Should I Buy the Building? Or Stick to the Business?

Hello everyone. Welcome to the 21 Hats podcast. [music] I'm your host Lauren Feldman. This week, Jay Goultz, Lena Maguire, [music] and Liz Picarazzi discuss a common concern. When does it make sense to buy a building for your business? Under the right circumstances, say [music] with an SBA loan, a good location, and a little luck, the real estate could end up being worth more than the business itself. But what if the business is just getting [music] started? Or what if the owner is nearing retirement age and may not be around to reap decades of appreciation? [music] Is buying the business still a good idea? Meanwhile, Liz and Lena also compare notes on their ever evolving tariff challenges. One thing Lena has observed [music] is that some owners have just had it. They don't want to deal with the uncertainty and they're just packing it in. We're going to see who survives all this, [music] she says. And I want to be a survivor. Plus, Liz has her first aha moment with an AI tool her team built, one that's already helping convert sales. Even in good times, owning and running a business can be a lonely pursuit. Our hope is that these weekly conversations will let owners know they are not alone in facing challenges. In fact, that's the whole idea behind the 21 Hats community, engaging with other owners to get the kinds of insight only another owner can offer. If you're interested in learning more, you can sign up for the Morning Report newsletter, which offers examples every day of owners confronting challenges and seizing opportunities. Just search the 21 Hats Morning Report to subscribe. Joining me this week on the podcast are [music] Jay Goldz, who is CEO of the Golds Group, whose companies in Chicago include a picture frame business, artist frame service, and a home furnishing store, Jason Home. Lena Maguire, CEO of Spoka Kitchen and Bath, which [music] is based near Syracuse, New York, and designs and manages home remodeling projects, especially for those looking to age in place, [music] and Liz Picarazzi, who is CEO of City Bin, which makes trash enclosures and package bins, and is based in Brooklyn, New York. The episode [music] is titled, "Should I buy the building or stick to the business?" Welcome Jay, Lena, and Liz. It's great to have all of you here. I want to start today with a big decision that Lena recently made, which is to try to buy a building for her business. There's some unusual aspects uh to Lena's decision, which [music] we'll get to, but maybe Lena, you you could tell us what what drove this decision, why now? Well, I have been doing my strategic planning and in order to get to my 10-year goal, there are certain many goals that I need to meet and one of them is to have a larger space. And I started looking into that last year about leasing a space and that's going to cost me about $50,000 a year. And after 3 years, uh that would be $150,000. I'm thinking, you know, why don't I look into buying a building? In our area, buildings can be purchased for under $500,000. So, it made more sense to me to save up some money, use some personal finances, and purchase a building rather than putting money into somebody else's pocket. >> Can you tell us a little bit why you need the larger space? H how are you going to use the space? >> Oh, I'm bursting at the seams right now. Um, I have a kitchen and bath business. Uh, and I am a dealership, so I have cabinet samples, I have countertop samples, hardware, tile, flooring, and it's just I I have 370 ft, and it's just not workable anymore. So, I would like to get into a bigger space. So, I was looking at perhaps 12-,800 ft² as a starting point, and eventually I would like to end up in approximately 5,000 ft². So interim steps though I was looking for a bigger space just because I'm bursting right now. >> When you say interim steps, does that mean you're thinking that you would buy space now but plan to buy again uh when you need more? >> Yes. What I'm looking to do is get enough space for a little bit more of an expansion right now. And then as the business acrru money in my bank account builds up, I would like to build the space that I would like to have so that I have enough space for um events as well as for the showroom space. >> Ah events. Interesting. So the retail aspect of it is important to you as well. It's not just office and or warehouse type space, >> right? I have an office now and it's it's not really conducive to the showroom manner. So what I'd like to do is have the space for display so people can try before they buy so they can see it's an educational center. And then I also need work space for offices for myself and a designer um and an admin. And then I need event space so that I can do lunch and learns educational programs and community service type programs. So, one of the things that's unusual about this is that you're looking to buy a building while your business is still a startup and you can't possibly know how quickly it's going to grow or what your needs might be in 3, four, 5 years. How have you thought about that? >> Well, we're looking at flex space. So, where I am right now in my life, my husband and I are looking at diversifying our portfolio, our financial portfolio as he's looking towards retiring. and we would like to put real estate in our portfolio. So, that's where this kind of started. So, we're looking at a flex space, multi-use, where it's retail versus uh residential. And the area that we've targeted to purchase in u where my ideal clients are, there are a lot of shops with apartments above them or houses that are used as retail locations with back apartments or side apartments, that kind of thing. So, we thought that it would be good to use a space, a part of the building as retail space, which is allowed by code, and then have that residential rental income coming in to help support the cost of the mortgage. So, we're looking at opening um an LLC for the uh property holdings as Jay has advised and renting the spa leasing the space from my business um paying that to our personal holding and then also having some residential income from the rent from the apartment. >> So, you would be buying the building personally, you and your husband, and the business would lease the space from you. >> That is correct. >> You actually found something you wanted and I think you placed a bid. Is that right? I did. That was the scariest thing I ever had to do. Uh, I found a realtor and I spoke with my banker and started getting all that going and we were actually able to place a bid. The other realtor actually really liked the bid and they took it to the owner right away. The owner liked the bid, but unfortunately they had already gone into a contract with somebody else a couple of days earlier and so we are first contingent. So that hasn't fallen through 100% but it does not look good that I will get the building. They've already gone through attorney review. They've already had the home inspection. And the only way that uh it would fall into my lap is if it if the u house didn't appraise properly or if the financing fell through. >> When you say it was uh a scary moment making the bid, what was scaring you? >> Taking on the responsibility of having that bigger rent payment. Um using personal funds to support the business. Uh these are bigger numbers. you know, it's not like taking a $10,000 loan and paying it back in a couple of months. You know, this is a bigger commitment and I'd like to keep business separate from personal finances and I would, you know, not be co-mingling, but pretty darn close to it. So, feeling responsible for our retirement money being used, >> which brings up the other thing that's unusual in your situation. Um, like me, you're starting this business a little bit later in life than most entrepreneurs do. you don't likely have the the decades for real estate appreciation that Jay did, for example, when when he bought his buildings. Uh, is that a concern for you? >> Uh, not so much. Um, this is my second career. I am in [clears throat] my mid60s, so I don't have that big long horizon to make things work, which is why I'm pulling the trigger a little faster and trying to get those wheels moving as quickly as possible so that I can within 10 years have my business where I'd like it to be. >> Jay, anybody who's listened to this podcast knows that you have been a big proponent of buying uh the building when possible. Any thoughts on Lena's situation? >> Uh, I have three thoughts. one is I bought my buildings with SBA loans 10% down which I didn't have any money. So that if it wasn't for the SBA loan program I couldn't have done it. So that was a huge benefit and I was 40 when I was I when I bought 40 42 44 when I bought most of the properties. So SBA loans are great too. One of the advantages to buying a building that's got commercial on the first floor and residential on the second floor is I've learned, I don't know if this is just Chicago, but from my experience, I've seen that the commercial guys don't want anything to do with residents and the residential guys, many of them don't want anything to do with commercial. So, I think you can get a pretty good deal on a mixeduse building because there's less people looking for them. And if you're going to be the tenant, then it that's just a no-brainer because that's where all the risk is. So, that's a good thing. I will tell you something I didn't realize. I I didn't do it for real estate investment. I did it cuz I needed the buildings and I was expanding my business. I can't tell you I was that smart that I said, "Oh, I should really get into the real estate business." It just happened because I needed it. I will tell you the return on investment for real estate if everything goes as planned is very good. It's it's it's 15 to 20% return on equity. Why? Because you're borrowing money. So, you're only putting down 30%. If you're getting what's called the cap rate of 7%, which is what buildings are usually valued at, meaning the rent's going to be 7% of the value. So, if you're getting that 7%, that's good. But then the building's going to appreciate 2 and a half% a year, being very conservative, but you only put down 30%. Well, that's another 7% on the investment, which is only the 30% portion. So, you're making seven and seven. So, that's 14. If you happen to get into an area that's moving up a little bit, that could easily turn into 20%. So, real estate can be a very good thing. I'm sure there are cases where it goes the other way, but if everything goes to plan, real estate is an excellent investment uh that especially if you're running your business out of it because it's good for your business because you don't have to deal with the landlord. Here's something I always tell people. Landlords all have one thing in common. They all die. And the reality is if you're renting from somebody, they're probably in their 50s, 60s, 70s, they're going to die one day and their kids live in California are going to want to sell the property and you could be out of luck with, you know, where you're at. So, it just it's good for stability, >> right? And that's another point that um when we're talking about how to set up the buying of the building is um I do want my children to be able to inherit. So, we're talking about, you know, the LLC. It it works well as far as, you know, being the landlord tenant relationship, but then I was also told to look into a defective granter trust as well as gifting my children the cash that they would need to pay for a down payment on the building so that they could be partial owners. >> A defective granter trust. Can you tell us what that is? >> No, I just [laughter] >> Yeah, neither can I. That's over my uh that's over my pay grade. I've heard of it, but I don't really know what it is. that has been mentioned to me by a couple of people. Um, and it it just seems it's a way for the to um arrange your estate so that it's more tax advantageous so that the uh the granter is paying the taxes. I I don't know about all the details, but it's something to make sure that my attorney is savvy enough to that they know what it is so that we can make an educated decision as to whether or not to go that route. I have two adult children and we're looking into having them um be partial owners with the LLC holding company so that when I pass because you know like Jay said landlords die and they're once they're older uh and I am older and I plan to die eventually just like everybody else. So I would like the transition to the children to be as easy as possible and if they have partial ownership in it then that helps with the probate it helps with the with the passing of the estate. So, that's something else we're looking into. And I tell you, I am learning boatloads on a daily basis with this. >> Lita, uh, Jay was talking about the advantages of financing with the SBA. Do you have your financing lined up? >> We are working with our banker and it will be a commercial loan that uh, my husband and I will own as an investment property. So, we are not going through the SBA because the business isn't buying it. We're buying it personally. Wait, wait, just to be clear, that's not really the case. You could still buy. The problem is you have to uh occupy a certain percentage of the building. So, the fact that you have renters upstairs might make that not possible, but all of my buildings were SBA loans and I bought them all through LLC. So, that's not really the issue, but you have to be using X% of order to do that, which might not be the case in your case. >> Yeah, probably true. As well as um not having enough of a background to qualify for the loans, >> right? They might not like to think you're a startup, >> right? Yeah. >> So, does that mean you have to provide a lot of collateral that might be uncomfortable? >> No. Uh, we have enough that we could buy the building outright, but we want to do the leverage, so we're going to go the mortgage route. >> I assume they want 30% down. Is that true? >> Uh, in our area, they're only asking for 20. >> Oh, that's so So, so we're looking at, you know, if I could do 20, I'll do that. But if I have to do 25 or 30, you know, it's still not going to be a problem for us. But, you know, yeah, less is better. >> As far as return on equity, there's no question, this isn't an opinion, this is mathematical fact, real estate works best when there's some leverage on it because you're putting less money into it. Buying a building and paying all cash for it is not a great financial. You might sleep better because you've got no risk, but it's it's not the way people get rich with real estate, >> right? And that's the conversation I had with my husband. He thought we would just take that money uh, you know, from one portfolio and put it into the real estate. They're like, "No, no, no. We're not taking and paying cash. We're going to leverage the money. We're going to use as little bit as possible as a down payment. So, the bank is going to let us know what that is." And um currently they're suggesting 20%. >> Yeah, that's good. 20. >> Liz, I think uh also influenced somewhat by Jay, you you have had thoughts at various times about trying to buy a building in in Brooklyn. Uh certainly a challenging place to to do so. What's your current thinking? So a few years ago when we talk about this I was actually in a lot of warehouse pain um because you know with the pandemic and with you know needing to warehouse a lot for a while while we weren't selling as much. We got into a warehouse that turned out to be really not good for the business and they weren't really good people. And to make matters worse, it was about an hour and 15 minutes out of the city in New Jersey. And then they actually moved it even further out. So my technicians were driving the van out there like twice a week. When we went and got the stuff often, it wouldn't be ready for us to load in the van. And so my techs would have to sit there and twiddle their thumbs for a couple of hours. So there was that like logistical challenge. And then I just didn't really trust them. Well, then the next thing I did was move most of it into Brooklyn to an warehouse in Red Hook, Brooklyn. It's right on the water. And we outgrew that. Um, and then when we outgrew it, we ended up having two warehouses. Um, actually I would say two and a half cuz we had some stuff in self storage. So I knew I wanted something more permanent. I briefly thought about a warehouse, buying a buying a property, but on one hand, I don't think I would like running that business, and I know I wouldn't be running running it, but the idea of being a landlord on a warehouse, which yes, is a business, had absolutely no appeal to me, and I'm really focused on what I'm doing. Um, so the end of the story is we ended up moving into a warehouse on the campus of Industry City, which is where we've been there for about seven, eight years now with our office and our showroom is there. They have buildings all over this campus. I think it's like 25 buildings. And one of them, um, we had a we got a rate there that was really good. And so I moved all my stuff there about two and a half years ago. It's all consolidated in one location and it's literally walking across campus from my office to my warehouse. I like that because it's convenient. I also like it because it's easier for our technicians to engage with the team. So, they're just not driving between the warehouse and client back and forth, back and forth. They can stop in for meetings. And I feel like there's better cohesiveness because the schism that sometimes can happen in service companies between the technicians and the office is something I don't want to have. I had it with my previous business. So I'm sort of actively working not to have that. So we all feel like one team even if they only come into the office, you know, every other week. >> Is there room for you to grow there? >> Absolutely. We've already grown out of one location. We're the probably next year we are going to have to move but it's going to be within one building literally like from floor three to floor floor five or five down to three and um that's part of why we decided on that. Um similarly with our office we started in a small office and now we're in a much bigger office. All I had to do for that move was just across the hall. Didn't need to go to a different building, another part of campus. I literally doubled the size of my office by moving stuff from one side of the hall to the other. So, I really like that convenience and especially with the inventory. We're turning inventory really fast right now despite all of my challenges. Um, I also like the feeling of being around other small businesses that similarly may have their office um in one building on campus and then they're in this warehouse. So, this sort of split locations. Um, it's a feature of Industry City that I think is really great and it's totally worth it to me and has made the appeal of buying a building uh far less. >> Part of the story is you said they've got empty space there. They're probably giving you an aggressively good price. So, you know, that makes sense. It's not always better to buy the building. >> Well, and also the cost of driving time. So, you know, to go from an hour and 15 minutes drive to the warehouse to an hour and 45 with very little notice. Um, I have to count that as driving time as labor time. And so our situation now, we're paying less, less hassle, and um, with the ability to move into a larger space without much difficulty. We did have overflow a couple months ago and we rented incremental additional space and then they allowed us to just pay for a month and that was only for a month and it was all in the same building. It was very convenient. So I've got a great arrangement. Liz, you just compared your current situation with what you had before leasing in New Jersey. Did you price out a warehouse space to buy uh in your neighborhood? Is something, you know, comparable to what you have where where you're leasing now? Were those prices comparable? >> Honestly, I didn't I didn't seriously enough look at it. Um, I only did know that if I were to buy a building, a warehouse that it just would be so much more valuable outside of the city and more affordable. We do get a lot of notices from real estate guys who are trying to sell warehouses, but it's not appealing to me. You know, part of the reason I'm an entrepreneur is to do things that excite me, and that does not. >> Well, is part of it thinking about other uses for the money? Is it a question of what you want to invest in? >> Yes. And also a little bit of I might want to sell, you know, let's say I want to sell in 5 years, sell a business. I guess I just don't like the idea of my business then being as a landlord on building. I just I'm not interested in it. That's really what it comes down to. I >> mean, I have to tell you for 20 years I didn't own anything. I didn't buy the building till I was 42 for the reason I talked about. The landlord died and he was redeveloping it and I got pushed out and luckily the building next door was for sale so it worked out. But um coming up with the down payment for a building can be a real problem. I certainly didn't have 30% down >> and my business doesn't have 30% down either but I have the the finances with my family to do it. So that's a big difference being an older entrepreneur. >> There are advantages. Yeah, that is a big advantage. >> Well, and having a spouse that makes income. I mean, it's I've always been on my own. You know, my wife is raising the kids, so I didn't have a second income. >> Yeah. So, I realize I I have a lot of advantages that some other people wouldn't have as a startup kind of business. >> Jay, I know you're not uh interested in looking to sell your business, but have you thought about if you did choose to sell your business, which would be more valuable, the actual business operation or the real estate that you own in Chicago? That's an easy one. The real estate's worth more than the business. No question about it. Now, to be fair, the neighborhood I was in was a, you know, abandoned factory district when I it was better when I bought it, but it was still not what it is today. It grew into a major retail block and the real estate's gone up more than somebody in a normal place would have gone up. So, uh, but there's no question the real estate is, uh, worth more than the business. It's kind of in some ways you you've been operating a real estate company as much as a >> uh that's I have to have tell you my accountant once told me he goes you know you're really in the real estate business. I mean I I own five pieces of property that are all servicing the business and um yeah real estate's a good thing usually but like I said there's clearly some people that bought buildings that the neighborhood went back but I I think that's the exception more than the rule. I I think generally real estate is a good thing. >> Have you thought about it from that aspect, Lena? If for some unfortunate reason your business were to not succeed, is the real estate still a good investment? >> Yes, we have thought about that. So, the area we're looking in is a more affluent neighborhood. Um, it's more of one of those Main Street, USA village type things where, you know, everybody has flower window flower boxes and it's just lovely. Everybody walks through town. So, it's not quite a tourist destination, but the people who live there, uh, they like to go into the shopping district, and it's all very walkable from the farmers market to the different stores that they have. So, um, this is a a village that has been this way for decades, and it's just continuing to grow and it's actually, um, branching out into further streets. So, uh, you know, starting to maybe take over some of the residential areas. Are you at all concerned that this is locking you into something and decreasing the flexibility that you might like to have as you figure out what your business really is? >> No, I'm looking at it as a stepping stone. And if I only get to that point, that's okay. But if I don't do it, then I'm not going to get to where I'm going to go. So I I look at it as an investment for my family, but as business-wise, I do need the additional space. I do want to be closer to my ideal clients. Uh, and having that retail location near them, I will have more opportunity for walk-ins. Um, it just seems like a win-win all the way around. >> Jay, was there ever a point where you felt, I mean, clearly it's worked out beyond anything you could have hoped for, but I'm wondering if along the way there was ever an opportunity where you felt as though owning the real estate was costing you something in terms of flexibility or >> Um, no. But I will tell you when I bought the first building, I bought it for land value. That's how bad the building was. It was basically being used, not basically, it was being used as a warehouse for plumbing supplies. There was no heat, no air conditioning, barely had electricity. The roof was caving in. It was in bad shape. And not knowing anything, I figured, well, I'll put a couple hundred,000 under and get it fixed up. Yeah. Uh $200,000 is nothing. So, next thing I know, I'm completely I don't know what I forgot. I probably put out of my mind because I got PTSD from it. I I I probably put 600,000 into it and maxed out my credit line and was completely stressed over it. But I would tell people that advice. It's probably going to cost you more on the front end than you thought. It is. It is. It's the nature of the thing. But 20 years later, it's going to pay for itself 10 times over. So, it it can be scary when you buy a building cuz people don't know what it Well, some people do. I didn't. What it cost to fix up a building. It's it's not $20,000 usually. >> So, just to tie this up, Lena, you uh put in a bid. It's probably not going to be accepted. Where do you stand now? Have you spotted other possibilities? What's it look like? >> Not in the same town. There is another building in another town. So, I'm I've been going back and forth on it for the last week or so. and you know, do I want to take the opportunity to have a building because I really need the space or am I going to hold out for something in the area I want to be? And I'm leaning towards waiting for that right space in the town I want to be. Yeah, there's not a whole lot of buildings coming up for sale, but you know, there are three or four every year, so I may have to take a little longer than I want, but I think it's worth the wait to to find something. And being in the business where I can do construction, like Jay said, it it always costs more and takes longer than you think it will. And I'm prepared for that because that's what I deal with on a daily basis. >> Well, you know way better than I I never done anything, so I was just pulling a number out of the thin air. So, you you I'm sure have a better idea for And I I will tell you, I just talked to a guy that owns a bunch of commercial real estate in Chicago yesterday. He told me there are very few people looking to rent space now. He's he's got lots of empty spaces. So, it's a little bit of a buyer market at the moment. I think at least in Chicago it is. >> Yeah, it's that way here, too, that the there are more places to lease. They're getting a little more flexible on the payments and what you can and can't do. But it's also, you know, for the type of building I'm looking for, uh even the place I was looking at, the reason it sold was because the house next door was for sale also and they were buying it as a package. And it wouldn't surprise me if they were going to just raise the building to the ground and build something new because it effectively is two corners. >> I would also add looking for retail space, what I've noticed is go for the better location because the value of that is usually not baked into the price. Meaning to go spend another $200,000 for a building at even 7% interest, 14 grand a year, that's like nothing in advertising. So, if it's more noticeable, it's well worth paying more money. And from what I've seen, like you said, on a corner, from what I've seen, it's usually not baked into the price. >> Absolutely agree with you. I would rather pay more to have that prime location than to be a few blocks off of the main drag >> or even one block off. So, Liz, there are a number of things I'd like to uh catch up with you on. Um, as usual, there's some uh recent tariff news, I should say. We're recording this on Thursday, October 16th, and as of now, uh, President Trump has threatened to add an additional 100% tariff to everything coming out of China. You still, I think, have stuff coming out of China. Am I right about that? >> Yes, you are right. Um, we have diversified a lot in the last year in particular. We're now primarily in Vietnam. We've got a little bit in the US that we're starting with. Um, but there are some things we've worked on that especially actually the bear product, the Grisbin that we don't want to move that over yet. Um, >> just to remind people, the last time you were on here, you told us how you won your certification um to sell uh bear resistant trash enclosures. So, we are going to be moving the bear, the Grisben over to the US, hopefully completely in 2026, but we do still have some of it in China. And then we also on our regular product, we had a PO from a city in Texas that they want it fulfilled sooner. And so, we put the order in with China instead of Vietnam because at this point, China is actually not that much more expensive. The tariff in China um for me is 62% and in Vietnam it's 50. So we had placed the order um with the tariff rate at 50%. Then on Friday we hear about this threat of an additional 100% due to China making some threats about rare earth minerals. And um you know, I've been through this a few times before. Some of these announcements happen on a Friday night. I've noticed after the market closes and then I have the whole weekend like fretting about it. I did better this time because I'm used to it. I've developed the muscles for it. But I knew this weekend I needed to sort of get my thinking together to have to make a pretty big decision, which I made on Monday, which was to hold the container. We had a container that's supposed to This is I'm burying the lead. We have a container that's supposed to hit the water tomorrow. And I'm really glad that the announcement happened last Friday instead of tomorrow because I would have literally stuff on the water for less than a day that at 50% that suddenly was going to be 150%. So that would have been really scary. But because of the volatility, we're going to just wait it out a little bit. Um, there's some components from that container that we've pulled out because we're going to fasttrack them even if it was at 150%. So, I guess the message is this is this taco phenomenon is a real thing. I've become aware of it. So, taco Trump always chickens out. Knowing that that's a pattern helped me deal with this latest uncertainty. So that's what you're hoping for that the 100% will never actually go through and >> Lena there's also been a recent tariff placed on kitchen cabinets. Is is that an issue for you? >> Not yet but it will be. Um I have been very strategic with my business wanting to buy American since I started the business. So, it took me about 2 and 1/2 years to find the right company to partner with that they build everything in America. They do import their lumber from Canada. So, right now, uh, what we're doing is we're getting not quite weekly updates. Um, just as the tariffs change and as issues change with the cabinet manufacturer, they're letting us know where they're standing and that so far we're holding. But, yeah, anything that comes out of China, they're slapping on those u those tariffs. Uh, and I know a lot of my friends who have have different CA cabinet lines. They're quite concerned because they're talking about um having to increase their cost of projects by uh some of them up to 50% increase in the cost of the cabinets. And it's not clear yet if it's components or if it's completed cabinets. So, if you're importing a cabinet that's 100% made, are they going to tariff that or is it like the hinges and the wood and, you know, the other pieces that go into making a cabinet? So that's still all up in the air right now. >> Do you think there's some chance that could be advantageous to you in that your competitors with uh imported cabinets will have to charge a higher price than you do? >> It could come to that. Yes. Yeah. Uh right now what's happening is I'm looking at people who are at retirement age closing their businesses. They're like they just don't want to deal with this. It's gotten to the point where it's getting personal for them where they have to track what's going on and how much the prices are on a more frequent basis and they just don't want to deal with it anymore. They're like, you know what, let me just sell the business. Let me just shut the doors. So, I expect there's going to be a shakeddown where in the next 3 to 5 years, we're going to see who survives all this. And I want to be a survivor. >> I I got to tell you, things are more difficult now than they've ever been. I mean, I who could have even imagined this whole tariff stuff. And I can see where somebody who's 65 707 75 is saying, "Yeah, I don't need this anymore." Um I'm not there and I don't think I'll get there. But I I I can absolutely see where somebody would just say enough's enough cuz it's just it just keeps getting worse. >> Yeah. And as people are deciding to shutter with the cabinet lines, they it's a territorial type thing. So when you get a dealership, it's exclusive. So you can sell in this geographic area, but you can't have this other line. like I've been trying to get a particular cabinet line that's really great at a lower price point from what I carry and I can't get it because somebody else has the territory. So if somebody is going to leave the market and that territory becomes available then you know I'm next in line. So there are advantages to those who survive and disadvantages for those who just want to say you know I'm done with this. >> I mean do you have any idea what percentage of the market somebody like Home Depot has? I mean is this substantial? Do they have 30% of the >> I don't know the percentages, but it is tough. Yeah, they because they carry multiple lines. So, uh each of the box stores will carry a cabinet line at each price level and they're they don't get into level six, which is premium custom luxury stuff, but they do the other, you know, one through five and it makes it very difficult because the manufacturers are rebranding the names of the the cabinet lines. So, I can carry something and it's this line. Uh, but you can go over to the box store and it's the identical product, but it's called something different. So, what they do is they have several door styles that are exclusive to dealers and several door styles that are exclusive to the big box. And they'll do the same thing with a couple of paint colors and a couple of stain finishes. So, you have some variety, but you don't have that protection of this is a unique product that is just sold through you. So, yeah, the the box stores are a real issue. Liz, I think you said you're looking at next year for trying to get the uh bear resistant enclosures uh available. Is that because you're still uh looking at domestic uh fabricators? >> Yes, we are. We are actually have moved ahead with one of the factories, the metal fabricators in Indiana. they are making a a component part for our bins. So, it's not like they're making the whole bins yet. And then we have another uh factory. Um it's actually in Las Vegas and we are in sort of the final sampling process with them. I am looking to move the whole bear business to the US because it also helps me to get government work um particularly at the national level. the bay is often an absolute requirement. So that's an absolute goal. Um we only launched the Grisbin, the official bin on September 17th. So um we're going to really see, you know, how much demand is there and plan accordingly. It's not something where I've had the bear bins entirely made in China. I never moved those to Vietnam because I sort of knew I would need to move it to the US. So um it's really between China where the tariff is considerably higher and the US where that's the logical product to move over. There is another product that it's actually our highest volume product that I am also doing sampling on because if I was able to move that to the US um I would be able to have sort of two distinct products in the US. It's easier to have that sort of a big chunk of the work than in Asia where I have them running like 12 products and they're really good at producing and managing and quality control on all of them. It took a long time, eight years to get that set up. So, I would not want to bring my broader spectrum of products to the US in a hasty way because a lot can go wrong. Is the pricing you're getting uh would it be competitive with what you're doing in Asia were it not for the tariffs? >> Yes. And it's due to something that I should have anticipated but I didn't. And that is that we make our bear bins out of steel. And in China our cost of making the bear bins partly because of the low volume but partly because of the more manual labor that they do with the steel bins. It takes a lot more manpower to do those that is automated in many cases in the US. So labor costs go down and other also I am work working with some metal factories in the US where they're purchasing in very large volumes aluminum and steel and so I'm able to sort of get the economies of scale with that. But I also am looking at the fact that in Asia I'm still getting a 50% tariff on me from China and Vietnam. So if that goes down to let's say 25% then the US is definitely going to be more expensive. But I'm basically planning I'm planning for it. Um I know I'm going to get relief from tariffs when there's someone else in the White House even if it's still a Republican. I just think it's unsustainable to keep it at 50 and >> or 150. >> Yeah. Oh yeah. Oh yeah. I mean 50 I'm sort of making work but you know we have gone through the scenario if the tariff goes from 50 to 25 do we still want to be in the US and the answer is yes. >> Liz there's something else I wanted to ask you about. We've had a number of conversations here about AI and chat GPT and you've been somewhat hesitant to uh to embrace it but I know you recently uh kind of got your interest peaked. I I believe you you lost a a marketing manager and decided to kind of jump into chat GBT a little bit. How's that going? >> You know, it's going really well. I'm still learning, but I'm learning quickly. That's one thing I figured out is that you can actually learn how to use AI really fast. You have to not fear it. If I feel like I'm spinning wheels on finding images or videos, it bothers me more than the average person because I sit down there, I'm short staffed, I'm trying to do marketing and I find that I'm spending several hours a day literally trying to find marketing assets that I know that we have that my previous marketing manager totally was on top of. I never would have to worry that if I said, you know, I need pictures of a three module medium and coffee, bam, she's able to get it for me. So, we've built a couple of tools to make that easier. And I have to say the first sort of big aha we had was we have a mapping thing where we basically make a heat map of all of our locations. Thousands of locations now where we put it on a heat map and then when we wanted to use the heat map I would have to dig in. >> Liz, these are locations where they own one of your products. >> Yes. So these are residential, city, municipal parks. Basically anywhere we're installed, we have it on a map. And the reason we have it on the map is we want to be able to easily get to it and get the information. So on every little point on the map, all the data is underneath it around customer date, color, you name it. But it was not easy to use. So the point I realized this and I'm like maybe AI can help this was that I don't have a marketing manager. So, I'm in Midtown Manhattan as the photographer of my product and I need to take a bunch of pictures at eight different locations and I couldn't really figure out where they were cuz I'm carrying all this camera gear and I remember at the time it was like raining and I like do I really want to pull up this map and dig into the intersections? It's like there's got to be an easier way to do this. So, I had my daughter working with us over the summer. I said, "Can you try to find a way to query chatbt to find very specifically and quickly which intersections our bins are at and a picture of them as well. We called it the sales proximity tool and we did it. So, we've created this query system. It's really really helped not only with sort of my minor thing with being able to find the locations to photograph, but also in sales because if we have a client that's sort of on the fence and maybe we've sent them an estimate and they haven't converted yet, we now have a process where we reach out to them and say, "I know you're still considering City Bin. We actually just did an installation a block away from you. here's the address if you want to go check out a city bin in real life in your neighborhood. We got a lot of conversions from that because it's a touch point where you're giving them information that helps them make a decision and that is all because of my freakout in the Flat Iron District when I was like this is not okay the way we're doing it. It's absolutely intolerable. We need to find something hopefully using AI that will do it. And we did. And that was our first big like AI project as a company and we use it. We use it all the time. >> Is your daughter a vice president now? >> She's back in college and I'm not getting anything from her anymore. So >> wait a second. Is she the only one who knows how to build AI tools? >> No, it was actually it was a collective effort. Um I'm just saying more generally with marketing and so forth. She doesn't have the time for it, but one thing she is doing is photography. So, um, we have a lot of cool installations coming up and we need photography for it. I don't have the time for it. And then I've actually developed a mechanism to sort of bribe her. Um, so she wanted a very expensive pair of boots over the weekend and wanted me to just pay for them. Absolutely not. You're going to have to earn these boots. They're way more than I normally would pay for boots for myself or you. So, you're going to do the photography that we need at these five locations in the next month and then I will buy you those boots. So, you know, I don't want to call it a not blackmail, but it's somewhat of a bribe, [laughter] but for me, that's so valuable. Think about how much it would cost me to hire a photographer, which we used to do, or our marketing manager did it, and now I'm having her do it. So, this $300 pair of boots, I actually hope that more occasions come up where she really wants something and I can say I'll buy it if you do XYZ. [laughter] She's just really literally earning the money to pay for the boots. Exactly. >> You could you could pay her. She could buy her own boots or you could, you know, barter for the boots. >> Well, we barted it, but the thing is I bought the boots already, so now I need to cash in on it. >> Does she know that? >> She does. We just did some installations yesterday that are going to photograph beautifully and she's going to do it tomorrow. But so, you know, with the marketing manager, one less headcount. I am sort of using a combination of AI and my daughter to fill the gaps. >> And you're not planning on replacing the marketing manager? >> Not at this point. I'm going to try to learn more. Um, you know, Lauren, you may have noticed that the Lincoln post I posted yesterday was assisted with AI. If you detected there was a little bit of a different writing style or tone, like Frank noticed it. I don't want to seem like I'm writing an AI, but it heavy lifted that article for me and it helped, you know, it made things smoother. It also made things more concise because when I write sometimes a little bit too verbose, it can tighten it up in a way that where you don't feel like you're losing the meaning. >> Jay, I heard you sigh there. What are you sighing about? >> Trying not to make it loud. Um, no. I just find the whole thing. I have to say though, >> you find the whole thing >> overwhelming. Maybe there's a good just overwhelming. I I did sit down with one of my people though and and use it and I have to say, wow, it was impressive. I I I tweaked what it said, but it came up with some words I didn't think to use, and you know, it was helpful. I I just my brain's filled. I feel like I don't have any more space left for anything. >> The advice I've heard is, you know, baby steps. Just try to play around with it, do unimportant stuff, get comfortable with it, and >> or bribe your children to do it. That's another strategy. >> All right. I'm quite sure that in the weeks and months ahead we will be talking more about AI, not to mention tariffs and real estate as well, I suspect. Uh, but for now, my thanks to Jay Golz, Lena Maguire, and Liz Picarazzi. Thanks for sharing, everybody. One thing before you go, everything we do at 21 Hats is created by entrepreneurs for entrepreneurs [music] to help us all learn together. 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