REI Path to Owning/Hacking Commercial Art Studio space?

Question

Hi All,My first post here, but been lurking for a while. Scott Trench's "Set for Life" inspired my current situation. I'm interested in getting into real estate investment because I suspect it might be the fastest way to get where I want to be. I'm already a house hacker and now I'm thinking about "art studio hacking". ... I have a lot to learn.My goal: to be a financially stable artist (ideally financially independent-ish). More explicitly:-- I want to own my home (this is done! Check!)-- I want to *own* my own video / dance studio /performance space. This is mostly likely a industrial/commercial real estate space. City codes prevent me from, say, converting a house garage into a dance/commercial video studio. -- Short/medium term low cost of living and long term passive income.-- Pursue art full time within the next 3-7 years. AKA quite my day job.My current financially situation: -- No non-mortgage debt-- Have a high-ish paying job (100k/year) and save aggressively. My job gets me down at times, but is generally pleasant and I can justify it if it means more opportunity to set my self up for a solid art career in the medium term. -- I own a house (purchased for 495k, 540k current est. value, 2400 mortgage + insurance/taxes). Rents easily, next to a mellow university campus. Full market rent would be about 2600/mo, possibly more. -- I house hack with $2135/month rental income from housemates, so my cost of living is pretty low and will decrease with time. This income apparently does not count for mortgage qualifications ("boarder income").-- 10k cash savings, and about 50k in stocks, another 50k in 401k/roth-- I'm able to save *max* 45k cash/year with my current situation. A more conservative number would be 37k. I could do 45k if I have a clear goal that inspires me to be frugal. -- I *might* be able to barrow 50k-400k from my parents if I had a specific plan to repay them with interest. Not really my first choice, but it's an option on the table. It comes with non-ideal emotional baggage...-- I have some skills in remodeling/construction and some vacation time I could take to do more major repairs/upgrade/etc.The main goal I'm looking for advice is how to go from being a single family house hacker to owning a commercial real estate space that I could art studio hack (share loan payments with other tenants that I manage) to use as a shared art / video /dance studio? This might look like buying a 5000sqft space and using only 1000sqft of it for myself and leasing the rest of of it, but there are lots of arrangements depending on the space. Even my own share of the space could be rented out when I'm not using it. Commercial industrial spaces in my city go for about 600k (3000sqft bad/non-central neighborhood with lower ceilings) to 1.6million (5000sqft decent central location, high ceilings). My head starts to spin on figure out how they hell I would go about owning such a thing.If you had 3-7 years to accomplish this, what would you do? You can assume I'm laser focused on this goal and can compromise and hustle. I'm open to anything that gets me closer to the goal. The main stresses of being an artist for me are financial, and I'm trying to "hook myself up" so to speak before I dive back into an art career. Owning my house and art studio would be a dream come true and put momentum in the right direction for me long term. Having a paid off home/studio in the next few decades would be amazing. It's a horrible stress for an artist to be pushed out of your community due to rent prices and COL problems. I would like time to be with me and not against me.I really appreciate any advise you have! Currently, I'm not seeing a very clear path from where I'm at to buying a >1 million commercial property ... though I believe it's possible!

Scott Trench · Answer

Paul - this is a great plan and well thought out as @Derek Diamond mentions. As a side note - THIS is what gets me pumped about going to work every day and what I hoped for from writing Set for Life - I love that folks like you can develop strategies to aggressively knock out financial worries and then pursue their creative passions in life distraction free. Derek really highlights the problems here as well as potential paths forward well. I see the same problems he points out, but might actually worry that you may need closer to 35% to ensure good terms on this kind of real estate. I think that an approach that might help accelerate this vision would be to continue that savings rate, but to consider a "live-in flip" - one or several, in addition to a plan along the paths that he mentions. Consider if you purchase a similar, but dilapidated property to where you live now. If you can purchase such a place for $350,000, put $50,000 of rehab into it over a few years, have a couple of boarders to help with the mortgage, then you might after a few years have a property worth $600,000 without too high of a personal cost of living. That's a $200,000 gain, and if you are an owner-occupant and set things up right with your accountant, you might be able to sell this personal residence and keep all of the capital gains tax-free. One or two successes like this might radically accelerate your vision here. @Mindy Jensen has done this with great success something like eight times!

Derek Diamond · Answer

Hey Paul! A well thought out post. First of all, it is defiantly possible and you will get there. There are many creative strategies that you can use for this end goal. You won't be able to jump right in if you want to be conservative. You have the potential to save a large sum of money $45k a year, that is so good. Having such a good job will help with such a large purchase. Here are a couple ideas for you:comercial properties usually need 25% down and 6 month reserve funds. So for your million dollar property that means 6 years or so of saving $45k. Simple path but not much leverage used.Buy a smaller property, maybe a duplex or fourplex, improve it with your skills and up the rents. Do this with a few properties then refinance all of them or sell them, take the money and buy your dream place.Another option is get a partner or a few partners to go in with you. Cuts that expense down greatly. They could even be limited partners meaning you make all the decisions and then just pay them a % of the income from the other parts of the building.You will soon find there are many many ways to get this done. Good luck!

Paul C. · Answer

Hi Derek and Scott! Thanks for the messages! I really appreciate you taking the time to respond. Scott, I'm glad you like seeing this kind of story! Thank you for putting all the work you put into your book and your content on this site! It's consistently inspiring!The internet seems to agree that down payments on commercial loans around going to be in the 30%+ range. Though maybe downpayment could be a bit lower if I find a mixed use property.So, I'm thinking currently of a few different scenarios:1) Slow and boring. Just save until I can afford it. ...the timeline of this one gets me down a bit but it would eventually work. A downside here is I wouldn't get much real estate (and remodeling) experience during this saving period.2) Every two years move into another fixer upper and do the live in flip. Seems like this can provide extra income anywhere from 0 to 100k+ dollars depending on experience/skillset/timing/luck.3) Every two years do a live in "flip", except just rent out the house upon moving out. I'd build a portfolio of a few properties which could be kept or sold to purchase the commercial space. One thing that I'm a bit confused about is what my personal experience needs to look like to qualify for, say, a 35% down loan on a 1mil commercial property. Will being a landlord for a couple houses suffice? Multiunit residential? Or will I need to have specific commercial property management experience? Or, time spent operating a umbrella business for my art/studio sharing that would qualify for a 51% owner occupancy loan? Many of my plan's decisions can be deferred (I'm trying not to overwhelm myself with planning specifics) but it seems like if I need to show specific experience to a bank, I'll need to start building out my resume at some point.My next step is to increase my cash savings to prepare for a purchase in 2019/20.Any books you'd recommend? I'm starting on the guides. I got "The Book on Flipping Houses" from the library.Cheers!