Introduction

Is your investment goal to own a billion dollars in commercial real estate? So why aren’t you there yet? Do you know how to find properties and buy them, reposition them, raise the value, and stay competitive in an ever-changing market? If so, congratulations. If not, don’t worry. If you’re holding this book and willing to work hard, you are on your way to owning a billion-dollar portfolio.

Of course, there are some caveats.

Buying this book—and, of course, reading it from cover to cover—in no way guarantees that anything further will happen. The path from where you are to where you want to be is long, challenging, and requires a serious amount of work and investment. If you picked up this book thinking it’s a how-to guide for getting rich overnight and buying income properties with nothing down—or some other shortcut to the world of commercial real estate—this might not be your book.

Even if you follow the advice, you are still beholden to the market and the whims of nature. That incredible rental property you found and bought for a song won’t be worth as much if it’s swallowed by an earthquake or burned down by looters following a riot. If the city suffers from a pandemic flu or an economic collapse, it could keep you from filling vacancies long enough to burn through your cash reserves.

Most of all, you need to be ready for the long game. Building an empire takes time, it takes patience, and it takes a massive amount of money. The allure of the endgame can sometimes blind you to these realities. If you are serious about becoming a commercial real estate mogul, if you already have a little knowledge about buying and operating property, then this book will set you on the path to success.

Caution Versus Fear

Back in December 2007, the Great Recession began. Markets fell around the world and the prices for commercial and residential real estate dropped dramatically.

Around that time, I noticed that many real estate investors were holding onto their cash and waiting for the market to really hit what they felt was the bottom before they would start to invest in purchasing additional properties. Their logic was simple: If they waited until prices reached the absolute lowest point, they would be buying at the bottom of the market and would claim the best return on their investment with the biggest run up in appreciation.

The problem, as we will discuss many times, is that there is no defined absolute top or bottom. The market doesn’t have an artificial floor or ceiling. If you decide to wait until prices hit some magic number to buy or sell, you’re more likely going to miss out on many amazing opportunities.

It is the battle between caution and fear.

Caution can be an advantage. Caution makes you take stock of your assets so you know what you’re able to spend and, more importantly, what you can’t afford to lose. Caution pushes you to learn about the market, about the neighborhood and about the property. Cautious buyers may miss an opportunity or two, but they learn along the way. They take their losses as valuable lessons and rarely make the same mistake twice.

Fear, on the other hand, only holds you back. FOMO, or the Fear of Missing Out, may cause you to rush into acquisitions that aren’t to your short- or long-term benefit. You may leap before you look, and that can be a very expensive risk. On the other side of that coin is the fear of making a mistake. If you’re too afraid you won’t make the purchase at all. Then you’re guaranteed to completely miss out. As Wayne Gretzky once said: “You miss 100 percent of the shots you don’t take.”

When I spoke to commercial real estate investors in 2012, as the market started to recover from the 2008 collapse, many of them expressed regrets from being on the sideline for a few amazing years at the bottom of the market. They witnessed values appreciating and realized they’d missed that elusive “bottom.” One of my clients was especially heartbroken.

He had a goal of acquiring an apartment building in a specific Los Angeles neighborhood. He knew the market, knew the industry, but he wanted to buy it at the absolute lowest point of the market. In his mind, apartment buildings sold for $200,000 per unit at the top of the market and the prices had since dropped and were trading for around $120,000 per unit, and he felt they would drop down to his target price of $100,000 per unit, so he waited, assuming he would get his way. While patiently waiting, he lined up contractors for renovations, shopped around to see which lenders were offering the most attractive financing, and figured out where he could free up liquidity for the down payment for his upcoming bargain purchases. Prices dropped slightly more and he remained on the sideline, waiting. After maybe a year went by, he looked online for the types of buildings he wanted to purchase and realized that prices were climbing. They went from $120,000 when he first started the process to $110,000 per unit and then they went straight up to $130,000 per unit with momentum behind to continue climbing.

This is where he made a common mistake. Instead of purchasing during a short-lived golden era of real estate acquisitions, he waited. In his mind, the property could still go lower in price, even though the evidence was that the market was turning around, and values were recovering. He had a number in mind and was unwilling to budge. So he waited. As values continued to soar, he completely changed his mind on attempting to purchase anything and he gave up his search, kicking himself for being too stubborn while others jumped in and took advantage of an amazing time in the market. A missed opportunity.

Many of my commercial real estate friends found themselves in similar situations. Either they waited for a type of building to hit a magical value, either a high cap rate, low cost per square foot or something similar, or they were too afraid of taking the risk on an expensive endeavor. Many were burned during the previous recession and hadn’t psychologically recovered from that traumatic experience. That’s one more step to overcome on the path to your billions. You have to understand the difference between caution and fear, and you need to know when you’re acting with one or the other.

Meet Brent Sprenkle, Commercial Real Estate Broker and Investor

You have to be careful when taking someone’s advice on real estate. Just because some strategy worked for them doesn’t mean it will automatically work for you. While I don’t consider myself the ultimate authority, I have a bit of experience on my side. I’ve been in this business for over twenty years, and as a commercial real estate agent I’ve helped sell over $1 billion in multifamily and commercial properties, consisting of over 350 transactions since I started my career. In addition, I’ve purchased a few dozen properties consisting of apartment buildings, industrial, hotels, and retail either on my own or with other investors.

In my time in this industry, I’ve seen or personally made every mistake in the book. I’ve bought at the top of the market, negotiated too hard on a good deal just to watch someone else buy it, and spent too much on pointless renovations. Now, I want to share that knowledge and experience with you so you can move forward with confidence—and not make the same mistakes I and so many of my clients have.

More to the point, I want to help you expand your portfolio from a small assortment of properties to $1 billion in properties.

As part of my job, I advise buyers on which properties to buy and sell, how to reposition buildings, and how to make their money most efficiently work for them. But even the best advice doesn’t work unless you’re prepared. You need to come to this business with a strong work ethic and an understanding of your finances. I’m not here to help you scrape together money for your first apartment investment, but I can show you how to reposition your assets to arrange funds for your sixth.

Why Write This Book?

In November 1999, faced with losing my job as an engineer building DirecTV satellites for Hughes, I was encouraged by a friend to enter the commercial real estate industry. I took a position with a regional firm as an entry-level sales broker, deciding that selling apartment buildings in Los Angeles might be a good place to begin a new career. The criteria for the job was simple: you needed a car, a computer, you had to get a real estate license, and you had to be willing to work for free in hopes that you could put some deals together to make commissions. With nothing to lose but time, I jumped in. The goal was to make great money selling buildings to and for clients but also to buy a few for myself.

What opened my eyes was the realization that there were haves and have nots in the world of commercial real estate. Investors either owned one or two buildings, or they owned dozens of them. There weren’t many in the middle. Fascinated by how relatively normal people accumulated this vast wealth of commercial real estate—from apartments, to office buildings, industrial, and retail—I started asking questions. As a salesman, my job was to get to know these...