How We Turned a Small Building into a Half-Million-Dollar Asset

All right. Welcome to this week's Deal Structure Sunday. As usual, I try to twist it up. I know you're going to see some other deals coming out here in the, in the upcoming weeks with the community, but I want to twist it up as much as I can as we do kind of different types of deals at this year's QLS Live. If you weren't there, you missed so much because we didn't film it this year. We just didn't for a myriad of reasons. We have so much footage. We said, you know what, let's, let's spare the expense. Let's not film it. But at that event, I showed this office building and the deal and how we cut it and why we cut it. And I did not, as I said, even clip, you know, do a video clip of that at all. No one did anything of that. So you missed it. You also missed this little building that Nick and I did back when he was a junior in high school. And he reminded me the other day when we paid the note off, we got the paid note in the mail because it was a conventional note in the first mortgage back then. I did it in 2005. I didn't know how to do all this stuff. He reminded me, he said, hey, Dad, I have my learner's permit. And I drove us to that closing. And that was the first building we ever bought together. So I'm going to show you that deal. You got to deal with my graphics here in a minute, but I am going to show you how that deal went down. And I'm going to share my screen here and show you that because it's totally different. We, we kind of— I put myself in your shoes. If you're a conventional investor and you've got a conventional property out there, I don't care if it's a single family or in this case a 2-unit little commercial building stuck in the middle of residential. It doesn't matter. We, as we got, as we get into the creative real estate, we get into the terms world. Nick and I said, well, why aren't we doing that with our own building? Even though we bought it conventionally and we flipped that thing to an amazing, amazing ending. So let me share my screen with you and show you what we, what we did with that. Hopefully you see my screen here and I'm going to walk you through the timeline. I know it's not a pretty, pretty picture here. In February of '05, I'm pretty sure I'm going to be closer right on with these dates. In February of '05, Nick and I bought this property. We bought it. I think we bought it for like $160 grand. I didn't find the original HUD. I have the sale HUD here to show you how this whole thing went down. It was total terms. $160 was conventional loan. We bought— I had to go on it. Nick was in high school. We also raised $40 grand from a private investor. Now, I wrote how this— I wanted to remind myself to talk to you about some kind of behind-the-scenes things that I do with the high 6s. I show them, even though we don't raise money, we don't syndicate, we don't do any of that, I do show them how to attach a family member or friend. In my case, my attorney and my CPA will say to me, hey, can I do this deal with you? I show them how to attach an investor, if you will. I call it a profit-sharing loan, a 2-way deal that allows the investor to get a really cool return And you to really— all you're really doing is you're really taking your payday 3 upfront, so to speak, and then you're paying it back through your spread every month through your payday 2. Now, if that's confusing at all to you, schedule a strategy call with me. I'll walk you through this. I'm not going to do this on this particular YouTube video, but we borrowed $40 grand from an investor and we took out a loan for the difference. Let's say it's $120,000. All right. All right. It was literally a tiny little building in the middle of a residential neighborhood, 2 units. On the left was a barber at the time. He passed away a couple of years later. On the right, I never could keep it filled. It was a fabric place. It was a lady that made wedding cakes. I mean, these units were tiny, guys. I'm talking like 500, 600 square feet each. This whole building was like 1,200 feet, maybe, maybe tops, on a slab. I take that back. It had a basement on one side as you look at the screen on the right. And that's where it got ungodly amounts of water. Like, this thing was not a pretty scene. We owned it, oh, about 10 years to about 15. Now, during that process, again, turnover. Barber died. Another barber came in. He got arrested. Like the weirdest things happened in this building. We were owning it and being landlords. We had a landlord hat on. Well, I went for permits to put an addition on this so that it would, instead of just sitting on the parking lot like that, it would kind of look like, okay, here's the original building. And then we want to add this L on and then go up a little bit. Now, you can imagine in a residential neighborhood, people were up in arms. They were all over it. So needless to say, it didn't go well. I went in inexperienced as far as permitting on this building. I had the wrong architect present with me. Like, he literally was awful. It was embarrassing. So we get denied permits to expand this building. Okay, fast forward. I'm going to back it off in my mind. We just cashed this out in '23. So around '16-ish, '15 or '16, Nick and I said, like I said at the beginning of this, well, what the heck here? Why don't we just Look for a kind of like a rent-to-own world in residential. Let's look for someone that wants to take over this building, a master lease. At the time, there was a tenant in the left side here. It was not a barber at this time. I honestly forget what tenant was in this. This thing's been going so long. But long story short, we found a gentleman who owns a window company. It's called Window Source. It's rather large in Rhode Island now, and I don't think it was then. He and his wife came forward. We advertised a basically a lease, a master lease to take over the right side. They could occupy it and the left They could take over the tenant. Tenant was paying, I don't know, $600, $700. So it made sense. The guy could come in, master lease the whole building, collect the rent next door. Okay, he did that. I'm going to show you the agreement in a minute. Then when the tenant eventually left, he went and got all kinds of permits. I had to sign off a few things because keep in mind, guys, the deed didn't change hands. Nick and I own this property, one of our LLCs, and this guy went in, took permits out, Built a monster building, a monster building. So I showed you this little L. He built an L with two stories on it. Brand new building. This thing got torn down. It was probably worth in excess of half a million all day long. Maybe more. I drove by it one day and was blown away. I knew he was working on it, but I was blown away because think about this: he had a seven-year master lease purchase with us, like you would like a small rent own, right? A short rent own. And at the end of that. The way we structure, you're going to see in the leases, he paid like $20,000 every August and he never missed a beat. He never missed a lease payment in between, which was like $1,400 or $1,500. Our banknote, underlying banknote was maybe $1,050 or something like that, plus taxes. And I built the taxes into his. So he would pay us every month. My bookkeeper would pay our underlying debt and we just kept this deal going. Well, every August we got a deposit for $20,000. With that $20,000 each time, we gave a proportion to the investor and a proportion paydown on the bank loan, the conventional bank loan. So we calculated it for 7 years where it would be close to break-even when we, when we cash this thing out in 7 years. Now, did we break even when we cashed out in 7 years? No. I'm going to show you how there was, there was actually a little balance left at the bank, $2,000 or $3,000, and I had to come to the closing table with about $10,000. But the point is, this was a mess, this building. We put it on autopilot for 7 years, cash flowed the daylights out of it, paid all the debt down, and then cashed it out in '23. Let me show you first the lease that we did, and then I'm going to show you the settlement statement. All right. So you should be seeing on your screen now the actual lease. And then behind it, I have the settlement statement. So I'm going to show you the lease first. And it might not be super, super easy for you guys to read this right now. And that's okay. I get that. What I want to do is I want— I do want to point out some of the key things in it. Um, and if not, you'll hear me say it verbally. First of all, you'll notice that the date, as I said, is 7 years. See this right here? I'm highlighting it. 7 years. So there's the date. I said '15 or '16. It was August of '16. Okay. Um, we said after permits are obtained, we gave them some benchmarks. After permits are, uh, are gotten, his lease goes to $1,608 a month instead of $1,400. Okay, let's see. Any tax increase, by the way, over the years that we raised his rent? Okay. And then every single month we gave him a credit of $447 if he was on time. The guy never, ever, ever missed. We also said that the property taxes were already set up as a base of $245 per month. See that? So that when, if and when the taxes got increased, and of course they did over 7 years, his lease would go up proportionally. Okay? So just to get you thinking outside the box, I'm trying to see if there's anything else in here. All this language says is he's paying everything. It's a master lease purchase. He took over the building, water, sewer. You know, the roof blows off, it doesn't matter. Okay? And this was signed by Nick and I and that gentleman. Okay. Now, again, August of '16, right? You should be seeing— let me get the— let me get the HUD back up. You should be seeing on your screen the settlement statement. Block his name. We sold the building per that lease purchase for $185,000. You'll see that in the top left. Okay. Then you do the regular, you know, prorations and whatnot. Go way down to line 213. It says he's made payments of $177,548 over the 7 years. Where'd that come from? Okay. Came from $20,000 a year, was like $140,000 plus the down payment. So call it $160,000. Then we gave him a credit for that $400-something every month. And then to make this even more creative, guys, down the street from this building is the first sandwich lease that I ever did. It came as a sandwich lease and then I converted it to a sub-2. And guess what? I still own the house. Okay. Bought it in '13. 10 years later, I still have it. It needed the rent-to-own buyer. This is quite the deal structure mix-up here. The tenant buyer separated from his wife— his fiancée, sorry. They weren't married yet. They separated, sadly, and he stayed. He's been there ever since. He's a tenant at will. He has no lease. He pays us every month— sorry, every year we go up a little bit. He's paying us around $1,600 or $1,700 now. Long story short, I keep the house up like a tenant. See, people say, well, you guys sell all your properties with term. No, we don't. Some of these properties we keep. I said as a tenant, as a landlord. And Nick and I are running this house. So long story short, we keep it up. I did a roof over recently. This particular guy in this building that's closing this house is actually a roofer too. He does windows and roof. So you're going to see right here, see this line 517 credit for window work. $7,600, $7,656. About 9 months ago he did— it wasn't roof, it was windows. He did all my windows over for me. I said, hey, you're going to owe me some money at closing. Your last payment's like $7,700. Instead, just do the roof, do the windows for me. So I bought 9 months of time and I bought— I didn't have to come up with any money for that. And he's like, yeah, sure, I'm right down the street. So see, we really thought outside the box here. He had to come to the table with $2,800. I had to come to the table with $10,000. The way we did this. But again, I got the windows were at $7,600, right? So I hope that gets you thinking a little bit. I'm going to stop share here. I hope that gets you thinking a little bit outside the box. When we say creative real estate, there's nothing that fits inside a box. It's why it's what brings me back to the table all the time is these deals are always different. And this is why I encourage you to apply for the associate program with the limited slots we have, because You can go do deals. You'll be successful. Creative real estate's been done since the 1600s. Okay, I didn't create anything new. What we did create, however, is a wicked smart community that wraps their arms around you. And when you submit deals, we find money with you so you don't leave money on the table. When I get done this video today, as an example, I have a note on my desk. I have to look in my Slack channel, which is where we all communicate, and I have to look at a person's sales and a deal structure from 3 people. 3 different people that while I was working out this morning, I checked text message and they said, hey, could you check this out? Make sure I did the right deal structure. That's big, guys. So don't leave money on the table. You could leave as much money on the table as it would be your salary for your W-2 for a year. And I don't want to go on a rant with that anymore, but I hope that gets you thinking. Make it a great week. Call to action here. If you haven't registered for the Wicked Smart Summit in March, that will be a writer downer. WickedSmartSummit.com. We also gonna run a kickstart event. We run it every year. It's gonna be in December. It's gonna be virtual. And there is zero reason for you not to be there. It's gonna be in December. I think it's December 8th. Write down on your calendar and we will message you. Make it a great week.