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Episode Summary
You sold the company (or you’re about to), the cash is sitting there, and the advisor wants to hand it to a mutual fund manager you’ve never met. That’s not investing. That’s outsourcing. I had Mike Sowers back on the show because he’s the rare operator who runs the same value-creation playbook I teach on businesses, just on buildings. NOI is EBITDA in different clothes. The cap rate is the inverse of the multiple. The game is the same game. Mike has done over $150M in commercial real estate transactions since selling his residential rehab company, and his new book lays out a seven-step system (find, figure, fund, fix, fill, financials, freedom) that maps almost one-for-one onto how a private equity firm thinks about your business. We got into why suburban office and small-bay industrial are where the math actually works right now, why the “apartments are safer” instinct is mostly crowd psychology, how bonus depreciation can wipe out the tax bill on your sale proceeds in year one, and what an active versus passive partnership actually looks like when an owner deploys capital outside the company.
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## Top 10 Takeaways- Your business and a commercial building are the same asset: operating cash flow priced on a multiple.
- NOI is just Normalized EBITDA in real estate clothes. Cap rate is the inverse of the multiple.
- Value-add beats stabilized when you have an operator’s hands on the controls and a real plan.
- Long-term risk is overpaying for stabilized cash flow you cannot grow. Short-term risk is blowing the operations.
- Project future stabilized NOI, apply the multiple, back out costs and margin to get max price today.
- Apartments are the crowded bar. Suburban office and small-bay industrial are where the math still works.
- Bonus depreciation can wipe out the tax on your sale proceeds in year one if you redeploy into real estate.
- Active investors get paid for the work. Passive partners pay a split to skip it and still get the write-offs.
- Your business is a financial asset whether you treat it that way or not. The market will treat it that way.
- Intentional means your activities align with your plan. Otherwise you’re just busy.
Sound Bites
“When you’re buying a piece of real estate, you are buying an operating business, literally. It just happens to be a business that’s in the business of owning investment real estate.” (@TBD) — Mike Sowers
“It’s the same thing in real estate. But for some reason in real estate, instead of multiplying by a five multiple, we like to divide by a 20% cap rate.” (@TBD) — Mike Sowers
“Long-term risk is the risk that you overpay for an asset and now it’s worth less than you have into it. Short-term risk is that you blow it on the fix, fill, and financials.” (@TBD) — Mike Sowers
“Apartments are the sexy girl at the bar that everybody wants. You’ve got a hundred different investors going after one deal. Nobody’s buying suburban office, so we can pay what we want to pay.” (@TBD) — Mike Sowers
“It means where your activities align with your plan.” (@TBD) — Mike Sowers
About This Episode
Mike Sowers is the founder and CEO of Commercial Investors Group, host of the Creative Commercial Real Estate Podcast, and author of Commercial Real Estate Investing: A Step-by-Step Guide to Finding and Funding Your First Deal. He sold his residential rehab company for millions before transitioning into commercial, and has now done over $150M in commercial real estate transactions. Mike was a previous guest on the show telling the story of his exit. This episode is a follow-up where he walks through the seven-step system he built post-exit and Ryan draws the parallels back to how owners should think about their company as a financial asset.
Resources Mentioned
- Commercial Real Estate Investing: A Step-by-Step Guide to Finding and Funding Your First Deal by Mike Sowers — Free PDF available at commercialinvestingbook.com
- Commercial Investors Group — Mike’s firm. Reach Mike directly at mike@commercialinvestorsgroup.com
- Commercial Investing Mastery Program — Mike’s coaching program for active investors
- Previous episode with Mike Sowers — His exit story from the residential rehab business
- CCIM Designation — Referenced as the highest private designation in commercial real estate
- EOS (Entrepreneurial Operating System) — Referenced as the operating system Mike implemented in his business
Connections
Phase + Module:
- Module 2 — Expand Knowledge — Learning how the capital markets price cash flow streams, in real estate and in your business
- Module 4 — Sustainable Financials — The three-statement view of any operating asset, including a building
Milestones:
- Milestone 2 — Cash Flow Targets & Sources — Real estate as a diversified income source alongside the business
- Milestone 3 — Net Worth & Valuation Targets — How outside assets bridge the gap between business value and freedom number
- Milestone 4 — Owner’s Value (DCF) — Discounting cash flow streams, the shared language of business and real estate valuation
Concepts referenced:
- Normalized EBITDA — NOI is the real estate equivalent of the same number
- The Multiple & WACC — Cap rate is just the inverse of the multiple, same math
- Value Gap — Where outside investing can bridge the distance between business value and freedom number
- Free Cash Flow — The cash stream both asset classes ultimately produce
- The Four Value Levers — Drive the cash flow, drive the multiple, the same playbook on either asset