Real Estate - Commercial

An October 13th, 2018 article in the New York Times discussed how Jared Kushner avoided paying almost no federal income taxes several years running. According to the article, Kushner, who has a net worth of $324M plus, paid little to no taxes from 2009 through 2016. Just by my first two sentences, you can see the slant of the article – how things are tilted unfairly toward the rich.

If you’re looking to purchase an investment property, whether it be a residential single-family home or a commercial building, the purchasing process is very similar. While there are some differences between the two processes, I thought they are close enough that I thought we should take a quick run through to get a discussion in place for future articles.

We spend our lives with risk.

There is everyday risk like driving to and from work, school, or some event with our spouse. At any moment, we put ourselves on the road with other people who may or may not be in full control of themselves whether it be from alcohol, lack of sleep, or relationship induced stress. Some of these people are just plain morons who should not be allowed to drive - but they're given a license anyway and we willingly chose to get on the road with them.

When I purchased my first commercial building, I was a property manager. Therefore, it was natural for me to accept the same role for our investing group. It dove-tailed nicely into my day-to-day routine. I could field calls throughout the day for my own property as well as from the portfolio I managed. Everything rolled together well. It was a comfortable fit.

In late 2016, we bought a 10,135 square foot retail building in Deer Park, Washington. At that point, it was the largest and most expensive building I’d been a part of acquiring. Quite frankly, I was a bit scared that we could pull it off. Up until then, the most expensive building I had purchased with partners was $390,000. The building we were contemplating was almost four times that price. It made my heart race considering it.

I’m going to rant against some of those in the financial services industry. You see, I’m a commercial real estate broker who loves the product he represents. My clients can see and hear my enthusiasm when we talk about their needs, whether it be buying, selling, developing or leasing.

In May of 2017, a tenant at our Rosewood Retail property moved out. Spokane Vitamin Supply had been in the building for more than forty years.

Roughly six years into the ownership of our Rosewood Retail property, one of the partners decided she wanted to sell out. A couple years prior, Bobbi (not her real name) had gone through a divorce and a year later relocated to another state. She was involved in another partnership with us and had chosen to sell her portion of ownership earlier. It had gone very well for her as detailed in The Little Property That Could – A Partner Wants Out.

As time moves forward, things will change at any investment property. You are incredibly lucky if your tenants stay in place for a multitude of years and steadily pay rent. This reduces the associated costs and headaches of vacancies.

It’s embarrassing to admit, but when I was a property manager, I didn’t know how to invest in commercial real estate. In my area, most property managers don’t own investment real estate. I’d imagine that trend continues beyond my part of the country. Perhaps it’s because property managers spend so much of their work time around real estate that they don’t want to do it on their personal time. Maybe it’s an employee versus entrepreneur mindset that holds them back. Whatever the reason, it’s a strange reality to encounter.

So, you’re interested in redeveloping a commercial building? You want to buy a vacant property, rehab it, tenant it and then start collecting rent. That process is called “adding value” and it’s awesome. Congratulations! It’s one of the most fulfilling experiences in commercial real estate investing.

One of the fascinating things about Robert Kiyosaki’s Rich Dad, Poor Dad was the idea that the wealthy teach their kids different things than the poor or middle class.

In 2012, as the market struggled to improve, interest rates continued to fall. They were in the mid 4% range at this time. I was keenly aware of this, especially since we were paying 6.5% interest on a seller-financed contract for a little office property that housed a janitorial firm.

In the summer of 2010, my investing partner cold-called the owner of a small office building. It was located on Trent Avenue and had a small, clean warehouse with it. As the area changed over the past forty-plus years, it had become eclectic. Industrial users are mixed in with ethnic restaurants, specialty retailers looking for cheap rent sidle up next to little office buildings.

Bruchi’s Cheesesteaks is a local favorite. Serving subs and cheesesteaks since 1990, they’ve grown to seventeen locations and recently opened a store in Sacramento, CA. Bruce and Susan Greene have done a great job with the company, especially with new competition from national sandwich franchises coming into the market.

We owned the little property on Northwest Boulevard for years and it was humming along nicely. Our tenant, The Medicine Shoppe, had accepted a renewal and was happy. We had painted the building and seal coated the parking lot in an effort to protect it and enhance its curb appeal.

It was a small building with a single tenant, The Medicine Shoppe. My investing partner, Kevin had cold-called the owner and asked if they wanted to sell.

Earlier, I referenced “seller financing” in the acquisition of a property so I figured I should expound on that idea a bit. 

To date, I’ve used seller financing in three personal transactions: two commercial buildings and one residential property.  It’s also been used in transactions where I’ve acted as a broker.  It’s one of the first questions I ask whenever talking to a prospective seller.    

There are two quick things you should know about me:

1. I love real estate; and
2. I love real estate quotes.

A former client of mine was a successful franchisee who preferred to lease his store locations. However, when he couldn’t find an acceptable location to lease, he purchased a building that met his needs. This happened to him twice.

I’d kept my eye on a property on Northwest Boulevard for months. It was listed for sale by another brokerage firm and had been on the market for quite a while. One February morning in 2013, the “For Sale” sign disappeared and I panicked.

I met with our accountant recently to review the tax returns associated with our properties.  One of the questions that came up was why we immediately paint most buildings we’ve purchased.  It’s been a reoccurring theme and one I was excited to discuss.

My hometown loves its coffee. To look at the amount of java business done here, you’d think it’s almost as important as air or water.