What makes investing in commercial real estate attractive in the United States, how to get over paralysis by analysis and how to find a great business partner? We are interviewing Reed Goossens, author of Investing in the U.S. – The Ultimate Guide to US Real Estate, & 10,000 Miles to the American Dream. He came to the United States with limited funds, no investing experience, and no credit, he went from purchasing a small duplex to growing his own real estate investing firm, Wildhorn Capital. Reed now syndicates large multi-million dollar deals across the U.S.
What are the key differences between investing in real estate in Australia and the United States?
Do you have an hour? From a fundamental point of view, people have asked me “Have you made money in Australia in real estate investing?” The answer is no. I’ve not actually ever invested in Australia. I picked up a book called Rich Dad Poor Dad in late 2009, started self educating myself in Aussie, doing some very basic things like fixing, flipping, and lease option. I was going to pull the trigger, but then I moved to the United States. Since being here in the United States and doing business here for the last eight years, I’m looking back at Australia and I now understand the differences. It really boils it down to a couple of key factors. The number one factor is population.
Australia, from a landmass point of view, is about the same size as mainland America (excluding Alaska and Hawaii). And we have about 24 million people. You compare it to America where you have about 350 million people. I think at last count, in Australia we can only inhabit about 18 or 20 percent of our land because the majority of the land is actually a desert. When you can only buy in coastal markets, couple that with where you have a very small population. Compare that to America where you can reside pretty much from east coast to west coast, from north to south. And the population is also another factor, meaning that you there are secondary tertiary markets where it’s more affordable to live. So when you can have the entire country, you have a larger population. It means that there’s going to be more pockets for affordability, people will try to seek out affordability.
Compared to Australia, where everyone is bottlenecked around the major cities. The second thing is that the United States, out of all the Western countries in the world, because of the population, because of the capitalism and because of different ways in which business is done here, has a combination of both appreciation markets, but also cash-flow markets. In Australia, we’re all really in just the appreciation game. And that comes back to the population point of view. The third major issue with Australia, particularly when it comes to commercial real estate, is that because we only have 24 million people, the lending facilities that we have in Australia, are not as great as what they are here in America, meaning that we can’t find in Australia commercial, A grade debt like you can find here, Freddie and Fannie, that is interest only for 7 or 10 years and amortized over 30 years. In Australia, you can really only find stuff that’s maybe interest only for two years that might really only last a seven year term. A non-recourse is very difficult to come by in Australia.
And that’s just purely because one, the lack of population, two the lack of different financing arms in order to finance the country. Unlike America, we have four major banks in Australia, you probably have maybe a dozen lending arms in Australia in terms of on the commercial side, here in the States we have thousands of different ways of getting commercial financing for your property. Couple all that together, and I’m going to throw in another wrinkle which is that multi-family commercial real estate does not exist in Australia, and that doesn’t exist because the banks don’t view it as a business. Also, banks will only get involved with construction of new multifamily if you pre-sell X amount of space, X amount of units off the plan, which is a condominium. So all these factors, population, land, mass lending criteria and lending arms that are available to commercial real estate and the way in which they view particularly multi-family real estate. I’m just getting started on the different ways of to compare the United States vs. Australia. So when people talk about commercial lending in America and the investment landscape, there is just such an opportunity that most Americans don’t realize when compared to other countries, particularly Western countries, there’s just so much more opportunity here than there are in Australia where I’m from.
Would it be fair to say that commercial buildings are mainly owned by a handful of people, to put it simply?
To put it simply, yes. The easiest way to compare it to is think of L.A., New York, and San Francisco. That’s Australia. You’ve very high demand capital cities where people want to live, low cap rates, I don’t know who specifically owns the big buildings. The Rockefeller Center obviously was run by Rockefeller back in the day, but I don’t who owns it now. But high demand, low supply, low cap rates. That’s exactly the same environment as it is in Australia when it comes to office buildings, hotels, commercial assets. So when you compare it like that, think of the L.A., San Francisco market all over the entire country because of the population.
So you moved to the U.S. and within seven years you were financially free. Tell us a little bit more about that. Were you working during those seven years full time while investing in real estate? How did that come about?
Yes. The first forté into the real estate market was educating myself prior to moving here. And the reason I moved to United States was two loves, one love of New York City and the love of my wife, or my then girlfriend, now my wife, who was American. So I moved to United States as a structural engineer, that’s what I went to school for, that’s what I did from the better part of the decade. And I got a job in New York City, I think within the first month of being fresh off the boat, I was at my first REIA event, the real estate investment associations, and quickly realized that the barriers to entry here in the American market was so much lower. Not obviously in New York City, but in other outlying secondary, tertiary markets, like I saw in Syracuse, New York, a a four hour drive from New York City.
And I started looking in those types of markets because I couldn’t borrow when I first moved here because I didn’t even know what a credit score was because I didn’t have any credit. So my first forte into the real estate game was actually buying a triplex for $38,000. And it was just because I could choose a market that it was affordable and was within driving distance from New York City. I could get started in the market. That was how I got started. I was self educating myself for about 2.5 years prior to coming to America, going to the REIA events. Then when I came in 2012, fresh off the boat, I started learning the American lingo and the American commercial real estate investment ways. And then within six or seven months of being in the country, I’d have my first deal because those couple of years prior to that was just all self educating. And I got to the point where I was getting analysis paralysis and I needed to stop reading about doing deals and actually go out and do them. And America allowed me the opportunity to do that because the barriers to entry into the market were so much lower compared where I’m from.
How did you buy that first property without a credit score?
All cash. And for those people who don’t know how to build credit if you come from another country, I had to put down a thousand dollars on a credit card and just started spending that money. I also showed the local bank that I was depositing rental checks and that I did use my own money. So when the local bank realized that I was using these rental checks coming in and that I had bought this with cash, they then gave me a line of credit for about twenty five thousand dollars over six months, so I was able to prove that. And then they gave this line of credit and I was able to go buy deal number two. And so from that, I slowly built credit over a period of time, my worthiness to be lent to went up. And that’s how it is. Slowly but surely I got the credit going.
Let’s talk about paralysis by analysis. What would you recommend people doing? How much do you recommend people learning in order for them to buy their first property?
Analysis paralysis is needed. And I think I’d rather be at the analysis paralysis stage than not doing anything other than jumping in too soon. You always have to start with education, education, education, education. And even today with 1,800 units in multi-family, I’m still learning, and continue to learn. It’s really important, if you are getting into this game, to understand how to underwrite deals, because that is the most important thing. If you don’t know what a deal looks like, you won’t know how to act. You don’t know how to go get it under contract. Understanding the numbers behind a particular commercial is really, really important. Understanding how the income is generated, how revenue is generated from a property, whether it be from a multifamily, or a hotel, a warehouse, self-storage, whatever it might be, you need to understand how the top line is created and how do you increase that top line. The second thing you need to understand is what expenses do each individual assets in the commercial “sector”.
Multifamily has different expenses than a hotel, and the hotel has different expenses than a self-storage facility. So you need to understand line by line what those expenses are. You need to understand how to read a P&L statement. Once you know how to read a profit loss statement, you want to understand how to generate revenue and reduce expenses, or maintain expenses at a reasonable rate. That’s how you learn how to increase the net operating income and thus the cash flow and thus the overall value of the asset. If you don’t know how to do that, then you need to start there.
If you do know how to do that and you’re trying to get out of your own way for analysis paralysis, you have to surround yourself with people who are doing it, because analysis paralysis just means that you are too scared. You haven’t seen or experienced enough things or people around you to order to be confident to go do it. So the analogy I like is, if you’ve ever been jumping off a diving platform at a pool and it might an intimidating diving platform, it’s fun, it’s scary, but, your friend does it first and then you’re like, oh, he did it, I can do it. It’s the same thing with analysis paralysis. If you’re not surrounding herself with people who are actually doing commercial real estate deals, then you’re not going to have the confidence to go and do it yourself. But what it does mean is if you are surrounding yourself with people who are doing commercial real estate deals, maybe you can learn from them. Maybe they can be a mentor of yours to give you credibility, to give you the confidence to go out and be an operator. The analysis paralysis can be overcome by understanding numbers, understanding how to find deals and surrounding yourself with the right people in order to be successful, in order to use their credibility or to ride on their coattails towards helping you become a successful operator. If that’s what you want to be.
How did you go about finding your business partner?
A little bit of luck. I’ve had business partners in the past that haven’t worked out. There are two things that you’ve to be cognitive of: first and foremost, understanding what your skillset is. For me, I was working full time with this developer in L.A., and I was also wanting to do deals on the side and I was co-syndicating deals with my mentor. This is back in 2014/2015. I wanted to stop playing second fiddle to my mentor and I wanted to go out and be my own operator. So I started looking at 50 to 100 unit deals in Dallas. Now I live in Los Angeles, but I needed to build out my mousetrap. I hired a couple of analysts because what I was realizing was that I was working full time, I was having my life, my relationships, I was trying to enjoy my life, go to the beach, but also build the business and keep moving it forward. And I realized that I was being the bottleneck in my business. So I went out and started developing my systems in and around underwriting deals. I hired people at $15/$20 an hour to underwrite more deals because if they could underwrite more deals, that means I could see more deals and I could then make offers in more deals.
And I was making offers on all these deals and getting the best and final, I was getting the seller calls. But I didn’t have that one piece which was missing from my toolset which was the boots on the ground, the credibility with the brokers. And I was missing out on these deals by $30,000- $50,000, which is not a lot of money in a couple of million dollars deal, because I didn’t have that broker relationship. And that is where my business partner had a skill set that I didn’t have in, boots on the ground. And he was not into the weeds like I was into the weeds and he wasn’t into building systems like I was building systems, but he had something valuable that he could bring to the table. And we had complementary skill sets. So the most important thing when you are finding a business partner is that you want to have complementary skill sets. You don’t want to be doing the same tasks twice. And understanding that this business, and any business, it takes a team to do it. You can’t do it all by yourself. If you think you can, you’re hugely mistaken because you going to burn yourself out too quickly trying to wear all the hats. And that’s not how to be effective.
Back to the question of how we met. I had been “dating” a lot of people and it was really by chance that someone had introduced us to one another. He is a little bit older than me, about five, six years older, and he has that young hustle type of mindset being in his mid to late 30s. Again, he had something to bring to the table that I didn’t have and I had something to bring to the table that he didn’t have. So it was very much a mutual respect for one another instantly. Over time, we developed more of that respect, making sure our values align, making sure we understood where the direction of the business is going and understanding what our North Star is. And really our North Star for both of us is living a life by design. Living a life on our terms. And so if we both agree to that, then we know how to direct the ship in the way that we want to go. We can go off and conquer more. Andrew, my business partner, goes and shakes the lemon tree, and I determine if we make lemonade or lemon juice out of it.
Is there anything else that our audience should know? Or any tips that you would like to share with them that you learned along the way?
The big thing with all of this is that people want to do real estate investing to become financially free. They want to get into the business to leave their day job. What I say to people is to run your own race. Don’t look at other people. Look at your own situation. Look at how you can continue to move the needle and enjoy the journey, because ultimately life is short and you will get to where you’re going with the right mindset. It may take some time, but if you have the wrong mindset on the front end and think you’re going to be financially free within two years, you might be able achieve that. Well done. But the majority of us can’t achieve that. It might take five, six, 10 years. And I’m an example of that.
I moved to this country with limited funds, no established network, and started learning essentially from scratch. And I was able to achieve financial freedom in seven years. Now, seven years is still a long time, but what I’m saying is that if you go into this thinking you’re going to achieve it in two years and you get to the end of two years and you haven’t achieved that. You have a higher likelihood of quitting and not sticking to the game. If you go in thinking that this may take seven to 10 years, you’re going to enjoy the journey a little bit more. You’re going to be able to give yourself credit when credit is due. When you’re slowly putting one foot in front of the other. And over time, if you’re consistent with what you do, you will see results. consistency, mindset and never giving up is really important.
I second that very much, especially that first year can be a bit challenging.
When I say don’t compare yourself to other people, if you need a day job to keep the bills paid and keep the roof over your head, then keep it. It’s what you have to do. Do whatever you need to do in your life in order to keep you happy and keep the wolves at bay. And if that means you need to be in a W2 job for another three or four years and you have to work harder on the weekends, so be it. But it’s OK, you don’t have to compare yourself to anyone else because “Oh I didn’t achieve financial freedom for five or six years”. Who cares? I was hustling at this whole thing since from when I first moved here in 2012 to 2017, before I was able to quit my day job. It was a lot of hard work, a lot of sleepless nights and long weekends. But I got there in the end because I knew I could back myself. And that’s one other lesson is learn to back yourself. Learn to bet on yourself. If you can’t bet on yourself, then who can you bet on? And that’s really important to understand as well.
And five years in the grand scheme of things is really nothing.
I remember someone saying to me, when you’re 70 or 80 years of age, talking with your grandkids, does it matter if you have achieved financial freedom in 2017 or 2021 or 2025? And the answer is it doesn’t matter. What matters is that you are their granddad, and you watched them grow up. We’re all wanting it to happen tomorrow. And that’s great. Having drive is really important because that’s what got me here. But also making sure that you don’t neglect other areas in your life is the message I’m trying to relay here.