The Unexpected Realities of Commercial Real Estate: Dead Cats and Beyond

In this episode, we dive into the unpredictable challenges of real estate investing, from dead cats in make-ready properties to navigating fires, lawsuits, and tenant issues, while sharing insights on turning these obstacles into opportunities.

We go in to do the make ready and I swear to God, there was dozens of dead cats. There was dead cats in kitchen drawers, there was dead cats in sinks, there was dead cats in trash cans. There was dead cats everywhere, bro. What is up? Welcome back to the best podcast in Jinx. Ok. I'm just gonna say the best podcast in Jinx. Nobody else doing Jinx podcasts. I'd say Best Real Estate Podcast in Jinx. If somebody else is doing podcast and Jinx, let me know. I wanna, I wanna know. Yeah, we should find that out. Maybe have them on. I don't know. I like, I love talking shit better, but maybe we'll have them on after we talk a little shit. All right. So what's going on? What do we got going on so much going on, man. So we, we just closed the Saint Louis deal. Um The Chipotle Panda, Ulta American Freight, Michael's Petco, Petco Deal. Every tenant, they all paid the rent this month. We're doing awesome. Started good. Yeah, it's so much easier when you have like six tenants, they're all major, you know, public National Corporation. They just ach e the rent so much easier.

Yeah, so we just closed that um super excited about that deal. We won't pay anything out for Q two because we, we just barely closed it in Q two. But that will pay out uh a full third quarter distribution just like in October. We're working on the Panda Express and Chipotle um parcel parcel split off. So we've got all of the broker's opinions of value prep. They're kind of like hounding down my door. So if you're listening to this, like just give me a second man, I need to split the lot and then I'll let you sell it. Ok? I'm not, I'm not ditching you. But anyway, we're we're doing that. Um super excited about it and then now we are moving on to a piece of land we just bought today at 100 and 21st in Sheridan. If you're in Tulsa, yeah, if you're in Tulsa go by 100 and 21st in Sheridan. If you have any interest, uh we're trying to decide what awesome tenants we're gonna put on that hard corner. So build the suit, don't you love it when people say build the suit? No, I do not love it. No, I don't love it at all. I don't like it. I love it when it's somebody actually in real estate. Oh the build the suit.

I'm like, what did you just say it's build a suit people because I will build something that suits your needs. Holy cow. Ok. Anyway, we bought a piece of land 100 and 21st and Sheridan. Um, there's a big pond on it. No. Pasta. Naa. Ok. No, no worries. We're gonna remove the pond and then we're gonna flip the land super excited about that one. First time we've specked a piece of land. So maybe the last, we'll let you know how it goes. We'll see. We, uh, who is his name is escaping me? Um Clinton, Clinton, Clinton, you asked Clinton about it. He, he sells Lane all the time. It's anyway, um, moving on, we still have more stuff we're doing. So, uh next week we are closing on a shopping center in Amarillo, Texas. Uh It's called Martindale Shopping Center. Our investor base, loved that one. So, uh who knows? We may just exclusively buy pieces of shit in small cities. So really, hey, you know, it works CCC cash flow.

A lot of people cut their teeth on, uh, generally crappy looking real estate because it, uh, it should pay more. That's what we think. That's what we, you know, obviously the more competition you have, uh, like let's say it's a really nice asset new in a great part of town, more people bidding on it drives the price up and the returns down. So theoretically, if it doesn't look great and it's in a little bit older part of town and it's an older center, you should get a premium. Nobody was looking at this thing. But anyway, it's gonna be a cash cow. We're super excited about it and we are closing um a week from today um shopping center in Amarillo, Texas. And then after that, no, before that man, I got, I got them mixed up. Ok, so Monday, we are closing on the first Petra Max gas station. I know we've been talking about that for months. So woo woo closing Monday it was a package of 1415 right now. We're just closing on one with more to follow. Yeah, another, another four probably, but maybe more. Anyway, um that is a very interesting deal. If you need um depreciation, that's your deal.

That's your deal right there because you get a ton of depreciation on a gas station year, one year, one year, one important, important note there. Well, we didn't even talk about the fact that I don't think we talked about this last week's distribution. Time is time. I mean, that's reason to celebrate. So yes, if you invest with us, you should get ach S at the end of the quarter. It's awesome. Super awesome. I love cash flowing deals. I think that's it. Is that everything in what we have going on? It's it, I mean, it's like five minutes. Not a lot, it's a lot of stuff, man. It's a lot of stuff. We've been busy but today uh for the topic we were trying to, you know, we, we've ran through a lot of topics and so we do, we are struggling a little bit to, to think of, you know, new topics. That would be interesting. Today, we thought we talk about how much money we make. Sometimes we talk about the passive nature of our job. We talk about how fun real estate is. But today we thought we'd talk about some good topics, you know, all the, the shit that can go wrong. Uh When buying real estate just, you know, if you're gonna get in this game, these are the things that you're gonna have to deal with and they are gonna happen.

And if you don't want to deal with this, then don't, don't get into real estate. But, uh, part of, you know, having the opportunity to make money and, uh, get your time for is, is you have to deal with these types of issues. And, uh, so we thought we'd go through some of them. Yeah, we, we just jotted them down. No particular order rating one that you was the first one out of your mouth. And I'd like to hear why that is, is losing earnest money. Yeah. Why, why would you lose earnest money? Thankfully it wasn't my money is all I'm saying. You know what I mean? It was my money and this is one that, that doesn't need to happen. You say these are, I didn't lose Joel's money. Joe. Joe lost his own money. He didn't need any help with that just to clarify. I did. I did. And so, you know, Brian's like, well, if you own real estate, these are gonna happen to you. This is one that shouldn't happen to you. Ok? So hopefully you can learn from our mistake. Uh But yeah, had non-refundable earnest money. Uh That's that period after your due diligence where you cannot back out of a deal, you have to buy it and uh you better make sure that you are gonna, are gonna be able to buy it if you pass that date, otherwise you'll lose your earnest money like I did.

So, but there's refundable, earnest money and non-refundable though, right? Yeah, at some point, the money will go non-refundable. And uh that's the period you have to be really careful about. And so it's a hell of a story. Can we get into it? It's funny, you know, it's, we got other things to talk about. Fine. Give us a brief. He's ashamed as that's why I keep pressing him because you can tell he is written all over his face. He's embarrassed. It was everybody and I'm not ashamed it happened and uh and we're better for it. But basically I got a loan commitment and we had raised what kind of idiot gets a loan commitment, this guy. So uh got the loan commitment, uh raised the money went non-refundable. And uh and this is back before. Uh, we used attorneys for every little thing. And so we had a contract that we thought was good and one of the major tenants had an attorney you thought was good too. Uh, we had one of the major tenants, uh, Gander Mountain. Uh, an article came out saying that they were gonna file bankruptcy.

Hadn't filed it yet. Just said they, they were thinking about it or they, they, they might, and the lender pulls the loan. I don't have time to get another loan. I won't be able to get another loan because of the announcement and, uh, the bank could back out because they had a material adverse change clause in their loan commitment. And I did not have one in my purchase and sale agreement. So I, I just watched a quarter million dollars vaporize. I've seen you ever since then. I, uh, get a lot of emails from you where I'm copied where it says, do we have a material adverse change clauses? Well, you only have to lose, uh, $250,000. Uh, once, uh, it's painful enough that you don't want to do it again with you. So I'll never forget sitting in that room listening to you vic talk about all of the things you could have bought with a quarter of a million dollars. So painful and you guys never really did it after that one day, you know, you kind of got it all out and then, you know, you move on man. Life, life's too short. Uh to wallow in your sorrow. I'd be embarrassed if I was you personally. But ok, the next thing that we have that is going to happen and has happened to us is fires and multi family, man.

Uh Those are the worst. Uh Not only because they, they put people at risk. Uh They, they torch everybody's belongings. Uh but it also ruins, it ruins the building and not just the, the, the one unit or two units that the fire hits the smoke damage, ruins everything, everything and it is such a pain. Uh You feel bad for the people. You've got to move them out, maybe even out of your complex and then you gotta start the hard work of uh going in there and renovating it and fighting with your insurance company to get it paid for. Uh And we've been doing this long enough that we've had a lot of fires and you'd like to say they don't happen or you can keep them from happening. But when you have hundreds of tenants, even thousands of tenants living in homes cooking electric, you know, all this stuff, something eventually is gonna happen, cigarette butts, whatever and yeah, you can do everything. You can sprinkler systems, firewalls, but that, that doesn't. Well, yeah, mo most of our apartments are old enough that they don't have sprinklers. So you know that, that makes it even worse.

So, that's a tough one. it's part of the business but hopefully if you get in this business you have very few of those. Ok. The third thing we put down, if you're in this business at some point, you're gonna get sued, right? So, what are some of the reasons we've been sued before? The dumbest shit? Oh, what about the guy that claimed that we damaged his car? Either he hit a pothole or remember the curb that has the rebar in it? It got jostled and he hit the rebar or something and it pulled a bumper off or something. Deal in November and December. This, you know, this guy pops up out of nowhere and says, hey, my, my car got damaged in your parking lot from this hole and I kind of fought him on it a little bit, but he was being nice and reasonable and showed me an invoice for like $1000 or something. So I think, you know, we, we paid the invoice and then, you know, completely forget about it. Fast forward like a year later, literally a year later he comes back and says, hey, you know, you never paid for the second invoice for the damage to my car. I'm like pound sand, bro. This was a year ago I gave you a, you know, 1000 $1200 check. You, you didn't get a release, did you didn't?

If you give somebody money for any type of a claim. You have to get a release that says no, you know that we, I'm wondering why I'm in business with you idiots. That's a good, that's a good lesson on this list that Brian has done wrong. We, we seriously messed up here, man. So Brian's key is to ride the coattails of successful hard-working individuals and try to get rich. Exactly. So good for you, Brian. Uh Let's see, real quick. A couple of other lawsuits. One was the lady stepped out of her shower and slipped and fell because it was wet and the roof leak. And so now she was claiming that that somehow the roof leaked. It wasn't the shower that got it wet. It wasn't that her foot was wet when it stepped on and she slipped. Yeah. So she got a settlement 10,000 for a slipping pole. We had a guy that wasn't even a tenant drinking out at three in the morning steps off of the parking lot like there's like a 3 ft drop off and there wasn't a railing breaks his neck, uh quadriplegic and uh his estate or his family sued us and we had to pay a million dollars.

Luckily, uh insurance helped us with that, but you just never know where the lawsuits are going to come from, but they will come from all directions one time. We upgraded a, an HV AC boiler chiller unit. To a more efficient unit so everybody could get, you know, cooler apartments. You're such a nice guy. And it was, ended up the unit that the new unit was like taller by 4.5 ft. And so behind us, these people that used to look at our roof line now looked at an HV AC chiller and, uh, they sued us and yeah, neighborhood behind the, the, you know, so you, sometimes you can't win, sometimes you can, sometimes you can. And most of the time we try, we try to win. But, ok, what do we got? How about roof leaks? You ever gonna have roof leaks? I mean, roof, roof leaks are inevitable. It's like, it's like concrete, you know, it gets hard and it cracks. It's, it's just the fact of the matter, roofs are gonna leak, especially, uh, flat, uh, flat roofs. They're, you know, they can be really good. Uh, and they can last a long time, but when the water sits on a flat roof, it'll find some opening and then it runs along the rafter under the roof and you never know where that's gonna end up.

And so every time we get a heavy rain, somebody's roof, you know, you get the stains on the roof tiles. So that's a, that's a big headache that you're just gonna have to deal with. When you're in this business. We built the Criterion building year and a half ago. I mean, brand new. Still chasing roof leaks. Still. They're still caulking beams. They're, they're, they're doing a water test tomorrow. It's mind-blowing, literally mind-blowing. It's so aggravating, dude. Uh What about some sort of bug infestation? Is that more multifamily or can that be just about anywhere? Mostly, mostly multifamily, uh, maybe a restaurant or something? If you have a restaurant, there was a nasty rat problem. The restaurant's closed. So I'm gonna talk about it now. But there was a restaurant on Cherry Street in this building. We bought, we go in and, and do some inspections and we, we find this like hole in the wall behind this piece of, of equipment or something. And we, and we like, put a camera in there and there's like hundreds and hundreds of dead rats. Absolutely disgusting. It was so disgusting. When we showed the report to the owner, the owner went to that guy and, and remediated it and like gave him a check.

It was and, and I talked to that guy. He was like, yeah, there was always this foul smell. We can never put our finger on it. I'm like, it's 500 dead like rats decaying wall anyway. Yeah, multifamily is really the main culprit, uh especially uh you know, apartment complexes that are decades old because you, you just have people cycling in and out, bringing whatever bedbugs and roaches they have with their stuff and then you treat them. But you know how evolution works, you, you treat and there's, you know, some that are resistant, slightly resistant to whatever chemical you're using. They, they live, they breed now you, you're, you know, over time we're just creating these super bugs. And so it can be really hard to get rid of, uh, bedbugs and roaches. Uh, in older apartment complexes really, really tough. Fleas are almost the worst one for me because you can never quite get away from them. Like with fleas, you're just freaking there. You know, and then you got to set off the bomb and then you can't be in there while the bombs are going off.

So you gotta go the next day and then you kind of have the residual smell of poison in there for, it's disgusting. Right? Are you guys want to get in real state yet, or, and the pest control companies they come in here and, and, you know, nothing is cheap like it would blow your mind how much it is to treat an apartment complex for, for just like cockroaches or ants. And you have to do it what, every month? Yeah. And, and a lot of this stuff isn't even poison. It's like bait. So then the tenants are pissed when you come and treat it because then it's just like all the bugs just come out gross. Interestingly enough though, you get beginners that get into this business and they're not aware that you have to do these monthly. Treatments and so they're just like, I'm gonna save money, you know, I'm not gonna treat and that's, that's how you get the label a slumlord, right? If you don't run a tight apartment complex and you don't take care of the shit, you're gonna, it's gonna, you may get away with it for a little while and then pretty soon no one's gonna wanna live there. You're gonna end up on the, you know, the message boards online as a terrible owner. So you can't cut some of these corners. My mom worked in multi family.

She was an apartment manager and I would always know when she would go and walk inside units, which surprisingly wasn't that often. I'm kind of throwing her on the bus anyway. She would come in and she would immediately throw her clothes in the dryer, you know, just like kill any heat that up to 200 degrees or whatever. I mean, that was gross. All right. What about, uh, both in multifamily and retail tenants not paying their rent? Yeah, it's gonna happen, right. What's with this? Why are they doing that? You know, that's a, that's a big, that's a big problem that, that anybody that owns has. I mean, obviously we have some properties where you get national tenants, like we mentioned at the beginning where the good thing about a national tenant is they'll pay their rent. Typically they do what they say they're gonna do with money Yeah, they, you know, they, they, there may be other issues with having big tenant, big national tenants but I'll say, uh, with, with multifamily it's, you're just gonna have a certain percentage that, that don't pay, uh, and you're gonna have to kick them out. Maybe they lost their job, maybe they get behind on their credit cards and I died for the fifth month in a row, you know, whatever. Um, now the, the, the nicer, the apartment complex, the newer, uh the less uh issue you're gonna have um, percentage wise.

And then, you know, if you get into the lower income just because they are living more paycheck to paycheck, you're gonna run into more of those issues. It's something that you have to budget for and uh, once you get in this game, you'll, you'll, you'll begin to understand. Ok, seventies vintage in this area of a town, I'm gonna have X percent a month or a year that aren't gonna pay, I need to write, write that into my budget and I need to write in the cost of eviction and all that. So it's all part of part of running the complex on the, the retail side. That's, that's a big, it's a big issue. Um, when owning retail, especially with mom and pop tenants, you know, you got just people trying to start businesses and they, they have an idea of what, what it's gonna be like. I'm gonna open, you know, what is it, Bob's snow shack or whatever? And I'm gonna sell thousands, thousands of snow cones and I'm just gonna be so rich and then, you know, they forget that, uh, you know, eight months out of the year it's cold and, and they're not gonna sell that many snow cones and they're like, man, I can't pay my rent, you know, it sucks.

I'm like, sorry, uh, Bob. Uh, no. But I mean, it, it's inevitable that, that, uh, businesses ebb and flow and a lot of these, uh small businesses, they don't have a war chest of money. They, they're going in skinny and they're, they're hoping that people show up and buy their trinkets or buy their snow cones or their sandwiches and their HV AC, they're hoping their H VA ce unit does break. Yeah, they really can't have anything go wrong. So, you know, that's part of what we have to do as a good manager and owner is vetting these tenants. And so I'm not gonna let somebody that didn't have any cash in the bank. I'm not gonna let them start their dream business in, in my center because I know the second things don't go, well, I'm gonna have to pay to a victim if I gave them any T I to fix up the space, I'm not getting that back and I don't have any assets to go after. So that's important. Uh, when you're, when you're putting, you know, tenants in, they gotta have, you know, do they own their home because you can, you can put a lien on that if they don't pay, do they have any cash in the bank? You know, what do they have that you can go after that's gonna force them to pay in the event things don't go. Well, yeah, that, that could be like the last thing on the list there is, is trying to financially go after somebody that owes you money sucks.

I hate that. It's, it's the worst. I mean, outside of like a tenant just not paying their bill or underpaying you or dealing with small balance, somebody that is just like negligent and, and fleeing this large balance that they owe you trying to go after them and, and with any sort of logic or legality or, or anything, it's just very uncomfortable and it sucks. Well, I'll, I'll just give that a minute or two. you know, we, we make a business decision when, when a tenant goes, uh, dark and they don't pay, um, ok, how much do they owe? Right? Or how much is left on the lease? And, you know, let's say it's, you know, $30,000. Ok, great. II I want that 30,000, but if they don't have any assets, uh, how much money do I really wanna spend going after them? You know, you know, suing them getting the judgment chasing down the judgment, you know, if, if you don't have an expectation that you're gonna be able to get your hands on any money, then you might not, you know, it may not be a good business person to spend more money, thousands of dollars to try to get that 30,000. And even if you get a judgment, what is like a judgment's another piece of paper?

You gotta, you gotta go get a judgment is another problem. Now, you know, when I, I'll say our idea is if there's a mom and pop tenant that, that has tried hard to make their business work and they just can't, they were honest with me, they did everything they could. I'm less likely to go get a judgment against them if they don't have any assets because why, right? Why hit them while they're down? But if a tenant lies to me, if they just up and bail in the middle of the night, I don't care if they have money or not. Like I'm gonna make him pay for being an idiot. I'm gonna hunt them down. So even if even if I just get a judgment against them and put a lien on their house, like, ok, in 10 years, talk to me when you want to sell that house like don't lie, don't, don't just run off, you know, try to honor your obligation. I agree. Ok. Ok. Uh It's getting long. So let's go down, let's go to the last one. Which is basically one tenant complaining about another tenant, either in multifamily or, or retail noise, their dogs pooping or something. Uh What's your experience with that all the time in retail?

They don't play nice on the playground. You know what I mean? The couple of times, the couple of things that have come up more often than you would think is sound, uh, you know, retail centers, there's just a wall in between these retail tenants. And so if you've got an office, you know, with people trying to do work and then you've got a dance studio or a gym or ax throwing. We've had, you know, these issues and, and it can be untenable for, for the tenant. Uh and they, they call and they complain and they want to get out of their lease. And so it's not something I really thought I would be doing is when I go to put a tenant in, I got, they want to pay me, they're ready to go in and I'm like, ok, but is, you know, how's the sound gonna work? Uh and smell as well? Right now, I've got a, a pet grooming place that went out, but they were in there for years. We cannot get the pet smell out of that unit. We have done ozone units, we've done, you know, the extra paint we've, we've done, you know, we're about ready to like literally uh sand the concrete floor, mill it down to, I mean, what can we do?

Do you, do you remember the dead cat apartment? No, thankfully. So there was this one apartment and II I shouldn't have said the name, but anyway, there's this apartment and we go in to do the make ready and I swear to God, there was dozens of dead cats, there was dead cats in kitchen drawers, there was dead cats and sinks, there was dead cats in trash cans. There was dead cats everywhere, bro. S same thing ripped out the carpet, you know, kills the entire apartment with that heavy duty primer. You know what I'm talking about? Ozone whole thing. And it was just, I think we ended up replacing the cabinets, took the cabinets just completely out of the UN because it just smelled like rotting feral flesh. That's disgusting. It was so now that we've encouraged, yeah, we've encouraged everybody on how awesome it is to own real estate. Uh, but we do try to keep it real and, uh, this is a great business, but you're gonna run into some major issues and each one of those issues is an opportunity to learn and get better and make sure that it doesn't happen again or it happens at least infrequently.

So, I hope this was interesting for you guys. Anything else? I don't know. I'm off to Tahoe for the weekend and we'll catch you guys next week on how to invest in commercial real estate. All Right. See you.