Zero Occupancy Real Estate Strategy|How to Buy Empty Buildings & Create Massive Upside

Jeremy Barker (00:00)
And I literally put in 30,000 at first just to do the alt as an environmental and my deposit. They were pretty lenient knowing I was a poor firefighter that was thinking I could pull a financing gig off. And ⁓ that was when I was really awoken to the, crap, there’s some money here. I walked away as a millionaire from closing and I’m like, my gosh, did I just make 2 million bucks by buying a building?

Michelle Kesil (01:53)
Hey, everybody. Welcome to the Real Estate Pros podcast. I’m your host, Michelle Kesil. And today I’m joined by someone I’m looking forward to chatting with, Jeremy Barker, who is a real estate investor focusing on single families, hotels, office and commercial spaces. Also with his venture, Murphy Door. And really excited to have you here today, Jeremy.

Jeremy Barker (01:57)
Thank

Michelle, thank you so much for having me. I’m excited to be here.

Michelle Kesil (02:22)
Of course, yeah, let’s dive in first off for those not familiar with you and your work yet. Can you share what your main focus is?

Jeremy Barker (02:31)
Yeah, 100%. So my day to day operations mostly consist of Murphy Door, which is the hidden door company, secret rooms, panic rooms, speakeasy. So they, they become a pretty good niche over the last several years, especially since COVID. We went from doing, I was a full time firefighter, career firefighter paramedic in our local town here in Utah. And this was a little side job deal that I built into something that now we do a hidden room every six minutes around the world. So it’s escalated into a

pretty lucrative business, I guess. And at the same time, it’s fun to see so many people use them. So we, from starter homes, multifamily homes, all the way to the celebrities’ biggest homes and, you know, speakeasies for MGM. you see, you’ve seen us in John Wick and a bunch of movies. So really good ride. And that’s kind of what led me down the path of real estate is needing more and more space. And how do I get the space, especially not understanding real estate investments? I mean, we’ve all, I shouldn’t say we’ve all, the fortunate one.

that have been able to buy our own home, we kind of learned those traditional financing methods of how to buy our own personal real estate. But I had never bought anything that was an investment style or investment type property. So it was a whole new learning curve for me. And ⁓ it’s been a really interesting ride. And to be honest, even with as well as Murphy Door does, I’ve made the biggest growth of my net worth in the real estate arena.

Michelle Kesil (03:54)
Yeah. And what do you think specifically have been some of the main keys that made the biggest difference in allowing the real estate business to be able to grow and run successfully?

Jeremy Barker (04:08)
Well, that’s a good question because when you go into something, you don’t have any clue. I think that kind of helps when you don’t understand it or you don’t know. And if you’re willing to put forth the time to study, listen to these type of podcasts, research the Internet to see how other people have done it, especially coming from a means of no money. Like literally, I was making seven hundred and sixty two dollars every two weeks ⁓ at the fire department. That’s post taxes and all that.

So when you think about needing to buy a commercial space that’s 40, 50, 60, 100,000 square feet, like how does this even happen? So what I did is I jumped on YouTube and dissected everything I possibly could in real estate. And I came upon Grant Cardone and Grant Cardone, just, I guess, absorbed every bit of information that he had on YouTube for free.

That was what I did. And ⁓ my unique scenario was I had a building that was a door company making standard interior doors, like six panel doors or whatever, that was going out for sale in my fire response area.

like, man, I wonder what that would cost. I found out it was $2.9 million. I fell on the ground and going, holy crap, I haven’t seen $2.9 million. How the heck do you pay for that? My real estate broker told me, just got to figure it out. Just sign here, we’ll figure out the money later.

And I’m glad I did. then of course, after I put my LOI in and borrowed money for $30,000 to put down on the deposit, kind of the ALTA survey and the environmental, I had to figure out what was going on. And what I noticed with Grant is he had this unique method. And I really agree with him a lot, except I kind of reversed engineer it, is that he had 85 to 90 % occupancy as his preference. He had class A properties and he had cashflow from the very beginning.

So that was what he was financing. And what I had that I was buying was an empty building, 100,000 square feet on five and a half acres for $2.9 million. So I had to figure out, what could I do and try to finance this deal? So I realized at the time, there’s only really, if you’re gonna be a landlord per se, there’s only really four ways to make money in this game, right? And that means hold the property. There’s a million ways to make money with real estate, but when you’re holding it as a landlord, there’s about four ways.

One is increase occupancy, pretty simple, right? Two is increase the rent rates. That’s also simple. Three is minimize your expenses, work on the cost to operate. And then four is wait for interest rates to drop. That’s when your valuations go up, based off your cap rate. And I thought, well, I think with Grant, I saw an 85 to 90 % occupancy requirement, and I see that there’s only a 10 to 15 %

growth opportunity there. And I’m a very big risk taker, kind of by habit and nature. I guess that’s why I love the fire job so much. But I’m like, well, what if we had zero? Zero would give me 100 % bandwidth. then my rates I could really play with as long as I covered my nut. I could go low and then get it into an escalating rate. And then I could wait for interest rates to drop and recap it. So I found this building. I was able to convince the seller.

I said, hey, look, I only need a little bit of this 100,000 square foot building. So I need to put it up for sale right away, or for lease, excuse me, not for sale, re-tag that. ⁓ So I said, I convinced them, of course they said no at first, and I said, look, I need to do this just so I can cashflow it, because I’m only gonna have 20,000 square feet of this thing. I need to get rid of the other 80,000, and if you’ll let me put it up for lease, I’ll put the LOI in and I’ll start doing all the work that I need to buy it. Well, about a week, they…

came by and said, yeah, you can go ahead and put it up for lease if you’re in contract. We have no heartburn with that. So I did that. And really quickly, what was weird about this property is it was for sale for about four years. As soon as it went from a for sale sign to a for lease sign, the calls just flew in. So I was able to take a fully empty building and then within the first couple of weeks, lease over 50,000 square feet to class A tenants like the railroad and another big, huge construction supplier.

And the irony here is in addition to that, the seller was a local door manufacturer, was then bought by a big national door manufacturer and they wanted to lease back. So then all of a sudden I go to the bank with a different proposition. said, hey, look, I have five and 10 year leases here, that this is the valuation of the lease. They valued the building off of the lease contracts instead of the buy price. So I was able to actually close on the building and pull money out at closing.

And I literally put in 30,000 at first just to do the alt as an environmental and my deposit. They were pretty lenient knowing I was a poor firefighter that was thinking I could pull a financing gig off. And ⁓ that was when I was really awoken to the, crap, there’s some money here. I walked away as a millionaire from closing and I’m like, my gosh, did I just make 2 million bucks by buying a building?

And it’s not taxed. I’m not taxed. You know, obviously I borrowed it from the bank, but.

The irony there was then I was able to build onto my portfolio from there. So I started using that recipe saying, hey, look, I’m gonna look for empty buildings that have been for sale for a long time

I’m gonna put in an LOI and then I’m gonna tell them I need to, well, before I do the LOI that I need to put it up for lease right away. And then I buy my time saying, hey, I need 90 day close, 120 days to close. I’m on the road a lot, I’m XYZ. I’ve never had a no.

And so then I’m like, all right, and if I get to the end of my due diligence before my money goes hard, if I have at least enough to cover the nut, I back out of the deal.

So then I’m taking the risk off the table, but it’s giving me 100 % of the upside of occupancy. And I don’t have to be the dickhead landlord that raises my rates as soon as I buy the property. Then all of a sudden, everybody’s your enemy because you come in, buy the property, plant a tree and then raise rates. And not that that’s a bad thing. I’m just saying I’d like to do it in a way that is less invasive or costly to my existing tenants. want them there for a long time.

So that was my first and I’ve just mimicked it. And now, like I said, we’re up to almost a million square feet. I’m like 980,000 square feet of commercial and industrial. And then also a hotel that’s 24 units that we’re building out to 153 units. And it’s been magic how it’s worked. And surprisingly enough, not knowing and going traditional with making sure you’re buying highly occupied that obviously when they’re occupied, you’re paying premiums. They’re gonna go off a cap rate.

And when they’re empty, you’re taking risks. So how do you take the best opportunity, which is an empty building, and create the highest upside and minimize your risk? And that was just the scenario I kind of ran with.

Michelle Kesil (12:15)
Yeah, that’s an amazing story. So awesome that you were able to get to that place.

Jeremy Barker (12:21)
It was, it was, and I think I’m thankful to Grant a ton for being able to offer so much information online for free on YouTube. Although I didn’t follow his guidelines exactly, but he taught me the core base principles of investing that I used to kind of create my own methodology. Obviously the principles are the same. I’m not buying a building unless it’s occupied enough to bring me positive cashflow, but I’m able to transact on the property at an empty building price.

and then using the seller as my bridge loan while I try to get it occupied. Obviously not a loan, but as that bridge to get it occupied prior to close, which then changes the valuations. And we have good relationships with banks now that are going off of that least rate rather than the cap rate or than the sell rate on financing it. So it’s been a heck of a ride.

Michelle Kesil (13:12)
Yeah, absolutely. And what other like creative financing methods have been successful for you?

Jeremy Barker (13:21)
for us, there’s been several, like when you’re coming down, whether it be like the hotel side. So this is a really interesting one on my hotel. The hotel is located in a really high recreational area in the state of Utah, super low population. So we’re talking about a full-time residency population of about 360 people with 240 homes in it. Here I am saying, I’m gonna buy this 24 hotel room, rip it down and put 153 condos in.

And they’re like, hold on a second. Now you’re bringing in almost more than half of the current residential units that we currently have. And this was again, another learning curve. Number one, the county was really anti against this much building. Number two, the banks don’t want a loan in such a high risk area of low population density, adding a ton of houses where there’s not a lot of people. So I had to come up with a method that would work. And so what we did, and a lot of people are doing this right now, but they’re called condo hotels.

So we’re putting 153 condos in, we sell the condo as, or we sell the hotel room as a condo. And then these investors, they get to use this as a hotel room, but it works through their short-term rental bridge where this property was designated as a hotel site, right? It’s a short-term rental site. They tried to block it saying, Hey, we only have a 2 % allowance of the county to have Airbnb.

I said, well, this is actually a hotel with 153 investors and those investors get a deed to one of those condos as an investor. They own that unit themselves, but you got to think of it as a con as a hotel entity and 153 investors buying a room that we’re going to be running out and charging 80 % of the rental rate for the owner. And we keep 20 % for manager.

And actually they couldn’t find ways to stop it. They tried really hard.

looking at, you know, with attorneys and everything saying, hey, this is this is the full work around, but it ended up being completely legal and they couldn’t stop it. So we were able to not need banking for that. You know, I was able to find a bank that would carry the construction loan and long term loan on each unit as long as we were building post cell. And these are individual buildings with six hotel rooms in each unit. So we had to wait till all six units get

sold before we can start that particular building and just keep moving that way. So immediately when we got the approval, we started marketing this 153 condo hotel and we received 180 reservation spots right away. It didn’t take long. And when I say right away, we’re talking within about three months, we had 180 names on the condo hotel deed. you know, when banks saw that they’re like, hey, look, we can qualify the buyer for the short term or the construction loan and then do a one time close with this deal.

As long as you sell six, we’ll go ahead and fund this much money out front. It made that banking side way, way easier. Way easier. I was getting no’s from everyone when I said, hey, look, I want to put this hotel in. And like, no. I mean, it was as fast as the conversation started that traditional bankers were telling me no. I haven’t gone to like insurance funds or any of those things before. I just went to my local banks and been great to work with. And that was a quick no for that.

So that was another learning kind of creative method of how do you get financing in places or for projects that you are passionate about that you believe in. Because a lot of the time other people won’t. But if you believe in it and you’ve got proof behind it, you’ve done the homework and you see that there’s enough traffic to go through that. Ironically enough, we got this approved and then the governor of the state of Utah and his project, they’ve called me in to help build a whole ski resort next to the project.

because I was able to pull that off. They’re like, we’ll be willing to deed you property, give you the first 40 million in non-reimbursable ⁓ cash upfront, and we’ll fund you the bond. My man, how did this all happen? Why’d you reach out to me? And they said, look, it’s kind of the chicken and the egg game. We can’t have the hotel, or we can’t have the ski resort without your hotel, and we’ve got to work together to drive the traffic up there. So it’s kind of funny how that blossomed into a whole different conversation that I was not expecting at all.

So they’ve already got the ski resort approved. Now they’re looking for a developer on license. And again, this isn’t my baby. This is just something that I did a lot of research. I found out that there was over two and a half million visitors annually into that area and 84 hotel rooms and of which I owed 24 of them. So they’re like, well, not enough people are staying here. I’m like, well, they can’t. You got two and a half million people driving through your resort area and you only have 84 hotel rooms. You’ll never have more than 84 stays ever. And cause you can’t, you don’t have the space.

So you can’t count those as people. got, I mean, they can’t count as people, but you can’t count those as stays. They got RVs. You don’t know that they’re staying overnight. It’s all national forest and state owned ground. They just disappear into the desert kind of. So really fun. This is a really fun project for real estate. I mean, this has been way outside of what I expected, but it’s been a fun learning curve.

Michelle Kesil (19:10)
Yeah, absolutely. Sounds like some exciting opportunities are on the horizon.

Jeremy Barker (19:16)
There has been, you know, the short-term rental, have seven single-family homes that I do short-term rental and long-term rental on, and it’s been much more difficult. first, they were very lucrative, and I’ve seen them kind of taper down in stays, and the friction coming from the state and the counties and the cities has become really difficult to try to maintain your licensing and compliance and zoning. I’ve had one of my neighborhoods that had two of the homes in it in Kentucky.

They went from a non-HOA area to an HOA area and they voted out short-term rentals. So now all of sudden I’m in friction with the HOA by having short-term rentals so we can’t have those anymore. So I feel like some of those are a little bit more high risk into those short-term rentals because I mean it can literally change at every tide and those are a little unnerving for me. I like to be able to have a little bit more of the say.

I still think it’s a great business model if you’ve got the right neighborhoods like this particular hotel project. There’s areas that have the proper zoning for it, but man, I’ll tell you just to go out there and start buying some of these things in normal spaces and to have codes change overnight. And then you’re stuck with a half million, million dollar investment and you don’t have anything else but long-term rentals. And if that’s not your business model, makes it more difficult.

Michelle Kesil (20:34)
Yeah, definitely. What would you say is like one of the biggest challenges that you’ve overcome as an investor?

Jeremy Barker (20:43)
counties. I mean, even outside the bankers, the bankers, thought were going to be the biggest challenge because they always seem like no-go-joes. You know what I mean? We’ve all sat in front of a banker that’s like, don’t see it. And you’re like, yeah, it’s because you’re blind. That’s why you work at a bank. You know what I mean? I’m not to bend down, play bankers, but they’re not investors typically themselves. So they don’t try to see the upside. They’re always looking for the guarded back side, which I appreciate. There’s a role for that. But what’s been difficult is truly counties and cities. You know, I’m all for

government by the people for the people. That makes sense, but unfortunately the people that have a tendency to run for small town or even big town government and city and county councils, they typically have bandwidth and usually when they have bandwidth of time, their demand levels are down or they don’t have demand for themselves, which means they don’t have usually high end roles. They haven’t run big businesses. They don’t understand even the role that they’re applying for. So for example, a planning and zoning official.

that I’m working with currently literally works for the county roads. You know what I mean? Now that would think, you would think that county roads would make sense, but no, they grade roads. They’ve never worked in the government side. Like they’ve worked for the road department grading roads, but how do they know they don’t understand underground? They don’t understand how to read a plan or engineering. Like they, it’s a really interesting dynamic, what you’re trying to teach the council members. And if they have questions, they just table it.

They don’t have to be the one paying interest on these deals or they’re not the ones that are really spending the money for a different concept or a new engineering concept or a new plan. they, you know what I think would be really cool? What if you did this? I’m like, well, that you think would be really cool. It’s like $5 million. Like, so here’s a really funny one. The lady, I had to design a whole landscaping plan around this project. They want a beautiful landscaping. The irony here is no planting because it’s requiring watering.

and they don’t have any water for secondary usage. I mean, we’re in the state of Utah, so they’re very minimal on water in certain areas. So they came up with this elaborate landscaping requirement, which is that got written into code in order to do your building permit. But guess what? Now I’m gonna be planning all this beautiful landscape with irrigation that I can’t water because it’s against the rules. But because one code says, hey, you have to have landscaping and watering and the other rule says you can’t use water to…

water landscaping, so it needs to be something different than that. And I’m like, you guys realize it’s literally a $3 million landscape package. So when you say what’s the biggest challenge, it’s been working with cities that don’t quite communicate with one another. One’s writing a code about this, the other one’s writing a code about not watering. It’s like, hold on, you’re telling me to landscape and you’re telling me not to water it. So it’s just planting a bunch of trees to die. I don’t understand the principle.

And no one’s giving, by the way, so I still have to plant the trees and let them die.

Makes no sense. So how’s that for a challenge?

Michelle Kesil (23:40)
Yeah.

Right.

Jeremy Barker (23:45)
it’s frustrating.

Michelle Kesil (23:47)
Absolutely. Yeah, well, thank you for sharing everything that you’ve overcome and worked on. And before we wrap up here, if someone wants to reach out, connect, learn more, where can people find you and connect with you?

Jeremy Barker (23:52)
Absolutely.

Absolutely, it’s I’m on Instagram @therealJeremyBarker (@realjeremybarker) Also on LinkedIn Jeremy G Barker or you can email me at JBarker@Murphydoor Anytime and I’ll do my best to answer help you with questions If any of you guys want to ask me how I’ve done certain things I’m happy to at least outline the framework in a high-level way for you guys to grasp So I thank you so much Michelle for having me on today

Michelle Kesil (24:26)
Yeah, of course. And for the listeners tuning in, if you got value, make sure you’ve subscribed. We’ve got more conversations with operators like Jeremy, who are building real businesses. We’ll see you on our next episode.