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...

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.

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.

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.

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.

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.

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

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

Our projections for yr 1:

$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.

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:

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.

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...

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!