Real Estate: The Secret to Wealth for Gym Owners?


Mike (00:02):

Rent is often a gym owner’s greatest expense. So what if you paid that rent to yourself? Chris Cooper and Jeff Smith are here to talk about buying a building right after this.

Chris (00:11):

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Mike (00:48):

This is another edition of Two-Brain Radio. I’m Mike Warkentin, your host here with Two-Brain founder, Chris Cooper. So Chris, welcome to the show. I know you own several buildings, including the one that houses your gym, Catalyst. So why did you as a gym owner make the decision to get into real estate?

Chris (01:02):

Well, years ago I was trying to figure out like how I was ever going to retire from the fitness industry. And really there was nobody who had done it and I couldn’t find a single model anywhere. And I started listening to Robert Kiyosaki’s book, “Rich dad, poor dad.” That was it. And the core message of that book is like, you want to be an owner of a building and hold it and then rent it out and that’s going to generate you cashflow for life. And I thought, OK, well, that’s great. And I was trying to apply that lesson to like a service business. You know, how can I build a business that’s going to run forever and pay me, but that also put the idea in my head of owning a building and I didn’t know anything about it. I didn’t have any money, but I started looking and it actually took me about two years to find an amazing building for Catalyst.

Chris (01:50):

It was a former auto shop. And in that time I did a lot of learning about buying a commercial building. And what I learned was that in Canada, you need about 20% of the cost of the building saved. 30% is better, but you could even borrow some of that 30% capital from a secondary lender, if you need to. So really it comes down to like, if you want to buy a building worth about 500,000, you could do that with about 50,000 of your own money and then leverage the rest. So, I bought the building for Catalyst. What I didn’t understand though, was that there’s an even better way to go about it than just buying the building that’s going to house your gym. Buying the building that houses your is an amazing move. Like, you know, definitely do it, but buying a building that will house several different businesses is even better. And we can talk about the difference too, if you want. Yeah.

Mike (02:43):

I’m going to pull back just one sec. We’ll go back to the beginning of this, because I think like you’re saying, you know, gym owners, there was no model for this because I don’t think a lot of gym owners retired. I think a lot of gym owners just left the industry. And I think that’s kind of why you set up Two-Brain because you couldn’t actually retire. So the idea of generating these additional assets is such a great idea, but I’m curious, like how did you, so I know your story that you’ve written about is like struggling to pay the rent, grocery bills piling up. That whole thing, couldn’t pay yourself a salary. So how did you manage to scrape together the money to do this? Like, I think you wrote about this and talked a little bit about some of the, you know, going to the bank and asking like, how can I afford this kind of thing? Like, how did you do it?

Chris (03:18):

Yeah. So the first thing was when I first read the book, “Rich Dad, Poor Dad,” I thought there’s no way I can ever buy a building. But at the end of the book, he starts talking about leveraging debt and how debt isn’t actually a bad thing. And that kind of debt scares me. Like I think Smith will give you a different perspective later on in the show, but I don’t like debt, debt makes me really, really nervous. So I thought, OK, well, the interesting part here is that with 10% of the cost of the building, I can actually buy a building. And my plan will be just to apply like what I would normally be paying in, lease payments right now to the principal. So it turned out that buying a building when I actually did the math was way cheaper than what I was paying in rent.

Chris (04:04):

I was paying 34 to 3,600 a month in rent. And with 10% down, I figured out I could be paying about 2,700 a month to own my own building. And I thought, well, that’s amazing. And what I’ll do is I’ll just take the other five or 700 bucks that I’m currently paying to my rent and just like apply that to the capital every month. And within about 10 years, I’ll own this thing. And my plan then was just at the 10 year point, I will continue to pay myself that $3,500 a month. And then all I got to do is make sure that my gym survives and can pay me rent, or I can put another tenant in there and I’ll make $3,500 a month for the rest of my life. And there’s my retirement.

Mike (04:46):

  1. So it comes down to, you have to have a down payment and then you have to have a cash flow to make sure that you cover the mortgage payments. Correct?

Chris (04:54):

Yeah but you’ve probably got the cashflow anyway, you’re just paying it to another landlord. It’s effectively what you’re doing is just becoming your own landlord.

Mike (05:02):

So this seems like on the surface, this seems like a no brainer, right? You’re paying rent to yourself, but you know, there are some things that can go wrong, cause it’s not all roses if the roof leaks or you lose tenants or you know, there’s lockdown issues. And one example i my wife talked to a business owner out here. She runs a service business, rented upstairs to a yoga studio and yoga studio closed down in the pandemic. And the service business downstairs is like, now we’re locked down. What do we do? And the mortgage payments are still due. So talk to me about some of the things gym owners have to like balance the risks they have to balance against the reward of paying yourself rent.

Chris (05:34):

Yeah. So the model that most of us follow with our first building is like, we’re buying a building that we’re going to occupy ourselves. And the pro there is, you’re paying the rent to yourself and in 10 years it’s really profit, you know, and that could be your retirement fund. It’s very hard to build any kind of retirement fund in 10 years or less without using real estate. Like you can buy savings plans and IRAs and all kinds of savings accounts or whatever, but like, they’re not going to have you retirement ready in 10 years. Where a building will. You know, worst case I had my building paid off at about four. The problem is that while you’re your own landlord, you also own a building with only one tenant. And so, you know, if you can’t pay the rent that month, you know, you’re like losing the building on top of being in trouble for your business, right.

Chris (06:28):

You kind of double up the risk and the reward. The other thing is like, if you’re the only tenant of your own building and the building suddenly needs repairs, well, that money has to come out of your business because there’s nobody else to fund it. So you have to be really careful. When I bought my first building, I got it for 270 because I knew that it needed a new roof and the building was really worth about twice that, but the owner was old. He didn’t want to put the work into a new roof and a new roof would make him put out like 110 in cash. So I said, OK, well, I’ll buy the building now, knowing that within the next five years, I’m going to have to put a new roof on this thing and just see how long I can skate like that. But the reality is like, if the business had had a downturn, it would have affected my ability to pay the mortgage. And I would have had no buffer there.

Mike (07:19):

So how can you buffer it? Because there’s a way, right? You’ve talked about this and you’ve wrote written about this. So how do you buffer that risk?

Chris (07:24):

You buy a multi-unit building or you could get subtenants. I mean, one of the things that my last landlord let slip one time, he was just kind of bragging because his building was full. And he said, you know, the rule in real estate is that the first tenant pays the mortgage. So, you know, I was paying him about 3,600 a month. And when you do the calculation, his building was worth, I don’t know, a million bucks, but his mortgage payment monthly was $3,500 a month. So, he had me in the building, basically paying for the building, and then he had three other tenants that were just generating cash for him. And so, what I learned from that was that you mitigate the risk by having multiple tenants. And so my second commercial building, the office building that houses the Two-Brain workshop and our HQ, has a lot of different tenants in it.

Chris (08:13):

And one of those tenants covers the cost of the mortgage for the building, the other nine tenants are cashflow for me. So, yeah, no, I mean, what that does is it creates a long-term retirement fund, right? So like if I stopped working and shut down all five businesses and just existed on the income, like the net income, the profit from the building, I could still make between 75 and $80,000 a year. And that’s what a cashflow asset is, right? It’s the goal of buying a building is not so that you can flip it like they do on TV and make like a 20% profit, the goal of owning a building is to create a cashflow machine that’s just going to pay you forever. And now, like, you know, this building will pay me the rest of my life unless it falls down and I can bequeath it to my kids. And now they’ve got an automatic $70,000 a year job, you know, waiting for them.

Mike (09:12):

It becomes like tinker level legacy stuff. And that’s what you’ve written about is like this isn’t just creating a stable business, it’s creating a legacy and providing for like your family downstream, it’s outside the skill set a little bit of gym owners to start thinking about like managing tenants and renting. Like, what was the learning curve like for you when you had to start thinking about the second building and filling it with tenants?

Chris (09:32):

The second building kind of fell into my lap. So it’s adjacent to my gym. There was even kind of a secret door between the two that had been dry walled over and blasted through like two layers of concrete block. It’s really funny and it was a daycare. And what had happened was the owner had won the lottery, spent the lottery winnings on a building and then said, I got a building, I’m going to open a business. And they were really bad at business. And so they lost all of it. The business and the building and they wound up selling the building for less than what it was worth. So I did a quick calculation and said, OK, you know, I have the cash to put a down payment on this building. If I have one tenant paying X per month, that covers the mortgage.

Chris (10:16):

And anything above that is, it’s just like income for me. And so, you know, I made them an offer and we bought this building. It’s a lot bigger than my gym. It’s about, well, not a lot bigger. It’s 8,000 square feet. My gym’s about 6,000. But it’s mostly office space. And the next thing that I did was contact some of the staff that were working at the daycare and say, do you want to rent space from me, thinking that I would rent space to daycare staff. But the one who took me up on it was Mary, who was the chef at the daycare. And she said, I’ve always wanted to own a cafe. I said, fantastic. You know, there’s an amazing commercial kitchen in this building. It’s all yours. Here’s the rate. She signed up. She was my first tenant. So, yeah, I mean that’s really like the strategy for this second building is it’s just a cashflow asset. And you know, my costs are maintenance. You know, I got a couple of little lawns. I’ve got a beautiful garden. Those things have to be maintained, snowplowing, things like that.

Mike (11:17):

So you, I know you don’t mentor gym owners personally much anymore because you’ve got a staff and a team that does that. But if you were, what kind of gym owner would you advise should buy a building and which gym owners should just not consider this?

Chris (11:29):

Well, if you’re in tinker phase, I mean, that’s when you should start thinking about this. So like the gym is running by itself, it’s creating a predictable profit every month that’s pretty resistant to trauma. Like COVID shutdowns. And you know, you haven’t missed like a rental payment. But even if you’re in farmer phase and you’re not like completely out of the gym or you love coaching or whatever, you have to start thinking, how am I ever going to retire from this? And if you’re going to retire, then you need a cashflow asset of some sort. Now that that could be investments. Totally. I like real estate because it’s, and I especially like commercial real estate because you’ll own it forever. You know, it doesn’t go away. It doesn’t hinge on the market. You know, even when times are bad, people are not closing their business offices. Right. And you’ve got some guarantees with leases and stuff. So, you know, if you’re making enough money to get by, and you’re 30 years old, maybe, you know, you’ve got some staff, you’ve got your turnover kind of resolved at the gym and you’ve got like a viable business. The next step is thinking like, how do I retire? And buying a building means 10 years from now, you could be retired with a cashflow asset paying you.

Mike (12:48):

Jeff Smith, who’s going to be on the show in just a few minutes, is the leader of our tinker program. And he’s got a ton of interesting views on this that are slightly different than yours. So he’s going to get into that and the tinker program a little bit. You’ve talked about your strategy for business buying to a degree, talking about like getting some places where you can have a number of different tenants to manage risk and you like commercial. Is there any other elements of your strategy for buying buildings that we haven’t covered?

Chris (13:12):

Yeah. I mean, if you’re in an area, for example, where, you know, you’ve got very high tenancy rate and very low vacancy rate for commercial buildings, then you’ve got an amazing opportunity. What’s happening right now is that unfortunately, some businesses that aren’t prepared are going out of business, the gyms that are in Two-Brain are prepared, they survived. They’re actually growing right now. Many are experiencing a surge. And they’re wondering like, what do I do with the money? The first thing you want to do is you want to make friends with commercial realtors, because if all you’re doing is going on like commercial realty websites in your area and hitting refresh every day, you’re probably missing the best opportunities. Most commercial buildings are sold without ever getting listed on a commercial website. It’s just, yeah, it’s that quick. So what you want to do is you want to find a commercial realtor or two or three, take them for lunch, say, look, I”m interested, put me on your list and they’ll call you, you know, and that’s the last few buildings that we’ve been interested in, that’s how we found them. They were never advertised anywhere.

Mike (14:15):

  1. So that’s interesting, at that lunch you’re also going to get them to come to a no sweat intro at your gym because they’re, you know, they could use some health and fitness. Right.

Chris (14:22):

Yeah and I mean, the beautiful bonus here is that when I bring a new tenant into one of my buildings, you know, I tell them, I say a couple of things to them. Like, I want to make sure your business is healthy and I want to make sure its leader is healthy. Let’s go to lunch. And then we talk about, you know, how to keep them and their business healthy too. So a lot of my tenants are also my clients, both at the gym and with Two-Brain. But the other thing that really differentiates Jeff and I is Jeff loves buying residential. He loves working with economies of scale. So when you buy a big number of properties, even though the margin per property is a lot smaller, when you have a lot of them, you can hire like a real estate manager or like a property manager to take care of the maintenance.

Chris (15:07):

Right. I have a smaller number of properties with a bigger profit margin on each one, but I don’t have enough properties to warrant hiring like a property management service to cut the grass. So what I do is I have like a deal with one or two of the tenants in each building to, you know, take care of that kind of stuff, plow the driveway, or we’ll just go out and hire like a independent contractor to do it. So while Jeff has smaller margins, he has way more properties than I do. And if you count tenants, you know, he has a lot more, the other thing is I really, really cringe at the thought of getting that call in the middle of the night that somebody’s plumbing is leaking. You know, I’m not going to do that.

Mike (15:54):

I’ve been there and worse than that was a 40-year-old guy standing at my doorway, crying that he couldn’t pay the rent. And what do you do at that point? And I’ve talked to people in the residential game and they’re like, they have to pay the rent or they go, but man, I was too kindhearted for that one. And, I think commercial might work a little better for me than I’d rather have to deal with a corporation than a person. You know what I mean? Because that is a tough game. And I had the same thing where I had my fears of, oh yeah, OK. This is leaking, this is broken. This is whatever. There are some, you know, there’s good and bad on each side because it comes to what you’re comfortable with. Let me ask you this, does this strategy that you’ve got, would it change if you weren’t in Sioux Sault Marie, if you were in say something like, you know, Manhattan or Denver or Santa Cruz where the real estate prices are quite different?

Chris (16:36):

Yeah. I mean a commercial building in one of those locations might just be out of reach. So what you would probably do there is you would form a partnership with other people and first work, you know, like maybe all the tenants in your mini mall or whatever. You form a partnership with those, you set up a, like a holding company, basically in which you all have shares and you form a collective that buys the building. And then you’re just kind of paying the collective rent. And after a while, when the mortgage is paid off, the collective is paying you back. For me, you know, where I can buy a decent sized commercial building for like 500,000 to a million, my wife and I have like a holding company that owns all the buildings basically. And then, the holding company pays us out of that.

Chris (17:25):

So that way we’re not getting like double taxation. And, you know, we can use a lot of the expenses to take care of the building from that instead of taking it out of our personal income, which we’ve already paid taxes on. So the holding company is a big one, especially in the states too. Like where slip and fall legal suits are way more common, you want to have a corporation that owns your building, instead of you personally owning it. And luckily the tax savings from having that corporation own it will more than pay for the cost of, you know, incorporating it or the legal fees or the filing a tax on it every year.

Mike (18:03):

So listeners, if you’re out there and you’re a starting out gym owner, and this is above your head, know that the first step is to work with a mentor to get your foundation in place, to get a stable business that then allows you to start looking at upper level stuff like this. And when you’re ready for that, the tinker program with Two-Brain will teach you all this stuff. So if it sounds like this is a lot right now, that’s OK, you get the foundation in place, then you start looking up when you have the free time to start doing it and we can teach you how to do it.

Chris (18:27):

If nothing else, no matter what stage of business you’re in, it’s worth figuring out, you know, what’s available around you and what it would actually take to buy it. You know, we went through this exercise a few years ago. I can remember with some clients out in San Francisco area. And when we talked about buying a building because their lease was up and they’re like, what are our options? And we walked through this exercise of buying a building. They went and saw a couple and they said, wow, it’s the bay area. Everything’s way out of reach. And, you know, the gym was doing average. It was paying them. They didn’t have a lot of money left over though. And after going through the process, they realized, holy crap, we’re actually pretty close to being able to do this. And so, just that knowledge helped them save up and get ready to buy a building two or three years later.

Chris (19:14):

You know, the first thing you’re going to find is like, you do not need a million dollars in cash to buy a million dollar building. The second thing is you’re going to set up relationships with bankers and maybe third-party lenders, so that you’re ready to go when the right building comes up and that’s really critical. And the third thing is you’re going to have a plan. And instead of just, you know, when things get tough and you’re like, I do not see a light at the end of the tunnel. I don’t see how I can make this a 30 year career. I’m never going to be able to retire from fitness, which is the way that I felt, you’ll actually have a plan. And if you own the building that you’re working in, that is an amazing, bright light at the end of the tunnel, you know, like, oh crap, things were really bad this month and I didn’t pay myself, but at least I paid my mortgage, you know, and I’m like 1% closer to this building, just paying me as a landlord.

Mike (20:01):

So if I would give people listing steps to take, correct me on this one, I’d say the first one, based on what you said is going to be, get your foundation in place and just make sure that your existing business is running really well. Step two is to start getting a lay of your local land and just seeing like what’s available, what’s out there. What opportunities are around, what are the prices like? And then step three, I’d say is probably start getting cozy with a couple of commercial real estate agents. Would you say that’s correct? Or would you change it up or add something on?

Chris (20:27):

Yeah, the last thing that I almost forgot was if you look at like, what kind of net income you want to make at retirement, you have to do the math and really real estate is the cheapest option. So if I want to make $70,000 a year when I’m retired, I can own a building that, you know, generates whatever that is, 6,000 a month in rent, you know, and that building is going to cost me four or 500,000, or I can save like 2 million in a retirement fund. That’s generating 70,000 a year in interest, right? Like it’s way cheaper to buy a building than it is to put your money into the market or into like even a registered savings plan. And you’re going to get a payoff forever. You’re not going to deplete the principal when you do that. So the reason that we, Jeff and I are both big fans of owning real estate as like part of the whole financial package, is that you do—it is a very low risk, consistent cashflow measure. It’s not for everybody, not everybody wants to cut the lawn, you know, not everybody’s going to be able to buy a building where they’re located, but as part of the overall package, it’s a great foundation.

Mike (21:41):

And realistically, even if you get into trouble with it, you can generally sell that building and walk away, you know, with a wash maybe, or maybe a small loss, but traditionally real estate doesn’t lose a ton of value.

Chris (21:52):

No. It’s way more stable than like Bitcoin, for example, right? Like, the value of buildings do not go down. We’ve been closed for business in Canada for about 14 months straight as we’re recording this. And I’m looking at the buildings around me and the building across the road was for sale for 340, about five years ago. I wish I’d bought it because it just sold for 700.

Mike (22:16):

That’s like four years doubled almost.

Chris (22:18):

Yeah, and I’ll tell you what, like, we can talk about the national economy, but like our national economy is going to go through a downturn when even when things reopen, like we got to get business going again. But even when the economy is going through a downturn, there are people like me out there who are looking for opportunities to buy buildings because we have the cash. And so the value of the buildings are still going up even when they’re not being used for business. So it’s one of the safest investments that you can make. And, you know, there’s a reason that banks want you to borrow money to buy buildings because they know that their butts are covered.

Mike (22:53):

The lesson here, the overall lesson for me is, and I wish I had known this 10 years ago. You know, when we first met, I didn’t work with you as a mentor is just have a long-term vision and ask yourself, like, not just what do I want to do day-to-day but what do I want to do with my entire life? And the answer is probably not coach the 5:00 AM class until you’re 72 and retire, right. Have that long-term vision and start thinking about it. I’m going to bring in Jeff Smith right here, and Jeff is going to give us his perspective on this same topic, but he’s gonna look at it from a slightly different angle. Chris, thanks very much for sharing us your story. And please be sure to tell Mary at the cafe that I can’t wait to come back and see her for some food.

Chris (23:28):

She’s been saving you a tray of cinnamon buns for a year now.

Mike (23:31):

She is my favorite tenant that you have. Thanks, Chris.

Chris (23:33):

Thanks man.

Chris (23:35):

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Mike (24:01):

  1. You’ve heard from Chris Cooper. Now we’re going to bring in Jeff Smith. Jeff is a gym owner, the leader of our tinker program, and he’s a real estate investor. Jeff, welcome to the show.

Jeff (24:10):

How are you doing Mike?

Mike (24:12):

I’m pumped to have you here and I’m going to get you to give some of the interesting context to what Chris just talked about. So you’re the owner of Cannon Fitness and Performance, but you’re also a real estate investor. So give me the Coles notes version and how you got into real estate and what you’re doing with it right now.

Jeff (24:26):

Well, I’ve been doing real estate for a very long time, actually longer than I did the gym. I bought my first apartment complex in Illinois when I was 26 years old. Prior to that, we owned our house at 24 and then we rented that out and moved again. But, long story short, we owned a few rentals in Illinois and that apartment that we owned and we moved to Houston, Texas, and held onto that stuff for about five years. And then I sold it off in 2013. We opened the gym in 2011. I sold off all the real estate in Illinois because we said we weren’t going back, managing it from afar wasn’t working out the way I kind of wanted it to, and I just wanted to cash out and be done. So that said, I took about 2013 to 2018, late 2018, off of real estate investing completely. And then we jumped back in kind of full bore, December of 2018.

Mike (25:28):

What made you do that?

Jeff (25:32):

Well we really had, the gym was kind of established. And I had exited the corporate world. The gym was doing all of everything it needed to do on its own. And I was really looking for some vehicles to build wealth and I knew real estate. And so we kinda, I love all the facets of why real estate is a solid investment. And I understood it much more so than, I mean, I understand the stock market, but I don’t like the volatility of it. And for me, just something on the conservative side of me, which people would laugh when I say that, because I’m not very conservative, I’m highly a risk taker, but I’m on the conservative side of me, I don’t like the volatility of the stock market. And for me, like having something that’s a tangible asset that you can touch and feel, feels a lot more solid to me.

Mike (26:37):

Chris and I talked about that a little bit where real estate seldom loses value, like it’s possible, of course, but it’s not common. And then the other thing is that if you ever have an issue, you can always sell that thing and you can get a good chunk if not all, or more than your money back. Right. So there is some risk management that’s built into real estate.

Jeff (26:55):

Absolutely. And if you watch the cycles for the last century, yes. It climbs like the stock market does.

Mike (27:02):

Yeah. Cause we were talking, I mentioned like Bitcoin and all the different things that are going on with the crypto and so forth. It’s like the volatility there is insane. Right. Whereas real estate doesn’t really have that. And again, like it, you know, the bank is happy to give you a mortgage in a lot of cases, because if you don’t pay it, they just take the property and they know what it’s worth.

Jeff (27:19):

Yes. Yeah. And that provides a lot of leverage as well when you’re going to look for private money and things like that, people like having an asset attached to what they’re investing in.

Mike (27:32):

It’s not like a car either, right. Where you drive off the lot and it’s worth, you know, $20,000 less. Right.

Jeff (27:37):

Of course, of course. The other benefit of investing in real estate is it kind of moves a little bit slower. I mean the real estate market and the cyclical nature of it, it seems like it moves fast and people are like, whoa, the crash is here. But if you’re involved in it, like you, you see that stuff coming for a long time. So I liken it to like a train rolling down the tracks. Like the only way you’d get your feet swept out from under you is truly if you just weren’t paying attention because there’s signs six to 12 months out of when you’re going to have problems, if not even further out.

Mike (28:16):

  1. So you got to watch the canaries in the coal mine, and then if something goes down you got to make some moves, but if you’re looking ahead, you can really manage that risk.

Jeff (28:25):

Yeah. Yeah. And what we’re here to talk about is residential real estate versus commercial real estate. And one of the benefits that I like about residential real estate, it is pseudo liquid in the fact that within certainly in this market, within 30 days to 45 days, I could liquidate any of my properties and pull cash out of them at any point in time. So if we were hard-pressed for cash or something happened at any point in time, I could carve out a portion of our portfolio and sell it off very quickly.

Mike (29:08):

Let’s look back to the gym market. So your gym, you told me before the show, your gym leases its space. So you don’t own that space. Why might some gym owners choose to rent space for their gyms and pay a commercial lease, but then use the profit or other finance to get into real estate, either through a different corporation or personally?

Jeff (29:28):

It just really depends on your location. I’m in a giant metro area. And our gym is located in a very urban area in Houston. That is up and coming. I mean, not up and coming it’s been, came up. And so we just happened to be in a small pocket where there’s still like some warehouse space, but there’s nothing else in the city in that proximity to the, similar kind of real estate. So what it’s done is the commercial real estate is based on the square footage of the dirt. This is a longer story, but the reason that I haven’t bought the property is because the parcel itself is not large enough to garner the amount of money that it’s going to eventually get bought out for, because what’s going to happen is they’re going to come in.

Jeff (30:21):

Eventually development’s going to happen in the next 10 years. And they’re going to mow down that whole block and build high rise apartments with underground parking and everything else. So like, that’s what everybody’s banking on. But for me, early on, when I was looking at making the investment in buying it, I mean, it was a million dollar property at the time. It’s probably one seven right now. Which, I mean, isn’t that huge of a stretch. If we were going to put our business in there, it would make sense except for, I go back to the parcel size, commercial real estate is quoted based on the square footage of the dirt, because that gives you the ability to build anything you want on that property. So the actual asset that’s standing on the land is not necessarily where the value is, so it could be a warehouse, it could be a house, it could be an apartment complex, whatever it is, it’s sold based on the square footage of the dirt, because that’s its future state of what it could be.

Jeff (31:23):

Does that make sense? OK. And my lot is not very big. So what I see happening on my street is if the developer comes in and he’s like, I’ve got everyone else bought out besides Jeff, and he’s got this parcel, that’s half the size of everyone else’s, we’re just going to snuff him out through city regulations or whatever, and he’s going to take some low-ball bid. So for me, I’m going to let my landlord deal with that situation and hopefully get a great pay day in the future. I certainly hope he does. And I’m going to focus my income and my excessive income that we’re bringing in into another real estate vehicle. And we chose small multi-units and single family homes to start with, to hop back into real estate.

Mike (32:20):

  1. So in Chris’s situation, it makes it made perfect sense for him to buy the building. And I think he said, if I recall there, he got a good deal on it because he knew the guy and the guy wanted to get out and so forth. And it was just, everything kind of fell into place. And it made perfect sense for Chris. For you, it doesn’t make as much sense because of all the conditions and that’s just one set conditions. It could be anything like where you’re in, you know, downtown or you’re in Manhattan or something like that. Right. And then the cost of buying the building would be so extreme that it wouldn’t be worth it or something like there’s all these different things, but what you kind of said there that I really like is that you’re not looking at this thing in a small time window. You’re looking at it in the next six to 10 years kind of timeframe saying, here’s what’s probably going to happen in this area. Purchasing this does not make sense as a long-term asset. Right?

Jeff (33:06):

Well, it’s also speculative and I’m not into speculation. And so like, I would have put all my eggs in that basket at that period of time. And I would have had one single asset. Right. Whereas like right now, I mean, we’re fanned out, across, we own over 40 properties personally, and we’re syndicated on 27 others. So I have a lot of levers that I can pull with what we’ve accumulated and built. So we are not nearly as exposed from a speculative standpoint with all of our eggs sitting in one commercial property. OK.

Mike (33:45):

So the upshot of this for gym owners who are listening is that buying your building is not a slam dunk. You need to do the research and kind of figure out what might happen, what could happen, what are your strategies? What’s going to give you the best reward with the least amount of risk. So, Jeff, tell me, you’ve decided that for you, the biggest reward, least risk is going to be that residential over commercial. Why have you pursued that especially to the degree that you have?

Jeff (34:09):

Let me go back for a second based on something you said, sorry. I definitely recommend that my clients buy, if it makes financial sense. So in the tinker group, we’re buying buildings left and right, because if you’re going to stay in the gym game for five years or more, you should own your building, if the numbers make sense. So in my situation like paying three X value on a warehouse property and hoping for the best that a casino comes in and buys it or something like it is too risky, right? Where when I can go down the road and what we’ve done, and the model that we chose was to start in residential rentals. Houston is very hot market. Texas is a very hot market. We’ve got tons of migration coming to the area as far as people moving in.

Jeff (35:05):

And so, I mean, if you watch the patterns of migration, we are projecte, to have the highest growth of any city in the United States between now and 2025. And so what that does is obviously for you economic folks, then you just look at basic supply and demand. And then when you bundle in the cost of goods now for building materials and things like that, there’s just massive appreciation to be gained in the housing market period. So what we had done, I’m not sure if you asked me that yet, but we went ahead and came in with the strategy of similar to flipping, but we a process called burring, which is buy, remodel, rent, refinance, repeat. So it’s just an acronym of B and four Rs, but what we’ve done is we were able to come in and do quite a bit of equity capture based on my networking, my ability to get out there and do wholesale deals with people. So we were buying our properties 50, 60 cents on the dollar, and then we would come in and remodel them with teams of contractors that we built. And we would come in with instant equity into the properties that we did through what you would refer to as sweat equity, I guess. But I mean, I wasn’t out there swinging hammers or anything like that. It was just our willingness to go do the work. So instead of flipping the property and selling it, we would just flip it and hold it.

Mike (36:55):

So that’s an interesting one. That is your strategy kind of in a nutshell. And you said you’ve built this up to about 40 units and then some other ones that you’re a part of?

Jeff (37:05):

We own 41, my wife and I personally, we own 41 rentals right now, personally. And then we’ve taken our investing to the next level, which is we’re participants and actually I’m the lead investor and general partner on a 27 unit syndication that we are doing down in Corpus Christi as well. So we’ve taken 27 units and we bought them as a package deal. We’re doing the same thing. We went in, we remodeled, we stabilized everything. And then we’re going to do a cash out refinance at the end of the day. And that little project’s going to probably appraise somewhere north of 2.2 million for that. So, yeah, I mean the 41 units that we’ve built on our own have just been, we just kept stacking them and you gain momentum as you go. And you obviously have more cashflow that you roll back into it. Real estate is not a get rich quick avenue, but you will absolutely develop wealth over time if you do it and you ride it out, because what we’ve done is we’ve been pouring all of our money back into it. We haven’t taken a dime off the business. We’ve just been investing, investing, investing. And I mean, we’ve added a couple million dollars of equity and to our bottom line over the last couple of years, by just delayed gratification and not increasing our lifestyle while we roll that back in and let it grow.

Mike (38:41):

So this is not so much the get rich quick scheme as it is a retirement scheme or a legacy scheme, or, you know, it’s a long-term deal that like you could retire on this stuff and have passive income, or you could, you know, keep working, do whatever you want as you generate passive income, you know, and/or you could pass this on to kids, and family and so forth. Correct?

Jeff (39:02):

Yeah. I kind of look at it as it is the next phase of our entrepreneurial life cycle in that I’m still in my accumulation phase. And so what we’re going to do is we’re going to, the plan is to accumulate, accumulate, accumulate over the next probably 24 months and then stop and let the properties appreciate and ride that out for about five more years while we depreciate the tax basis and everything else, because that’s a whole nother conversation, but real estate makes you money in lots of ways that’s not just handing over dollars to your checking account every month. So there’s a lot of nuances to understand there and a lot of tax benefits, but if you do accelerated depreciation, you can speed it up to where you’re depreciating down the majority of your portfolio in about five to seven years, really it’s seven years, but then you start turning the properties at the same time as they kind of need additional maintenance and things like that.

Jeff (40:09):

And so you’re always restructuring and positioning your portfolio, so that that’s kind of what the game is after you’ve accumulated a fair amount of real estate, then you’re constantly restructuring. You’re selling things off you’re 1031 exchanging into the next size unit. You’re selling five houses and buying an apartment complex. You’re just leveling up the whole way. And it’s not incredibly passive to go back to your original question. So would I leave a 500 unit portfolio to my kids? Probably not. Just because I’ve been in the game long enough, I’ve seen that happen. And it generally does not live on. So what I think you need to do is you accumulate accumulate, accumulate as long as you want to be in the game and actively working as a real estate investor. And then you take your equity and roll it out into more of a passive investor role.

Mike (41:19):

  1. So that’s the long-term legacy strategy. I’m going to play devil’s advocate here, and I don’t even have to, because this is me. So I’m just a gym owner, right? This is, we’re a long ways, you’re talking about equity and strategies and all sorts of tax code stuff. And I’m thinking here, I’m pretty good at getting people to push their knees out in the squat, I’ve got the fitness game figured out, you know, we’re doing OK with this. We’ve got to, you know, all that stuff, right? So just basic gym owner, bring me back to how a gym owner, who’s built a good business, a good stable business that’s now generating profit, maybe a 33%, following the Two-Brain principles and so forth. How does that gym owner go from that level to the next step of like wealth accumulation and figuring all this stuff out that you’re talking about? What is the link? What I’m looking for here is information, how the tinker program is going to help someone who’s just a gym owner, quote, unquote, step up into that next level.

Jeff (42:10):

Yeah. Yeah. If you know anything about me, I’m a huge believer in personal development. And so there’s no better investment that you can make in this world than investing in yourself. Until you invest in yourself and gain the necessary knowledge, education, and peer group, and mentors to support you in the next level of your ascension. And that’s truly vital. If you’re out there on an island trying to do it alone, like you’re likely to have great success, but you’re also likely to be limited in what your ultimate potential could be.

Mike (42:52):

You need to figure out, you basically need to learn, and whether that’s on your own or with a group, you know, and obviously I’m going to recommend that the tinker group is the place to go for this stuff. You can figure stuff out. So, you know, just tell us a little bit about, you know, the short summary of how the tinker group operates. What do you guys do and how could a gym owner who jumps in there, let’s say, someone’s listening right now saying, ah, I’ve got a pretty good gym. I’ve got some extra income piling up. I want to figure out what to do with it. How does the tinker group going to help that person figure out what to do?

Jeff (43:18):

Tinker group is a collective of people that are continuing to seek out growth and improvement in all aspects of their lives. OK. So the group together doesn’t necessarily invest in real estate. Like that’s not the angle of what they’re doing, but we are talking about legacy. We are encouraging people to get their financial house in order, get their, all their estate plan done, everything else. And you’re just motivated by the activity that goes on in the groups. So we plan things out. What do you want in life? How can you expand? And then how do we reverse engineer that to just knock this down in the next few months? And so you don’t have to use my investment strategy, but I’m going to push you to find your own. And you do need to be taking your money from your primary business and putting it into something that is going to make you more money.

Jeff (44:22):

Cause it’s all about the velocity of money. OK. So the faster you can make that ball turn and create more and more speed, the more wealthy you’re going to be. And some people get hung up because they think that it’s just money, money, money. And it’s not about that. I mean, going back to Chris Cooper’s ethos for Two-Brain Business, it’s about impact. And you can’t look me in the eyes and tell me that you can’t have a larger impact if you’ve got more money. I mean, Mother Theresa, she gave all her money away, but she had probably some of the greatest impact in the world as an individual. Right. And that’s because of the audience that she built and the good that she did. So in the tinker group, I mean, those are questions we’re going to ask. We’re also going to get, I mean, we still have all the same problems that normal, any everyday entrepreneurs have. Like, I mean, you’re going to have to sometimes fire your staff. You’re going to have to sometimes come back in and start over. You don’t, it doesn’t mean you go back to coaching necessarily. You just deal with different levels of problems as you elevate up the entrepreneurial life cycle, because you’ve already been through the battles.

Mike (45:38):

  1. So we’ve got a gym owner out there right now who is at the level where the gym is in good shape. He or she is probably looking to do some other stuff, maybe real estate, maybe not. How do they get into the tinker program? What’s the process?

Jeff (45:52):

Contact me or Chris or Josh Price. And we’ll get you set up and you can hop in at any point in time. It’s a year long program. And the reason the program was developed, like, I think the easiest way to describe it on so people can conceptualize what’s coming into their head, is that like, my goal was to compress time and results for you. And so whatever you’ve got on your three year vision board, like this is what my life looks like with my family, with my business, with all of this stuff, in 36 months, we’re going to compress that down and you are going to do all that in the next 12 months, if not less. OK.

Mike (46:36):

I like the sound of it. Where is the best place to contact you?

Jeff (46:40):

My email address is just or obviously I’m on Facebook. You can hit me up there. Just message me I’m posting the tinker group on Tuesdays or in I’m sorry, in the growth group on Tuesdays. So feel free to link up there and message me. I’m happy to talk to anybody anytime about any of it, not just the tinker program.

Mike (47:06):

If there’s a gym owner out there who is not currently with Two-Brain, does that gym owner have to go through the ramp-up and growth programs? Or how does that work?

Jeff (47:12):

You can actually track straight into tinker now, if that’s your level that you qualify for and they come in and they have to pay a little bit extra because they bring on a staff member into the ramp up programs. And so they have a little bit of a kicker there if they come straight in or if they track straight in. But it is an option at this point. So just they can reach out to me as well.

Mike (47:43):

I like it. Jeff, thanks for sharing your strategies and for giving us some information on the tinker program. Listeners, if you’re out there and you have a stable gym that’s doing good things and is paying you and it has profit, you might want to talk to Jeff. Please do that. He can tell you all about the tinker program and how to start accumulating wealth so that you can change the world with your business. Jeff, thank you so much for being here.

Jeff (48:04):

Thank you, Mike. Appreciate it.

Mike (48:05):

I’m Mike Warkentin on Two-Brain Radio. My guests today were Chris Cooper and Jeff Smith. Be sure to subscribe to Two-Brain Radio for more episodes. And now before you go take out your phone, open the Facebook app and join the Gym Owners United group on Facebook. You can literally ask your gym business questions in there and get answers from other gym owners, certified Two-Brain mentors and Two-Brain founder Chris Cooper himself, who was here today. It’s the only public forum where we’re able to chat with Coop and get his insight. That’s Gym Owners United on Facebook. Join it today.


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