Episode 349

Expert Advice for Leasing or Buying a Space for Your Gym with Stu Brauer

In this episode, Stu Brauer joins me to talk about some expert advise for leasing or buying a space for your gym.

[00:00:00] Hello, my friend on today’s podcast, I am speaking with Stu Brower. He is the founder of the Jim real estate company. And in this podcast, we are talking through all the ins and outs of leasing a commercial real estate space and buying a building to house your gym. And so if you are in the process of needing a new space to lease, or you’re thinking somewhere down the line, short term or long term, you might want to buy a building, this is a great episode for you.

Stu is helping. Hundreds and hundreds of gym owners do this well, and we all need some guidance in this area. So get your notepad ready and let’s dive in.

Welcome to the business for unicorns podcast, where we help gym owners unleash the full potential of their business. I’m your host, Michael Keeler. Join me each week for actionable advice, expert insights, and the inside scoop on what it really takes to level up your gym. Get [00:01:00] ready to unlock your potential and become a real unicorn in the fitness industry.

Let’s begin.

Hello, fitness business nerds. What’s up. Welcome to another episode of the business for unicorns podcast. I am really stoked for today’s episode because I have a guest and I don’t have guests that often. I only save these guest spots for really super humans in the industry who are doing great work. And today’s guest is Stu Brower is no exception to that.

So welcome to the podcast. Michael, good to see you brother. Thanks for having me on again. I’m so glad to have you. I know you’re a man who’s worn many hats in the fitness industry. You’ve been an operator. You’ve, you have the WTF gym talk handle that I’ve been following and recommending people follow for a while now, and your latest venture is really all about the gym real estate company for which you are a site suitability consultant.

We’re going to talk all about that. And that’s really going to be the focus of our conversation today. But for anyone listening to the podcast, who doesn’t know you, Stu, you just give a two minute version of who the heck are you and how’d you get here? Focusing on gym, real estate company. Yeah. [00:02:00] Yeah. Let’s make it even quicker than that.

I’ve been in the industry since I was 15. I started off in health clubs and consulting. I did really rare. I knew I wanted to open my own gym one day. I did that here in Charlotte, North Carolina. I did very well and I was smart. I knew that I was not going to be able to retire based on the merit of my business unless I was going to scale to a franchise or license model, which I did not initially have intentions of doing.

So I saved my cash. I played it smart and I purchased commercial real estate, a building for. My gym relocated into that building and knowing at some point that building would be a part of my exit. That came far sooner than I ever had intended. I never meant or wanted to bow out of being a gym owner.

It’s my entire identity, but in, I bought it, I closed in 2016 and in 2021, I was made an offer that I could not refuse, allowing me to passively make more money than I could in my best gym, in my best year, my prime. And it, this was post COVID. And it was like, you know what, let’s realize the value of the real [00:03:00] estate because me being a gym and there is not the highest will be called like the HBU highest and best use of real estate for that property in downtown Charlotte, North Carolina.

So I leased out my building on a 20 year note to 10 year terms and I still do consulting I still do the WTF gym talk podcast and content but then I realized because I was able to buy my building as a gym owner. I don’t have rich aunts and uncles. I didn’t, I’m not a trust fund baby. I’m like many of you guys.

And I was able to do it using the business that was profitable, not insane, right? The best they ever did, Michael was we had a very consistent run of about a half a million a year, 500, 000 of annual revenue on about a 26 percent margin. Not bad, not incredibly blowing your socks off by any means. And I was able to, yeah, yeah, it worked very well.

It worked perfectly for what the banks were looking for to loan. For a purchasing a building. So we opened the gym real estate company after my quote unquote retirement from gym ownership, because if I can do it, I wanted to help other gym owners do it. But I’d say 97 percent of our [00:04:00] business is actually working with people on leasing, not purchasing.

I would love for us to be in an economic position where more gym owners are buying buildings. But in the meantime, we’re helping most people secure leases and providing insight in a suite of services that a local commercial real estate broker is Cannot perform, nor will they for your business. So that’s been both my energy and effort since 2021.

Yeah. Thanks for taking us down memory lane there. I think it’s so exciting to have someone helping with this problem because I’ve spoken and worked with at this point, probably thousands of gym owners, and so few of them have any experience with commercial leases when they first opened their gym, and even if they’re lucky enough to open two, three, four locations, that’s only.

Two, three or four times in their life. They ever go through this process, right? So no one is doing it enough to get enough reps in to get good at it and know what to look for. And there’s not a lot of folks out there who have experience with gyms and gyms are unique beasts, especially in serpent urban areas.

Like we are in New York. There’s a lot of brokers who just won’t work with us [00:05:00] because they’re like, no, you’re complicated. You’re noisy. There’s a lot of vibration. There’s a lot of foot traffic. Some cases you need a lot of practice. Parking. And so to have someone like you to help gym owners, I think is so exciting.

So I’m so glad you’re doing this work. I want to spend time focusing on first on leases, because I think that’s probably relevant to most of our audience, but I also want to spend time talking about buying buildings. Cause certainly we know a handful of people who have in our unicorn society group, and I think a lot of folks out there are, have their eye on that prize for the future.

So let’s just first start talking about leasing and I want to start even before the process begins, which is who are the people out there who are personal trainers. Or have been renting space from someone else who should consider taking on their own lease? Who are the people who you think are in the right place at the right time to even start this process?

You have to be well capitalized to the tune to where your revenue that you’re currently generating in whatever version of your business is in now, you can afford a lease. That’s not going to be more than 25 percent of what you make per month in gross. Okay. So if you’re [00:06:00] making 10, 000 a month in gross, the most that we’re going to recommend you spend in rent is 2, 500 per month.

So based on your market, and that’s where. I think a lot of the education can come in. And I think you, you probably have heard this plenty of times. Michael, a gym owner is like, Hey, I heard some apartment complexes are going in over here and there’s a whole foods. So I’m going to try to set up shop over there.

There’s gotta be rich people there. Right. And it, it wasn’t until I was able to get behind the curtain of the national rollouts for the franchises, the metabolics, the orange theories, see how the, the industrious is of the world are doing it and other things, not even in the fitness industry and see how they choose locations.

Yeah. And I instantly realize even looking at how like an alloys strategy for what Alloy’s done with what Mark’s doing without, I mean it 100 percent changed my entire perspective as to how a small business owner, especially in the fitness industry should look at going about this because most of us go on loop net.

Which doesn’t even have all the listings available. You have to [00:07:00] pay a lot more money and have an access to a broker’s license to actually see everything available. And they just go off that and Oh, and then they get there. And it was 17 a square foot. What’s this end, this triple net thing that just added four 50 in my square footage and they just walk into it.

And it’s one of those things that you Jen, most of you guys don’t. know the IRS tax code. So you have a CPA, right? If there ever was a legal issue, you’d hire a lawyer and the crazy thing. And then it’s a great sales pitch to the gym real estate company. We’re able, we provide this entire suite of services for gym owners nationwide, anywhere in the continental United States, and they don’t have to pay us a thing.

The landlord or the seller pays our fees entirely. And we’re able to provide industry specific. Location recommendations, site, what we call site selection and do a slew of other really cool stuff that was not available to small business owners, especially in the fitness industry until you started scaling nationally.

I saw like a brand like a metabolic and I saw the commercial real estate services. They got it [00:08:00] for locations and now I see what they get at 40 locations. And I was like, well, why did I, why wasn’t I offered that as a small, but I went to the same firm. I worked with the same broker. Cause it was just me and what, what was the number one thing I realized was the good old boys club, commercial real estate, your local broker in your town.

Is gonna work with you one time you are maybe a 3000 square foot studio. Your commission check to him is dick. Mm-Hmm . It’s nothing. However, that other listing agent that he’s working against, that represents the landlord in quote unquote your best interest, I guarantee you he’s done several. He’s worked with them before.

Yeah. And I guarantee you that landlord owns more than one building and they’re gonna have to work with them later. Do you really think? That tenant representative representing you, Mr. Jim owner is really going to hard negotiate for you because you’re going to, they’re not. And I didn’t realize this. I remember it was 2015 when I knew I wanted to buy commercial real estate and I didn’t, I wasn’t a broker then, but I just would go to meetups.

They were like [00:09:00] meetup. com that meetup company, right? I would just go to these cocktails and stuff and people like, who’s this kid in Lululemon. And I would just sit there and listen and I would listen to people openly admit Oh, I’m not. Yeah. My guy thinks he, we, I could probably get him 32 bucks a square foot, but man, I got six more deals to do with John this year.

So I’m going to tell him 35 is the best I can get, which ethically I have a huge issue with. And it like enraged me. It pissed me off to the degree. And I knew at some point I wanted to do something with this and provide a better solution because those that are career commercial real estate agents, they, I understand they have to make their nut.

They got to pay their bills. But then for us, small business owners, we are truly, and you don’t even realize it. You were truly getting there’s conversation emails happening that you’re not CC’d on. Yeah. And you’re like, Oh yeah, this is the best we can do for you. And you’re like, okay, I guess my broker told me that.

And often I’m not saying every time, but often it’s bullshit. Yeah, sure. I think, I think the analogy that I think really resonates with [00:10:00] me is right. That this is, this requires specialty knowledge. This requires specialty access. This requires specialty experience, specialty connections. And if you needed that kind of service.

For anything else in your gym, whether it’s legal fees or plumbing or electrical, you would hire the people who have that experience and that network and the tools. And I think people often just overlook it. And frankly, I think when people are first starting out, they think they have to spend a ton of money on hiring people to help them with this.

They just don’t have it. But the fact is they can get a lot of help and that help is often paid for by the landlord. So let’s dive into, I know this is probably could spend the whole podcast talking about this, but let’s just talk about the things that top three, top five things people should be looking for when they’re looking at a space when looking at a space, I know there’s so many things we could talk about from kind of market and demographics to square footage, but what are the things that you think people should have on their radar that are most important when selecting a site?

I’ll start the micro and I’ll move out to the macro. So at the micro level, you want to have a full op cap analysis. Operational capacity is a topic that was [00:11:00] most widely discussed in prisons. And then the N. S. C. A. Did a really good job way back in the eighties and nineties, putting out really good parameters of how far the squat rack should be away in an Olympic or like a division 123 college weightlifting room.

And they were one of the first ones that actually put numbers and diagrams, the paper. And I studied that up and down, especially being in the global gym scene when I first started, because the amount of equipment where we laid out equipment and how far apart was huge. So operational capacity is just a term that I use.

I’ve could astrodize it a little bit from what the prison system did, but it’s the efficiency or lack thereof. Of your square footage. And so this could be like a gym that is New York or any other good tier two market. If I can show them how we can dial down their square footage by 450 square feet on a 10 year note, that can be two, a quarter of a million dollars.

And it’s your one mark. Yeah, it’s huge. So there’s op cap at the most micro make and understand like revenue per square foot is a metric. We want our clients to understand and start looking at when they look at their floor layout. [00:12:00] And then we move on up to a more. macro level, which is just customer segmentation.

If I were to ask any gym owner in any cohort and who’s your core customer, you get one of these. I think that’s like 25 to 50 and it’s pretty split male and female. And most of them are like professionals with jobs. Some of them have families. Most of them like live around here, but not all of them. We really help everybody.

Yeah. Yeah. And even if they don’t, they are giving me anything anecdotally. So one thing we’re able to do, and this is again, it’s generally reserved for the big chains and franchises, but we can take a customer list. So just a gym owner downloads a customer file. From their member management software. It’s encrypted.

We upload it and literally we’re able to leverage the databases that are derived from the three credit bureaus. MX visa mass heard every transaction we make every form on shopify. You fill out everything you buy on instagram, your mortgage payments. All of us are categorized into these consumer segmentation [00:13:00] panels.

There’s a handful of companies that do it, but this is how the biggest brands out there are. No, we’ve never been in Des Moines, Iowa. How do we know where our core customer is in Des Moines? How do we even know who our core customer is? So I can take all past and current customers from a gym, run it through a database and provide a report.

These are your people. We break it down in the four categories demographically. This is who it is. Household income, age, gender, race, things like that. Psychographically, culture, interest. Are they more likely to vote red or blue? Are they down with these topics or not? Social agendas. Then we get into buying personas.

What stores brick and mortar locally do they buy from? What online brands do they buy from? We can literally see, we can look at groups and look at their social media trends and behaviors. Do they follow this kind of a trend at whatever? Do they like to buy from these companies, whatever it may be. And then we get geo, geographics, which are just their actual location where they live, work, and play.

Cell phones. ping satellites every four seconds. So this software de [00:14:00] identifies cell phones. And I’m able to literally, I could pull up any gym and I could show you the people, not individually, but as a cohort where they live, this is what we call a trade area. And it’s all done off geographic information taken off your cell phone.

And we’re all submitting this data every single day. We don’t know it. You unlock your Tesla, you’ve submitted that information. You take a selfie, whatever. It’s crazy how big brother this stuff gets, but with site selection, when I’m finding multiple locations, we’re doing like a rollout for a franchise group wanting to go national.

It’s helpful. Or even for a gym owner who has to relocate, maybe his landlord selling the building. He’s like, damn it, Stu. I’ve worked so hard to develop a reputation in this part of town. I can’t afford this part of town anymore. It’s too expensive. Where is a part of town that looks just like my core customer where I think my core customer would migrate to.

And we literally are able to run those analysis. So from the macro to the micro, those are the big things I want people to look at. And then the 25 percent rule is a good, is a good general starting point for a rental budget for your business. [00:15:00] Yeah, that’s a great overview, Stu, and I think even that, I think is a fantastic takeaway for our listeners today to really understand who is your avatar, try and use whatever tools you have available to yourself or work with Stu and let them use some fancier tools and figure out, is your avatar nearby?

Where are they in your area? And certainly understanding the capacity of a space, how profitable can your space be? Because I think all too often, and I say this with love, I see a lot of gym owners just get big stars in their eyes when they see big square footage numbers. And there’s an ego element to, I got a 10, 000 square feet, 15, 000 square feet space, but they don’t really have a plan to optimize that square footage and they don’t really need it.

They can probably operate more profitably with half that amount of space. And I think it’s great to have work with someone like you who can really break down, optimizing that decision. So they don’t overcommit because as you pointed out over the course of a 10 year, 20 year, renting, that’s a lot of extra space to pay for that you just don’t need.

So I think that that’s a really great overview. Let’s move on to maybe the lease itself. Right. So once they do decide some sites that [00:16:00] they’re interested in, they start to get into the lease negotiations. Obviously we’re not lawyers, but generally speaking, your experience, what has been the most important parts of a lease to consider when getting into negotiations?

So my goal is to educate them. My goal is for the client to walk away from the experience, like be like, Oh shit, that was great working with him. He did all the work, but I, I now, I understand this game a little bit more. So for example, You ever have a gym owner come to you and it’s like, dude, new apartments are going up and down on the bottom floor, some retail sites, and they told me they’d give me 300, 000 in T.

  1. Oh my God, that sounds too. I want to talk to them. Like, fair enough. We’ll talk to them. I need you to understand that T. I. Tenant Improvement or T. I. A. Tenant Improvement Allowance. Those that’s what we call first generation space. So whenever space is brand new, no one’s ever lived in it. Yeah. The first tenant is going to get a ton of TI, a very sexy, appealing number to try to get you to sign a lease.

Now that TI is only going to cover capital costs, meaning there is probably no HVAC in there. And if it [00:17:00] isn’t hooked up, there’s probably not even plumbing. It might even be just gravel. They haven’t even laid down the pad of cement because they don’t know where the plumbing is going to go. And the first tenant gets to set that up.

So your lease rates are the highest with first generation space, but you will get TI. The problem thing with the TI, they’re going to want. To collateralize it. And if you’re a startup or you’re a young business who has less than three years on the books, or you don’t have what we call DSCR debt service coverage ratio, you might not be the tenant that they’re wanting to give all this money to, because no offense, statistically you have a higher likelihood of defaulting on the lease and going out of business than not based on the numbers.

So it’s also educating clients like, Hey, listen, that first generation space, we’ll make a run at it. If you want, let me show you a few second generation spaces. You won’t get as much TI. Okay, if any, but we have a better chance of this and this. So it’s just presenting options and at the end of the day, they’re the business owner.

We will advise and we’ll give them recommendations. But, um, looking at things like that and so if you’re, and then negotiating things. So, I [00:18:00] never ever will let a client sign a lease in which during the construction, whether they’re paying for it or the landlord is, they’re also paying rent. Also, if there’s a dual overlap, meaning their lease is going to lapse a couple months over from when the rent at the new place begins, I’m also going to fight to get that part taken care of.

And then generally three to six months of free rent there afterwards. Like I’m trying to get these guys the best runway and the beautiful thing about the Jim real estate company that landlords love. And it’s one of the reasons some of these clients, which no offense, they pay They don’t have the background to justify the location they got.

I’m able to come in and say, Hey, I’ve been doing business consulting since 2015. And we stay on for six months, Michael, after they sign a lease for consulting to make sure they have a good pre sell and help them set up the business. And the landlords love that because I don’t know if you guys realize this, after 2020, we are not an attractive asset in a, from a landlord’s perspective.

So many landlords were left holding the bag. after covid when gyms and [00:19:00] massage parts and in person’s brick and mortar services went out of business due to that whole that shit show. So you really have to come correct. So we’ll do, we do 36 month financial projections and we do a business plan and we present all of that to the landlord.

So on day one they’re like, Oh, shit. This guy’s really got his stuff together. Look, he literally showed up with this on day one. And I don’t expect the gym owner to prepare all that. We’ll do it for them. Because I want the highest likelihood that they land the space that they want. And unfortunately, a lot of landlords are just stereotyping gyms as, I don’t want it.

It’s just too much of a headache. So I try to make us come correct and look as proper as possible. When we do present an LOI that we’re interested in the space. Yeah. It’s so important to, because first time gym owners, even people who are opening second or third locations, they might’ve never worked with a commercial gym landlord before they don’t really know what they’re looking for.

They don’t know what the red flags might be for them. And so the fact that you have all this experience and can present their information, their forecasts. In a professional way that optimizes their chances of getting a lease [00:20:00] and setting up a positive relationship with their landlord. It goes such a long way because these are often very long leases.

These are longer than most marriages these days. Yes. Are these relationships with their landlords and if you can get off on the right foot where they really trust you and they see that your, your professionalism, right, right off the bat, it really can be so helpful. It’s easy to be swooned in these scenarios.

A client you guys have worked with, James Pratt, personal training in New Jersey, client of mine. He had location one, James location one is incredible. He wanted location two. There was a location, it would have been easier for me to, I would have gotten a bigger commission check. My work with him would have been quicker.

I would have been able to move on to the next client. And I told him, they wanted him to sign and he wanted to sign. I was like, uh uh, we can’t do this here. Here’s all the reasons we can’t. And he, he was a great client. He listened. It took us an additional, I think that added probably five months to our search, but the spot he has now gangbusters just such a much better fit for what he’s going to do.

But it’s also that thing. Cause the listing agent and the landlord, if they want you in [00:21:00] are going to make it look like the most attractive thing in the world. And you need to know, Where to find the skeletons in the closet. What questions to asks, how to go to the city and pull some reports. I, people get into spaces like, yeah, you’re not going to need to pull permits in here to do any construction.

It’ll save you a ton of money. Jim Moore’s like, Oh, cool. The landlord’s cool with that. Yeah, buddy. If you don’t pull, he’s saying that because the building’s not up to code and he knows if you pull permits, he’ll be in trouble. And guess what? If a fire marshal walks in and it’s your business, he’s shutting you down.

He’s still going to find the owner, but it’s going to, you still have to pay rent. Yeah. You still have to pay rent. Yeah. Yeah. So yeah. 100%. All right. Well, I guess to recap the things I heard you say that really stand out just at the highest, highest level when it comes to leases and lease negotiations are don’t get tempted by TI.

It can be helpful, but it can also be seductive in a not helpful way. That free rent is really important. For free rent during buildup free rent during a move from another location, something that’s gotta be high on the list. I’ll just add a few other things I know can be really [00:22:00] valuable. Making sure you have some clauses in there about noise and vibration, I think are really important in leases.

In my experience, making sure you have like first right of refusal for other gyms who might come into a similar space nearby that your landlord controls, I think is often critical in spaces like New York with high competition. I’ve also seen it really important to have a good guy clause. That’s what it’s called in New York.

At least in all different things, different places. Business is bad. I can get out. It’s really important to negotiate up front lease escalations from year over year, how much your rent will go up. All of these things are on the table to negotiate. And again, I’m not a lawyer. This is not legal advice, but in my experience, these are the kinds of make or break things.

If I can’t get on the same page with my landlord about some of these high level things, and I feel like they’re a little too stingy. Or they won’t, we can’t get to an agreement that actually sets up us up for success financially. Then it’s just a no go. You have to be willing to walk away. Yeah. And that’s why the average time for us from us working with the client to them signing a lease is nine months on average.

So that’s 60 percent of the deals, 20 percent take longer, 20 percent take less, but you [00:23:00] nailed it. I’m putting caps on, on triple net. With property insurance that having limited personal guarantees so the gym owner is not personally liable for the entire duration of the lease, all that kind of stuff. You named it.

It’s quite the laundry list. And that’s why you gotta, you gotta be going through it methodically as you’re looking at these sites. Yeah. Totally. Let’s switch gears. I know we’ve talked mostly about leasing so far, and I want to spend just a few minutes talking a little bit about the folks out there who are interested in buying a building one day or right now.

And so I’ll start with the same kind of question, which are who are the people that should even have this on their radar? Who are the people who should seriously be considering buying a building? Yeah. So again, you’re going to want to just do some basic research, but DSCR debt service coverage ratio, this essentially is going to say for most banks, you’re going to want like a 1.

  1. So every hundred thousand dollars you borrow, you need to show that you can pay. You have the ability to generate 125, 000 for every hundred thousand you would borrow. And there’s other factors in that equation, but generally what [00:24:00] I’ll do is when we get on a discovery call, this kind of complimentary call just to discuss this, it’s, are you financially?

And are you bankable? Because I’m sure you could do it because a lot of the times the your mortgage will be less than your lease. Okay, that’s not enough. And everyone’s like, hey, the more like, why doesn’t the bank just see that I paid a rent on this building for six years, I can judge. That’s not it’s no longer that thing because it’s a much bigger risk.

Banks don’t want to own have to take back real estate. They don’t want that. So you need to see your debt service coverage ratio is in line. So I generally say like, you need to have a three year look back for the SBA. We generally go with an SBA program. They’re going to want to see three years of books.

And that’s why it’s important for gym owners to be smart with their financials. The gym owner who runs every personal expense through the business in the early years, cause they’re trying to reduce their tax burden. I get it. I did that too for a second. We’ve all played that game. But when you know, you want to borrow money.

You now have to be a big boy and pay taxes. When you pay high amount of taxes, guys, it means you make a lot of money and everyone’s always trying to [00:25:00] avoid the taxes when you avoid taxes, you don’t look as good on paper to a bank because you’re trying to decrease the, you’re trying to show an increase of expenses.

When you want to borrow money, you almost have to set up your finances as if you’re going to sell. You have to look really profitable. A hundred percent. And this is where, unfortunately, a lot of times I’m like, Hey, you’re, you do make enough top line, but you’re, because the way you’ve been running this business, your bottom line sucks.

It’s not there. So you need to go ahead. And the nice thing with DSCR is that you’re able to then do EBITDA R. So everyone familiar with EBITDA? But then you get to add back in rent. So it’s a cool, it’s a, you are able to like, you literally could take your EBITDA guys and add back in your rent and then look at your DSCR from that perspective.

And a lot of like, Oh shit, I have a lot more money when I get to add back in my rent. But I still come across guys that have just gutted the business with high expenses, personally, a new truck payment, a new, this, a blah, blah, blah. Their vacation annually, they do with their family. And I understand, but you have to, like Michael said, you have to pre plan and think about [00:26:00] your finances at least two years prior to wanting to buy a building.

Yeah, 100%. And it’s tough. I get it. Cause I’ll speak for myself and that Mark and I have really set up both of our businesses and Mark Fisher fitness and business unicorns at this point to be lifestyle businesses. So we do pass through so many, so much money that it’s personal through the businesses, but we’re not planning to borrow money from anyone anytime soon.

And some of the money we’re taking out, we keep in our own bank accounts to put back into the business. If we needed to buy a building or move or et cetera, and that works for us, but that is a terrible way to run the business. If you want to borrow someone else’s money, especially a banks, and if you’re going to buy a building, you most likely need to borrow some money.

So I think that’s a really important place to start Stu, which is prepare your finances a few years in advance to look good on paper and be profitable. What else should they be considering? Who else is the right person, the right time for making this kind of investment? It’s the, so everyone’s heard don’t get business partners in your gym.

And I generally agree with that. To a degree, what in a commercial real estate hold [00:27:00] co, which is what you would create. Even if you were a solo gym, going to buy a building, you would create a real estate holdings LLC. Having a cash based partner in there is beautiful. And there’s an incredible way. And I’ll summarize it in 60 seconds as to how a gym owner with zero money down.

Could partner with a cash based partner who wants to get into commercial real estate investment very easily. If somebody wants to get into commercial real estate investment, meaning they want to go buy a Chipotle for 2 million and that Chipotle annually will make them 250, 000. Okay. That’s what a typical investor would do.

A typical investor on that property has to come out 30%. So 30 percent of the sales price. However, you, my friend, you’re Charlie with the Wonka golden ticket because you’re a small business owner. You can form a real estate hold co partnership with this cash based investor, probably one of the one percenters that are a member or a client at your gym.

And you now only have to come out with 10% Okay, because you get the access [00:28:00] to the SBA loan programs that require only 10 percent down. So for the cash based investor, you just saved him 20%. So I generally have written up partnership agreements in this and when I say write up, I’m not a lawyer. I’ve created the term sheets and sent it to the lawyer.

You instantly vest at 20 percent ownership and you didn’t put a dollar in. You will sign a lease for your own building that you are partners on. And every year in which you successfully pay that rent, your equity increases a certain percentage. So I did a deal where they increased 3 percent per year over 10 years.

They initially had 20. And then 10 years later, they had 30, now they’re 50, 50 and 10 years, they were, they’re able to sell the building or lease it back out or whatever. So there’s very creative ways to do it for 0 down. Most cash investors, unless they’re truly altruistic, will want you to have some cash in the game, but at a high level theory, it can be done and it does get done.

Yeah, I think it’s a really smart way to look at. And I think for a lot of folks, it’s the most kind of realistic. There’s a lot of folks who know other [00:29:00] business owners, other entrepreneurial minded folks who do want to have some investment, but don’t really want to run a gym, but are willing to take that gamble along with you and believe in you and your ability to run a successful business.

So I think that can be a great way to go for a lot of folks that they don’t, that is maybe not the first thing they think of. Yeah, you just talk a little bit about maybe operationally. So we talked about the financial piece and the investment of money, but you say a little bit about operationally, who do you think are the people who are ready for buying a building?

Cause there are some extra roles, responsibilities that come with that, some extra pressures that come with that. So let’s talk a little bit about the kind of operational chops that are ideal for this person. Yes, this has got to be someone who’s not simply looking to get cheap rent. As we mentioned earlier, your mortgage is likely, depending on the interest environment, to be less than the fair market value rent of the area.

So if you buy a building just so you’re like, I’m just going to pay my mortgage operationally, financially, that is a bad thing because your one HVAC unit commercially going wrong is probably 25 to 40%. 40 plus [00:30:00] 1, 000. So you need someone who’s also realizes once you buy a building, your primary hat is not gym owner anymore.

If you’re so it means you’ve got to have the operations of the business figured out, right? Because once you get in there, you have a way greater risk profile. Now you now owe a million plus dollars likely on this building. So you have to think like a building owner. You also wear the hat as a gym owner and it’s someone who’s able to take those hats on and off.

I personally took my profit margin. I mentioned earlier, we did very well. We are at 26%. That allowed me to get the loan. As soon as I moved in my building, Michael, I took my profit margin about two to 3 percent because I wanted to overpay my rent. I wanted my real estate company to look incredibly healthy.

Okay. As long as everyone got paid in my building, my, my staff and everything got done. I didn’t care how much profit was at the gym anymore because my primary thing that was I own commercial real estate and I knew that was my retirement play. It’s why I put a giant personal guarantee on myself for a million and a half dollars.

It’s [00:31:00] why I went through that 18 months of hell to buy this building. Yep. But you have to, you got to be able to separate that. If you still just want to play gym owner and you don’t want to think about some of these higher level opportunities and also vulnerabilities, just keep leasing because there is, it will take, it’ll be a 12 month process guaranteed at the minimum for you to find a building and acquire it.

And when I say 12 months, that’s like the Usain Bolt. 100%. Yeah. I’m so glad you said that, Stu, because sometimes I’ll say something similar on this podcast or to clients we work with that. If you just want to show up every day and be a coach on the floor and spend time with your clients and make your trainers a little better every day.

Great. We need lots of people to be good at that. Go do that. But if you want to learn a whole new skill set. Have your focus be split between running your gym and now being running a building, then that’s a whole different kind of person is, and they’re often not the same person. And sometimes I found, I sound like a meanie.

I’m like, no, that you just, you don’t want to do this work. [00:32:00] If you’re not, if you don’t, if you don’t enjoy the operations of running a gym, you’re not gonna enjoy the operations of running a building. Beyond the fitness part. Yeah, totally. So I’m so glad you mentioned that. It’s not for the faint of heart.

It’s not for everyone. It’s a big time investment. And listen, it’s also not guaranteed to be a positive long term investment, right? Real estate’s pretty stable. It’s pretty good bet most of the time, but it’s not always no investment like this is always is a hundred percent guaranteed a home run. It’s as close as it gets.

I think real estate is most of the time, but it’s still, you can put in all this time and effort and it not really be your retirement. Play. So it’s a big swing and you got to be ready to really pour yourself into it. And most people will, it will require them learning new skills that they’ve never had to develop before.

Yeah. Awesome. Well, I’ve kept you long enough, Stu. I know we’re already past 30 minutes, but thank you so much so far. We could do another 30 minutes. I’m sure, but you’ve offered so much value to our listeners in terms of what to look for when I’m in starting a lease. If you’re even in the right place.

Place at the right time yourself to, to think about leasing your space. [00:33:00] We talked about buying spaces. I think there’s so many great nuggets of wisdom information, and I’m so glad you’re out there doing this work because I think our industry really needs people needs guidance in this area. So I’m glad that you and the Jim real estate company are doing that.

brother. for having me. Yeah. How do people learn more about you and the work that you’re doing? Where can they find you? Yeah. Just head over to Jim real estate. co. If you’ve got, if you think you’re at that point where you’re wanting to make a move on either leasing or purchasing something, you can book a complimentary discovery call.

It’ll ask you a handful of intake questions and then you and me get on a call and I break down this whole thing, what it looks like, and I’ll give you my honest opinion. Do I think you’re ready for this or not? And and we go from there. But I appreciate it. It’s awesome because I’ve just created the thing I wish I had when I did it.

So it would have saved me a ton of money and heartbreak and years, honestly. And it’s at all, no cost to a gym owner. And it’s an educational process. I truly like you’re going to get the building, but I hope you walk away from this and saying, I know, I feel like I’ve got a project management degree in acquiring commercial real estate [00:34:00] now.

And that’s, I think the thing that will level up our players and our colleagues and these small business owners to a different degree. Yeah, 100 percent as gym owners, we really make or break our profitability when we sign that lease or buy that building. So to have real expertise and guidance on your side while you do it is really going to help you level up.

And hopefully you’re going to help the whole industry keep leveling up in this way too. So thanks again for your time and expertise. I really can’t wait to have you back on the podcast and talk about how this is all going in another six to 12 months. We’ll talk again soon, but thank you so much.