Attention business owners! Just imagine operating rent-free all while reducing your taxes and building long term wealth. Introducing commercial real estate hacking. You’ll also discover how Will “hacked” his first office building and reached his goal to have $1 million in commercial real estate in just 90 Days!
Benefits of Commercial Real Estate Hacking
Is “house hacking” only for residential properties? Not at all! You can use this innovative strategy with commercial property as well. It’s called commercial real estate hacking, and these owner occupied commercial buildings have unique advantages for business owners. One of our students, Will, a savvy business owner, is a prime example of the incredible potential of commercial real estate hacking to build long-term wealth. He purchased an 11,000 square foot office building that was listed for $1.3 million, and through effective negotiation and expert guidance, Will secured the property for a substantial discount of $900,000. This significant savings set the foundation for his remarkable journey.
1. Cash Flow
Will plans to “hack” the property by putting his marketing agency and business coaching firm in two of the units, and lease the remaining units to tenants. Initially, Will’s cash flow was at the break even point since his businesses were yet to move in. He was already benefiting from the rental income generated by other tenants, covering his mortgage and expenses. However, once Will moves his businesses into the building, his monthly cash flow will soar to $3,200, representing pure profit. And this is just the beginning. As other spaces in the building become occupied, Will’s cash flow will skyrocket even further. Ultimately, he projects a monthly cash flow of $7,200!
2. Tax Savings
But that’s not all! When Will came to our mentorship program, he said, “Peter, my accountant said I’m paying too much in taxes. What can I do?” Of course, our answer is always to invest in commercial real estate because of its tremendous tax advantages. A cost segregation study allowed Will to claim bonus depreciation and other tax advantages, resulting in a staggering $43,000 tax savings in the first year alone. Additionally, future renovations within the building will further enhance these tax benefits, allowing Will to redirect his money towards increasing the value of his investment rather than paying higher taxes.
3. Increased Equity
Will’s venture into hacking an office building solidified his position as a commercial real estate investor. With his businesses firmly established in the building, he will not only generate substantial cash flow but also create significant equity.
The property was appraised at $1.05 million, and once all spaces are occupied and renovations finalized, Will projects an astonishing after-repair value of $1.67 million! This remarkable appreciation showcases the long-term wealth-building potential of hacking commercial properties. To quote Will,
“It’s an amazing way to do business, to be smart with money and investing, and to build long-term wealth”.
So, how did he do it, despite having no prior commercial real estate investing experience? Find out in this one-on-one interview, as Will shares how he took a bold step into the world of commercial real estate investing.
Meet Will
Peter: I have one of our protégé students with us today. He’s a business owner, a husband and father, and he’s a marketplace industry leader. He does it all! Amazing human being and he’s going to share his story today. Thank you, Will, for joining us. Let’s jump right into it. Could you share with us a little bit about yourself?
Will: Sure. I live here in Oklahoma, and as you said, I’m a husband and a dad. I have a 12-year-old girl, a 15-year-old boy, and I own a couple of businesses; a marketing agency, a business coaching firm where I coach business leaders, and now I do commercial real estate as well. So lots to keep me engaged and busy, learning and growing. And I’m super thankful to be learning from commercial property advisors along the way.
Will’s Journey into Commercial Real Estate
Peter: That’s great Will. So tell us, why commercial real estate? What are some of the driving factors behind this decision to contact us and jump into commercial real estate investing?
Will: Two things come to mind. First, I was driving through the city one day and I was looking at all these buildings around me and had this thought that, somebody owns these buildings. And I thought, “why can’t I also own something like this?” Why not? I really believe that all of us have unlimited potential and things like that are just possible. And so I started expanding my thinking, having bigger thinking, seeing myself as not just a business owner but a commercial real estate investor, a landlord, a property owner. That’s the big reason.
Now, on top of that, since I own a couple of businesses that have been doing well, I met with my tax person earlier in the year and they said, “Hey, you’re going to pay a big fat check to the government unless you start getting a little more creative with your investing.” That really lit a fire under me to start moving and engaging with you, Peter, and with Commercial Property Advisors and start down this path of buying a commercial property.
Commercial Real Estate Hacking 101
Set Clear Goals
Peter: So Will, you’re a business owner, and when you contacted us, you said, “Peter, ideally I’d like to buy an office building for my two businesses”. And you pulled it off with this awesome deal. So let’s talk about your commercial real estate hacking deal a bit. How did all kind of happen?
Will: So I started by setting some clear goals. My first goals were to have a million dollars in commercial real estate in the first 90 days coupled with this need to invest and be smart with my taxes and put my own businesses in there. And I just followed your process. Peter, you’re so clear. There are so many videos, and trainings and so much guidance from Commercial Property Advisors. So I just started doing that and found a property here in town.
Find a Value-Add Deal
Will: It’s an office building about over 11,000 square feet with several tenants in it and some open spaces, which is important because that’s where I wanted to put my businesses. I went and looked in the property myself just to walk through it. It needed some TLC, but the location was good and that instantly caught my attention because of the upside. If we just do some landscaping, do some interior improvements, this building has a lot of potential and that’s what really made me decide to pursue this building.
Make an Offer
Will: I was very nervous because I’ve never done this. These are big numbers and your decisions matter when these numbers are so big. I was concerned about how to go about all of this, but I was so thankful because I met with you several times and you told me exactly what to say since I was dealing directly with the owner of the building.
The building was listed at $1.3 million. I am not the type of person who likes to do low ball offers, but I put together three offers at $900,000, $1 million, and $1.1 million. Then I met with you and honestly, I was leaning toward probably the $1 million, maybe a little bit higher. And you said, “Let’s just offer him $900,000 and see what he says. Let’s just see what happens”. You kind of talked me into it because I didn’t really feel comfortable.
Not only did you tell me what to offer, but you told me the words to say and when to pause and just be quiet. And I did that exactly and made the offer and was quiet. And after a moment he said, “ Yeah, that sounds good. Let’s do that”. And I couldn’t believe it! I thought, oh my goodness! I tell other people about that to this day because you saved me at least a hundred grand right up front.
And not just the technique, but the confidence and the courage to do that came from you through me and helped make the deal happen. So I’m grateful for it. I know we’re going to make a bunch of money on the back end, but we made money on the front end, which is a lot of times where a significant amount of money is made. So we closed on the property and now one of my businesses is in there and I’m putting another one in there soon.
Determine Cash Flow
Peter: Let’s talk about the numbers a bit because, without your businesses in there, you’re breaking even. So once you put your businesses in there, what’s the cash flow and then what is the cashflow once you filled the vacant spaces?
Will: So when I’m in there, cashflow will be around $3,200 a month. And then when all the vacancies are filled there will be an additional $4,000 per month. So I mean, you can’t beat it. I don’t know why more people don’t do this because it just makes sense. For me, it just seemed like this big scary thing. I didn’t know what was behind the curtain there, and so I just left it alone. But now that the veil has been pulled back as it were, it’s an amazing way to do business, to be smart with money and investing, and to build long-term wealth as well.
Overcome Challenges
Peter: So we talked about all these good things that happened. You’ve had a couple of challenges. We’ve had some good conversations back and forth on overcoming the challenges of commercial real estate hacking. So let’s talk about that.
First Big Challenge
Will: Yes. So I think one of the challenges was that the previous owner was not on top of record keeping and management of the building. And so I had to really put a lot of emphasis on my due diligence. I spent a lot of time in the building, went through your checklist. You have extensive checklists, financial due diligence, the physical due diligence (inspection), and legal due diligence. I went through all those checklists to really understand what was going on with the building because there wasn’t much to rely as far as paperwork and documentation.
So I really had to focus a lot on due diligence. But it was worth it. In fact, one of the building inspectors came back to me and said, this is a diamond in the rough. He said, this is a great solid building, it just needs a little attention. And so that really encouraged me to hear that because that’s exactly what you teach us to look for is these properties that have upside, that have potential.
Second Big Challenge
Will: I would say the second big challenge happened on the day of closing. There was some sort of disagreement between the property owner and his real estate agent. In fact, I remember you called me out of the blue, just said, “Hey, I’ve been thinking about you. Tell me what’s going on, bring me up to speed”. That meant a lot to me to get the personal call, especially when there’s drama like that going on. So there was some disagreement and the agent had threatened to put a lien on the building and had notified the bank of that as well. So the bank was about to pull out of the deal and the whole thing was just going to fall apart and go away.
Thankfully you told me what to do. I had done everything I was supposed to do and you told me just be quiet and wait, just don’t do anything. And I had a fantastic title company and it was a lady there who negotiated and worked things out and it all just fell into place. Everybody did what needed to be done and the deal was finalized, the money was wired.
Peter: And the reason why I had you sit back and do nothing is because the other parties are really motivated to sell this property. The seller had to sell, the agent wanted his money and the title company wanted to get this project off their desk. The problem at closing had nothing to do with you, it was the other two parties. So let them work it out and they did.
Take Advantage of Tax Savings
Will: As per your advice, I had a cost segregation study done, which with bonus depreciation and some other things allows me to significantly reduce my tax liability. In this case it will save me over $40,000 dollars on 2023 taxes. Also, I will be doing more renovations in the building this year so there’ll be another part to that over the coming year that will help. If I’m going to spend money or I’m going to write a check, I’d much rather write it to a contractor who’s going to increase the value of my investment versus to the government.
Build Equity
Peter: So you saved $400,000 off the listing price, you have $44,000 in tax savings, and then there’s an additional $4,000 a month in cashflow after your $3,200. So the purchase price was $900,000 and the appraisal came in at $1,000,50 and then we calculated the ARV (after repair value) at $1.6 MM but a few years ago the bank appraised the property at $1.9 million, is that right?
Will: Yes, I thought it was a mistake, but I verified it and asked them and in fact it was appraised at $1.92.
Peter: And I believe after the amount of work you’re putting into it, with the new tenants and higher income, the new value could be between$1.7 and 1.9 million. Again, all because you took the leap.
Next Steps
Peter: So Will, share with us what the future holds for you. What’s next?
Will: It’s so exciting to me to own a property like this and to increase its value. The most rewarding and fulfilling thing in the world to me is to see something increase in value. So right now we’re doing some renovations on the building, we’re making it look better and more appealing and I just love that. I don’t know everything, and I just take it a step at a time. But I suspect that this is going to be a journey for me, a road that just continues in commercial real estate investing. I have a goal for this year to get to $3 million. So I’ll do one or two probably bigger deals by the end of this year and just keep finding deals, keep following the process, but enjoy the journey and just do what you tell me to do.
Final Thoughts
Will: I would say this too, Peter, that I am a person who is typically okay with risk. I’m willing to make the leap. And I think some people make the leap and they’re not fully informed. They’re okay with risk but they just jump into it headfirst, and they don’t always know exactly what to do. That type of person needs your mentorship and needs the proven process of Commercial Property Advisors. So there’s not these huge mistakes, costly mistakes. Numbers get big. The legalities of things are consequential. And so that person who is okay with risk and doing something like this needs a mentor to guide them through.
Other people, it seems like they are high fact finders and just need to know everything before they do anything. And in that case I would say don’t be so scared. You need Commercial Property Advisors, you need Peter’s mentorship, but it’s not as scary as you might think. And it’s important to take that step to make the leap.
Lessons Learned from Will’s Commercial Real Estate Hacking Deal
Will’s inspiring journey offers invaluable lessons for aspiring commercial real estate investors.
- First, setting clear goals and writing them down is crucial to achieving success. Will’s goal of owning $1 million worth of commercial real estate within 90 days demonstrates the power of intention and strategic planning.
- Second, finding motivated sellers and seizing unique opportunities is key to securing favorable deals. By identifying an office building that aligned perfectly with his businesses, Will capitalized on untapped potential.
- Third, traditional financing for owner occupied commercial property differs from a typical commercial loan in that the lender need to qualify the building, you, and your businesses. Will presented a comprehensive business plan which resulted in favorable lending terms: 80% LTV (meaning he only put 20% down), 3 months interest only to help out with the cashflow, and a 25 year amortization schedule.
- The fourth and final lesson is, effective tax strategies are key to maximizing profits and building long-term wealth. Will’s decision to explore cost segregation studies and leverage tax benefits shows the importance of wise financial management.
If you have any questions, post a comment below or text PETER to 833-942-4516.
Every Successful Commercial Real Estate Hacker Has a Mentor
“Peter, I’m grateful. I’m so thankful for you and your team and all the energy and wisdom that you’ve put into Commercial Property Advisors. It’s an honor to watch you do what you do and see your impact. I know I’m one person but there’s thousands of others that you’re impacting as well and it’s just great to have our stories weaved together in life.”
With careful planning and our expert guidance, you too can unlock the incredible potential of hacking an office building or any other commercial property. Get your mentor here: Commercial Property Advisors Protege Program
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