a lot of that. You know, the thing is, I don't recommend just going and trying to find the mentor first because that's—I think taking a whole wrong approach is just like, "I need the mentor first," and you—you de-emphasize. If I don't have the mentor, the mentor is not this like magic thing that you just get the mentor and then everything else falls.

I would just start your career as planned, and then as you're doing that, organically you're gonna end up meeting people that help you out along the way, and a mentor has never been something for me where, like, you walk up and, you know, I ask like, you know, "Hey, will you be my mentor?" It's never, ever worked that way. It's always been something organic that has just happened over time gradually and then all of a sudden they become someone you can really trust and rely on.

So I recommend get your license, go and talk to agents or go into brokerages with the expectation of you just want information. You just want to learn. Do not go in there with the expectation of trying to get a mentor because maybe people pick up on that, and they're just like, "No, I know I don't want to do that." It's a lot of pressure for a lot of people. But if you go up there, just ask questions and really just opinion-oriented questions, I think that will make the biggest differences.

And you could do that with agents and open houses, real estate brokerages. You can do both of those at the same time, get your license, and then once you get your license, start talking to different brokerages looked to, you know, hang your license with, and just continue doing what you would plan on doing ordinarily, just without a mentor. And then eventually find a mentor; you two just get bits and pieces from a lot of different experienced brokers and real estate agents, and actually finding them—one—a mentor.

Yeah, exactly. And the other thing is, too, everybody has a different approach in real estate. Everyone is different. Bryon of Bryon Casella, she likes door knocking and cold calling and a lot of prospecting. I don't like that. I like doing one-no leases; and he doesn't like doing leases. I just—I don't, I don't like it. It's just a thing for me that, you know, it's maybe it's bad, but I just don't like the idea of me calling up asking for business or I don't like the idea of me going door to door asking for business. I just—I would, I would rather do less business and not door knock than make more money in door knock. It's just for me, I just don't like door knocking enough that I would sacrifice a lot of money.

It's not the door knock, but it’s a personal thing. I have nothing against it; it works a lot of people are successful at it. It's just for me personally, I don't like it. Just for—it’s not that it's not effective anyway; it’s just I just don't like it. Be posted, as you're going along in this turn, you just let me know when you get your license and let me know how it turns out too, like going and talking to other agents because this is the one thing and I'm going to say this to you and to everyone watching is that sometimes people send me these amazing messages like they're doing this and they're doing that, they're doing this.

And even though they get a ton of messages, I'm genuinely curious what happens. And very few people actually will follow up. Out of, you know, maybe 200 people that sent me a message, maybe of that, three will actually like send me another message—a lot of flavor. And the thing is—people are always like—they always say this: "I don't know if you remember me, but I'm the person that did this." And generally, like, I remember everybody if they tell me this story. I read almost everything, so I, you know, follow up and let me know how it's going.

Yeah. Oh, seriously. I guess I'm curious. Some people are like, "I just got my license; I'm gonna do this," and, and I think back, I'm like, "Wait a second! What happened?" All these people—are they, did they do it? Did they not? Like some people are like, "You know, I posted on Craigslist and I got like, you know, two leases from it," and I’m like, "That's awesome!" So, that—I enjoy that sort of stuff! Or like, "I just got my first listing or my first sale!" I'm into that, but yeah, otherwise you just leave me hanging—I don't know. Yeah! I want to know what happens. I got, I got to see the ending. I got to see what happens. Please do!

Alright, man! I appreciate it. We'll have a good night. Thanks, as always! Thank you so much for watching! If you haven't already, click the subscribe button and smash that notification bell so you know every time I upload. You don't miss out on anything! Also, feel free to add me on Snapchat and Instagram so you know if you see what I'm posting there—if you're into it. If not, that's cool too! But thanks again for watching, and until next time.