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Real estate isn’t a get rich quick scheme. Creating cashflow through real estate requires work, mindset and education. In this episode, Dale Corpus discusses building wealth with real estate investor and author Jake Harris. Jake shares how he got his start in real estate and how the six pillars of GoBundance have helped him reach his goals of financial independence. Be inspired and learn from Jake as he shares insights on his journey.

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Creating Wealth And Cashflow Through Real Estate With Jake Harris

Reflecting back on 2021 so far I feel like I personally go to time. I never thought, for example, I have a real estate podcasts. I didn’t even know what the first step was to even start one but I’m moving on and I’m learning. Here I am now booking guests, learning a ton of things, networking more and surrounding myself with bigger thinkers. I’m having a great time doing it all.

It’s been helping me up my game, elevating my mindset and it’s given me an outlook on life that life is full of opportunities and the people you surround yourself and meet up with can catapult that progress. Anyway, I’ve mentioned GoBundance in past episodes of mine. It’s a tribe of millionaires and men who push each other to the next level we grow and achieve together. GoBundance has six pillars. That’s the foundation of the tribes so that we could live healthy, wealthy and extraordinary lives. I didn’t share this before but I thought I’d do it now. I’ll share some of those pillars. Number one is age-defying health. It’s the being in peak physical condition. We could live long and incredible lives.

Number two is authentic relationships. We’re a tribe of men where you can make genuine lasting relationships and hold each other accountable. Number three is bucket list adventures like doing cool stuff and making life exciting but living. It is like scuba diving in the Caribbean or running with the bulls in Spain. Number four, extreme accountability. It’s having a group of guys who will help you follow through with your commitments. Number five, genuine contribution getting back to the community and lastly, horizontal income. You are building a passive income that will continue to build a lifetime of wealth for you to implement all the other pillars. I know that was a lot of info. I wanted to share that with you because GoBundance has been a good, positive thing and transformational for me.

Anyway, my guest, Jake Harris is someone I connected with through GoBundance. I’m honored to have him as a guest. He’s a reflection of the six pillars. A little bit more about Jake is that he’s an author of Catching Knives about distressed commercial real estate. He brings years of experience in real estate construction and investment management and has been a featured national speaker on his expertise. He’s managed, developed and acquire $200 million-plus in projects and over $250 million in the development pipeline primarily focused on San Antonio and Central Texas. Let’s get rolling right into this.

Welcome, Jake, to the show. How are you?

I’m fantastic. Thank you for having me on. When you asked me to be a guest, the GoBundance is near and dear to my heart and talks about real estate. You put a quarter in me. I will talk until you tell me to stop. I am honored to be a guest and help to share some of that with you and your readers as well. I appreciate it. Thank you.

For my readers who don’t know you yet, what’s your story? How did you get to doing what you’re doing in real estate?

To take you the 30,000-foot view or maybe even the backstory, I wrote a book Catching Knives. A little bit of that breaks down my experiences, twenty years of being in real estate and it started with me being in the Army and somebody has given me a book and that book was Rich Dad Poor Dad. Like a lot of people’s journeys, it was that light bulb moment like an a-ha moment. I was a little bit trying to look for that. I wanted to do something in real estate. Not to say that Rich Dad Poor Dad is even this super heavier detailed version of real estate investing. It illuminated so many things and it became crystal clear. It was like, “That’s what I want to do.”

It’s a journey in life. It’s a snowballing effect of getting into real estate. I started in commercial construction. I got out of the Army. I started bartending at a country club. I was young and I didn’t have a whole lot of money. I wanted to be around other people as far as from a network effect. Even to your point earlier about GoBundance was surrounding yourself with other people who are achieving what you want to do such as a life hack. I didn’t realize it but that’s what happened by being a bartender of the country club. I was 23. I didn’t have the $60,000 or $75,000 initiation dues, the couple of grand a month member fee but I could go bartend and hang out with those people.

A developer told me construction. He said everything real estate involves a contractor. I don’t care if it’s remodeling a kitchen, moving dirt in a subdivision or building a high-rise. Every facet of real estate involves a contractor. The people who have had the shortest learning curve or straight into success are the people that come from the trades because they know what things should cost. They know the system and the mechanisms in which it’s going to need to go through. A weird relationship is your contractor and developer go hand-in-hand but they’re almost in an adversarial role because they’re competing over the same dollars for the profitability of the project. When you’re weighing that out, I feel very fortunate to get started in getting that sage advice to get into construction.

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Catching Knives: A Guide to Investing in Distressed Commercial Real Estate

I’m not saying everybody has to do that. That happens to be my path and the way that I entered it. I viewed the world and real estate from how the nuts and bolts go together from an estimator position then extrapolated that out. Scaled that had some successes became a millionaire before 30. Subprime Meltdown showed that I was not the young, naive genius that I thought I was and pulled the rug out from under me.

I was sitting on a street corner down in Tucson crying and saying, “Dear Lord, can I please be worth no money?” Start over. A hard reset would be awesome. The subsequent journey of rebuilding that in the last several years’ post-Subprime Meltdown, the lessons learned of investing into distress real estate and I focus on that because it is the foundational knowledge for all real estate investment. In my opinion, if you can do it in that distressed environment, you can do it in a growth and expansive environment.

This country club experience is your leverage to that network to lead to that next step. When you’re already working at the country club, did you already know you want to do real estate? Were you exploring any other vehicles besides real estate?

It was interesting because I wanted to build a skyscraper even as I told people I wanted to do real estate. I got an interview as a leasing agent or an industrial developer. They built warehouses. I came in as a leasing agent interviewee and I was like, “I want to build skyscrapers.” I didn’t even know what a leasing agent did. I had no idea what is an industrial building versus an office building. There are like these other things. I didn’t fully understand. I was like, “I want to develop and build a skyscraper.” They’re like, “You’re not going to do any of that in leasing concrete tilted warehouses.” I was like, “That’s what I’m going to do in the future.”

They’re like, “I’m sorry, you’re not right for this position.” I knew what I wanted to do. I didn’t know how, what or anything other than I read this book that I decided I wanted to build a skyscraper. Then I had Rich Dad Poor Dad and it was the first step in that direction but I didn’t know how to do anything or what the difference from anything was. As I was in that network, I asked people and then they gave me advice. They say, “Do this and do that. Here’s the next step.” I think this goes back to some life philosophies. You don’t need to know where the endpoint you’re going.

You don’t need to see all the steps in a staircase. You may sometimes only need to see the next step or two. By taking action and then doing the next step, the rest of that is revealed to you. When you establish a goal and a direction that you want to go, that’s good for setting sail that way but then you got to start doing stuff. I started doing that. Like early investors or people in that, you get a lot of analysis paralysis because as you start digging in, you have no idea what you’re doing. It’s like reading a different language. It was all of those things. Writing my book was a little bit of writing the book to the younger version of myself or someone that was getting started in this.

Also, it plays to the people that are like they’ve done some residential investment deals but realized that to hit their goals, they’re going to have to do a gazillion of those residential ones or they’re going to have to get into bigger deal sizes. That’s why where I have some experience in the commercial real estate world is like the commercial real estate is the next step for a lot of people. That’s the guide and the rope that I’m throwing down is deliberate of the younger Jake version that I wish I had this knowledge back then or somebody that’s getting started in the commercial real estate space. That’s playing above some of the residential flips, rentals or other things like that.

If you can do it in a distressed environment, you can definitely do it in a growth and expansive environment. Click To Tweet

Where are you geographically based out?

I live most of my time in Northern California outside Sacramento. I also have a lot of stuff down in Texas. I spent a lot of time down in Texas. We have opportunities for investments. We have hotels some apartments and some land assemblage conversion of some office buildings. Most of my investment is in Texas. I usually spend one week a month out in Texas, Austin, San Antonio. We have investments in other parts of the country but those are more once a year and remotely managed by the teams. I’m running around and that was a lot of data-driven. To the people that are literally looking to get started, there’s this misconception that you have to invest in your own backyard because you know it. The reality and especially being in California, it’s not necessarily the best place to be investing.

It depends on what your criteria and your investment thesis are overall but the cashflow is relatively low. It’s much more banking on embedding on the calm of the super high appreciation of the assets in California. Our approach is that we’re trying to do a little bit of both. Get our cake and eat it too. We want to buy something that has decent cashflow or good yield but is also going to share in some of that similar appreciation.

That means we’re having to somewhat predict where the wave is going to go into the future, where the population is moving and where are those things and some of the historical data is not the guide of what you would need to be but you’re trying to predict 3, 5 or 10 years into the future. Using data analytics, we can dive into things that are happening in a market. California is doing an amazing job of driving people out of California. Texas is a very strong net beneficiary of that.

I was born and raised in the Bay Area. I love California and I don’t want to leave. I agree with you. I don’t invest in California. The only properties I’ve owned and kept are the ones that I moved up from and I’ve kept them as rentals or whatnot. My show is called School of Cashflow. It’s hard to make anything cashflow. I buy here because I go on the properties and they’ve made sense and they’ve gone up in value for the appreciation and I want to stay in California.

I look for cashflow opportunities outside of California so that I could stay here so that my kids and their kids could stay here. Even though people are leaving, I want to stay. I’m trying to be creative about that. Real estate is a great way to do it. I am dissecting more of your background. I know you said that you were in the military but educationally, did you also go to school to learn even more about real estate? I know you learned a lot by networking and the country club but did you have any formal education in real estate?

SCF 17 | Cashflow Through Real Estate

Cashflow Through Real Estate: You don’t need to see all the steps in a staircase. You only need to see the next step or two.

 

As I’ve dove into that, I got a degree in Entrepreneurship and then I went to grad school and had a Master’s degree in International Real Estate and Finance. I specifically geared toward that. I have a broker’s license in California. We’ve done 1,200 flips in 23 states. There was a few hundred million dollars worth of deals that we’ve done or currently doing. It’s twenty years’ worth of my experience that I’ve been doing it but what’s not translated in there are the hundreds of books I’ve read and the thousands of hours of study.

GoBundance is an example of this. People that are now discovering cashflow or some of these investment things is they’re comparing themselves to maybe someone’s Chapter 7 when they’re on Chapter 2. They have FOMO. They see all these things happening and it’s like, “I want to go do that.” They want to jump into a $10 million deal out of the gate and that may work out fine for them. Honestly, there are some people I’ve coached that through some deals and things like that, they made $1 million on the first deal that they did. It was like, “That took me like 6 or 10 years to do that. You did it out of your first deal. You’re awesome.”

Part of that is the current environment and the economic nature of the makeup of some of those things and being in the right place at the right time. Not to say that just because I coach someone that they are going to make $1 million on every deal or anything else or that I’m that great. It’s a myriad of factors that play into it. Formal education for me was very valuable. I don’t know if my kids will go off to college. I’m trying to instill a lot of the things that I wish I had learned as a kid. There’s a quote that somebody talks about and says, “Don’t buy your kids the things that you didn’t have. Teach them the things you wish you learned.” We’re helping to put in. It’s an interesting concept. How do you do inception to your own kids, not in a malicious way but put those little seeds into their mind that then you’re watering and creating the environment that blossoms and grows?

It is specifically around the abundance mindset. When you’re looking at it, you can learn how to do anything. If you have that, there’s also abundance. It’s almost like you can walk around in nowaday’s age. Find a side hustle that makes you an extra $50,000 a year. Can you take that $50,000 a year and invest that into real estate? Over time, can you invest it in syndications, put in a deal or do things? That grows over a longer time period. I think that is the biggest a-ha moment of real estate investing. People want the shortcut, the magic pill or the get rich quick. I go real estate, in general, is not a get rich quick thing.

It’s a get rich slow but it’s a get rich for sure if you play out this playbook. If you’re trying to shortcut this, not do the work, not go through these things that easy come, easy go is exactly how it plays out. At least in my life, experience has been that. There are fundamentals that education builds into that help you build that repeatable system that’s going to grow over time and put you in a position to have that lifestyle that you ultimately want.

There's this misconception that you have to invest in your own backyard. Your backyard is not necessarily the best place to invest in. Click To Tweet

I wanted to dissect GoBundance a little bit more for those readers that don’t know. I’ve joined GoBundance in December of 2020. I know you’ve been in it. I don’t even know how long but longer than I have. How did you even hear about it? How long have you been in it? What has been done for you so far?

I don’t know how long exactly. One of my friends introduced me to it and it was not quite that widely known. It was when there were 100 people or less than 100 people. My friend Aaron Amuchastegui and I were friendly competitors. We used to go to courthouse steps. We’d flip houses, buy foreclosures and you’d hang out with the same people every single day. It was almost like coworkers. You’d go out on the courthouse steps and it’d be like, “How are the kids?” “They’re good. What are you doing this weekend?” After building that friendship and relationship, he discovered GoBundance somehow.

He said, “You should look to join GoBundance. I think it’s something that you would appreciate.” I was super busy at that time when I first got introduced to it. I was rolling out the nationwide flip business. We had our first kid. There are so many things. I didn’t have an extra anything, let alone like, “I’m going to go drop a bunch of money on a boy’s trip to Whistler.” I was like, “It seems rad but I don’t have the time.” What I did was I booked the winter retreat like you’re out and I forgot about it. It then came December or January. It was weeks away.

I was like, “No,” I told my wife, “Remember I told you I booked this mastermind?” She’s like, “Yeah.” I was like, “It’s next week. We’ll be gone for five days.” I went, I showed up and it was the first time in my life that I found my people. I’ve always been a little bit different. I’ve been the lone Wolf when I was in the Army and school. I was a little bit different than my family and the way I thought and processed things. I was like, “I’m a weirdo. I’m this own thing.”

GoBundance is a group of me’s as far as the other weirdos. I showed up there and I was like, “You’re a weirdo.” “I’m a weirdo.” “Now, we’re friends. Let’s hang out.” It was the first time in my life that I had this connection with a whole bunch of other guys at a level that I had never ever experienced in my life. I found my tribe. You then asked about what it has done and changed my life. Every single aspect of my life is better because of GoBundance. I tell you that is not a joke. It is not to, “You got to join GoBundance as a tribe.” For me, it’s because of the accountability and a group of people. To be honest, accountability sometimes sounds worse because people are like, “I like doing what I want. I don’t like other people holding me accountable for that.”

I believe it’s a human nature thing that you don’t want people telling you what to do. It’s not that these other people are telling you what to do. They could care less whether you’re going to work out or not. It doesn’t affect their life at all if you’re 200 pounds overweight. We’re cheerleading for you but we’re still focused on ourselves but they want to say, “You said you’re doing this?” You’re going to have to answer them. “Did you do the workout? Did you do the pushups? Did you do the whatever?” That general knowledge you have to answer to somebody else gives you that little external bit of motivation that allows you to pinpoint and uncover the thing that you probably don’t want to talk about.

Those six pillars you, you might be crushing five of them. They’re going to say, “That’s awesome. You’re making lots of money. You’re having amazing sex with your partner.” You’re doing these other things but how have you been giving back to society? How is your relationship with your parents? How are these other things because you glazed and skipped over it?” You’re like, “It’s not great.” It’s like, “Tell us about that. What is it about that? How can we help you? How can we give you some value in that area?” I’ve spent a few years working out every single day. I’m pretty good at BS-ing myself coming up with excuses of why I shouldn’t work out.

“I got in a little late flight. My wife has to work early or something. I’d have to work out at 5:00 AM.” I’m awesome. Ask me to come up with excuses for myself of why. They challenged me and said, “You’re stubborn.” My mom mentioned this at one point. She said I was stubborn. How do you use your MO, your Modus Operanda?

What are your superpowers? They could either be negative or positive. How do you transition that and say, “How is this your normal operating system? How can you use your stubbornness that you don’t negotiate with your working out every day?” I was like, “I’ve been injured. I’ve been sick, I’ve done other things but I work out every day.” For the past few years, I got a torn calf muscle. I’m not very fast on my working out. For my walks, I was running and I’m still doing 3 to 4 miles a day and you got to work it out. It was David Goggins, “If the legs were broken, we’ll figure it out.” That has been a mindset shift for me from GoBundance and being around other people like you and others. It was like, “Yes.”

I feel like I’m a freshman in GoBundance. The time that I’ve been in it, it opened my mind to what I can do. I had my own self-imposed limitations and seeing what everybody else was doing. I was like, “How are they doing all of that? This is doing that and this guy.” It broadened my horizon and opened up my mindset. I’m a weirdo too. I get what you’re saying. I feel like I have more people that can relate to me and I could relate to them and there’s that synergy out of it there.

I feel like there’s so much more yet to tap into my potential. We’re all men. We call each other GoBrothers. There are many more folks that I could learn from. I get a lot of perspective from talking to people about how they take in the operate and how they got to where they’re going to be. It’s motivating for me. You’re one of those folks too. Thank you for talking about that. This was not supposed to be a GoBundance commercial. I’m getting a lot out of the community, which is why I wanted to talk about it. Switching gears, I wanted to go back to your investing. I’m curious you started investing. What the heck was your first real estate investment?

The first investment was a house down in Phoenix. I was right where you are. I was staying in San Ramon. I was living out of the extended-stay hotel. I was fixing up office buildings. I was working as a superintendent for a commercial construction company. Our office is on San Ramon Boulevard as far as right off the freeway. There were these low-rise office buildings that Equity Office Properties had purchased. We were fixing them up and I was living out of the extended stay over by the 24-Hour Fitness. I bought a house in Phoenix. It was in Glendale, Arizona, specifically on the Westside. I had flown down there to buy some cars at auction.

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Cashflow Through Real Estate: The biggest moment of real estate investing is people want the shortcut, the magic pill, the get rich quick.

 

You could buy cars at auction at Manheim and Basha’s and I would flip them and you can make $1,000 to $1,500 a car by bringing them and shipping them. Hustling things and doing and I saw that houses were $100,000 or $150,000. It’s brand new houses. I walked in because I had extra time so I was touring around. I thought I had so many years in the future to where I was going to be able to buy a property because I was experiencing living in East Bay. I was like, “For a $150,000, you couldn’t buy and out the house.”

This is a four-bedroom brand new house. It blew my mind. I bought a little bit older, dumpier version of the house across the street from the subdivision where the West gate was going to be the University of Phoenix Stadium and all this massive development. I was like, “I’ve seen what happens when you build a big development here to the home prices, what they do across the street.” I bought the house. I started on a plan and I was to fly down on the weekends and fix it up myself.

I was delayed between some projects and some other things like that. I ended up getting laid off waiting for some permits and other things soon after buying the house. I was like, “That didn’t work out. That was not my plan.” I packed up my truck. I threw a handful of tools in there and I drove down to Phoenix. I moved down Phoenix to Glendale to fix up this house. I didn’t have any furniture. The realtor gave me a mattress that I slept on the floor in this construction project. I didn’t even have a refrigerator because I’d spent every last nickel on buying the house. It’s not advisable to spend every last dollar that you have. As I was continued to get some money from my job, I would go spend that much to fix it up and go do that again.

I didn’t have anything. I had a styrofoam cooler that I would get a bag of ice and get some lunch meat and some drinks that I put in this cooler in the kitchen and I was sleeping on the mattress. I’m not quite a homeless person but it was like not furnished. I work on it. I got a job doing kitchen and bathroom models in Phoenix and started the flipping journey. I made $20,000 on the first house. I took that and I rolled that profit and the next one and then I made $50,000, $75,000 and then $100,000. I did multiples at a time. That started that journey. That was in the early 2000s.

This all happened. You did that flipping business all before the crash happened where you lost everything. I’m curious. What lessons did you learn from the entire experience of the crash losing it all and coming back in to start over again? Did you start again in residential? Was that when you made this transition to commercial? How did you even pull yourself out of that? You had to have such a strong mindset to move forward.

Real estate in general is not a get rich quick thing. It's a get rich slow, but it's a get rich for sure. Click To Tweet

What is interesting about your show is having positive cashflow. It’s the number one thing. I started speculating of these house purchases or renting them out for less than the mortgage payment was because I was like, “Look how it’s been going 10%, 15% or 20% appreciating a year.” It was that betting on the calm that, at some point in this, the house is going to be worth $100,000 more next year thing. That and being lazy were the two most significant takeaways because I had achieved this level of becoming a millionaire before 30. I didn’t reset my goals. I didn’t have a system in place.

I picked that I wanted to be a millionaire. I got there and then I thought I was at the finish line. I was 28 and I got fat and lazy. I stopped hustling and continued to do that. James Clear wrote the book Atomic Habits and he’s got a quote in that that I use and put out there, “Goals are great if you want to win once, systems are for repeated success.” I was building a system in which you can build upon that. I was talking to Gary Keller, billionaire and Jay Papasan in the last several years. He said, “As soon as we feel like we can achieve our goals or here’s now the next few steps that we’re going to achieve that goal, we move the goal.”

Part of the thing is it’s never about the goal. For setting the destination in which the system that you’re building is driving that goal destination. I didn’t have any of those things in place when I was starting out. Not understanding cashflow, getting greedy, thinking I was smarter than other people because I was buying a property under 10% or 15% undervalued and saying, “The market has never gone down more than 10%, 15% in a year. It’s flattened out. It’s never done that.” By buying it under 15% undervalued, I’m good and solid. The reality is when it went down to 80%, bad things happened.

Not to say that’s going to necessarily happen again. You asked what changed or how did I pick myself back up from that. There were a lot of dark times. I’m optically focused on that goal of monetary money success. It goes back to even the GoBundance. I didn’t know it at the time but I was bankrupt in almost all other pillars of my life. I had crap relationships, getting away from the faith. My brother said I was a bumhole to them cause they worked with me and it was like all of these sayings, I was 100 pounds, 70 pounds heavier than I am now. Every single aspect of my life had been sacrificed for this one monetary goal that then once I achieved that, it didn’t even have relevance.

It caused me to be introspective in every single aspect of my life. Then there’s another book that opened up this next level of my life. It happened to be when Tim Ferriss’s 4-Hour Workweek came out. I didn’t even have the money to buy it because I would figure out how I was going to pay the bills the next day. I would walk over to the bookstore when there were bookstores that existed. I would read the book a little bit and then I’d put it away and put it back on the shelf and then go walk home. I walked back and then I read where I picked up the next day and read that book.

The 4-hour Workweek for those that don’t know it’s not about working four hours in a workweek. It’s how you 10X your performance. How do you 10X what you’re doing? It requires a different mindset and a mind shift of how you’re approaching things. If you’re trying to get 10% better, save a few hours, you can do that and oftentimes grunt out the work. When you’re trying to 10X something, it requires a paradigm shift in your mindset or requires a paradigm shift in the systems that you’re building. That was that next level of unlocking. It’s still a journey that I’m on. Several years later, it is building a snowballing effect of how do you continue to refine that? I know this is a shock. I tell this to my wife. I said, “I know it’s a shock but I’m not perfect.” I still have flaws and I’m still working on them. I’m a work in progress. Fortunately, I have an awesome wife, who’s very funny, sarcastic, sharp-witted and stuff. She understands that I’m not perfect and still loves me anyway.

Your book is called Catching Knives. There are two things on that. I know it’s about distressed real estate. Why distressed real estate? How did you come up with the name Catching Knives? What does that mean?

Catching knives is a play on a financial term that says, “Don’t catch falling knives.” If you google it, I think he’ll probably give you the definition more specifically but when something is falling in value, you don’t want to reach out or catch the knife because you can get cut. Oftentimes, it’s referred to in the securities world, the stocks, the bad news is happening and you don’t want to buy in because it’s going from $100 down to $50. Wait until everything settles out. My analysis is commercial real estate and real estate, in general is much more finite. Let’s say Tesla stock goes from $420 and it drops down to $300. Maybe there’s lots of bad news that is coming out or the value can continue to go even cheaper. The component is that you can buy as much as you want.

SCF 17 | Cashflow Through Real Estate

Cashflow Through Real Estate: There are fundamentals that education builds into that help you build that repeatable system that’s going to grow over time and put you in a position to have that lifestyle that you really want.

 

You put $1 million in or $5 in. Whatever you want to buy in. In Tesla stock, you can buy it at any given time with a few clicks of a button. Whereas commercial real estate and real estate in general, it’s much more scarce. There may be an office building that is going to distress and that office building may only sell once in a generation. This happens to be the time when it’s on sale and your opportunity to comment as once in this twenty years is to grab that falling knife at a discount, knowing that it may go down in value even more. What it talks about is putting together a system that is sometimes you’re going to reach out, grab that and catch that falling knife. It’s going to maybe go down in value but your exit plan is for 3 or 5 years in the future or creating a value-added component to this or letting the market normalize and then you’re going to sell it back when it’s at a normal thing because you bought it at $0.50 on the dollar.

When things settle out, your plan will be to sell it back in at $0.90 on the dollar. You made a nice little chunk of profit because you were able-equipped, you had the education, systems and the things that you needed to look for. Oftentimes that starts before there’s distress in the market because it’s pretty scary to get into investing if you’ve never done it before when there are major recessions and the banks aren’t lending. Loans are hard to get by and it’s like, “How do I do this?” That’s what I’m talking about, “Here are the systems that you need to start reporting in place. Here’s the education or things that you need. Here are the people on your team.” Real estate is a team sport. You don’t have to know everything.”

I don’t know everything and I hire lots of very smart people to surround me to round that out because I have as many hours as anybody else and I have limitations on what can be understood. How did I get into commercial real estate after the crash? I started getting back into residential because that’s where a lot of the distress was. I started building these experiences of how you invested into the distress and what you had to do to put these systems together. What happened is there wasn’t the fish in the barrel anymore.

Trying to flip a house is difficult. There’s a lot of people chasing it. Over the years, I evolved into doing more commercial deals because there are bigger and it’s almost the same amount of work to do a $500,000 house as it is to do a $5 million commercial building. It’s the same steps and the same mechanisms. The karma’s moved over a little bit. The rewards are much greater than the risk are also greater but if you can understand the mechanisms and here are the systems that you can put in place, I think you can get yourself into doing $2 million, $3 million, $4 million, $5 million or $10 million deals your first deal out.

Goals are great if you want to win. Systems are for repeated success. Click To Tweet

I know we’re talking about commercial now but as it relates to distressed real estate. What kind of properties are these? What property types?

Again, I’ve been doing this for several years. Oftentimes, like we do and I handle a handful of other asset types, like hotels, apartments and land assemblage. We’ve done single-family new construction. We’ve done flips. We’ve converted warehouses to apartments. I’m probably a little bit better at the heavy value add component. Part of that is having a construction background. I can see how we could turn this very distressed asset functionally obsolescent, repurposing it or changing the use overall because I see the world through that lens of construction. Other people who are smarter and have better systems in place are doing the pink carpet cleanup on apartment buildings and doing those.

They’re more competitive in that space than I am. I go to where I naturally work best. We’re doing a conversion of an office building to apartments. A ten-storey historic building, getting more creative in the financing, using pace loan, historic tax credit, using some bridge financing, combining that all together so that we can deliver the returns that people expect. It’s a cool old building that is now apartments in Downtown San Antonio. Some of that is office buildings and modernization of an office building. To give you a little bit of an opening of the kimono of the investment thesis that I operate in. I think there’s urbanization and Renaissance of downtown everywhere, the country over and formally functionally obsolescent buildings.

Office buildings that were built in the early 1900s that were built and designed before the car was a thing then became less and less valuable over the last several years because everything was so car-centric and car-focused. Office building sometimes needs 4,000 to 1,000 square feet of parking. They want four parking spots for every 1,000 square feet of a building. You’re like you have a 50,000 or 100,000 square foot building. They may want 200 parking spots or 1,000 parking spots. What’s happened is technology is eroding away that. People don’t need their cars much. Uber, bird scooters, Lime and some of these other things, technology is solving that last mile connectivity thing and more people are moving back to these downtowns.

There is promoting the walkability and the connection. These formally discounted buildings are becoming more and more valuable because they have authenticity to them. You can’t replicate carved stone, a neo-gothic building because one, there’s nobody that even knows how to carve that stone anymore anyway and it costs you a gazillion dollars to do it but then you’re buying it for $100 a square foot. You can’t even build it for that.

That’s where I think there’s an opportunity and why we do some other different asset classes but it’s more focused on specific markets. What we’re looking for, as we’ve identified that this market is untapped. Everything in the market is going to go up in value. Now we’re looking for good deals within those markets. The asset types are a little bit more subjective to what is a good deal in that specific market. Sometimes we have office buildings that stay office sometimes office buildings that go multifamily, depending on what the new market demand and what price we can buy the property yet.

You’re the first guest that I brought on that talked about opportunity zones earlier on in the conversation. That’s something that you also focus on too. Can you talk a little bit about that?

Opportunity zones are an amazing program for people. It’s an alternative to a 1031 exchange where they can defer a 1031 exchange. Your path on a 1031 exchange is to die, meaning that you’re never want to go to pay the taxes and your heirs are going to get a step up in basis, then they can realize that but opportunity zones give you an exit path to reduce your taxes and then get a sizeable advantage. If you’re investing into these opportunity zones, which often people say, “It’s a distressed area.”

I go, “It’s not necessarily that. It’s based on 2010 census data track information. A lot of things have changed since 2010.” Look at the Bay Area, Oakland, Downtown Portland, East Austin and all the Downtown San Antonio has drastically changed in a ten-year time period. Some of these areas are some of the hottest real estate markets in the country. You can invest in them using opportunity zones as a vehicle to avoid or reduce paying some of the taxes on your capital gains.

Thanks for explaining all of that. What’s your personal outlook on commercial real estate in the next 5 to 10 years?

It’s such a subjective question because there are so many different asset types, markets and areas. It’s not going anywhere. There may be some segments of the market that crash. There are a lot of malls that probably shouldn’t have been built but you can convert them to something else. Industrial and multifamily still look like they’re going to be amazing for the next foreseeable future. I see that real estate as a whole and as a solid asset, given that the inflationary headwinds that we’re approaching are going to be a good investment. Now, can people overpay?

Look at Zillow. It went overpaid for a bunch of houses because they were going to predict the market was going to keep going up. They’re like, “Our bad. We suck at predicting where the market is going to go. We lost $500 million.” That’s what I’m saying. It’s subjective. It depends on where you are. If you have cashflow, are you buying things under replacement value? Is there a need for that market as a growing market and population to other things? I think it can be an amazingly fantastic vehicle for cashflow appreciation and growth of net worth and assets over the next years.

I have some final questions for you as we’re closing up this episode. What are you excited about in your business?

I’m super excited about hospitality. I’m excited about hotels because other people are not as excited about them. I like the contrarian aspect. It’s hard to do a deal in multifamily because they’re trading at such low cap rates that the room for error is so low. In hospitality, in the ultra-wealthy life insurance companies, institutional capital invested into hotels is because they’re massive cash cows. They’ve spent tons of cash but they have tremendous amounts of write-offs.

SCF 17 | Cashflow Through Real Estate

Cashflow Through Real Estate: Real estate as a whole, as a solid asset, given that the inflationary headwinds that we’re approaching, is going to be a good investment.

 

I think capital gains taxes are going up. I think taxes, in general, are going up. If you have a vehicle that you can write off a lot of that income because of equipment and faster bonus depreciation, Section 179 and other areas, I’m very bullish on hospitality because I think people, as the rich get richer, want more unique experiences. If you can deliver some of that and you’re not the same Hilton Garden Inn and Beige hotel experience then you’re going to continue to step above. How you can utilize technology to enhance that experience is something that I’m excited about?

What does success mean to you?

When you're trying to 10x something, it requires a paradigm shift in your mindset or requires a paradigm shift in the systems that you're building. Click To Tweet

Success is controlling your time. I think time is the most valuable thing that we all have. It is the most precious commodity. You can’t make more time and more money. What that time is to you is that spending more time with your kids, spending more time vacationing, sitting on a beach or doing the work you enjoy, whatever that is. Oftentimes, I have asked people to break down what your dream life costs because time is the biggest sacrifice. You’re disillusioned and making money after the trade-off of maybe your kids’ childhood.

That’s a good perspective. Thank you for sharing that. On a related note, what’s your superpower that’s contributed it’s to you’re living the life you have.

Persistence is probably the biggest one. I’m very good at seeking. I said stubbornness or persistence. The thing is that once I lock on to a trajectory, I’ll figure out how to do that. That bodes well for real estate. I dogged determination after stuff. I dive deeper and get a lot of data and information. I figured out more things and I can tell you a lot of stuff because maybe I didn’t go to the right schools, have the right trust funds or other things that other people had as advantages. Learning and knowledge are free. It’s whether you put in that hard work and use that persistence to your advantage. That’s where I think I can excel. It’s given a long enough time period to be persistent and the ability to pursue things with learned skills and education as I can outlast most other people.

You’re very resourceful and resilient. I see similar traits in me too so that’s amazing. The last question for you is, what is the best way for somebody to connect with you and get ahold of you?

Like you, Instagram is my main jam. @Jake.RealEstate. CatchKnives.com is where you can sign up for the newsletter. We released some other things about the book. You can buy the book Catching Knives through Catch Knives, Amazon and in a lot of other places. You can find me usually by googling me now, which is crazy enough. It’s humbling to have that experience. I’m not the guy on Deadliest Catch that’s on the Discovery Channel. I have not gone to jail or done anything of drugs like that. Those are not me. If you find that and when you’re googling and I was out there at least, I’m not aware of any of those.

Thanks, Jake, for being on the show. That’s all for this episode. I enjoyed our conversation. You’re full of wisdom, knowledge and there’s a ton of golden nuggets that you left on this episode that my audience can appreciate. I certainly appreciate you. My readers, thank you for checking out this episode. Remember to leave a like if you’re in a podcast or iTunes as it helps me attract more great guests like Jake. Until next time, live life abundantly.

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