Hey, it’s Saul.

In case you missed the previous announcement.

I switched my newsletter platform.

Email delivery rules have changed.

To ensure you receive the next edition, please follow this:

1. If this email has landed in the promotions folder, please move it to the primary

2. Hit reply and send a simple 'yes'.

3. Click one of the links in this email.

Moving forward, you'll get a newsletter in text format every Saturday. It will include a link to my newest video.

Let me tell you in detail why.

I found this deal on Loopnet in September 2020.

Yes, that was a crazy time of the COVID-19 pandemic.

It was 20,000 square feet, a 3-unit flex/industrial building. Built in 2020, with precast construction on 0.86 Acres.

Two units were 5,000 square feet. A third was 10,000 square feet.

Asking was $820,000, and we purchased it for $750,000.

My plan was to cut the 10,000 in half, making it four units, each 5,000 square feet.

Market rates were $9 per square foot, gross.

Once renovated and full, it will yield $1.4 million value at a 10 CAP.

Yes, I was very conservative in my underwriting during the pandemic. I expected that, at some point, CAPs will widen.

Leasing and Marketing

I put in the contract that I'm allowed to bring my prospective tenants during due diligence.

The seller's broker agreed to work with me on signing new leases while we are in the closing process.

In short order, I listed for lease on Marketplace, Loopnet, and Craigslist. I called and emailed over 50 leasing brokers in the area. I also dropped 1,000 postcards at nearby businesses. (In the next email, I'll share the step-by-step process.)

Within two weeks, I had leased two units and had a few more prospects for remaining space.

Minimal tenant improvements. Move-in was scheduled thirty days after closing.

Financing

My plan was to go with a hard-money lender, 20 percent down, and a 12-month term.

But after we signed two leases, I reached out to Union Bank, who I had a relationship with.

They agreed to finance at 75% of the purchase price, a permanent loan, for a five-year term.

Union Bank's appraiser valued the property as-is at $770,000. The stabilized valuation shocked me at $900,000.

This is when I learned that "sellin' ain't tellin'".

From now on, I'm sharing my rent roll pro forma via email. I'm meeting the appraiser in person and telling the story behind it.

Highlighting the businesses I'm bringing in and leases I'm negotiating.

And clarifying the picture for the appraiser about how this pro forma is becoming a reality.

Stabilization

We invested nearly $100,000 in renovations after closing.

We cut the large unit into two, cleaned it, painted it, and replaced the ceiling tiles. We renovated the bathrooms and installed LED lighting. The parking lot was sealed and restriped.

So we were all in $850,000 in the building, and we had approximately $300,000 of our cash tied up.

Within six months, we were close to $124,000 NOI, we wrote all leases NNN. Average rent was $6.25 and $3.30 in CAMs.

After 12 months holding it, I went to Union Bank to refinance my loan. The goal was to take our $300,000 and put it to work in another deal.

The banker turned down my request. Now, I fear we've lost that relationship.

Loan processing consumes bank resources, which are wasted by early payoff.

So, looking back, we should have chosen a bridge program. We should not have chosen permanent financing.

Anyhow, we refinanced with GreenState Credit Union.

It appraised at $1.6 million. They refinanced 100% of our basis of $850,000 at a 3.85% rate.

Our monthly debt on it is $4,417 a month. Our base rent is $10,400 a month. We cash flow almost $6,000 per month.

We distribute $5,000 a month to my partners and myself like clockwork since June 2022. And we have over $80,000 in reserves.

This deal took little time and effort to fill in. We didn't need any major construction.

Right now it takes very minimal mental space for myself and my team. Since we purchased it, we've had two tenants turn over.

Both were back to back because the demand for this type of space is sky-high. And we offer affordable rates.

It's funny, I signed a new lease while I'm editing this email. Same deal - the existing tenant is moving out on July 31st, and I have a new tenant moving in on August 1st.

Takeways

The best deal is not the cheapest one you bought it, but how quickly and how easily you were able to turn it around.

Small bay is still easy to fill in.

Lender is your partner, make sure to pick a win-win scenario.

Be Well,

Saul!

P.S. Here is my latest video, which I wrote about in my last email. It is a case study of a free-standing retail building that we turned around in 2.5 years and then sold.

P.P.S. Legendary Value Add Deal shout out goes to Eastern Real Estate. Bought it for $525K. Sold it for $101M four years later.

P.P.P.S. If you like what you read, please share it with your friends. Next week - I'll share step by step marketing and leasing process for this deal.