Persistence and low balling, does pay off.

[Adam F]

This a tale of a property I closed one year ago to the day, April 4, 2013. Arguably one of the most difficult properties I've ever acquired.

Property: 4600 sqft commercial building, clay tile construction w/ solid beams. Beautiful (exterior) 1930s ageless appeal, huge windows in the show room. Great light. Previous use: Ford Dealership w/ Gas Station circa 1940s, Ford Service center 1950-60s, then Honda Dealership 70s, and then finally a waterbed store and various antique stores more recently..

Bad: Inside - horrible. Just crap in every way imaginable. People had hacked their business into this building for 50 years. Really bad: Buried underground storage tanks. Below ground hydraulic vehicle lift sump that was leaking. Paint falling off the walls. Exterior wall that wasn't stuccoed required significant repair. Boilers needed to be decommissioned and gutted. Bad roof, etc.

Listed at $300k. Offered: $200k. Initial offer rejected. Seller accepted an offer at $260k is what I heard (no verification though).

Under 2 months goes by, and buyer can't secure financing due to EPA issues with building related to underground tanks and hydraulic sump. Bank is requiring a stage 1 cleanup. Property is re-offered to me at $200k AS-IS. I refuse and offer $160k. Seller refuses and I figured OK, end of deal ... or so I thought.

I forget about the building all together. 6 months later, realtor calls me and tells me property is back on the market, all underground tanks had been removed, and stage 2 cleanup and had been performed and signed off. There was offers on the building AGAIN already, and wanted to know if I wanted to offer. I told them I would offer $150k. Realtor puts in the offer, immediately rejected. Seller accepts a much higher offer. (It was owned by a trust and they were a serious pain in the butt).

~10-15 Days goes by - maybe if that. Yep, wouldn't you know it - banks still wont finance it. I guess the local credit unions dont want anything to do with a stage 2 clean up building. Buyer gave up, and it was re-offered to me. I walked through the building, noting what a terrible job decommissioning the tanks they did and just massacring the floor to get the hydraulic sump out. I put in an offer of $130k, $75k cash, 30 day close, owner carry a note of 55k for 2 years at 6%. About a week later, the seller accepted, we closed April 4 2013.

We are currently at month 8 of remodel. It will soon open up as a 50s themed restaurant with a full remodel, structural upgrades, and a laundry list of upgrades. I already have a tenant signed and waiting for construction to complete. We are charging a base rent of $1/sqft per month. We increased the square footage to 5420 square foot with an upper level addition as well. The opening of the business should coincide with the paying off of the mortgage note. It was structured as note & trust deed.

Total costs to date:

$130,000 purchase price. $1500 closing cost.

~$27,000 in direct labor (employees)

~$14,000 in materials

$8200 structural engineering & architectural fees

We are about 75% percent finished with the remodel at this point.

Happy hunting.

[Account Closed]

Nicely done and congrats.

[Jon Klaus]

Awesome. Can you post pics?

[Walter Ichikawa-Doyle]

Well done! Good example for us to remember to stick to our course of action, do not panic to make a higher offer when our first are rejected and don't be afraid to move on. Other opportunities will always come up... maybe even the same property with an even better price point! Thanks for sharing this story!

[Chris K.]

C'mon man you knew we'd want pics!!!!

Awesome deal, that's definitely motivating!

[Account Closed]

@Adam F ...."You got to know when to hold 'em, know when to fold 'em, know when to walk away and know when to run".....Kenny Rogers. That song came to mind as I read your post.

I love the fact that you had the guts not only to lower your offer once you realized just how much of a pain this property was due to the other deals falling through but to also insist on seller financing. Almost brazen I would say but brilliant. The fact that the seller accepted your offer which almost appears as an insult to him speaks volumes as to how motivated he was....after rejecting your other offers which were higher.

Inspiring and motivating. Good job.

I have learned in some cases to offer not what the market says the property is worth but what I think it is worth to me. Especially in distressed situations that I consider borderline. That is why this resonates so much with me. In those cases, I usually think, "If I woke up tomorrow morning, and got the news that I won this bid or that my offer was accepted, how will I feel? Will I be doing somersaults because I know I got a slammin' deal because I stuck to my guns or will I have that uneasy or sinking feeling that I paid too much?" This helps me keep my perspective on those deals that I want but consider borderline.

[Adam F]

I should note that I switched realtors at the very end. The listing agent was getting hostile towards my tactics, and I found a different agent that didn't have a problem putting in my final offer.

The light gray walls are everything that was being deleted on round 1 of engineering. You can see the new walls clearly. The entire perimeter of the building required 2x6 framing with blocking that are epoxy attached to the outside wall, effectively making it a facade. This was the original show room area, we put some kid toys in there when we were looking for a tenant.

Demo was quite extensive. To give you an idea:

And:

I think all these pictures are about 7 months old. I will see if we have newer ones that don't violate our privacy agreement with the tenant. I cant post external pics for that reason.

[Douglas Larson]

@Adam F

Very cool and thanks for the pics! I love to see a plan come together! I think commercial space is so foreign to most residential investors like me that we pass by some great opportunities. Commercial property intimidates me! I felt the same way about land just 4 years ago but I am very comfortable in that space now. I would love to know more about your deal and commercial space in general.

How did you come to the decision of a restaurant space rather that retail or office space?

How did you market the property and find your tenant?

Is the tenant responsible for final renovations like kitchen needs, 50's decor, etc?

How long of a lease did you get and does the 50's restaurant company have a track record in other locations?

If not, how do you screen for the right commercial tenants?