How a $300K Commercial Real Estate Deal Produced a $250K Cash-Out Refinance | Adam Craig

Adam Craig (00:00)
I purchased property for around a hundred and ninety thousand. I think it only required maybe about a hundred and ten of work. So I was all into it for three hundred. I want to say it appraised for about eight or nine hundred. I took a loan out for five fifty. I walked away with two hundred and fifty thousand dollars in my pocket, tax free, because it’s debt. And that was the moment. I realized, man, this is where it’s at. This is where I need to go. There wasn’t a single other person who was interested in buying this building and I made this kind of money. This is kind of a little hidden secret, I would say.

Joseph Crooms (01:59)
Hey everyone, welcome to Investor Fuel Real Estate Pros Podcast. And I’m your host, Joseph Crooms. Today I’m joined by someone I’ve been looking forward to chatting with. His name is Adam Craig who is out there doing some investments.

In the investing field. He is a broker. He’s making some serious moves in the industry. I’m going to let him explain what he’s doing. I’ll ask him a couple of questions. So sit back, relax guys. Tune your ears in. I think you’re gonna enjoy this ride. All right. So let’s dive right into it. So first of all, Adam, say hello to everyone.

Adam Craig (02:39)
Hi, thank you. Appreciate you having me on the Investor Fuel Show.

Joseph Crooms (02:42)
Thank you very much for being here, Adam. So first of all, for people who may not be familiar with your world, give us the short version. What’s your main focus these days and what markets are you operating in?

Adam Craig (02:53)
Yeah, so after starting real estate investing way back in 2013, I did a ton of single-family flips and rentals and I had a big portfolio of rental properties going. I thought I’d be doing that and buying apartment buildings. And then somewhere right around 2019, everything flipped a switch. It wasn’t by you know, it wasn’t on purpose. I would say it was definitely on accident, but I had my first child. I was looking for an office space because the homework environment wasn’t very quiet anymore. And upon looking for a little rental space from my office, I ended up finding an office building.

Long story short, I bought that building. Things started rolling and I never looked back. Since 2019, I have not purchased any residential properties, but we’ve purchased roughly thirteen commercial buildings, totaling over twenty million dollars in about six years.

Joseph Crooms (03:36)
So how does that translate in as far as volume and revenue on a monthly basis, say the last couple of years?

Adam Craig (03:43)
Yeah, so just to put it in perspective, the first seven years I did residential real estate, I accumulated a portfolio totaling maybe three or four million dollars. That portfolio was cash flowing anywhere from twenty to twenty-five thousand a month. And it took me, you know, a good seven, seven or so years to accumulate that. In contrast, the six years I’ve been doing commercial real estate, and when I say commercial, it’s mostly office, retail, a little bit of warehouse. I’ve accumulated a portfolio.

Roughly around seventeen million in commercial real estate and the cash flow of roughly around forty thousand a month. So you can see the economies of scale when it comes to commercial compared to residential single families is not really comparable.

Joseph Crooms (04:23)
Adam, let me ask you this. What caught your interest about the commercial end of things?

Adam Craig (04:29)
Yeah, so I had zero interest in commercial real estate going into it. Everything I had was in residential. I wanted to buy these apartment buildings. I thought this was where they go. But then when I stumbled into my first office space and I leased out that building and made some money, I kind of glossed over the fact that I leased that building out during the heart of COVID. Right when COVID started, I leased that building out. And I said, Man, you know, if I can if I can do this during COVID, if I could fill this building up and make a little bit of money, I could do this during good times.

Simultaneously, the residential market was just going gangbusters and not in a good way. My first six, seven years in the industry, I could buy deals all over the place. They were they were abundant. But as many of you and your listeners know, since about 2019 and definitely since COVID, the real estate residential market has been just a hot cake. Everyone’s in it. Prices are high, rates are high. So the pivoting was not planned, but timing could not have been better because the competition in my space is night and day compared to what it was in residential.

Joseph Crooms (05:23)
Adam, I’ve never asked this question before, but I’m gonna ask this question. How does the rates compare to the residential in relationship to your niche now and commercial? What is the big difference?

Adam Craig (05:36)
I would say they’re pretty similar. You’re still gonna get investor rate loans, but once you get into the bigger numbers, maybe a million and above, you start to get more efficient rates. So, if they’re financing a single-family rental at seven percent, I might get six point two percent on my million and a half dollar building. So you do get some economies of scale on the bigger loan size.

Joseph Crooms (05:55)
What’s your what’s your audience now? I mean, you know, is it people that are I guess we reword it, is it people that looking I need an office space or is people that that have had office space and they’re looking to further invest?

Adam Craig (06:57)
So in terms of our tenants, we talk about these office buildings all day long, but we don’t have traditional office tenants. As you know, when COVID happened, office space was dead. And again, we have to convince the banks of this story as well. But what we started learning is we’ll take a 30,000 square foot office building, we’ll revamp maybe half of it to accommodate what we would consider like beauty lofts, your salons and your tattoo artists and your massage parlors and things like that. So

We’ll have a traditional office building with half of it being nontraditional office tenants. So we’ve been able to keep our buildings full. It increases the valuation. So we have a lot of customers who are in the beauty industry, even though we have office buildings. We didn’t anticipate that going in, but it’s worked as better than we couldn’t expect it.

Joseph Crooms (07:39)
Adam, is that like on the ground floor or like is that like store space? And then you have on top of them some actual office space?

Adam Craig (07:48)
You would think so. I had a hard time getting over that obstacle as well. I said, you know, who who’s want to come to the third floor of an office building to get their haircut? But you know, I’ll give you an example. We had a thirty thousand square foot building. About three thousand square feet of that was an old dentist office. It was beat to hell. We had to figure out what to do with it. It had all the dental stations there. So we took—the expensive part, which is the plumbing. Every station had a little bit of plumbing, and we just boxed that into about a 12 by 15 room.

And we created eight or nine individual rooms within that unit. So previously we had been getting three thousand a month for this three thousand square foot dentist unit, and we were gonna have a hard time finding a dentist. After we remodeled it to the beauty lofts, we got about fifty four hundred a month for the same unit. Granted, we have seven or eight tenants to deal with and not one, so it is more work, but the numbers double essentially.

Joseph Crooms (08:34)
Thanks Adam. So Adam, now that you got more tenants, who who’s your primary clients knocking at your door now?

Adam Craig (08:42)
It’s a mix of everything. In terms of in terms of the people that we look to network with, I had a social media campaign on the residential side and I used to get a lot of eyeballs and a lot of interest. Then when I switched over to the commercial side, it’s very difficult for people who are into residential to understand the commercial, myself included. So we don’t get a lot of a lot of traction on our social media when we have our commercial posts, and it’s really just because people understand.

Renting out houses, renting out apartments. They look at this commercial stuff and they say, what the hell is this guy doing? My contractors admitted a couple of years later that when I started buying all these buildings, they thought they were gonna be out of job pretty soon because they thought I was crazy. But I don’t share the numbers with those guys for various reasons.

Joseph Crooms (09:23)
Hey, so so so I love what you’re saying, Adam. Adam, well no, what is it that the residential people can’t wrap their heads around that you see?

Adam Craig (09:33)
I think it was who is gonna rent this space. When I the building I’m sitting in right now is actually what I office hacked as my first property. I occupy maybe a quarter of the building and then I lease out the other 75%. And when I was remodeling this building, I had no idea how to remodel it, no idea who to remodel it for. But kind of like *Field of Dreams*, if you build it, they will come. And eventually we inflowed the tenants and every property you learn a little bit and a little bit more on how to rehab it and how to attract certain tenants.

And then before you know it, you know, I feel like we’re pretty proficient at it. So I think a lot of the residential folks don’t understand how many businesses are out there looking for space. Because I will say on the residential side, we put up a single-family rental and we can usually have a lease in a few days. On the commercial side, it could take anywhere from a few days up to a few months. So you definitely have to dig real hard to find these tenants. But once they’re there, they typically stay well.

Joseph Crooms (10:19)
So you’re in the Cleveland area. Is that your primary market area or do you go outside there at as well?

Adam Craig (10:25)
But everything we own is within forty five minute drive of Cleveland. So this is our only market.

Joseph Crooms (10:29)
So in Cleveland, what types of businesses are you seeing now that’s very interested in what you’re with your marketing to them?

Adam Craig (10:38)
So our properties, I would say, are B and C class properties in B and C class areas. So we don’t have anything in the real niche trendy areas. We find that the prices that you have to pay to acquire an asset in those areas never is offset by the increased rent. So, if you’re buying a building for a million dollars in some trendy area in Cleveland, I can get the same building in maybe a non-trendy suburb for several hundred thousand dollars. So everything we are buying is

You know, vacant, dilapidated, misrun. And we do these giant value-add projects where we can come in, buy something for a half a million, maybe put about 300,000 into it, and then we’ll have an appraisal on the backside for maybe a million and a half or two million. So everything we buy requires a lot of heavy, heavy lifting. It’s nothing real shiny that’s all filled up with tenants.

Joseph Crooms (11:25)
So relationships are very important. Can you tell me what type of people or business owners are in also partner with you? You know, whether clandestine or really knitted in. Can you explain that to them?

Adam Craig (12:18)
Yeah, I mean so our tenant base is mostly we have like you know, we don’t have a ton of what you would say franchise tenants. You know, we have a few banks and a few big-name tenants, but most of them are mom-and-pop businesses. And everything from the hairstylist up to the person who runs we have a lot of adult day centers, we have a lot of home health care companies, things like that.

Joseph Crooms (12:39)
And so who have you partnered with, what property managers and construction talk to me about that, and what’s made the biggest difference for you by partnering with these type of people.

Adam Craig (12:48)
You know, it’s definitely our construction team because, you know, as I started residential property, I probably ran through about fifty or sixty contractors, many of which who ripped me off before I knew anything about anything. But now I have you know, the same eight to ten guys who’ve been working with me for nearly a decade. And those guys know what I need. So I buy a building, give them the game plan, and it’s very rare I have to check on these guys because they just know what I need. So having a team like that in place for the construction side has really made a big difference.

Joseph Crooms (13:12)
Are they actually working for you or are they still independent?

Adam Craig (13:15)
The they are independent, but they work for me three hundred and sixty five days a year. So, you could take that for what it is. And in terms of property management, we do everything in-house. We don’t hire out anything, so

Joseph Crooms (13:25)
So you said the relationships and building those relationships, what’s been the biggest difference for you from the residential to business? What’s been the biggest thing that you found out about building relationships?

Adam Craig (13:41)
I mean, if you don’t have the relationships, it’s really difficult to go far in this business. It’s definitely difficult to scale. So having the relationships just makes everything easy. You know, you know where to turn when something comes up. So that’s a been a big factor. If back in 2013 when I had zero relationships, everything I needed from contractors to attorneys to property management, you know, I was just going to the drawing board and when you’re trying people out, you often don’t get the result you’re looking for until you try, try, try again. And finally I found some good people and I hung on to them.

Joseph Crooms (14:09)
Yeah, it sounds like especially with your construction group, I mean three hundred and sixty five days a year. I’m pretty sure when you call, they come running, huh?

Adam Craig (14:16)
Yeah, and these aren’t the guys, for a long time I was calling the guys with the big-names on their truck and the big-names in town. And these aren’t those guys. These are the guys that work for those guys essentially. They don’t always have their business together in terms of marketing and vehicles and all that stuff, but they know what they’re doing and they can do a good job. They just don’t run the business that well, which is fine, for me because they come work for an investor. They can cut their prices a little bit and just know they’re gonna stay employed all year. So

Joseph Crooms (14:39)
Let me ask you question. Have you given any guys, any of these type of guys any business advice?

Adam Craig (14:44)
Yeah, I would say, I don’t know, out of the twenty or so that have worked for me over the years, probably about a dozen of them had wanted to invest in real estate themselves. But not a single one of them actually has. As as I was talking alluding to in the beginning of our conversation about the doers and the dreamers, a lot of these guys are more dreamers.

Joseph Crooms (15:00)
Gotcha. What’s been the key to keeping your machine running smoothly?

Adam Craig (15:06)
Probably about five or six years ago, my wife, who had been a stay-at-home mom, the kids finally started getting past the baby stage and I was able to bring her on in a larger fashion. And, you know, just from an organizational standpoint, she’s made the world of a difference. So having, you know, your wife work with you has its pros and cons, but in terms of someone you know you can trust and do a good job, you know, it’s really made things smooth.

Joseph Crooms (15:27)
So the question that normally asks is you mind sharing one of those moments when you had to pivot fast, but I want to ask you a different sort of question. When did it click? Okay, I need to let this residential go. This is the way to go. When did it click? How did it click? And what did you do about it?

Adam Craig (15:44)
It was probably the—was it the second commercial deal I purchased. I had read the commercial books. I’ve heard all these big cash-out refinance stories. I was doing cash-out refinance and the BRRRR strategy on the single-family home. So every once in a while I’d have a real good property and I’d refinance it after it was done, keep it as a rental, and maybe I’d walk away with ten thousand dollars on a refi. On the commercial side, I’ve read about these larger numbers, but I didn’t experience it until my second deal.

I purchased property for around a hundred and ninety thousand. I think it only required maybe about a hundred and ten of work. So I was all into it for three hundred. I want to say it appraised for about eight or nine hundred. I took a loan out for five fifty. I walked away with two hundred and fifty thousand dollars in my pocket, tax free, because it’s debt. And that was the moment. I realized, man, this is where it’s at. This is where I need to go. There wasn’t a single other person who was interested in buying this building and I made this kind of money. This is kind of a little hidden secret, I would say.

Joseph Crooms (16:38)
I just repetitive but side by side, one year in this business, how has your book of business been in comparison to the residential business at a year running side by side on it, say for a year?

Adam Craig (16:52)
My first year in residential was rough. I don’t even want to think about it. That was stressful times. But yeah, I mean I it’s hard to compare because I had so many systems in place by the time I got over to commercial. But yeah, I mean, cash-flow-wise after one year it was probably five or five or six X what the numbers were on the residential side.

Joseph Crooms (17:09)
And how many buildings did you would you say you have on a monthly basis? Which is—how many buildings do you actually own or manage right now?

Adam Craig (17:19)
So we own 12 and we have one under contract. And that’s the other big contrast from real estate on the residential to commercial. And there were a couple of years where I had bought 10 to 15 single-family homes. Some of them I flipped, some of them I did rentals. And those were real difficult years. I was running around like a chicken with his head cut off, and it was just way too much. But on the commercial side, thanks to buying larger buildings, I’m now doing about two deals a year, and they might be anywhere from 15,000 to 30,000 square foot buildings. But

In terms of the amount of workload, it’s considerably less than the residential side was. Bigger buildings, but less work, if that makes sense. Just because you’re remodeling for office and you’re not trying to sell a home that needs to be on HGTV with granite countertops and backsplashes and kitchens. You’re just doing real basic office remodels.

Joseph Crooms (18:03)
Do your tenants that are occupants of your commercial side, how long do they normally stay with stay in the building as renters?

Adam Craig (18:13)
So the salon type units where I talked about the beauty loft, some of them will be as little as a year and some of them stay a long time. We don’t require long-term leases on them. But a lot of the reason people do prefer commercial is because you’ll see longer leases. So when we get a larger company, a home healthcare company, we’ll have a three to five year lease. If we have a very large company like KeyBank or Huntington, they’ll go as far as 10, 15, 20 years. We don’t have as many of those, but you larger companies will sign very long leases.

We have a Huntington ATM that gets eight hundred dollars a month and they have a twenty year lease and it goes up every year. So, that’s a nice one there.

Joseph Crooms (18:49)
And let me ask you, Duke, what have you learned about vetting your tenants? Have you ever rejected a tenant?

Adam Craig (18:54)
So on again, on the residential side, we vet them pretty, you know, pretty hard. What we didn’t know when we came over to the commercial side is the same eviction laws do not apply. So here in Cleveland, it’s I wouldn’t say difficult to get a tenant out, but you know, you have to go through the courts, you have to spend the money on attorney. It can be anywhere from 30 to 45 to maybe 60 days after that. On the commercial side, as long as your lease is written correctly, you can put a three-day notice on their door.

Three days after that, you can change the locks. You can take everything inside to try to recoup yourself. And there’s no court involved at all. A lot of people don’t know that, even some of my tenants who think they can they can play those residential games. But so we do not vet nearly as hard as we did on the residential side just because we know we can get them out of there. Now, if we get like a restaurant or something where we know we’re gonna have to do a big build-out and it’s gonna be a lot of work in order to get them in, we vet them extremely hard. But if it’s gonna be a quick in and out

Thing, we do bank account, standard application, and that’s about it.

Joseph Crooms (19:49)
Man, thank you so much for sharing it, Adam. So let me ask you this. So that’s the kind of stuff that you talked about, but that separates the folks who are dabbling from those who stay into the game long-term. And you’re definitely a long-term player. So kudos to you. Let me ask you this. What are you focused on solving next? What’s your next real goal?

Adam Craig (20:08)
I can’t say that my asset goals have changed. I’m still buying similar properties, maybe a little bit bigger than some of the other ones, but I am now in a long-term, I guess, plan of delegating more and more out. I’ve done a really good job of that over the last five years. I was picking up my phone for every tenant call, every tenant email, but now I’ve got a guy who kind of gets in between me and the tenants. So

As I continue to grow, I want to put a little more distance between me and the tenants so I’m not so much in the weeds and that’s kind of been my plan here is to continue to set up systems so I’m not doing everything.

Joseph Crooms (20:40)
You know what? Unfortunately, we’re starting to run out time. But man, you are have been so informative. So let’s do this. All right, before we wrap up, if someone wanted to reach out to you, connect with you, maybe collaborate or even learn about what you’re doing, what’s the best way to reach you? And you can repeat it, please repeat it twice.

Adam Craig (21:00)
Sure. I am on Instagram. My name is Adam the Investor. You can visit me on my website at CLEinvest.com. Happy to talk to anyone. I’ve taught quite a few people on residential and a few people on the commercial side. I don’t have classes. I don’t charge. I just love networking and talking real estate. So feel free to give me a call.

Joseph Crooms (21:17)
Give it to them one more time, man. Because somebody said they got so excited that they lost their pen. They flipped up in the air so we say now they got it back. Give it to them one more time.

Adam Craig (21:25)
Sounds good. It’s Adam the Investor on Instagram, or my website is CLEinvest.com.

Joseph Crooms (21:31)
Perfect. Well listen, Adam, I appreciate your time, your story, your perspective, your philosophy, and the knowledge that you gained. But most of all, I really appreciate how you’re telling the audience I’m willing to share. And that that’s huge. So thank you again for being here, Adam.

Adam Craig (21:47)
Well, thanks for having me.

Joseph Crooms (21:47)
Yeah, so for those of you tuning in, I know you got some value from this conversation that I had with Adam. We got more conversations coming from operators just like Adam. He is the man in commercial real estate, so pick his head. So you got the information. So who out there doing real business, helping real communities and what more can you say? He’s a real person.

So we’ll see you on the next episode of Investor Fuel Real Estate Pros Podcast.