March 13, 2023

JF3112: How to Achieve Double Digit Cash Flow ft. Justin Sloan


Justin Sloan is the CEO of Sloan Capital, which helps investors deploy capital into various asset classes. In this episode, Justin discusses his transition from residential real estate to commercial, specifically strip malls and debt-free restaurants. He shares his strategies for identifying the best strip mall properties, filling them with the right tenants, and achieving a goal of double digit cash flow.

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Justin Sloan | Real Estate Background

  • CEO of Sloan Capital, which helps investors deploy capital into various asset classes.
  • Portfolio:
    • 9 commercial buildings
  • Based in: Cedar Rapids, IA
  • Say hi to him at:
  • Best Ever Book: Chop Wood Carry Water by Joshua Medcalf
  • Greatest Lesson: Ignore shiny lights and focus on repeatable, scalable processes.


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Slocomb Reed: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Slocomb Reed, and I'm here with Justin Sloan. Justin is joining us from Cedar Rapids, Iowa. He's the CEO of Sloan Capital, which helps investors deploy capital into various asset classes with a focus on strip malls, absolute triple net, and other commercial real estate. Currently, Justin is splitting his time between real estate and opening [unintelligible 00:01:05.27] restaurants, with a plan to open at least 12 of them in 2023. Also, for the past two years, he's been more focused on selling his real estate portfolio than on growing it. Currently, he owns nine commercial buildings. Justin, can you tell us a little bit more about your background and what you're currently focused on?

Justin Sloan: Yeah, it's good to talk to you. I've been listening this podcast off and on for years and years, and it's good to be here. So thank you. My background - right out of high school, I started working in strip malls and cell phone stores; eventually went on to own some of my own cell phone stores, and was very familiar with being inside of strip malls... And you learn the economics of it. And as we continued to grow, then I eventually fell in love with real estate, and single family, and then multifamily, and worked my way up into now buying strip malls. And as you said, I've taken a different approach. As everyone's been buying and going all-in over the last year, I was glad to sell them some of my low cap/high rent properties, and now we're taking those profits and rolling them into debt-free restaurants, and continuing to scale those.

Slocomb Reed: That's awesome. I do want to ask, because I feel like we can get into some good discussion here... It sounds like there was a moment in time when you decided to flip the switch and be a seller of real estate instead of a buyer. Is that correct? Was there a specific time when you made that decision? And what were the factors that went into it?

Justin Sloan: Sure. I look at real estate a little bit differently than most. A lot of people are buy and hold, or they're gonna hold it for three years, five years, seven years; they create a time plan. But to me, I believe that once you've created all of the value that you can in real estate, that it's a good time to consider selling things. So I own some Dollar Generals, and we had a renewal on one, and I ended up buying at an eight and a half cap, getting an increase and being able to sell it at a 6.25 cap. And now that same property is back to a seven and a quarter, seven and a half cap, just due to interest rates. So when I see opportunities like that, I would never buy it for that, so I have to sell it for that. And that's what I did over the last year, as I saw tenants are paying rents that don't make sense, going up 20%, 30% a year for multiple years in a row, and then you see all this new building going on, and multifamilies are almost going to double over the next few years... And I just see the pain out there, so I'm happy to take some off the table and do some other stuff while we wait for the market to do its thing. And as we know by the data right now, it's kind of doing its thing.

Slocomb Reed: That's a much easier argument to make now in early 2023 than it was a couple of years ago. When is it that you went from being a buyer to a seller? Do you recall?

Justin Sloan: Yeah, late 2021. There was properties where we knew that they had already gotten a renewal, the rents were already maxed out, we ran comps of everything in the area, and it just makes sense to take stuff off the table. Especially in strip malls, there's certain times when it makes sense to sell the properties. If your major anchor tenant happens to be two years from renewal, you're probably not going to get the highest dollar for that property... Whereas right when they renew, you've got a lot of time left on that lease and you're gonna get more value from it.

So going into COVID and working through COVID, I was very fortunate -- I had 40-some of my tenants call me and they were gonna go out of business and lose their everything... And at the end of everything, we only lost one tenant; they disappeared in the middle of the night, and never even gave us a chance to figure it out... But that's okay. And we saved everybody else. And through that, we got renewals, and increases, and took the rent that they owed and maybe spread it over the next few years, or things like that... And once those properties were back on track and performing, and crushing it, and the market was telling us we could sell it for 30% or 40% more than we bought it, it just made sense to sell. I would not buy it for that price, which means I need to sell it for that price.

Slocomb Reed: This is late 2021... So I am coming from a different perspective when it comes to real estate investing, Justin. I'm primarily a residential and commercial multifamily owner-operator based out of Cincinnati, Ohio; the location does affect some of my decision-making, I will say, but looking at something similar, and looking at similar circumstances where I would have been able to sell property I own for much more than I'd be willing to buy it - again, talking about residential multifamily, and a little bit of commercial multifamily - my response instead was to take advantage of historically low interest rates and just refi everything. Some of them on cash out, some of them just [unintelligible 00:05:30.06] go from four point something or five point something to three, or three point something. So why not just have refinanced your debt back then to take advantage of the other factors affecting the real estate market? ...and frankly, impacting those higher prices that everyone was willing to pay.

Justin Sloan: Yeah, so I definitely did do a lot of refi's. And I got everything into the threes, and when everyone's going to be expiring in the next 18 months or so, if you look at national timeframes of debt expiring, I'm not going to be affected by any of that. We've got ours out a lot further, and I feel good. But again, it comes back to me of "Have you maximized the value of the property?" I sold every rental house that I owned over the last two years. I think I had 11 left, or something. I had 20-some at some point. But anyways, with the 11 left, we were cash-flowing $300 to $400 apiece, and rents were slowly going up, and all that kind of stuff... But when you can sell a property for 30k to 50k dollars more than you bought it for, not just than I thought I bought it for, than the price was a year ago. Last year, the price was 120k. Now the price is 150k. If I only cash-flow $300 a month, and you're offering me 30k... That's 100 months of cash flow. And I will take 100 months of cash flow to never have to go chase down a tenant, never hear about a leaky toilet, never to have a plumbing problem; give me the 100 months' rent, and I'll go and I'll take a trip onto a beach and sit there for a while. And then, as the market now comes down 10%, 15%, 20%... I think it's gonna get worse, as more units are getting on, and consumers are having some problems - it is what it is - then we'll go back and we'll buy some of those, and I'll go back to making my 300 bucks. But instead of doing it on one, I'm going to take the profits and go do it on two or three. And yes, is it a little bit more work? Sure. But I don't need to have all of my dollars working at all times. I can be strategic and intentional. When the goose lays the golden egg, you've gotta take it. And I've never imagined some of these properties at these prices I have to sell them.

Slocomb Reed: Justin, that makes a lot of sense. I guess, personally, I decided to take out the cash-out refi, leave 30% equity in the property, and let that 30% continue to roll, and give me the monthly cash flow, while putting some money in the bank without needing to worry about the capital gains implications, because it was a refinance, and not a sale. Justin, from your bio, it sounds like you are raising capital for your deals...?

Justin Sloan: Yeah.

Slocomb Reed: Is that both the real estate you'll be looking to acquire in 2023, and in the restaurants?

Justin Sloan: Yeah, so we originally started by just syndicating one-off deals, small partnerships. And then as we've gotten into the restaurants, and we're scaling that at a quite a bit faster rate, then we begin to syndicate groups of restaurants. So we raise money for three to six restaurants at a time, we then go deploy that capital; again, we do these debt-free. So right now, as less people are signing leases, and some of the rents in strip malls are coming down, we're actually able to take advantage of those, and put the dollars to work, and arbitrage that in a way that's just a little bit less risk-adverse than the current real estate market. Going and buying things at six caps when prime is 7.75 is very difficult right now. So we're expecting more pain to come from that, and happy to be in the operating business model right now. We're likely to head into some questionable times. And to have less debt and to have cash-flowing businesses, that provide income for us to continue to go out and take advantage of these opportunities - I think we're going to be set up pretty well.

But I definitely don't disagree with the idea of cashing out and keeping the properties. Part of the reason that I sold a lot of the things that I did was because I did not want to be in residential anymore. So if I still wanted to continue my residential, then absolutely refi and go and use that no capital gains type of thing. But again, we're kind of flipping out of residential, and into restaurants, and creating different kinds of management groups that handle those.

Slocomb Reed: The restaurants that you're starting, you're starting debt-free, correct?

Justin Sloan: That's correct. Yep.

Slocomb Reed: Gotcha. So the question I want to ask - and again, this is not the podcast for pitching current offerings, and there aren't any offerings or securities being made available during this episode, as Joe's disclaimer at the beginning has already told our listeners... But I want to make a comparison between what - for passive investors, what kinds of returns are available in the commercial real estate deals that you'd be looking to do, and then the debt-free restaurant deals that you'd be looking to do as well. Can you give us a comparison about what those returns are going to look like?

Justin Sloan: Yeah, absolutely. So again, when we're doing real estate deals, we're intentionally buying properties where we believe that there's room to improve the property somehow, ad then it will cash-flow along the timeframe while we improve it. So that means units that are rented less than the competition - maybe the strip mall needs a redo of the outside, and then we're able to raise rents by a little bit etc. So every deal is going to have slightly different plays, but our goal is double-digit cash flow. That's always been something that I've told all of the investors. And right now, getting double-digit cash flow out of real estate deals is hard. If you're going and buying a six cap and you're putting 30% down, and you're financing at 6, 7, 8 percent, those numbers just don't work as well. And on top of that, you're buying things at record rents, and again, like I said, record low cap rates. So there's a reason we're not buying. I don't feel the need to tell my investors I have to buy real estate all the time. I went to them all a year ago, and I said, "I'm not putting my money in this. I would feel bad putting your money in this." And so far I've been right, as we've watched these five caps turn into six caps, and the six caps turn into seven caps... And people have lost 20%, 30%, 40% of the value of their property as the interest rates and demand have changed the markets.

So basically, the exact same thing happened in the restaurants. I have a group of investors that continue every year, they tell a few other people, and all that kind of stuff. So we continue to scale, and we looked at where do I want to put my dollars at? And for me, it went back to my cell phone days, and dollar in, dollar out; fixed cost. If we could do it debt-free... There was a very clear model that if based on the AUVs of these restaurants, and the fact that we're doing it debt-free, if we can complete that business model, then we have a very clear path to double-digit cash on cash, and then we give them ownership in the actual restaurants themselves. So as we go and sell them, they're part of that; they receive K-1, just like real estate, but it gives them a different approach.

So you can get the income from the restaurant, or you can get the rental income from the restaurant, or you can get both. And I think as we scale, you're going to see us buying strip malls and putting restaurants in there. And you're going to see us having businesses with owning the real estate, and double-dipping in certain things, and taking advantage of these... But right now we have an amazing brand. Just last week 50% of our stores had record weeks again, in the middle of February. [unintelligible 00:12:28.10] cold product and still in the middle of February, we're crushing, and that's where we're going to keep growing and keep spending the dollars right now. We know a dollar in, and what we can do with that, whereas in real estate right now there's just a lot of things going on in the economy, and I'm going to wait to see the dust settle a little bit more there.

Break: [00:12:46.26]

Slocomb Reed: Let's let the listeners google what [unintelligible 00:13:46.21] restaurant are, Justin. Keeping this a commercial real estate investing conversation, an [unintelligible 00:13:56.03] restaurant is a bit niche, but I'm imagining it's more fast, casual?

Justin Sloan: Very much quick serve. In and out delivery...

Slocomb Reed: Quick serve, fast, casual delivery...

Justin Sloan: Chipotle-like...

Slocomb Reed: Yeah, similar to Chipotle. That makes a lot of sense. Given your experience with strip malls going into a strip mall style restaurant -not exclusively; I'm sure strip malls aren't the only place where your restaurants will see success... But I want to ask one question two different ways. As an owner of fast, casual restaurants, specifically these [unintelligible 00:14:36.26] restaurants, where does it make the most sense to put a restaurant nowadays? And then as a strip mall owner, when does it make sense to be adding a fast, casual restaurant to your strip mall?

Justin Sloan: I like this question. Perfect. So when I got into real estate, I've found a niche in real estate; it was three-bed/one-bath slab houses, with one or two [unintelligible 00:14:59.11] garages. And I did everything that I could, sometimes buying multiple on the same street; I created campaigns, I knew the neighborhoods, I knew the houses, and I went everywhere to find this niche. And I knew that if I bought a three-bed/one-bath slab, and around this dollar point, around this condition, that there was a very, very high success chance of making money. And the exact same philosophy comes down to restaurants.

So with technology, we can track how busy a street is, how often people visit strip malls. Then from that we can learn what are their income levels. Is that something that can support? We know that [unintelligible 00:15:37.12] places do really well next to gymnasiums, or a Kroger, or a shopping center of some sort. So when people are out, going shopping, and they want a healthier meal than Taco Bell, or something along the lines of that.

So basically, what I do is I've created the same filter as a three-bedroom, one-bath slab house, I've created filters for under 1,300 square foot, very nice anchored, quality strip malls, and as those come up, I have two leases on my desk right now, where there was a 3,500 space that somebody took 2,300 of, and we were left with the 1,170, or whatever it is - and boom, that hits our criteria; we're there visiting it, walking through, we have an LOI and a lease within a few weeks.

So we always, in all these cities and ideal places and expansion territories, we have filters set in place, and we're just creating the same thing over and over and over again. And from the way that we greet our guests, to the way that we deliver food, to the way that we order, to everything is the exact same, in the same way that when I bought my three-bed, one-bath slab houses, nobody knew it, but every house was the same paint color, it was the same carpet, it was the same cabinetry when I had to redo them. Every single one was the same, but nobody knew it. Every one of my restaurants is the exact same, too. So I just have to do the same thing over and over and over again.

And then the other part of your question regarding when is it a good idea to put something like this into a strip mall... So for me with strip malls there's tenant mixes; and introducing businesses into strip malls, you need to make sure that it meshes well with the other tenants. If I'm right next door to an ice cream place, and there's only three businesses, and it's ice cream me and then there's somebody completely random... Well, maybe that doesn't make sense. But like I said before, when we're next to a gymnasium, it makes a lot of sense, because people work out and they want something that's healthy, and they want something that they can fuel themselves with. So when we're next to a gym, we crush it. So we intentionally try and find locations and find tenant mixes.

And then also in my strip malls I'm very cautious of - if we have a family learning center, you're not going to put a tattoo shop or a gun store, right? They're going to have different clienteles and different bases. So the more that we can make the businesses thrive together... Get your hair done here, get your nails done there, grab an [unintelligible 00:17:56.11] bowl, all this stuff goes together - that's really when the strip mall start thriving, because the businesses grow together and are positioned well together.

Slocomb Reed: Justin, I'd like to try to summarize that with my own words, to make sure I understand. It sounds like when choosing a location for a fairly niche restaurant type, you're looking for cross-pollination with the other businesses in that strip mall, or within walking distance from you. Like you said, healthy food next to another place where people go to be healthy makes a whole lot of sense, in a lot of ways. Same thing as a strip mall owner, you want to know that there's some sort of cohesion or cross-pollination between the businesses that you're renting to, so that you're capturing more business from the people in that area who are visiting the strip mall. That makes a whole lot of sense. And I would imagine that as a strip mall owner, you're in a position to command higher rents from cross-pollinatable businesses. If a family learning center is looking for a space, they're going to be willing to pay less to be next to a tattoo shop, or a gun shop, than they would be to be next to other cross-pollinating style businesses that are serving the same customer base. Is that fair?

Justin Sloan: Yeah, absolutely. And at the end of the day, the success of the business equals the success of the strip mall, because tenants can only pay so much rent. So the more successful that you make the strip mall and the more that you help with adding parking lot lighting, adding a drive-through, redoing the landscaping, making that building more attractive, the more business that they get at that building, most businesses pay a percentage of rent. Restaurants want to be under 10% rent to sales ratios. So the more that we can do to get them there, then it actually allows us to continue to raise rents and we can both be more profitable together.

Slocomb Reed: Justin, I'm not asking you about your acquisition of new strip malls, but your operation of current strip malls, or the business plan that you're going to put together after you decide to acquire a property... When you're trying to figure out what customer base you want to be served by your strip mall, when you have a vacancy or a high level of vacancies, how is it that you go about determining what that customer base is going to be? Is it strictly the businesses that are currently in place, and finding cohesion with your new tenants? Is it purely the demographics of the area? Is it a combination of both? What are the details here that I'd be missing?

Justin Sloan: It's a combination of both, along with the risk/reward possibility of a tenant. A mom and pop restaurants where they've never owned their own business, they haven't created their menu yet, they're going to be working open to close seven days a week, has a little bit more risk than a proven franchise; they own 10 concepts... In the same way that a mom and pop grocery store is more risky than a Dollar General, because it's more of a systemized process.

So as we're placing and we're looking at things in our buildings, it's not only does the business make sense, it's what's the chance of success of that business. Because another thing that you don't want is businesses going out of business a lot in your strip mall. So we intentionally slow down; like very, very few vacancies across our portfolio, because of the fact that we keep rents in line and we work at such a scale that we can continue to grow with our clients. But when we do have vacancies, I'm not trying to sign the first lease that comes across. It's very common, "Oh, here's the cheapest thing; we'll pay whatever", and they just want in, but that doesn't necessarily help you with the success of that strip mall. When you go to sell that strip mall, you're going to have to answer for every thing that you did while you owned that strip mall. So if you sign a bad lease, or it's not guaranteed, you take responsibility for everything, or who knows what it is. When your buyer comes in, they're going to be looking at all that things and saying, "Why did you sign this lease? Why are they paying half market rent?" and all of these kinds of things, and it's going to hurt the value of your property.

So find the good tenant, take the time, make sure it's a good fit for your property... And then, again, it's like getting into a multi-year relationship, not only with that tenant, but that tenant and with other businesses. And the more that they can mesh and win together, the better that the property is, and the more growth that you'll see inside of that individual property.

Slocomb Reed: That makes a lot of sense. Justin, are you ready for the Best Ever lightning round?

Justin Sloan: Let's do it.

Slocomb Reed: What is the best ever book you've recently read?

Justin Sloan: Oh, I'm stuck on "Chop wood, carry water" right now. We have a huge, crazy large goals, and that book is so good at the process of breaking it down into small, manageable chunks. So "Chop wood, carry water", I love it.

Slocomb Reed: Who's the author?

Justin Sloan: Joshua Metcalf.

Slocomb Reed: I was gonna say Ryan Holiday. That sounds like something Ryan Holiday would write... But Joshua Metcalf.

Justin Sloan: It's about a samurai archer who wants to become a samurai archer, but as sensei breaks it down into small tasks - if you want to be great at something, you've got to learn how to do the small things amazingly. Great book.

Slocomb Reed: Nice. I'll have to get it in Audible here soon. Not the use of the phrase "chop wood, carry water" that I was expecting. I use it in more of the stoic sense very often. Justin, what is your best ever way to give back?

Justin Sloan: Local. Find people around you that you can help. There's one thing to write checks and go to these fancy charity auctions and raise a paddle and all that kind of stuff... But for me, my intentions and the things that I'm doing right now is local, local, local, and watching the difference that that makes. If everyone focused local, local, local, I think we'd see a lot of progress across our country.

Slocomb Reed: In your real estate investing experience, Justin, what is the biggest mistake you've made and the best ever lesson that resulted from it?

Justin Sloan: I have made every mistake that you possibly can... But the advice that I'll give is make sure the mistakes that you make are things that you can recover from. For example, when I was right out of college, or in college age, I guess I should say, I thought I could day-trade. And that first time you lose 1000 bucks... Oh, does that hurt. But you live on right? And then as I got my first business, then you make your first 10,000 mistake. And then as you keep growing, you make your first $50,000 mistake. And man, these hurt. But learning happens when you fail.

So the biggest thing that I would say is when everybody wins all the time, you don't really learn much. Everything that you do is perfect. You couldn't make a mistake. But the more that I make mistakes and the more problems that we get into and all that, the more that we learn, and it actually ends up that we grown dramatically more.

Slocomb Reed: On that note, what is your best ever advice?

Justin Sloan: Go do something. I don't care what it is, but -- I love podcasts, I love books, I love all this kind of stuff... But confidence comes from getting out there and actually doing something. So if you've been sitting there looking for your first deal for 2, 3, 5 years, like I know so many people have, go pull the trigger; go do something, go invest with somebody. Go do something, because when you make that step and you make that commitment to starting the journey, the next one gets easier and the next one gets easier. And I'm so fortunate that in my early 20s I decided to make that first step and try my first business... And I had lots of failures and lots of things happen, but now from that you just get better and better and better. So you've got to get started; go do some deals.

Slocomb Reed: That's awesome. Last question, where can people get in touch with you?

Justin Sloan: I actually started the Instagram thing about two years ago, Sloan Capital. We actually document our openings, what we buy... I give my opinions on real estate and what's happening in the markets... And then LinkedIn, Sloan Capital on LinkedIn as well. I love to connect with different people, so feel free to reach out.

Slocomb Reed: Justin, thank you. Best Ever listeners, thank you as well for tuning in. If you've gained value from this episode, please do subscribe to our show. Leave us a five star review and share this episode with a friend that you know we can add value to through our conversation today. Thank you, and have a best ever day.

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