From Single-Family Rentals to Industrial Real Estate With 1031 Exchanges

Greg Bond (00:00)
Yeah, it’s I and I I really want to to to stress that to your viewership and say, guys, if you’re if you’re in the single-family home business, you’re wondering where the next step is. This is the next step. This is this is how you go because every time, Dylan, it quadrupled our monthly cash flow. So not am I only getting the big hit on the commissions and the month I mean the cash flow and the no tax, it’s like, wow, I never track my return on equity. It was always return on investment.

So tracking that return on equity was key for me to understanding that I needed to sell and make a change.

Dylan Silver (02:04)
Hey folks, welcome back to the show. Today we’re joined by Greg Bond, a Central Florida investor across industrial with a background as well as a single-family investor. Greg, thanks for taking the time here today.

Greg Bond (02:18)
Thank you so much for having me, Dylan.

Dylan Silver (02:20)
What types of deals are coming across your desk these days?

Greg Bond (02:24)
Well, we’re primarily concentrating on industrial. We we like small bay, we’ll do you know, multi-tenant industrial, but but primarily the industrial between a million and five million is kinda where we’ve kind of made our niche.

Dylan Silver (02:38)
We were talking in the green room about going from single family and then exploring other asset classes and there was kind of an arc, a journey to get to industrial. For our audience, what was that journey like?

Greg Bond (02:53)
Well, we we started buying single-family homes back in the nineties and then ramped up till two thousand one and there was the Resolution Trust, which probably some of your viewers remember the savings and loan debacle, and they came out with the Resolution Trust to divest all of the assets of the savings and loans. But they’d come up with a list every two weeks. Highest bidder took the property. So we we did that in the nineties up till two thousand one and they stopped that. So we actually stopped buying in two thousand one.

Took a little break till 2008 and jumped back in in 2008 and didn’t kind of really what was going on. From about 2008 till 2009, and it was kind of I followed the the circuit around and and and it we ended up with about 90 single-family homes, a lot of them getting paid off. And it just didn’t throw off the type of cash flow that I had hoped for. You kind of my single-family mindset was buy the properties, rent them out.

Manage them for thirty years and then it throws off great income and retirement. And in reality, what happened, a lot of those single-family homes, even being paid off after your taxes, your insurance, your maintenance, your property management fee, your vacancies, it was only throwing off, seven hundred and fifty a month. So I always I always do the example. I say I had let’s take four single-family homes. What we tried to do is group them in groups of

groups that gave us equity of someplace between $750 and a million dollars. And so that was four single-family homes and at $250 each is a million dollars, but those four single-family homes were just throwing off $750 positive cash flow every month. So four times seven fifty is three thousand dollars a month. Three times twelve is thirty-six thousand dollars a year. So I’ve got a million dollars in equity, but I’m only generating thirty thirty-six thousand dollars a year. So I said, how do I change that?

And and that’s kind of where we we we fell into 1031s. And I I’d done some before, but I really hadn’t analyzed them and understood how powerful they can be.

And so once I really started looking at them and utilizing them, I went, wow, this is amazing that the government makes this available for everybody to utilize. Right. So we we sold the properties, found a 1031 intermediary, they take the money.

Right, we go to the bank, the bank says you’ve got a million dollars at that point. This was early, late 2021, early thousand 2022, so interest rates were still low. So this worked extremely good during that time. But the bank said, 75% loan to value. So they’ll loan me three million. I put in my million dollars from the sale of the four homes. I buy a property at four million dollars. That four million dollar property throws off fifteen to twenty thousand dollars a month. And

I’m a broker, so I take the commission on top of the on top of that. So two and a half to three percent on a four million dollar sale is over a hundred thousand dollars. And then we wash it all down with a nice cost segregation study and it wipes out all the tax. And it was like, wow, why why haven’t I done this earlier? Because in my mind it became how many 1031s do I have left in my lifetime?

Dylan Silver (06:52)
Right, right.

Greg Bond (06:53)
So

Yeah, it’s I and I I really want to to to stress that to your viewership and say, guys, if you’re if you’re in the single-family home business, you’re wondering where the next step is. This is the next step. This is this is how you go because every time, Dylan, it quadrupled our monthly cash flow. So not am I only getting the big hit on the commissions and the month I mean the cash flow and the no tax, it’s like, wow, I never track my return on equity. It was always return on investment.

So tracking that return on equity was key for me to understanding that I needed to sell and make a change.

Dylan Silver (07:26)
Now you also looked into self-storage as well, but but found that industrial assets, the triple net leases, overall the the numbers worked out better. What was that foray into self-storage like?

Greg Bond (07:42)
Yeah, so in 2016, kind of going through the same thing, thinking I’m too highly leveraged in single-family homes, what can I do to kind of level that out? And so we ended up buying three self-storage facilities. One was actually a boat and RV storage, but kind of the same thing. And those those properties were great. They were mismanaged. We took them over, bought them, several of them were owner financed, out-of-state owners, traditional thing that they just just totally mismanaged. So we brought them back up.

Got offers on them in twenty-one and it was like, wait a minute, you’re gonna pay me how much for this asset? I it’s I it’s out of here. I love the love the industry, love the asset class, but if somebody’s gonna pay me an obscene amount of money, I’m anything’s for sale. So we sold them expecting to jump back into self-storage. But by the time we had transacted and s made those sales, got the capital, the self-storage market had been recognized and everybody was in it and the big boys were churning and

It was like we just couldn’t find any deals that that interested us from a cap rate standpoint. So we you know, we started looking, bought some industrial property, but the the real aha moment for me was when one of our facilities is about fifty thousand square feet. We had another one that we had purchased with through the single-family homes through a 1031, and it was a small bay facility.

And so we had a a real good comparison between self-storage and small bay. And when I s really started looking at the numbers and analyzing it, and I went, wow, the the self-storage employees and turnover and monthly leases and lockouts and chasing money and it it just th there’s a lot of churn there. It’s a true business. You’re running a business. And on the small bay side, it’s

20 tenants, they’re all on 10-year triple net or five-year triple net leases. All in their leases, they have five-year options and most of them renew. So it’s it’s like, okay, there’s no churn, there’s no employees, there’s no nothing. And when you look at the bottom lines, they’re about the same. And so you go, where do you spend your time? Right? Because now it becomes a matter of of your time and the time you’re going to place in it. So I can manage a hundred small bays.

I certainly can’t manage a hundred self-storage facilities. So that really was a telling sign for us to to jump into industrial and that’s we’ve really liked small bay.

Dylan Silver (10:16)
Is the financing side the capital stack to finance an industrial deal more challenging or trickier than a self-storage deal?

Greg Bond (11:08)
Yes, somewhat. I mean it all comes down to the to the property, right? And and the cash flow coming off of that property. So as long as your debt service coverage ratios are good, financing doesn’t seem to be a problem. Is especially for for any of your listeners that, have a substantial real estate portfolio already with with equity there, the banks typically are going to look pretty favorable adding a new unit to your to your portfolio.

Dylan Silver (11:32)
Let let’s talk about acquisitions here. So when when you’re looking at an industrial parks and you’re looking for an opportunity to purchase at at a price where you’re making your money on the buy, are you also looking for value-add opportunities or is that sometimes more challenging in the industrial space?

Greg Bond (11:52)
No, I’m constantly looking for value add because really over the, again, analyzing the 1031 process, you you you want to get that value add in as quick as you can and then flip that property out to realize that gain from that value add. And then you can either buy a more expensive property or double down and buy two. And so that that’s kind of what what the process has become is how quickly can we do a value add? I mean, I

I I did venture outside of the industrial side because one of our 1031s was coming up. We couldn’t find any deals, so I found a shopping center. And I said, I really don’t want to jump into shopping centers. That’s not where I’m at. But because of the 1031 and the value-add component of that shopping center, right? It’s it’s valued based on the net income. There was two vacant units. They were selling it as if those square square footage didn’t didn’t exist because there was no income coming off that square footage.

So I sought the the value add here is just filling those two vacancies up. And there’s my value add. Then I flip it back out and sell it. So I was able to make a quick $800,000 by filling up those two units, right? Selling it back off and 1031ing into a larger asset that’s throwing off more income. So and a new commission, right? And a new cost segregation study. So it it’s it’s it doesn’t it transcends asset classes. It’s where you can find the value add.

And and push it the quickest to to do another 1031. Again, IRS code you wanna watch out, you probably want to hold it a year, but it probably takes you a year to transition that and and add that value-add component back to the property anyway.

Dylan Silver (13:35)
Let’s talk about vacant units. E whether it’s a shopping center or an industrial bay, do you tend to view those as value-add opportunities just like you mentioned, or are there instances where you’ll say there’s too much vacancy here?

Greg Bond (13:51)
Again, depending on the location. It’s location, location, location. So most of the stuff that that that we buy in Central Florida, I mean, it’s still booming here. So as long as there’s people moving in and things are growing, I I think it’s it’s it’s a a great market. We virtually have, a hundred percent or zero percent vacancy. We’re about a hundred percent full, sometimes with a waiting list in some of the facilities.

Dylan Silver (14:17)
I wanna get a little bit granular, pivot a bit here and and talk about the the specifics of these triple net leases. When people hear triple net, they think, okay, well most of this is being now under the the the management of the the tenant, but there’s aspects in these leases which can be customized and and customizable. What have you seen that may be different operator to operator or or lease to lease in the triple net industrial space?

Greg Bond (14:44)
Yeah, it it’s all across the board. Some of are modified gross, we wait until those leases are up, turn into triple nets. It it it but when we buy a property, we assume the leases that are in place. So it’s not like we can go in and change the leases, right? So it’s it’s AI has been wonderful that way in that they can read that lease and go, Okay, here’s because somebody’s late on rent, what’s the late fee? It’s gonna take us an hour to read that lease and the all the aspects of it and and write the letter and

And now AI just does it boom. So that that has been extremely helpful for us from that side. But yeah, each each lease is different and we’d love a standard lease, but again, in doing what we’re doing, we’re constantly assuming the leases that somebody else had already put together and signed.

Dylan Silver (15:30)
This is actually a question I wanna know selfishly, I i in the case of a tenant who may be behind, I imagine in industrial, this isn’t their home, so i it’s a relatively simpler evictions process.

Greg Bond (15:42)
Yes. Yes. Going through COVID, being we manage a couple hundred doors and prime all four investors and most of them are organic. I bought the property, I rehab the property, I put the tenant in, then I sold it to the investor and I manage it for the investor. So I really come with that that mindset. But trying to throw people all doing covert, you can’t do it. Against the law, you can’t evict people. And n not the same with with with industrial property. They don’t pay their rent.

Get out.

Dylan Silver (16:09)
Get him out, You’re you’re also active in the brokerage side. Now, without giving away all of the gold here, here, Greg, where can folks go to find these deals? Is it all broker relationships? I mean, are they on these, third-party platforms like a Crexi, a LoopNet, et cetera?

Greg Bond (16:25)
It’s it’s all over the place. Some of them you’ll even find on MLS. I mean, as ridiculous as that sounds, when you when you kinda look at the space and you say, again, our our focus has been one to five million, i it it tends to be a lot of mom and pops. And we found a lot of scenarios where the the mom and pop operator has run their business, whatever type of business it’s been for

30 years, right? They’re at the end of their career. Their kids don’t want to take over their business now. They want nothing to do with it. So what do they do? They sell the business. The business is typically bought by a larger company that absorbs it. And now the business don’t want the location. So now they’re left with a building that they have typically paid off, but they have no experience in commercial real estate. So what do they do? They go to anybody that they know in real estate. So

Maybe somebody they’re on a boarding league league with, somebody they’re in church with, somebody that they know from a from some other source, and they say, Greg, can you handle we want to sell our our property. Can you you’re in real estate, can you do that for us? And they don’t know that all that I’ve done my whole life is residential real estate. I’ve no I I don’t know the first thing about commercial. And so I I look at it and go, wait a minute, a four million dollar building? Ding ding ding, three percent commission?

I’ll take, I’ll help you with this. And they really do them a disservice because they don’t know where to market it. They don’t know how to price it. They don’t know, they just don’t know what they don’t know. And so a lot of those, they they put it on MLS. So when you see a commercial property on MLS, guess what? The first thing is that that broker doesn’t know a thing about what he’s doing.

Dylan Silver (18:01)
This is interesting because there’s a lot of discussion about where do you go to to find deals that that effectively, you’re making your money on the buy. And there’s lots of folks who might say, well, with some of these assets you might have to buy at market or or or or maybe just below, but you can’t find it it’s tougher and tougher to find deals that are well below

market. When you have a motivated seller though, someone who who’s looking to sell their business, their kids don’t don’t want it, it’s best to go direct to them. Is that good sound logic? If you can somehow find these people before they get in front of a a a broker putting it on the MLS, that that’s your best opportunity.

Greg Bond (18:41)
Absolutely. Absolutely. And it’s the the the one to five million is is too small for the institutional investor to come in, right? They want to deploy fifty million. They don’t want to deploy five million. So it’s it’s it’s a nice a nice little sweet spot that that seems to be good to transact, or at least that that we found is is good.

Dylan Silver (19:03)
In another asset class that I’m thinking about when I hear about these family-owned businesses, I hear a lot about like RV parks or even mobile home parks that may it’s different asset class, but operating in a in a capacity where this could be family owned. There might not have been huge rent increases over the years, and there may be a value-add opportunity on the property from a from a structural or physical per perspective. So when you’re coming in and you’re you’re underwriting these deals, do you ever encounter situations where

There’s limited books, or it’s like literal pen and paper. Or or when you’re operating an industrial park, it’s everything is is very clear and there’s always great books.

Greg Bond (19:41)
No, they’re just just what you said. Sometimes it’s pen and paper. Here’s my little here’s my notebook where I’ve been keeping everything. Some of obviously have more information than that. But give you one example. We had a a small bay purchase that we did that the guy he built it. He was actually an an occupant in the in his own small bay facility.

And he had become friends over the past 12 years with all the tenants, knew them by name, knew their families, knew their dogs and their kids. And the reason that he was selling, he was he was reaching retirement age and he wanted to sell, but he could have increased the rents on his now friends, which were his tenants, and and got a higher purchase price, but because they were his friends.

He didn’t want to increase the rents on them. So he the the the rents were half of market. Right? All he had to do, and in his c in his in his lease, he had a 90-day clause to raise the rents. He could have raised the rents to market rates, let it fall where it does, right? And he would have got substantially more for the property. Yet because of those relationships, he didn’t want to have to face them every day and have them screaming at him about raising rents.

And what did we do? We bought it, gave a ninety-day notice, went in increased rents, and all of a sudden presto chango, the value has done because we’ve just we’ve just raised rents and the value of that property now based on a seven cap has gone up, a third more, a a third or or more of of what we we paid for it. So

Dylan Silver (21:12)
In those situations, right, what’s the reception like? Are are are people understanding that, hey, we’ve gotten a good deal for so long? Yeah, this makes sense. Other people, they’re saying, Well, I’m I’m I’m looking elsewhere now, what happens when you when you come in and and raise rents like that?

Greg Bond (21:27)
Again, it’s it’s what you expect. It’s it’s kind of the eighty-twenty rule. Twenty percent are outraged and they we’re leaving and they leave. The other eighty percent maybe they want to leave, but they go look around and go, This is still cheaper than most of the stuff around, or at least comparable to what’s around. And now we’ve got to disrupt our business, we’ve got to move, we’ve got to change the address, we’ve got to go through all the rig and roll of of making this transaction or this transition. And it, they they end up staying. So

Yeah, it’s it’s it’s crazy some of the deals out there. And you’ve got you’ve got some of these smaller entities that they don’t want to raise the rents because they’re they’re fine with the cash flow like it is right now. So if we’re okay, let’s just keep good tenants, no need to rock the boat, no need to raise the rents. We’ll just keep like they are for five years. Five years turns into ten years and they haven’t raised the rents in ten years.

Dylan Silver (22:18)
Yeah.

Greg Bond (22:19)
And it goes by like that for them, right? They’re they’re running their business, but yet this entity that could throw off substantially more income for them is not producing at the level that it could or should.

Dylan Silver (22:30)
Especially in Florida. I feel like ten years in Florida is like twenty years in many other markets just because of how much development you’ve seen down there. I wanna ask you about new construction. I don’t know if you have experience with industrial new construction, but do you see any new construction in the industrial space happening? I’ve heard from many operators that in general it’s just harder to to build when you’re looking at multifamily and industrial. Is that generally true?

Greg Bond (22:59)
Yes, right right now looking at the the the rent rates haven’t caught up to to make that viable in in my mind at this point, because your your material cost, your labor cost, your land cost, everything has gone up. And so, you’ve you’ve got to be able to take this and make money with it and and show the bank you’re gonna make money with it to get them to underwrite the deal. So, rents are gonna have to go up substantially more.

Before people are gonna be able to enter back into the market and build those type of of properties again. You still see it happening, but it it’s not on a an on a large scale right now. It’s

Dylan Silver (23:35)
It it seems almost straightforward, right? You have triple net lease, you come in, you make the acquisition, and then it it large part manages itself. You you collect the the the monthly rents. What’s a side of this that maybe people miss? Where where do operators sometimes become distressed in the industrial space?

Greg Bond (23:54)
Well, it it happened to me in two thousand eleven, Dylan. We had a a sixty thousand square foot warehouse. My family had a previous business and we had this big warehouse and and when the business went down we kept the warehouse and kept renting it out. It was great in two thousand eight because I had a five-year lease and the tenants continued to pay through two thousand eleven. So in my particular situation, I lost about thirty to forty percent of my client base on the residential side.

During the the downturn. But my so my commercial building helped cover the cost of the residential side when that was down. And then when the res residential side got back up, right by 2011 I was back up and, pretty much full again on the residential side. But the commercial side went down. So I had this this building that was vacant for 18 months. And that’s where I think the a lot of the

People maybe jumping in this need to take a step back and say, especially the single-use industrial properties, they take a long time to rent. It’s not like a single-family house that you throw it out in the marketplace and in a couple of months you’re gonna have a tenant. It could be a long time. So this particular building was $25,000 a month. And so it about choked us at that point in our careers to come out of pocket with $25,000 cash every month to cover this mortgage until we could get it rented.

I ended up renting it at substantially below market just to get it rented, just to get the cash flow coming in. And so that was that was a a really hard lesson to learn for a single-use large industrial building that you better have some decent backups and some cash flow to be able to support yourself during the downterns.

Dylan Silver (25:38)
What was it like operating an an industrial park during COVID?

Greg Bond (25:42)
Not bad. Not not bad at all. It was now I had friends that had, we’re we’re especially on the small bay side, right? We’ve got small HVAC and electricians and plumbers and and cabinet makers and and granite people and some gyms and some so that the gyms suffered somewhat. A lot of the other guys worked. So it I don’t think we lost anything. I think maybe there’s a couple that we

deferred some payments for them to help them get by. But they came, they came back once once COVID ended and got everything caught up. So I think it’s a matter of working, working with people. We’ve had very few evictions. But we haven’t been through a substantial downturn since we right, we entered that market really in 22. So it’ll be interesting to see, just how that is affected in a in a substantial downturn.

Dylan Silver (26:36)
When we look at the the industrial space a at at large, because these are, five-year leases, do you see that most investors are buy and hold or are they looking at I’m going to, this is a five-year exit for us? What does it look like a as from the investment side hold duration?

Greg Bond (26:55)
Again across the board, I’ve seen more buy and hold than I have flip it out. We’re we’re working right now on a a larger deal. It’s a ninety-three thousand square foot deal. There’s four tenants. That one they’re they’re s actually syndicating. We’re help we we helped facilitate the the purchase. We’re doing the leasing, the lease up for them because it was vacant, and then we’ll facilitate the sale. And that’s the goal there to

basically buy that under market, vacant, fill it up. Once it’s filled, put it back out on the market and f and flip it back out. So

Dylan Silver (27:32)
We are actually coming up on time here, Greg. Any new projects, activities that you’re working on these days? Also, anything you’d like to mention directly to our audience?

Greg Bond (27:42)
No, I mean I I’d like to, like I said earlier, like to basically let these single-family owners know that there’s there’s other options and I I’d love to discuss it with them. I’d love to help them with that. We’re we’re we’re f we’re finding more deals right now than we can finance and we can take down ourselves. So we’re constantly looking for investors to to either partner with us. I I don’t syndicate myself.

But I do look for a good partner to partner with to to take these properties down.

Dylan Silver (28:14)
Greg, thank you so much for your time today. Thanks for joining us.

Greg Bond (28:17)
Well, thank you so much.