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$1 Million Reasons You Should Be In Commercial Short Sales
Real Estate Investing
By
Earl Allen Boek
All Rights Reserved 2010
My name is Earl Allen Boek. My friends call me Al Boek. As I write this I live in the far reaches of Northern California in a smaller city, much like thousands of other smaller cities across the country. I grew up here in the area salmon fishing and playing football in high school and working in the local food service industries. My family has been here for generations now and I’ve been here for the last 15 years or so, just about the longest period, since my childhood.
My background is not that different perhaps than many of you that will read this. I went into the military when I was 19, when I returned I met and married a childhood sweetheart. We had two boys who both now have children and families of their own. I went to a local junior college on the GI Bill and graduated with an AA, taking mostly business related classes.
Since I live in an area known mostly for it’s timber and recreation, mountains, streams, rivers and lakes, the pace here and the income potential, compared to places like San Francisco, Los Angles, Honolulu, other places I’ve also lived, is slower and the real estate investment markets are not like anything compared to these metro areas .
The commercial, distressed/short sale transaction I am about to share with you should not have happened in a place so small, really, but the fact that it did, is good news for you living in the more rural areas of the country. What it means is the information that I am about to share can be of value to you, agreed to maybe different degrees, but still a benefit, no matter where you live.
You should know, I had no credit and no money when I started this transaction. Anything you have in those two areas, better than I did at the time is certainly icing on your cake. Understand had I no choice in that matter, I would rather have had some, or a bunch of both credit and cash on hand to invest. But what I did have, what I found was a distressed commercial medical office complex. To do a deal, you
have to have a deal to do.
Even though it had sit empty for three years before I did the transaction and I had driven by this big empty set of offices on two commercial lots across from the post office in my town, nothing happened to it until I made up my mind to purchase it.
So the transaction had to happen first, in my mind before it could have ever of happened at all. Looking back I just wish it had happened a year or two sooner. Then again, the three years of nothing happening to it, had done nothing to hurt my chances of success…as it turned out.
I will be including pictures and other documentation of the building lots and the actual offices that were included in the deal as well as back up documentation and proof of everything I write in these pages. Because, frankly, even though we have all heard stories like this one.
When you turn your TV on late at night and hear some pitchman saying how you can begin purchasing real estate with no money down, with no credit, with no nothing., but their exclusive program of course, our minds, quickly take us back to our sanity, telling us that what our minds have created cannot happen in the real world. So after our minds convince us something can’t be done, it seldom is done, that is why I feel you need the proof and back up documentation. Not just a copy of a check, at close, which by the way was $98,600 and change. I’ll also include the written offer, pictures, the closing statements on the deal, the lease/rent registers, the appraisal, so that your mind figures out what my mind did.
Hey, this deal can be done!
“You do not believe me MIND? just watch this.”
So just realize what I have, the only thing between you and your first deal, or you in your next 100 deals, is the command of that little bit of real estate, right between your ears. You can achieve what you mind can conceive. Can you do it on your first deal? Maybe not, but then again, why not?
My suggestion at this point, is to go get yourself 500 business cards with your name on them and the words Real Estate Investor, just for starters… so your mind gets the message. Smile.
So, here’s the transaction scenario. Every transaction has one. A break down of the deal. Goes like this…We have one long building approx 3300 sq ft. with a couple of waiting rooms, ex doctor offices, a nurses station, a coffee break room, several bathrooms, including a handicap one, a large phone and file room, and about 5 or 6 nice office spaces and about a dozen of what were once examination rooms, about 150 sq. ft. ea. Behind this building is another building that would make two nice private doctors offices, each with a waiting room, a nurses/bookkeeping station and another 6 each examination rooms about another 2,500 Sq ft all together in those two attached offices. Behind that building was a nice brick building used for storing records, free standing about the size of a large garage with a roll up door on one side and entry door on the other. So all this real estate is on one commercial parcel and behind that parcel is another bare parcel the same size separated by an alley. The entire transaction, owned free and clear by three older, retired doctors, was
being offered for $550,000. All the buildings were at least 30 years old, maybe a little older.
The entire half of city block across from the town post office is listed by a local real estate broker. His listing commission is 5% ($27,500) and if he’s lucky enough to sell it too, it doubles to 10%. (He actually ended up earning $60K on this deal)
So, in the heart of a little town, this one having 9,000 folks, mostly retired, just 15 minutes south of the town I live in, just off of Interstate 5, heading North to Oregon, or South to Sacramento. It’s possible to do a transaction like this one and create
or turn it into your first $1 million dollar transaction.
Ok, there you have it….What do YOU want to offer for it? Maybe first we need to decide what you think you can do with the buildings, that is what can you do, that no one else passing them has not thought of for the past 36 months to turn this empty project into a money maker?
The city was called Anderson, so it was as easy as ABC for me. Anderson Business Center. Sub leasing small offices to small businesses became my fifth cash flow & stream of income.
Sorry, I left out a few others didn’t I? Before I tell you about the other income streams, I think its a real good time for you to consider going online and ordering a LLC, Limited Liability Company. You should not spend over $400 for one. Best to get one from the secretary of state of you State, that’s exactly the same place the web company will be forced to buy it for you. In my state if I go direct the set up is around $200. More respect will be paid you if your offer is made from this kind of
investment vehicle, unless you rich and well-known in your city, even then, now you should FOR SURE use this type of vehicle to do real estate transactions and offers with for the asset protection this structure provides. Back to the deal.
The first stream of cash…I needed $1,000 to cover the $1,000 earnest money, I needed $35,000 more to cover the added deposit in thirty days so I could move in and I needed $100,000 in 90 days to close the escrow and take final control of the buildings. So the first cash flow on the building was the $36,000 I borrowed. This would have been a good time to get an extra $4,000 to work with also, and I may have done that, but cannot for the life of me remember doing it.
The second cash flow, got to have a reason for asking for cash, was to cover the $100,000, added deposit which I did. At that point I was given keys to the building and allowed to move in. It was in fair to good shape. So after installing phones and internet, I purchased a banner and started leasing out spaces. Third stream of cash flow.
Then I needed some operating capital, I looked around, and figured I do better hiring a Southern California appraiser than a local one, and asked for
his verbal suggestion what the buildings might be worth. Like sales are used for this, same size, the same type of locations, adjusted for my smaller town, market values were compared and then I asked what he thought it all might be worth, leased out? I was stunned when he told me perhaps over $1 million. Actually Stunned is not the best word, since by then I had a good handle on the actual value of the transaction to me, from an investor stand-point. None-the-less, at that moment I stepped up my leasing efforts and ordered an appraisal.
Within 3 months, on the strength of the verbal appraisal coming I found an investor and borrowed another $250,000 dollars and closed the transaction, secured by a second deed of trust and a note drawn on the LLC and signed by me as the manager. After all title and escrow fees, bringing the taxes all current on two lots and paying all loan payments 6 months in advance, points, fees and cost. I closed the transaction and was issued a check to the buyer, my LLC of nearly $100,000. Dollars.
Within 6 months of the purchase the property appraised at $950,000. So my fifth cash stream was the appreciation of the building through my fixing up and leasing the offices. A whopping $400,000 dollars or over $66,000 a month since my purchase increase in value. (Appreciation my fifth cash flow from the project of nearly 1 dozen cash flows and related companies founded that 12 mo. period)
But it did not stop there. That is where it all really started. The major portion of the money gross and netted in this transaction was not from appreciation but from what I call association.
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