How I added over $750,000 in value in 18 months of ownership

115 Replies

Excellent read. Thanks for posting.  I hope you can jump back and answer some of the questions above.  I wish you all the best!

Thanks awesome man! What were the specs of the location? Pop growth, employers, surrounding area residential/commercial? crime?

Awesome story!  Congratulations on the deal.  This is inspiring.

@Elliot B. . Thanks. Yes, value-add is really a good concept to grasp. I recommend lots of people to really understand it well. It helps you see value (money) where others don't and can play to your advantage.

Well done, @Henri Meli ! My first property is also an office building. A little smaller than yours, but also very profitable. Looking at doing a cash our refi for my next investment. Don't forget, the HVAC systems you install this year qualify for Section 179 depreciation.

@Tracey Fergerson . Thanks. And great question about the money for  improvements.

I have to admit, this is one of the areas I didn't plan well. I did whatever I needed to do to find money.  

0. The property was cash flowing from day 1, so there was no concern making monthly mortgage payments. 

1. I advised the PM company to only address absolutely necessary issues that came up at the property. If the issue wasn't necessary, we would defer it. And we made sure it was communicated to the tenants.

2. I asked the contractors working on the projects to break down payments over many months, which many did.

3. I continued to scratch pennies anywhere I could (tax refund, credit cards,... etc). 

After 8 months, I sat down with the bank and showed them the numbers, which they liked.  They opened an interest only line of credit. This was really to give me breathing room. The heavy lifting was done by then and most of the debt was paid back.

@Dante Pirouz   . Thanks and great question. The bank told me they would not finance more than $1M. So, I have to come up with the rest. I didn't have any money aside for reserves. I explained in the previous response how I scratched money together for the work needed. The property was cash flowing from day 1. 

@Michael McCoy . Thanks and great question. I'm still thinking about what my next move should be. I could do a cash-out refinance, but I can also see if I can find a buyer, since the building is now stabilized. As of today, we are still creating value in the building as well as addressing deferred maintenance items. 

Personally (and I have numbers to back it up), I believe there is still another $500k in value I can "produce" from this building in the next 2-3 years, IF market conditions mirror what we have seen recently. BUT, that is a big IF . Another  question I have been asking myself is, if there is another investment I could make that would produce me similar returns, if I decided to sell.  I have also been wondering about my own risk tolerance ... given the run our economy has been in the last 8+ years.  

Thanks @Mario Morales . Financing your first Commercial is tricky. Nobody trusts you. Everyone is skeptical. 

I walked into almost every commercial lender I remember in Raleigh/Durham with a business plan ... many never even called me back, as they promised. It is their loss, not mine.

But, that's what it takes. 

@Ketan Kuruwa . If you plan on growing, yes, commercial should be your next stop. Good luck. 

@Michael L Sakey . Thanks for the comment. I believe the key is to continue to educate yourself, surround yourself with investors and take action. 

Thanks @Chris Cecil , @Patrik Kusek , Yes, these situations do exist. I feel fortunate to actually say that I have experienced it first hand. 

@Marlina Eckel . Thanks for the comment. I hope I have answered all the questions. If any more, please ask away.

@Christian Funicelli Thanks for the comment and great question. Honestly, I didn't look closely at those numbers, because I have lived in this area for 15+ years. Raleigh/Durham is one of the faster growing areas in the South East. I have owned residential here for over 15 year and have seen the value of those assets explode. I know every single corner of this market. I know every street, every road, ... etc. I have driven it dozens of time ... I know all the planned projects for the next 5-10 years in this market. There is plenty of websites where you can find this information for this market. let me know if you need a reference . Not sure I can post it here. 

Wow! Terrific. I am RE Broker in Marin County CA and future investor. I focus on PM and it is amazing how much a little elbow grease, know how and clean up can really improve the performance of an asset. Thanks for sharing.

Congratulations!!! Thanks for sharing your story. What bank did you work with. Those rates were amazing. 

@Henri Meli Congratulations!!! Good stuff and and kudos for taking action.

I am considering one such property but 4 of the 7 spaces in the property has been vacant for so many years and has not been able to be filled by other property management companies. So not sure how I can add value there by filling it. The previous management companies have changed and new one doesn't know why it was not occupied for so long. Any ideas folks?

Downright inspirational. I want to be you when I grow up. ;)

@Nesha Lopez . Thanks. I worked with a local bank. Rates were pretty good a couple of years ago. They have now gone up, but you can still get decent rates (not as good as previously). My bank is only located in the state. So, if you are in NC I can give you their name.

@Prasad J. . Thanks and great question in regards to filling office space. Here is what I learned.

1. When you said property management, I assumed you actually mean leasing management. I have a leasing agent, who has access to national databases of businesses looking for space. he can reach out to them.

2. Leasing agents get paid commissions based on the total value of the lease. Most of them will try to get home run leases (leases that run the longest) because those will pay them the highest commissions.  

3. My philosophy is to fill the space first, then I'll worry about getting the longer term lease later. This strategy has drawbacks. Banks don't like these short term leases and they don't see it as value. For me, it is cash for rainy days and for CAPEX. Furthermore, once I get businesses in, I do whatever I can to get them to sign longer term leases.

4. Be very pro-active with your leasing agent. But, do lots of legwork yourself to get the space leased. Check with leasing agents constantly and make sure they are investigating every avenue possible to fill the space. Be active in meetups, business associations, chambers of commerce,...etc and advertise your space. Leverage social media, ... etc to advertise your empty space.  Make sure to know new businesses coming to town or opening up and let them know about the space available. Make sure you know tenants who have leases expiring in other offices so that you can market to them. Know about business that are looking to expand, if you have plenty of space to accommodate them. Network. Network. Network. Be willing to offer concessions to bring new tenants in. Be creative when formulating your leases agreements, so that you can recoup your concession money early in the lease. When a business visits your space and ends up not signing a lease, make sure to know why. Understand how you could have made them an offer they can't refuse, ... etc. 

The point I'm trying to make with 4. is that, if you live in a dynamic market, there is no reason why your office space should be empty for 1+ year. Obviously this depends on your market/submarket as well. 

Always remember these numbers. At an 8 CAP, $1,000 of additional NOI is $12,500 of new value you added to your building. $10,000 is $125,000 of new value.

@Henri Meli Good points Henri. I’m sure you’ll weigh the pros and cons and choose your next course wisely. You’ve already won the battle that’s for sure! Good luck. 

@Henri Meli Thank you for sharing. Really great story. I like the idea of commercial RE more and more every day.

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