Investment Info:

Office Space commercial investment investment in Berkeley.

Cash invested: $40,000

After the success of my first deal I realized that I could repeat the process in a building that I was not working in. I found an office suite that was being leased for below market value, I added value through rehabbing it, and then I subleased it out at above market rate. Note- the building owner is aware of my activities and I received his permission for all the work I did.

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

The Bay Area is a difficult market. My short term goal was to increase my income so I could increase my savings rate. I needed to find a way to create passive income as I already work full time. My long term goal is to save money to begin investing in real estate.

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

I found this deal on Craig's List. The office suite was renting for below market value because it was very ugly! I saw an opportunity to create a lovely space for therapists to work. There was not a lot of negotiation. I offered to pay the rent they were asking, I made sure it was stated in the lease that I could sublet. I pointed out that was going to add value to the owner's property by rehabbing it for him.

How did you finance this deal?

I used cash. I had some cash on hand, my spouse had some cash on hand, I borrowed some cash from family and we used some credit cards.

How did you add value to the deal?

The office suite was initially 4 offices with a big open space. It had foggy windows you could not see through, ugly damaged drop down ceiling tiles, and florescent lighting. We added a wall to create five offices, we took down the ceiling and drywalled the ceiling, we changed the glass in the windows so you could see out of them, we swapped out of the florescent lighting for lovely dimmable lighting, and we painted the entire suite in lovely colors.

What was the outcome?

We were able to rent out all of the offices for above market rate because the offices were beautiful. We spent 40k on holding costs, attorney fees and the rehab. After we recoup our investment we cash flow $3000 a month on to infinity. We have a long term lease with the right of first refusal. The tenants have signed long term leases. We do not have many costs associated as we do not own the space. When something like the faucet needs repair, the owner does it.

Lessons learned? Challenges?

Not all building owners are tuned in to the market. Some are just lazy and don't care about their property or adding value to their property. I have something to offer in this regard. I also learned that I can add value by creating aesthetically pleasing spaces. Additionally, holding costs were more than I expected them to be, contractors are more expensive than I thought and the work took much longer than I anticipated. Opportunities abound if you are paying attention and being creative.