Structure a Deal to Own Your Own Office or Home

Subtle aspects of a deal that can help you buy your own space without disrupting your monthly budget.

Nothing hurts a real estate investor quite like writing a rent check, especially for their own offices. Here I was with a successful real estate company and a teaching and training business, yet I was leasing our office building for $2,643 a month. As investors, once we know the proper techniques to buy on TERMS without using our own capital or signing personally and pledging assets, it makes any training we get all that much more worth it as we can purchase our own home or office (my daughter and son in law bought their home recently via lease purchase but that’s for another article).

It may run contrary to the for-profit mode many get stuck in, but buying your own space is an investment in yourself and your business. Of course, it’s more complicated than simply wanting to own your own office. The timing should be right, and factors like location and room for growth should be considered. And then there’s the deal itself….

When we decided to look for a larger office space for ourselves to accommodate our expansion, the properties that matched our needs and wants were running from $3,800 to $5,000 per month. That made me cringe even more, so we started looking to potentially purchase on terms which is what we teach. With energy focused in that area, the results came quickly and a realtor referred us to a FSBO near a busy intersection I drive by all the time yet totally missed.

The seller was not new to real estate, and obviously had done his homework to find this prime location 22 years ago. Once we were introduced and talked more, he took care of the realtor fee and chose to deal with me directly. In talks with the seller, I learned he owned massive amounts of real estate in the area (mostly land) and that he originally bought this property for his son to use, but his son had moved out of state.

With both of us in the business, and a sense of trust built by dealing directly, we did this deal without a Purchase and Sale Agreement. I’m a handshake deal kind of guy and would love to do more of them, but it’s just not safe or realistic to do with everyone. There was no deposit, and the seller gave his word he’d take the ‘for sale’ sign down the next day. It also turned out our attorneys were in the same building, so we’d let them close the deal when the time came.

Breaking our Own Rules

As I’ve often said, there are times when an experienced real estate buyer will pivot in a particular deal. Our own deal included several aspects, any one of which could be a useful and advantageous way to structure a deal of your own.

The seller was initially advertising owner financing with the property listed on the market for $650K. He wanted a 20% down payment and a mortgage of 20 to 25 years at 5.5%. By the time we were dealing with him, the price was slashed to $565K. We came back with a slightly lower offer of $550K and different terms. These terms were based on me not wanting to exceed our then $2,643 monthly lease payment, and we sort of reverse engineered our offer in that way.

At the closing, we put down $35K which was coming in from ongoing terms deal as Payday #1s and Payday #3s, not personal savings or business reserves (remember when structuring terms deals the way we do - lease purchase and owner financing - we have 3 Paydays and many times they’re over time which gives us a nice projected payment schedule to count on for income and business building). I consider it a reallocation into a greater investment. One of the more nuanced aspects to the deal was to ask for three months of no payments after the deposit. This was to avoid an overlap of paying rent on the leased space and on the new office space, and it freed up roughly $8,000 to use on moving and improvement costs to the new building after move-in. Just being free from paying double that first month, and having available funds to get the new refurbished to meet our needs was a great aspect to this deal, but we added more.

After the three months of no payments, I negotiated four months of fixed, principal-only payments at $2,5000 monthly, a rate lower than our previous lease payments. That put another $10,000 down on the principal. While it may seem like this is purely delaying payment, we structured a large sum payment for month eight, and allocated funds for our incoming terms deals to pay another $15,000 that month. A structured, reliable cash flow made this deal possible from other deals we have..

We set the balance on the loan to start amortizing (including interest which we usually don’t do in our investment deals) in month eight, not day one. So aftwith that last payment of $15,000, the seller got the desired $60,000 deposit total in and then it became more of a conventional amortization of the $490,000 balance.

Our new monthly payments toward the $490,000 remaining principal paid at 5.2%, which I negotiated down from 5.5% to keep those payments under $3K. Yes, $2,921 is north of the $2,643 lease payments we’d been making in our old offices, but we now owned the space and did not disrupt our monthly budget to get there and also had 3 ½ times the space and additional rentable suites to profit from.

There were two existing tenants in the building. Both were there over 20 years (remember the owner had owned for 22) and never had an increase in rent. I met with them both and negotiated a $1550 per month 24 month lease on one and a $550 12 month lease on the other. The month immediately following closing then, we had a nice $2100 income coming in to off set our outgoing cash. That $2100 covers most of our payment not counting taxes and insurance.

The Structure of Our Deal

• -$35K deposit
• -No payments for months 3
• -Fixed, principal payments for months 4-7 ($10K applied to principal) 
• -$15,000 on month 8, stashed each month from terms deals and rent already coming in on the building from 2 tenants.
• -Traditional monthly payments on remaining $490K
• -Interest negotiated from 5.5% to 5.2% so monthly payments were under $3K 
• -20 year term