Ep 42 - The Juices are Starting to Flow

OOOOHHHHH WEEE Thunderbird is starting to crank!  Feels good to get some action on the place via signed leases. Had some very large ah-ma moment about completely turning this place into salon suites.  I thought the budget would be too great to get it turned into a proper suite facility, but after doing more research and speaking with professionals, that's just not true!  More info on this to come!

Will be taking a 2 week break from the podcast due to traveling!  Will catch you guys in a few weeks, FOLLOW ME ON INSTAGRAM AND LEAVE A REVIEW! 

https://www.instagram.com/john.kleisch

Transcript

SPEAKER_00 0:01

Boys and girls, welcome back to the commercial real estate starting from scratch podcast with me, John Kleisch, on episode number 42. If this is your first time tuning in, really appreciate you doing so to get you caught up to speed. Like, what is this podcast about? I am documenting my journey from uh starting from scratch as a beginner in commercial real estate, uh, which has been about 10, 11 months now. I've been documenting it the whole way through the thick and thin, the good, the bad, the ugly. And currently, as it sits, I own two different buildings in the Phoenix metro area. One is an industrial building and the other one is an office building. I have literally making episodes a lot about each one. I feel like it's best to go back and start from scratch, or start from the beginning, not from scratch, to get caught up until where we are at today. If you didn't want to do that and you wanted to listen to today's podcast as your first one, cool. Let's do it. Uh, welcome again, all you beginners. So uh, you know, it's funny here, a lot to go over in this podcast. Every week I'm like, oh boy, I'm not gonna have anything to talk about. And then I start thinking about what I want to talk about, and then it changes two or three times, four times over because where I am at right now, everything is just moving so rapidly that it's it's hard to keep up. Uh, the other thing, major announcement: I am gonna be gone out of town for two whole weeks. I'm bringing the family back to Chicago, so there will be no podcasts for the next two weeks, and that is why this one is getting recorded now. I'm actually recording this on Sunday because we leave on Tuesday. So uh hopefully this gets uploaded. I'm gonna do a set to upload type of deal. Never done that before, or actually, I have done it once and it didn't work out. So fingers crossed that it actually does work out that way. I could get this thing uploaded, and you guys aren't gonna worry about not getting two podcasts over the next couple weeks. So, grand is grand, guy moved in, everything is copacetic. I pretty much forgot that I own that place, which is fantastic because if you know it took up most of my time for a long time. Uh, there's a couple things here and there. Swamp coolers would were leaking, got those fixed. There was some electrical issue, got those fixed. We're rocking now. We are rocking. We have been all Thunderbird, pedal to the metal, rocking and rolling on that place. So, as you know, I'm not very familiar with leasing up office space. This is all new to me. I am starting from scratch on funny, starting from scratch on office space and co-working executive suites, salon suites, and and everything like that. And I've been drinking through a fire hose, learning very, very rapidly. Two weeks ago, I was very nervous about getting any clients at all. And now I literally am getting so many leads, and I don't know what to do with them. I had four appointments or five appointments total. I got four verbal yeses, one signed contract already. I'm expecting the other ones to get signed here any day now. So uh, you know, one, two, three, four people have got signed up last week. And um, after doing some quick re uh recapping on it, I'm like, holy cow, wow. Uh, you know, getting four in one week, that's that's pretty good. We are running a crazy deal here, too, where I'm given the first month or the first two months, depending for $199, right? That's like my teaser rate to get everybody into the door and then bumping up bumping them up to what I thought was market rent. But interestingly enough, uh, you know, the first couple leads I had, they were all looking for offices for $250. And I'm like, dude, we're gonna go broke here. We I forget exactly what our average is, but we need to average something like $580 or $600 an office at a hundred percent capacity to to break even to give you an idea. So that wasn't gonna fly, and I was nervous going, oh boy, what what's the market saying to me here? But the I got more aggressive with our deals, I got more aggressive with meeting people out there and actually showing them the place. The feedback that I'm getting is awesome. It's a very unique building. If you follow me on Instagram, you would know what it looks like. So shameless plug, follow me on Instagram. There are pictures all up and down there, there's videos, there's walkthroughs, so you can see the place. It definitely has character. It's in an older folks part of town, but everyone that's walked it has just felt like a little bit, they've even mentioned it. Wow, this building has, you know, it's got some. I think they've even said the word character, and I don't even know another word that I could use to describe something like that, but it's got a feeling to it when you walk in there. Uh, it's unique, it is a little bit older, and it does not feel like a typical office. So I'm gonna embrace that and run with it, right? Um, and so that was a great week overall. I was very excited. I'm renting anywhere from these offices from $800 all the way down to $400. I'll go over my list. I got a claims adjuster that's moving in on Monday. The other, uh, the second person that wanted the lease was a caregiving company that does like senior care placement, I imagine. They're renting out my conference room for $800. The other person was a photographer. Oh, this is my favorite story ever, but I'm gonna go back into this. We'll just mention it now. We are getting um, they're getting like the old copy room for $700 per month, and then I have some auto broker that is leasing a medium-sized office for $700 per month. So I was ecstatic. I was like, this is crazy, this is awesome. We're gonna hit our numbers and everything's gonna be great. And then today on Sunday, I had a lady's like, Hey, I do nails, and I'm like, Okay, cool, sounds good. Doesn't really fit with what everyone else is, but you know, uh, when I've talked to uh John Troutman about the deal, he had a bunch of salon suites and stuff like that. I think I touched on this in the last video. I'm a big fan of it, I like it. The model's awesome. It I know people that own them, it does really well. It's resistant, uh resistant to any kind of economic things, like people always are gonna be getting their haircuts and stuff like that, right? AI is not gonna really touch that business quite yet, right? People need their haircuts done by their barbers and their eyebrows and their hair extensions and tattoos and all of that type of stuff is uh gonna be around for a while. And the beautiful thing about them is they pay a lot of money for a small space. Now, I don't understand why that is. I haven't really figured that out. But if these salon suites they're paying, this lady tells me, so let me get back to the story here. Meeting up this lady here, I'm walking her through how much space do you need? Blah blah blah. I show her a small office, I show her a big office, she goes, Okay, cool. I like the bigger ones. We're walking through, and she goes, Okay, I like this one here. Now, how much is it? And I'm like, 750 bucks a month. I'm like raising the prices, and she goes, What? I go, 750 bucks a month. And then she's like, Man, well, I got like four or five friends that do nails and tattoos and hair extensions and makeup and this and that. Do you have more room? I was like, Yeah, bring them all through. They're like, All right, I'm gonna give out your number and you're gonna get you're gonna get blown up. She goes, your prices are insanely cheap. Uh she was telling me that she's been looking around and she couldn't find a big room like this for less than 375 a week. 375 a week. And I'm doing that math in my head. Shame on me, I can't do it right now. What is it? 750, 50. Is that $1,500 a month? Right? So we're about half. And I couldn't believe it. Now I was like, you know what, lady, that sounds a little bit crazy. So I'm like, whatever. I said, hey, I'm going out of town next two weeks here. Here's my number. Text me, and if you want to get in now, we can I can get you in, but I gotta, you know, get out of town. Then I'm packing up the place or locking up the place. I immediately call Mo Brand. Shout out Mo Brand. I don't know if you're listening to this or not. I hope you are, but I gotta send you this podcast. If you're not, he's my friend that does salon suites. I call him up and he was like, bro, for sure you're undercharging. These people are used to paying an arm and a leg, blah blah blah. That industry's on fire. The rent has increased so much. I'm surprised that people are even able to operate in their businesses. His wife is a hairdresser that used a salon suites, she used their salon suites, so they're very, very well versed in the business. So I was like, Mo, I need some help, bro. I need you to come by here and take a look at this office and let me know what you think from specifically from a salon suites perspective. So I got a little masterclass on salon suites, and I actually know quite a bit about them already because I was uh really close to buying one. We made an offer, it got verbally accepted, and then the kind of the deal died out for a lot of different reasons. But this is something that I've been looking into for a long time, and it just makes a lot, a lot, a lot of sense. Now, the main drawback to salon suites is that most people they go out and then rent a big vanilla box space, they will go out and trench all of the plumbing and install all of the drains and the water lines and the shampoo basins and the sinks and everything like that, and then they still have a lease on this place, and then so they're the tenant, and then they go ahead and chop the building up into little tiny units and then rent those out. It's kind of like a you know a master lease on an Airbnb type of deal if you're a real estate guy. So the best part about commercial real estate is not being a tenant, it's about owning the building itself. So this is kind of the dream scenario where we could get this place turned into a salon suites, uh, meaning haircuts, eyebrows, extensions, braids, nails, makeup, massage, tattoo, stuff like that. And not only do we get that insane cash flow, we're gonna get the benefit of the valuation of that building too. The valuation this building is gonna freaking skyrocket. We thought those numbers looked good with Regis. Uh, and I'm not counting on getting double the rent, you know, not counting on pulling 20 G's out of this place, but say if I was able to get a 15% bump or a 50% bump, maybe a 75% bump in rent, and we were not getting nine grand, we were getting 13, 14, and then I'm getting two from the other side, it cost me 10. These are cash flow numbers that are straight from grand, you know, that three and a half to five thousand dollars a month, that's a lot. That's a lot of in my opinion. For a guy like me, that's a lot of cash flow to get out of a building. And if you're getting those types of numbers, now I guess I could quickly do some math here, and I'm everything here. I haven't even done the numbers yet because I wanted to wait to talk to Mo to see how accurate everything would be. But if I just you know, I know it was like 8,700 bucks is what we were gonna get from everything is offices. Uh if my pricing was mildly correct, so let's just multiply that by 1.5. So 50% increase, that's $13,000 plus the $2,000 I'm getting from the other side, and then next year that goes up to like $2150. So uh we'll just leave it at that. Call it $15,050 times $12,000. That's $180,000. It's gonna cost us quite a bit here to operate this building, but not $50. I know it'll probably cost us $40 to run that building, just off of what I know here off the numbers. So it's gonna be $72 gram minus $18,600. You're talking, wow, $108,000 of NOI. That's a lot. Let's see what that comes out to divide by a cap rate. I'll put the cap rate a little bit higher. I'll put it at eight. Okay, so it puts it at $1.354 million worth uh of value. Now, what I just realized in doing these quick calculations, that valuation is a lot less than I thought because the expenses are much higher on this building. Grand, we barely have anything. We're doing insurance and taxes and uh a few a few capex things for the roof and the ACs and things like that. Our expenses are squat here. They're expensive. We're paying for utilities, we're paying for Wi-Fi, we're paying for cleaning, we're paying a thousand dollar HOA. So that really gets eaten up. Uh, but the cash flow is still there, so that's uh that's pretty cool. The same amount of cash flow, which is really good for me. And guys, we bought this building for $630,000. We put uh less than a quarter million dollars into it of remodel and carrying costs and everything like that. So that's a pretty hefty profit. We're looking at five hundred thousand dollars. Uh sign me up for that. That's cool. I like that. That makes me feel really, really, really good. So overall, I'm I'm stoked. I don't think these numbers are that wildly off that I could get 50% more for uh getting these salon suites going. And a big concern initially was retrofitting every room with plumbing drains and a sink. Well, a couple things. A, not every room needs that. Not every room is going to be a hairdresser that needs a shampoo bowl to wash clients' hair. Like again, I've named them off plenty of times. I don't think I have to. Again, there's plenty of other salon suite type of businesses that do not need a sink or a shampoo bowl in their office. However, there are, I walked around today, about three offices that have plumbing on the other sides of that wall. So getting a drain line, getting water lines there would not be bad if we had to do that. However, after talking to Mo, what a lot of offices do, offices, I sounded like I was from New York there for a second. Um, a lot of offices, what they do, instead of running all of the drain lines out to individual rooms, they have one room where everybody gets their shampoo bowl. So for us, we could turn the break room, which was a negative room to begin with, anyways, or not negative room, it was a non-revenue producing room, anyways. There's plumbing in there already from the kitchen and the bathroom. We can easily tie into that existing plumbing, put six different shampoo bowls in there, and then people are getting their haircuts in their private suite. They walk down the hall, bada boom, bada bing, they get their shampoo done in their little pri in their little personal uh shampoo basin, and boom, washed up hair, boom, back to the private suite. So that's a real possibility as well, on top of this all. So very excited about that. We have these big rooms that could, if this lady, I mean, you know, based on what this lady was telling me and what Mo was telling me, 1500 bucks for a big office. Well, I got one, two, three, four, five huge offices that are massive salon suites. The rest of them are like a hundred to a hundred and fifty square feet, which is like a normal salon suite, I would like to say. So those might be more like a thousand bucks, but I was planning on getting five hundred dollars for those small offices. So if you're telling me I can get a thousand and I can get fifteen hundred for a big office, oh whee! Yes, sir. I like that. Yeah, buddy, huh? And on top of it too, Moe was telling me that on these big ones, if say he will let people sublease it out or bring in a suite mate, is what it's called in the industry. So a lot of people have a suite mate to help like a roommate, right? They pay half the rent, you split it, bada boom, bada bing, instead of paying $1,500, you're paying $750. Everyone's happy, right? The landlord's happy because they have a tenant that's paying them $1,500 for their room. And what Mo was telling me was that uh it's being more common that salon suite owners are trying to squeeze these guys out and get more money out of them and say, hey, if you're sharing your suite, there's it's not $1,500, it's $1,800 or $1,900. So Mo is picking up a lot of clients or tenants rather from these buildings of people that are trying to increase the rent on their suite mates. So maybe that's a trend that's gonna be ongoing. Maybe that's something that the tenants will, you know, that's where they put their foot down and say, hey, enough's enough. Either way, I like it. You're telling if you're telling me I can get $1,500 for a room that I would gladly rent for $750 and thought that that was a killer deal. Um, yeah, this is this is gonna work out really well. So uh I know for salon suites that the decor is really important, like the overall vibe, the feeling uh to the place is really important. So we are going to need to put a little bit more ethensis, emphasis. There we go, John. Come on, you can speak, emphasis on the decor and everything like that. So maybe hiring somebody or speaking with somebody who has that extra talent because it ain't your boy on this side of the mic. You don't want me decorating anything. So um, I have no problem doing that, especially now, seeing as though this building could be a big, big producer for a while there after running the numbers, it was pretty bleak. It was looking like cash flow was gonna be about a thousand bucks a month at a hundred percent uh rent rate with you know no vacancy, and we all know that's impossible. So we were looking at basically breaking even on this thing for a while. But a I also think that renting the or the pricing for my offices was probably a touch low. We could probably bump those up by 25%. However, again, I said it I think three or four times on this podcast right now. If you're telling me I can get double the rent and really not do that much more work, uh, yep, that sounds good. I like that a lot, a lot, a lot, a lot. And then I can increase that building by uh, you know, like double the value that I bought it at, but increase the equity by half a million dollars. Half a million dollars, that sounds really cool. Um, I like talking in million when when you have to use the word million in the numbers that you're talking about. I like that. And even if it's half a million, quarter million dollars, eh, half a million, that's what we're starting to. I like that. That's good, good, good. And then maybe one day, here soon, multiple million dollar profit deals will be the standard, which in due time, in due time, ladies and gentlemen. So that's the really exciting news on Thunderbird. Unfortunate timing that I find this out you know about 36 hours prior to me leaving the state for 14 days. But needless to say, it'll give me time to research, to think. Um, hopefully, I can meet Mo there tomorrow. So, over this entire trip, I can completely change my uh my mindset and figure out what I need to do when I get back and really, really hit that ground running. But boy oh boy, I can tell you that six hours I met this lady up six hours ago. My I feel 20, 30 pounds lighter already, just knowing that this building can be a huge, huge, huge big time producer for me. I'll tell you what, that is just a huge breath of fresh air for a while. There, I would say for the last six months, this building has felt like a weight around my neck trying to drag me down as well as grand. Uh, but that just shows you know, sticking in the game, perseverance, as bad as it gets, as hard as it is to keep going and paying attention and uh keep on doing the activities, meeting people, getting getting out there, doing everything. That is how I learned all of this, right? It it all is just from in-person experience. Now, a lot of mistakes were made, a lot of money was wasted to the tune of $250 a day. We burned six months of time trying to lease this place to tenants that probably weren't even really out there to begin with. So, I mean, golly, at $250 a day, that's how they $500 a month times six, that's $45,000. Uh, forty-five thousand dollar lesson that we learned. However, I'm glad to pay it because if this truly does work out, and I really think it will, but when this deal actually works out, I mean, office is so soft right now. It's uh this would be incredible. This could be a little bit niche, uh a little bit of a niche right here. Buying these office buildings with the appropriate uh zoning to do these types of businesses would be fantastic because we could scoop these things up. I mean, nobody's buying these types of offices. We probably could have got this thing for cheaper if we wanted to. So that is very exciting. I love it. Finally, some good news. We're moving in the right direction, we're getting leases signed, the potential rent has just increased dramatically, which means this guy can sleep better at night, which is what I want to do desperately here. The last year has been pretty brutal on the stress levels, so peeling back that stress, breathing a little bit easier would be fantastic. And then ultimately putting some more money in my pocket, uh, in the net worth column and the cash flow problem is just pretty much a dream situation. So things are going good. I can't wait, get this building stabilized, and then boom, get out there and buy some more buildings because the more I do this, the more I enjoy it, the more fun it is. And again, the more money that I make, and honestly, God, that's why I do this. I don't do this for my health, I don't do this just because it's fun. I do this because I want to make money and I want to make a large sum of it, uh, or large sums of money. Um Because I think that is fun, and that's what I want to do. So, boys and girls, that's where we're gonna wrap it up. Thank you very much for tuning in, guys. I strongly encourage you to follow me on Instagram, John DocLeich. I am posting videos on there. I already posted a video um on oh shoot, you know what? I didn't even get back. Let's hold on. We gotta go back. We gotta go back. Uh I completely forgot one story that reminded me the Instagram post that I made was about a different person that came and viewed the space for their photography studio. Interesting. I showed her some different offices and she's like, oh, the size is good, but it's just a little bit short. Do you have anything longer? And then I was like, I do have a long room. Let me show you this one. And this was the copy room. It's a very, very bizarre room. It is very thin, about maybe it's like maybe 12 foot wide by like 22 feet long. It's in a weird spot in the middle of the office. It has two doors. I didn't even put this into our perspective uh numbers for any kind of revenue generating. Um, or did I talk about this? Honestly, I don't even know. Let's talk about it anyways. And if I did, whatever, I'm an idiot. You guys can just skip this podcast and go to the next one. So uh that was not even in our calculations at all. Um, we're gonna get 700 bucks a month out of it, which is an extra $8,400 a year, uh, which is just awesome, right? All I gotta do is install a door that was that I found in a in the storage closet, and then I gotta build a little wall and install a door, and then boom, that way she gets her own little private studio. It doesn't break up the office in a very weird way at all. Oh, and the other benefit is there's another weird office that's like in a hallway to that room. So now what I can do is build another wall and put a door there, and then one wall blocks off that office too. So instead of that being a stinker hallway office that I could probably rent for didn't even make it on the list because I was like, I don't even know how I can rent this thing, it's a hallway, but now it's its own office. I could easily put um, even if it's not a salon suite person, I could get 500 bucks for someone to put an office there. So um it also it helps break up the office a little bit, it helps increase the rent that we can get from a space that was just non-revenue generating to begin with, and it increased the rent that we can get. Now I can probably get uh a thousand bucks for that area from a salon suite person. So then if that ends up being that photographer, if not, it could go to a salon suite. That's a huge salon suite. You can probably break that thing up into two. Um, and uh, you know, really, really get that thing to hum. So that's an extra, even if we sign with that one lady at 700 and then a thousand, that's $1,700 that we basically pulled out of nowhere. So let's call it $1,200 increase because I could have probably rented that office for something. No, let's call it $1,300 a month times $12 is $15,600. Let's divide it by I don't even know what salon suites trade at, call it an eight cap. That's $195,000 of equity of value added to that building just because and then what does that cost me? I don't know, two thousand bucks, one thousand bucks per door install. Come on, baby, those numbers are crazy. Uh let alone the cash flow, the seventeen hundred dollars a month that you're gonna be making. Obviously, they're gonna be spending something on electric, so call it twelve hundred bucks actually to your net uh every month on cash flow. That's cool. That's a lot of money. That's fourteen thousand four hundred dollars, if I'm not mistaken. So that's a lot of money right there. 14,400. Your boy can do math. Look at that. So yeah, guys, awesome. So, not sure if I told that story already. If I did, my apologies. It's a bad habit of mine. If not, I'm glad I snuck it in there because we were about to do the outro here, but now I can get back to the outro, ladies and gentlemen. As I was saying, follow me on Instagram. I took a cool video of that whole space and explained everything there. That way you can actually see what I'm talking about for that specific story. Follow me on Instagram, guys. If you're listening to this or this is your first time, hit pause and go leave me a review, guys. Just hit that five-star button. You don't even have to write anything. If you wanted to write something, I would be forever indebted to you. That would mean the world. I love seeing the reviews. I love that there are people that are watching or listening to this podcast and sharing it with your friends, right? So if you're listening to this and uh you liked it or didn't like it or thought it was terrible, but you think that somebody else would like it, oh guys, please send it to your friend. There's some buttons in the podcast area. It's got a square with an air, you hit it, and then you send message and you click the person that you think would like it, and then you send, and then you let me know, you message me and say, John, I shared your podcast with my friend, and you're awesome. And I'll say, Oh my god, you're the best. Thank you very much. Also, guys, the video podcasting is new. I did record everything on the past on video, so maybe I gotta go through and upload everything. But um, if you do prefer to watch them, there uh you can watch them on Apple now, you can watch them on Spotify. I am not on YouTube uh video platform yet, but I am on the YouTube podcast. I don't know if you can watch it there. Um, irrelevant. Uh check that out if you like the videos. Now that I'm doing that, I could do more screenshots or screen sharing of albums and numbers and calculations so I can show you guys all of that behind-the-scenes stuff as well. That will be fun. And um, other than that, I'm starting to ramble again. It's a 27-minute podcast. That's crazy how this one went so long, but let's get out of here. I gotta start packing for my trip, and you got other things to do here, probably start meal prepping for the week and doing your laundry. So, boys and girls, really appreciate you tuning in. I will miss you greatly over the next two weeks. I don't know what you're gonna do without me. You can go back and maybe re-listen to your your favorite episodes uh to keep your routine down so you don't lose that John Clech charisma that you all love so much. Um, sorry to ramble again. Let's just end it here before we go 45 minutes. Boys and girls, really appreciate you tuning in, and we will catch you on the next one. In the meantime, take or easy.