Investment Info:
Industrial buy & hold investment.
Purchase price: $2,060,000
Cash invested: $375,000
Industrial Warehouse, with tenant in place. Purchased with three other investors.
What made you interested in investing in this type of deal?
This was part of a property swap that removed the (four Vancouver) investors from their investment in a Kansas City Mo. residential investment. Initially when we planned to purchase the property Covid was just beginning. Going forward, I believe many retail stores are going to leave the retail store front and move to a 1/3 cost warehouse space with the majority of sales being done online.
There should be at least some increased demand for warehouses for a while.
How did you find this deal and how did you negotiate it?
It was part of a creative solution to minimize a loss in another property. (Kansas City Residential)
How did you finance this deal?
The investors formed a new company and each investor loaned the company $375,000 to purchase the company (total $1.5M). As part of the deal, at note that was held by the investors was used as a credit to purchase the property. Essentially the Seller owed the investors monies but did not have the cash to pay off the note. He did own assets with equity, and this warehouse was one of the assets.
How did you add value to the deal?
The seller had high carrying costs from many loans. The seller took a secondary loan on this warehouse that was a high %, interest only mortgage. (i believe this was to finance another fix and flip) Holding this warehouse was largely negative cash flow for the seller.
Buying this warehouse gave us instant (our note value approx $560,000) equity in the property and removed one heavy negative cash flow source from the seller.
What was the outcome?
The deal from conception to closing was about 12 months and taught me never to give up. This project had many obstacles, but we persevered and used a lot of thought in coming up with solutions that would work for both sides. We even had to deal with a certificate of pending litigation that was placed on the property. Dealing with the CPL took an additional 2 months to resolve.
Lessons learned? Challenges?
Have a back up plan and in any investment, if the general partner is getting a divorce, have someone else manage the property!
One of the key reasons I love Real Estate instead of just equities investing is that you can improve the outcome by hard work.
Even if the projected outcome is -$200,000. You can work hard and improve the outcome to -$60,000. Hopefully your property is a +$40,000 investment and you work it into a $100,000! (for the seller Don't over leverage!)
