How I’ve Acquired Over $200m in Projects with $250m in the Development Pipeline

Steve Trang: Everybody. Thank you for joining us for today's episode of Real Estate Disruptors. Today, we have Jake Harris with Catching Knives, and he flew in from Sacramento to talk about how he's done $200,000,000 in projects and over 250,000,000 actively in developments. If this is your first time tuning in, I am Steve Trang, sales trainer for some of the top wholesalers in the country and on a mission to create 100 millionaires. One question I get all the time is how to become one of the millionaires.

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And if you get value today out of the show, please tag your friend below or share this episode right now. That way we can all grow together. And before I forget, we are hiring. So if you guys are interested, go to disruptors.com/hiring. So this is a live show, so please ask your questions for Jake to answer.

You ready?

Jake Harris: I'm ready.

Steve: Alright. So first question is, what got you into real estate?

Jake: So that is a an interesting question. I was in the army and I was doing the air assault infantry and I was just kind of winding down my career in the military and I wanted to do something. I didn't know what it was. I actually thought it was maybe marketing. And so I was kinda taking some classes related to marketing, and somebody gave me a purple and gold book.

Said, hey, Sarge. Check this out. And they threw this book to me, and it was Rich Dad Poor Dad. And it was one of those light bulb moments in my life where it kind of crystallized, a lot of skills that I already kind of had naturally and then layered into, like, this is what I wanna do. And and then the people that have read it, most people in real estate that's I found that now got their start by reading that book is it's not, you know, groundbreaking or super, you know, high financial IQ, but it's just it solidifies something in that light bulb moment.

And so Yeah.

Steve: It's enlightening.

Jake: Yeah. And from that moment on, it was I could see even my past, you know, fixing up houses that my my parents we lived in, to that point in the army, and it was like, this is what I wanna do. And so that's really started my journey of being a a real estate investor, you know, real estate kind of everything.

Steve: So you were actively serving?

Jake: I was.

Steve: And you read this book and then you you started right away or did you have to, like, wait until you finished your

Jake: service? Finishing up and just getting out, and it was soon after. So I actually went into another business, a retail business did, trophies. So we'd make, like, the soccer awards. You know, like, you could thing, and then it was, like, I want to be a businessman.

As I kinda got into that soccer moms will cut your throat for a nickel. They're so done at, you know, soccer by the end of the year that, you know, they're just kinda like, what do I have to do to get this over with? There's been so many games and, you know, of course, you probably know, but kids and the spelling of their names was insane, you know, like Nick with, you know, a click sound and an r l x, you know. And you're like, what? Who spells their kid's name like that?

But it was, I knew I didn't wanna do retail business, and that's kind of I emerged out of that. I didn't it took me a long time, actually, to kind of put together the the foundational knowledge to get there. I went and started bartending at a country club. I wanted to be a bartender as well. And instead of hanging out in nightclubs, I wanted to use relationships of people in in real estate.

And what I wanted to do, and I went in there and I said, hey. You know, I'm 23. I'm ready to go grab the tiger by its tail. I wanna do real estate development. I wanna build skyscrapers and and,

Steve: But this all happened like, you went from military to trophies to bartending and then real estate?

Jake: Yep.

Steve: So you write about the real estate book.

Jake: Yes.

Steve: And then you didn't do real estate.

Jake: Took me a while.

Steve: Was there was there any particular reason?

Jake: I felt like I didn't know, what to do. And so while I wanted to do that, I was had very limited resources, and and obviously, like, things that you teach. Like, it didn't exist out there. Like, how to wholesale a deal. Like, I was like, I didn't even know what that was.

Steve: Well, I'm giving you some ribbon here. Right? But because the truth of the matter is at that time, it wasn't like, like you said, like, it wasn't readily available. Or other people too, and I put myself in this category, you know, like, I'm trying to get in real estate and then I go get my real estate license. Like, that's actually not a necessary step.

Jake: Sure.

Steve: So we have this book, which is very eye opening, but it's not an instruction manual.

Jake: Correct.

Steve: Right? So yeah. So you you went through you saw this and you kinda went all these different directions. And then, eventually, you started doing real estate.

Jake: Eventually. So and I got advice from a guy. He was a a developer, built a lot of, military housing and projects for the military. And I asked him, I said, hey, what what would you do if you're 23? And he said, construction.

He said, construction and a contractor is involved in every version of real estate. I don't care if you're remodeling flipping a house, doing a kitchen, you're building a skyscraper, you're building new subdivision, a contractor's involved in everything real estate. And he's like, I've just found that the guys that come from the trades immediately have a leg up on everyone else that learned it from the books, learned it. You can go to college. You can go to these other things and learn these things, but the guys that actually come from the trades know and really, it's an interesting dichotomy of a relationship is you're kind of after the same dollar, the same profit margin that's only exist in this, and you're kind of partners, but you're kind of against each other to try to get that straight.

Adversarial. Adversarial and but you need each other. Yeah. And and so he just said that contractors wanna make as much money as possible. And so by having that baseline foundational knowledge of how things get built, how they work, what they cost, you're going to have a leg up and it's it and so I talked my way into a estimators commercial contractors estimator position.

I didn't have the skills. I didn't have the education, but, you know, I badgered and was very persistent to the president of the commercial construction company and convinced him to give me a job. Ultimately, I told him I'd work for free. He pay he paid me, but I was like, I I can do this. And that was the the confidence that I just had in myself of figuring things out.

Steve: Sounds like it was a w two job, though.

Jake: Oh, absolutely. Yeah. Yeah. W two job, working as an estimator and, this is before Google. So, like, they came in and said, alright.

Go do some takeoffs for these these the t i's. And I was like, I don't know what any of those words are that you just said. Yeah. What what do you mean by takeoff? And can you give me an example of it?

And it was, you know, to do quantities of a tenant improvement that was being worked on. And so I was like, oh, math, adding up square footages and other things. I'm good at this. Okay. I can do that.

Steve: And how long did you do that before you

Jake: A year?

Steve: A year. Yeah. And I'm guessing that job probably was really helpful in learning development.

Jake: Absolutely.

Steve: Yeah. Yeah. And then what was your first real estate transaction?

Jake: I bought a house down here in Phoenix.

Steve: Okay.

Jake: So it was because I was working in the the Bay Area. East Bay, I was working for Equity Office Properties was our main client. Sam Zell, didn't know who he was at the time, but, you know, they were remodeling office buildings. I couldn't afford For

Steve: those that don't know who he is.

Jake: Sam Zell, for those that don't know, he's a billionaire, primarily a distressed investor. His his nickname is the the grave dancer. So in your book or in my book, I actually, referenced that hymn, that kinda see some of these parallels. Very, very interesting character. He has a book called Am I Being Too Subtle?

You know, he just looked to see where there's opportunity. When there's a disconnect from the the true value, I've then taken that throughout my career and, you know, my experiences. He again, I didn't know him when I worked to the construction. I didn't even know who Sam Zell was, but I was doing that work. You couldn't afford anything or I couldn't afford hardly anything in the Bay Bay Area.

As a side hustle, I was buying cars at auction. And so I'd come down here and I came to Phoenix to buy cars at auction, and I happened to spend an extra day and there was a Westgate was announced. And the university well, it's University Of Phoenix Stadium as a Cardinal Stadium was being built over in Glendale. And I went and toured some of the houses and they were, like, a $100,000, a $150,000. And I was, like, you can't buy an outhouse in California in the Bay Area for a 100, $150,000.

And I was, like, oh, I can actually afford these houses. I can afford to buy this house here. And so I bought my first house in Glendale, right across the street from the the Westgate. I just said, I've seen development like this happen and then see values go up.

Steve: So you buy this as a buy and hold?

Jake: No. Just to flip

Steve: it. Okay. How'd that go?

Jake: It went really well. I made $20. Awesome. What which is interesting is there was a little bit of a the plan was to fly down on the weekends and fix it up myself. I got laid off waiting for a bunch of permits on some, I was gonna build a shopping center, a strip center, just a stick built kind of one in, in California, but we were held up waiting for permits.

And so they said, hey, we're gonna let you go. And I was like, I just bought a house. Like, I kinda need so I threw a few tools in the back of my truck. I didn't even have a bed or hardly anything. And I drove to the house and I slept on the mattress that the realtor gave me.

I didn't have a refrigerator there, so I got one of those Styrofoam coolers. Mhmm. And I would get bags of ice and then put, like, some, sandwich meat or some other things while I fixed up fixed up the house. I then got a job with a guy doing kitchen and bathroom models, and we did a lot of, high end kitchen bathroom models throughout the Valley. And I did that for then another kind of couple years and would flip houses on the side.

And I would, you know, during the day, go put in, you know, granite and, stuff out in Vistancia or, you know, or Ahwatuke or Anthem or wherever. And this is again I was actually just talking to my Uber driver about this. I was like, this is before, like, you had Google Maps and and smartphones. It was a Thomas Guide. And so I was flipping through Thomas Guides trying to find my way around Phoenix.

And, as I flipped

Steve: out your flipping house here. You didn't live here yet. And so you moved here. So you made 20 k in your first one. How were you doing the other flips?

Jake: So each one progressively got better and better and better and better. And so

Steve: So why were you working doing other work?

Jake: I quit. Yeah. I and that's where the realization was at one point I looked around and I was like, I just made $75,000 flipping a house and surprise that all I did was paint the kitchen and put some doors on the den and make it a fifth bedroom.

Steve: Realization?

Jake: It took a few houses. It took you know, I I probably made a couple $100,000 before it was just kind of like, why why my dollar cost per average of the thing of what I'm doing over here is wasting. I'm missing out on deals doing this. And and maybe it was that little bit of that security blanket of Yeah. Of knowing that there was gonna be a paycheck coming in every couple of weeks that I could be banking on.

And so I quit. I just Yeah.

Steve: And I I think that's not unusual. You know, there are a lot of people that yeah. There's you got proof of concept, but this, like, I need to bank a few more. And there's always, like, a few more, just a few more if you've got that, you know, low risk tolerance profile. Like, yeah, real estate's for you, but you just need to have a little bit more in the bank account.

So you quit your job. You're flipping houses full time. Everything got better?

Jake: Up until about o seven, o eight. You know, it was fantastic. And, I became a millionaire. You know, your your goal as far as getting a bunch of people a millionaire, I go, and I'm gonna tell you something. It's easy to become a millionaire.

It's much harder to maintain that millionaire status. That's

Steve: a different skill.

Jake: Yeah. It's a totally different ballgame. And so my goal was be a millionaire before 30, and I achieved it. Yeah. But then I took off the gas.

I stopped doing things. I got, you know, fat. I got lazy. You know, it was like you had I'd achieved it. And and it's You figured it out.

I figured it out. And it was but the the reality is that, you know, goals are great for setting a a a direction, but you need a system to have consistent levels of success. And so for if you just want to achieve and flip a house, great. You do that and then you're done. But what about developing a system?

And this these are just trial and error things that I've learned from bashing my head up against the brick wall over and over again. And it's a it's a journey that I'm still on to this day.

Steve: But part of it also, some of your success was that you had the wind behind your sales. Right? Now you're flipping houses. So you weren't keeping any of these yet. Correct.

So when the crash hit,

Jake: Well, I at that when the crash did hit, I had a portfolio. I had 10 houses all throughout Phoenix.

Steve: You had 10 houses, all fully leveraged?

Jake: Oh, yes.

Steve: Alright. Because that's what we knew at the time. Yeah. Like, maximize your leverage.

Jake: Oh, absolutely.

Steve: So they're all, like, a 100% or were, like, a 110%?

Jake: Couple were maybe a 105 or something. Like, it was just, like, wait. You're gonna give me money to buy a house? Like, this sounds amazing. What could go wrong with this?

Steve: Well, I mean, the party will never stop.

Jake: Of course. Real estate never goes down. And, actually, at that point, I'd I'd met Robert Kiyosaki. And I started you know, I'd hang out at his studios over in Scottsdale a little bit. And he kept warning, like, man, like, this you know, buying negative cash flow deals, you know, the real estate market's prime for for a correction.

And I was just like, man, what's this guy? Like He's just cranky. Yeah. I was just like kind of cantankerous guy that's, like, shouting at the sky. It's gonna fall down.

It's gonna fall down. And I was like, he just doesn't know. Like, the market would have to go down, like, 20% for me to, you know, lose money because I've been buying stuff at a discount, and I was doing things subject to. And I I was just I I just had never experienced or seen, and, really, I'll take you kind of a moment forward and up up to maybe a few years ago, what, maybe five years ago, whenever Ray Dalio's book principles came out Mhmm. Is, I saw him in an interview and he said, you know, when when Reagan became president, he shorted the market heavy.

He shorted the market because he thought all of the, debt that The US had and especially foreign debt was going to default and the market was gonna crash, and it was just gonna be exasperated from what Carter had done before. And it bankrupted him. It he lost everything. He had to let everybody go, you know, down had to borrow more money from his dad. And he said, we're really what it broke down to was he said, he made his investment thesis based on only his experiences of his lifetime.

When he actually dove into details of market cycles greater than his life, he said eighty years or a hundred years before, something exactly to what happened during the Reagan administration in The US had happened and it the market took off and took off like a rocket ship.

Steve: Yeah.

Jake: And it was to me, I was sitting there and I was like, getting hit over the head with a two by four, another one of those. And I was just like, oh, am I only making investment decisions based on my understanding of the world and my lifetime? And this

Steve: is your reality.

Jake: And then so it took me and it's been a several year process of deep diving into every market cycle in the history of The United States. What caused it to go up? What caused it to crash? What caused it to and and there's a lot of similarities. The savings and loan crisis looks almost exactly like the subprime meltdown.

Like, what happened, how it ran up, you know. And so these kind of evolve over and over again. And so now it it at least for me, was there some leading indicators for when the market's going to distress beforehand?

Steve: So before we get into all that Yeah. You lose everything?

Jake: Everything. Well, yeah. I I was sitting on a street corner. You didn't

Steve: you didn't keep all 10 properties.

Jake: I know. I lost everything. I I sold off most everything. I came down the last two houses and, because I had cash. And so I was coming to closing, like, writing a check for $10 to get out of it.

Then the next one was $20 and then 30 and then 50 and then and I ran out of money before I ran out of houses. Mhmm. And, so my one other house in a personal residence, went to foreclosure. And it really became down to I just, you know, hindsight, I wish I would have, stopped earlier and just kept the cash and I would have been a better position. But Goes back

Steve: to what you know in your lifetime.

Jake: Yes.

Steve: So, so would it be would this be fair to say that you you bottomed out in your career at this

Jake: point? Yeah. I I I remember sitting on a street corner very vividly down in Tucson, down from the campus of of, U of A. What are

Steve: you doing in Tucson?

Jake: Had a house flip in Adobe House down there.

Steve: Alright. So you're at Tucson?

Jake: Yeah. I'm down in Tucson fixing up this Adobe house, and I was just crying. And I was just like, dear lord, can I be worth no money? Because I had a negative net worth. These houses aren't even worth.

I have way more debt than they exist, and I had no idea how I was gonna get out of it. And then soon after that, I just decided and made the business decision, like, I'm gonna let these houses go to foreclosure. I can, you know, figure out I bought houses without credit before. I can figure out how to do that again. And, it led to a very introspective time in my life.

And here's where another book that became very pivotal and and, was The Four Hour Workweek by Tim Ferriss. It came out. And I didn't even have the money to go buy it or extra funds until I'd walk to the bookstore. Back when there's bookstores, like, I would walk to the bookstore and I read the book, you know, for a few hours in a day and set it back and walk home and then walk back to the bookstore and read the book again. Yeah.

And for those that don't know, it is not about working a four hour work week. It's how do you 10 x, you know, your abilities and performance and leveraging systems or other people. And so for me, that was the next kind of level. It's like, what did I do well? How did I buy these houses before and flip them?

What did I do well? What did I not do well? And and a lot of it broke down as I thought just being lazy, not reestablishing myself from my my goals. Mhmm. Just sitting back on the little laurels.

I figured it out. I'm good. I'm gonna

Steve: So before picking up that book though

Jake: Yes.

Steve: I mean, it wasn't like the next day while you were in Tucson. Like, you you had you had it you're paying these out. Yeah. I imagine over the course of months, if not a year Mhmm. To get out of all these houses.

Yeah. A lot of emotional strain. What kept you going? Because if there's one thing that's gonna happen in real estate is you're gonna get kicked in the gut over and over again. What were you telling yourself to keep yourself going?

Because it's really easy sometimes to just, like, you know what? I'm just gonna go back and do something else. What kept you going?

Jake: Yeah. In that introspective kind of time, like you said, it was not instantaneous. It was months and months and months, and it was almost every aspect of my life. And really, it broke down to I I felt like I was already bankrupt in many of the areas of my life. Relationship, my brothers, you know, that who had moved down and worked with me said, Hey, Jake, you're an asshole.

And they left. Relationship, you know, that I I thought I was gonna get married, you know, we we broke up. I was a hundred pounds overweight, you know, because just living out, having a good time. And so where I was myopically focused on this goal of being a millionaire, a status, I had put blinders on to every other aspect of my life. And so it was a hard reset in every single area of my life.

And so it just created is I needed to start doing and getting wins in one direction. And so started, you know, losing weight, going to the gym, you know, pouring time into reading and just discovering things that I I didn't know because I I I was young and stupid and naive. I thought I knew everything. I'd, you know, I'd unlocked the matrix. And Yeah.

My dad gave me, I wouldn't say it was advice, but he was just kinda like, you're too smart for your own good. So you're able to find the hack or the shortcut in many of things. And so you didn't do the appropriate amount of work. Mhmm. Why I I I stressed on building systems and doing those things now is that it was that don't rely on your motivation.

You need to fall back to the systems that you you build out. And, so it was a hard reset on everything. I didn't know that I was gonna necessarily get back into real estate as that, you know, dark kind of period of my life. I looked around and I said, you know what? This is actually what I'm going to do for the rest of my life.

And I said, well, if this is what I'm gonna do for the rest of my life, I should really step up and start doing that. And so I started reading more books about it or started getting more educated about it. And and, layered in, I moved back to California, because family was there, and I I needed anything to to start making money. So my brother and my cousin, we started doing construction and we'd literally do anything that people needed.

Steve: Any job.

Jake: Any job.

Steve: No job was too small.

Jake: Yeah. You know, your the dumpster needs concrete poured under it. You need to go dig through the trash and move it out of the way because, you know, these these apartment, you know, tenants are just throwing trash air. Go do that. And I was like, absolutely.

We'll do it. Fence falling down in a windstorm, do it. We would do it. But I then leveraged some relationships. My college roommate, was a VP of finance, and then that's kinda 'eight, 'nine.

He worked for a rich guy. Mhmm. Because at least that's what he's a kind of a family office now. He had been a home builder. He had built 10,000 homes.

Lennar came in and bought him for $3,400,000,000 in in the early two thousands. He then ran Lennar's land division until 05/00/2006.

Steve: It's a pretty attractive exit, by the way.

Jake: Yeah. That is. And also so now that he's got fresh, you know, $3,400,000,000, he was j ving on many of these master planned communities all throughout California because he had publicly traded, you know, Lennar money. And so you go, well, what am I gonna do with all this money? Well, let's just chunk it down, Rex, to this.

And so, he had, I don't know, 25,000 acres, you know, 10 shopping centers, a whole gamut of of lots, paper, some of them. And he was playing a much longer game.

Steve: Yeah.

Jake: Twenty years into the future. But he said, hey. I think it's time to start buying houses. Like, the the market is in o nine so distressed that you can buy things for the cost of the the dirt and the permit and the house is free.

Steve: Right. Hey. We were buying land for not me. People that I was working for. Just buying for the cost of entitlement.

Yeah. That was it. Yeah. So, so you your your roommate knew this guy and you started working with this guy.

Jake: Yeah. So he worked for another home builder. He got hired, during kind of the the collapse because they needed to improve their cash flows. Mhmm. Because they're a little bit concerned that it's coming into a very dark time.

Can you help, improve cash flows? And they said, hey. I know Jake. He knows how to flip houses. Like, why don't we start buying some of these houses and and flipping them at scale?

And, you know, again, I would do anything. And so they said, hey. Would you like to, you know, start flipping houses, at scale? And started going to trustee sales. O nine.

Went to courthouse steps and, you know, did, I don't know, 1,200 houses in 23 states. Not with that, same kind of person, but a lot of it was focused in the Central Valley. Sold some of those, single family rental portfolios off to the institutionals. So Invitation Homes, Tricon, Colony, you know, all all the the big big wigs that came into the area and then I kinda scaled it beyond that. And then 2014, 2015, I got offered some some positions to to run, director acquisitions.

Part of that because a lot of the portfolios that we bought and sold to them were some of their best portfolios. And they So

Steve: before we get into that. Right? I mean, that that's important, I think, part of the story because you probably learned some valuable skills along the way.

Jake: Maybe.

Steve: Yeah. So, so you go from replacing concrete underneath, a dumpster

Jake: Sure.

Steve: To actually helping them acquire properties. Now buying at auction, that's just one piece of the puzzle. Correct. You You were helping them buy at auction in 23 states?

Jake: Not at first. So we started in Sacramento. Mhmm. You know, one county then two counties, because of being, well, well, maybe they they call it now being an entrepreneur. Mhmm.

You know, used to be a hustler or whatever. I also had a construction company, and I also did the listings. And I did, you know, kind of, full service, that I could do. So I would buy them at auction, and we'd fix them up and then we'd list them. Mhmm.

And then as each component got to scale, this, rich guy basically looked at the numbers and was like, hey, Jake. We're not gonna give you the listings for that fee anymore because you're gonna make a million dollars a year in commission. And I was like, yeah. I mean, that

Steve: was the plan.

Jake: Yeah. That was kind of and he was like, well, I actually brought somebody in house. We're gonna list all our own houses and then we'll so we kinda restructured and you'll get a percentage, of profits. Mhmm. And so, like, each one kind of scaled.

And so but we're gonna do 200 homes this year.

Steve: Yeah. I was

Jake: like, okay.

Steve: Well In Sacramento.

Jake: Yeah. In Sacramento. And so it was, I'd rather have a small piece of a very big, pie than, you know, all of a a tiny little piece, you know, or someone used the the analogy. I would rather have a giant piece of a watermelon than, all of a grape.

Steve: Right. So you started doing this at Sacramento, but then you said you're also in in doing other states.

Jake: That was in time. Yeah. We scaled it. Actually, as I With

Steve: the same guy? And you said it was someone else?

Jake: We left that and then in 2014, 2015, I decided to go out on my own, create my own company. Mhmm. And that's where we scale scaled nationally. And so What

Steve: company was that?

Jake: My company, Harris Bay, is is the, private equity company that we put together a distressed fund and said opportunistic investors, high net worth people, you can come in. Here's what we're gonna do is we're gonna scale this, across the country. What I found is, you know, some of my most successful access exits were just getting a little bit in front of the institutional capital. So the the Wedgwoods, the, you know, invitation homes, like, where they weren't was where we could create some opportunity and move because it was just the mom and pop operators in some of these markets. And we come in, and we're just like, we had a machine built.

Steve: Yeah.

Jake: I'd hired people away from title companies to do our own due diligence and our own underwriting. We, you know, had, you know, construction crews, and we kind of built a system for this. And we were very, you know, laser focused on this. And then we started finding, through the Pareto principle of here's the target type of properties, you know, trustee sale things that we can dive into. And so, that was another five, six year process that ended up being that we've done it in 23 states Yeah.

In total. You know, when those institutionals come in, man, they can ruin your your good gig real fast.

Steve: So what were some of the lessons you learned? Because I'm wondering if there's anything we learned that you learned at that time that applies to today.

Jake: Yeah. So there are a lot of things I think that apply to that is, you know, we're buying stuff at distressed prices at a discount team. So we're coming in and saying, hey, maybe it was 70¢ on the dollar is what we're kind of targeting on a a purchase price. To do that at scale is difficult. When you're doing one, you know, it's pretty easy to find something that's a a distress in any market, anywhere USA.

You can find something at a, you know, 30% discount to market value. But when you wanna do five or 10 or a 100 or whatever, you have to really, you know, dive into to systems. I never got into wholesaling because I just would take them kind of full cycle. So I needed a consistent flow of deals and that's where trustee sales kind of played out

Steve: for me.

Jake: It's like I can go here. I know there's gonna be a 100 houses going to auction. I can maybe buy five of them to hit my numbers and move from there. Now the lesson in how it's a little bit different today, there's not a whole lot of distress, you know. You and I were talking about this coming into, like, 2020, like, I thought, like, this is it.

We're getting back to the distress. There's gonna be all kinds of foreclosures.

Steve: Yeah. All those skills I learned a long time ago are gonna come in real handy. And

Jake: Now. And, you know, and then layered in other commercial and development, but it was like, this is gonna be the time. And then the government went and printed $20,000,000,000,000 and threw it out the window to everybody. Interest rates lowered down. And so understanding your competition, who you're trying to bid against or compete against, to me does matter because they may be playing a different game than you.

Steve: And I think that's, you know, a fantastic point. Because, like, for us, we for pay per click marketing to buy someone's house in Phoenix, you know, the East Side Of town is the more desirable, the West Side of town, not as desirable. And we made a conscious decision to just not bid on the East Side Of town. So with Scottsdale, Tempe, Chandler, Gilbert, we're not even targeting it because Opendoor and Offerpad and all these other guys are just gonna eat a lunch. So we only target the West Side of town.

Right? And so that was a conscious decision that we made. I was actually at a conference, IMN, not too long ago. And these hedge funds are on stage. They're talking about, you know, the way they price homes.

And the way they price homes are not are very different than how everyone else prices homes. Everyone else says, well, okay. What are the comps for the last three to six months? Based off these comps, here's what the house is worth. And they price it a 100% on here's the rent, and we're seeking a 4% yield.

And based on 4% yield, here's what we can pay, which is sometimes $7,080,000 higher than what the house is worth. But, anyway, to your point about understanding what your market's doing, what the competition's doing, so you can make your decisions based off based off of that.

Jake: Yeah. So if you were to go outbid them, you you could be in trouble. Like, you would absolutely and it depends on your game plan. So I talk about this in the book is, like, establishing, like, your investment thesis and your criteria. And exactly to your point, as far as lessons learned, when when Invitation Home came into the market, they're absolutely buying things.

Everything on MLS, they they just offered every house on MLS. They were buying all of it. Mhmm. They're coming to auction and buying every house that we

Steve: buy at auction in Phoenix?

Jake: I was not.

Steve: Okay. Because there was some jerk. Right? Because I used to buy at auctions. Yeah.

And, there just came a day where we stopped buying at auctions because Invitation Homes is there, and, you just cannot compete against them. And I remember, like, I had listings that were going in the foreclosure. Right? So, like, hey. You know, here's what it's worth.

Here's what we get. Here's the market value. And it'd be you know, I'm just pulling out the numbers out of the air here. But, like, you know, we had contracts for 140,000. And we go to the banks like, hey.

Here's the best offer. It's a 140,000. You know? Like, you should accept this short sale offer. And I said, now I'll just go to foreclosure.

And then it would be at auction for, like, 100, and then invitation homes would come in and pay, like, 160. Right? And it was, like, these numbers don't make sense. And, also, if you're willing to pay $1.60, why were you not willing to pay $1.60 when it was on the MLS? But

Jake: And and exactly that

Steve: funds do.

Jake: I was there, you know, you can see on the camera. I I pulled all my hair out trying to figure out what the hell was Blackstone doing. So Jonathan Gray is one of the most brilliant real estate people that exist in the world, in my opinion. And I go, if he's the one behind this stuff, even though and they had, I don't know, you know, less than desirable people at auction or a 100 parrots is what we called them because they all had earpieces in, and all they would be doing is a a 100 more, a 100 more, a 100 more. And, you know, we're like, Jake's buying, Steve's buying, a 100 more, a 100 more.

They do their homework, you know. So as long as they were buying, you know, we'd go a 100 more than anyone else. And so when I started breaking that down, it was like, what the hell were they doing? And here's here's the actual one that caused me, like it was like, I have to figure this out. So I went to auction.

I bought a property. We fixed it up, spent $20 fixing it up, turnkey, getting ready to list it on on the market. They said they were hungry for houses, sell us anything. What do you have? And so we offered them and we said, yeah.

We'll throw a little premium on what it might be on MLS. Mhmm. Said, here's it. And maybe it was $250,000. So we said, hey.

It's $2.65. You know, no commissions, fast closing, everything like that. And they're like, great. Done, accepted. And they bought it.

Well, also during that time period, because when I was at auction, they kind of created this vacuum of volume out. I was like, oh, shit. Like, I mean, might be out of buying a so I took the construction company. We became a vendor for them. Mhmm.

So we also would do the the remodels for them as well, just to kind of a hedge on the other side and find out what was happening, and just make money. And get their inside on the inside. The same exact house, I just sold to them for a premium as a work order to go fix up. And I mean, we you know, it's hard to recognize addresses anymore. And as you get to such high levels of volume, like,

Steve: you just

Jake: I don't know what the address is. Don't know. But I was like, man, that looks very familiar. And so I went and checked it out. It was a house that we'd already completely fixed up.

They came in and they gave us a work order due for another 20,000 fix up. New carpet, you know, paint, new appliances. And I called them up and I was just like, I don't understand this. This house has brand new carpet. I know because I just put it in.

It has appliances. It has it's freshly painted. Why are we doing carpet paint, you know, new appliances? And they said, oh, we just want it to our standard of our our paint color, our appliances, and our carpet. So take it out.

And I was just like, this makes no sense to me.

Steve: But you figured it out.

Jake: So and I peeled back the layers of the onion and really what they were doing at the time and so this is twenty twelve, twenty thirteen. Price of the previous peak price. So if they said a market was $500,000 was the previous peak high and that they were paying were willing to pay up to 75% of that previous peak value all in. So they said, okay, so call that $300,000 If the house was $200,000 and you needed to fix it up, you and I went to auction and said it's only worth 200 because that's what the comps are. And they, you know, paid $2.20 for it, and then they fixed it up.

And we're just like, what is going on? Like, you just you're 50,000 more than it's worth into this house. Yeah. But what they're saying is this is gonna shoulder off of those previous peak prices. Mhmm.

And then the portfolio is, you know, gonna grow in value. They made a $10,000,000,000 bet. They were $10,000,000,000 correct. So they were macro correct versus me saving 5¢ a linear foot on baseboard, and I was micro correct on being able to fix up things more efficiently. But it's better to understand the macro big pictures of what's going on, and their plan was not to flip it in three months or ninety days or, you know, two years even.

They're looking at a five year, ten year plus hold. And so because of their investment thesis, they could pay a significant premium over. And just like your example of they're paying a 4% on yield on a return, then it's just like if you went and outbid them, you would be screwed and you could lose a lot of money. What's a good deal for me? Maybe a terrible deal for you.

Steve: Right.

Jake: What's a good deal for you? Maybe a terrible deal for me and vice versa. And so in understanding what the game you're going to play, you have certain numbers that you need to abide by. And the emotions of auctions, auctions, the losing out on a lot of them. I've seen so many people get caught up in that and then lose money.

And I've done it too. When you have a, a certain amount of money you have to place in a certain timeline

Steve: Yeah.

Jake: And then you're like, we just gotta get some houses. We gotta go get some deals and you stretch and then you get

Steve: You overpay and then things go south. You're in a bad spot. It's interesting. Do you know, you're familiar with Offerpad, I assume? Yep.

Yeah. So, Brian Baer who founded it, I remember I was having lunch with him and I was like, like, what was what was the mindset like? What are you guys doing here? And they're like, oh, we're just making the market. It's like, what?

We're gonna make our market, and they did. Yeah. They 100% made their market. The other thing too is, you know, one of the, hedge funds out here. You know, they're buying a ton of crazy amount of houses out here.

Right? I mean, between Tricon, Colony, American Homesmart, all these other ones. We are dealt we dealt with the same exact thing very recently what you just mentioned. Had a property that was a flip, a well done flip, sold to a hedge fund. And the next day, they went and redid the whole house.

And we're like, what are you guys doing? Like, this house is clearly not just rent ready. This is like a family to own ready. And, basically, for them, they want to have just one or two, three paint colors. That's it.

So if anything happens, they've got that bucket of paint ready. Same thing with the carpet and just everything has to be done askew. They've got margins of scale. So, yeah, it costs them $20 to remodel this, but they'll save that and more because they have just these three paint colors in all their trucks. Yeah.

Different problems or different they're solving different problems than we are.

Jake: Absolutely. Yeah. So it it was to me, was unlocking. And I actually then went back to school. I went back and got a master's degree in international real estate and, kind of finance.

And part of this was I am doing this forever. And it's like learning a new language, learning private equity, learning the way they talk, how they model things. Portfolio management is a totally different, ballgame. How you balance out risk, how you, you know, hedge against those. So that to me was was very, very informative to go do that and get educated in that in that place.

I don't think necessarily, like, my kids may not go to college. I think it's losing value every day. I think technology and the access to education is becoming tap into this things that you really want to learn. If you want to learn about underwater basket weaving, I bet you there's a YouTube channel on it.

Steve: Or a $3,000 course.

Jake: Or a $3,000 course, you know. You could pay somebody to teach you that. So I have, learned a lot from education. And it was because I really, really specifically wanted to learn that.

Steve: So you help, again, thousands of houses across the country. You you start with it was, you said it was Harris Bay?

Jake: Harris Bay.

Steve: And is that still what you operate under or will you continue to work with these other hedge funds as well?

Jake: I Or funds. Harris Bay is is is the the main flag that I fly. We've done some deals with some other people. There's kinda some affiliate entities, but Harris Bay is what what I do. And 2015, you know, I also started investing in commercial real estate.

I started investing in Austin, Texas, you know, really, you know, I'd used a big data aggregation of where the markets were going to be going up. It's it's you can be Michael Phelps, Olympic swimmer, but if you're swimming against the tide, it doesn't really matter. Yeah. And so what I was trying to do is determine is where these the momentum of the market would take you and even you just kinda doggy paddle and it kinda takes you with it. And so, I I told you a little bit earlier is just getting in front of the institutional capital has been the key to success for me.

I believe How

Steve: did you get in front of the institutional capital?

Jake: Well, so part of it is that they have, again, also some leading indicators of things that they do. CBRE is the eyes and ears of institutional capital. And for those that, you know, don't understand, institute institutional capital, like, what is that? Well, hang

Steve: up before you do you do that. CBRE. What is that? CBRE. I mean, for people that don't know.

Jake: Don't know. It used to be, Cold War banker, then they merged with Richard Ellis. And so these are two of the largest commercial real estate brokers in the world. They merged together and then cobbled their names together. And so now it's c b Richard l or, you know, CBRE.

Steve: Yeah.

Jake: And so

Steve: the whole potential antitrust thing. But whatever. Anyway, continue.

Jake: Sure. So they are the number one largest commercial real estate firm in the world. Mhmm. And they, because of that being the largest, all these REITs, institutional capital, sovereign wealth funds, based on their decisions on what they're saying. Their market study is great, you know,

Steve: against the class. Spend a lot of money researching.

Jake: You know? And so institutional capital pulled that back. That is these are like stocks. These are the REIT funds. These are when Amazon needs to place some money, they invest it through some of these vehicles and they might give billions of dollars like, CalPERS, California, public employees, you know, retirement system.

They give, alright, you know, a $100,000,000,000 to Blackstone investment thesis, and then Blackstone does the actual work. And so Blackstone becomes institutional capitalist, funding from pensions, it's from funding from teachers, you know, retirement accounts. And they have a level of sophistication that they need to follow. So you're saying, like, they had a certain skew, they had a certain, like, here's our three paint colors. Totally makes sense because they said, we found that these are the three colors that most people like or don't find offensive.

And they're the cheapest three paint colors that exist because of these pigment numbers. Mhmm. And private equity kinda really owns the world because of the way that they systematize that. And so this is a systematized way of investing capital at a very, very large scale. They and what you'll discover, as most people do discover, is that you start flipping houses, you need to get bigger deals.

Commercial, you know, flipping a house, a $100,000 house, is almost the same amount of work as flipping a $10,000,000 commercial building. Yeah. The same stuff that you do goes into that. It's hiring. It's the managing.

It's the same system.

Steve: The things that you have to do are pretty much the same. The scope of work's different, but the things that you have to do are pretty much the same.

Jake: Absolutely.

Steve: Going back a moment ago, you're talking about how to find or get access to institutional capital. Well, how how how would someone that's listening right now get in front of institutional capital?

Jake: It's tough. It has to really fit. And and part of this comes into is institutional capital typically doesn't, you know, do small deals. They have, you know, huge mandates. Like, we have to place a billion dollars

Steve: We need to deploy it.

Jake: In the next three months. And so they have a very, very narrow window of what they're they're, you know, focusing on. And they may and and really the time buying single family houses was the first time that any private equity, big hedge fund, whatever it was, did that at that low of a level. Primarily, is all focused on office buildings that they could go do $100,000,000 office buildings or $50,000,000 apartments.

Steve: Giant place.

Jake: Because it's the same amount of work to them, but when it makes 10% return on a $50,000,000 deal, like, wow, you make $5,000,000, you make 10% on a $100,000 house, you make $10, and it's the same amount of work. So they're just like, we're not gonna mess with that. So most and still even today is they don't do small deals. So the 1 to $20,000,000 deal size on commercial real estate is mostly That's not

Steve: interesting though.

Jake: Non interesting. Mom paused.

Steve: So let me ask you this because we talked about a moment ago. They have to deploy this capital. Do you think this will happen with Zillow? Did you think that they was it hubris or was it because they had to deploy capital that caused them to buy all these properties at stupid prices?

Jake: My personal opinion is I think they drink their own Kool Aid. They thought their regression, analysis, their zestimate Mhmm. Was smarter than it actually is. And then they started deploying capital based on the premise that they're going to be able to, determine what the future value of this real estate is. Mhmm.

They had institutional the the Black Stones of the world trying to throw money in and help them fund it. But they had this flawed initial premise that caused them to overpay for houses. I know some of the people that were the buyers for them. They used to be, like, spinoffs of the the invitation homes Mhmm. People, the people that aggregated the stuff.

They didn't know what they're doing. And so they're using is, like, if you use Zestimate, every real estate agent or real estate person that's involved in the world comes goes and looks at the Zestimate, knows that it can be $50,000 off in either direction.

Steve: Yes. Plus or minus 20%. No big deal.

Jake: Yeah. It's like, maybe it's right. Maybe it's not. Yeah. Well, when you use that as your baseline investment vehicle, you're going to do stupid things.

Steve: Yeah.

Jake: And so that's where I I believe they came in. They thought the markets were gonna go up faster. They were using, a limited data set of, you know, COVID spikes, you know, you know, a a flight to suburbia. And they just thought it was gonna take off like a rocket ship.

Steve: So they were like us in 2007 where the party was never gonna end.

Jake: Yes. A little bit. Well, and I would say they were a little bit more speculative because they weren't even looking at because, you know, they were just paying over prices. Like, they weren't even buying it for what it was worth. Oftentimes, they were coming in and offering people $50,000 more than any other comparable who was.

And you're just like, I don't know how you compete against this. And so the wholesalers and guys like that, and when you'd be like, oh, Zillow's gonna give me, you know, $450,000 and you're like

Steve: No. It's not. No. They're not. And then they do.

Jake: They do. And they're just like, I don't know how that makes sense. But okay.

Steve: So another question, because you're in this world, right, of institutional capital. It seems like BlackRock is behind every single fund. Like, they're like, they're at the craft stable and they got their chips on every every single spot. What are your thoughts on that?

Jake: I would say, that's not completely inaccurate. You know, you you have to understand that So Blackstone and BlackRock used to be the same company. Mhmm. So they split off Oh,

Steve: is that the reason why they sound so similar? Yeah. Okay.

Jake: So they used to be the same company. And so Blackstone, Steve Schwarzman found a really amazing talented guy and he staked him as far as, you know, and then they split off. And because he was like, Hey, I want to do this. Steve Schwarzman was like, Oh my gosh, I wish I wouldn't have split that off. And so they took from Blackstone to Black Rock.

Black Rock is a a spin off of that. They now have funded because of some of their e, ETFs and other things gone into the trillions of dollars of assets under management. So they need to deploy money in every single category, every asset type and, you know, so now that they have that, they can fund essentially every strategy that exists. And if you just bet on everything, you ultimately win. You can't go wrong.

You know, what's your risk? It's like, okay, you know, the overall, you know, organized society of the system, collapses, then we're screwed. But, like, how do you hedge against that?

Steve: Well, the government will bail them out. So the other question I have is, as you say, you study history.

Jake: Yes.

Steve: So has there ever been a time, like, 2020, where there was this nationwide not nationwide, worldwide fear. I mean, I don't I don't know what best way to describe it, but everyone's, like, running for the hills and then real estate took off.

Jake: I think that's a little bit more detailed than a lot of the the study studies market cycles that I've, dove into. There are a lot of similarities to the Roaring Twenties, you know, that there was such an exuberance, for life because it was just after World War I. Everybody thought they were gonna die. You know, the world is going to end. This is the war that's gonna end.

All wars. We're all gonna die. Everybody has to do their part. You know, go make, you know, planes, you know, millions of people died in trenches in Europe. And what happened is then that stopped.

And then when the war was over, you had everybody that just went crazy because they were just like, we didn't die. We didn't die. Like, oh my gosh. Mhmm. Like and then what happened is the stock market, you know, some other things, the the national banks, started rolling up easy access to capital and it was the roaring twenties.

Wow. What an amazing time to be alive. Great Gatsby and flappers and extravagance all across the board that then led to an overinflation of the market and the great depression. And so I was like, you know, it it depends because what we have now is we have a new epic, a new era of of society is there's this is the information age. From the industrial age to the information age and technology has the ability to slow down or speed up some of these, you know, underlying problems.

Steve: Yeah.

Jake: And so where we could have the greater Roaring 20s and an even greater depression, that is a very likely scenario if you play these things out. But, again, technology could, exasperate that, can make it happen faster, or they can elongate it and take longer and kick the can down the road.

Steve: Which field

Jake: The government printing $20,000,000,000,000 definitely kicks that can down the road. I think there was going to be, a lot more distress. The market should have corrected, but it didn't. And so now what that does is, you know, don't fight the Fed. If the Fed is printing the money to to go try to short the market or do something like that, you could, end up being on the wrong side of that like Ray Dalio did.

Steve: Yeah. Okay. So up until this point, is this the story up to 02/1516? Is that the $200,000,000 or is there more to get to the $200,000,000?

Jake: So we've done couple $100,000,000 worth of real estate, into that. Really, we started getting into more development, buying stuff in twenty fifteen, twenty sixteen land, getting into adaptive reuse, heavy, value add, converting something from an office to apartments, doing taking a warehouse to lofts, you know, assembling. And so I have now about 20 acres of of land in in Downtown San Antonio. We're just topping out an apartment complex in East Austin, where the data led me to Texas because, when in 2015, I was kind of looking where where am I gonna invest? And there was 10 markets that I came up on this criteria, and Texas had four of the the 10.

And I was like, wow. I can actually drive between Austin and San Antonio. I I guess I should start investing in those markets. One of the other things that I mentioned earlier, technology has unlocked the ability to remotely invest. That did not happen before.

You would have no access to information. You wouldn't be able to do comps online. It was only when you are local to a market and so since the Internet and the unlocking of technology was you could now do valuations from anywhere and invest in anywhere in the country that you understood the kind of rule of law of how things played out. So when I started investing, I wish I would have bought a lot more in Austin in 2015. The last several years, I don't know how you make a deal pencil in that market unless you're somebody that can tweet out a dog face and have your, cryptocurrency go up $58 10,000,000,000 in an afternoon.

I don't know how you make sense of that market. It's again, there's such a frenzy, so much capital pulling in there. It's just like I have a hard time making sense of that. What's led to these other markets like San Antonio, land prices are one tenth they are in Austin. Rents are maybe only 15 to 20% less in some areas.

So when you have that that discount is you still have intrinsic under market numbers. And when I say intrinsic, because say say, you know, apartment building is worth $10,000,000 When you can go build it or buy the dirt and build the building and do these things and it's all in for 8,000,000, you know you have a little intrinsic kind of value added proposition to that. Or you buy that particular building for 5,000,000 and go spend 2,000,000 fixing it up. Everything kinda has and for me and the way I invest is I always have to be investing under that intrinsic value of the asset and from that market value. And again, it's just my way and and part of it is that reactionary time to seeing the subprime meltdown and Mhmm.

Being sobbing on a street corner in Tucson. Dear Lord, can I be worth no money? I think that's very real to me. And so I have that in the back of my head always saying, like, is the market over inflated or are you gonna lose your ass? And to me, that's how I can hedge against that is I already buy at a discount.

Why I wrote the book about investing in distressed real estate is it gives you a larger margin of safety. Warren Buffett talks about this and and, you know, it talks about this margin of safety. Early and and first time investors, you need more safety because you're gonna go screw things up. If you buy at top price and peak values on these other things and then you screw up, like, you just have to thread a needle and have everything work out perfect. And it's and I'm gonna tell you, it's not going to work out perfect.

Yeah.

Steve: I have a real estate.

Jake: Yet to have a deal that just worked out perfect.

Steve: Yeah.

Jake: And so why I believe distrust or opportunistic kind of investing is a better place for people to get started is because it builds out all those fundamentals understanding of how this works and then you're also buying it at a discount. So then you have more opportunity to make a mistake and still make a profit.

Steve: So with these deals, you know, the the properties in San Antonio and Austin, are these bigger flips? Is is that is that the play? Is you you're buying with an intent intention to flip these or are these buy and holes? Or, like, what what is the exit on

Jake: on Yeah. So we've adapted our business model. So the the opportunistic flipping, you know, with we wound that down. We're doing development, and then we have assets that are just established for for cash flow. And so call it three legs of a stool is to support the growth of our kind of private equity company was having all of these different legs.

And so we're making fees where some of them are long term. So we have a couple opportunity zone deals. Opportunity zones are, very favorable tax environment. So So we're building a hotel, ground up, and then we're gonna hold for eleven years. We do historic tax credit deals.

So we bought a historic building, converting that to apartments. We're gonna own that for ten years. We're doing some ground up development, brand new, you know, amazing apartments, and those are going to be some some just merchant built. Some will be merchant built, meaning we're just gonna build it to sell it. Some of it will be long term kind of cash flow.

And then we have assets that we own for cash flow, office buildings, some apartments, some other things like that. So what happens is we have a layering of, a hedge, you know, saying. So we have cash flow that's coming in from properties. We have some development stuff that's happening. And then when there is distress, we can focus our efforts over in there.

But right now, there's no distress. So I was like, I don't I don't know how you go find those. But what's happened here kind of post COVID, I thought there's gonna be a lot of hotels, a lot of retail, a lot of things that that had been

Steve: All all the statistics indicated all all the hospitality should have been at a distressed sale.

Jake: So they're starting to come on market. They got PPP money. They got some of these other government handouts. But now they're having to stand on their own. They're gonna have to reinvest into their property, a PIP, a property improvement plan.

They're gonna have to incorporate these. And there's some owners now that you're like, well, we didn't die, but we'll sell now. We don't wanna keep fighting the fight, and so there are opportunities that are starting to come on the market. It's not the deep discount distress foreclosure, but it is starting to happen in, you know, segments of that. There's some retail strip centers that are, you know, Amazon kicked them in the teeth.

They're not doing well. They have a wrong or bad mix of tenants. They have too much a crappy parking lot, a roof that's leaking. And they're just like, I'm ready to get Yeah. Be out of this.

Steve: So going to the questions here, on Instagram, Jose wants to know, how old were you when you're going through all this? And, the question was asked when you were talking about, building across the country or helping all these different states. Right? Flip houses. How old

Jake: were you? So let's see. I was in my thirties. I would say kind of mid thirties. Let's see.

I'm 43 now. Five, six years ago, so, you know, 35, 36 when I started really scaling across the nation. I was a millionaire before 30. I started I bought my first property, I think, at 23. It's millionaire before 30.

Actually, at my thirtieth birthday, I was, like, you know, watching everything eviscerate. So it was like, this really sucks. You know, again, being a millionaire and then maintaining that millionaire status are two different things and skill set I had not yet learned.

Steve: But you can't learn that second skill set until you hit that first one.

Jake: Exactly.

Steve: Yeah. And then, I I on Facebook, how how do you do your evaluation? So I guess going back to your commercial properties, you're talking about buying these in Austin and and and San Antonio. How are you evaluating evaluating those properties?

Jake: Yeah. So that's it's it's a process, you know. So, you know, a lot of people also have to understand that I have been doing in solely professional investment for close to twenty years now. The only thing that I do is, you know, invest into real estate or build it or fix it up. So in that twenty years and going and going getting a master's degree in international real estate and finance, going to conferences, reading books, watching other people model stuff, I've been able to have a much wider array of values that I understand.

Steve: Something that you can pull from.

Jake: Yeah. And so I wouldn't expect and somebody especially getting into this is it's better to to niche down on one particular thing that is of interest to you. Now we're looking at more like market specifics. For me, I'm looking at San Antonio. I'm looking for a good deal in San Antonio.

That can be a hotel. That can be an office building. It can be apartment. But we have the the the depth of knowledge to evaluate each one of those. If someone is starting out, I would say find out what one thing that you kinda really wanna focus in and get good at understanding.

There's lots of courses that exist out there on doing due diligence, doing valuations. But with commercial deals, you also have to understand there's a whole new layer of, risk to it. In residential real estate, there's all kinds of disclosures. Everybody you know, you've signed them. Disclosures like a a packet a packet of disclosures this big that you're, you know, can lose money and do all these other things.

None of that exists in commercial real estate. Yeah. If you buy a contaminated property because there used to be a, laundromat there. And laundromats use, a lot of chemicals and or dry cleaners use a lot of chemicals to clean clothes, and that can be contaminated. And you may have, you could have got the property for free, but you have hundreds of thousands or millions of dollars of cleanup that you have to do on that property Mhmm.

To even get any kind of value to it. But now you're married to that property until you get rid of it. And so that's one of the things that commercial has more risk, more reward, but understanding what you're diving into. The fact that I come from a construction background, I can evaluate oftentimes these heavy value adds. I'm a little bit better at those than other people.

Steve: On YouTube, Jeremy wants to know, how did you approach these partners and what was your proposal to a partnership? So, I'm not sure which part he was referencing to.

Jake: I'll kinda give you, a few different versions of the the first kind of partner was, they had the money. They needed somebody to go do it. I was willing to do anything. So I just said yes, and we figured it out later. Mhmm.

As far as as, you know, partnership with some of these, institutional, people was I just added value to them first. And then as I added value or sold them valuable portfolios or helped them out in, difficult properties, they then not, you know, reciprocated that, hey. Can you help out? Or, hey. Would you run, you know, acquisitions?

Would you do one of these other things? How I then ultimately, you know, I started when I started my own company is I didn't have the institutional backing. So I partnered with a wealth manager. He had high net worth individuals and small family offices that wanted to be into real estate space. I had the in the trenches technical skill sets on how to do that.

So then he brought some of that capital on where we were able to kinda grow this, nationwide. So finding where you can add value to someone else, if you're solving other people's problems, then that's how you can create the best partnership or structure of of a deal. You know, identifying what you do or what you wanna do. Mhmm. And there's value in this.

I mean, even from people that are wholesalers, going and finding and door knocking doors, chasing down leads, doing, you know, the kind of the you know, used to be called bird dogging, you know. But, you know, when you would bird dog a deal and hand it off to an investor, if you're giving people awesome deals, they're like, you're on to something. How can I help support you? I think you recently are, you know, put out there if you want Ferrari, you know, assignment fees, you need to be given Ferrari deals. Mhmm.

Absolutely that. You are going to get opportunities directly proportional to the value you add to other people.

Steve: Yeah. And I think just one of the things that I I I've learned, right, is when I was much younger, I would say, like, how how can you help me? Like or, like, you know, let's say you're the asset manager. Hey. I want your listings.

How how can I get listings? Right? What can I do to get listings? And that is not a very useful conversation versus, hey, Jake. Where do you need help?

What can I do for you that's not related to listings, but just maybe be a second set of eyes can be a resource? Whatever you need at any time, let me know. And if I keep telling you I'm willing to do things for you, to help you, eventually, you can say, you know what, Steve? I've got this problem. I've got this property.

Can you help me with this one? Right? But, yeah, leave with value. And everyone says leave with value, but I don't think they know how to lead with value.

Jake: I I think proximity allows people to help identify that. If you're not a psychopath, just being around other people, you can see exactly as you said, now people come up like, how can I help you? What can I do for you? And I'll be like, that's more work for me to try to figure out what I need or how you what are your skill sets. And we're actually discussing this is that I'm looking for, like, world class talent in certain segments of things.

And until I can see that somebody is a world class talent, like, it takes me more effort to go go try to teach someone or train them how to do that. Mhmm. And so it is just by being in proximity, you can start observing and be like, ah, Steve's missing this or Steve is that. And it may even come up in conversation.

Steve: Mhmm.

Jake: There is a book by Keith Ferrazzi that says never eat alone. And maybe, you know, the title may be off a little bit on that, but he's like connecting other people. You may say, man, I really wanna be on the cover of Forbes Magazine. That's my that's my big thing that I really wish I could do. And maybe you've written out a vivid vision, you've read Cameron Herold's vivid vision, and you posted it up on your wall.

And somebody sees that and they're like, oh, my gosh, my sister is the one that does the Forbes magazine, you know, photography, and I can help put you in connection with that thing that you really, really want. Mhmm. You only know that through that proximity and proximity and understanding and having conversation pieces, it may not necessarily be. But if I was just to come up and say, how can I help you? There's no way you ever lead with, gee, I really wanna be on the cover of Forbes magazine.

Steve: Yeah.

Jake: I mean, the

Steve: I got to have to sit down and think about it. And, like and again, it's just more work. So, like, the question of how can it be of value is the right idea, but it's not enough.

Jake: Correct.

Steve: Yeah. And then on YouTube, Jer Sim, what are your thoughts about creating a final listing it on a real property index like NCREIF? You familiar with that? No. Okay.

Then probably not a whole lot of thoughts. Alright. So no

Jake: Explain what it is real quick.

Steve: Yeah. Alright. So, I'm guessing this is Jeremy. So please, type it out in a different way to to elaborate. Jose, what's this what systems and process do you have in place now to maintain millionaire status?

So how do you make sure that you preserve your wealth this time?

Jake: So part of the things I was discussing as far as having those different kind of buckets, long term cash flow development, you know, opportunistic real estate, having different buckets that's not completely dependent. This is also an example I've learned from like home builders. Like home builders kind of have this feast or famine. You know, right now, feast, like, oh my gosh. And then the the market collapsed and then all of them go bankrupt.

You know, they're flying around in jets and now they have, you know, $100,000,000 bankruptcies. So when I was looking at that, and, again, just observing and being around some of those was, how do you have other asset that and and really, to the portfolio management that I kind of learned from the institutional capital is like, oh, you need other things that maybe aren't as sexy or as pretty or, you know, or high rise office buildings or, you know, a a hotel building on the Riverwalk in San Antonio, but it pays the bills and brings in. And so you can have something that consistently delivers. I know there's real estate agents that have a team that maybe is creating a, you know, a W-two or not really W-two, but a system that has some cash flow. And then they can start doing some flips.

And then they have some rental properties. By diversifying and, again, diversifying is a cliche way of, you know, I'm gonna protect my wealth. It can still be laser focused within real estate. If you wanna just do real estate, you can have a rental property and be building something, a spec custom home in, you know, Scottsdale. Yeah.

Different risk profile, bolt to real estate. But then if the market tanks, that custom home, you may be, you know, underwater on, but that cash flowing apartment in Tempe probably is gonna go okay. And so having some diversity within that holdings, I now have also been investing into, not other people as an LP, a limited partner, into other deals, not necessarily real estate because it's hard for me to get over some of the fees or some of the other people's. And I'm like, I don't really have control of that, but investing into other people's companies. Mhmm.

Investing into them. So when those spin off, say you put a, you know, a couple 100,000 or half $1,000,000 a year into other people's investments and they're all projected to make 20% each. If you've done a halfway decent job sourcing the those sponsors and that that general partner, you know, eight times or 80% of the time, four out of five should give you that 20 return. And if that other one kinda dips and now you've created layers of preserving your wealth. Yeah.

Understanding insurance. For me, it was also every single aspect of my life has had a remaking. I I joined a mastermind group. I actually heard Lewis Howes talk about joining a mastermind years ago on a podcast. And I was like, I don't know what that is.

And I'm like, what is a mastermind? Like, I googled that. And, I end up connecting up with, GoBundance. So a lot of friends in GoBundance, you know, Brandon Turner with BiggerPockets, Aaron Amuchastegi is a friend of mine. He actually was the one that introduced me.

And it's like, you need to join this group. I I was like, I don't know what it is. And I looked at it and it was like every single aspect. Like, how is your relationship with your wife or your partner? You know, how is your relationship with your kids?

How is your relationship with your parents? Are you giving back to society? You've made money. Money is probably the actual least valuable thing that exists. You know, it is a the the gasoline that allows or the the fuel that allows the system to work.

Mhmm. We can make more money. We can't make more time.

Steve: Yeah.

Jake: You can't replace necessarily. And I guess you could replace your family, but I go at a terrible, terrible loss. And so when you look at this is, all these other categories to me are way, way more important. I'd rather be a whole life millionaire, have my health, you know, I've lost more than, you know, a 100 pounds and I've really been focusing on, my longevity and, you know, doing blood work, having things checked up on. It's like, you know, are you doing eating the right habits?

I've worked out, actually, I just checked this yesterday, seven eighty six days in a row. Every day for seven hundred and eighty six days being stubborn. My mom was like, you're stubborn? You get it from your dad? My mom my, my dad was like, you're stubborn.

You get it from your mom. And I was like, maybe I got double dose of that. And so this extra level of stubbornness and it was like, how do you use the stubbornness, your own who you are for your own benefit? So then I was just like, I don't, I'm not flexible on my working out. I work don't I'm not flexible on my working out.

I work out every day. That's my stubbornness is playing into something that's going to net benefit me and my family every single day. So when I have a 5AM flight, I'll get up at 3AM to work out. Yeah. I'll do this and I do this every single day.

Rain, you know, COVID ankle screwed up, doesn't matter. I work out every day using that that level of who I am. I think that also establishes some of that takes inner work, interpersonal discovery as, like, finding out, like, who are you? Mhmm. And then if you can do and layer your habits onto who you already naturally are, it gets a lot easier to stay with them and build systems around that.

Steve: I think just on your point earlier, one thing we see people in this industry I've seen this on the residential real estate side and I've seen this on the wholesale real estate side. Not enough people are buying rental properties. I think if at bare minimum, if you see real estate every day, you should be buying some of it.

Jake: Oh my gosh. How many how how many gazillions of dollars I'd be worth if I'd held all a lot of these houses that I flipped? Yeah. I just look at that and actually I have to I I have to just not look at the numbers because I was like, it'd be absurd

Steve: Well

Jake: how much

Steve: You talk about I mean, my my my level is definitely not your level. But, you know, you're talking about Austin, you know. We bought a property in Austin, I wanna say, around 2006, 2007. And then we sold it in around 2010, 2011 because we had a lot of losses in Phoenix. But the win in that Austin property was able to cover our losses in Phoenix, and we could just be done.

Yep. I really wish I held on to that Austin property.

Jake: It's probably worth, like, a million dollars.

Steve: I don't know what it is, but, man, it it it is rough.

Jake: Let's get out that Zestimate. I'm sure that's super highly accurate.

Steve: Well, what I heard in Austin as you can see, like, a Zestimate just add a 100 k to it. So let's see what else is there. So Zora, how much longer do you think this bull run will last for residential real estate? This is a this is a a a was it magic ball?

Jake: Yeah. My my magic crystal ball. Magic eight ball. Yeah. Magic eight ball.

It's a while, fundamentally speaking. So, there are four and a half, maybe 5,000,000 residential units short Mhmm. For the nation. So when you actually break down to population growth, birth rate, immigration, other things that, you know, in the country, we need 1,000,000 to 1,500,000 new residential units every single year. So since 2007, we have not delivered a million residential units at any one of those years since.

And so 2005, 2006, there there was 1,500,000. Both of those years was peak activity for for home building, residential apartments as well, so 1.5. There was an oversupply in the market and Phoenix was very much an oversupply of that, the market. So we took several years in which we were working through, as a nation, that oversupply of inventory. And if you look at it, 2012 was the time in which we had equilibrium.

The first time that we had the same amount of units as the same amount of people that wanted to live in or needed to live in. Since that time period, and they built half a million homes and then six hundred and seven hundred, you know, and then 600,000. Then as in each year since 2012, they've been undersupplying the market. And so that amount of homes or residential units has been growing of more demand than there is supply. And this is just fundamentals like econ one zero one of supply and demand.

And so if you also look at home prices, so in 2012 have only gone up, up, up, up, up, up against to that. And it comes down to the fundamentals of undersupplying the market, and it's going up. It's had a couple of little, you know, plateaus in there. What happened during COVID was they just printed a bunch of money and then they lowered interest rates. The government that printed all this money pays interest based on the interest rates that they put out to the market.

So they are they back themselves into a corner that they're going to have to keep and artificially keep the interest rates low for a elongated period of time. If you look at Japan, Japan has done something like this where they had decades and decades of very, very low interest rate. So some people think that, oh, as inflation starts kicking up, they're gonna have to raise rates. But that means they have to pay the the bills based on what they just printed and so they're kind of stuck. They can't raise rates that much.

They don't have

Steve: any more tools at their disposal.

Jake: Exactly. And so when we now have 5,000,000 residential units short, and that's not evenly dispersed across the country. There's some markets in Ohio and, you know, that shouldn't and they have they don't have enough people to fill some of those markets, to fill the houses that exist in there. It's mostly concentrated of of lack of supply in in the Southern United States. California, Washington, Oregon, the West Coast is doing a fantastic job of driving people out of those markets and they're flooding into Boise and Salt Lake and Phoenix and Texas.

And so and the the Northeast is doing a fantastic job of driving people down to the Carolinas and to Tennessee and Florida and Texas. And so you have this conversion happening. And so those 5,000,000 residential units are in you know, are needed in the Southern United States. So as long as that exists, as long as low interest rate exists and and really interest rate is is not the biggest leading factor for someone buying a house. Just the fact that a mortgage will lend on it and will tell someone they can buy a house, they'll buy it.

That's it. It doesn't they don't care. They don't actually care what the mortgage payment is. They just the mortgage bank says, we'll give you a loan, They'll buy the house. And so as long as that exists, this run can happen, and it could be two, three, four.

I don't know how long it it continues on, and that is going to I think bigger macro things would have to happen to cause a collapse of of that overall. Pricing is a challenge. Building houses, you can't build a house for almost less than half $1,000,000.

Steve: What going back to, your situation, what is your biggest struggle right now?

Jake: Construction. Yeah. I mean, supply chain, you know, subs that you know, maybe we have the supplies. Supply chains. And and and initially, it was not necessarily supply chains is, there was a disruption in the logistics.

So the lumber mills, the the the trees were the the same price, but they'd shut down all the lumber mills. And now there's a backlog. They actually thought that, you know, people weren't People

Steve: were gonna stop building.

Jake: Yeah. And then it was they picked up and it doubled their efforts. And so they're like, oh, crap. The fact that the government was giving out free money, dollars 40,000 to anybody to stay at home and said, do you wanna go make $10 an hour working in a a lumber mill, a very dangerous, hardworking, labor intensive job for, you know, dollars 30,000? Or do you wanna stay at home and drink beer and play Xbox and make $40,000 a year?

So there was a lot of people who was like, I don't know. I'm not a math major, but I like 40,000 and not working versus doing that. So a lot of those things have been starting to get unclogged. Mhmm. The the material, you know, was likely available or maybe you can actually get it.

But then subcontractors are so busy that they're giving you ridiculous numbers. And terms. And so I'm looking at some of these things and obviously, you know, we just discussed. I started out as an estimator in commercial construction. So I break down and say, we need, you know, 500 pieces of plywood and what's the supply price on that right now?

It's, oh, it's $30 a sheet, so it's $15,000. And why are they charging us a $100,000? And I'm like, I this doesn't make sense to me. And so I call them up, and I'm like, hey, Bob. What the hell?

And, you know, like, I'm looking at the price right now. And he was like, well, I'm marking the material of a 100%. And normally that my labor, I'm charging you this. And you'd be like, well, I don't like that. And they're like, well, I don't wanna work for you.

Yeah. And you're like, because they can get paid that. And then what else do you do? My brother works for a home builder. So they're they're fence guy.

Costing more and more and slower and slower. And they called him into the office exactly that and said, how dare you? Like, you need to, you know, man up and go faster and be cheaper. And he just literally stood there and was that, I don't wanna work for you guys. I'm out.

And he just walked out of their office and took off. And then they're like, never mind. I mean, good job. Keep it up. You know?

And so it's just like we're in such a weird time in the world that just is like it has no basis of fundamentals. And so that's very, very challenging when you're building stuff.

Steve: We have no leverage. What is what is your superpower?

Jake: Persistency. So my wife was like, you just kept showing up. You know? I was like I knew she was the one very early on and, I told her where you're getting married after maybe like the third date? And she's like, You're crazy.

And I was like, That is firmly established. I know that I am crazy. I actually So I have a theory. Everyone is crazy once you get to know them. Your crazy just happens to click with other people's crazy.

And so then it's like, you know, sometimes it was like, that person's crazy. I would never date them. What happens is you're both crazy. You just find somebody that has a compatible crazy with you, and you're like, yeah, Let's get married and have kids.

Steve: It's a little a little a little, bit in sync on on that.

Jake: Yes. So, I just kept showing up. I I play a lot of times the long game. A lot of the deals that I've found, some of my best deals have been being persistent, following up with them for years. Hey.

How are you doing? You ever interested in selling? I'm interested in buying, talking to them, building a rapport, building relationship. So one of the the buildings that I am buying, you know, it took five years before I actually bought it, you know. And then when they did come around and they were willing to sell, the fact that I would still, you know, you know, chip away at that and I wouldn't say that I was hard selling them.

It was building a relationship, just letting them know that I was still interested.

Steve: Yeah.

Jake: And so I have found that that persistency of presence and consistently showing up all the time, you know, has been, you know, 90% of of the success that I've had in life.

Steve: So, I'm guessing this is Jeremy. Could be Jerry. Follow-up question, is what are your biggest milestones that you're eyeing over the next three years?

Jake: Opening of the hotel that we're building. We're building a luxury boutique hotel on the Riverwalk. It should be, within three years, be open. It's '24 is where we're queued up right now. Maybe subs go crazy and try to extort us out of millions more in in cost, but, we're on pace to do that and we have a good GC working with us.

So I think that is is very likely. I really love the hospitality space. It was, a longer time period. It's a recent kind of investment the last several years that I've started getting into that space. It is where the unique experiences and I think every one of us is seeking more connection.

We're more we have more Instagram followers and Facebook people than ever before, but society as a whole is feeling lonelier and more disconnected from people than ever. Mhmm. And for me, I've been doing a lot of studying of how cities were built. And so the Spanish colonial architecture was done around like a plaza and a connection. And people just hang out and you go down to Havana and Cuba, you go to, you know, Cartagena, you go to, you know, Madrid, you go to all these countries that had this kind of Spanish colonial roots.

And it was about connecting people. And what I I believe is that people from a human condition, we need connection. We're tribal by nature and we need to connect with other people. Hospitality allows you the budget and the wherewithal to layer in those experiences with cohesive design and collectively. And again, this is a little bit in theory because we're we haven't delivered it yet.

But it's been some of the best things that I've ever, you know, seen have been when they've done that. If it's staying at a small little hotel in France or something, it is very, you know, memorable for me. And so when I layer that in, that's to me, that milestone of completing that. I'm going to be doing more hotels. We actually have, you know, several other LOIs out on some opportunities in that space.

I think you can disconnect the old brand flagged hotels and and limited service or select service hotels that are getting their profits eroded and eaten away from, old legacy loyalty programs. And the fact that people can direct book. And if you run a good SEO program, you don't need to pay 15 or 20% top line revenue to a Marriott or Hilton. You can now do that and get a premium and keep more profit and do direct booking through technology and, conscientious design. So that I'd say the next three years is is very, very exciting for me.

Gets me fired up every day.

Steve: I can see that. Guys, I see 39 of you guys watching this live right now on YouTube. I only see seven thumbs up. So I'm calling you guys out. If you guys are enjoying this, please hit that thumbs up.

So this last question is a softball for you.

Jake: Okay.

Steve: What book have you gifted more than any other?

Jake: I would say mine. I would say the, Catching Knives is is the book I've gifted quite a bit. But, you know what? Actually, I take that back. I've gifted George Perez real estate principles.

I have a lot of them. I buy them as used books for like a dollar, and I just have like stacks of them in my office. For those that don't know, George Perez, started a related company, in South Florida. The first deal he ever did was an affordable housing deal. He made a million dollars.

He came to America, to Florida with no money in his pocket. He's now a billionaire. I think they say he's estimated worth 6 or $7,000,000,000 Wow. Donald Trump did his foreword that said he's the condo king of Florida. He's partners with Stephen Ross that did Hudson Yards or doing Hudson Yards and, you know, the massive the largest development projects in the world.

He's now expanding down to more, South America, still doing tons of stuff in in Florida. I went to, FIU, real estate or so Powerhouse Principles by George Perez is the book I've gifted the most and is my favorite book on real estate development that exists, followed closely by my book, Catching Knives.

Steve: Alright. Alright. So I want you to think about what you what you wanna leave the listeners with. I'm gonna make a couple of quick announcements. Guys, again, if you got value, please like, subscribe, share, and comment.

I it really helps us reach more people. If you guys want to, check out our workshop coming up in February, you wanna get on that wait list, DM me the word workshop on Instagram, and we can put you on that wait list. And then, tune in the first Wednesday of the year. We got Tony Javier talking about how he built his business around TV. What are the last thoughts you wanna leave the listeners with?

Jake: Last thoughts. I think it it has to do with something that you're kind of building out here. It's more mindset. You know, whether you're wholesaling, you're starting out, you're mid career, you know, you've had successes, getting your mindset right, understanding that is the most important key element because it adds value to every single other aspect of of your life. Your relationships with your partner, your kids, your parents, time, I said earlier, is is finite.

But even if time is finite, if you have a shitty, you know, depressed mindset, then it is not a value. There are certain hacks in which you can do physiologically, working out, eating better, doing those things will lead and hedge to having a better mindset. And I'm not saying that, you know, people don't have sometimes chemical or other elements that exist out there, but there are also a lot of things that people don't do, to allow themselves to get in a bad mindset. So mindset, spend a lot of time focusing on that and, I think it unlocks so many other things in your life when you can get your mind right.

Steve: That's that's powerful. And, how can someone get a hold of you?

Jake: Catchknives.com is where you can sign up for the the blog, get updates on the book, the podcast, where we started recording. We're actually gonna release in, I think, late late January starting doing some episodes. Not necessarily distressed, but contrarian investing. So we have some people, they invest in some SaaS companies. All of that's gonna be the catchknives.com.

Jake. Realestate at Instagram or at jake. Realestate. Primary places that I'm most active. I know my team puts stuff out there on Facebook and others.

I don't actually know how to get to them. I think it has something related to catch catching knives or somewhere. But if you go to catch knives, our company website is harris-bay.com.

Steve: Awesome. Thank you so much. This was fantastic.

Jake: Thank you.

Steve: Thank you guys for watching. See you guys in a couple weeks.