Outrunning Failures
Outrunning Failures: Your guide through the highs and lows of commercial real estate investing.
Join us as we delve into real stories of setbacks turned stepping stones, sharing invaluable lessons and strategies to navigate the market's unpredictability and turn failures into the foundation of your success.
Outrunning Failures
Flex Space Fortunes: Jonathan Clark's Commercial Real Estate Revolution
Today’s guest is Jonathan Clark.
Jonathan is a family man, investor and entrepreneur. He lives in Chattanooga TN where, in 2018, he bought a small HVAC business.
After growing it 400% in 5 years he sold it to and joined a private equity team that continues to buy companies across the south east US.
He is actively working to transition from business into a full time real estate investor and focuses on flex space and multi tenant industrial properties in TN, GA, and KY. You can reach out via email: Jonathan.clark@freedom4t.com
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Creator/Main Host: Vish Muni
Show Advisor/Editing: DBT Marketing
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Well, welcome to another episode of Outrunning Failures. Today we have, as a guest, my good friend, Jonathan clark. me and Jonathan belong to one mastermind group, which, is called commercial invest beyond multifamily. So Jonathan is a full time. Jonathan is a, he's a real estate investor, and he's also passionate about automobiles. And, that these two things keep him busy. Apart from that, he's a family man, he's got kids, and he loves educating people and dissecting the deals from inside out. With that, welcome, Jonathan, to outrun failures.
>> Jonathan Clark:Thanks.
>> Vish:Jonathan, could you please tell the audience little bit about you, what got you into real estate, and, where are you in your real estate journey?
>> Jonathan Clark:Sure. So, in college, I read rich dad, poor dad, and I was convinced that, there was better ways to wealth and financial, independence than just working 40 years and saving for retirement. And I didn't have a lot of opportunities. I was always looking and talking to people for several, several years after I graduated from college. And finally I, came upon an ad in the newspaper. This was about 2006 for a duplex for sale. And it said, two bedroom duplex, $5,000. And, I assumed that would be the down payment, but I said, hey, I got some money. I could maybe get into real estate. This would be my first investment property. And I had owned a one house, that I lived in and sold. And then I already bought my second house at this point, and I was living in, New Bern, North Carolina. So I called this guy, and he said, no, it indeed is $5,000 for the entire duplex, and it comes with a spare or vacant lot next to it. And, for those of you that have dealt with real estate, you would probably know the wise thing to do would have been to run at that point. But I got excited and I went and looked at it and ended up purchasing this duplex for a total of $5,000. It was obviously not in a very good part of town, and it had had a kitchen, fire, and so had a little bit of damage in one unit. The kitchen was in bad shape, and the city had condemned it. The current owner was tired of managing it, just wanted it gone. And the city had an ordinance against it. So, he was very motivated, and he was living out of state or out of town. So I picked it up for $5,000. And, one of. One of my, tendencies is to do everything myself versus hire it out. And so this is what I did. Rehab the whole thing, put a roof on it, put a, ah, painted. It was a block walls and outside painted it, put in carpet, painted the inside. I did have to hire an electrician because the city wanted, a permit and a licensed electrician to do the electrical on just the kitchen area that was damaged. And I ended up with a decent looking building for $23,000 total. And it rented for$400 on each side. So on paper it was a great deal because it, had a good roi. If you think of about$9,600 a month and a year in, income for $23,000 of investment, seemed pretty good, but it was very, ah, very challenging property. And I spent way too much time there. Not just the initial rehab, but managing it because none of the, tenants that wanted to live there would pass background check or credit checks. So it was a constant revolving door of screening tenants, evicting tenants, repairing, and, it was not a very good rot or return on time.
>> Vish:Well, Jonathan, that is amazing. I can't believe you. You got a duplex for less than $5,000. Well, it's too good to be true, but anyhow, so you went through the whole motions. You went, looked at the property, you bought the property, and in spite of the city having condemned the property. So was that your first investment, Jonathan?
>> Jonathan Clark:It was. And, it was, a very big part of why I don't do residential, investments and single family homes anymore. Not my only experience with single family, but it was a very big portion of it.
>> Vish:Well, more than anything, I think. So what do you think you would have done? Right, and what did you learn from that deal? What is the biggest lesson you learned from that deal?
>> Jonathan Clark:So, location, location, location. as, as any business and real estate investor will tell you, that has a huge impact on who you get as tenants. And who you get as tenants has a huge impact on, you know, the quality of investment, your experience. and so it was just a real challenge to manage. no property manager would take it on because there'd be zero applicants that would pass their screening. Right. And so I ended up managing it myself for about four years, I think maybe three years. no, actually more than. Longer than that. When I moved out of state in 2013, I had, I let it go. So I had. Actually, it was 2006 when I bought it. And once I got it all nice and rented out, I said, well, I want to do this again. And of course, the banks were handing out money to anybody asking in 2006, so they appraised it at$55,000. And I took a,$40,000 loan against it, put the money in my pocket and went to do my next deal. so five or six years later, when I moved out of state, it was, I couldn't find anybody to manage it and I couldn't manage it from out of state. So I literally signed the deed over and gave it to the bank for whatever I still owed on the, on the loan. So it wasn't really a foreclosure, but it was a, ah, deed in lieu of foreclosure. Saved them all the expenses. but you know, I got a good taste of what the brrr, intent is and how that can be done. I just did it with the wrong property to start and, and probably at the wrong time as well, because 2006, and seven, when I did my next, flip, was a hard time to be flipping properties.
>> Vish:So what do you think you, would have done better if I come and say, jonathan, I have a $6,000 deal for you, what do you think you're going to do better and what, what is it you're going to look for?
>> Jonathan Clark:Sure. And no matter the price. one thing that I see differently now is, valuing my time and effort on that. So like a lot of times beginner investors will say, hey, I can buy this and I can, do the work myself and makes it a good investment. the investment needs to stand on its own. So if you hired out all that work, would it have a good roi? Would it have a good risk reward? and is that a good deal at that point? If it is, then you could do some of the work or not do some of the work as it makes sense for your time and your skills and your other opportunities. but should separate the work that you do as a contractor, essentially, from the calculation of investment. And is it a good investment for your, you know, your, your money or your whatever, time and stuff you're putting into the deal part of it? And then the second really. Location, location, location.
>> Vish:So that, that is so true, Jonathan. Location, location, location. I bought a, I bought a property from a bank for 90,000. It was a five bedroom, three batheous. It's a single family home. from the look of it, it was in a great neighborhood. It was right next to a school and I bought it for 90,000. I rented it out for 1600, and the first tenant moved out after one year. And then it took me four months to rent it out. And the second tenant came after, moved out after six months, and the third tenant came and destroyed the whole place. They were smoking weed and they were doing all sorts of things. The neighbors called the police, and the police, had to literally break into the place to do. To take care of a lot of things. And it looked like a great neighborhood, but, right next to a school, a walking distance to a school. But, even though the location from the surface level looked really good, but I need to dive a little more deeper into it. What kind of tenants live there in that neighborhood? What kind of people? So in this case, real, estate alone was a great, deal, but because of the location, I failed. I held the property, held onto the property for five years. And there's five years, three out of this, five years that probably from. I had three tenants. That's it. And then.
>> Jonathan Clark:And the stress that it puts on you and you're. When you're dealing with them and evicting them or seeing the damage when they move out. I had tenants that, you know, you'd get the eviction and they would lock their dogs in a, in the bedroom with carpet for two days and have them, you know, poop all over the carpet just to get, you know, revenge on you for evicting them. And, had windows shot out, had, you know, I'd be there working, have prostitutes coming by and asking to, make some money. And it's just, it's amazing, you know, you don't. If you don't spend time in the wrong neighborhood, you don't really realize how bad it is.
>> Vish:Right, right. Yeah.
>> Jonathan Clark:And, and how much of, an opportunity cost it is when you spend your time there, when you could be doing other things, you know?
>> Vish:No, I'm with you. So what, what kind of, asset class do you do now? Because, looks like we had similar experiences and in residential, but I don't manage any of my properties from the day one because why I don't manage my properties is my. On my first duplex, which I bought, and I was, like, you're having your first baby. You're super, extremely protective about the baby. And, on this duplex, I was calling the property manager probably five times a day. And, we had some trees which have fallen on the property. So five times calling became about eight times I used to call him. And one day he just, sends me a text telling me that, he's walking away. And he told, I don't want to manage your property anymore. You're a big pain. And I given all your details to the tenants and they will reach out to you. So I was brand new to investing, I didn't know what to do, how to do. So it's like, it's like you're flying at 20,000ft and the pilot says I'm not in the mood of flying any jumps out of the plane and he hands up, he'll say Jonathan, it's on you. If you want to live, just learn how to fly and land. So that is exactly how I felt. But ever since then if I hired a property manager and I don't even talk to them anymore I told them clearly what to do and reach out to me only if they need to talk to me, otherwise they're on their own. So that's what I do. But nevertheless. So what kind of asset class do you focus on now apart from since you're out of residential.
>> Jonathan Clark:I prefer flex space, smaller flex space and multi tenant industrial. So after the duplex I flipped a property but that was poorly timed with the whole 2007 and eight. And I moved out of state and ended up renting. My single family had that house for years and years and it just barely made any money even though it was rented and always paid on time. there was just so many repairs and things that had to be replaced and fixed and also the first time I stumbled upon a flex space it was for sale on Craigslist and it was six units, 9000 was just amazed that I could manage that and have less repairs and less headaches with six tenants than I had with the one single family house that I'd moved out of. And so I was sold on commercial and I've never been tempted to buy a single family or duplex rental ever since.
>> Vish:Well that's interesting Jonathan. So looking at your background that looks like it's a flex space and can you tell the audience a little about what is a flex space?
>> Jonathan Clark:Sure. So flex space is something that's not really niche and it can be used by a lot of different business types. most flex space have some portion that's office so you have enough room for a desk and a printer maybe you have several offices depending on how it's built out as well as some warehouse slash storage space. So my first one was like I said about 9000 sqft. It was just a straight long metal building had divided up into six sections with overhead ah door and a walk door for each section. very cheap paneling office, and a half bath. And so they range from about, I think the smallest around 800 sqft up to about 2000. Tenants ranged from, you know, somebody that just wanted to store cars, had some some vintage cars that you didn't have room for at house to a guy that made car wash soap literally would have these big drums come in and he would mix it into you know, different formulas and sell it in one gallon jugs. and some other people had more office in, in one of the tenants or one of the spaces. So it, flex space is, is just allows a lot of different businesses to utilize it and it, it makes it easy to rent out. So especially the smaller 800 to 2000 sqft. There's a lot of mom and pop businesses in a lot of different industries that would love to have that space. it's not too big or too expensive. If somebody's just starting out and needs a space for their new business, or if they're branching out, they want multiple locations and this is their first location in that city, it's just really easy to find tenants.
>> Vish:So do you consider, I go to get my m, car oil change done. Is that a flex space? M because that's a little office, but most of it is for doing the mechanical part of it.
>> Jonathan Clark:Sure. So, automotive normally have more of a niche, building. They may need more parking unless it's a quick jiffy lube place. automotive a lot of times have a lot of dead cars or customer cars that, that have to be stored. And if it's a jiffy lube or a quick lube, it would have a pit where people go underneath. So it's, it's pretty specialized. whereas the, the a flex space, you know, a tenant could move out, another tenant can move in and they might even look the same. sometimes the tenant will build out and you know, heat and cool the space if it wasn't there already or put in some, some nice flooring. For instance, I had tenants that wanted to use it for like a dance studio. So instead of concrete they would have to put in some, you know, some other type of flooring. But in general, it's not specialized for a specific tenant or industry.
>> Vish:So in other words, they can be repurposed very easily with minimum investment, the same building. Right, okay, that's, that's an interesting concept because I used to always think when I walk into Sams or walk into Costco, I mean they're not really not the best of best looking real estate but it's a location and then so in other words it's a miniature version of Sam's or Costco is another flex building.
>> Jonathan Clark:So you can have a single tenant, flex, that is it could be a small one still or you could have a large one. And those are the larger the building the more I guess niche or specialized your tenant is and the harder it is to find a tenant. So my next investment was a 15,000 square foot warehouse that had I think about 2000 office and 13 of open warehouse and it was single tenant, and had it been four or 5000 square foot I could have rented it out very quickly. But in a small town it took 16 months to find the tenant. So a large building with a single tenant, while you can have less maintenance or less management, a lot of times we're gonna be a triple net lease. It would take longer to find that tenant on a, on a larger space.
>> Vish:Oh, so again can this, if it is such large space can we break it down into smaller offices like 2000 have multiple tenants so that way you're able to reach out to a bigger audience.
>> Jonathan Clark:You can, it depends on the layout of the building and some other things to consider are the utilities. So most single tenant buildings have one electric meter in from one spot. So if you break it up you're going to have to cut in some more doors or do some sort of access, that would allow you know both, both it to be secured as well as things like fire marshals considerations. and so the challenge with breaking it up is often the electric meter and being able to either the landlord would have to pay electricity and provide that free or trying to divvy it up. If one company, one tenant has welders and using a lot of electricity and other people just have lights, it may not be fair to break it up based on square footage. And also a lot of single tenant buildings have all their bathrooms in one spot like at the front or something where if you break it up into four, six tenants you would have to spend a lot of money to get the, the plumbing in for more bathrooms.
>> Vish:That's interesting Jonathan, thank you for the update. So I, I also got to know a little about your passion, your passion about automobiles. So, so ah, when did you pick up the automobile passion? Has it always been you always been passionate about automobile? So it's just something you picked up on the way?
>> Jonathan Clark:Yeah, probably because I was playing with and working on, and wheeling, dealing with four wheelers and go karts even before I had a driver's license. And so I learned to work on, on engines and enjoyed, that. And that's what, that and my interest in cars led me into an engineering background or engineering, degree. But I never really worked in the automotive or, or on any type of motors and engineering, but I just enjoy tinkering with them. I've got a resto mod project, which is a 1964 AMC Rambler, which is not a common car. It was back in the day, it was just a really common cheap car. And most of them have been crushed and are gone now. But I have that with a newer, Lexus drivetrain in it that I play around with. And I drive to little cars and coffee meetups and things like that.
>> Vish:So that's interesting. So I bet most of the auto mechanics don't like you because they can't mess around by taking you for a ride because you know exactly what they're talking.
>> Jonathan Clark:Yeah, I don't take my car to the shop to get work done. I don't have very good luck when I do. I'm always frustrated how much they charge and what their diagnosis is, so I just do it all myself.
>> Vish:that's interesting. So what is your normal day like? what gets you out of bed every morning and what is your normal day like?
>> Jonathan Clark:Sure. I really enjoy the finding, the next deal and underwriting deals. I'm not really excited about like the management and the same day in and day out, I like projects and things that are new and exciting and something I learn on other people kind of like to be able to know what's going to happen and have that sort of comfortable, same sort of routine. and I don't. So my favorite part of investing is the, looking for a deal. I often search crxy and as well as like local auctions and anywhere I think I can find the next deal in commercial real estate, find.
>> Vish:The option of calling on the properties which are for lease and asking them if, they're interested in selling.
>> Jonathan Clark:I haven't tried that yet. I do use that to find comps, and sometimes like just using Google street view and looking at the different years, you can go back and see how something has been for lease or hasn't been for lease, and get the phone numbers and say, okay, what did you end up leasing that property for? but I haven't used that successfully and tried, to find a seller that's not advertising currently, but it is certainly a tool that could be used.
>> Vish:Because that tool I've used a few times and it has worked because I called the broker and asked, listen, I'm interested in buying this property, not to lease this property. And then these guys, went back to the seller and came back to me while the seller is interested. If, depending on the price, if.
>> Jonathan Clark:The price is right, everything's for sale for the right price. Right?
>> Vish:Right. Yeah. So, in that case, that was a, that was a breakthrough because I was able to maintain the relationship. So I told him I wanted the tenant in place before I make an offer. So, so that, really happened to, they really found another tenant in four months. And, and this time the price is different, but I'd have to stick to the price when it was listed. I had to underwrite it as if it is vacant, still vacant. So, so that way I was able to negotiate a better deal on, on that deal. So that is another thing. What I feel it is, it is a long term play. It won't happen overnight.
>> Jonathan Clark:Sure.
>> Vish:The key is, building relationships with that, broker made a big difference. Okay. And, this is, this is not one of the properties which is listed on Craigslist. And you take it underwrite and send in an loi.
>> Jonathan Clark:Sure.
>> Vish:So that's what happens. So apart from that, so what do, what gets you excited about this? Real estate in automobiles. I mean, you told you looking for deal is one and underwriting is the next.
>> Jonathan Clark:The benefit of real estate is that, you know, there's obviously a lot of benefits as far as the taxes and, not totally passive, but more passive than a job. And, really just looking to get completely out of the rat race and have that, give me the freedom to do what I want, when I want, and have, you know, ability to donate and to travel and to volunteer and things like that. so real estate just gives so many opportunities that owning a business or having a job restricts, you from, like, you can make a lot of money with a business, but most businesses take all of your time, right, and your headspace and you're thinking about it 24/7 even if the business is closed and you're, you know, your doors are closed and, you still got something on your mind. If somebody you're going to try to hire or fire or some advertising or marketing. and so, you know, the real estate allows a lot more freedom and less, intense focus on it. In my mind.
>> Vish:So, wait a second. So you're telling that you want to completely get out of, that race, and, so is it okay for you to tell us what is your w two now and, what you do? Yeah.
>> Jonathan Clark:So I'm working for a private equity company that bought my last business, which was a heating and plumbing business, had about 14 technicians or 14 employees when I sold the company. So, I'm still working with the private equity team. It's a great team. I enjoy it. And so it's not easy to leave just because of people, and the business is great. So at some point, I will walk away from that job, but I need, a couple more good deals, under my belt before I do that. So, we've been. The private equity team I'm with has been in existence less than 30 months, and we've put together, over $80 million in revenue. so it's been a fun journey. We still have a couple more years of this type of growth, I think, before we would level off. but at the same time, I know I'm building somebody else's, balance sheet at the w two.
>> Vish:Well, this was your baby before you sold it to them, right?
>> Jonathan Clark:Correct. And, I had a very small business compared to what they've put together. and so my business is the smallest at the time. I think we bought a couple smaller businesses since then, but they're looking at, you know, companies with 40 and 70 employees that they're buying now versus 14.
>> Vish:So that's interesting. So what, what do you do for fun other than, real estate and automobiles? So do you, do you travel?
>> Jonathan Clark:Yeah, I spent a lot of time with my kids and their, sports. you know, my daughter plays volleyball and does acro, and my, my son was, was playing soccer, and, and softball. Now he's graduated from high school. and, yeah, so I also have a boat, so we can go up to the lake and things like that. But, I enjoy things in nature and hiking and. But mostly it's revolves around my kids still.
>> Vish:All right, that's good. So you're telling that you have a boat. What kind of a boat? And, do you go fishing?
>> Jonathan Clark:No, I'm not much into fishing. it's a wakeboard boat. it's kind of an older boat, but it's good for, pulling a tube and wakeboard and knee board. so, it's nice to just be out in the water and relax.
>> Vish:So that's fun, though. The wakeboarding. Wakeboard is fun.
>> Jonathan Clark:Yes, I enjoy wakeboarding. It's not one of the newer big boats that you can surf behind real well. I can surf a little bit, but not like the big new boats. But it's perfect for wakeboarding. You can catch, good air and wipe out. Try it again.
>> Vish:Right. So, Jonathan, one other thing is, so this podcast is all about outrunning failures, which means, what is the biggest challenge you had in your real estate investing career and how that has impacted you and made you a better investor. So with that said, you m all your deals. Looks like it was just you and the deals. Now, going forward, are you looking to be just you on the deals? Are you looking for some additional partners or planning to do a jv? Because sooner or later, with your background and your confidence, you're going to be taking on bigger deals. and it looked like you like the rush of chasing deals and finding the right deals. Right. So are you going to say no to no to those deals or you would be open to partnering?
>> Jonathan Clark:Sure. So I am open to partnering. I've got, some people here locally that are interested in doing jv with me, and I will probably be doing that on one of the deals I have under contract now, possibly two. I've got two under contract, both sort of a flex based industrial, and one, that I'm actually possibly going to be, making another offer on soon. So, yeah, I need to continue to grow in that area of raising funds and, being more sophisticated so that as I find more and bigger deals, I don't have to, wait, because I don't have all my, because I have all my money tied up in other deals. so I'm open to networking and either partnering or even eventually, probably during its indication, if it's more than like 2 million below that, I think a jv and just a partnership is sufficient.
>> Vish:All right, that's interesting. So let's say when you wake up tomorrow morning and you have all the money, your financial freedom number is met and you no longer need to be in the rat race, and what is it one thing you will give up and what is it one thing you will never give up and continue with the same excitement.
>> Jonathan Clark:good question on what I will give up. I have to think about that, but I will continue to look for deals because that actually gives me energy and gives me excitement. and it also helps me network with people and I enjoy the social aspect of talking about deals. as well as kind of educating others and mentoring others and, and being mentored by those that have, you know, more experience than I and have more ideas, they can share and things like that. as far as what I will give up, I'm not sure. But one, one of my, one of my challenges and things I do need to give up on is doing a lot of stuff myself, and being kind of like the contractor, on jobs that, that I should be hiring out. So one of the deals I have under contract now is in Frankfurt, Kentucky, which is 4 hours away from me. And so that will definitely keep me from being the contractor because it doesn't, doesn't make any sense for me to do the work. So I will have to make sure that stands as an investment with, you know, hiring out of a manager and any work that needs to be done, where it'll just be strictly an investment.
>> Vish:Well, in other words, I think what, I've learned from other investors is, at some point or the other, we all need to, give up the wheels to somebody else for them to, because we all like to control how fast we go and what speed we take, what speed we take the turns and when we break and when we do. But sooner or later, if we want to do a lot more, we need to give up the wheel to somebody else. In other words, we all need to learn how to delegate.
>> Jonathan Clark:I would like to find a partner that is strong in areas that I'm not. So maybe they enjoy the actual, management and stuff. So if I find a deal and numbers make sense and they could work on actually closing the deal and getting the tenants and, you know, the steps after that.
>> Vish:All right. Yeah. So that's, that's a problem with Ian. I have that problem delegating. I need to learn how to delegate things. And so, so apart from that, what is it you're looking to get out of real, estate investing in the next one year? And one, thing you want to do and one thing about your personal life, where do you want to be one year from now?
>> Jonathan Clark:Okay, so, as far as investing, I'd like to close one more deal this year, of$750,000 or more and 15, percent or more cash on cash. And then id like to do, going forward, at least two similar deals a year. I, do need to grow that number to be able to get comfortable with bigger and bigger investments, but im comfortable in, that range, understanding, the buildings and investments and the financing of that im open to networking with other people that are doing bigger deals so that I can get kind of more knowledge and experience before I jump in with both feet on a, you know, say a $5 million deal. I wouldn't be comfortable doing that, being the, lead on that deal to start right now. and then what? Was there a question about personal, goals?
>> Vish:Yeah, one personal goal you want to achieve in the next one year.
>> Jonathan Clark:so, yeah, it'll be likely quitting my w two and having a firm plan and grip on, how I manage my finances without the w two and health insurance and what other things that play into that. I've got the assets for a Runway, to do that, but I don't want to kind of limit or hamper my five year abilities by quitting too soon. Cause I know that w two is helpful for financing when you're looking at, especially some of these maybe million dollar and below deals. and it probably larger ones as well. But the banks like to see that you're not going to live off the deal that they're financing. and so I need a few more probably under my belt that I continue to own. And, having the w two will help get those financed.
>> Vish:All right, fantastic, Jonathan. So with that, I think we thank you for sharing your investing journey and your personal stuff and your passion about that. See that you spend a lot of time with your family and you like going on the boat and, and also your hunt of finding the right deal is exciting. It's like, I read this book written by a former, President Donald Trump. The art of the deal.
>> Jonathan Clark:Yes.
>> Vish:And that, book itself is exciting. I mean, I read that book twice. It's basically that got me thinking outside the box. I mean, there are so many things you can do in a deal which, when I was in residential investing, there was only one thing on my mind was to buy the property and rent it out. That's all. And after that, with commercial and every step of the way, there is a creative work involved. You can do whatever you want. So that's what I like about commercial investing. So with that, I need to thank you for joining us on outrunning failures. remember, setbacks or opportunities in disguise. Keep pushing forward and embrace while embracing the journey. Thank you, Jonathan, once again for joining us as a guest. Thank you.