All Forum Posts by: Tom Rauen

 1-800-Tshirts.com - Custom printed apparel, screen printing and embroidery.

There are a few ways to do this, and it really depends upon how "passive" or hand on or off you want to be.

COMPLETELY PASSIVE

1. Look at being a Limited Partner (LP) in a syndication or equity fund. This limits your risk and exposure to debt while getting a preferred return typically 8%-12% in today's market depending upon the deal and the amount you invest. This could be monthly or quarterly distributions.

2. Invest in a debt fund, same as above, straight coupon for a return typically between 8-12%.

3. Invest in NNN Lease Real Estate with a national tenant with a long term lease. The tenant will take care of all of the maintenance, taxes, and insurance. Rent is deposited via ACH. You get the cash flow, + depreciation to offset taxes, and appreciation long term. With $1,000,000 in cash, you could acquire up to a $5,000,000 property. The cash on cash returns initially might be a little lower, but with rent bumps and appreciation, your wealth will grow over time.

There are other ways which involve additional risk, management, and hands on such as hard money lending, STR, LTR, but the above is the most passive.

Investment Info:

Retail commercial investment investment.

Purchase price: $650,000
Cash invested: $300,000
Sale price: $1,650,000

The first commercial property I acquired was a "house hack" for commercial real estate. I had looked at this property a few times, but I couldn't full grasp the size of it. I had read a few books about "House Hacking" and applied the same concepts I learned with this commercial real estate deal.

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

I needed a place for my growing business and ultimately I wanted to own real estate instead of paying rent every month to someone else. I liked the visibility of this property on the main highway going through Dubuque.

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

This deal was listed with a broker. It was listed for $850,000 and had been on the market for over a year. I negotiated it down to $650,000 since it had been on the market so long. The REX Appliance business had gone out of business and large real estate company bought up all the real estate assets. I knew the company didn't want to hold them long term, and they were probably tired of the expenses of snow, grass, and property taxes from being vacant for over a year.

How did you finance this deal?

We partnered with the SBA and a local bank. The SBA loan was able to get us locked in at a low interest rate and also come into the deal with only 10% down. Since we were occupying the building, the SBA was 40% of the loan, local bank 50%, and we had the 10% down payment.

How did you add value to the deal?

We re-did the front façade and sub-divided it into multiple storefronts. Added solar to the roof to offset the energy cost by 80%, and extended the parking lot in the rear of the building.

What was the outcome?

We occupied 7,000 sq. ft. of the 12,000 sq. ft. for our business while leasing out 5,000 sq. ft. The lease payment from the 5,000 sq. ft. paid for the mortgage. After 8 years, we outgrew the 7,000 sq. ft., but liked the tenant so much that instead of kicking the tenant out and taking over that space, we found a bigger building and found a new tenant for the 7,000 sq. ft. we were occupying. At that time, we got fresh leases from both tenants and decided it was time to sell the property.

Lessons learned? Challenges?

Working with the SBA was nice, but there was a lot of extra paperwork. Also, once you have that loaned locked in for a long period of time, you can't exactly re-finance and pull equity out of the property to re-invest and leverage into other properties. We ended up doing this and paying a small fee after 6 years. This was our first "rehab" project, so we learned a lot when working with contractors on doing the remodeling.