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Show Summary
In this episode of the Real Estate Pros podcast, Micah Johnson interviews Mark Lucido, who shares his unique journey into commercial real estate. Mark discusses his focus on stabilizing older commercial properties, the challenges he faced in the market, and his strategies for success. He emphasizes the importance of building relationships with brokers, understanding tenant dynamics, and navigating zoning regulations. Mark also highlights the significance of evaluating properties based on their cash flow potential and the impact of market conditions on investment decisions.
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Investor Fuel Show Transcript:
Mark Lucido (00:00)
Yeah, whathelped is that the properties I was buying were turnkey. So they were owned by somebody else. They already had leases in place. They already had tenants in place. And so I could pretty much just start by adopting their leases and their processes and some of their connections. And then I built my own relationships on top of that. And that’s kind of really what… what
Micah Johnson (00:05)
Okay.Mark Lucido (00:24)
led me to where I’m at right now.Micah Johnson (01:58)
Hey everyone, welcome to the Real Estate Pros podcast. I am Micah Johnson and today I am joined by Mark Lucido and I’ve been looking forward to talk to him because he’s done something in real estate that I don’t hear about very often where he got into the commercial space right out of the gate. Mark, glad to have you, man. How are you doing today? Excellent, man.Mark Lucido (02:19)
I’m doing great. Nice to be here.Micah Johnson (02:23)
I think our listeners are really gonna get something to take away out of this for those people that want to hear about commercial and wanna just dig in out of the gate. I think this is gonna be really powerful. So let’s dive straight in. Tell me about the main focus you’re working on these days in the markets that you’re in.Mark Lucido (02:40)
Yeah, no, very good question. So my main focus is growing. I want to say growing my business, but the types of properties that I’ve purchased, being commercial properties, they’re a little older in nature. And so my main focus is stabilizing the properties. When I’ve acquired the properties, they’ve had a lot of deferred maintenance on them and tenants withwith good tenants, very strong tenants, but the market rates are not competitive. So all the rents are below market. So it’s really difficult to try and navigate that curve and grow the business. And so I’m doing well two years into my most recent purchase and it’s starting to stabilize.
Micah Johnson (03:23)
And where are you doing that at? What markets do you own it?Mark Lucido (03:25)
Yeah, so I have two commercial properties in downtown Carrollton, Texas, very close to the the area that’s been revitalized. And then I have a and both of those properties are office warehouse type spaces. So they are multi-tenant. And then I have a retail space, a small duplex in Euless. So those those are the three types of the three properties I own to two markets, though, or two segments.So yeah.
Micah Johnson (03:52)
Awesome. so let’s get started at the beginning then tell me about how you chose just commercial. So often you and I were discussing this before we started recording of a lot of folks go single family residential and then jump to commercial later, but you skip that step. You said, I’m just going straight for commercial. Tell me about that. Do the thought process. We got you into it.Mark Lucido (04:11)
Yeah. Yeah, so, you know,little background on myself. I grew up in Dallas, so I’m familiar with the area. I grew up in very entrepreneurial family, learning accounting and operations for my parents’ business. 20 years in software IT, but I’ve never felt secure and, you know, always changing jobs every few years. So I was dreaming about real estate and as a way to escape the corporate grind and diversify.
my income. And around 2015, I discovered the Bigger Pockets podcast and the Robert Kiyosaki books, which completely shifted my mindset, especially the cashflow quadrant. And then after losing my parents and receiving a life insurance payout, I finally had the capital to start investing. And like most investors, I began evaluating residential properties, but the numbers just didn’t make sense. In Dallas at that time, the market felt very saturated with
with the growth that we had, there were a lot of cash buyers and investors bidding the prices up and the valuations just didn’t seem right. Especially when you were looking at the 1 % rule and it just didn’t make sense that a renter was gonna pay $3,200 a month for rent. So that’s when I pivoted to commercial.
Micah Johnson (06:14)
Okay. Now when you’ve made that pivot, was there a certain commercial class you were looking for? How’d you ultimately land on what you have purchased?Mark Lucido (06:24)
Yeah, no, that’s a great question. My initial thought was triple net retail, ⁓ retail spaces, because those seemed the most obvious. What was interesting though is one of the, there was a broker in my neighborhood who I became friends with, a commercial broker. Our kids were in daycare together and I reached out to him and his primary expertise was in warehouse spaces.And so he kind of introduced me to the office warehouse units that I found. And the first unit I bought was roughly $415,000. So about the same price as a house, but it had eight tenants. And so when I started running the numbers, it was very obvious that the cash flow was going to be very good to me.
Micah Johnson (07:14)
Very interesting. So having that connection, that makes a lot of sense. gets you there. What do you, so for someone that’s interested in commercial, hasn’t done it before, what was like that, what’s the hardest thing that was to get going? And then what was it that was like, no, this is really what I wanna do in making you dive in.Mark Lucido (07:34)
Yeah, whathelped is that the properties I was buying were turnkey. So they were owned by somebody else. They already had leases in place. They already had tenants in place. And so I could pretty much just start by adopting their leases and their processes and some of their connections. And then I built my own relationships on top of that. And that’s kind of really what… what
Micah Johnson (07:40)
Okay.Mark Lucido (07:59)
led me to where I’m at right now.So that’s where I started at. Did I answer your question? I don’t know if I veered off topic.
Micah Johnson (08:08)
It’s close. in that early decision phase, because this is where a lot of folks that I’ve encountered, commercial seems like a scary word, especially compared to single family residential. So when you were shifting gears into that and deciding that’s what it was, what was the quote unquote hardest part upfront of like getting into it?Mark Lucido (08:30)
Yeah. Yeah, just understanding all the nuances.to be honest with you, I’m still learning. Like my newest property, I’ve been in this close to 10 years now. And even on my newest property, I’m finding that if I have a vacancy that I’m trying to fill in this particular property, it’s zoned differently. So you have to really look at the zoning and what the acceptable uses are. But there’s always something that’s coming up. you know
For example, evictions. Evictions are a lot easier with commercial properties. So just learning that eviction process. I think in general, what I can summarize is that I stepped into it. It was a smaller property to operate with only eight tenants. So I stepped into it with the mindset that I was going to operate it myself so that I can learn from it. And then that’s really what I grew the confidence.
from there and just continued on with it.
Micah Johnson (09:27)
Got you. Now you mentioned just a little bit ago that you’re, came from an entrepreneurial family. Was there any of the business that you were working for before that helped with this idea of working in commercial?Mark Lucido (09:40)
Not a lot. So the business they had was an auto body repair shop in North Dallas, one of the, probably one of the biggest ones in the eighties. But you know, my, and my dad, what I learned from my dad was that he fixed everything himself. If he needed to expand, he did all the work, work himself. And that’s where I grew the confidence that if my dad could do it, then I could do it as well. So uh yeah you know, he, he wasn’t afraid to step in.Micah Johnson (10:05)
Gotcha.And that’s the key feature of an entrepreneur is what I would typically say. Our proclivity to action is always tilted towards, can do that. And sometimes to our detriment, we say we can do a lot of things, but that’s powerful in that way. so tell me where you currently are, where you at in your business right now and where are you trying to get to?
Mark Lucido (11:07)
Yeah, so I think you know right now I’ve stabilized my most recent purchase. I’m starting to see positive cash flow from that. Where I’d like to go, I’d like to find another property, but the current interest rate environment is prohibitive. Back when I acquired these properties, that was the other thing I had to learn was commercial lending, how to…position the properties, whether to own them outright or whether to put them in the individual LLCs, forming relationships with attorneys and things of that nature. But, you know, I think where I want to go is I want to find another property if the numbers make sense, but with current interest rates, it’s hard to find that. And I’d also like to start networking and building a network of investors.
that would be willing to participate in my opportunities.
Micah Johnson (12:08)
Excellent. Yeah. Private capital, man. is a, it’s a game changer in the space when you start to get access to it for sure. It brings a lot to your plate that you didn’t have before. Now, are you still, are you full-time real estate or what’s going on there?Mark Lucido (12:21)
No, I’m still workingin corporate America. have a full-time W-2 job with ⁓ the largest healthcare, health insurance company in America, to be honest with you. I’m not going to use their name because it is a publicly-created company, but I’m a software product manager full-time. And, you know, I think with AI coming around, there’s a lot of pressure on us right now in the IT industry. And so it’s…
Commercial affords me that flexibility. It doesn’t have a lot of high demand. The tenants have to take care of the spaces themselves in terms of maintenance and repairs. And then I actually office out of one of my properties, which is the office I’m in right now. ⁓ My wife works from home, so both of us trying to work from home with one office just didn’t make sense.
Micah Johnson (13:06)
Nice.I heard that, heck man, why not work in the building you own? That works out too. Okay, so I think that’s fascinating because in real estate, a lot of times what people run into in the crunch trying to switch is that time factor. So for you, this commercial move hasn’t really taken up all your time while also giving you this chance.
Mark Lucido (13:15)
Yeah.Correct. And
you know, I’ve got between the three properties, have 27 doors. So it’s quite a few tenants, but you know, they, they typically, because they’re other businesses, mom and pop type businesses, their hours are my hours. You know, that’s what makes it nice. I’m not getting calls after hours or anything like that. If there is a problem, I do have a problem that I can’t fix. I do have resources available to me to help.
Micah Johnson (13:38)
Okay. Yeah.Hmm.
Mark Lucido (13:59)
you know, do any kind of repairs or anything. And if I’m being on site, if something happens, I’m aware of it immediately. It doesn’t go very long before I get it resolved.Micah Johnson (14:51)
Excellent, man, that is handy. That is handy. So in your journey of buying these properties, is there a particular kind that you look for? there a particular way that they look? Like, what is it about one? Let’s set the interest rate issue aside, just looking at properties specifically. What is it about one that makes you more interested and which ones do you shy away from?Mark Lucido (15:13)
Yeah, that’s a good point. SoI actually have a blog where I’ve memorialized my journey along the way. And I can mention lucidlandlord.blogspot.com. I need to probably find a better platform, but I’m using the blogger platform right now. But I actually have a post out there about finding your niche. You know, and that’s where I acquired my first property was the office retail.
Micah Johnson (15:19)
Okay.Mark Lucido (15:40)
or I’m sorry, office warehouse space. The second property was retail. So I tried to diversify a bit. And there’s pros and cons to both. I think if I were to acquire a larger retail unit, I could handle it. You know It’s not too different than what I’m doing with the office warehouse spaces. You know I think I would shy away from pure office, mainly because of work from home. A lot of companies are still working fromand so there’s a lot of inventory out there.
Micah Johnson (16:11)
Interesting. Yeah that, that, big change post 2020, where working from home became quite normal. You know, there was a, I’m just south of Jacksonville and I saw a lot of properties in Jacksonville just ended up vacant pretty quick after that.Mark Lucido (16:25)
wow.Micah Johnson (16:26)
I know for my friends that got into it, the buying process of getting the property. Let’s dig in on that a little bit of what’s it like when you’re going through it? What do you need to be thinking about when you’re, you’ve just, we’ve decided you want to get into it. Now you’re looking at properties or looking, you’re open to look for properties, right? You’re starting to dig in. What is it that you paid attention to?Mark Lucido (16:43)
Yeah.Micah Johnson (16:50)
and you think it helps somebody else looking to enter the space themselves.Mark Lucido (16:54)
Yeah, that’s a great question. And this is part of what you have to learn and coming into something that you’re not familiar with. It was a learning curve, but unfortunately, because of the broker that I have the relationship with, he’s able to guide me on a lot of these things that I’m unaware of. So for example, I was looking at an automotive property at one point. So he warned me as we were looking at it, you you better get some environmental studies done.so that you you know don’t run into anything further down the line. And as soon as I did, there were some red flags that came up and so I backed out of the deal. But um you know it’s stuff like that. As long as you have somebody that’s helping you that you trust to guide you along the way, then it makes it a lot easier. But you know I think in general, what I look for, my niche primarily is the office warehouse.
So if one of those comes up, it’s you know really exciting to me because it allows me to capture more market share. The thing about office warehouses, there’s actually not a lot of inventory for smaller, less than 1000 square feet spaces. And so I found a real niche in that, you know maybe 800 square feet to 1200 square feet. And I’ve been able to stay 100 % occupied over 10 years.
If a unit goes bankrupt, I’m able to fill it pretty quickly.
Micah Johnson (18:16)
Man, that’s killer.Now, what kind of tenants typically end up in the office warehouse space? Who do you target?
Mark Lucido (18:25)
⁓Tenants vary, so I have photographers, I have HVAC repair companies, I have plumbers, ⁓ I’ve had barbers. You know the, My main property is close to downtown Carrollton on a main thoroughfare. They’re building 200 town homes across the street from me right now. And so it could serve as retail also, at least the zoning supports it.
But then again, that’s where you have to look at the zoning to see what kind of tendency you can forward in there.
Micah Johnson (18:59)
That’s an excellent point, not something you typically deal with much in single family is checking those zonings to make sure what can be supported.So in the single family world, a lot of times it’s kind of difficult to find a quote unquote broker that helps you with that process. So many of those are direct to seller marketing, actually trying to cut that person out where it seems like in commercial, it’s way more of a cohesive relationship for working with a broker. Tell me about how you found the one you work with. I think she said they were in daycare together with your children and then
Mark Lucido (19:33)
Yeah.Micah Johnson (19:34)
what to look for in a good broker, like what separates a good one from someone that someone getting in says, you know what, I don’t want to mess with that.Mark Lucido (19:42)
Yeah,it’s primarily all about the relationship, know, and trust, you know, those are the key factors. It’s somebody that I was friends with before I decided to make the move. And when I decided to make the move, because I am so relationship based, he was the first person I called. I’ve talked to other brokers occasionally, but it’s just some, it’s a matter of trust. And so that’s the biggest thing is you need to make sure that you can trust that person. Now, you know, ⁓
Some of the properties I’ve found, I’ve actually found on LoopNet. So LoopNet is one of the key resource for looking for properties. He’ll send me lists or I’ll send him something I’ve found on LoopNet. And it’s a strong collaborative relationship with him.
Micah Johnson (20:27)
What would, for someone that’s going to develop that relationship, what are some key points of building it that they should think about when they’re building that trust with them?Mark Lucido (20:37)
Yeah, I think if finding a broker that matches, that specializes in the niche that you’re going to pursue, you know, I think because he introduced me to warehouse and because that’s his niche and it’s become my niche, it’s a good fit. But you know, if talking to a broker who focuses primarily on office space or focuses on retail may not be a good fit.It just, you know, that’s, think that’s probably the biggest thing to look for is just find somebody who’s going to compliment what your, what your goals are.
Micah Johnson (21:07)
Okay.So even in that broker space, it’s niche down. You don’t want one that says, I do them all. Like you want one that’s really lined up with exactly what you’re looking for. That’s interesting. That’s very interesting.
Mark Lucido (21:18)
Right.You know the commercial brokers, they do cover a wide space, but they do have their specific niches also.
Micah Johnson (21:28)
Okay. And then you mentioned LoopNet. Yeah, there’s some different tools that you use in the commercial space for sure. When you’re searching for a property, is there any any like secret sauce to helping you find what you want to look for? Or is there, how do you go about that process?Mark Lucido (21:45)
Yeah,You know I start with LoopNet primarily and I have some search tools that send me notifications on a daily basis and if it’s interesting, I’ll look at it. I think the key there, and that’s what’s interesting about commercial is it’s not valued the same as residential, which was another factor of why I pivoted to commercial. You with residential, there’s a lot of emotion involved.
And so people tend to base the value of their home on their emotions, you know. But with commercial, it’s revenue-based. It’s what the net operating income is for the property. You know, really can’t just go buy square footage in dollar per square foot. So I found that reassuring because it’s truly a true value on the property and you can influence that too. So as I’ve…
as I’ve grown my rents and increased my rents for my tenants, the valuation of the property increases as well.
Micah Johnson (22:43)
That’s an interesting fact too. There’s a guy follow on X, he’s called strip mall guy and he he does purely commercial, but I was reading some of the stuff he puts out about that, the ability in the commercial space to directly affect your valuation where really in single family, you don’t have that ability. You can value add some, but you’re basically just flipping the house. Like you’re making it from ugly to nice where in your world you have much more direct effect.on how to make your property more valuable. What did you see as one of the bigger levers to do that?
Mark Lucido (23:20)
Yeah, and your profitability.So, and this kind of goes back to your other question earlier about what I look for in a property. So number one, I look for a property that doesn’t have a lot of repairs or if there’s a lot of repairs that I can sustain the stability period. You know, I found kind of a pattern where roughly two to three years to stabilize a property with deferred maintenance.
And then also the opportunity where like the rents may be below market. So, you know, I’ll look at properties around that may be advertising for vacancies and they’ll leave their number. I’ll call those, those numbers to find out what the competing prices are. And that’s how I can find out what the market rates are. then course my broker can also run some, reports from his systems to provide those competing market rents.
Micah Johnson (24:07)
Yeah.Mark Lucido (24:16)
But ⁓ similar to residential, you’re looking for opportunities where you can increase the value through improvements. ⁓ And that’s also what’s nice about the property. My most recent purchase had a lot of deferred maintenance. I’ve had to replace 10 HVAC units over the last two years, over $100,000.there were roofs, the roofs needed replacement. had, the property has four buildings. So I’ve replaced three of the four roofs, but all those replacements are capital improvements. And so I get the benefit of, I think it’s 279, section 279 deductions. So in those first two years of on making those improvements and the property is not, ⁓ doesn’t have a positive net income, I can roll those
those depreciation deductions forward to future years when I am profitable. yeah.
Micah Johnson (25:16)
that’s handy. Yeah. We weretalking a little bit before you do your own accounting too, correct?
Mark Lucido (25:21)
Yep, yep. ⁓ It’s something I learned from my mom is do my own accounting, do my own taxes. it really, what’s nice about that and why I recommend that, at least even initially, just to get an understanding of where your expenses are, where those levers are that you can affect the valuation.Micah Johnson (25:42)
Yeah, it’s at least knowing, right? What’s actually happening so you can take advantage of it, whether you end up doing it forever or not, at least know. of like owners of companies, if you don’t know a position, right? How can you help somebody do it? So that it’s really digging in there. That’s fascinating,Mark Lucido (25:44)
Exactly.Yeah.
give you a great example. You know, over the last 10 years, I’ve had four tenants that have gone into bad debt. So not a lot. And each bad debt, typically, I end up losing maybe two to $3,000. But, you know, over 10 years, that accumulates. So I asked myself, is there a pattern I can find? So I, you know, I use QuickBooks for my accounting.
Micah Johnson (26:16)
Okay.Mark Lucido (26:24)
I was able to run a report from QuickBooks that show days to pay, how long it takes that tenant to pay their rent. I was able to take that and then run that through ChatGPT and help me identify patterns. And it was able to produce some graphs and it came up with a statistic called drift. So there’s basically three phases of drift and you can actually identify the tenant going into drift sooner andhelp to minimize your losses. by being plugged in and doing my own accounting and having those reports available to me, I was able to leverage AI to do something.
Micah Johnson (27:04)
Now, have you noticed beyond that, is there a certain type of tenant that you quote unquote avoid because of that they tend to drift more or is there like when you’re thinking about who you’re going to put in, how much does that go into it?Mark Lucido (27:19)
Yeah, so this particular tenant was a barber. I’ve had two barbers and neither one were successful. And in fact, yesterday I had an inquiry on one of the vacancies and he’s a barber. And I said, You know, the zoning supports it, but honestly, I’ve had two barbers and neither one has been successful. If I’m going to consider it, I would need at least three months security deposit.Micah Johnson (27:26)
Mm.Mark Lucido (27:45)
So, you know, it’s something I might consider as long as you’re giving me three months in advance. And then that way, if you vacate in the middle of the night, I have all that rent, you know, to cover the losses.Micah Johnson (27:57)
You’ve had your bed a little bit. Fascinating. Cause that’s, I mean, it’s a whole different world that opens up when you start thinking of tenants and not living in a house, not just a renter. They’re not going there to live. This is where they’re going to work and how that business flows. What’s going to happen over time. One I’ve heard as tough is a karate. That’s from that guy that I didn’t follow on next. He’s not big on putting karate folks in his, any of his strip malls. Cause that one tends to fall out quick. Now it just fascinates me causeMark Lucido (27:59)
Yeah.Yeah.
Exactly.
Micah Johnson (28:26)
You I live in St. Augustine, Florida, and you drive around to certain places and certain, you always kind of see the same vacancy in the same places, if that makes sense. And it’s like, so why doesn’t that work there? What is it about that spot that makes that one not work? I get fascinated by stuff like that.Mark Lucido (28:43)
You know, and insurance has a lotto play with that too. My insurance may prohibit like tattoo parlors or CBD, anything like that. So uh you know, there’s external factors that are involved as well.
Micah Johnson (28:57)
That brings up a great point. So someone looking to get into it, including like that, you’re just talking about insurance, what are some things they need to pay attention to in terms of that, how to find those tenants?Mark Lucido (29:08)
So first and foremost, zoning. And you can get that information from the city. So the city has a list of approved, approved uses or acceptable uses for, for the given zoning of the property. And then, then secondarily, you would want to look at your insurance coverage to see what, if there’s anything that they prohibit as well.And then of course, just your gut feeling. You know, I’m finding that AI and things and tools like chat GPT can also give you a lot of information. So I always check that as well and incorporate that into a lot of my decisions making.
Micah Johnson (29:43)
Man, that’s fascinating.So, okay, we talked about where your blog for a second, Lucid Investor, correct? That’s where people can find you. Anywhere else where they can get ahold of you at if they want to find out more about what you got going on. ⁓
Mark Lucido (29:55)
Yeah, it’s lucidlandlord.blogspot.com.So it’s the blogger platform. That’s really my main presence on the internet right now. I do have a Facebook page and I mainly have that so I can advertise on the Facebook marketplace for vacancies. I tend to get a lot of, it’s kind of interesting and that’s something else I had to learn is how I could advertise minimally without having to go through my broker.
who’s going to charge a commission. And Marketplace tends to be my best resource for filling vacancies. But I’ve also, yeah, it really is. I’ve also tried other resources like Craigslist that worked initially, but as Marketplace came online and people started adopting that, that became my primary market.
Micah Johnson (30:42)
I’ve heard that for single family, but not for commercial before. That’s fascinating, man. Yeah. Cause Mark Craigslist was the place. Like that was where everything was. And now marketplace is definitely taken over that area. Well, Mark, man, I really appreciate your time, your story, perspective. It’s it’s again, I love hearing about how folks get into the business, what they’re doing in it. Cause we each all have our own pool on why we do what we do. And for those of you tuning in.If you got any value from this, please subscribe to Real Estate Pro’s podcast. And we’ve got more conversations coming up with operators just like Mark who are out there building real businesses. Okay. We’ll see you all in the next episode.
Mark Lucido (31:24)
Thank you.
