Week in Review: Sept 27, 2014

My intention is to try and write a blog post on all of my real estate interactions everyday, but it’s not something that I have been able to get into the habit of doing. But as long as I keep up these Week In Review Postings I think I’ll be a happy medium.

San Jose, California, USA
This week brought me back into contact with an investor I met a couple of weeks ago in San José. I suggested that I would love to pick his brain and sit down for lunch sometime. Well he got me down for lunch on Wednesday and we talked. We didn’t talk a lot of real estate details, but we did talk about dreams, roadmaps, and mindsets. It was amazing to sit down and just be able to chat like that. My initial impression of him had been that he was a Full Time Flipper in San José, but turns out he was a part-time flipper. We went on a journey of discussion from where we had come from and where we were going. Lunch was pretty good too. I walked away with the meeting with one thought that this gentleman really struck home to me.

I know where I want to go, but I haven’t mapped my path to get there.

On thursday the 9 to 5 threw me a curve-ball. Fortunately I was expecting it, but it was still a troubling experience. I spent a restless night trying to figure out what I really want to do, and came out on the other side determined to release myself from my career and look for something that enables me to be more proactive towards Real Estate Investing, which was the purpose of moving to California in the first place.

The Commercial Property has been hovering on my mind this week. I poked at people on BiggerPockets about it. I thought about, I made some phone calls, and talked to a different broker about it on friday. His knowledge of the local market was astounding. He didn’t have a wealth of information about where that property could go, but he sure knew had a treasure trove of knowledge about where it had been. Initially it had been a Dairy Processing Plant, and then it was owned by this big REI guy in the area who I guess owned half the city, it was sold once to someone else local, and then this guy from out of town.

Then the big reveal: the Pastor of the church had passed away from a heart-attack the previous weekend. Putting into doubt the length of a lease that occupies about 1/5th of the property. As sad as it was that someone passed away, it leaves an opportunity if the lease is cancelled as it is now leased at less than $3/sqft annually. To be able to lease up the 1/5th of the property at 3x the current lease amount is a huge upside to this property! Huge!

Math Time:
15,000 at .17c is $2,550/month.
15,000 at .51c is $7,650/month.
A difference of $5,100/month.
I found where all the money is
Using all the equations available to us $5,100/month x 12 months x 10% Cap means that the property is worth $612,000 more if the lease falls out and it is leased up at a still sub-market rates. At a more stabilized cap rate of 7.5% (this is what the broker suggested that at 90% occupancy the cap rate would be close to) would result in an upside swing of $816,000!

($5,100 x 12) / . 075 = $816,000. <--- This is why commercial real estate is a wealth generator. A marginal increase in income translates into large amounts of equity!

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