Buy Your Building and Fire Your Landlord: The Power of Commercial Real Estate Ownership

Wayne Zell talks with Paul Neal about his background in real estate finance, the pros and cons of renting versus owning commercial property, and tax considerations for owners. They evaluate the commercial real estate market, ideal holding periods, and economic factors like landlord concessions and depreciation benefits. The conversation also covers inheritance, revenue streams, and choosing the right property types for business. Paul shares insights from his book and offers consulting services, concluding with contact information and closing comments.

Key Points

• Owning commercial real estate can provide business owners with significant long-term wealth accumulation and control over their business environment.

• Business owners should carefully evaluate the local market, interest rates, and their long-term business plans before deciding to purchase commercial property.

• Utilizing strategies like depreciation, 1031 exchanges, and borrowing against property equity can offer substantial tax advantages and financial flexibility for business owners.

Timestamps

0:10 Introduction and Paul Neil's background in real estate finance

2:24 Renting vs owning commercial real estate and associated challenges

4:25 Benefits and tax considerations of owning commercial property

9:32 Evaluating the commercial real estate market and ideal holding periods

17:46 Economic analysis, landlord concessions, and depreciation benefits

22:37 Inheritance and revenue streams in commercial real estate

24:12 Choosing property types for business

26:14 Paul Neil's book and consulting services

29:20 Contact information and closing comments

Quotes

"You own your own home typically because it's an opportunity for you to sort of get on the equity appreciation train in America."

- Paul Neal

"If you don't plan on being in a space for three years or more, then it's probably not a good idea."

- Paul Neal

"Anytime we can defer tax payments to the government, it's a good thing."

- Paul Neal

Transcript

Wayne Zell: Hi, this is Wayne Zell and welcome to Blueprint for Wealth, your fast paced video blog that's designed to help you realize your personal dreams of wealth and freedom. And today, I've got a special guest who's an entrepreneur and also a teacher of entrepreneurs, mister Paul Neil. Welcome, Paul. Welcome to the show.

Paul Neal: Hey, Wayne. Thanks for having me. I'm excited about being here today.

Wayne Zell: Good. Thanks for being on. And, just a little background on Paul. He's the owner of VantagePoint Commercial Capital. He's a trailblazer in empowering business owners like you, the listener, to create wealth, autonomy, and control by owning your own commercial space.

So he's not just an expert in real estate and commercial real estate. He's going to help make a very complex topic accessible and engaging, and he did so in his new book, Unleash Your Business, Unlock Wealth, Autonomy, and Control by Buying Your Building and Firing Your Landlord. And it delves into this whole transformative approach to commercial property ownership. So this is a great topic for all of our, listeners and particularly my clients. Tell me a little bit first, Paul, how you got into the whole commercial real estate business, what you've been doing for the last part of your career before you started ManagePoint.

Paul Neal: Yeah. Yeah. So I got into real estate finance in 1998. And ironically enough, I I, my background was not finance. It was engineering.

And, came out of school, actually had a a started a business when I was in school, and I've had, like, six businesses in my career. And Wow. About four of them are related to real estate. Yeah. I had, had some really good successes.

I had one major blow up with the the the financial crisis of o eight, but then turned around and sold another one a few years later. Did pretty well. So, so I've I've seen a lot, experienced a lot, but, specifically in real estate and real estate finance. So through my my experience of working with business owners and entrepreneurs and being one myself and sort of knowing how they they operate, that's that's sort of my tribe. And I sort of noticed over a period of time sort of two camps, Wayne.

Those businesses that, that that were successful over the long run, and they were just heads down focused on growing their business and scaling and doing whatnot, but sort of, you know, living in rented space, you know, lease to lease to lease over time.

Wayne Zell: Right.

Paul Neal: And then and then the other group that kind of the same track, but somewhere along the way, they made the decision that they were gonna buy, a piece of commercial real estate, where they could, you know, home up their business, where they could they could run the business that they're running anyway from their own territory, their own land versus someone else's. And the the disparity over the long run-in terms of the opportunity and the wealth accumulation for that group, it it tended to be, they tended to be in a much stronger situation downstream. And so I got fascinated with that. And and I as I as I did more and more in that space, I also realized that there's a lot of ignorance out there, you know, and and rightfully so because there's really not one source you can go to. You know, commercial lending is more like the wild west versus residential lending.

You know? And, again, most business people and entrepreneurs are heads down. You know? They're working their business. They're they're, you know, meeting payroll.

How can we grow and expand and hire employees and put systems in and all that? And so, you know, the last thing they generally think about is, you know, the space until the lease comes up for renewal or they're, you know, busting at the seams or whatever. There's some trigger moment. But, you know, a lot of times, it's too late at that point to to engage in, you know, an acquisition, and so they just kinda sign again and move on. And so Yeah.

Wayne Zell: I've I've been there myself. I mean, I I have my own business businesses, and I'm currently leasing the space that I'm in, although I love the space. If he would sell it to me, I would buy it, but it would be too expensive. But the idea of owning versus renting is a really important concept. So tell us a little bit about the the benefits of owning versus renting and why it makes sense for a lot of entrepreneurs to consider this.

Paul Neal: Yeah. You know, I I'm gonna do an analogy and and kind of, start with the idea of, you know, with the question of why do you own the house that you live in. You know, it's a similar kind of an idea. You know? You generally when you get started in your career, you're probably not gonna, you know, go buy a house that the first, you know, the first step you make right out of school or at a trade school or whatever.

You're gonna you're gonna rent an apartment or lease a space and for two, three, four years to kinda get your career on track, get your revenue coming in, kinda get your sea legs and all that. But at some point in the in the process, you're you're gonna make this decision that, hey. I wanna buy, buy a house to live in, and and there are a lot of reasons you do it. Right? You know, you can talk about the qualitative reasons.

You wanna make your spouse or potential spouse happy if you're gonna be married because they wanna have a home of their own. Right? In my case, my wife wanted to plant flowers and that sort of thing.

Wayne Zell: Yeah. Me too.

Paul Neal: Right? But but beyond that, you you, you know, you own your own home typically because it's a an opportunity for you to sort of get on the equity appreciation train in America. You know, inflation is one of those things that is never gonna go away. In fact, the government likes inflation, a certain amount of inflation, not a lot of inflation. And so real estate generally in the long run will appreciate in value.

No one knows the short run, the one, two, three year cycles of real estate. But, generally, if you're in an area, unless it's going south, you know, in a major way, it's gonna be worth more in the future. So you kinda struggle to get into that first house. You're making payments. You've gotta live somewhere.

So instead of paying the the the tenant or the landlord, you're paying yourself every little payment. A little bit of it goes into equity. Your property should appreciate. There's some tax advantages there. And so it puts you in a position that downstream three, four, five years later, now you've got this asset just by living, that you can do something with.

And so, and and as as we know, statistically, the the bulk of Americans' wealth as they get older is in the value of their their home. And so if they don't have this home to invest in over time, then what is their, you know, what is their wealth situation look like after thirty, forty years of working? And so with a business, the the concept is the same thing. You you wouldn't go out and try to buy, your commercial building in the first few years of business. I mean, you're trying to figure things out.

You're getting your customers. You're learning your systems, hiring employees, maybe maybe upgrading employees and staff, and all that to get to the point where now you've got, your sea legs. You've got consistent profitability. You're growing, and you have runway ahead of you that you you feel like you're gonna be in this for a while. It's not, you know, I'm gonna pop out in two years and go on to do something else.

And so the idea is, okay. Now you're stable. You're growing. You you you've gotta house your business somewhere, and I'm gonna ask by that, Wayne. I'm specifically talking to businesses that have a need for a local presence.

Right? Right. So whether you have employees or customers or patients or clients coming to a local location

Wayne Zell: Serve service oriented type clients.

Paul Neal: Absolutely. Yeah. Yeah. Yeah. Not not a sort of a virtual only business where your employees are distributed.

It's maybe you're, you know, you're doing something online or whatever completely. Not for you. But for those locally based businesses that have that that runway ahead and, and and okay. Now you're in a position to do it, and so you should consider it for a lot of the same reasons that you considered buying and you bought your own personal house, the equity appreciation that's So so I'm

Wayne Zell: gonna play devil's advocate with you for

Paul Neal: Yeah.

Wayne Zell: a second. You know, one of the big challenges I see is, first of all, you're capital constrained. You know, you've got working capital that you need to, to run your business. Secondly, I think what a lot of people don't understand is the liquidity issue. When you buy real estate, you're sort of locked in for a period of time. So if your business changes, if you wanna go to a new direction, you've got this albatross around your neck that you can't easily extricate yourself from. And thirdly, there's the maintenance and upkeep. If you own the building, then you're responsible for the roof and the HVAC and all of that kind of stuff. So how do you address those three things?

Paul Neal: Yeah. Great questions. So I'm gonna say like this. The the first one, capital constraints. I mean, you're right. There's a lot of folks that don't have capital. And in that case, frankly, you know, you should probably stay in lease mode for a little longer. But the statistic is pretty wild. I mean, lending has gotten a lot easier over the years. I mean, there are lenders out there that will finance eighty five to ninety percent of your, your acquisition. So you may only need to put down on a property, depending on the size, maybe twenty or thirty thousand dollars.

Wayne Zell: Right.

Paul Neal: You know? So if you think about it like this, if you're in a thousand square foot space or fifteen hundred square foot space, and you're paying three to five thousand dollars a month in lease payments, I mean, that's thirty six to sixty thousand a year, you're writing a check. You're getting no value for that whatsoever. If you could put twenty or thirty thousand down and now your payment is, you know, maybe two, three, four thousand. Your cost of your occupancy might go down, but more importantly, now, you're getting, you know, equity appreciation.

So that's the first thing. The second thing is the liquidity. Yeah. You're right. You can't just wake up tomorrow and say I'm outta here. But you can sell it. And in, most markets in the U.S., commercial real estate is not that hard to sell if you've got a stable tenant, you've got your business occupying it.

I mean, investors would pay for that. So the idea is maybe if things change, you know, you're in a situation where maybe you're an awesome dentist, but you've got somebody else who wants to move in and practice dentistry in your space, or you've got maybe your cousin wants to move in and run a small practice out of there. Well, now you're in a position to lease it or sell it if you want. So I mean, it's not, it's not completely illiquid. You're not gonna, you know, sell it in a day. But within a few months, you've got a pretty good idea of whether you can sell it or not.

And then on the maintenance piece, I mean, yes. I mean, maintenance is an issue, but I mean, typically what happens is the landlord is gonna pass on the maintenance to you anyway, especially if you're a long term tenant. They're gonna say, you know, what, buddy. You maintain it yourself, or I'm gonna charge you for it. So, you know, you're probably not saving a ton of money there. And more so, when you when you own it, at least you've got control.

You can decide, you know what, I'm gonna defer some maintenance. I'm gonna push the roof, you know, it's got another five years. But on the flip side, if you're leasing, the landlord can come in and say, you know what, we need to do a tenant improvement, whatever, and now you're on the hook for it. So I mean, ownership gives you control, and you're not necessarily spending a lot more money on maintenance.

Wayne Zell: So let me ask you something else. We we're in an inflationary period. But you know, if you own property, you're paying a fixed rate mortgage, right? So the payment is locked in for fifteen, twenty, thirty years. And if there's inflation, then you're essentially paying down your debt with cheaper dollars in the future, right?

Paul Neal: Exactly. You just nailed it. That's absolutely right. And so you've got the benefit of leverage. You've got the benefit of paying down the loan with inflation. You've got the benefit of, at least, some sort of tax advantage because the principal and interest are potentially deductible because it's a business asset. And beyond that, you've got the equity appreciation from the appreciation of the underlying property over time. So it's a compounding effect, you know?

Wayne Zell: That's pretty powerful. So let's say you bought a property, and you had a female business owner, maybe an amazing female business owner, who had a business, and she was leasing space at, let's say, five thousand dollars a month. She uses that money to buy a building, and now her mortgage is thirty five hundred dollars a month. That means she's got fifteen hundred dollars a month freed up cash flow for other aspects of her business. She can invest more in marketing, or other things. But beyond that, five thousand dollars a month times twelve is sixty thousand a year. You know, multiply that over thirty years, that's almost two million dollars that she's paid out for the building that she could have purchased with her own.

Paul Neal: Yeah. Exactly. And here's the thing. If she's done it from, you know, say, age thirty five, age thirty. I mean, now she's in her sixties. She's gonna retire. You know, a building that cost maybe three hundred thousand dollars, two hundred fifty thousand dollars is now worth maybe a million dollars or more. So now, you know, she's got this amazing asset.

She can do, you know, she could rent out half of it if she wants. She could continue to operate her business on one side and rent out the other side, and now she's got other revenue sources. She can, you know, if she doesn't need it anymore, she can sell it and take the proceeds. Or if she's, you know, got to, she could even give it to her kids if she wants. Or she could do a a one o three one exchange and buy another property that's gonna give her more cash flow.

Or if she wants, she could sell it, or she could do this past this building now now worth, I don't know, how many million dollars to her two kids, you know, downstream, and they've got an amazing, you know, nest egg to to start their life. So there's a lot of advantages. One of the other ones too that a lot of people don't think about is as you as the equity appreciation grows in the property from pay down on the loan and the the the value, you can borrow money out of that commercial building, and you're not paying taxes on it because it's debt now, not and not a capital gain.

Wayne Zell: That's a very good point. You can borrow against the equity in your own property.

Paul Neal: Yeah.

Wayne Zell: And you're not using a bank. You're borrowing it from yourself or from the entity that that owns it, which is magnificent. You know? It's a magnificent way of of accruing, transferring wealth, as well. And so Yeah.

We've done that before. In the few minutes we have left, I had one question that deals with commercial real estate, and I'm not sure if you if you're comfortable answering it, but this was my question. If I had the choice you know, in in Northern Virginia, everything's expensive. The the the cost of real estate has just skyrocketed particularly along the Dulles Toll Road where there's all this massive development going on. And so let's say I'm a dentist or a lawyer or a CPA, and I'm I'm looking for, you know, the right property.

There are very few stand alone properties that you're gonna see around here. And if you do see them, they're in very unusual places that may or may not be conducive to attracting clients and customers. So the option is buy something like that that may be sort of off the beaten path or buy a condo in a bigger building that, you know, was converted, say, from a leased building to condos, what would your advice be to the client? You know, what are the risks of going into a condo building

Paul Neal: and things like that? Yeah. I mean, I'll answer it. I mean, obviously, every situation is different, and it and and I'm I'm tracking you because in the in the areas like Northern Virginia, that that is it is more difficult with, with land and and development. We have people buy condos on a regular basis, but I I always, you know, caution them and footnote the the this whole idea that, you know, when you buy a condo, you're signing up for this this whole association.

Right? You're signing up for, you don't have total control at the end of the day. You know? There are things that can come down from the association of assessments and things like that.

Wayne Zell: Right.

Paul Neal: And so you just have to be a little more leery about that. You know? That might not be a thirty year hold. That might be a ten year play, you know, and that you use it as a stepping stone or or whatnot to to get to the next level. So I would I would definitely look a little deeper and a little harder at that before you pull the trigger.

Wayne Zell: Good good advice. Good advice. So we're talking today with Paul Neil who, is a an entrepreneur. He's a financial strategist, and he's an author who wrote unleash unleash, not unleash, unleash your business. And, Paul, if people wanna get a copy of the book, how do they find it?

Paul Neal: Yeah. Absolutely. If they go to my website, ownyourbuildingnow.com, that's ownyourbuildingnow.com, they can get a free copy. You pay shipping, like, $67. We print it and mail it to you and, can have it I

Wayne Zell: just signed up. I just I just ordered mine.

Paul Neal: Yep. Oh, sweet. And, you know, the whole thing about it, Wayne, is my the idea is business owners, entrepreneurs are super busy. We we don't really like to read because we're moving so fast. Right?

And so I wrote it so you could sit down on a Saturday morning with a cup of coffee in about an hour and a half to two hours and and and get a really high level overview of the whole process, you know, the benefits, the the the risks, the process, what's involved and all that. So you can walk away at the end and say, okay. I've got a pretty good idea of how you know, what's involved in this now, and at least, be pretty educated in the process.

Wayne Zell: Do you provide a source of capital? Does your business provide a source of capital for potential buyers?

Paul Neal: So, generally, we don't. Most of what we do is the front end sort of preparation. So we're we're more of a consulting. So we do four things. We we we investigate.

We underwrite. We evaluate. And then if you want, we can help facilitate the transaction. We have funding sources nationally that we work with, really good. But, you know, I found in my experience that, again, business owners are busy.

There's a lot of ignorance in the market. There's a lot you don't know. And we don't know what we don't know. And so our job is to, you know, minimize your time involvement, but glean as much information as we can in an efficient way to then be able to come back, uncover the issues, maybe, you know, uplift the skeletons out of the closet so we can address all these things and understand. But more importantly than that, understand what are those goals, short term, long term.

What are you trying to accomplish to see what makes sense? And then at that point, advise and say, okay. Wayne, based upon what you're telling me, your business financials, these issues, you know, here's what we suggest, and here's three or four options in the market, the pros, the cons, the pluses and minuses, like, you know, this one has covenants. This one requires you to pledge your house. This one doesn't require that.

You know? So you at least understand going in, and then you can make an intelligent choice to say, alright. If I wanna move forward, now I know, you know, what it's gonna take to do it, and you're prepared. And then we'd be happy to then assist because most of the folks we work with at that point want us to facilitate, you know, and get the deal done.

Wayne Zell: So how do they get in touch with you to find out about your consulting service?

Paul Neal: Same thing. If you go to ownyourbuildingnow.com, there's a button you can schedule a a little twenty minute, strategy session. We'll have a call and, either myself or one of my team and just to kinda, you know, check the boxes and see if it's potentially an option for you or not.

Wayne Zell: Good. We've been talking with Paul Neil. Paul, thank you so much for being a special guest on Blueprint for Wealth today.

Paul Neal: Yeah. Wayne, this is great. I appreciate it. Those are great questions and great dialogue.

Wayne Zell: Good. And, I look forward to talking to you again about buying my office building soon. So at least sending some clients down your way. Again, thank you listeners for listening to Blueprint for Wealth. Tune in next time for another special topic and a special entrepreneur guest.

Have a great week.