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On Sep 3rd we closed on a 120k sf glove factory built in 1890 in Gloversville NY.
Has 50k sf of self storage inside and is cashflowing $8k a month.
We used none of our own cash and received $50k on closing day.
A thread on creating $2 million out of thin air in 18 months...
Has 50k sf of self storage inside and is cashflowing $8k a month.
We used none of our own cash and received $50k on closing day.
A thread on creating $2 million out of thin air in 18 months...
First saw the property on Loopnet in mid 2018. I ignored it. Who wants to try to operate a building in an old factory in a dying NY town.
A few months later I reached out. Broker sent me financials. They were good. $25k a month in revenue and $10k in expenses.
A few months later I reached out. Broker sent me financials. They were good. $25k a month in revenue and $10k in expenses.
So I visited the property and took this footage. It was old. Needed a new roof. Probably environmental issues. Full time manager. Only accessible to customers 9am-5pm M-S. No autopay. A lot of folks paying 1/2 market rent.
I loved everything about it.
I loved everything about it.
But I knew they were going to have trouble selling this thing no matter the profitability, so on July 1 2018 I made a low offer. $750k + seller pays for new $250k roof + environmental work.
Countered at asking price + $100k credit towards roof.
I ignored the response.
Countered at asking price + $100k credit towards roof.
I ignored the response.
Broker called me back mid September of 2018. Make another offer, he urged.
I got more aggressive - $1MM + seller pays for roof / environmental.
Declined. Countered with $1.2MM but they'd give you a new roof and do the environmental.
I got more aggressive - $1MM + seller pays for roof / environmental.
Declined. Countered with $1.2MM but they'd give you a new roof and do the environmental.
The next day I offered them their price, but said they'd need to hold $300k of paper in the form of a second mortgage. 5% rate, 20 yr term.
They agreed and we signed a deal.
They agreed and we signed a deal.
I convinced my bank to loan me 67.5% LTV at 3.5% with 12 mo interest only.
They replaced roof. Did environmental. A few other things that came up in inspection.
Appraisal came back at $1.85MM.
My bank: $950k
Sellers: $300k
Purchase price: $1.2MM
They replaced roof. Did environmental. A few other things that came up in inspection.
Appraisal came back at $1.85MM.
My bank: $950k
Sellers: $300k
Purchase price: $1.2MM
On closing day we learned the property had a house on it. There is a tunnel right into the 2nd floor of the factory from the upstairs dormer. Needs $75k worth of work to be livable. Likely not worth it.
So we closed last week.
Changes:
New security system ($12k)
Automatic / wifi overhead doors ($5k)
12 hr / 7 day access
No office (keeping manager on team though)
25% rent increase to get every customer up to street rate
9,000sf of additional storage built in building
Changes:
New security system ($12k)
Automatic / wifi overhead doors ($5k)
12 hr / 7 day access
No office (keeping manager on team though)
25% rent increase to get every customer up to street rate
9,000sf of additional storage built in building
Our projections for yr 1:
$360k revenue
$108k expenses
$252k NOI (~20 cap)
$57k interest
$37k principle
$158k in cashflow
$360k revenue
$108k expenses
$252k NOI (~20 cap)
$57k interest
$37k principle
$158k in cashflow
Then what? Sell it? How much will someone pay for it?
Let me tell you why I don't care how much someone will pay.
If I sell it I'll have about $3.5MM in capital gains. 25% of that will go to uncle sam. And I'll be left trying to figure out what to do with the remaining 2.5MM.
Let me tell you why I don't care how much someone will pay.
If I sell it I'll have about $3.5MM in capital gains. 25% of that will go to uncle sam. And I'll be left trying to figure out what to do with the remaining 2.5MM.
And I don't need to sell it to realize 80% of that gain while keeping a money-making asset and not having to redeploy any capital or give a chunk to the government.
Here's how:
Here's how:
At the 18 month mark we plan to be around $40k a month in revenue on $9k in expenses for an NOI figure around $370k.
Then we'll go back to our bank and get the thing reappraised. We expect it to be valued at about $4.5MM.
The bank will lend me 75% of that value to us.
Then we'll go back to our bank and get the thing reappraised. We expect it to be valued at about $4.5MM.
The bank will lend me 75% of that value to us.
As long as our monthly operating income covers the debt by 1.5x or more, we'll lever up, taking $3.375MM in new loans on the building.
After $1.25MM goes to clear seller financing and original loan, we'll have $2.125MM in cash go into our checking accounts.
And the best part...
After $1.25MM goes to clear seller financing and original loan, we'll have $2.125MM in cash go into our checking accounts.
And the best part...
We still own the building and its $150k a year in cashflow.
We paid no taxes.
In the sell scenario: We trade our building for $2.5MM cash.
In the ReFi scenario: We keep our building and get $2.125MM cash.
I'll take #2 all day. And thats our plan with every building we buy!
We paid no taxes.
In the sell scenario: We trade our building for $2.5MM cash.
In the ReFi scenario: We keep our building and get $2.125MM cash.
I'll take #2 all day. And thats our plan with every building we buy!
