On the show today we talk… Catching Knives: Commercial Real Estate Opportunities with Jake Harris!
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Show notes: Catching Knives: Commercial Real Estate Opportunities with Jake Harris!
Jake is in Sacramento CA and has lived in Phoenix and the Bay Area.
Today we are going to cover commercial real estate with Jake Harris.
He started trying to flip a whole lot of residential flipping, and then got into doing bigger deals so he could make more on one transaction then a little on a lot of transactions.
Jake is a data geek, and digs into markets to do a lot of deals in that market.
You can be Michael Phelps or the girl on the boogie board riding the wave.
If you are just investing in a top performing market the market does the heavy lifting for you. Which is a very interesting idea.
Infrastructure bonds
The government tells you what they are investing their money in.
When there is a big spend there there is going to be a big return on investment.
You can look at these things and start mapping out where there is money coming in. Then you have to find a good deal in that market.
You’ve identified the market – are you niching down?
Yes, it’s much more of a niche.
There are neighborhoods that are improving their downtown’s. People want to walk to get coffee or go to a restaurant.
Most cities are designed for people, but the US is designed for cars.
Then they are seeing up-zoning.
It boils back down to community, and give people a chance to meet other people.
The future of investments
Doing things that are a little harder, by taking cool things and improving them for better and higher use.
Sometimes it’s difficult.
Focus on investing 1 hour out from hot zone
This is the most competitive area. So, how do you compete on your deals?
They invest before the institutional capital comes in.
The Mafia Rule
There are usually 5 families in the market that have an investment criteria. So Jake can do something outside of their criteria and can do a deal right next door.
In some of the bigger markets there are too many people that are doing what he’s doing, but in less crazy markets there are these deals available.
The really big player are leading Jake’s business.
There are a lot of cities that aren’t going to see institutional investors. But there are some that are emerging into an institutional type investment city. San Antonio is a great example of this.
CoStar sucks in Texas. CBRE had an understanding of what was going on. When they started building out in San Antonio the other people started coming in.
You sell at a 3 Cap in a major metro and then re invest outside of that area in a 5 cap.
How long is your due diligence checklist
64 points on an individual property, and he gets his data from everywhere else. It’s very robust!
You can download the Spartan Investment due diligence checklist on their website.
There is so much complexity in a commercial deal.
Julie Peter Principle
Where you think you’re good at one area of real estate then you think you’re good at the next thing up as well. But a lot of people get slapped.
Interaction with institutional players
There were a lot of touch points and an investment group in LA that partnered with Jake’s friend. They’d hangout at the office and then money would need to be spent on houses.
Then they started saying that they need to buy a bunch of houses.
It worked out really well and they wanted to start doing more for the institutional players.
So, Jake became a construction partner and did a lot of remodels for them.
Jake and Julie tell stories about how the institutional players business works.
How did it work when Jake got started
They had an apartment in NYC in the Murray Hill area. He was looking at a Flatiron building and wondered who owns that building. Then he decided that he wanted to own buildings like that. There was a building in San Antonio that looked like the Flatiron building, and he wanted to buy it. He didn’t know how he was going to buy it. He decided to improve the building and went out and found investors. Where he raised a million dollars for a 4 million dollar building.
It was just the deciding to do it!
Jake is a hustler
He creates a goal and he goes and does it.
Flipping is a way of growing capital, the same as brokerage. It won’t make you wealthy. You can start there, but need to start holding real estate.
How Jake sends offers
He send LOI’s today, and uses brokers, and builds relationships.
In the last example, the owner was a dentist that gave the building to his kids who weren’t doing any tenant improvements.
How do you take the first step
- You need to be a go-getter
- You all up the broker, but do they say you can tour it even with no experience
Jake has not had the issue of feeling intimidated. He acts as if he can buy a billion dollar building.
Richard Branson’s Losing My Virginity
You don’t need to show that you have an LOI, you don’t need to show proof of funds. You have to show confidence!
What are the components of your LOI
It varies depending on the asset. For land it might be a year. If it’s a competitive deal, you might have to ask in the conversation. Figure out the pain points of the seller. It’s usually price or terms.
Price, due diligence,
Don’t be afraid of going into escrow. If you’ve structured your contract right, you can get your money back.
Write your earnest money to be payable on closing of earnest period.
If you are flying blind how do you come up with earnest money
It depends. He doesn’t have a rule. On average at 1%, $5k, $50k. Sometimes he does big earnest money but make it really hard to not be returned.
There are psychological effects to these components.
People in commercial real estate are a little more sophisticated than in the residential world.
He goes into escrow with the intent to close the deal, period.
It all depends on your ability to raise capital.
Jake wants to do a skyscraper
He got a degree in international finance.
When he does more, he’ll do more, and build up. Then he met a kid that did a $30 million dollar deal in Miami. The kid came from out of the county and had no experience. He found the property on the market and offered the asking price. Then he went and talked to the building down the street to help him out.
Everything comes from someones imagination!!!
People will believe in you because you believe in that.
Go take action!!!
Take action with confidence!!
What’s the hardest challenge you’ve had to overcome in real estate
All of them, everything is hard.
The dissolution is that people thinks things are going to get easier. Life is an uphill road.
Ideas of shit, execution is everything. Done is better than perfect!
In a business you can’t ignore the things that are aren’t good at. There are always going to be struggles!!! It’s an uphill battle the rest of your life!
How have you changed your underwriting based on current market conditions
You need to know that timeline of the business game you are playing.
You need to underwrite with the end in mind!
Don’t try to time the market – does the deal make sense?
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