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Valuating Real Estate Deals, with Erik J. Olson

Episode #1304

In this episode, Erik shares how to quickly evaluate a commercial real estate deal.

August 11, 2022

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Episode Transcript

Erik J. Olson (00:01):

Evaluating real estate deals what’s happening. This is Erik J. Olson. I am getting deeper and deeper into real estate investing. So to back up a little bit and give you a sense of where I’m at right now, I bought my first real estate investment, something beyond my primary residence five years ago, when I bought the building that we’re in right now, the Array Digital building, I own that and Array Digital rents from me effectively. So it was a very like low risk kind of investment because I already knew what tenant was gonna move in, which was my company. So, you know,it’s technically a real estate investment, but like I said, it was solo risk. It didn’t really matter. And my company was gonna pay rent somewhere, might as well be to me, well, fast forward, about four years which was one year ago, I purchased six commercial units in Norfolk and I’ve been renting those out.

Erik J. Olson (00:56):

Now we’re renting five of those right now. And the sixth one is under renovation. As we speak when it’s done being renovated, that will rent for an extra $1,000 per month. And in the end I will be making about $1,700 more per month than the previous owner was because I raised the rents and I locked people in for multiyear leases. So that was a year ago. I haven’t done anything really in the last year. And it’s a little disappointing actually. So a couple weeks ago I went to grant Cardone’s real estate summit down in Miami. And I, I, I took some action. And one of the big things that I did is I subscribed to his real estate club. It is not cheap but I made the commitment because I, I needed help moving forward with real estate deals. I want more deals.

Erik J. Olson (01:47):

I don’t even know how many more deals I want and I really needed to find that, but I want more doors. So right now I have seven total Array Digital plus the six in Norfolk is seven. I, I really, I need to be at like 30 to 50, probably by the end of this calendar year, by the end of December, 2022, I need to take some action. And so one of the things that I did while I was down there is I put together a spreadsheet that will very quickly evaluate a commercial real estate deal. When I say commercial, I mean, anything that is four units or above, or actually commercial, like the Array Digital spaces. So it has a whole bunch of factors that go along with that. Things like the occupancy that I expect to get the cap rate of the building how much money it needs for renovations, what the rent is, what the rent could be, the number of units.

Erik J. Olson (02:41):

It does all the it’s really cool at this point. Like I really like when I stick to my market, which is the Norfolk Virginia Beach market, which I know incredibly well when I stick to that market, I really only need to input two pieces of information. Now that is the average rent per month, and it’s the number of units. So once I have those two pieces of information, and actually I just, I literally just thought of a third piece, as I said, that, that I really need to add to the spreadsheet, which is the number of units currently being rented. That’s a big deal, cuz if they’re vacant, they’re not making money. You shouldn’t really pay for baking units, at least not much. So I’m gonna work that in. But once I have those two now three pieces of information, I can very quickly evaluate how much I should offer on a piece of property, depending on what cap rate I expect.

Erik J. Olson (03:35):

Now that’s an interesting concept there. What I just said to cap rate that I expect many times when a piece of property is listed, you will see that it has a purchase price already defined, and it has the cap rate that you will get for that purchase price. But the cap rate is not something that’s dictated to you is something that you demand with your purchase price. So let’s say that, that the property that you’re looking at it’s a million dollar property and they say that’s a cap rate of 7%. What that means is you’ll get 7% back on that million dollars every single year, it will produce 7% of $1 million or $70,000. Now it’s up to you based on the purchase price that you, that you buy it at to define what the cap rate’s gonna be. So if you buy it any million dollars, yeah.

Erik J. Olson (04:27):

You’ll give us 7%. But if you buy it at less, then you get a higher cap rate potentially, right? So if you lower your purchase price than your capric should go up because you’re still gonna get that $70,000 back. But now it’s out of say 900,000 instead of a million, you do the math and the cap rate should go up, right? So if you think about the cap rate, being the amount of money that it produces versus the money amount of money that it, that you bought it for. If the denominator goes down, then the result goes up, cap rate goes up. So that’s a little bit of a tangent, but I think it’s, it’s an important thing that I got out of this real estate summit is that you, as the buyer define the cap rate that you want, and you’re the one that’s putting an offer in.

Erik J. Olson (05:13):

You don’t have to offer them what they’re asking that you may want to for various reasons and maybe a good price, or maybe it’s so competitive that you have to offer the price that they’re requesting, but in the end, it’s your decision. Most people just walk away from these deals when they think it’s too much, but you can put an offer in LS. It’s up to you. So yeah, I have a spreadsheet. If you’re interested in like taking a look at it, I’d be happy to share it with you. Hit me up on Instagram. That’s the easiest and best way to get in touch with me. And you can find me there @erik.j.olson. That’s E R I K dot J dot Olson. And look I’m recording this at the very tail end of July, 2022. So we have August,

Erik J. Olson (05:57):

September, October, November, December, I got five months and I just, what I say before I want 30 or 50 units. I, I haven’t really defined it very well, but I want a lot of units. I, I, I need to get busy. So if you have a unit you’re looking to sell or you wanna partner with someone like me, reach out to me on Instagram, erik.j.olson.



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About The Hosts

  • Erik J. Olson is an award-winning digital marketer & entrepreneur. The Founder & CEO of Array Digital, he is also the host of the Journey to $100 Million Flash Briefing and daily podcast, and the organizer of the Marketers Anonymous monthly meetups.

  • Kevin Daisey is an award-winning digital marketer & entrepreneur. He started his first company when he was just 23, and is the Founder & CMO of Array Digital. Kevin is the also the co-host of the Journey to $100 Million Flash Briefing and daily podcast, and the co-organizer of the Marketers Anonymous monthly meetups.

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