Scaling Up: The Path from Residential Real Estate to Over 300 Commercial Multifamily Units

Patrick
All right. Hello and welcome to the active commercial real estate investing show brought to you by the one and only school of commercial real estate investing. I’m Patrick.

Noelle (00:31)
And I’m Noelle.

Patrick (00:33)

And today we are joined with Nick Cooley. Nick is a real estate investor, agent, and co-founder of Jericho Capital. He started investing in 2016 in single family homes and has now scaled into over 300 units of commercial multifamily. Nick, welcome to the show.

Nick Cooley (00:48)
It’s a pleasure to be here. I don’t think the listeners will have a deep enough appreciation for the mountains we had to climb in order to get the three of us together. So this is exciting.

Patrick (00:58)
Hahaha

Noelle (01:00)
Between work and babies and renovations, it can be tough.

Nick Cooley (01:07)
Well, it’s my fault, not yours, but glad to be here.

Patrick (01:10)
Glad you’re here and glad we were able to get it on the books and very excited to dive in today. So can we just jump right in and get an overview of your background and how you got into real estate investing in the first place?

Nick Cooley (01:25)
Yeah, so I was born in, I’m just kidding, I’m not gonna go that far back. Unless you want to, I don’t know, whatever kind of show this is. So my professional effect.

Patrick (01:34)
Yeah, what time were you born?

Noelle (01:38)
What is your rising star and moon and sun? What is the whole astrology? No, I’m kidding.

Nick Cooley (01:44)
Yeah, we’re getting into like a very different section of YouTube here quite rapidly. So my professional background, I went to college thinking that I was going to go to med school and at first it was a surgeon and I probably like, wasn’t smart enough on the chemistry side of things to pass that. I mean, I passed, but like my grades weren’t probably good enough to be the plastic surgeon that I was aspiring to. Right.

And so what that kind of morphed into was it looked like I was going to go into family practice. But luckily, the year was 2011, 2012 was my junior and senior year. So as you start going closer and closer and closer to med school, you start having to shadow and like borderline apprentice during undergrad in order to make your application competitive enough to get in. And without fail, every single family practice doctor that I was shadowing said, “Hey, Nick, uh, you know, if I could do it all over again, I probably wouldn’t.” And if, if you hear that one off, you’re like, ah, that’s weird. You know, somebody’s having a bad day at the office, but over and over and over and over again, I kept hearing that message. And so I put myself through school while being a two sport athlete, by selling motorcycles in the summer. And my first full summer selling bikes I beat out Terry who’s like the 30 year veteran with like a really long ponytail. And so I was like, oh, okay, there might be a chance that I could be good at sales. And so fast forward, I get into business to business sales, sales management, and then eventually international capital equipment sales. But the downside to that was, you know, you have to work. 80, 90 hours a week oftentimes. And it’s very much you eat what you kill kind of environment. And, uh, so that’s what got us into real estate investing is it was 2016. I’m working 80 hours a week. I’m on 150 flights a year. And I hear from a buddy who I also played football with in college. He said that he had this crazy idea. He worked in real estate right out of college. And he said, Nick, you won’t believe this, but I have clients that buy homes and other people pay them off. And it was great because it was simple enough that I could understand it quickly and it was simple enough that allowed me to take action. And fast forward to today and here we are managing hopefully by the end of the year roughly 20, 25 million dollars worth of commercial assets.

Patrick (04:21)
Very, very exciting. Yeah. So when you heard that and had that aha moment of like, wow, there are people out there who are purchasing homes and then other people are paying them off. What was your next step? Like, what did you do after that once you had that information?

Noelle (04:22)
Amazing.

Nick Cooley (04:39)
Yeah, that’s a good question. Um, so the very first thing I did was I started digging into podcasts, books, et cetera, and this is actually the first piece of advice that I would share to people is don’t overlook podcasts or books. Like clearly there’s a space for it as far as your education and you’re becoming an expert in this thing. But what I would do differently if I could go back in time is I would spend more time just interfacing and networking with actual people that are doing it Like books are great and you can learn from them But I what I find is that by working with people that are actually doing it or that have already done what you’re seeking to do you’re able to so much more custom tailor that to your unique circumstances and your unique goal Like if you’re somebody that just wants to own 10 Airbnbs and you’re trying to learn from me like that’s probably not going to work out on this podcast. But if you go to our friends that manage, you know portfolio of Airbnb’s you can accelerate that path so much more.

Noelle (05:43)
I like that you said that because actually bringing you back to how we know you is through mutual friends and those mutual friends reached out to us after we did a podcast with our realtor for he does some for bigger pockets as well and they were like, Hey, we heard you on this podcast and through that connection, we’ve met so many amazing people like yourself and we’ve had so many amazing opportunities as well and they continue to grow as we have those relationships and keep in touch. So I just want to touch on that because that is so important because we would not be here today if it weren’t for that.

Nick Cooley (06:18)
It’s my only remaining competitive advantage. Like, I’m glad that I didn’t go into medicine. I’m glad that I didn’t go into tech. I didn’t go into all these other industries, at least at large, because real estate truly is a business where if you can just do what you say you’re gonna do and take care of other people at scale, anything is possible.

Patrick (06:38)
Yeah, that’s a great way to frame it. And obviously you’ve learned that. Back when you were getting into it, you were listening to podcasts, reading the books, starting to explore the whole concept of investing in single family homes. How did you find your first property?

Nick Cooley (06:57)
So this is this is a funny story. I actually don’t get asked this very often. So this is great. I started off my sales career in construction sales. And so we were tasked this team that I Have you guys ever heard of Diablo saw blades? Yeah, so I used to sell those and eventually before I left I managed the West Coast for them. So, in our infancy, however, our job was to go and find the biggest end user in any market and convince them to use our stuff. Not because we cared that, you know, Whiting or PCL or any of these crazy GCs were using our stuff, but because we knew that by them using that they would have to buy it from one of our distributors, right? And so that started off that role for me in Austin, Texas.

And luckily I grew up in a part of the country that has a pretty high level of Spanish speaking. Because oftentimes I would just stumble onto a job site that I had like literally signs everywhere, don’t come onto this job site if you’re not authorized. Whatever. And so my Spanish got pretty good. And so Hannah and I, my wife, and we were, we were engaged when we bought our first place. Not yet married, but we were trying to just buy a primary residence because we were broke and we needed to leverage the like three and a half percent down payment program and even then we wanted to buy something that we wanted to live in because that was the kind of tenant that we wanted to attract and so we were looking in 2015-2016 in LoHi which those of you there in Denver are going to realize what that neighborhood has done in ten years.

But we kept getting overbid because 2016 was somewhat of like a seller’s market akin to 2021. And like three or four times in a row, we got outbid. And eventually we were like, you know what? We keep doing the same thing over and over expecting different results. This isn’t working. And so we pushed our geography out a little bit and ended up walking onto a job site on Tennyson street, which everyone knows about now. But in 2016, a little bit better kept secret. And so long story short, I ended up walking into that job site. And I got the opportunity to practice my Spanish. And we bought our first residential place off market.

Patrick (09:34)
Wow. So the place was still under construction?

Noelle (09:35)
Nice!

Nick Cooley (09:36)
Yeah, with an FHA loan, by the way.

Noelle (09:40)
That’s awesome.

Patrick (09:41)
Very nice, very nice. So the place was still under construction when you were walking the job site or it was being renovated.

Nick Cooley (09:47)
Yeah, no, it was under construction. It was a new development townhome project. And, and it was crazy as like we were getting outbid to like three or four grand in 2016 and we’re like, ah, this, how, what are we going to do? We can’t do this. Uh, but we just, you know, got lucky in the sense that we created a scenario that we didn’t have a bid. We just walked onto a job site and bought it before it hit the market.

Noelle (10:13)
So you’re saying you would recommend trespassing to get into your first property? No, I’m kidding. Hey, if it works, it works.

Patrick (10:17)
No.

Nick Cooley (10:19)
Exactly. Past performance is not indicative of future results.

Patrick (10:20)
Hahaha!

Noelle (10:25)
Hahaha!

Patrick (10:29)
Okay, but also how does this conversation go? Like you stumble into this place, wheeling and dealing Diablo blades. How does it go from like, you guys should really check out this new blade to like, yeah, we’ll buy this place.

Nick Cooley (10:42)
Yeah, great question. So that one like was just a carryover from the past skill set. It was totally just for Hannah and I. I wasn’t trying to make a sale on that one. But because that was what I did every day, I was like, oh, whatever. Like what’s the worst case scenario? They told me to get off the job site. So we walked in and bought a unit. Yeah.

Patrick (10:49)
Okay, okay, okay.

Amazing, amazing.

Noelle (11:01)
That’s so great.

Patrick (11:04)
Very cool. So you move in there, do you start nomading from that point? Or what was your investment strategy after you acquired that one?

Nick Cooley (11:13)
Yes, sir. So that was what we did. We, you know, bought a spot, primary residence, we’d live there for 12 to 24 months, depending. And then we’d go and stack another one. At some point in time, it wasn’t too long, I actually, and this is another thing that I wouldn’t recommend. I liquidated my 401k to go out and buy a true investment property where we weren’t nomading and that’s still to this day, the worst deal that I’ve ever bought. But what it did that was really productive for us was that it cemented that identity for Hannah and I, that we were real estate investors and come hell or high water or know how hard it was going to get. This was something that we were going to do to secure the financial future for our family.

Patrick (12:07)
Love that.

Noelle (12:07)
Which sometimes if you look at properties too though, I mean, obviously that was not a good deal. There’s probably scenarios where that could work out. Just, I know we think about it in the sense that real estate is kind of our retirement plan, right? So when it comes to a 401k or retirement account, if you’re confident and you feel like it’s gonna be a good deal and you’re running your numbers and doing the due diligence and it, sometimes you just have to say, we’re gonna risk it because the plan is that ultimately we don’t need to rely on that 401k for our future financial security. But that is rough and it’s a tough decision to make because there’s so many things that come with, borrowing from a 401k or liquidating it.

Nick Cooley (12:50)
Yeah, well said. And I think that like in practice that it’s not that I, I just, I agree with every single point that you just made, Noelle. And I think that there’s a part of real estate where like you want to live your life in a certain way today and not have to wait until you’re 67 years old in order to, you know, reap the benefits of it. And so I think I’m not opposed to utilizing your 401k, but I if I could go back in time I would do it again with more adult supervision because I was Yet, I was not quite an expert in that phase of it But I was so excited about getting cash flow and I have to and so anyway here we are

Noelle (13:35)
Yep. Hey, but here you are in 300 commercial units over 300 later. I mean, you can look back and say that was a bad decision, but also if you look where you’re at, you’re like, all right, well, in the grand scheme of things, I guess it was okay.

Patrick (13:36)
Talk a little bit.

Nick Cooley (13:48)
Yeah, it worked out okay.

Patrick (13:50)
Yeah, I imagine in the moment that’s like an oh shit moment, right? Like you can’t you liquidated your 401k. You lost money on it. It would. How did you bounce back from that?

Nick Cooley (14:01)
Well, so yeah, let’s talk about the deal briefly. The first mistake that we made is we bought what was cheap and we equated cheap to being a better deal because we could have bought like a $450,000-ish thing at the time, which was like 2017, 2018. And what we did instead is we bought a $320,000 condo because the lower price felt more safe.

In hindsight, we know obviously that that’s not the case. But we actually, so we closed on this condo in downtown Denver. And within a couple weeks of closing, we got a surprise $50,000 special assessment, which obviously we should have covered during due diligence, but that got missed. And so we had to figure out what are we going to do to make up for this $50,000 surprise?

And so Hannah is a nurse practitioner now, but she was in the ER back then. And so we immediately started scrambling to try to basically furnish this place for a thousand dollars or less, like as cheap as we possibly could. So we go from Facebook marketplace to like get, we spent money on a mattress, but the rest of the furniture was like, damn near free. Like if you come get it, it’s yours kind of thing.

And so we pivoted into the medium term rental strategy for travel nurses. Uh, because Hannah had friends that had just gotten back from Hawaii or the Bay area, et cetera, uh, as travel nurses. So we were a little bit ahead of that curve and knew that market existed, you know, before the books and stuff like that started really blowing up. And we still own that today, by the way. Uh, so that $50,000 surprise we were able to mitigate that monthly increase in HOA fees by doing medium term rentals. But we still have the property. So it’s not like we’ve lost a ton of money. We just haven’t made as much with that one that we might have elsewhere.

Patrick (16:07)
Yeah, yeah, great. So at that point, you continue investing in single family homes. How many single family homes did you acquire before you started to learn about or become curious about commercial?

Nick Cooley (16:23)
Yeah, great question. So we got to, I really should look this up, but I think it was like 20 doors in Denver is where our residential thing got to. And the way we were able to get there was because I was doing private money lending slash capital raising, depending on what you want to call it from past co-workers in order to accelerate that. Obviously, you know, you guys know the front range market, Denver is an expensive city, and it’s pretty hard to get to 20 doors unless you have a rich uncle or etc. And so because I had success in corporate America I was able to lean on people that were also having success because of those, you know interpersonal relationships and I Never shut up about real estate the whole time. I was working with them. So it was natural for us to be like, “Hey guys, there’s more deals out there than I have capital to work on if you want to partner with us we can create you know, something that works out for all parties.” And that raising money from other people and putting it into residential is actually what got me into commercial. Because we bought this deal from a wholesaler, a good friend of ours in town, Kim Johnson, who loved Kimbo, and this was a slam dunk burr deal, right? Like we bought it for $550, put $100 into it, and it should have been worth $750, and it cash flowed after all expenses after maintenance, after everything, like $600 a month as just a boring old long-term rental, which in Denver is awesome. And during that relatively heavy rehab, it was like a half-duplex. So it’s in Cap Hill, and the other, like the neighboring unit kind of started getting curious. Well, if this guy’s doing all this work.

I wonder what our home is worth. And so they sold theirs like the day that we finished rehab. And they undercut it, because they had owned it for 15 years. And all of a sudden, guess what? Our comp, it doesn’t matter if we put Carrera Marble everywhere, our comp is the next door neighbor unit. And so what our ARV should have been $750.

Patrick (18:44)
Mm-hmm.

Nick Cooley (18:50)
We got appraised at like $715 or something like that, which means that we no longer got the perfect BRRRR which means that it impacted my private money lending and just added a ton of complexity to that. And I made the decision, like, if we’re going to continue to make money with other people’s money in real estate, we had to do so via a vehicle that wasn’t influenced as heavily by comps, but more so our ability to implement the business plan. And so that’s how we got into commercial.

Noelle (19:26)
I love that and Patrick and I actually one of the first podcasts for the listeners on if you go back, I think it’s episode one or two, we actually talk about the reasons why we want to get into commercial and that is one of them. You don’t have to keep up with the Joneses anymore. Like you get to drive the value based on what you are getting in terms of your income for that property. It is not driven by your next door neighbor or the guy down the street who won’t clean up his lawn.

You get more control over that in commercial. So I’m really glad you touched on that because, you know, if you are feeling like you’re not getting what you want out of residential and you have so many things outside of your control to worry about, if you have the connections and you’re able to, you know, get some people that you’ve worked with and then by degrees of, you know, six degrees of connections, you can start raising more money. I love that. Patrick and I obviously like our friend group. Now we’ve transformed our social channels and people are like, oh my gosh, you’re always about real estate. It’s like, because it works. It works. And if you don’t know where you want to put your money and you’re not interested in paying attention to the stock market, you know, you want to talk to someone who’s like, hey, I know I can get money. I know I can return your money and grow it for you. And you don’t have to do anything. So that’s really cool that you were able to do that and have those connections going into commercial too.

Nick Cooley (20:27)
Mm-hmm.

Well, and like just like edit this out if I’m rambling, but like, Noelle, you touched on something that like, that’s how the entire business world works, like think of Apple, think of, uh, Union Pacific, like the office building that you’re sitting in while you’re listening to this somebody. It’s not that there’s just like one dude or one lady that’s like, you know what? Boom swipes the credit card and you build this $200 million multifamily apartment building.

This entire, like everything that we use and see and interact with on a daily basis is because of people partnering up. Like either you borrow the money from a pension or an insurance company or that is how this entire machine works. And so if you’re somebody that’s like maybe kind of dabbling or starting to be like, you know what, maybe I should put some of my money to work in real estate. It’s not that real estate is so like unique in that, that’s literally how the entire game is played. So it’s not as crazy as you might feel in the moment.

Noelle (21:55)
That’s a great point. There might be an owner, but that owner, to your point, did not just slap a bunch of cash I mean, maybe they did, but those are probably rarer scenarios where one person is funding the entire deal themselves.

Nick Cooley (22:04)
Extremely, like I’ve been lucky to interface with people that like are legitimately billionaires from this business and I don’t know a single one of them ever that has ever put 100% of their own money in a deal because it’s a

Noelle (22:24)
That’s like… Go ahead.

Nick Cooley (22:27)
I think it like when we think of that, we’re like, oh, that must be owned by a hedge fund. Yeah, why do you think they call it a hedge fund? The whole point of this is to hedge risk. That’s why you don’t put 100% of your own cheese into the deal, y’all. Like the whole game is mitigating risk and growing from a place that’s asymmetric to the upside.

Patrick (22:45)
I’m going to go to bed.

Noelle (22:53)
Yep. And diversifying. It’s like we talk all the time that people who want to put 20% down on their primary home, it’s still like, okay, 20% versus 5% is a big deal. You could do four 5% deals instead and diversify and have the ability to scale more because the game is equity. The game is not paying it off as quick as possible. The game is paying as little as possible of your own money across as many things as possible.

Nick Cooley (23:09)
Mm-hmm.

Yeah, and like, let’s go into that just one more touch deeper, right? Like, even if you’re only going to do one deal ever, here’s your two alternatives, 20% down, 5% down. What you’re thinking when you’re being like, Oh, the 20% sounds more like what I want to do. The reason that you’re saying that is because you equate the 20% down to more security, right? Uh, however, when shit hits the fan or if stuff gets really bad or whatever, you don’t want a $300 less per month monthly payment. You want that other 15% under your mattress so that you’ve bought another 20 years of being able to make that payment. You want liquidity, not a lower payment. So in many ways, having that reserve is the safer play and having more debt is the safer play for a lot of folks.

Patrick (24:18)
Yeah, yeah. And I think the whole concept about debt in general, especially as it applies to real estate, is something that is a huge mindset hurdle for a lot of people because it’s very different than consumer debt. And I think a lot of people assume that debt is debt across the board and they don’t recognize that. Sure, it’s a payment. You are in debt to somebody else, to the lender. That’s true across the board. But the way in which it’s used if used intelligently and strategically is drastically different.

Nick Cooley (24:51)
Correct. Yep, 100%.

Patrick (24:53)
Yeah, yeah. So you got into commercial by way of having this, this BRRR deal and having already had raising money experience. What was your first, I guess, official commercial deal?

Nick Cooley (25:10)
Yeah. So the very first deal that we did, you can tell that I’m like getting wiser throughout this journey because the very first commercial deal that we did was an eight unit, whereas like past me might have been like 200. Let’s go. This is the right thing to do. Let’s do all of it on day one. But we did an eight unit deal in Western Michigan, which is one of the markets that my partner Brian and I focus on. We bought it from a guy that was a pastor, wanted to be a real estate investor, found out pretty quickly that, you know, being a hobbyist real estate investor doesn’t come without its own risks. Uh, and so we were able to pick up that building for 725,000 bucks. We put 435,000 into it on a rehab, which included roof HVAC electrical, all cosmetics windows. It was basically a new development with the existing shell. And that got appraised at $1.55M after our rehab, which basically meant that we were able to do a full commercial BRRRR. And since then, we went from an 8 to an 11 to a 48 to now looking at 140 unit development deals.

Patrick (26:27)
I love that you point this out because I feel like a number of people that we hear from and talk to in the commercial space love the phrase “If you’re going to buy a two unit building, you might as well buy a 200 unit building because it’s the same amount of work.” Right? Like that’s the catchphrase, which I imagine there’s a lot of truth to that, especially once you’ve gone through the training wheel process and whatnot.

Nick Cooley (26:43)
Yeah.

Patrick (26:53)
But I think that’s probably something easier to say in hindsight than it is looking forward, right? So I appreciate your method and approach to this where you started with an eight unit and then you leveled up and then you leveled up. And like each one you did, you built more confidence and knowledge in the process, in yourself, in the skill set, in the network to, you know, successfully achieve the next one and the bigger one to the point where you’re probably looking back saying like, yeah, it’s about the same amount of work. But, I do imagine there are very important lessons that you learned along the way in each of those as you scaled up. to be able to say that, that you might not have known if you just started off the bat with a 200 unit building.

Nick Cooley (27:34)
Yeah, that’s a good point. And it is one of those like podcast cliches that like, you know, it’s just as easy to manage a 200 unit as it is like, and here’s what I would say on it. You know, like a rose tattoo is a classic for a reason, right? Or like a, when you see like a similar poem everywhere, it’s because it like the old sayings don’t get to be the old sayings without fault. And so yes, I would go on the record of saying that managing a 50 unit building takes just as much energy as a two unit building. They’re both difficult in their own way, but if you’re going to have a linear output of energy, let’s at least manage one where we get more output for that energy input.

Patrick (28:23)
Yeah, and I believe it’s the founder of Starbucks, I remember saying something to the effect of, “Big goals and small goals are both challenging to achieve in their own right. So you might as well go for big goals.” Yeah, I love that concept in general and what you just explained there. So fully agree on that.

Nick Cooley (28:38)
Well, that’s like, that’s what attracts a lot of people to real estate, right is leverage. And we think of leverage as like, more debt, debt. No, debt is a form of leverage. But it’s like, a pickle is a cucumber, but a cucumber is not a pickle kind of thing, you know. And so like, what real leverage is, is getting more output per the same, you know, working in nine to five. And I didn’t go into this earlier, but when we got to 20 single-family units, and that was a mix of like duplexes and quads as well, but that was tough! It was just Hannah and I, and we were managing 20 doors and you know Brandon Turner told me that this was gonna be passive income. It’s not! When you get to 20 single-family doors. I promise you it is not passive. Luckily, yeah, you like y’all know too. Luckily in commercial

Noelle (29:29)
No.

Nick Cooley (29:34)
you’re playing at a scale that allows you to put the proper teams around you. Uh, because in the single family thing, like, yeah, you have a property manager, but they’re more so just kind of like being the first line of defense on emails. In commercial, you actually have a maintenance team. You have a leasing team. You like, it’s a prerequisite and you just take it that into the account on the underwriting going in. And so I can promise you as another podcast guy, uh, that the commercial is a more scalable business and it allows you to better protect your time.

Patrick (30:09)
Love that. And even, you know, the fact that you just mentioned building a team around you, just having the scale and the sheer numbers to be able to do that and factor that into the business plan is huge and a key differentiator between residential, unless you’re building a residential specific business where you’re at such a scale that you also build that team. But from the, you know, the mom, pa shop, so to speak, as you’re getting started, definitely makes a difference.

Nick Cooley (30:36)
Yeah, because like, when you’re, if you’re like the typical, you know, residential real estate investor, you’re starting off with one house because that’s all you can afford. And then as soon as you scrounge up enough down payment, you get to second, you get the third and sooner or later, you have 15 different places that have different counters, different floors, different paint. And you have 15 units with seven different roofs, best case scenario, like seven best case scenario, hot water heaters, furnaces, etc. You know, whereas in commercial, and I know you guys already know this, but you can buy a 100 unit building that has one boiler, one roof. And so your capex and your maintenance budget relative to the income goes off a cliff. It falls quite precipitously.

Noelle (31:21)
We’re talking a lot about connections and I’m curious because obviously you’ve started Jericho and it’s thriving and you have many, many connections. How, at what point did you go from, “Okay, we’re doing this on our own with maybe a single partner and a couple guys” to like, “I am going to transition full time to doing this. I’m going to start a business and I’m going to network and put all of those pieces in place for myself.”

Nick Cooley (31:44)
That’s a great question. I think it honestly started in 2016. Or if not in 2016, in 2017. When I liquidated the 401k, I made the decision, I’m going to do real estate investing full time. I didn’t yet realize that meant that I wanted to launch my own fund and go through SEC accreditation and all that crap that comes with that.

But I was such a big believer in real estate as an asset and as a business that it became apparent to me pretty early on that like luckily for the three of us and anyone listening, real estate is an asset that more people want exposure to than not. Like we joke about it internally that we sell the thing that if you bought into one of our funds, you would maybe be bragging about it to your buddies on your next golf trip. You know, you’re teeing up on the third tee and you’re like, “Hey, Patrick, just bought a hundred units in Brickell.” You hit your drive, right? Like we have so much social proof that helps us in that. And so it quickly became this is my opportunity to serve people that I care about and have a working relationship with. If you’re an expert at the thing and you have the opportunity to get them exposure to this asset class, it pretty quickly became, this is how I’m gonna serve people close to me.

Noelle (33:23)
I love that.

Patrick (33:24)
Yeah, yeah. So as you bought your the first eight unit building, you then mentioned that you started scaling up slightly bigger each time. What would you say in the first one or two deals of commercial multifamily were some of the biggest lessons that you learned?

Nick Cooley (33:43)
Um, you know, it’s perhaps to the detriment of the podcast episode here, it all went pretty smooth really. One of the things that I did learn that I think contributed to that was partnerships, after I just got done saying that this is how the whole machine is built, I would say that 95 plus percent of partnerships are a bad partnership. Because what happens more often than not is I’m excited about real estate, Noelle’s excited about real estate, let’s do real estate together. And what happens is they forget that Noelle and I might have the exact same skillset, excuse me. Whereas, uh, you know, I can raise money. Noelle can raise money. I can find deals. Noelle can find deals. And what you have is like a partnership where both people are scared at the same time, but neither one has a complimentary skillset.

And so one of the things that I did well was bring on Brian. Brian’s background, where I was doing sales and revenue and broker relationships and managing sales teams, Brian has been working in construction or construction related fields for the last decade plus. They’ve built, estimated, managed the construction of like half a billion dollars worth of commercial development in the past 10 years.

And so, while I had a, you know, very specific skillset. I couldn’t bring on another one of me to just go and drink Negroni’s at happy hours of brokers all the time. I needed somebody that understood the other part of the business. And so that’s what I think I would say we did well is we, we filled the gaps in our expertise base.

Noelle (35:36)
Complimentary, it’s like complimentary colors, they’re that way for a reason. You’re right, you can’t have 10 of the same special skill set because you are going to be missing so many of those components. I, in one of my first jobs out of school, I had, I was working in advertising, and had a group account director who told me that hiring is all about making the perfect spaghetti sauce. If you have a bunch of tomatoes and just throw them in there, it’s gonna taste like tomatoes. You gotta add salt and pepper and like your special spice and maybe some olives and some meatballs. Like you need a lot of differentiation and we’re always going to have gaps and opportunities that we could work on. Like sure, we could be a Jack of all trades, or a Jill of all trades, but why not be a specialist in one thing bring on those partners and all of a sudden you have very distinct specialists in all trades versus being a generalist in all of them. So that’s really smart. And also great that you were able to know that going into your first deal versus having to learn that the hard way. But that you said that it didn’t go terribly because not all deals and not all entrances into a new venture have to be terrible. And I think it’s important to know that there’s going to be positive and there’s going to be negative. But if you’re networking with people, if you’re doing your reading, listening to podcasts, you know, learning from others who are in it, you’re gonna pick up little tidbits like what you just said, and you’re gonna add that to your list of things so that when you go into your first deal, you at least feel more prepared and feel like you have done everything that you have within your control to make it go well, but also have prepared yourself for the things that might not go great and be ready with a plan of attack for those.

Nick Cooley (37:23)
I think that’s a good point. And like for the overwhelming majority of people that are considering making the jump into commercial, you’ve already done enough residential deals that you know 90 plus percent of the business, right? Like you know how to hang drywall, you know how to estimate this, that, the other. We had done over 40 deals in the single family space by the time that I got to commercial. So like, is it new? Kinda.

But it’s more or less the same thing. So if you feel like you’ve got your single family slash residential business pretty well down pat, you can make the jump to commercial. Obviously there’s nuances that you’ll have to learn that are different, namely around debt. But once you get that figured out, like if you can make spaghetti, you can probably do Alfredo. It’s the same business more or less.

Patrick (38:20)
I like the analogies that are rolling here. I’ve got a super important question, which is you mentioned Brian spent many, many years on construction sites in the development business. Did you ever sell him any Diablo blades?

Noelle (38:22)
Hehehehe

Nick Cooley (38:26)
Uh oh.

Good question. Unfortunately that came too late. We met too late in life for a mixed Christmas bonus to be made off Brian back then, but hopefully moving forward it will be.

Patrick (38:49)
You don’t maintain a commission structure with Diablo and force all Jericho construction projects to only use Diablo blades.

Nick Cooley (38:56)
We’re not that big, man. We’re not moving the needle for those guys, not yet.

Patrick (38:59)
Hahaha

Nick Cooley (39:02)
That’s super funny.

Patrick (39:04)
That’s great. So on a more serious note, how did you meet Brian? Were you looking in that market already and you knew that you wanted a construction focused partner or was it just happenstance where you two met and you realized you had complementary skill sets? How did you go about this?

Nick Cooley (39:23)
Nick and Brian, a Jericho love story. It began the, I’m just kidding. We actually met on BiggerPockets, the forum. So, which is odd because I have like seven posts on the forum, maybe ever in my entire career. And…

Patrick (39:26)
What you’re saying is this is like a You’ve Got Mail love story?

Nick Cooley (39:43)
Yeah, which one of us was Tom Hanks though? Hopefully me. And so he had made a post on there and for whatever reason, like 10 years ago, I put Denver as one of my keywords. So I got like an email anytime Denver popped up in the forums, right? And I was in Dallas visiting family. And for whatever reason, that day I was like having my coffee and I got time to respond to this guy. I’ll help him out.

And so Brian was making the move from Western Michigan to Denver and was just wanting to connect with, with investors, agents in the area. And so he and I had a call, while I was in Las Colinas, shout out DFW. And, um, yeah, we talked for like 45 minutes and I was, uh, just kind of told him like how I see the market, what I was seeing and, uh, long story short, he and I ended up doing like three or four deals in Denver as broker and client, which I think was really good because he got to see, all right, what is Nick good at, if anything, and how can that complement to what Brian was trying to do in his individual real estate business. And I got to see how he works as well. So we almost had like a probationary period of working together. And I found out that he had raised money for some of his single family deals. I had raised money for some of mine. And long story short, we had the belief that if each of us was able to focus on the thing that we did better than other people, there was a hope that, you know, one plus one might equal three.

Patrick (41:21)
Great. Yeah. And a good way to look at it. When you then decided to do that first deal together, who, who found it, how did you analyze it together? Walk us through that.

Nick Cooley (41:33)
Yeah, so this is going to be funny. We found the deal on Zillow, which is crazy because it’s a vacant eight unit. You’re never going to find that. And it was like right as interest rates had started to kind of raise a little bit. So I think there was a little bit of uncertainty in the market. So it wasn’t as liquid as maybe it had been previous. And so we found it on Zillow. I think Brian might have found it first. But then we under wrote it. And one of the things that I think we do well is we have a pretty simple underwriting process. We look at all of the different things, snow removal, lawn care, roof, like all the different line items. But when I say that we have a simple underwriting process, we have a very clear cut yes or no.

Like it’s not that, “Well, a 14.7% cash on cash is, ahhh…” No, like we have one metric that is either a yes or no. And what that is for us personally is how quickly can we recoup our original working capital, AKA do a BRRRR and does it still cashflow afterwards? Which luckily in commercial, it’s a mandate that it cashflows. The kind of status quo is that it covers a 1.25 DSCR. Sometimes you can go lower to like a one-one on agency debt, but for all intents and purposes, for somebody just starting out, a one-two-five is kind of the rule of thumb, if you will. So as long as the deal hits that, we’re buying it.

Noelle (43:14)
Nice. Makes things simple.

Patrick (43:15)
Love it.

Nick Cooley (43:15)
Yeah, because like you can make it as complicated as you want, right? And like there’s folks in commercial, it’s not unlike banking, where you have to develop like your own lingo to justify keeping other people out almost. What’s your IRR? We’re looking at, you know, a DSCR. What’s the yield on cost? It’s second grade math but it’s disguised in this funny language. So the more that you can get clear on what success looks like for you and your group, it just makes that decision much easier. And you can do so without some of the fatigue that comes with this kind of strategic thinking all the time.

Noelle (43:57)
Well, I imagine that makes it nice for who your investors are as well, right? Like who is actually providing the money to be able to buy this because you’re like, hey, we’re going to buy this if it meets this. Like contribute or don’t, but like you want to make sure that it makes sense for them too. Like if I’m putting my money into something and you can tell me this is our one big criteria. So if you are planning to hand over a nice chunk of change, then just know that this is where it’s going to go. And this is going to be, you know how we decide if we take it or not. So I think that’s really important from the opposite side of things as well of whoever’s funding that deal.

Nick Cooley (44:36)
Yeah, well said

Patrick (44:38)
And with this type of approach, how are you then communicating returns to your investors? Also like with that, how are you typically structuring your deals?

Nick Cooley (44:48)
We do a combination of debt and equity on the acquisition. And we, I know this is like a, it’s getting a lot of press right now, but we do our acquisitions with bridge debt. Um, so bridge debt, think of bridge debt as, um, hard money loans. And if you’re familiar with residential, like it’s the hard money loans for commercial, right. Um, and then what we do is we aim to create a fixed income stream for our investors. And so as far as I can tell, we have the highest pref return, meaning they get paid whatever that preff preferred. Ours is 12%. So our LPs limited partners get the first 12% of profit every year. And as owners in those deals, they also get applicable tax benefits. Consult with your own CPA or tax professional. Blah, blah, blah, don’t sue me, blah.

Uh, but we, we kind of built, yeah, exactly. Uh, contact our lawyer, but we, we did that because like as an upstart in the space where you’re competing with billion dollar lines of credit on New York and on the California side, uh, and just kind of where it was at in the market, you know, we saw that LPs had kind of gotten concerned over the traditional syndication model where it was a 70-30 equity split, 4% preff, 17% IRR, blah blah. Because leading up to when Jericho launched, syndications had kind of gotten crypto-bro-y, where they were all targeting like a 3x equity multiple in six months of a hold period. And that’s just not how real estate works. And so we use that as an opportunity to be like, let’s be the adults in the room. We’re not going to double your money in six months. We’re not going to triple your money in a year. We’re going to make you a great return risk adjusted, and we’re going to diversify you out of the stock market or whatever other asset class you have exposure to, and if you’re cool with that, great, we would love to have you on board. But if you’re like seeking a quick Lambo, I hate to tell you, we’re just not going to be a good fit.

And so that kind of allowed us to break the expectation. And in many ways, we kind of had to as the new guys in the room.

Noelle (47:18)
Yeah.

Patrick (47:18)
Yeah, but I also think, I mean, I love that you mentioned that because I can see some of your sales experience coming through there where it’s not just like, it’s not a one way street, right? Like you’re developing a legally binding relationship with these people. And so I think there’s a huge temptation for new investors to just bring on anybody who will give them money, not realizing that some of those people may have unrealistic expectations that are not a good fit for you and your business. And so you, as the investor, as you’re raising capital, like you have to play the salesman in a way where it like, and not just a salesman, but like the mature salesman who really knows what’s best for the business in the sense that like, you’re vetting them as much as they’re vetting you. If you have this crazy expectation of what we’re going to provide in terms of return, we’re not a good fit and you should go take that expectation to a different firm or a different fund, because we don’t want to play that game. And we’re willing to just wait for the right people to fund this deal because those relationships long-term will be better all around than having even one or two of these, you know, quote unquote bad eggs with these unrealistic expectations constantly hounding you. Like, why didn’t you get me 3X my money back in six months?

Noelle (48:15)
Yeah.

Nick Cooley (48:25)
Yeah And that’s not to say that we don’t eventually target that kind of return right like we’re kind of taking what the market gives us But it’s a really important part, and I’m glad that you brought it up There’s two different ways that you can raise capital. You can either find a great deal and then find the equity that supports what that deal does whether it’s a 2x equity multiple or a cash flow or whatever

Noelle (48:26)
Yeah.

Nick Cooley (48:50)
but the deal will be what it will be because of the market that it’s in and the kind of asset class, whatever. You can either go deal and then find equity that wants the kind of returns that deal supports, or you can go the other way and you can go to your equity and be like, they want X for their return. You have to be able to suss out whether or not it’s feasible, but you can go either way on structuring that. And it is one of the most critical parts, just because as we all know, you want to exceed expectations,. Under promise, over deliver. It remains true even in the boring old real estate business.

Noelle (49:31)
Yeah, that takes me back to our last conversation with Monick Halm as well, who mentioned it’s not just about you and like you as the active investor making all this happen. It’s also about them and how you can help them in their goals. So just wrapping that with a bow. If you’re building relationships and you are doing deals and people are getting what feels good to them. You’re going to continue having investors in equity that will continue wanting to invest because they know what to expect and they know you’re honest and that you’re not just looking out for yourself, but you’re looking out for them as well. Because like Patrick said, you’re not just taking the first money that comes in. You are vetting that and wanting to make sure that you’re meeting your objectives, but that someone else is meeting their objectives as well. And that is a really critical piece of it to make sure that it’s not all about the active investor, but it’s also about your passive partners.

Nick Cooley (50:27)
Well, you are definitely way smarter than me. You said that very well. Um, we, we tell people all the time that I’m not in the real estate business. I’m in the business of creating returns for people. I’m in the financial services business. We do so by being experts in real estate, but the priority here is not for Nick to buy a ton of real estate. The priority is for Nick to make people money. And we do so by the real estate business. And I think that’s a really important distinction that if you’re going to go this road and do it with other people’s money, probably the best deal that I’ve done so far is the one that I lost a hundred and some grand on. I had a, an investor that trusted us with half a million bucks. And this was like one of my very first capital raises. And I consider this gentleman a mentor of mine even today. And we got it was still in the single family space, but we bought this big portfolio of homes and I was going to flip off a bunch of different ones because we bought it at wholesale and we were going to wholetale the majority of them and then do a BRRRR on the remaining chunk. And we got caught in the interest rate change and the deal itself ended up losing like 125 grand. This is the most important deal for us because although the deal lost 125 grand, our investor did not. Nick and Hannah did, but the very first time that we don’t honor our obligations to those passive investors is the day that I go and get a job somewhere else because the gig is up. One of the things that I pride myself on is like, I can go anywhere in Denver, any restaurant and run into anybody and I’m good.

Like I don’t have to worry about getting snarled at the bar. I don’t have to look over my shoulder and hope that Patrick’s not coming in today. Like we can go anywhere and be confident about how we run our business. And that’s worth more than any financial return, which ironically is how you end up making a lot of money is just taking care of people. So it’s been a fun ride.

Noelle (52:34)
Yep. Well said, sir.

Patrick (52:37)
Yeah, yeah. Sincerely appreciate that. And also, it reminds me of the saying that your most valuable currency is your name and the reputation you build by way of the work that you do and the character that you develop. So I think that’s a really good story and example of how you personally go about doing that in your business. So kudos to you.

Nick Cooley (53:00)
Thanks, dude. And it’s, it’s important to right? Like, that’s the only time that we’ve ever lost money. Like, I don’t want to be broadcasting that we’re constantly buying losers. Because if we were obviously, we wouldn’t be able to continue scaling this thing. But like, that really is like if you want to succeed in real estate, take care of people at scale for as long as you can, and you’re going to be fine.

Noelle (53:10)
Okay.

Patrick (53:25)
I appreciate the transparency. I don’t think it comes across as you’re buying bad deals at all. Noelle and I will vet for you. You’re very successful in what you do. You’re very good at what you do. Um, but I think that it takes a lot of confidence for you to be so transparent that like, Hey, we’ve bought some deals that haven’t worked out. Here’s how they went. Here’s what happened. Um, because I think that’s kind of missing from a lot of the, the conversation, especially on social media and whatnot. So I sincerely appreciate you like actually pulling back the curtain and saying like, here’s where a deal went wrong and here’s what we did about it and how it worked out. Um, cause I think there are a lot, there are almost more lessons to be learned in the things that don’t work out well than the things that do. So, thanks for, for sharing that value with everybody.

Nick Cooley (53:55)
Mm.

Noelle (53:55)
Yeah.

Perfection is the enemy of progress. You are not going to be perfect every single time.

Nick Cooley (54:12)
Yeah.

Man, I just love hanging out with you guys. This is so good. I feel like I have like an angel on each shoulder just kind of being like, oh, wisdom.

Noelle (54:20)
Hahaha

Patrick (54:21)
Ha ha ha!

Noelle (54:26)
I pride myself on being a hype woman, so I’m here for it. I’ll just like get a little AI generated Noelle for you. Ha ha ha.

Nick Cooley (54:32)
Hahaha!

Patrick (54:33)
I don’t know.

Nick Cooley (54:36)
It’s so fun.

Patrick (54:37)
Good stuff. Great. Well, I know we’re coming up here on time and definitely want to be respectful of your time. So any parting words just in terms of final advice that we haven’t covered on the show so far that you think is important for someone who’s transitioning from the residential space to the commercial space?

Nick Cooley (54:57)
Yeah, if you’re having that thought, know that you can do it. Like it’s not, it’s different than the residential business, but it’s not by definition harder, right? So like, if you, if you feel like you’re being tugged or you have that little thing on your shoulder, that’s like commercial 10 X like I can’t believe I said that. If you have, if you have that. Um, like, yeah, be informed, seek out, you know, be educated as you go about it, but know that it’s not a fluke. Like if I can do it literally anybody can. And, uh, you’re, you’re taking all of the right steps if you’re already listening to this podcast. So just know that we believe in you and that it’s possible for you.

Noelle (55:50)
And now we’re gonna get an AI-generated Nick for all of our listeners! You can just sit on everyone’s shoulders and say, You got this, you can do this!

Nick Cooley (55:53)
Let’s go!

I’m living proof that it’s possible. And so it’s, I think that’s the number one thing to Patrick’s point that like, people should be sharing the entire picture, but they should also be sharing it’s possible.

Noelle (56:02)
Hehehehe

Patrick (56:15)
Love it. And on that note, if people want to connect with you afterwards, where’s the best place for them to find you?

Nick Cooley (56:22)
IG is where I’m most active on social media and it’s I’m, I am Nick Cooley. Otherwise, I’ll see you around a real estate conference or Denver or elsewhere.

Noelle (56:34)
That’s perfect. And we’ll put your info in the show notes as well. So if listeners did not catch that, you can find it in the details to connect with Nick. Thank you so much for coming on today, Nick. This has been awesome. It’s been a pleasure talking with you. And I know it sounds like we need to be meeting up for drinks at some point in the very near future.

Nick Cooley (56:42)
Y’all are great. Thanks for having me. Love it. Looking forward to it already.