Sometimes bad investments do turn out okay

3 Replies

Investment Info:

commercial investment investment in Oakland.

Purchase price: $1,800,000
Cash invested: $585,000
Sale price: $8,200,000

Building in Uptown Oakland. I was originally a hard money 2nd lender. After foreclosing, I finished the renovations and rented it fully. The original plan was to hold this property for the long haul. But an upswing in the market after the purchase of the Sears building in Downtown Oakland had Real Estate developers snatching up high quality lots.

What made you interested in investing in this type of deal?

I had no choice. My wife and I made a bad loan(got into hard money and didn't understand the risks). And ended up having to pull the equity out of my house to defend my position in their bankruptcy. Luckly we were able to lift the stay on the property, take it over and with our experience as REO brokers, bring in the capital and finish the renovations and get it occupied and paying for itself.

How did you find this deal and how did you negotiate it?

A friend knew a guy(apparently not very well) who was a hard money broker and had an interesting deal that came across his desk. We had some money "under the mattress".

How did you add value to the deal?

As we were in second position we new that we could either force the sale of the property and get our money back, or take over the property and with our experience representing banks, stabilize the property ourselves and turn it into a passive income source.

What was the outcome?

We ended up turning our original 585K investment into a sale price 4 years later of 8.2 Million and also had a 15k a month passive cash flow during the hold time.

Lessons learned? Challenges?

If you are going to do hard money loans, make sure you are the first lien holder.

Congrats man! 

Nice work in taking over and turning the property around.

How long did it take you from start to finish?

@Michael Ealy about 6 months. The original owner was converting space at street level to open a night club. He had gotten into his head that his upstairs tenant could run a club so he could do it too. The problem he ran into was that the elevator had not been brought up to code since the early 60s(yikes) and needed to be completely replaced. Which was $200Kish. The ran out of money and could not refi the place without finishing the project. He also lied on his loan app and didn't mention it would be an owner occupied space. That changes the value of the building and how much can be lent on it conventionally. Anyways, After the foreclosure, I struck a deal with the upstairs club to take over the space and also negotiated with the 1.5M hard money first to keep the loan with us while we finished up the TIs and refied them out. There was a lot of moving parts with that deal but it all came together.

@David Zheng The Oakland market going crazy a few years later was just luck. Cant take credit for that. 

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