Commercial Real Estate

My Best Deal Ever: How I Scored an $800K Payday on One Commercial Project

Expertise: Real Estate Investing Basics, Landlording & Rental Properties, Real Estate News & Commentary, Mortgages & Creative Financing, Real Estate Wholesaling, Personal Development, Flipping Houses, Business Management
166 Articles Written
success-habits

It’s been a little while since I’ve had an opportunity to write for BiggerPockets, but it feels great to be back in the saddle! For those of you that don’t know, my wife and I have had the awesome privilege of hosting our own show on HGTV for the last two years. The show is called Flip or Flop Atlanta and has aired 28 episodes (two seasons) featuring our single-family flipping business based (not surprisingly) here in Atlanta, GA.

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When it comes to real estate, I’ve always subscribed to the notion that inspiration produces motivation—and, in turn, action. As such, I’m a big believer in showcasing real-life examples of actual real estate deals in an effort to inspire and motivate other investors in their businesses. Whether it’s implementing a new acquisition strategy or employing a creative sales technique, listening to how other successful investors have structured and profited from a real estate transaction always contributes to my own evolution as a real estate investor.

Because of this, I thought my first article for the beginning of 2019 would be in this same vein. I would like to share with the BiggerPockets audience what I still consider to be my “best deal ever.”

The Deal: Jumping From Single Family to Commercial Investing

It was May of 2013 when a friend of a friend approached me about an opportunity to be a passive investor in a boat and RV storage facility he wanted to build near Atlanta’s largest recreational lake. I didn’t know anything about this guy or about boat and RV storage facilities at the time, but I took the meeting and heard the details on his plans. In all honesty, I wasn’t sold on his new construction project, but I did become more intrigued as to the feasibility of owning a commercial property like this.

Interestingly, that very same week I caught wind of an existing boat and RV storage facility on the other side of the lake that was bank-owned and had recently fallen out of contract with another buyer. Talk about serendipitous!

Related: 5 Ways I’m Still Finding Deals in Today’s Real Estate Market

Being a single-family real estate investor, I honestly didn’t know the commercial space very well. In fact, I didn’t even know where the facility was located! I had just heard rumors of its existence. I quickly found a local commercial agent who specialized in these types of properties, and she was able to hunt it down for me. Amazingly, once I found out where the facility was located, I realized one of my good friends actually stored his boat there. Not only that, I convinced him that we needed to partner on the deal.

We quickly determined the property was on the market for $2.3MM. It was an eight-acre facility with approximately 500 parking spaces, most of which were covered. It was located on a well-travelled road only two miles from multiple boat launches, came with a great office building, and had two convenient gated entrances. Not only that, the bank was actually willing to contribute $70K towards repaving certain portions of the parking lot.

While all of this looked good, the big question in our mind was why the property was only 65% occupied. From what we could tell, the property was producing about $20-22K per month in revenue with about $10K in expenses, which, in terms of cap rates (4-5%) wasn’t all that attractive.

Transforming an Under-Performing Property

Knowing that the property definitely had potential, we put it under contract with a long due-diligence period. Beyond inspections and regular due diligence items, our priority during this time was to determine if it was a solid property that was simply under-performing or something we just needed to pass on.

The big hurdles we needed to address before moving forward on the project were:

  1. Could we increase the occupancy? 
  2. Could we find more capable property management?
  3. Could we find financing that would make this project feasible?

Over the course of a few months, we met with the property management company multiple times and determined that their on-site manager simply wasn’t a good fit for this property. Not only did she live in the office (never a good thing), but her book-keeping was atrocious. That said, we actually hit it off with the owners of the property management company and struck a deal where they reduced their management fee and agreed to replace the manager with a more experienced manager. As part of this arrangement, we agreed to own the marketing component, believing that our efforts would produce better results than the previous manager (who had done little to nothing previously).

Related: Your Belief That “You Make Your Money When You Buy” is Holding You Back From the Best Deals

The Financing: SBA Loan

During this due diligence period, we also went shopping for a commercial loan. In talking with the local bank where I do most of my banking, we found out that this particular location qualified for a very favorable Small Business Administration (SBA) loan. Apparently, it was just rural enough to qualify for a commercial loan up to 85% loan-to-value. Talk about hitting the jackpot!

Armed with a plan in place for property management and an SBA loan, we ended up negotiating the bank down to $2.2MM and closed on the property that fall. As part of our SBA loan, we had included an escrow account to make some needed repairs and improvements. We quickly spruced up the property and brought on our new on-site manager to begin cleaning up the books and delinquent accounts.

I wasted no time implementing a very basic marketing plan to increase occupancy. Having come from the single-family world where marketing is our lifeblood, it seemed like a no-brainer to start with the basics: a website, pay-per-click ads, bandit signs, and regular Craigslist ads using a virtual assistant.  

neighborhood, property attribute, real estate assessment

Our assumption that the property was under-performing was quickly confirmed. Simply by implementing this very basic marketing plan, our occupancy increased from 65% to 85% in the first two months! We were elated. Not only that, our new on-site manager had cleaned up our leasing processes, began increasing rents and turned the office into a well-oiled machine.

Knowing that our property was on its way to maximum occupancy, our next order of business was to further enhance our cash position in the property. As I mentioned, the loan we put in place was already very favorable with only 15% down. However, we decided to free up some of that cash to invest in other projects. To do this, we went to two of our investor friends and offered them each 5% ownership in exchange for $150,000. This $300,000 actually enabled my partner and me to recover the majority of our original down payment and still retain 45% ownership each.

Over the course of the next two years, we continued to maximize revenue on the property and drove occupancy all the way up to 99%. We had effectively turned this property around, and we were reaping the benefit in monthly cash flow. Of course, as in any partnership, there comes that point where you have to decide whether or not to continue earning income or cash out and find other places to invest your money. Ultimately, my partner and I decided to do the latter.

An $800,000 Payday

We put the property on the market and ended up selling it for a little over $3MM. In just over two years, we took this under-performing, glorified parking lot and turned it into an $800,000 payday!

I have flipped more than 700 houses over the last 13 years and have had a handful of whoppers during this time. However, this commercial project has by far been my best single deal to date.

The best part about this project was that it wasn’t out of reach for a single-family guy like me, and it wasn’t rocket science. I used the same bank that I use to finance single-family projects. I used the same marketing techniques I use in my single-family business. I actually used the same property management company I now use for my single-family houses. I even used investors that I also use as private lenders in my single-family business.

The only difference was that this property happened to be a commercial property that ultimately produced a monster profit.

I hope this inspires you to take massive action in 2019 and find that whopper of a deal that shifts your thinking and opens new doors to larger profits!

What do you think of this deal? What would you consider your best real estate buy ever?

Share below!

Ken Corsini G+ is the host of the Deal Farm Podcast (on iTunes) and has 10 years of full-time real estate investing experience. His company, Georgia Residential Partners buys and sells an average of 100 deals per year and has helped hundreds of investors around the country make great investments in the Atlanta market. Ken has a business degree from the University of Georgia and a Master Degree in Building Construction from Georgia Tech. He currently resides in Woodstock, Georgia with his wife and 3 children.

    Roger Mohnani from Richmond Hill, New York
    Replied 6 months ago
    wow thanks for sharing i am super motivated thanks again
    Ken Corsini Flipper/Rehabber from Woodstock, GA
    Replied 6 months ago
    Awesome! That was the objective! Hopefully the motivation turns into massive action!
    Roger Mohnani from Richmond Hill, New York
    Replied 6 months ago
    wow thanks for sharing i am super motivated thanks again
    James Bryant Rental Property Investor from Richmond, Virginia
    Replied 6 months ago
    Thanks for sharing, that is an awesome success story especially considering that you didn’t have a lot of experience in that space.
    Ken Corsini Flipper/Rehabber from Woodstock, GA
    Replied 6 months ago
    Yeah, no experience in storage … but quickly found out how much of our single family experience translates well into that space.
    James Bryant Rental Property Investor from Richmond, Virginia
    Replied 6 months ago
    Thanks for sharing, that is an awesome success story especially considering that you didn’t have a lot of experience in that space. Reply Report comment
    Andrew Syrios Residential Real Estate Investor from Kansas City, Missouri
    Replied 6 months ago
    Damn! Congrats Ken!
    Ken Corsini Flipper/Rehabber from Woodstock, GA
    Replied 6 months ago
    Thanks Andrew
    Jon Simpson from Berks County Blandon Pa
    Replied 6 months ago
    Very nice. Good things are worth waiting for.
    Ken Corsini Flipper/Rehabber from Woodstock, GA
    Replied 6 months ago
    True. It definitely pays to wait to invest in the right deal. It also pays to wait till the deal is performing at its peak to maximize profits if you decide to sell it.
    Jon Simpson from Berks County Blandon Pa
    Replied 6 months ago
    Very nice. Good things are worth waiting for. Reply Report comment
    Jerry W. Investor from Thermopolis, Wyoming
    Replied 6 months ago
    Nice article, it provides both an overview and motivation. Thanks for taking the time to share it.
    Ken Corsini Flipper/Rehabber from Woodstock, GA
    Replied 6 months ago
    Thanks Jerry! Happy to share … especially if it motivates folks to take big action this year !
    Bradley Kirschbaum Rental Property Investor from San Diego, CA
    Replied 6 months ago
    That’s phenominal, it’s always worth trying something new!
    Ken Corsini Flipper/Rehabber from Woodstock, GA
    Replied 6 months ago
    No risk, no reward!
    Jonathan R. Investor from Wichita, Kansas
    Replied 6 months ago
    There is a big opportunity in commercial real estate to buy an undervalued property. I know someone that buys shopping centers and commercial buildings who bought a building that had a parking garage attached. The owner sold the property for the price of the building not knowing the parking garage had value. The person I know bought over a million in equity upon closing. Great article, if you are open to testing your comfort zone you might be in for a big payday if you do your due diligence.
    Ken Corsini Flipper/Rehabber from Woodstock, GA
    Replied 6 months ago
    I think you’re right. There are definitely a lot less people in the commercial space than in residential. A Little due diligence and commonsense combined with some marketing savvy can turn into a big pay day!
    John Teachout Rental Property Investor from Concord, GA
    Replied 6 months ago
    Ken, not sure what the timeline was as far as when you made this investment but do you attribute the low occupancy rate becoming a high occupancy rate a result of your marketing/managing efforts or was it perhaps related to the recession and subsequent recovery? At any rate, great deal making there.
    Ken Corsini Flipper/Rehabber from Woodstock, GA
    Replied 6 months ago
    Hey John- great question. It was 100% attributable to our marketing efforts. We went from 65% to 85% occupancy in two months! Just simple marketing strategies and being a little more attentive than the previous property manager – made all the difference in the world. Actually, When we bought the facility, our competitor 2 miles down the road was already at 100% occupancy. That’s how we knew there was an opportunity with ours.
    John Teachout Rental Property Investor from Concord, GA
    Replied 6 months ago
    Ken, not sure what the timeline was as far as when you made this investment but do you attribute the low occupancy rate becoming a high occupancy rate a result of your marketing/managing efforts or was it perhaps related to the recession and subsequent recovery? At any rate, great deal making there. Reply Report comment
    Pierre A. from Jamaica, New York
    Replied 6 months ago
    Congratulations, even more motivation to scale up considering you used the same methods for single family with an even higher return.Time to take massive action!
    Ken Corsini Flipper/Rehabber from Woodstock, GA
    Replied 6 months ago
    Thanks Pierre. You are exactly right …. hopefully this does motivate some single family investors to try their hand at commercial!
    Mel Cosio
    Replied 6 months ago
    Well done. I’m focused on SFR’s myself, but your story opened my eyes about commercial. Continued success to your family and your show!