Good Deals are Often Complicated

[Don Konipol]

I’ve always stressed that a thorough knowledge of real estate principles, real estate law, and real estate finance is imperative for a sustainable profitable career as an ACTIVE real estate investor.  Which is one (of many) reasons I believe that these mentorship’s teaching nothing more than one specific “method” are mostly worthless, and often dangerous. 

I’ve had a good number of successful investments in my 47 year real estate investing career, as well as more than a few bad ones.  Here’s a successful one that recently wound up that illustrates that we need to move beyond the simple to structure deals with maximum wealth building. 

5 + years ago I came across a property with 2 retail/warehouse buildings.  The owner had $1.35 million of high interest mortgage debt (hard money at 13%) as was looking to refinance the loans (each building had its own loan) in default.

Building one had main road access, was 12,000 square feet, 90% occupied, rent roll $216,000 annually, with about $40,000 annual operating expenses.  Building two  had recently lost its tenant at 8800 square.

Mortgage Interest for the two buildings was $175,000, debt service about $200,000, resulting in negative cash flow let alone any cash for tenant buildouts for the vacant building.   Further, the owner had personally borrower $200,000 from relatives that was overdue. 

We offered to purchase 60% interest in the properties for $400,000, $200,000of which would go to the owner to pay off his personal debt, and $200,000 would go into working capital.  Once we finalized the transaction, we placed the 2nd property for sale. Within 6 months we sold to a buyer needing warehouse space for $1,050,000.  We paid off the $400,000 loan on this property, distributed $300,000 to us three owners, and refinanced the $13%, $950,000 loan paying down $300,000 to a new loan of $650,000 at 4%.  

With mortgage interest at $26,000 annually down from $175,000 and the same revenue, we now had a positive net income of $150,000.  Our 60% share was $90,000 per year , on a net investment of $200,000, or a 45%annual return.  We enjoyed this return for 5 years, and recently sold for $2,350,000.

[Juan Yepes]

The path to scale a successful investment platform is through speed and creativity. After entering 24 markets across the Americas and Europe and closing over 4,500 real estate transactions I can confirm that the most value is found in the most complicated deals. Most investors miss out on complex deals due to perceived risk or lack of revenue potential. Creative deal structuring allows you to mitigate risks and maximize revenue/value where others don’t see it. If anyone is looking to finance a deal that seems to fall outside of the norm I’m happy to chat and strategize.