Small Town Warehouse Income Too Good

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Small Town Warehouse Income Too Good

Matt Smith
Rental Property Investor · Houston, TX · Member since 2015 · 43 posts · 28 votes

Investment Info:

Large multi-family (5+ units) commercial investment investment in Kenedy.

6,500 sf Warehouse with extraordinary ROI for a long term income play.

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

After some research, I realized there was a shortage of warehouse space, office space, and commercial space in general. I thought I might be able to lease as a warehouse. After seeing the inside of this ugly eye sore of a warehouse on a small lot, I thought it could be a tremendous opportunity to be able to lease as is.

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

This deal was listed for several years.

How did you finance this deal?

I was able to negotiate a 7% down payment with the seller carrying the note. Win win situation.

How did you add value to the deal?

At first the deal was placed online for lease, in which a broker's client offered to lease absolute NNN for 5 yrs. I made some rookie mistakes, and a partner got a little greedy, and the deal was blown during final stages of signing. As a result, I paid approx $18,000 remodel, repairs, restrooms, electrical, lighting, and ADA compliant. It has since been a great income producing property for over 3yrs.

What was the outcome?

The first couple of years were tough due to the perceived condition. It sat on the market for lease for about 3-4 months, so I painted the outside to improve curb appeal and it has been leased with low vacancy rate for the past yr and a half. Great income producing commercial property that nets the equivalent of $18-$20 hr full time job.

Lessons learned? Challenges?

Never judge a property by it's curb appeal...especially if it is commercial. Older commercial property may be built with higher common sense standards, and better material than what is available today. You may be pleasantly surprised to find some valuable traits that an ugly commercial has to offer inside. It never hurts to look. And, don't be greedy, and don't let partners get greedy.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Yes, an agent was involved, but not very helpful for the sellers.

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  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    8y
    Originally posted by @Matt Smith:

    Investment Info:

    Large multi-family (5+ units) commercial investment investment in Kenedy.

    6,500 sf Warehouse with extraordinary ROI for a long term income play.

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

    After some research, I realized there was a shortage of warehouse space, office space, and commercial space in general. I thought I might be able to lease as a warehouse. After seeing the inside of this ugly eye sore of a warehouse on a small lot, I thought it could be a tremendous opportunity to be able to lease as is.

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

    This deal was listed for several years.

    How did you finance this deal?

    I was able to negotiate a 7% down payment with the seller carrying the note. Win win situation.

    How did you add value to the deal?

    At first the deal was placed online for lease, in which a broker's client offered to lease absolute NNN for 5 yrs. I made some rookie mistakes, and a partner got a little greedy, and the deal was blown during final stages of signing. As a result, I paid approx $18,000 remodel, repairs, restrooms, electrical, lighting, and ADA compliant. It has since been a great income producing property for over 3yrs.

    What was the outcome?

    The first couple of years were tough due to the perceived condition. It sat on the market for lease for about 3-4 months, so I painted the outside to improve curb appeal and it has been leased with low vacancy rate for the past yr and a half. Great income producing commercial property that nets the equivalent of $18-$20 hr full time job.

    Lessons learned? Challenges?

    Never judge a property by it's curb appeal...especially if it is commercial. Older commercial property may be built with higher common sense standards, and better material than what is available today. You may be pleasantly surprised to find some valuable traits that an ugly commercial has to offer inside. It never hurts to look. And, don't be greedy, and don't let partners get greedy.

    Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

    Yes, an agent was involved, but not very helpful for the sellers.

     Excellent find and also love the creativity getting the seller to carry.

    I have also been looking at industrial warehouses.  Did you end up with 1 tenant for the whole space?  Curious as to what purpose they are using it?

    Well done!

    0Reply
  • Matt Smith
    OP
    Rental Property Investor · Houston, TX · Member since 2015 · 43 posts · 28 votes
    8y

    @Steve Vaughan

    One key component to the seller carry was that in the event I'm unable to refinance through a financial institution after 3 yrs, I have the option to re-fi with the owner for additional down payment and same payments and interest (just recently re-fied for round 2).  I have not been able to refinance the warehouse to date in large part due to the tenants.  The front section of the warehouse had over 70 electrical outlets all around the walls  spaced about 18" apart.  I was told it was an electrical appliance retail at one point associated with Western Auto (founded by George Pepperdine of Pepperdine University fame

    https://en.wikipedia.org/wiki/Western_Auto).  The electrical outlets seemed to me to be early 1980s commercial grade, very professional, just circa 1980s style.  I always thought, it would make a great ecommerce fulfillment mix center, but I get ahead of myself when discussing rural areas...it'll happen one day.  

    Since I lost the original tenant prospect, and oil prices were falling, I decided to "jazz it up" as best as I could in hopes of attracting a strong tenant.  The result was about $18k to redo the electrical, convert an office into two ADA restrooms and a kitchenette.  During this time (Jan 2015-May 2015) there was no interest from any oil support companies, or solid tenants; however, there was interest from someone looking to open a Game Room.  In Texas it's kind of a shady business operation with slot machines.  I'm not proud of this fact, but the income has been great and has allowed the funds to make further improvements to the warehouse.

    So, the first official tenant was a Game Room and they leased the entire 6500 sf.  In fact it has only been leased to Game Rooms until this year.  I've turned the warehouse into a duplex by adding a new electric meter loop.  Now have a resale shop in the back 3000sf and a Game Room in the front 3500 sf.  

    In terms of value, it's hard to say.  I know it is hard to sell a property like this.  The taxes are extremely low on this property .  Not because of the tax rate, but because of the tax value that the tax assessor determines.  In the rural areas, most locals undervalue their property.  I guess it might be the same anywhere.  Some outsider comes along and sees value that others don't.  A great way to create wealth, in my opinion.  None the less, it's still a great income producing property that served as the catalyst to leaving my full time job and aided in acquiring other assets.

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