If you’re a real estate investor wondering how your skillset translates into the world of business acquisitions, this one’s for you. In this powerhouse conversation with Carl Allen, we break down the exciting parallels between real estate investing and buying businesses using creative financing strategies. From leveraging your deal origination skills to understanding how to structure seller-financed and “sub-to” business deals, we show you exactly how to make big moves—without using your own money.

We also get into some next-level topics like wholesaling businesses, syndicating equity, and the five key things every investor looks for before saying yes to a deal. If you’ve ever wholesaled real estate, you’ll be blown away by what’s possible when you apply that to businesses. And if you’re playing in the multifamily space, wait ‘til you hear how “big boy pants” deals work when you’re syndicating millions in capital to own companies doing serious cash flow. Stick around to the end—we’ve got a free masterclass waiting for you if you’re ready to level up.

Full Transcript:

What’s the exit strategy? If we buy this business and it’s a ten million dollar deal, how can we sell it for twenty, thirty, forty, fifty million dollars? Like, who’s gonna buy it? Right? What about wholesaling businesses?

And and what about the prospecting method I see a lot of whole sellers use is using VAs and cold calling and things. Is that effective at all in the business acquisitions?

On a real estate deal, it’s different. Right? Real estate deals are all about cash flow. They’re all about appreciation.

Because a a real estate multifamily deal, it’s like a static deal, isn’t it? Right? It’s not living and breathing like like a business. When all of the payments are going out on a monthly basis, does the cash flow from the business operation give you sufficient cover?

And what we’re doing on business deals is you want at least a one point five x cover ratio. Right?

So Carl, I’ve been a real estate investor for about six years. Nice.

And you know what’s interesting is when we got into deal making, at least when I did, there’s so many parallels between real estate investing and creative financing and and buying businesses.

There are. Really the idea of creative financing is just kind of a similar concept as a LBO, a leveraged buyout. Right? Yeah. Think about any real estate investors watching this. How easy is it to translate and leverage your experience into buying businesses?

It’s very, very easy for a number of, different components. Right? So the first transferable skill is your ability to originate deals. Right?

So as you know, whether you’re buying real estate deals or you’re buying business deals, it all starts with with deal origination. Right? Deal flow. Right?

If you don’t have opportunities, you’re not gonna close deals. So your your prospecting skills as, a real estate investor are gonna translate very, very easily to business buying skills. And, like, with the real estate market, you know, there’s only two ways you can really originate deals. Right?

You can go to the MLS, like Zillow or whoever, Redford. The MLS in buying businesses is called BizBuySell, and there’s Transworld, and obviously the brokers. Right? But we don’t do that.

Right? That’s not the smart way to do it. What we do is we originate off market deal flow, and off market deals are the kind of the holy grail. So off market deal flow in the business buying world, we use direct approaches, we leverage deal intermediary network, and we leverage social media.

Right? So we’re getting deal flow that’s off market. So there’s no broker involved. You can go one on one with the seller.

You can build incredible levels of rapport and build really solid relationships. And the higher that level of rapport and the more you can align your values to that of of the business owner, the seller, then, the more creative that you can get in terms of the deal structure and the price. So when you’re doing deals right as a business buyer, I guess it’s the same with real estate. One of the other things that’s very relatable is there’s only two variables you can control in a negotiation.

Right? You’ve got price and you’ve got terms. Right? And as a buyer or a seller, you’ve gotta pick which one of those variables that you wanna control.

So as a seller, you might say, hey. Well, I’m fixed on my price. Right? I’m not binging on my price.

I want four million dollars for my business, and I’m not gonna negotiate on the price. But you as the buyer, you can control the terms. You can say, well, okay. Your business is doing eight hundred thousand dollars a year in cash flow.

You’re valuing it at a five times multiple. It’s a little bit on the high side, but, okay, it’s doable. I’ll do that deal, but I’m gonna pay you over ten years. So I’m gonna take the eight hundred thousand dollars a year in cash flow.

I’m gonna give half of it to you as the business owner, and I’m gonna take half as the new owner, and I’m gonna pay you that four hundred thousand dollars over ten years, and that’s the four million dollar sale price. Right? Or as on the other side, the seller might say, hey. I’m controlling the terms.

I need ninety percent of this deal paid at closing. Right? If he’s controlling or she’s controlling the terms, you can then control the price and say, well, hey. If I’m paying you ninety percent at close, I’ve gotta go and get, say, for example, an SBA seven a loan.

And banks will only appraise the value of a business based on their lending criteria. So that’s gonna result in a much lower valuation. You might only get a three times multiple or a two and a half times multiple. So it might only be like a two million dollar acquisition, which the bank’s gonna support.

So that’s you complying with the seller’s terms, I e, I want ninety percent down at closing, or then you’re controlling the actual price. So you can only control price all terms. So those two things are very, very transferable. And then what’s also interesting, Chris, is the actual mechanics of closing a deal are, again, very, very similar.

Right? So when you’re doing deals either in real estate or in business, right, there are two things you do to close the deal. Right? Once you’ve agreed the price and the terms and you put the deal under contract in a business acquisition, that’s called an LOI, a letter of intent, or a heads of terms if you’re in England or Australia.

What you then do is you have to do due diligence, and then you have to kind of execute on the legal contract. Right? So on the due diligence side, when you’re buying a business, you’re gonna check the tax returns. You’re gonna check the bank accounts.

You’re gonna vet the balance sheet income statements. And you don’t have to do that. Right? A CPA can do that.

And then the lawyer is gonna check the title of the business, check there’s no pending litigation, check all material contracts on all those different things. Right? But now, obviously, on a real estate deal, your due diligence is is a home buyer’s inspection report. Right?

Does the thing have dry rot? Is it falling down? Are there cracks in the wall? Is it dilapidation?

All those different things.

Title searches.

Title searches. And so that’s that’s the legal piece then. There’s a legal transaction to pay for the deal to transfer the ownership of the real estate from the seller to the buyer. So there’s so many different parallels, but what I would say is the biggest thing that I see that makes real estate investors super successful is that prospecting ability, that ability to go out and hunt for deal flow and then just flow through the rest of the transaction.

That’s the key. Clearly, on a on a sub two real estate deal, you are taking over the liabilities, inside of the business. In the real estate, you’re taking the equity then that’s left in the real estate, you’re maybe paying some of that down, and then you’re seller financing the rest. So let’s so I I just bought a seven hundred thousand dollar house in Kisimi.

You stayed in it.

Yeah.

The house was seven hundred thousand bucks. There was a five hundred thousand dollar mortgage on that house, so the mortgage has stayed in the seller’s name. I just make the twenty nine hundred bucks a month payments, pretty low interest rate.

And then It’s a great payment.

Yeah. And then the the three hundred thousand dollars that’s left is it four hundred thousand? So the three hundred thousand dollars that’s left, I paid fifty thousand dollars down in cash, and I used my own money. Otherwise, I could have gone and got an investing partner and partnered with them on the deal.

And then the quarter of a million dollars of equity that’s left that I did pay for, I’m seller financing that over the expiry term of the mortgage, which is twenty nine years. Right? So that’s a really sweet deal for me because that house generates nine thousand dollars a month in Airbnb. So after my my fees and my management fees, that’s generating around seventy five hundred dollars a month in cash flow and then less of twenty nine hundred payments.

So I’m I’m cash flowing several thousand dollars a month, from that one house. Then I just bought another one, which is in ChampionsGate, which rents out for a little bit more per night, but that’s early days. But that cash flowed net of everything, thirty two hundred bucks just in August. Right?

Like, I’m not really doing this for cash flow. Yeah. The cash flow is good. Right?

But, you know, you could you gotta buy hundreds of these, you know, to really make significant income. But what I’m betting on is, like, the long term appreciation plan. Right? So, like, I could do these deals even if I didn’t cash flow, even if all my costs were covered.

Right? I’m still gonna get equity increase. And bear in mind, I’m doing these deals at at least ten or twenty percent, like, below market value. Right?

So I’m instantly getting equity the day I close that I don’t have to pay for.

But how does that translate to business? Can you do the same thing?

Yeah. So you can do this exact same thing in business. Right? So let’s say you find a business, and it’s doing three hundred thousand dollars a year in cash flow, and the seller wants a three times multiple.

Right? So it’s a nine hundred thousand dollar acquisition. Right? But then let’s say that business has got five hundred thousand dollars of of liabilities already inside of it.

So taxes due, if it’s a b to c, it might have payables. It might have a bank loan, it might have been acquired through, like, an SBA loan, or it might have EIDL loans or all those all those loans inside of the business. So you can buy that business subject to that half a million dollars of, of debt. So, really, then you’re paying four hundred thousand dollars for the equity in the business.

And let’s say you put a hundred thousand dollars down, you go and get an investing partner, or you can finance some of the assets on the balance sheet, and then the other three hundred thousand dollars, you can sell or finance that. Right? That’s a perfect example of a subdue deal when you’re buying a business. You’re putting in some equity.

It can be your money, or you can syndicate that with other investor partners, or you can get, you know, a line of credit from the business, or you can leverage some other assets on the balance sheet, and then you’re seller financing the rest of the equity, and then you’re taking over the existing liabilities that are already inside of the business. And it all comes down to, you know, debt service cover ratio. Right? When all of the payments are going out on a monthly basis, does the cash flow from the business operation give you sufficient cover?

And what we’re doing on business deals is you want at least a one point five x cover ratio. Right? So for example, let’s say you’re doing a smaller deal, and that deal’s cash flow at a hundred and fifty thousand dollars a year, and then it’s gonna cost you a hundred thousand dollars a year in in debt service to pay the seller, to pay the loans, to pay all that stuff. Then you want at least a one point five x cover ratio, and then that’s gonna give you enough wiggle room, enough headroom to deal with, you know, seasonality in the business, you know, any bumps in the road.

If something goes wrong, you know, that’s that’s kind of the magic number.

So I’ve heard some other examples recently of some students in our program who came from sub two. They’re actually targeting businesses that have lease payments. And usually leases on commercial are three, five, seven years.

Yeah.

And there’s a lot of business owners that are really burned out.

They wanna get out of the business. Yeah.

And that lease payment is their biggest liability.

Yeah.

There’s ways to literally go in there and take over their lease payment subject to Yeah.

Take over the business almost at no value Yeah. And be able to continue on operating that business. Yeah. And it’s just amazing.

So let’s switch over to wholesale. Right? Yeah. So wholesalers are kind of a whole different breed.

Yeah.

They’re real scrappy. They’re able to make money with almost thin air, paper flipping. What about wholesaling businesses? And and what about the prospecting method I see a lot of wholesalers use is using VAs and cold calling and things. Is that effective at all in the business acquisitions?

It’s not really. No. So but in business acquisitions, like, you’re doing the same amount of deal origination. So you’re going for off market deals through social media, through direct approaches, through leveraging a a deal intermediary network, CPAs, attorneys, wealth managers, etcetera.

So you’re still doing the same deal origination, and then the goal is you go and get that deal under contract. Right? So you agree typically like on annuity deal. So let’s say you find a business.

It’s doing it’s doing four hundred thousand dollars a year in cash flow. The seller wants a two and a half times multiple, which is a million bucks. They’ll let you pay for that deal over ten years. So it’s a hundred thousand dollars a year, so no external financing at all.

Maybe you’re assuming some of the liabilities in the business as well, but you’ve got you’re contracted to pay the seller a hundred thousand dollars a year in cash flow. Right? Now let’s say that business is not in your lane, and you don’t wanna take ownership of ownership of that business. Right?

If it’s cash flowing four hundred thousand dollars a year and you’ve got only gotta pay a hundred thousand dollars a year to the seller, you’ve got three hundred thousand dollars now of surplus cash cash flow. So as a wholesaler, what you could do is call somebody like me or any of the other buyers in our program and say, hey. I’ve got this deal. Right?

It’s cash flowing four hundred thousand dollars a year. The seller’s gonna take a hundred. I’m gonna take a hundred as the wholesaler, and then the business is gonna keep two hundred thousand dollars for you as the new owner. As a wholesaler, you could make a hundred thousand dollars a year.

You could make the same amount of money as the seller just for wholesaling the deal, yet you never have to go anywhere near that business. Right? If you’re wholesaling real estate, what what do those guys make? Ten k?

I know when I bought one of my sub twos, the entry fee to pay the wholesaler was, I think it was fifteen thousand bucks. Right? So you can make fifteen thousand bucks one time as a wholesaler on a real estate deal, or you could make a million bucks over ten years just wholesaling one business deal.

So just having the skill set of deal origination, finding off market deals Yes, ma’am. Which is what these real estate investors are doing anyway. I mean, there there are some strategies where the MLS is the main focus, but going off market is the holy grail in real estate investing just like in business.

What what are the challenges with business broker deals, right, is if you wanna get really super creative in the financing structure, the the seller may be open to something like that. But the problem is on a business acquisition, the broker wants to get paid, you know, at the closing table, and brokers can charge between five and ten percent of the sales price. So let’s say on that million dollar deal, the seller says, you know, great. I’m happy to take a million dollars a year for ten years.

Right? And the broker, let’s say he’s on a ten percent fee. He wants a hundred thousand dollars cash at close. Now if that business doesn’t have that cash inside of it, then the deal’s not gonna work.

The broker’s gonna talk the seller out of that deal, and he’s gonna continue to go out and find a buyer that’s gonna pay, you know, maybe half a million at close or seven hundred at close and then seller finance the rest. So wholesaling deals and annuity deals work really, really well when the deal’s off market. Number one, there’s no broker that you’ve gotta pay at the closing table. Then number two, it’s a lot easier to go one on one and build that really deep level of rapport and relationship.

And then there’s no broker kinda talking in the ear with the seller and talking them out of that transaction.

Same parallel in real estate with the real estate agents, the realtors. They’re really blocking a lot of deals, and they think they’re protecting their client when they’re really not. There’s so many different ways to structure deals that could be better for the client. And it’s just like a broker.

They block it and make it difficult. They even tell their clients and you, this is absurd. No one does this. And it it it really hurts the the ability to make a deal happen.

So last thing, then we can wrap this up. Quick question. Multifamily investors, I’ve hung out with a lot of them, and what they’re good at is raising capital. They’re good at going out, finding people to join in on the investment.

Yep. Yep. Any hands make light work.

They put up money together, and they ride a syndicate.

Whole properties that are cash flowing, yeah, through a syndicate. How does that translate over to what we’re doing and what you call big boy pants deals? Yeah.

Yeah. So exactly say I’m in a big boy pants deal. So when you look at a big boy pants deal so let let’s say you find a business and it’s doing two million dollars a year in cash flow. Right?

So it’s cash flowing like crazy. And, typically, at that level, you’re gonna pay probably a five times multiple to buy that business. So that’s a ten million dollar deal. Right?

Now typically, the bank is gonna give you between two and three turns of that cash flow in debt financing. Right? Let’s say you go and raise six million, but in debt on that deal. So a six million dollar debt line.

Right? So now you’ve got four million dollars to find. Now let’s say the seller agrees to three million dollar deferred payment of selling it. Right?

So you’ve you’ve got three million dollars in seller financing. You’ve got six million dollars of debt financing. Now you’re only a million dollars shy of actually closing that deal. Let’s save one point five million to include working capital and closing costs and all those other things.

So you need a one point five million bucks. So what you can then do is if you have no money, you can go and sell equity in that deal to investors. Right? They could be angel investors.

You can go to the angel investment syndicates. They could be friends and family. They could be family offices. They could be micro private equity funds.

They can be hedge funds even. There are lots of people with equity that wanna buy hedge funds even. There are lots of people with equity that wanna buy part ownership in these deals. Right?

They’re not gonna give you equity kind of parry pursue, which means, like, on par. So let’s say you needed a million five of equity on a ten million dollar deal. That’s not you selling fifteen percent of the deal. They’re gonna want at least double that.

So you might have to sell thirty or thirty five percent of the deal to raise that million five of equity. But then let’s say you do that. You now own sixty five percent of a business that’s cash flowing two million dollars a year before debt service, and you haven’t put in a single dime of your own money. It’s crazy.

So, yes, syndicating investment from from equity investors is really that’s where the big boy pants deals happen. It’s exactly the same in in multifamily. And at the end of the day, right, when you’re pitching an investor, right, so I used to be a private equity investor. I used do this for a living.

Right? I used to get pitched a hundred times a week on deals. So what’s really cool about pitching investors is there’s only five things that an investor really cares about on on a business deal. On a real estate deal, it’s different.

Right? Right? Real estate deals are all about cash flow. They’re all about appreciation. Because a real estate multifamily deal, it’s like a static deal, isn’t it?

Right? It’s not living and breathing like like a business. So when you’re pitching an investor on a business deal, there’s only five questions that are running through their head when they hear your pitch. And most people pitching for equity, they don’t answer these five questions in their pitch.

So question number one is, right, what’s the big idea? What’s so unique about this business that it’s worth somebody buying? So what’s the big idea in terms of the opportunity? What’s the business?

How is it differentiated?

What value is it providing to its customers? Is it what I call a painkiller deal or a vitamin deal, right, or a vitamin deal? The second question they’re gonna ask is what is the strategy to grow this business and generate returns? So if I’m an investor and I’m buying in at the current valuation, if I need three to five times my money over five years, what’s the strategy to make that happen?

Right? So what’s the growth plan? What’s the marketing? How do we get more customers? How do we sell to more to them?

How do we do all that?

Do we need to do bolt on acquisitions?

Do we need to buy into our supply chain? Do we need to buy our competitors? You know, what’s the actual plan to get the business large enough and profitable enough so that we can sell it and we can make three to five times ammo? Right?

That’s the second thing. The third thing, really, really important. Who’s the team behind the deal? Can the team execute on that strategic plan?

I know the big idea. I get it. I like the strategic plan. That’s doable. Right?

Does the team have the chops to make that happen? Can they execute? Can they deliver that growth? Right?

That’s the third thing. Number four, what’s the exit strategy? If we buy this business and it’s a ten million dollar deal, how can we sell it for twenty, thirty, forty, fifty million dollars? Right?

Who’s gonna buy it? Right? Who are the trade buyers in the market that when it gets to a sufficient size, they’re gonna be salivating over this deal? It could be a trade buyer that wants to enter the market, like when Amazon bought Whole Foods to get into the the grocery market, or is it a competitor just looking to increase market share and and buy up the competition in in the neighborhood?

Who’s gonna buy it? Could be a family family office that buys it. Could be a PE fund that’s doing a big roll up. Right?

Who what’s the exit strategy? Who’s gonna buy it and why? And then how does that impact what how we behave and who we are in the market? Do we need to go and and give someone a bloody nose in the marketplace?

So then they’ll come and they’ll they’ll take us out for a big multiple. Right? So that’s the exit strategy. And number five is once you’ve figured all that out, what’s, as an investor, my risk adjusted return on investment?

If I’m looking for a ten x return on my investment, then, you know, I’m preferred to take a much riskier deal. Whereas if I’m only looking for a two to three times, if that’s my investment thesis, if I’m only looking for two to three times return, then I want a business that’s really a no brainer. You know, a lot of bad things are gonna have to happen for this not to work. Right?

So those are the five things that investors are gonna look for in in a business acquisition. And I and I think there’s some parallels to that in the real estate world and the multifamily world, but multifamily is a static thing. Right? It’s not living and breathing like a business, and a business can scale value wise considerably faster than a piece of real estate.

Yeah.

I think in multifamily, they usually have to go in and renovate all the different places to really increase the rent roll and make the exit larger, where there’s a lot of cost associated with that.

It’s almost always connected to the deal.

With businesses, it’s a lot different. So if you’re a real estate investor and you’re watching this, there are literally thousands of investors who are shifting focus and also buying cash flowing businesses. Not to stop what you’re doing, what you love in the real estate business, but also to do this as well and and make a lot more money per deal with businesses and be able to feed that back to your real estate investments. So that’s what Yeah. Literally thousands and thousands of investors are shifting over.

We have And we so many.

Every time we take distribution. Yeah. We invest in real estate.

Yeah. That’s it.

It’s not rocket science.

So if you’re interested at all in learning about how you can leverage your real estate investing experience to buy cash flowing businesses, we’d love to teach you. We have a link in the description or we have a link down below where you can watch a master class on how you can leverage your real estate investing experience to buy cash flowing businesses and even work with us and partner with us on deals.

Yep. Awesome. And it’s free. So go check out the link. Go watch the master class.

And if you’ve got any questions, hit us up. I’m, at carl island official. This is at chrismorespeaks. Yeah.

We’ll see you guys soon. Thanks for watching. Until later. Bye for now.