Ep 44 - The Moves You Don't Make

Sometimes in life, it's the moves or plays you don't make, that are the true winners.  Now I can't say for sure if I missed out on revenue/profit via 2 good tenants. But at the end of the day, I feel I made the right call by not moving forward.  Very hard to pass up on $1,600/month, especially right now, but at the end of the day, I know having trouble tenants is a good way to make your life miserable. 

Not much to report this week, light activity, but ramping up the marketing to get more leads/showings into Thunderbird because time is running out!  We have 3 months 2 weeks before our loan is due.  So we need to get this placed mostly rented up, and refinanced into a traditional commercial loan by then.  WE CAN DO IT!  

Transcript

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Boys and girls, welcome back to the Commercial Real Estate Starting from Scratch podcast with me, John Kleisch, on episode number 44. If this is your first time tuning in, I greatly appreciate you doing so. Uh, to give you an idea of what we are talking about here on this podcast, I'm just documenting my journey from zero experience in commercial real estate all the way up until today, which has been about 44 weeks, ironically enough. I started at basically the first week of me getting into the business. I started with uh no commercial buildings, uh no experience, and now I own uh two buildings. Uh one's an industrial building in Glendale, Arizona, and then the other one is an office building in Sun City, Arizona, which is all the suburbs of Phoenix, Arizona, if you are not familiar, valuing somewhere about two and a half, $2.7 million-ish. Soon to be a lot more once we get these things leased up. So I'm just documenting my journey from the very beginning, all the good stuff, all the bad stuff. I feel like there are a ton of uh podcasts out there where you go and everyone's pounding their chest and they always talk about the good news. Um, I don't want to highlight the bad news, but I at least want to expose everyone to behind the curtain of what really happens on these deals, and we're not just talking about all the fairy tale numbers and everything like that. I have gone through it quite a bit. So if you uh want to go back uh and start from the beginning or the middle or something like that to get caught up, I would think it's a good idea because I know there's been some interesting things that have happened to me. So uh what we're doing now is my big uh industrial building is all leased up. I shouldn't say all leased up, mostly leased up. We have a couple spots that we could fill for a couple thousand bucks here and there. And uh that is good. That is on the back burner, and the big focus right now is the office building which we have and the conversion into salon suites. Uh, to give you guys a quick update on Grand, not much is going on. Everyone's paying, everyone's happy, that is all good. My new current tenant that I got for the back lot is very interested in leasing some more parking space. So I gave him a price, and he wasn't really interested. And so it's just kind of sitting there, and he came up with something a little more than half of what I initially went for, and I was like, dude, let's do it. So let's see if he actually moves forward with that. That would be great to because that's just free cash flow sitting there. It's literally just a parking lot that's full of dirt that I would have to do absolutely nothing for. So uh, to give you an idea of kind of what that would make the building worth more, let's see, $7,800 annually, $650 a month. Let's just call it an A cap for poops and giggles. Uh, $97,000 of value added by just doing that alone. So uh, yes, please, please rent that lot for me. That would be great. Um, since we're on the subject, lightly touch on it. The equity increase is always great, right? It makes awesome or it looks awesome on paper, but in reality, we're not getting a check for $97,000. It's not even, well, I guess you could say at that moment in time, it boosts my net worth, which is great. But ultimately, you can only capture that if you sell it or refinance, and it's easy to hear all these numbers and go, wow, they created $200,000, $300,000 of equity. But it's like just on paper, that's all that it is. It can go poof tomorrow. So uh just thought I would touch on that because I know I get really excited when I see numbers like that, but ultimately it doesn't even change your day to day, even if that number was times times five. It's on paper. Maybe it makes you feel good on the inside, but at the end of the day, it's not cash money that you can spend, and that's the stuff that we like right there. But either way, I am very happy to increase the uh value of the building by $97,500 nonetheless. Uh really grand doesn't really have much going on. It has taken up a good portion of this podcast in the past, and now that it's mostly stabilized, we've been chilling. And I'll tell you what, I really like that. It is a great thing. That's why I got into the business. And put it this way, it is I've been in real estate now for shoot, five, six years full time, maybe more, six years, something like that. I had rentals in the past. Uh, they did okay here and there, come and go, up and down, whatever, but mostly did transactions, flipping, wholesaling, and everything like that, subdividing. So I was never into building a portfolio of rentals and cash flowing and everything like that. I've never had experience doing that. So it is very nice to put in a lot of work into a building, get it to where it needs to go, and then cashing checks. That's wild. It's like a concept that is kind of lost on me, to be honest, but it is starting to feel a little bit normal. Once Thunderbird gets rocking and rolling and we're cashing checks, instead of cutting them, that is gonna be truly a special place to be. So now that we're on the topic, Thunderbird, what has been going on this week? Realistically, not a whole lot, probably not going to be a very in-depth long podcast. So if this is the first time you're listening in, honestly, go to a different one, I would say, uh, overall, because this one is gonna be pretty short and pretty boring, which is also okay because I have been a chatty cathy lately and I'm looking at these minutes on these podcasts, and they're they're starting to touch 30 minutes, which is cool. I don't know if you guys like them longer, shorter, I don't know. I have a tendency of rambling and going on and on and on. So you know, if you guys like the shorter ones or the longer ones, send me a message. There is a link to send me a message in the description of this podcast. I really think it says send me a message, and it's in blue, an underlined. There might even be an exclamation point. Uh, do that and let me know if you like 20 minutes, 30 minutes, or do you want longer ones? I could definitely go longer. I don't know if I want to, but it is a real possibility. And so let's see here. Back to the book. Thunderbird locks are getting installed tomorrow. I went and hired the guy. I forget last week if I hired him then before the podcast or whatnot, but I hired him. He's coming, getting everything installed. He got all the schedules and all the pins and codes and everything set up on his end today. And then tomorrow I'm going to meet him there for the final installation. Four exterior door locks with keypads, $4,500 installed. I'm floored. I couldn't believe it. But at the end of the day, the game that we're playing is expensive and there's a lot of money to be made. So there is, of course, a lot of money to be spent. Uh that's getting taken care of. What else has gotten taken care of? Uh really not much other than uh than that. I had set up a couple appointments earlier in the week for uh tomorrow to uh prospective new tenants. This lady is an aesthetician, makeup, right? Uh I did a walkthrough, I forget what day, Monday, Tuesday, something like that. And I think it was Monday. Two people, husband and wife, tattoo artist, and nail artist. And I met her when I was just renting everything out for office space, and it was greatly cheaper of a rate. I quoted her, I said, hey, 179. She's like, What 179 sounds great? And then literally the next two days go by and we find out about the salon suites. And that actually a lot of it had to do with her because she was like 179. Wow, I can't find anything for under 379 a week. And I was like, Then I called my buddy with the Salon Suites, confirmed it, had them come out, blah blah blah. You guys know the story if you listen to the the the previous episode or maybe the one before I left. I forget. I forget, but we talked about that. So uh told her, hey, listen, I know I gave you that really cheap price. I'm still down to do it, but uh, I just don't know how long I'll be able to make that happen for. And they're like, okay, cool, sounds good. Six months. I told them at least I can do a six-month deal. And then I said, okay, all that we need to get started is one month's rent and uh security deposit. The security deposit is equal to one month's rent, so that'll be sixteen hundred dollars a piece, and that's when they started getting really squirrely, blah, blah, blah. Can I pay that over time? Brr br. And then it's like red, the red flags are are going up, right? If you have a problem putting sixteen hundred dollars together and you are a business owner, and this is how you provide for your family and make money and live off of, I think that's a problem. I really do. They told me some situations that they have going on, and I get it. I've been there, I know how things are, but at the end of the day, we're not asking for that much money, especially when you're getting a 30, 40% discount. To give an idea, we are renting the next door room. Literally, they're touching walls, they share a wall, it's an identical carbon copy that room is renting for $295 a week. It's rented right now, so $200 a week from $295, that's like a 33% discount, and that's aggressive. And $295 is already at probably a 20%, 15% discount from market rent as it sits already. So to give an idea of how good of a deal that was, that's like basically you're almost getting half for the room that they that they wanted. Ultimately, I was still thinking about him hawing, and we just left it like, hey, just let me know. And then they let me know that night saying, Hey, it's just too much. So sucks because that would have been sixteen hundred dollars a month that we would have had, which would have been absolutely enormous. Right now, the whole place is pulling in about forty, five hundred dollars per month. The expenses we have on this building are definitely north of ten thousand dollars, and I don't know exactly anymore because we are starting to run the air conditioner a lot, like all day a lot. And there's four of them. I have 15 tons, I have uh basically 20 tons of AC units that in the summer heat and arizona are pumping all dang day. I have one unit set at like 83 degrees. It's in like the back corner upstairs where nobody's at, but there are people one, two, three, in all the other parts of the suite, so I need to keep that AC on. They are now using water. We are now paying for internet, which is I forget, I think a buck 69, 200 bucks a month for internet. So I imagine the expenses have probably gone up a thousand bucks a month, maybe. I had to get a cleaning lady out there. We're gonna have to have cleaning ladies come out regularly now. So I imagine in short order we'll be touching twelve thousand dollars a month really quickly, very, very, very quickly. And the quicker we get people in here, the better. Obviously, you guys know the drill. Our hard money expires in about three and a half months, just shy of four months. I think it's three months and three weeks, something like that. So it is time to get people in here. And so I was desperate, was, am still desperate, but I was pretty upset about not getting that deal. But then at the end of the day, a lot of times it's the deals that you don't do, right? Like, guys, imagine if I went back in time and never entertained Gilbert, uh, Gilbert's deal at uh at grand, the guy that I had to evict. Imagine if I never took him on. Man, you know, I guess hindsight's 2020, right? But I would have avoided a ton of pain. Not to say I would have been in a different pain in a different situation from somebody else. However, avoiding big problems is really huge. I feel right now where I am at in my life, in the market, um, the overall market, the economy, real estate in general, I feel like the whole point of these next five years is just not to blow up, not to explode, not to go bankrupt, not to go broke, lose your properties, everything like that is kind of the feeling that I get. I don't know if that is something that a lot of people feel, but in right where we're at, this weird kind of limbo stage where nothing really makes sense, right? Like rich people are getting stinking rich and poor people are getting stinking poor. So I don't know where this where this goes, where it ends up. Everything's at all-time highs, something's got to give, but we've been saying that for years, right? When is it gonna give? So that's why I say I'm just really trying not to not to blow up here. Now, if things get out of hand and the economy goes into the pooper and prices start to drop, that's the time to strike, right? That's when we're gonna that's when we're really gonna put the pedal to the metal, right? And really hammer down then. I don't really think now is the time, right? I don't know what rates are gonna do. No one knows what rates are gonna do. They're probably gonna go up and then they're probably gonna go down after that. So that really affects our business quite a bit, as you know, if you're in the game. So really just trying not to blow up. And how do you how do you blow up? This is a great Hermosy thing, by the way, and I'm on one of these tangents right now, but I think it's valuable. Where he always talks about going through like the worst, the worst case scenario, going through what what bad things can happen. Hey, if I wanted to go bankrupt by buying commercial properties, what would I do? Well, I wouldn't care about the cap rate, I would overpay for a building, I would mismanage it, I would get any tenant that uh could fog a mirror in there, right? So bing, bing, bing, bing, bing. Just don't do those things, right? And not to say these folks would have been that. Maybe they would have been amazing tenants and they would have been great and they would have paid on time every month and helped out and been fantastic. I don't know. Um, I didn't get that vibe like that. They were gonna be trouble. It was more so I don't want to get a text message on the first of every month, hey, can I pay late? Right? Like that to me is probably not worth it. And I said probably, that was a mistake. I mean that if if that's a possibility, if that is the thought that crosses my mind, I'm gonna go ahead and say that if it walks like a duck, talks like a duck, farts like a duck, quacks like a duck, that's a duck, right? Um, so ultimately I feel good about the decision overall and not trying to save it. But I'll again I don't know. Either way, at this point in time, I am over it. I feel good about it. I have more people lined up for some showings. Well, I one person, I have one person lined up for a showing, I should say. And uh recently just redid the ad, boosted it, like paid money on it, and then I just met with my partner John Um Heisler on the deal, and we're gonna start doing Facebook ads to really get this place humming because time goes by fast. We've already owned that building for like eight months, and we burned six months trying to lease it out as a normal office space with with no such luck. Uh again, if this is your first time listening, there was a whole debacle about we were close on doing some crazy deal with some other company that was going to do co-working, so on and so forth. And then we looked into our own co-working things. But either way, regardless of what happened, we burned a good six months, if not more. Now we're talking, we burned seven months. Um, but everything works out for a reason. So now it's time to strike, is my point. We went through the whole deal. What do we need to buy? What can we hold off on? What's the necessities? What is going to get us to victory faster? We basically have two and a half months to get this place as filled as possible. If we can I mean, the first goal is to cover the debt, right? We have to cover the debt. That is uh that's a must. So getting that taken care of will be a great breath of fresh air. And the reason we're against this deadline is that we purchase these properties around mid-November. Both notes we purchase them on a hard money loan and then a private loan. Both of those notes are for a year's uh term. One of them, I know we have an extension in there for a quarter million dollars already built in. We have to pay a little bit more in interest for it. Uh, the other one does not, which is 480 grand, basically half a mil, something like that. Uh, that one is not. Do I think they will extend if we asked? I do, but you never know. And it's not like I have a half million dollars cash laying around where I can just go, oh, okay, no problem. They don't want to extend. Here, I'll just transfer the money. That's not that's not even remotely possible. Uh, hopefully, it doesn't come down to that. Hopefully, everything works out and we can get this place leased up, get it refired out, and bada boom, bada bing. And I really do think that will happen because I am putting a lot of time, effort, and energy into the leasing aspect of this, especially now that I'm back from my break, which really took, I mean, it was two weeks. Uh, that took a lot of time, and then it wasn't even just the time that I was gone, it was preparing for the trip when I got back, unpacking, getting settled in, blah, blah, blah. It probably cost me two and a half weeks, almost three full weeks, I would imagine, of leasing. And that's when you got three months and a couple weeks left. That's a good chunk of change. That's probably 10% of what I needed. So, um, what we are going to do is spend money on the main areas, the decor of the place, if you will, to really get that vibe, really get that feel. When you're talking about salon suites, you're talking about people that their industry is looking good, right? They're into hair, nails, makeup, massage, um, whatever, XYZ, eyelashes, extensions, yada yada yada, right? All of that stuff, those people are into looks. So if they walk into a building and it's rotten, they're gonna not feel good about that building because they pay attention to stuff like that. If they walk into the place and it's really well decorated, it's got a theme, it's got a mood, it gives you a feeling when you walk in, that's what we're going for, and that's how these salon suites will move. So I don't think there's a better dollar per or better dollar ROI than doing that right now, right? There's marketing, which we're gonna doing, we're boosting Facebook marketplace. We're gonna be doing actual Facebook ads and then spend, I don't know, I imagine it'll be five grand, maybe more if we have to paint. If we have to paint, it'll probably get closer to 10 on getting the place freshened up a little bit, which I think will be huge, huge for the program. I think that would do really well. Because right now, people walk in. I say, oh, hey, we just took over, we're uh we're doing this, we're doing that, right? There's only so many times you can say that. And then the problem is a high quality tenant is gonna walk in and see a not very high-quality building, even though I got cheap rates. Not everyone wants a cheap rate. There are gonna be some people that want to pay a little bit higher for a nicer space to get all of those things that we talked about. So that is the plan, and you guys know this. We've been putting our own money into this deal now for a couple months to keep it alive. And we are getting to a point to where I spent $2,000 on HVAC work. If you remember, I had a crackhead jump on my roof and steal our copper drains, and he messed up a bunch of electrical circuits up there, the disconnects, which we didn't even fix yet. And then I got all of the smart thermostats and had to move a thermostat on the other side of the wall. Uh now that I can control everything, lock them from home, check the temps, blah, blah, blah. All of that. That was two grand. The locks are 4,500 bucks, and then this remodel right here. So that money's going out fast, and we don't have it, right? So, what are we gonna do? Well, I am going to lend our business uh money on a hard money note. We used another person on grand at like 15%. We got like 35 grand for like three, four months. That way we could get a lot of different other projects done around mostly the roof. So instead of using them this time, I felt like you know what, I might as well capitalize on it. I just got a little bit of Mool out from Grand Avenue distribution, so I figured I put that to work instead of paying out. And then the other thing is we had to pay those individuals every single month, which means you got to have money. And uh Grand was producing money, this place wasn't or is not, so I was like, hey, let's just do it. I don't need to get paid out every month, I can get paid out whenever I'm cool with that. Probably four months whenever we we refi or we have enough people in here that the cash flow is going. So that's what we're gonna do to fund everything. I'm just gonna do a small $15,000 loan at first, and then I imagine we'll probably have to do a little bit more here and there, depending when we need to add a few things, add some sinks and everything. But what we're really trying to do is get the tenants in there, walk the place, they pick a room and they tell me, Hey, look, I need better lighting because a lot of it doesn't have lighting. Uh, you know, things like that. I'm not gonna try to do things beforehand because we just A, don't have the money, and then B, that's not really. Good use of capital to do something that we don't know is even something that we want to get done. So that's the plan with getting everything tidied up uh overall. But the first order of business is getting more leads and get setting more appointments and showing the place to people because once I get people into the place, if they are a qualified tenant, I will do my damnedest and uh make sure that these people get in the door. I am working deals like crazy now to the right quality tenant. Uh, you can't have a tenant that wants a deal and doesn't have money, right? That's just not gonna happen. I am totally cool with a tenant that wants a deal, that has money, and that just wants a deal, right? I'm a deal junkie. I always want a deal. I'm always gonna negotiate a better price on everything. It's a fault, it's a disease, it's a sickness. I know I feel terrible, but I just have to. Uh and I hate it, but it is what it is, right? So that type of person willing to cut deals for. So that's the name of the game. Ads, showings, leases, fixing, getting the place spruced up. That's what we got going on. It is now Wednesday. I only have a couple days left. I just boosted that post. So hopefully over the weekend I can start drumming up some business and get up, uh, get a few more showings over to the place. I am going to be a lot more lenient on who I show the place to now, just to get people in the door. Before I was doing a lot of qualifying now, I don't care. If you respond to my messages, cool, you're in the business. Let's go. When you want to see it, come on, pick a date, come see me. So that's the plan, boys and girls. I'm gonna cut it here. We got six minutes before we hit 30. I told you I can talk. I thought this was gonna be a seven-minute episode. Yeah, right. So, guys, uh, really appreciate you tuning in. If you got a kick out of the show, thought it was cool, leave me a review, please. That would be great. All you can have to do is just click five stars. You don't even have to write anything. If you felt compelled to write something, that would be amazing. I know the algorithm really appreciates that. If better yet, you know of somebody that would get a kick out of the show or at least find it interesting, please send it to them. Say, hey, I listen to this knucklehead on a podcast, and I think you would like it. So send it, share it, and then if they like it, tell them to leave a review too. That would be great. I do no promotion of this podcast at all. It's been almost a year, and I know if you've been listening a while, you've heard me say this. I've got a lot of friends that don't even know that I have a podcast. Back when I was home, uh, on our trip, I went back to my hometown, and all my family was like, Oh, you have a podcast, you have a podcast. So uh please share it, like it, subscribe, all of that stuff. That would mean the world to me. Thank you guys very much. Uh, follow me on Instagram, John.cleisch. I do a lot of reels and quick uh stories on updates, pictures, videos of the buildings and everything like that. So you guys can see that there. And other than that, uh, let's get out of here because I'm tired. I'm on like hour 14 of work, my head spinning, and I'm ready to go to bed, even though it's still pretty light outside. I don't care. This guy's tired. So, boys and girls, really appreciate you tuning in. Thank you so much. And on that note, take her easy.