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MINDSET & MONEY | OUR FIRST NO MONEY DOWN COMMERCIAL BUILDING

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Hosted by
Mike Ayala

Today on the Investing For Freedom podcast Mike continues the series from his early days of real estate investing and is going through how he got his early deals done, a lot of times with no money down and a couple of times with very low money down.

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FULL TRANSCRIPTION:

Thank you for joining me on the investing for freedom podcast. Today we’re going to continue the series from my early days of real estate investing and just going through some of the deals and how we got our early deals done, a lot of times with no money down and a couple of times with very low money down. And it really just comes down to opening up your eyes. It’s the conversation we’re constantly having with the reticular activator.

When you change your way of thinking and you start setting those intentions out there, it’s amazing how the universe just comes along in alliance. Speaking of that, if you are in a retail business or a service business, you run an accounting firm, or you’ve got a little storefront or you’re in plumbing and heating. Like we were, it doesn’t really matter what business you’re in. A lot of us are shifting to virtual and I understand that. But there’s going to be a lot of businesses out there that number one will still need a storefront or a number two, should have it because it’s better to run that way. This is the perfect time for you to be considering buying your own building if you are convinced that you’re going to need that long-term. The story that I’m going to tell you today is actually a story around that. We happened to buy this building because we needed it and the previous owner no longer needed it. He didn’t have a use for it any longer.

So with everything that’s been going on with COVID and the amount of office space that’s going to be empty, and the amount of retail space that’s going to be empty, this could be the perfect opportunity for you to purchase your own building. There may never be another time that’s as good as this for the office retail, even light industrial sectors for you to be able to get deals. We’re not seeing a huge drop in real estate prices yet, but I can guarantee you if you open your mind and you start talking to the right owners, sellers, that kind of stuff, even your own landlord, it might be your own landlord that is interested in selling. You might just find a great opportunity right now, and it would be a win win potentially for the seller and you. So anyway, just keep that in mind as you’re listening to this story.

So this goes back to, I think it was 2005 or 2006. So, again, we had set the intention for two income producing properties a year for 10 years. But we were at the point where our business was growing so fast. We were actually in our second leased office and warehouse space for my plumbing and heating company. We found ourselves in a situation where the second building, we were outgrowing it fast and we knew that we needed to do something. And there was this building just down the street that from the outside seemed to be perfect. Probably I think it was like 3,500 square feet of office space. I think it had about 10,000 square feet of warehouse, roll up doors, storage facility. And then it had a huge yard and it was

all fenced in. Everything was like, just basically ready to go. And this building had been sitting empty. It was a former construction company that had been doing a lot of work in our community for 15 or 20 years, but they were based out of Utah. And we were living in Nevada at the time. For whatever reason they had decided to close down their Nevada division and move their operations back to Utah. And so this building had been sitting empty for three or four years. So we contacted the seller. We found him through some connections that we had, and he actually had a guy that was living locally that was taking care of the grounds. He would go check on it every once in a while. So the guy let us in, he showed us the facilities and it was perfect. I mean, we could just see that this could be the building that we could, just probably grow into and not grow out of. In fact, that company that I sold in 2014 is still in that same facility today. And we actually sold that building to them after I got bought out.

So just moving forward, again, we contacted the owner and he said, yeah, let’s make a deal. And so we got an appraisal done on it and actually we didn’t do the appraisal until later he said, I want $375,000 for it. And we said, okay, we did up the paperwork contingent on it appraising. The appraisal came back, I think at $390,000. And so we had an approval from the bank with I think, $75,000 down. I think it was 25% that they wanted down. But then I think because the appraisal came in higher, I think we needed to come up with $70,000 or $75,000. So then the problem was again, this was early on in our business was doing successful, but we didn’t have a lot of cash. I mean, receivables and financing and construction business, for those of you that are in business for yourself, you know that receivables can get pushed out and all that kind of stuff. And so anyway, we didn’t have a lot of cash laying around. And so we went back to the seller and we said, Hey, we’re going to need a little bit more time to come up with this down payment. And he just said, well, why don’t I just carry the down payment for you in second position. And we’re like, wow, that’s generous. What kind of terms? And he came back and he said, I don’t remember the exact deal, but I think it was a 10-year amortization at 6% interest and with a three-year balloon payment.

So basically, he would go in second position behind the bank. We would pay him. And then in three years we’d just refinance the building and pay down the balloon payment. Or even if we didn’t refinance it, just pay it out of cashflow. So that’s how we got this deal done. And again, that building has been a great, great building for our business. And we sold it at a profit. This is the thing with real estate. I was just talking to a guy the other day, that’s looking to buy his own building and that you don’t really realize this, but whether you’re renting from yourself or your tenants are paying your rent, your mortgage is getting paid down.

And that particular building, I think has gone up in value, by 30% I think since the time we bought it, we’ve refinanced it a couple times. And every single year that you pay rent on that building it, the balance goes down and down and down and you’re able to leverage it. We’ve leveraged it as security.

We actually had a situation in 2008 where a goldmine had shut down.
You’ve probably heard this story. But during that time, one of our vendors basically said, Hey, we’re in the same boat. It was a company called Western Nevada supply, a small regional company, family owned business. This is the value of doing business, not always the low-cost provider, but with people that, you know, like and trust. So I actually knew the owner. He lived in Reno, Nevada. And so when that goldmine shut down and we owed this particular company, I think $85,000 or $90,000. And they said, Hey, look, we’re all in this together. And they actually amortize that balance into a loan for us. And they said, well, what kind of security do you have? And I said, well, I could give you a second position on this building. I think at that point in time we had like $150,000 of equity in it. And so the reason why I bring that story up is, every single time that you make that mortgage payment, it’s lowering your principal balance. And before you know it, you’ll wake up one day and you’ll have a bunch of equity in a building. And not always just through appreciation sometimes just through the mortgage being paid down.

So is it always a good idea to own your building? I don’t know the answer to that. You got to look at all the variables. Are you going to be in business in this area for more than a year or two? Do you plan on moving? If you did move out of your building, could you rent it to someone else? There’s all these things that you’ve got to consider, but the one thing I can say for sure, and I’m going to share a story next week about another home run commercial building that we still have today that I got with no money down. And it produces about a hundred thousand dollars a year of cashflow. And I think I probably have $500,000 to $600,000 of equity in that building right now, no money down.

So the thing that I can say, and I’m not guaranteeing this, nobody can guarantee anything, but when you know it’s a good deal and you think that it’s something that’s going to work for you in the short term long-term just, strongly consider it. What are the reasons why you should, make a pros and cons list. But the one thing I can honestly say is that I’ve never lost money on a commercial real estate building. So that doesn’t mean that you won’t, but when you start looking and you find the right deals and you’re patient it’s amazing what can happen.

So I hope that encourages you. I hope I’ve expanded your thinking through the ways that we got our early deals done. Just go out there and just start moving. You got to start making progress. The only way to do that is to start moving. So have a great week.

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