The Real Cost of a Bad Lease

Most entrepreneurs spend countless hours thinking about the business they want to build, but far fewer think about the location, the lease, and long-term financial decisions that can quietly make or break it. Today's guest understands that better than most. Joseph Gosling started as a software engineer before making the leap into commercial real estate, a move that ultimately gave him the freedom to leave corporate America and build something of his own. Now, as managing principal of Eureka Business Group, he helps business owners navigate one of the most overlooked and expensive parts of entrepreneurship.

From choosing the right market to avoiding costly lease mistakes, Joseph believes business owners shouldn't go into lease decisions, these decisions alone. If you're exploring business ownership, this conversation could save you far more than money. It could save you from the wrong deal entirely. I'm Sarah Wasco, and this is my colleague, Roxanne Rapsky, and we created this podcast to bring you information and education about everything related to business ownership and franchising.

Welcome to episode 120 of Unpredicted Entrepreneur. We're so excited today to welcome Joseph Goslin, and it's a long title, so I'm going to read it so I make sure I get it right. Principal of Eureka Business Group, a DFW retail and single tenant net lease investment advisor. Say that fast five times.

Thank you for joining us, Joseph. Thank you for joining us. Thank you for having me. I appreciate it.

Joseph and I met a while back through a mutual networking group that we're a part of and got a chance to get to know each other a little bit. And then again, we both participated in an educational business ownership educational event hosted by the City of Mesquite's Economic Development Organization, Economic Development Center. And when he was speaking, I was just thinking, man, so much of what you are sharing is so relevant to our listeners who were thinking about business ownership and might be signing a lease.

So I said, will you join us and share some of your wisdom? So here you are. So we always like to start with background. As we said in the intro, you have not been in commercial real estate your entire career.

You started off as a software engineer. So just tell us a little bit more about your journey. Yeah. So I went to school for engineering.

I graduated and started working as a software engineer. But right around when I was graduating, I read Rich Dad, Poor Dad by Robert Kiyosaki. That book started so many real estate investors and it made sense to me. So we started investing in real estate, my wife and I.

And that's always been a side hustle or a passion. And when we started investing, we realized that we don't know a lot about real estate. So both me and my wife got licensed. So we'll get not only the knowledge and the information about how to do real estate, but back in 2008 and 2009, there was no realtor.

com and Zillow and all that. So having the license allowed us access to the MLS, which meant we saw properties two, three days before the rest of the world. So that's how we started. I had my career.

My wife had her career. But we had this side thing that helped our investment. And then friends and family said, well, I want to invest too. Help me out here.

helping out there. And we built the practice from there. And somewhere around 2015, we graduated from residential into commercial. And me and corporate America, we're not very good friends along the way.

I have a lot of opinions, and that's not very supported in corporate America. So the move to commercial allowed me to make that step and that leap of faith, right? Of saying, you know what, I'm going to do my own thing. And that's how we got started.

So it started as a side hustle and then you built it up and felt comfortable leaving corporate America in 2015. So tell us a little bit about your business now and kind of what you specialize in and focus on. Yeah. So we are a commercial real estate brokerage.

Our main specialty is retail. So we help anybody that is interested in retail real estate. Mainly we work with investors that own shopping centers or triple net or net lease properties. This is your single building that has a McDonald's or a Chase Bank in it, right?

And because we manage shopping centers for our owners and our investors, then that allows us to represent them when we lease a space for their shopping center. And because I also believe in access we also do tenant representation So that means somebody that wants a space for their business they going to call us and say hey I need 2 square feet 1 square feet I want to open a restaurant. I open a shoe store. It doesn't matter what it is.

And we're going to help them find the right space for them. And because we're owner operators and investors ourselves, we have a little bit more perspective of what's right. So if I represent the landlord and you call and say, hey, I got a pizza shop and I already have a pizza shop in the shopping center, I'm not letting you in. The right mix in the shopping center is important.

So we try to take an advisor approach beyond just a broker that wants to close a transaction. That's wonderful. Yes, because most of the people, you can correct me if I'm wrong, but I feel like most of the people that, especially that we work with, that a lot of business owners have never done this before. They don't know what they're looking for.

They don't know how to go about finding a location. So tell us a little bit more about kind of how you can serve the prospective business owner in that scenario. Yeah. So what amazes me the most is that when I represent the landlord, when I lease a space in the shopping center, nine times out of 10, that person calls me is the business owner directly.

They're not represented. They don't know what questions to ask. They don't know what a triple net lease is. They don't have the right way to assess the property.

And sometimes we have to help them figure it out and help them figure out, well, that's not the space for you. And sometimes we just work and our job is to protect the landlord in that case, right? So I tell business owners, always get a representation. Just like in residential, your broker is going to get paid by the landlord side.

So you're not coming out of pocket for having a representation. So there's absolutely zero reason why not to have one. And when we do represent the tenants, we help them with a lot of things. The first conversations we have with them is, who are you selling to?

Who is your demographic? What is your, what we call avatar? Are you selling to senior citizens? In that case, I'm not going to put you in a young neighborhood where the average age is 39 with two kids.

If you're selling, if you have a Lego store, I'm not putting you in a senior community environment. So even though there's a lot of seniors that love Lego, but that's probably not their target demographics. So that's really what it is. We start the conversation with a lot of questions.

At least I do. It's like, what is your business? What are you trying to do? Do you already have other locations?

Are we expanding? Are we starting in our first place? Who's your demographic? What are you trying to do?

And that kind of helps us navigate them towards the right places, the right location, the right budget. Sometimes they have wrong expectations about budgets as well. How do you handle when someone reaches out to you and they aren't represented? Do you refer them to somebody to get represented?

I'm assuming that you yourself, if you're representing the landlord, you can't also represent the tenant at the same time. I'm making an assumption here. Is that a conflict of interest? So how do you help someone that does that?

So we don't represent them and we let them know that we represent the landlord. We don't necessarily send them to go get representation. Sometimes we do when things get complicated or it's a large enough deal. I won't feel comfortable helping them through.

Then I'll tell them get representation. But if it's a simple enough transaction, not a big transaction, then we'll help them with the stages. We'll educate them about what is a triple net lease. Most retail locations are using triple net leases these days.

And a triple net lease basically means you have your base rent for whatever square footage you're taking. And then you're going to have an additional line item, if you want to call it, on your monthly rent invoice that will say taxes, insurance, and common area maintenance. And that is basically when you lease an apartment or a house, you have just rent. The landlord kind of throws everything in it.

And they do that because they know that your lease is for 12 months. So if my insurance went up or my taxes went up, I'm going to catch up in a few months. When we do retail leases, we're looking at three, five-year leases. The landlord cannot take that risk.

So they separate those two elements. Here's your base rent. And whatever I'm going to absorb in increases in taxes or insurance or maintenance, I'm going to just pass it on to the tenant. And as a tenant, you only pay your fair share, your prorated share of what those expenses are.

So if it a 10 square foot retail center and you taking two then you going to get a fifth of those expenses I actually see that somewhat as a benefit especially the common area maintenance because if you in a shopping center you want the parking lot taken care of You want exterior lights. You want landscape that looks good. And if the landlord has to think twice about every expense, then you're not going to get that. And that's really what we're seeing in those older ownership in older shopping centers that are still doing gross leases.

most of the time the shopping center looks dilapidated, not very well taken care of. There's deferred maintenance and the businesses are not very happy with the overall environment. Interesting. That is interesting and definitely not anything any first time or whatever thought about.

Yeah. You also shared with us lease versus buy. Do you help people kind of discern what might be the best path for them there as well? Yeah, absolutely.

So there's a lot of value in a business owner owning the business they're in, right? For starters, you get control. Nobody's going to kick you out. Nobody's going to say, I'm not going to win you your lease.

Nobody's going to say, well, you've built a wonderful business in the last five years. Now your rent goes up by 40%. I'm going to take away your margins, right? So the control element is important.

There are financial elements to owning the building that your business is in. And that's, in my opinion, one of the biggest banks for your buck as a business owner is to own that building. The first financial advantage is taxes. So when you pay yourself the rent, that is a write-off on the business side of things.

And then it's income on your holding real estate side of things. what's the real value is that we're shifting those dollars from your ordinary income, which is your business income, into your capital gain tax bucket, which is your passive income. And in today's world, the IRS is taxing your top dollars on your ordinary income at about 37%. But your capital gains tax is normally about 15% to 20% for most people.

So we're shifting those dollars into a lower tax bracket, basically. Exactly. So that's that. And the last benefit is if let's say I pay $5,000 rent to my landlord, all that $5,000 goes out the window.

But if I pay myself that $5,000, most of it is going to go to the bank for my mortgage payment. Right. But some of it is going to be principal pay down that I'm going to get to keep in my family, building my family wealth, building this little piggy bank in the background that will allow me to tap into it if I have to on a rough year. because every business goes through ups and downs, right?

Or tap into it when I have a great year and I want to expand and I want to take that money and get another location. So lots of benefits. It really is customized advice based on the circumstances of the person, based on, well, if you need to be in a shopping center next to a target, you're not buying the building. Right.

Right. But if you need a standalone little taco place with a drive-thru or a coffee shop, We can look at a lot of options for you and help you with that. So it's a very highly customized version of that. And then I'm going to say one last thing about this thing is that a lot of those business owners don't realize that they can tap into programs like an SBA loan, a small business administration, that allows them to buy the building at about 10% down.

Which means you don't have to bring a lot of capital. Everybody thinks I'm going to have to bring a lot of capital to the table. SBA programs are pretty amazing about that. Because there's collateral.

It's not just a business loan. Exactly. Do you have any top things that you would advise someone to look out for if they were new and looking at going into a lease? Are there like some big warning signs that they should look out for as a newbie?

Yeah, absolutely. So first of all, educate yourself. We live in a world where you're going to have chat GPT at your hands or Claude and just go and have conversations. I am going to lease a space for a restaurant.

Tell me all the things I need to worry about. There's also educational videos on YouTube. We have a channel full of them that talk to tenants, talk to investors, talk to everything. AI is a power multiplier.

But in our world, it will help you get so far. It will never replace something like you guys do. And that's the relationship side of it. I have relationships with landlords.

I have a relationship with other brokers. While AI can easily give you most of the knowledge I have and most of the things that I accumulated through experience it will not be able to give you the relationships I have and my negotiation tactics knowing who I working against to figure out So I'm sure it's the same thing in your world. Yeah, absolutely. Picking the right franchise or knowing which ones are more problematic than others, having the relationship to open doors when they need it.

Right. So it's the same thing in our world. There are certain things and clauses that I see people constantly miss. For example, exclusivity.

I mentioned earlier, when I represent the landlord, if I have a pizza shop, I'm not going to bring another pizza shop into the shopping center because it's a bad business decision. But not all brokers look at it that way. Not all landlords look at it that way. And they will do that.

And they will cannibalize on your business. So having an exclusivity clause in your lease is going to protect you from that in the future. Because the current landlord might be okay, but you don't know who's going to be the next landlord. And same thing with the brokers.

So that's one thing that we see always missing. We've had the conversation about what a triple net lease is. We see a lot of times where tenants think, oh, they told me it's $15 per square foot for base rent, and that's all I'm going to pay. And then they get surprised by the fact that there's another chunk that sometimes it's pretty significant.

And I've seen retail centers where the triple nets are almost as high as that basement. Wow. So don't get surprised by these things. Things like how long do I have a lease for?

Do I have a renewal options? What are the terms at renewal? All these kind of things. Commercial real estate is complicated.

that's why we started the conversation with get representation, get the right person to represent you that will ask those questions for you, that will protect you for these things. We've seen some pretty nasty contracts coming from Lendloid that at least one case in the last couple of years, I can tell you we just walked away from that space because it would be very detrimental to lease a space with that lease. Well, and speaking of educating yourself, you've written a couple of books.

So why don't you hold your book up, Investing Beyond Tomorrow for our audience so they can see your book. There's one sitting behind me, but on a shot of Joseph, there's his book. Yeah, tell us about it. Yeah, well, thank you.

This book is written for my clients. Like I mentioned earlier, leasing is a part of our process, but our main practice is around investment sales. And we help both business owners buy the building and we help investors buy shopping centers and net lease properties. And when we work with high net worth individuals, there's a certain level they get to when they need to start thinking beyond the, how do I accumulate wealth for myself, for my retirement, for my kids?

And they start looking a little bit further down the road, thinking about generational wealth. And what I've learned is that at that point, most of my investors, they don't know what they don't know. They don't know even what the questions they should be asking. So that's why we wrote this book.

It talks about the investors that are, their retirement is covered, their kids are pretty much set, right? They're thinking about the third generation and on, and they need some help about what structure do I need to put in place, which team members I need around me, like a wealth advisor, like an estate planning, like asset protection, and so on. So we wrote this book to help kind of start that journey for them. Wonderful.

Yes, wonderful. So thank you so much for sharing your knowledge with us. If we have listeners that would like to get a hold of you and utilize your services, what would be the best way for them to contact you? Yeah, so it's easy to find us.

We have a very short URL for our website. It's EBGTexas.com. Stands for Eureka Business Group in Texas, right?

So EBGTX.com. And you can find us. Wonderful.

Well, we know you are busy. Thank you so much for taking time out to join us today. Is there any last words of wisdom you want to share before we sign off today? Get represented, whether it's on the commercial list or on the franchise selection, get represented.

It's important. Thank you, Joseph. We appreciate your time today. For those of you listening, thank you for joining in.

Once again, I'm Roxanne Rapsky, and this is my colleague, Sarah Wasco.