How to Catch up on Your Lack of Retirement Savings

Discover how to catch up on your lack of retirement savings using commercial real estate. You’ll learn how Protege Program member Jim was able to purchase his first commercial property and earn $2,400 per month, investing only $60,000 upfront for the investment as well as creating an additional $400,000 in equity! And the very same process and formula that Jim used, can be repeated by anyone who watches this video. Learn how you can invest in commercial real estate and make up for lost time in your quest for a financially secure retirement:

 

Do you have retirement savings already built up and will it last all the way to the end? Are you getting older and haven’t been able to save for retirement? Perhaps life has zoomed by and you were too busy to focus on it. Or maybe you are going through a tough time financially, lost your retirement savings and you’re starting over today. Whatever your retirement situation, this article will open your eyes to the possibilities of using commercial real estate to help you catch up on your retirement savings.

Invest in Something Tangible

I recently watched an ESPN episode of 30 for 30, called Broke. It detailed professional athletes who made tens of millions of dollars during their playing careers, and once they retired, they had no money left. They were flat broke. That’s unfortunate, and it really doesn’t have to be that way.

The mistake these players made was investing in risky investments like restaurants, a relative’s farfetched start up company, or spending their money on jewelry and cars. They should be investing in something safe and secure with growth, and most importantly, in something tangible that you touch, feel and measure. Measure the worth of it in real time and cashflow. You need to have investments that produce the type of cashflow that puts money in your pocket to buy groceries, pay the mortgage and support your family. Of course, they didn’t do that.

Catch Up on Your Retirement Savings with Commercial Real Estate

Commercial real estate can be that vehicle for you and help you catch up for lost time in your retirement savings. When Jim, one of our Protégés approached us, his dilemma was that he was in his sixties and didn’t have adequate retirement savings. He said his goal was to retire in three years, and he didn’t even have a retirement plan. In one year, with our help he was able to create a $400,000 nest egg that’s providing him decent cashflow and is still growing. It took twelve months of focus, hard work and coaching, but it was well worth it.

Can you save enough for a comfortable retirement? I was reading a New York Times article that gave me pause to think. It said that if you’re in your sixties with $1 million invested in municipal bonds, and begin withdrawing 4% per year when you retire, there’s a 72% probability that you’ll exhaust your retirement savings before you die. We need a better solution than this.

The Solution is Commercial Real Estate

I believe commercial real estate is the best vehicle for catching up on retirement savings because it has six investor controls that other investments do not have. These are investor tools that are necessary in any retirement plan.

Six Investor Controls

1. 1. 1.  Management: In management of commercial real estate, you have a say of who you put in charge and what they do. You have a say on the day to day operations to ensure that your money is safe and your investment’s going to work. No media or controversial CEO is going to take your company down. There’s no fake news that’s going to smash your property value and affect the investment. You have control over the management.
      2. Insurance: What if there’s a fire or major catastrophe that totally levels your commercial property? Using your insurance company, you can fully recover that property and build it up even better than before at someone else’s cost.
      3. Predictability: In commercial real estate, because there’s a neighborhood and not only a piece of property, there is a market. You can see the volatility happening months in advance. This allows you to be proactive. If you hear of something happening in that neighborhood and market, maybe a company expansion or an upcoming loss of jobs, you can react now and adjust to it before it happens. There’s predictability in commercial real estate that you don’t have in other investments.
      4. Leverage: You can buy a $1 million property, not for $1 million, but with 25% of that. The investor in that New York Times article who saved up $1 million and was drawing from it, should have taken that $1 million and bought a $4-5 million commercial property. The cashflow is two or three times more than what he’s pulling out of his $1 million. That is an example of leverage.
      5. Tax Advantages: How does a company like Amazon get away with paying no income taxes? They plan and they strategize accordingly, and they get to pay little or no income tax. You get the same legal loopholes and tax advantages as Amazon, even though you own something small, like a five-unit apartment building. In fact, the recent tax breaks and incentives from the White House just made real estate investing even better. Tax advantages are an investor control that you get investing in commercial real estate that you would not get in investing in stocks.
      6. Cashflow: It is the lifeblood of business when contemplating retirement; you get to control the cashflow. If you manage your commercial property well you get more cashflow. If you were to invest in stock, no matter how good you are you have no control of the cashflow. It’s in the hands of someone else. Cashflow control is of the utmost importance when contemplating a retirement plan.

Jim’s Problem

Jim’s in his sixties. He has some money saved, but not enough for retirement in three years, and he has no retirement plan.

The Solution

We had Jim focus on commercial properties where the owner was out of state. The reason we did this is because we believe these owners are probably more motivated to sell and easier to deal with. At Commercial Property Advisors, we are good at helping find these properties, although almost anyone can find them if they know where to look. However, what do you do when you find them? A lot of our training goes into how to build rapport, ask the right questions, evaluate and find motivations, and discover what’s going on with the seller to structure the best deal. That’s how we trained Jim.

The Property

Jim ended up finding an eight-unit property with the asking price of $500,000. We found out the owner was in distress and the property was horribly mismanaged. Remember, the owner is out of state and the property manager was taking advantage of her. We made an offer for $500,000. The offer was accepted, however we found out that the property was in worse shape than we initially thought, reducing the price to $450,000. At that point, we had contractors come in, and finding out there were some structural issues and with more detailed quotes, we decided we couldn’t pay more than $385,000. We went back to the seller thinking that she would say no way. She disappeared for a few months, so we figured she’s wasn’t interested, but we kept at her. Eventually, she agreed to $385,000.

Financing

We went ahead and Jim found financing for the deal. He found an 80% loan, which means the lender is going to loan him 80% of the acquisition costs, the $385,000 plus 80% of the renovation costs, which we thought was great. The renovation costs came up to be $65,000.

Unexpectedly, the appraisal came in at $350,000, so it was $35,000 short from the agreed upon sales price. What did we do? We went back to the seller and said, ” The appraisal came in at $350,000 not $385,000. We are not going to come to the table with when an extra $35,000. It’s just not worth it for us.” We drew a line in the sand, and thought the deal was dead. To our surprise she agreed to the new price. She had already psychologically closed this deal with Jim and moved on to the next deal. When we gave her this news, that kind of blew her paradigm out the water and she agreed to $350,000.

Upside Potential

During our due diligence, we discovered that the property had some good upside potential. We found a sales comparable apartment complex for $1 million. That means if we can buy this for $350,000 and put in the $65,000, we have a pretty good deal. We also did a market rent survey and found out that because of the poor management and the condition of the property, the rents for all the units were way under market.

The Execution

This is when the real work begins. We did three things: evictions, renovations, and increased the rents after the renovations.

• Jim started off with a net operating income of $26,000 per year. After a little more than six months, he more than doubled the NOI to $57,000 per year. As you know, for commercial property, as the NOI goes up so does the property value. Jim was able to get a substantial increase in property value.
• His all in was $415, 000; the $350,000 plus the $65,000 of renovations. How do we calculate the new value? If you recall from my videos, we can figure out the value of a commercial property by dividing the NOI by the market cap rate.
• The NOI is $57,000 a year, divided by the market cap rate in this case of 7%, is $814,000. His new property value is $814,000, which is an increase of close to $400,000 in equity.
• The cashflow starting off was about $700 a month, but today is at $2,600 a month.

Exit Strategy

Every good deal has an exit strategy and is repeatable. Jim found another deal that he wanted to do, but he doesn’t have the money. What do we do? He is waiting for his NOI to season a bit and then when the lender revalues the property, he will do a cash out refinance and pull out some of the equity. In this case he will be able to pull out his entire down payment and put that into another property.

Watch my video Secrets to Refinancing Commercial Real Estate to learn more

Jim closed a great deal with all the investor controls in place. He accomplished his goal of retiring in three years by creating a $400,000 nest egg and increasing his cashflow.

3 Questions to Ask Yourself

1. Do you have money working towards your retirement? Not just saved up, but at work for you creating cashflow?
2. Are you playing catch up? Many people out there are playing catch up with their retirement savings and that’s okay, because that leads me to the third question
3. Are you willing to play a bigger game of commercial real estate? Hopefully, the answer is yes. All it may take is one good commercial deal to financially impact the rest of your life.