242. REAL DEAL: The Jump from Residential to Commercial with Blake Dailey

Summary

Podcast Summary: Real Estate Investing School Podcast – Episode 242. REAL DEAL: The Jump from Residential to Commercial with Blake Dailey

Overview

In Episode 242 of the Real Estate Investing School Podcast, host Real Estate Investing School engages in an insightful conversation with Blake Daly, a seasoned real estate investor who successfully transitioned from residential to commercial real estate investing. The episode, released on March 6, 2025, delves into Blake's pivotal deal, the challenges he faced during the renovation, his innovative financing strategies, and the valuable lessons he learned throughout his journey. This summary captures the essence of their discussion, highlighting key points, notable quotes, and actionable insights for aspiring real estate investors.

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1. Introduction to Blake Daly's Transition

The episode opens with the host introducing Blake Daly and setting the stage for a discussion about transitioning from residential to commercial real estate. Blake immediately emphasizes the importance of ambition in real estate investment.

Blake Daly [00:00]: "You're only going to keep yourself small by playing a small game. I found that bigger deals are easier. Bigger deals are more fun when you get them closed. Bigger deals make a bigger financial impact, both cash flow and equity. And bigger deals allow you more leverage."

2. Blake's First Commercial Deal

The conversation shifts to Blake's first foray into commercial real estate, where he moved from managing multiple single-family homes to owning a multifaceted commercial property.

• Deal Overview

  Blake acquired an eight-unit commercial property in Fort Walton Beach, Florida, for $357,000. The deal was structured with 10% down through seller financing at an interest rate of 4.32%.

Blake Daly [01:14]: "I was like, you know what? The numbers tell me this is good. It's only my emotions that are getting in my own way right now."

• Overcoming Fear and Uncertainty

  Blake candidly discusses the initial fear and uncertainty he faced when stepping into the commercial market, highlighting the emotional barriers many investors encounter.

Blake Daly [01:14]: "Something that you just got to get over at some phase. You got to just get over it."

3. Navigating Renovations During a Pandemic

Blake details the extensive renovations required for the property, undertaken during the challenging period of the COVID-19 pandemic.

• Renovation Challenges

  The renovation process was fraught with delays and increased costs due to the pandemic. Contractors were scarce, and material prices surged, forcing Blake to significantly exceed his initial budget—from a planned $500,000 to approximately $800,000-$850,000.

Blake Daly [02:02 – 04:44]: Describes tearing down the front wall and realizing that rebuilding would have been more cost-effective, yet choosing to invest in making the existing structure brand new and functional.

• Appraisal Success

  Despite the high renovation costs, the property appraised at $1.6 million, validating Blake's investment strategy.

Host [04:48]: "Awesome. So. So you're into this thing three."

Blake Daly [04:50]: Explains the all-in investment totaling around $1.15 million and the refinancing process that allowed him to repay his investors and retain his own capital.

4. Innovative Financing Strategies

The discussion delves into the creative financing methods Blake employed to secure and refinance his commercial property.

• Seller Financing and Private Money

  Blake utilized seller financing for the initial purchase and raised private money from five investors, each contributing between $80,000 to $120,000, totaling approximately $700,000. He added $100,000 of his own funds to complete the investment.

Blake Daly [05:55]: "So that was about 700 probably total from them and then the other 100 that was into it was my own."

• Refinancing to Traditional Loans

  Post-renovation, Blake refinanced the property with a new loan at 7% interest over 25 years, freeing him from the seller financing arrangement.

Blake Daly [07:01]: "I did completely refinance out to a new loan, like a new basically loan that replaced it and it was a 7%, 25 year a.m. 10 year, commercial term."

• Advantages of DSCR Loans

  The conversation highlights the benefits of Debt Service Coverage Ratio (DSCR) loans in commercial real estate, allowing underwriting based on the asset's income rather than the investor's personal income.

Blake Daly [07:33]: "You don't need it in a commercial. DSCR loans, baby, they underwrite the asset, not you."

5. Identifying and Capitalizing on Distressed Properties

Blake shares his experience in identifying a distressed property that others overlooked, recognizing the underlying potential despite its severe condition.

• Property Condition and Opportunity

  The property was in disrepair, with deteriorating exteriors and problematic tenant behavior. However, Blake saw an opportunity to transform it into a profitable asset.

Blake Daly [08:13]: "It was real bad. It had gross old... you know, chain link fences, all the bad stuff... just put it".

• Acquisition Strategy

  Blake acquired the property directly from the seller after a wholesaler failed to move it, demonstrating his proactive approach in securing valuable deals.

Blake Daly [10:08]: Describes bypassing the wholesaler and dealing directly with the seller to expedite the purchase.

6. Key Takeaways and Advice for Aspiring Investors

Towards the end of the episode, Blake offers actionable advice for listeners looking to transition from residential to commercial real estate.

• Confidence and Action

  Blake underscores the importance of self-confidence and taking decisive action, overcoming fear, and making logical decisions based on thorough underwriting.

Blake Daly [11:17]: "Get off your butt and take some action. I would say some confidence in yourself is really important."

• Due Diligence and Critical Evaluation

  He advises investors to conduct meticulous due diligence and to critically assess their deals by acting as their own devil's advocate.

Blake Daly [11:17]: "You have to underwrite thoroughly. You have to do your due diligence thoroughly."

• Scaling Up and Leveraging Bigger Deals

  Blake encourages investors to pursue larger deals to maximize financial impact, equity growth, and leveraging opportunities such as OPM (Other People's Money) and enhanced loan options.

Blake Daly [11:17]: "You're only going to keep yourself small by playing a small game. I found that bigger deals are easier... Bigger deals make a bigger financial impact, both cash flow and equity to you."

7. Conclusion

The episode concludes with the host expressing gratitude and admiration for Blake's insights and achievements. Blake reiterates his willingness to share knowledge and inspire others in the real estate investment community.

Host [13:17]: "Love it, dude. Thanks so much, Blake. Appreciate you. This has been fire."

Blake Daly [13:24]: "Good, but happy to do it, man. Anytime."

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Key Insights and Lessons

1. Embrace Bigger Deals: Transitioning to larger commercial deals can lead to greater financial returns and operational efficiencies.
2. Overcome Emotional Barriers: Confidence and logical decision-making are crucial in navigating the fears associated with new investment ventures.
3. Creative Financing is Powerful: Leveraging seller financing and private money can facilitate acquisitions without relying solely on traditional lending avenues.
4. Thorough Due Diligence: Rigorous analysis and critical evaluation of deals help mitigate risks and ensure successful investments.
5. Adaptability During Challenges: Successfully managing projects during unforeseen circumstances, such as a pandemic, demonstrates resilience and strategic planning.
6. Direct Negotiations Yield Better Deals: Bypassing intermediaries like wholesalers can lead to more favorable acquisition terms.

Final Thoughts

Blake Daly's journey from residential to commercial real estate investing serves as an inspiring roadmap for investors seeking to scale their operations. Through strategic financing, meticulous planning, and unwavering confidence, Blake exemplifies how ambitious investments can lead to substantial financial growth and professional fulfillment. This episode is a must-listen for those aspiring to elevate their real estate investment game and embrace the opportunities within the commercial sector.

Transcript

[Blake Daly]

You're only going to keep yourself small by playing a small game. I found that bigger deals are easier. Bigger deals are more fun when you get them closed. Bigger deals make a bigger financial impact, both cash flow and equity. And bigger deals allow you more leverage.

[Host]

What's up, guys? Welcome back to another Real Deal episode of the Real Estate Investing School podcast. We have a fun one for you today. If you're someone who wants to make that leap from residential to commercial real estate investing and just keeps getting stuck because it's either unfamiliar or scary or you've just never done it before, this is an awesome one. We're talking about a deal with our guest, Blake Daly. Let's jump into it. You went from, you know, having eight. Eight single family houses or maybe four single family houses that all had, you know, a detached living area. So eight units, essentially. And you went from eight doors to buying one commercial property, your first one that had eight doors, eight units. Can you tell us just really quickly about that deal? Just kind of like, really, I want to know how. How you found it and then how you found it.

[Blake Daly]

You know, the funniest thing, dude, at the very beginning, it was the fear and uncertainty. I was like, it's completely different. Well, eight doors in one property even work, like, to. To people standing in Airbnb want to stay next to other people staying in Airbnb. Like, it's a. It's different. Different business model. There's fear, there's uncertainty. I most didn't go through with it and put in the offer, and then I was like, you know what? The numbers tell me this is good. It's only my emotions that are getting in my own way right now. And something that you just got to get over at some. At some phase. You got to just get over it. And I think after that and seeing it work out, I was like, okay, now I know what that voice sounds like. I can recognize it and turn off the emotion to that thing and be more logical and, you know, strategic about the things that we're doing. But this was.

[Host]

You got to make that leap at some point, right? That's like.

[Blake Daly]

Right? Yeah, absolutely, man. And so this was a year and a half after buying my first deal. This was like November, December of 2020. And I got this lead. I was, you know, doing direct to seller stuff. I'd, you know, I was, look, I was underwriting commercial deals. I got to the point where it was strs, then apartments, and I was like, let's marry these things up, and was looking for, you know, Essentially commercial apartments or whatever. Hotels that could be operated as like a hybrid of, of Airbnb in a hotel. And I found this one eight units. And like I said, like I had the confidence right away because like I already had the eight. Now here it is all together. So I know what that looks like operationally with the guest demands. Now it's got laundry on site, so my cleaners can do everything there. And while the, you know, while the units are ready and the guests can get there, get in there, we don't have to wait on laundry. We have all our supplies there. It'd be just a lot easier to manage. And I got it for357,000. This is in the panhandle of Florida, Fort Walton Beach. 350K. 357000 for the eight doors. And it was 10 down seller financing at 4.32%. So the size of the deal, the cost of the deal, the, you know, the, the creative finance structure, it all made it work in my mind. I was like, okay, I've got something here. Like I can do this. I can pull this off. And we got into the renovation. Luckily it was, you know, no, it was at the end of 2019 because I closed in 2020 I think. No, it was at the end of 2020. Closed in February of 2021. So this was like co delay time. This was stimulus money time. So nobody was showing up to work. Couldn't get contractors there. Every piece of material that we ordered, you know, was taking way longer. Some stuff like three months. It was crazy. Doors and windows I think were three months, four months when we ordered them. And then all the cost of materials, like lumber went up, drywall went up. Everything is more expensive. So bought it for 357. My plan was to put 500k into it. I think I ended up at like at about 800k, maybe 850.

[Host]

And then it was in pretty bad shape then, huh?

[Blake Daly]

Oh dude. Full, full renovation. I found out after the fact for like 3,600 square feet, it would have been cheaper to just tear this thing completely down and rebuild it. And I almost essentially did that because I tore down the whole front wall and you know, how to support the structure and rebuilt the whole front wall. And I was like, yeah, we should have just tore this whole building down. It would have been way easier, like crazy. But everything's brand spanking new in that puppy and it appraised on the back end.

[Host]

So I think, sorry, it praised for what?

[Blake Daly]

1.6 million, 1.6.

[Host]

Awesome. So. So you're into this thing three.

[Blake Daly]

I think my total allin was like 1.15 and I got a 70% loan of value loan for a million 50. So I refinanced out all my investors and it was my 100k that I left in. So I got everybody paid back. It was a big burr and held it for cash flow. And I think it cash flow is about 40. Consistently about 40, 35 to 40k per year. So if my hundred grand into it, I've, you know, I've been paid back now in cash flow, which is, which is good. So like basically a 40.

[Host]

Did you get your 100k back you said?

[Blake Daly]

Because I through cash flow. Yeah, I left 100k into the deal. That cash flow is about 40k per year, so about a 40 cash on cash after it's all said and done and got.

[Host]

You don't have any partners on that now.

[Blake Daly]

You just.

[Host]

You own that one outright now or not outright, but you own that. Just you and your wife.

[Blake Daly]

Yeah.

[Host]

Cool. And then so you just, you just found private money for the. Did you get. Was the hard money part of the rehab as well and then you just borrowed the.

[Blake Daly]

Yeah, so it was seller financed at 90 on the purchase and then raised private money from, you know, just investors that I knew. I think it was five of them in total, all between like 80 and 100, 120k, something like that. So that was about 700 probably total from them and then the other 100 that was into it was my own. And yeah, so it's big, big private money raise.

[Host]

Yeah, yeah. What's cool and interesting about that one is a lot of times we, we look at like seller financing and it's like ah, unless they're willing to do it for a long time, I'm gonna be stuck in the same situation, you know, a year from now or two years from now or even five years from now with a big balloon payment, you know, if there's not a lot of opportunity to force that appreciation. But for you, this one's cool because you're able to negotiate that, which just made the whole lending process probably a lot easier. And you got way better rates than if you were to just go get hard money. And then on top of that you completely refinanced out of it. Is that correct or did you keep the, the seller financing in place?

[Blake Daly]

I did completely refinance out to a new loan, like a new basically loan that replaced it and it was a 7%, 25 year a.m. 10 year, commercial term.

[Host]

Cool. So I did one, very similar numbers to this. And this is, this is good for like people that are listening and then they're like, oh, well that's, that's great. But the reason I got seller financing in the first place or I'm looking for seller financing deals is because like I don't have the income required or whatever. Right? The, the, or the tax returns or whatever it may be.

[Blake Daly]

You don't need it in a commercial. DSCR loans, baby, they underwrite the asset, not you.

[Host]

And that's what I was gonna say. Like DSCR loans, they'll do a cash out. DSCR loan, they'll even do it on, on residential properties. Which is, which is wild.

[Blake Daly]

Yeah, that one that I showed you guys or I was telling you guys about those seven blocks away from the first house that we lived, that had the house and the guest house and the pool that we bought out of pre foreclosure, that we got a DSCR loan on the purchase and refinance. Two months later. DSCR loan, cash out refi.

[Host]

Wow, cool. Would you say the reason that a lot of people didn't go after this deal and it sat on the market was just because it needed so much work or what did you see in it that maybe the hotel.

[Blake Daly]

Oh, dude, it was, it was bad. It was real bad. It had gross old, like goldish yellow and like baby blue vinyl siding that was like falling off and disheveled. The exterior areas looked like, you know, the worst trailer park you'd ever seen. You know, broken down lawnmowers and old ratty lawn chairs and bicycle parts sitting around and trash cans and debris and you know, chain link fins, all the bad stuff. Right. And then the units were rented like week by week to basically druggies. Like when we did demo, we found spoon heated up spoons, right? Burnt spoons. We found needles, we found, you know, baggies of stuff and it was just, it was bad, dude. They had ply like compressed particle board on the walls instead of drywall and then plumbing outside of that, like over outlets, like water lines over outlets. So there's so many code violations, so many things wrong with this property. There was a header of a door frame that had like split in. I don't know if I can't remember if this was like settling or they just improperly did the header of the door that they just like duct tape up, duct tape over. And it was like concrete block like that falls on somebody's head. That's a, that's such a lawsuit. And they just put like a, a 2x4. Didn't fasten it. They just used that as like a brace, basically like a splint. And then just duct taped all around it and just so many things, man. And like the seller was wild and you know, not taking care of the place, running out to the wrong people. Didn't care. He's collecting cash. You know, he was, he was living the dream and living on site and all this madness too. I was like it just screamed of opportunity and that it needed some love.

[Host]

Yeah, yeah, that, that, that answers my question on why a lot of people didn't jump on it.

[Blake Daly]

I can make this work.

[Host]

Was it listed on the market or how did you find it? And was. Was he advertising it as seller finance or did you.

[Blake Daly]

It was originally, I think it was, it was a weird one. I think he had put it up on LoopNet himself. Not with a broker, like one picture and basically his phone number or something like that. And then that had not really gone anywhere. And then a wholesaler got it under contract and couldn't move it. And then I had found the Loop Net listing and then reached out to him. I was like, oh, this is the seller. Like I'm just going to drive over to Fort Walton beach and meet you and then try to make a deal with a wholesaler. He's trying to mark it up a lot. And I was like, I'm just going to wait for your contract to expire, dude. Because you're providing no value here. I'm dealing with the seller. It's like so you're really not helping at all. And a week later that expired, got the deal under contract and moved on it.

[Host]

Cool. Yeah, I love it, dude. So advice aside from like not being scared, like make making those logical decisions versus the emotional ones that would have held you back initially. Any other advice? Just to kind of close, close it all out. For someone that's wants to go from residential. Yeah.

[Blake Daly]

Outside of just like get off your butt and take some action. I would say some confidence in yourself is really important. I mean that, that could be like a fear based thing or squashing the fear in order to have the confidence. But I think what you find you can do, you'll be surprised when you put yourself in the position to make stuff happen and like when the. The game is on the line, so to speak, like you show up and you know, you perform well because really it's not that it's not the game on the line. It's your money on the line or your Investors on the line or whatever it is. And of course, that means you have to underwrite thoroughly. You have to do your due diligence thoroughly. You have to try to look for, like, pursue the opportunity, but then be your own devil's advocate. Like, try to pick apart the deal. You know, try to step back from it like your own emotion. Because anybody in this deal that's a. In this room, that's a deal finder, like, gets excited, gets so hyped when they get a good deal under contract and all they want to do is get that thing closed. But just take a pause and try to poke holes in it and, you know, bring. Bring some, like, realism into the conversation, but have confidence in yourself throughout. Throughout that. That those numbers prove it to yourself. If devil's advocate version of you doesn't, you know, poke the deathly blow into the deal, have the confidence to go through with it. Because you're only going to keep yourself small by. By playing a small game. I found that bigger deals are easier. Bigger deals are, you know, more fun when you get them closed. Bigger deals make a bigger financial impact, both cash flow and equity to you. And bigger deals allow you more leverage like opm, other people's money, dsco, dscr, loan options. Right. All these different things. The ability to hire a team, the. The. The control over your value, like we talked about with the noi. So confidence in yourself kind of leads to all of those things. And if you guys want it, go get it.

[Host]

Love it, dude. Thanks so much, Blake. Appreciate you. This has been fire. Such good stuff. I knew it was going to be.

[Blake Daly]

Good, but happy to do it, man. Anytime.

[Host]

Okay. Much love. Thank you, guys.