Action Is The Simple Key To Fear

Intro
Hi. My name is Rod Khleif, and I’m the host of “The Lifetime Cash Flow Through Real Estate Investing” podcast. And every week, I interview Multifamily Rock Stars and we talk about how they built incredible wealth for themselves and their families through multifamily properties. So hit the “Like” and “Subscribe” buttons to get notified every Monday when a new episode comes out. Let’s get to it.

Rod
Welcome to another edition of “How to Build Lifetime Cash Flow Through Real Estate Investing”. I know you’re going to get tremendous value from the gentleman I’m interviewing today. His name is Jake Harris. He’s an author. He wrote a book called “Catching Knives” about distressed real estate, which we’re going to drill down on. But he’s done over, developed, and acquired a couple of hundred million dollars worth of real estate, different asset classes. He’s got another quarter-billion-dollar in development, primarily focused in San Antonio in Texas, which is a market we love, as you guys know, and really excited to get into this with him. Jake, welcome to the show, buddy.

Jake
Thanks, Rod. I appreciate it.

Rod
Yes, glad to have you here. And as we talked about before we came on, that was my stepdad’s first name and a beautiful human being came into my life way too late, left way too early. And we had some lapse about some of the stuff that he did before we got started recording here. But why don’t you take a minute and talk about your you know, really who you are, where you came from, why real estate and kind of bring us current and, you know, tell us to– get a little your bio.

Jake
Yeah. You know, because I wrote a book and so I’m doing a handful of these podcasts and people are like, hey, when did you get your start, where you know, was real estate– and it was interesting because it was actually a couple of months ago, I was at my mom’s house and on her fridge, she has a photo of my brother and I. My brother’s name is Gabe. And we bought a house in Northern California when I was a little kid. It was built in 1888 and it was an old farmhouse that was the head farmhouse of 1000 acre Orchard. They did mandarins primarily, but they had a lot of other fruit trees. And we bought this house in the 80s and we lived a family of five in the 16-foot camp trailer. And we fixed up this old farmhouse.

Rod
Wow.

Jake
As a kid, I had no idea that a 16-foot camp trailer was that small. But those photos show me and my brother carrying a sheet of plywood. And I was like maybe eight to ten. And my brother was maybe, you know, six to eight or somewhere in there. There’s another photo you go to the album of us taking baths and wheelbarrows. This house didn’t have a foundation. It just sat on rocks. We jacked it up. We poured a foundation. And so I could use the nails that were bent and I would straighten them out in the scrap lumber to build you know, forts or build things. And so even though I got started professionally, real estate investing after my career in the military or a very short stint in the military you know, 20 years ago, I actually see that tail and that string back to me being a kid, kind of essentially growing up on a construction site and fixing up an old building. And now I own historic and old buildings that we’re fixing up and converting office buildings to apartments or, you know, whatever the process of what we’re doing. So I kind of feel like it’s been almost my entire life that I have been in real estate and then specifically to this place. And so it’s really easy to look back and see that 30, 40 years ago, that tailor, that string that is tied me and brought me up to this point to where I am. It doesn’t give you the current story. 20 years ago, I got into investing. I got out of the Army, I did Aerosol Infantry. And I was 23, I read this book, a purple and gold book. You know, I’m sure you know what I’m talking about. “Rich Dad Poor Dad”. And I was like, this is what I want to do. But I didn’t have skill sets. I didn’t have podcasts like this. Lifetime you know, like it didn’t exist. And this is before Google, before YouTube, you know, the Internet kind of was around. But the access to information and, you know, to be honest, a limiting belief that I just didn’t have enough skill sets or knowledge to do what I wanted to do. So it took me a few years of process to get in doing my first deal. But I bartended at a golf course and I got around other rich guys and I was like, hey, I’m 23. I want to grab the tiger by its tail. I want to build skyscrapers. What do I do? And they said, get in construction. I was like, what? No, I want to build the thing. And the advice I got was, it doesn’t matter what you do in real estate. There’s a contractor involved. Building a subversion, moving dirt, remodeling your kitchen, there’s a contractor involved. Building a skyscraper, there are contractors, multiple contractors. And you have a very unique dance because of what it’s worth and what it costs to build it, and then that leftover profit. You and your contractor are going to compete over that remaining profit. Contractors want to make as much money as possible. You want to make as much money as possible. So it’s this delicate dance partnership. You need each other, but it’s also quasi adversarial. And so they said, everyone that got into construction and come from the trades, instantaneously knows what things should cost and how long they should take. And so you can learn it from school or you can go figure it out in the trades and you have a shorter learning curve. So that’s what I did. I got into commercial real estate 20 years ago via a commercial construction company. And I was doing stuff for Equity Office Properties. Sam Zell, I didn’t know who he was. And subsequent, I also kind of see that tale of distress. He was known as the Grave Dancer. He bought a lot of distressed assets. He was buying office buildings in Walnut Creek in the East Bay. And I was fixing them up as a Superintendent and then a project manager, and subsequently, got into flipping a lot of houses. And then a very sad subprime crash. I was living in Phoenix and had a portfolio of houses. And I remember Robert Kiyosaki telling me, you know, “be cautious, young man”. You know be cautious, you know. When you’re buying and getting 105% financing on houses, that you know, ultimately leads to demise at some point. I was like, you have to understand, I’m buying these things at a discount. The market would have to correct and go down more than 20%. When has it ever gone down more than 20%? A few years later, I’m sitting in Tucson, crying on a street corner, dear Lord, can I be worth no money? Because I have a negative net worth. I owe way more than these houses are worth. Robert was right. I was wrong. I thought I was smarter, you know. And then subsequently, building back up post subprime is a lot of things that dive into the book and diving into distress. I got kicked in the teeth and got back to it.

Rod
Well, listen. I want to make you feel better because you don’t know my story. And I lost $50 million in 2009, ’08, ’09, and ’10. So, you know, maybe you lost more, but I haven’t met somebody yet. So, you know, if it makes you feel any better, but, you know, I love so many things that you said that I want to circle back to. And I was just thinking about–you know, I had all these antebellum houses that I owned back in the day, pre-1900 houses. I’m sure you remember pulling out those nails that were wedged instead of like a regular nail that you’re seeing.

Jake
Square nails. Yeah.

Rod
Square, like you’ve seen those old houses and windows that have ropes in them to pull them up with weights and so on and so forth.

Jake
The lead weights. Yeah.

Rod
Yeah. Which has just been a real treat. And you know some of these old houses, I got used to having these fireplaces that were so ornate, they sell them for tens of thousands of dollars now. They’re all wood carved and you know, just beautiful. You know, there’s a lot of cool stuff with those old places like that. So that’s really, the way you described you know, that part of your life is really very, very cool. And hats off to your parents for going after it like that. And you talk about limiting beliefs as well, which is something we talk about a lot on this show. You know, so many people have them. And, you know, there’s a reason the acronym for belief systems is BS because they really are. And so many people just don’t get it. But anyway, awesome story and great advice about getting into construction, to get into real estate. My God, you work for, if not the best, one of the best investors on the planet, Sam Zell. Holy cow. How cool is that?

Jake
So I’m just a contractor, working for equity office properties?

Rod
No, I got it. But still, that is really, really cool. You know, like I said, he’s unbelievable. But in fact, I just heard him interviewed on– I think it was Tim Ferriss’s show. It’s been a while since he got interviewed, but just brilliant. And his story about immigrating, basically barely surviving immigration. But really, cool story. Anyway, I digress. Were you buying distressed assets or– talk about because I mean– what’s the title of your book? Catching Knives. What’s the rest of it? Hold it up again.

Jake
Yeah. “Guide to Buying Distressed Commercial Assets”.

Rod
“Guide to Buying Distressed Commercial Assets”, which is, you know, I mean, awesome. And so talk about how you learned what is in that book and maybe talk about an asset that was distressed that you purchased if you did or how that all came about. Please.

Jake
Yeah. So subprime meltdown.

Rod
Right.

Jake
You know, 2008, crying in my Wheaties.

Rod
Right.

Jake
You know, no, I did not lose $50 million.

Rod
It’s alright.

Jake
I lost everything.

Rod
It still sucked. Let’s be honest. Okay.

Jake
Very much so. My goal– I had this goal. I was very myopically focused on being a millionaire before 30. And I achieved it.

Rod
Right.

Jake
But, you know, what I realized and actually you mentioned Tim Ferriss. Tim Ferriss is the next kind of like big book milestone because that came out in like ’08 or ’09.

Rod
“The 4-Hour Workweek”?

Jake
“The 4-Hour Workweek”. And I didn’t even have the money to be able to really buy it. So I would walk over to the bookstore back when they had bookstores and I would read it in the lobby an hour or a couple of hours at a time. I go put it back on the bookshelf and then walk back. And it was like that you know, the people that have read it, it’s not about working four hours in a workweek, it’s how do you ten X your abilities and through systemizing aspects. And so as I sat in and we also mentioned earlier before it started recording the GoBundance Group.

Rod
Right.

Jake
I didn’t get involved in that until you know, the last you know, five or six years. But I realized that least importantly, was I lost money. On that journey to achieve money, I was bankrupt in many, many other areas of my life. My health, my relationships. You know, and my brother said, hey, Jake, you’re an asshole. I don’t want to hang out with you. You know, you’re just solely focused on money. I had a relationship that I thought I was going to get married. That kind of, you know, blew apart. I was 70 pounds, overweight. You know, a lot of things and just like every single aspect. And I think it is very easy for men, in general, to get and gravitate towards where they have accolades and when that is because of money, let’s go do that. And I did more and more of that. In that process of losing everything, I got the blessing and the ability to look at my life in a holistic kind of way. Also, read Tim Ferris and then use that as a magnifying glass to expand my mind. I realized monies, maybe one-fifth, one-eighth of what it is to have and live a real life. This is a journey. And I’m not saying that I’m there or successful in that, but I’ve started making progress in every single way. I also realize subsequently, I am going to do real estate for the rest of my life and I’m going to do this for another 100 years plus. And so when I realized that, I said, I’m getting back into real estate, even though I just lost everything. You know, I got kicked. I dragged through the gutter and bounced at the rock bottom. So I got in and started buying distressed assets. It was not on my balance sheet. My credit was shot. I ran out of money. I had two foreclosures. The last two houses, I ran out. I was out of money before I ran out of properties. And so they had to go to foreclosure. So I did not have the capabilities financially to do that. So I had to understand and build out or at least leverage other people’s balance sheets or experience or capital and then create systems. And so I worked in the trenches for a guy that was a family office. That’s what they call them now. He used to be just– we called him rich guys. He was a rich guy. He was a home builder. He built 10,000 homes, sold to Lennard for 300, 400 million before the crash because he’d seen this happen before. And he was like, I’m out. And so he was sitting on a lot of cash and he says, it’s time, there’s blood in the streets. And that’s actually one of the quotes that I used for Baron Rothschild. It is that there’s time–you know “when the blood is in the streets is the time to buy, even if the blood is your own”.

Rod
Oh, I love that.

Jake
And I’m like, the blood was mine. It was like, yours, mine. It was combined. And so I got back and started buying at foreclosures, at trustee’s sales. We aggregated, put together single-family rental portfolios. We scaled this. I don’t know, I’ve done 1200, 1300 flips in 23 States that gravitated to wanting to do bigger deals. We sold some of those off to Institutional, the Tricons and Colony and Invitation Homes, and the others. And so we understood that playing just ahead of the institutional capital is our kind of you know, the thing that we’re most successful at because we only see a sliver of success in that market or the trending that way. Private equity, institutional capital needs, you know, ten data points. And so what we’re doing is we just play a little bit of ahead of the institutional capital and assemble these. So from distressed assets, a foreclosure, I bought a school. A preschool. One of them is in foreclosure, REO. I was able to remodel it and bring it– I had another tenant that was going to take it over that property and get an SBA loan, bought it for a million dollars, did, you know, half a million dollars worth of TI out specifically for them, and then sold it for $3 million.

Rod
Very nice.

Jake
Kind of doing those things. Then that leveled into office buildings and then land and then warehouses, and then there are other things. And what I talk about in the book is commercial real estate, they take the gloves off. Residential, you know, you have a lot of disclosures. You have a lot of disclaimers. You have a lot of people that protections in place. Commercial real estate, it’s buyer beware. And if you get screwed over, it’s your own stupid fault that you have a contaminated site. There are properties that you could give me for free. Here you go. Here are ten acres of land. It’s free. And I’d be like, I wouldn’t touch it.

Rod
Let me expand on that for one second. If you don’t mind. I’d like to expand. I’m sorry to interrupt, but this is a really important point, and I teach this in my boot camps. Guys, I don’t care if you can buy a deal with seller financing. Commercial. We’re talking commercial deals. If you can buy it with seller financing, and there’s no requirement for a phase one environmental, you always get a phase one environmental. Because if there was a dry cleaner there, where there was a gas station there, there was something weird about that property. And you just bought it yesterday, and the EPA finds out about it today. Guess who pays to clean it up? It doesn’t matter where it came from, who did it. It’s you. So I just wanted to hammer that point home, Jake. I apologize. Please continue.

Jake
No, and that’s the thing that I talk about you know, distress. And so people think, oh, it’s going to foreclosure. It’s got to be a good deal. I can buy it at $0.10 on the dollar. And so I talked through a lot of– and you have a perfect example of that. A perfect example of a dry cleaner was there ten years ago. They use so many chemicals that contaminate the dirt, and you might not be able to finance it or sell it for another ten years. How much property taxes do you have? How much you know, are you going to spend a million dollars cleaning that up, to get it to where you can even sell it? So that’s why it’s like you have to understand what you’re getting involved in. And part of it is– I’ve been doing this professionally investing for 20 years. And guess what? I have a master’s degree in International Real Estate and Finance, and I’ve done tens of thousands of transactions. And I don’t rely on how smart I am. A collective team is way smarter than I am. A due diligence checklist is way better. Why do pilots use checklists? Why do surgeons use checklists? Because the downside is somebody dies. I’m not saying if you buy a bad commercial deal, you’re going to die, or a real estate deal, you may feel like it. There have been very real times that I felt like, man, I don’t know, like, bury me. Just put me in the dirt. And so that’s why I put together that book was just because something is cheap doesn’t mean it’s a good deal.

Rod
Now, does it have a checklist in it of some sort or, you mentioned checklist.

Jake
Yeah. So we give away some of those things, some due diligence checklist to some bonus material for people. I actually started, you know, teaching a course on due diligence on just net lease deals because I see people aping into them. They’re like, oh, I got seller financing, creative things. Let me go sign a personal guarantee on the bank for $8 million, and you’d be like, what if your tenant doesn’t renew in 18 months?

Rod
Right. Or they go under for some reason, you know, whatever. That sounds really good. I’ve also got– guys, a due diligence checklist. It’s called “My Multifamily Property Tool Book”. Now, yours is regarding single tenant leasing. I wanted to just mention it since we’re talking about the due diligence checklist. If you go to my website, “RodKhleif.com”, or go to “Real Estate With Rod”, it’s down at the bottom. It’s called the Tool Book, and it’s pretty much a due diligence checklist on steroids as well. So you’ll get value from that. You’re doing some development right now. Well, actually, have you finished your thought regarding– I’m sorry, I don’t want to cut you off because we’re talking about the book and talking about distressed assets. We’re talking about stumbling blocks. Please continue. Let’s continue down that path because that’s fascinating.

Jake
No, there are lots of different ways to buy distressed assets. And I use some examples of that in the book. You can buy foreclosures. You can buy the note. You can buy and foreclose on it. You can position yourself as you know, seller financing, creative financing, you know. You’re just tired of your shopping center. You’re post-pandemic, half the restaurants have failed. You know you got a gas station. Well, actually, maybe a gas station would be a pretty good deal right now. I think I paid $6 a gallon the other day.

Rod
Right.

Jake
I hope that they have profits in that, the percentage of it.

Rod
Let me interject something because we talked about it before we started recording, and that was your timing on the release of this book because the market is so freaking hot right now. You’re thinking distressed asset. Yeah, whatever. Where am I going to find a distressed asset? Guys, just wait. Okay. Now, I don’t think it’s going to happen this year. There’s too much pent-up demand. But with the current administration stupidity that’s going on right now, we won’t go down that rabbit hole. But I think it’s inevitable that we’re going to have a correction at some point. So at that point, that book will be incredibly valuable. So, you know, anyway, please continue.

Jake
No, I wrote it during the pandemic, the start of Covid. I was like, this is–

Rod
It’s happening. I thought it, too. I thought it’s coming.

Jake
What I’ve been doing.

Rod
It’s coming. And of course, it was a blip.

Jake
Real estate values tripled in the same time. And the time period from the book came out. But to your point and to your exactly what you think is, the fundamentals of putting together a good team. It is not about how smart you are or what you know.

Rod
No.

Jake
Again, and I don’t remember if I put it in the book, but there is and we talked about this briefly, limiting beliefs. So I’m going to tell you something that hit me over the head, like a two-by-four. You know, I have a goal. I mentioned earlier to build a skyscraper, a tower project. Maybe that is, you know, some people say, a phallic symbol of trying to, you know, of status. I was like, whatever it is. I have since I was a kid, you know really been fascinated with that. And it’s something that I want to do. So in my head, I just always like, I got to do have a bunch of experience. I got to go get this. I have my broker’s license. Now, I have this. And now I’ve done hundreds of millions of dollars with transactions. Now I can have the ability to go do that. And so I bring that up because I met a kid in Miami. Kid. He was 28. He had just finished a 42 story condo project that he had sold for over $100 million. And he made a $30 million profit off of it. And I was like, tell me more. Tell me about this. And I was like, do you come from money? Did you, you know, do this? Did you grow up? Does your dad have a construction company, like all these things? And he was like, no. I just came to this country, you know, a couple of years ago. I used to live in Venezuela. I know nothing. I have never done construction. Don’t have a background in finance. My dad, doesn’t even know my dad. I came to this country, I have no money. And I literally but I was just like, America is the land of opportunity, and you could do anything. I came out and there was a piece of property listed in Miami Beach, for sale on LoopNet. And it was, I don’t know what the amount was, $10 million. And so he’s like, I submitted an offer on it, and there was a contractor sign and an architect sign down the street for another building for a 40 story building. I just said, hey, can you do that same thing on this one? And they put together plans. And he’s like, and then I just started going around Miami and going to real estate meetings and saying, hey, I’m going to do this project. I’m going to do this project. And he’s like, people followed along and started putting together investments and said we’ll do it with you. We’ll do it with you. Do that. And then we got a sales team, and we started selling the condos. And he’s like, he did no market study. He did no due diligence. He did no financing. They sold out the entire condo project. They built the project. Your contractors like, hey, it’s $70 million to build this. He sold it and just said, like, okay, it’s 30% more than whatever it cost and made, you know, again, $28 million on the–

Rod
When was this?

Jake
A few years ago. About four or five years ago. So he had perfect timing of market conditions and other things like that. But the very first project, the naivety and just that the fact that you come to this country and he just did it through action. And that’s why I said it hit me over the head like a two-by-four. How many of my beliefs are limiting beliefs that prevent me from doing the thing that I am dreaming of doing, that he just simply did with nothing because he created action. He was default-aggressive. I just finished Jocko Willink’s training program. Default Aggressive. Action solves so many things. It’s like just showing up. It’s probably 80% or 90% of what we need to do. Action, action, action.

Rod
Love it. You’re speaking my language. You know my quote is “massive freaking action”. The bottom line, like you said, action mitigates 80% to 90% of the issues. You know you don’t have to see the whole path. You can drive all the way across the country at night seeing 50ft in front of you. You just have to take that next freaking step. The next step will be revealed, and so on. You know, action mitigates fear. But you have to do it. I love it. I absolutely love it. What an incredible story. You know, just fire, ready, aim. The guy, they put an offer on a property. He never had a clue what he was doing. I love hearing that. And what an extreme example of that that you’re lucky enough to meet. So put a team together. Anything else pops into your head before we sign off here. About, you know, in your book, you put you know– and guys, you know that likens this whole team concept, how you’re smarter in a group, likens to what Napoleon Hill talks about in his book “Think and Grow Rich”, about the power of the mastermind. When you get two like minds together with the same general– he calls it the definiteness of purpose, the same general direction they’re headed, they create this third intangible line that’s greater than the sum of the parts. And so anytime I’m making a big decision, I always involve my entire team because it’s always a better decision every time. But anything else beyond that, buddy? Jake?

Jake
So part of the thing is– and the reason I titled the book “Catching Knives”, I don’t know if you’ve heard the saying, “don’t catch falling knives”?

Rod
Right.

Jake
It’s a stock market term. Typically, it’s like, let it hit the ground. That works for Tesla stock. That works for Apple stock because there’s an abundance of those. Commercial real estate actually has some scarcity to it. That property in downtown may sell once a generation. You know, families will own something for 30, 40, 50 years. A good cash Purdue in a good location. And so what you need to be doing is doing your homework ahead of time. And so some of my best deals have been things that have taken me three, four, five years to actually acquire. And it was, I reached out. I started doing due diligence. I started collecting financials on it, financials on the neighboring buildings, financials, and market conditions. So I had a better, broader perspective. And I could move faster than other people when that opportunity did present itself. And so it’s like, by doing your homework ahead of time, there’s no distress in the market right now. I mean, there’s distress in every market at all times, but it’s not the abundance of distress that, you know maybe that we were thinking about. And so by doing your homework ahead of time is you’re preparing yourself. You’re opening your mind, you’re opening your aperture to the possibility of doing that deal and then also getting data points. So if you lack the experience but you can get a really good deal or a good discount on it, money will find you. You’re missing the capital or whatever it is. Your homework. And so, like, to me, my superpower is not only being persistent but is my research. Like, I’m going to know more than everyone else out there. I didn’t go to those top-tier schools. I didn’t have a trust fund. My dad was a police officer. We lived in a 16-foot camp trailer. I grew up in a mobile home park for a time. But it was like, but what I do have is my efforts. No one can take about my efforts. And so I can be more persistent and put in more effort and put in more research in something. And that’s what I talk about in those books. These are things that you do and you can control. And then when you’re prepared for something and when those opportunities do present themselves, it gives you that capability to take action quickly in the direction that you want to go. And also defining out what is it that you want to do? There are so many people, that whole Alice in Wonderland and the Mad Hatter. Like, which direction do you want to go? Where do you want to go? And be like, I don’t know. Then it doesn’t really matter which way you’re going.

Rod
Yeah.

Jake
Meaning, that’s the destiny of your life.

Rod
Right. That’s the reason– I’ll tell you at my boot camp, so one of the first things we do is a goal-setting workshop on steroids, because how the hell do you get anything if you don’t know what it is? You’ve got to have clarity around. Your mission, your vision, the things that you want. Yeah, very nice. Well, listen, it’s been a real treat to have you on, Jake. You definitely added tremendous value. Guys, get his book, “Catching Knives”, and I appreciate your wisdom, my friend.

Jake
Absolutely. I appreciate what you’re doing. I think unlocking the lifetime cash flow, these are some of the things I wish I had when I was younger. 20 years ago when I started.

Rod
Me too. Honestly. I had nobody to teach me back then. I was that kid. Although I did it with houses. I bought 500 houses in Denver. You know, didn’t have a freaking clue what I was doing at the time. Wish I still had those damn houses right now. But, anyway.

Jake
Hold real estate long enough and it always works out.

Rod
That’s right. That’s right. Jake, it was a real pleasure, buddy. Thank you for coming on.

Jake
I appreciate it. Thanks, Rod.

Rod
Take care.

Outro
Rod, I know a lot of our listeners are wanting to take their multifamily investing business to the next level. Now, I know you’ve been hard at work helping our warrior students do just that using our “ACT” methodology which is Awareness, Close, and Transform. Can you explain to the listeners how they can get our help?

Rod
You bet. Guys, we’ve been going nonstop for three years building an amazing community of like-minded people, and our coaching students which we call our warriors have had extraordinary results. They’ve purchased thousands and thousands of units and last year we did over 1000 units with our students. And we’re looking to grow this group and take it to the next level. We’re looking for people who want to follow a proven framework that’s really step by step and then leverage our systems and network to raise equity. To find and close deals and to build partnerships nationwide. Now, our warrior community is finding success in any market cycle. So if you’re interested in finding out more about how you can become more of our incredible network and take advantage of the incredible opportunities that are coming very soon, apply to work with us at “MentorWithRod.com” or text “CRUSH” to “72345” and we’ll set up a call so you can check us out and we can check you out. That’s “MentorWithRod.com” or text “CRUSH” to “72345”.