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How to Scale Commercial Real Estate

May 4, 2022

Imagine becoming a millionaire and then losing it all in a mortgage crisis.


This is what happened to Jake Harris. He sits down with us to talk about lessons he learned from his failures and how he emerged stronger and better.  He discusses that it's not about achieving a goal but rather setting up systems to help him sustain his successes. And this is very much true in real estate. He highlights the importance of building systems and teams and having a due diligence checklist in order to minimize loss and maximize gains.


Jake Harris is an author and real estate investor focusing on distressed commercial real estate. He is a founder and managing partner of a private equity real estate firm that has managed, developed, and acquired more than $200 million in assets under management in the last five years alone.



[00:01 - 08:56] Pivoting From a Failure

  • Jake shares how he got into commercial construction
  • Becoming a millionaire and being wiped out during the subprime meltdown
  • The dangers of defaulting to a goal
  • Here’s how Jake changed his mindset


[08:57 - 18:27] Setting Up Systems Instead of Goals

  • The value of being micro correct and doing a due diligence checklist in real estate
  • Goals are good for setting up direction and one-time success, systems ensure predictable and repeatable success
  • Obstacles are part of the journey
    • Having discipline  and a strong foundation of systems will help you in the long term


[18:28 - 21:21] What He’s Working on Right Now

  • Jake tells us about their latest exciting projects 
  • Finding opportunities in distressed commercial real estate


[21:22 - 22:35] Closing Segment

  • Reach out to Jake!
    • Links Below
    • Be on the lookout for their podcast,  A Contrarian Investing Approach 
  • Final Words

Tweetable Quotes


“You need to design a system that the results of it are going to lead to what you want to do. Get the goals for aiming the direction. The systems are very important, because you're going to default to those over the long term.” - Jake Harris

“That's why I think distressed, you know, was where I initially made my bones, is because people were scared of it. And you can actually have more margin of safety in things that people don't want because you can structure the deal more appropriate to you.” - Jake Harris



Connect with Jake! Check out the Catching Knives website if you want to know more about investing in distressed commercial real estate. Follow Jake on Instagram and LinkedIn.


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Want to read the full show notes of the episode? Check it out below:


Jake Harris  00:00

Goals are good for giving you that initial direction. But that motivation of why you have a goal and you can go, you know, white knuckle it and get to it and lose those 20 pounds. But what happens is you're going to default back to your systems, you're going to default back. And so the real thing in the quote, you know, is like goals are great for one-time success. Systems are for those that want repeatable and predictable success. Because now you need to design a system that the results of it are going to lead to what you want to do.


Intro  00:31

Welcome to the How to Scale Commercial Real Estate Show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big. 


Sam Wilson  00:43

Jake Harris is an author on distressed commercial real estate, bringing 18 years of experience in real estate construction and investment management. And he's been featured as a national speaker on his expertise. Jake, welcome to the show.


Jake Harris  00:55

Thank you, Sam. I appreciate it.


Sam Wilson  00:57

Hey, man, pleasure's mine same three questions I ask every guest who comes on the show: in 90 seconds or less, can you tell me where did you start? Where are you now? And how did you get there?


Jake Harris  01:05

I started from a book called Rich Dad Poor Dad, which I think is synonymous with almost everyone else that started in real estate in the last couple of decades. I was getting out of the Army, somebody handed me that purple and gold book, it was like, Yes, this is what I wanted to do. Took me a little while to get there. Part of it was because of the lack of understanding and resources out there. I took a job bartending at a golf course. And I got around rich guys, you know, and I hung out and I said, Hey, I want to do real estate. I want to do this. How do you do this? Do you do that? As I asked enough people, somebody said construction, getting construction, because you can learn real estate from the books. And that's a viable path. But he's like, I've seen the guys that come from the trades, have the shortest learning curve and instantly know when and what things should cost, how long they should take. And so he said, I think that is a better foundation of knowledge, is the traits and you can come back to learning it, you know, that process. So commercial construction did work. Our main client was Equity Office Properties, which was Sam Zell's company in the Bay Area, buying up office, we're repositioning them subsequently then got into flipping houses in the early 2000s. Became a millionaire, hit my goal, subsequent subprime, and I lost it all. Then started rebuilding it scaled a nationwide flipping company, single-family rental portfolio, we've done 1200 assets in 23 states, and then dove into, you know, really doing a lot more commercial real estate in the last seven years, primarily secondary, tertiary markets of high growth markets. So Central Texas, Cincinnati, Milwaukee, couple of other areas, and leads up to today as doing and managing a portfolio of commercial real estate. And you mentioned author, I wrote a book on this, you know, Investing in Distressed Commercial Real Estate, during the pandemic, during 2020, I thought there was going to be a lot of distress out there. It came out, you know, 2021, and values tripled. So I was wrong, there was not a lot of distress. But I also didn't think the government was going to print $20 trillion, and then throw it out the window to everybody. But you know, the fundamentals of the book are still true, whether it's distressed or non-distressed, or just you're looking to invest into commercial real estate, especially those people that are looking to bridge from the residential side into the commercial. So I think that was longer than 90 seconds. It might have been like 110 seconds.


Sam Wilson  03:44

It's okay. You gave us a lot of things there that really want to, you know, chat about there were a lot of pivot points for you. It sounds like okay, I'm doing this and you might have even been very successful at them. And then you said, But wait, I see opportunity over here. Talk to us about those moments.


Jake Harris  03:58

So I'm going to tell you, I was sitting on a street corner down in Tucson, and I was crying. And I was praying to be worth no money. I was like, dear Lord, can I have no money? That'd be awesome to be worth nothing, zero, worthless, nothing. And so, to make that even the matter worse is you know, I told you I had some construction background, I was doing a remodel on this adobe house, and it was for the boyfriend of the girl I thought I was going to marry. We'd recently split up, totally my fault I was in a very tough and miserable place, you know, it was during the subprime meltdown. Houses were you know, falling, values were falling. I was not, you know, there. But so she's dating this new guy. She felt bad for me and said, Hey, you should hire Jake to fix up this house. And so every time I'm at this house and he comes over and they're, because he doesn't know the previous relationship that we had together, and it's like taking your heart and just smashing it on the ground. Because I'm so hard up for money, because I owe on these other houses and I owe more money than they're worth. And I've been coming to closing table and buying out of mortgages bringing in 20 grand and 50 grand and seven. And then ultimately, I've run out of money, but I still have these assets. And I'm sitting there, and I'm heartbroken, I'm crushed. I'm looking at this distress of all of these and losing it, I have friends, family, people that have invested money with me on some of these. And I'm sitting there and I'm crying, and I just want to be worth nothing. 


Sam Wilson  05:35

Why nothing?


Jake Harris  05:36

Because at least I don't owe these hundreds of 1000s of dollars, can I just start over and can be worth nothing? And so that's where, and really the revelation was, I had defaulted to a goal. I wanted to be a millionaire before 30. And I achieved it, I became successful, I became, you know, a millionaire before 30. I was 28 years old. I was sitting there like yay, but I had no systems in place. And so from those pivots, and even though that was in the rock bottom, and I was bouncing along there, and you know, subsequently another book came about Tim Ferriss' The 4-Hour Workweek, I happened to be reading that actually started going, I walked to the bookstore and read that book, because I wouldn't buy it, I put it away back on the bookshelf, I walk back the next day and come to it. And so what it was, is like, I am going to do real estate for the rest of my life. So what did I do, right? What did I do wrong? And now how do I double down or triple down on the strengths that I already have. And so the reality was, is like, I don't have to know everything, I don't have to do it everything myself, putting together a system and also a team that can fill in those gaps. And so instead of me trying to be the best individual, well-rounded, average investor in every single aspect, I can do the things that I do really well and then build out the team for those other areas. And so that's when you say the pivot, and I go, well, the pivot was the realization. And my dad gave me this advice. He said, You're too smart for your own good. You didn't put in the work, you didn't do the homework, you didn't put in the systems in place. And so for me is there's actually a quote on the back of the book from Baron Rothschild, you know, it says, The best time to buy is when there's blood in the streets, even if the blood is your own. And so that was the thing was the pivot is the blood is in the street, it's time to pivot, it's time to build upon this. And so it was through my trial and error of starting to build systems, starting to build and, you know, I'm not saying that magically, I knew right away, it was a process. And this has been many, many years of process of building systems into place to allow to then create and make mistakes, and then leverage and grow and expand. And so that's been the one of those kind of pivots, was that failure. And I invest a lot in San Antonio. I don't know if you're familiar, remember the Alamo? Yeah, I was out in front of the Alamo. My business partner at the time, he was like, Dude, you know, they all died, right? Like, why do you keep going in front of the Alamo? And I was like, Yeah, but you have to understand, the symbolism of it is everyone died and I translate this back to my life of like, I had this ultimate failure where I got wiped out, I was worth a millionaire, you know, kind of thing to wishing I was worth $0. Metaphorically, I died. But ultimately, you won the war. The Texans came and won the war, they use that failure as the rallying point. Remember that failure? Now let's go win the war. And so to me was exactly that, let's play the long game. Let's start doing these things. Instead of the short-term success of this and six months or a year. That's one deal. Now let's look about this for the long term. 


Sam Wilson  08:58

When you say systems, I mean it's a great buzzword, but it practically it can be very nitty-gritty, process-mapping, whatever that looks like building systems. How have you done that, you know, going from a broke on tractors to doing nationwide flipping, that's a big transition.


Jake Harris  09:16

Yeah. So I mean, part of that you also have to understand is there's a lot of books, a lot of journey. I went back to school, I went and got a master's degree in international real estate and finance really was learning the language of portfolio management, how and sitting down with institutional investors? How do you manage a portfolio? How do you balance these things out? And so you know, I was flipping houses, we were doing stuff, we were buying houses and then we sold them off to invitation homes and bulks, you know, sales and I was really good at being the contractor. I was micro correct. So I could save you, you know, 10 cents a linear foot on baseboard, you know, 25 cents a square foot on paint, you know, I was good and I was able to squeeze those kind of margins when they came into the market. We're buying hundreds or 1000s of houses at a time. And the reason I say this kind of relates to commercial because they're really now taking and moving it up into a portfolio type mentality. And so they were macro correct. And they made $8 million. And they're really paying over market value, today's market value. So if a house was worth $300,000, or an asset, or one unit was worth $300,000, during that time period, and they came in and paid $350,000, you and me if we're existing in the market, and we're playing on today's pricing, we're like, That's stupid, like, what are they doing? They're overpaying. Like, I looked at that, and I pulled that back, and then figured out some of the things that they were doing, they were playing off the previous peak price. And they said, hey, we'll be willing to pay up to 75% of previous peak price. So we think the previous pre-price was $500,000. So we'll pay up to that price, because we think it's going to shoulder off that price and go above that $500,000 in, you know, the longer game. So they're playing a 10-year horizon, you and I were playing a game of six months or a year, and I go, so they're playing a different game and to where you go try to out beat them by playing a different game. It's a losing strategy. So what I did was like, started to take and break down like, what were they doing? What didn't? And how did they systematize this? How did they create, you hear the word the buy box? Like how did they create criteria for what they're buying? How did they create and due diligence, and so they systematize all of these things. And so for instance, like I was telling you, before we started recording, I did due diligence, I do a due diligence net lease course. And so due diligence, I have a 72-point checklist that you go down, that you look at and go through on every single property. And so I go, why a checklist? Well, the same reason that a pilot uses a checklist, the same reason that a surgeon uses a checklist is because it's super easy to miss some of those little things. The downfall of a surgery or flying a plane is you go kill 300 people crashing into a mountain or somebody dies in surgery, because you didn't check one super little basic thing. I go, I'm not saying that you're going to die, or people were going to die because you bought a bad commercial deal. You may feel like it, you may be very miserable. And you may be dealing with this for 1, 20 years, the ramifications of buying the bad deal. And so if you can systematize this and go through and check off. And again, it's not for you to know every single one and portions of those steps. But then at least you have a guide to say, did we get the phase one done? Cool. It's got to clear phase one, so we can cross off the need for phase two. And that's one of the other things that I think that people coming into commercial real estate don't understand. There's no guardrails, there's no disclosures and mountains of disclosures that you buy in residential. It's buyer beware. And actually, like people are trying to stick you sometimes because they know that tenants not going to renew, there's some new factory, there's neighboring property has been contaminating the groundwater. And so if you go and you get a seller financing or good, there's properties that you could give me for $0 that I would not take because it would probably cost you millions of dollars of environmental cleanups, and you would never be able to sell it. And if you don't just go off a simple checklist and be like, hey, it's a cheap deal. Look, it's nothing, it's 10 acres for free. You're like, well, 10 acres for free. And that's why you go through things like a due diligence checklist. And we do the same thing when we go through an underwriting process for did we confirm this? Did we check on that and that's part of that also that due diligence is do we have a market understanding. Is, has something changed about this? Was everything dependent on a freeway off-ramp being added into this area that just never got happened and didn't put in the budget. And so now you're sitting for next 20 years, waiting on, nothing, bureaucracy.


Sam Wilson  14:10

Lot of things to think about there. I love the way you've put this into a checklist format. I mean even on just the most basic stuff, due diligence, if you don't have that line by line, you will make a mistake. Talk to us about why you differentiate between building goals or setting goals and building systems.


Jake Harris  14:28

Goals are great for setting a direction of where you want to go. In my case it was I wanted to be a millionaire. But then what happens is I didn't reset that goal and this is, this you see, this happenw all the time. With like people losing weight, I want to lose 20 pounds they lose 20 pounds and then they put back on 25 right. Oh man, I want to lose 25 pounds. Then they put on 30 And so I go goals are good for giving you that initial direction but atomic habit, James Clear wrote a fantastic book of clarifying this and really solidified this for me. So those systems is your default. the level of your systems, that motivation of why you have a goal and you can go, you know, white knuckle it and get to it and lose those 20 pounds. But what happens is you're going to default back to your systems, you're going to default back to, and so the real, you know, thing in the quote, you know, is like goals are great for one-time success, systems are for those that want repeatable and predictable success. Because now you need to design a system, that the results of it are going to lead to what you want to do. And so you basically reverse engineer, so if you want to lose 20 pounds, your system should be working out every day, right? Only consuming, you know, 2000 calories, and you do that every single day. And now this is now your default system. And it will take some time, and then it'll flatten out and you'll be you'll lose 20 pounds. But like I think you could just white knuckle literally just stop eating drink water, spend a month and hit your 20-pound goal. That's not sustainable. Right. And that's how most people set their goals. That's how most people operate. And that's I mean, obviously doing goals is way better than nothing. And just willy-nilly run around Alice in Wonderland, which way do you want to go? I don't know, then it doesn't really matter which way you go if you have no objective or trajectory where you're trying to aim to. So get the goals for aiming the direction. The systems are what are very important, because you're going to default to those over the long term.


Sam Wilson  16:30

I love that that goes hand in hand with a book I'm reading now. I think it's called the what is it, The 4 Disciplines of Execution. Not sure if you've read it, but he talks a lot about leading and lagging indicators. And that's kind of that system is your leading indicator. It's like if you talk about that, talk about weight loss, he said, you know, getting on the scale is the lagging indicator, right? It's a lagging indicator of the exercise and eating correctly, which is your leading indicator. Eat correctly, exercise, the scale, the results will follow. Same thing for you. You're saying hey, set your goals set the direction, okay, we want to lose weight, but then your leading indicators are build a system behind it such that the goals get fulfilled.


Jake Harris  17:07

And I think one of the other big disillusionment of people in general is they think that they don't want to suffer. And so I think obstacle is the way or suffering is always going to happen. Whether you suffer from discipline, the discipline of working out or every day and eating appropriately, or you suffer from the consequences of being overweight and falling apart and having poor health. You're going to suffer from having to go through the due diligence checklist and there's more pain in the ass problematic to go through and you're like, I just want to go do deals. I don't know so many people that are like I'm blasting out LOI is I'm ready to jump in. And then they close on deals hoping that it works out on the end and I go the repercussions is so you didn't do your homework upfront. And gee, I sure hope you thread that needle and you hit that you know, everything perfectly all your projections, all your expenses, everything else and it just works out for you. The downside, the risk profile is it goes wrong and everything you've built up to in your life is wiped out. Mailbox money is great, but not at the risk of losing your own mailbox. Having you and your kids out on the street.


Sam Wilson  18:28

Right. Don't lose your mailbox. There's your title of the show. Don't lose your mailbox. I've never heard that. It's a good point. A very valid point. I love that. Tell me right now you guys look we'll talk one last point here on pivot. You know you guys have gone from nationwide flipping to doing a lot more commercial real estate in the last seven years. What's a fun project you're working on right now?


Jake Harris  18:48

A few fun projects. One that we're finishing up a CLT project cross-laminated timber, a multifamily mixed-use development in East Austin. You know, it's kind of thinking of like giant pieces of plywood but with dimensional lumber, is manufactured in Austria that we shipped over and it's big, you know, things get craned up, getting ready to break ground. And really just what I'm most excited about right now is boutique hotel on the riverwalk in San Antonio. So ground-up project I'm leaning a lot more into hospitality because, you know, in today's world, I mean, cap rates are compressed even more, you know, multifamily industrial darlings, I like going where other people are not. Because really, you know, I just have a hard time taking lower profit margins and higher risk. And so I would rather you know, be able to buy something under its intrinsic value. That's why I think distressed, you know, was where I initially made my bones is because people were scared of it. And you can actually have more margin of safety in things that people don't want because you can structure the deal more appropriate to you and also have better upside and really, everything is about protecting your downside, don't lose money. You know. And then you know, rule number one from Warren Buffett is don't lose money. Rule number two is see rule number one. And so I go so again, the game is don't lose money, not know try to hit home runs, don't lose money. And if you retool that, then it's not go by three cap multifamily. In my opinion, I don't have the systems in place that can, you know, make money on that. If you have a point 2% interest rate line of credit from Deutsche Bank for half a billion dollars, which I know some of these institutional investors do. And if you're born at point 2%, hell yeah, you can go make money at 3%. I can't borrow money at that. So I was like, I would lose or be, you know, gambling, that the caps continued to compress. So and that's why it's like playing your own game, sticking in your lane doing the things that you know how to do. And then what's really exciting about that, and I think hospitality right now is a lane in which I see opportunity over the next coming years, because you can buy them at 8, 10, 12 cap on existing, you know, cash flow, and I think there's some demographic, and societal things that are changing that are going to make them more valuable coming into the next 5,10 years.


Sam Wilson  21:22

Love it. Jake, thank you for your time today. It's been a blast learning about you and your business. And just your story. Thanks for sharing that with us. If our listeners want to get in touch with you, what is the best way to do that?


Jake Harris  21:32

I would say through the website, You can sign up for our mailing list. We push out, you know, we have a YouTube channel. We have actually our own podcast that actually I think releases next month, A Contrarian Investing Approach. Personally, you can find me on Instagram, it's where I'm most active. And that's at And, you know, again, through that, you can sign up we have you know, all of our things that are pushing out through there so that we can help, you know, share those messages to people.


Sam Wilson  22:06

Awesome. Jake, thank you for your time. I do appreciate it.


Jake Harris  22:08

Sam, appreciate you.


Sam Wilson  22:10

Hey, thanks for listening to the How to Scale Commercial Real Estate Podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen, if you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories so appreciate you listening. Thanks so much and hope to catch you on the next episode.