Can you become a millionaire after just one commercial real estate deal? Can you do it with no experience, and can it be done in the current real estate market? The answer is yes! In fact, our student Chris accomplished all the above in just one year on his very first deal.
Overcoming a Slow Market
Many people complain that there aren’t any good deals left in big markets but the truth is there are still great deals if you know where to look. While our student Chris did experience a slower market, by using our process, he was able to find motivated sellers that were off market. Chris testifies that there are still a lot of motivated sellers out there, even if the economics look down on the outside. They just need to be found.
About Chris:
After flying with the Navy for a few years, Chris was hired as a pilot for a major airline. He continues in this profession to this day. Chris’s time is spent caring for his large family, at his job with the airline, and managing the managers of his commercial property.
Chris began researching commercial real estate on the internet in March of 2016. He found Commercial Property Advisors on YouTube and impressed by what he heard, he contacted us. Chris went through the interview process and was accepted into our mentorship program.
A Million Dollar Deal
When this deal came up, CPA was already helping Chris write contracts for three properties. One was a sixteen unit building, another was a twenty-six unit apartment, and one was a four-plex. The owners were close to signing, so our coaches advised Chris to find lenders.
Chris began scouring Houston for bankers, brokers, lenders, and mortgage companies. He touched base with several, making connections and acquiring resources. I gave him the contact information for a mortgage company I knew in the Houston area, and Chris requested they send him any properties that came up.
The Property
Two weeks later, they called and told him they had found a property. It was a 90-unit property in downtown Houston at a great price. The broker who sent Chris the apartment felt motivated to help the seller because he had financed the property for years and the seller wanted to sell before it went into foreclosure.
The Challenges
Chris was interested in the property because of the price, however while doing his due diligence on the property Chris discovered that sections of the building smelled like sewage and there were severe leaks. About at third of the units were unoccupied, it needed repairs, and there were also some under-management issues that would need to be handled. This was a bit overwhelming and I instructed Chris to continue to monitor the property and speak to the owner throughout the deal.
The Opportunities
Chris and I put our EPartner Pro Forma together and discovered the rents were $200 below the average market rents in the neighborhood. After factoring that into the pro forma and consulting local lenders, even with a $600, 000 rehab it is still a very good deal.
Financing the Property
The owner was highly motivated and agreed to sell for 3.1 million dollars, taking interest only for a year on a million dollars. Chris approached the same mortgage broker that had sent him the property, but they wouldn’t finance him because it didn’t meet their loan criteria. We had anticipated this because of the challenges of the property.
For three or four days, Chris then began spending eight hours a day searching for hard money lenders until he finally found one in Dallas willing to lend him the rest of the money (2.1 million for the property and 600,000 for renovations) at 13% interest for one year.
In other words, at a purchase price of 3.1 million the seller carried back a mortgage in the amount of 1 million, and a hard money lender put up the rest of the amount plus the rehab costs at 13% interest.
Refinancing and Increasing Equity
After a year, the property was stable enough to get refinanced. Chris found a Fannie Mae lender out of California. The loan did not require any down payment besides holding costs and it was a 30-year amortization loan with a 4.1% interest rate.
The property was appraised at 3.8 million dollars at the time of the loan, however after a few months of stabilization, it was appraised at 6.3 million dollars. This means that after closing costs and commissions, Chris can sell the property and make a profit of 2 million dollars.
Next Steps
Chris is currently looking for off market properties in the local area. In the future he wants to borrow against the apartment complex in order to purchase another commercial property.
Word of Encouragement from Chris
“First you have to decide whether or not you have the knowledge and experience to get involved with one of the most difficult businesses out there…I would encourage you to look for the very best mentor who will not only give you the information, but train you and stay with you every step of the way. I looked at nine or ten mentors, and Peter Harris and his background, resume, and books all spoke volumes to me. If you want to do this and you want the knowledge and you want to get the experience with someone at your side, go with Peter Harris…I never made a decision that conflicted with Peter’s advice.”
Watch the full interview with Chris on my YouTube Channel.
Summary of How Chris Became a Millionaire in One Year
Can you see yourself in Chris’s shoes? He didn’t come from a wealthy family, and he didn’t have a lot experience or money, but he was motivated, put in the work, and followed directions.
Chris’s Deal:
Chris found an ideal 90-unit property through a mortgage broker that had significant potential . The property was structurally sound and had huge upside potential.
He did not qualify for conventional financing due to:
- the lack of occupancy (only 60% occupied)
- property distress
- no income statements
This forced him to use a hard money lender who gave Chris the money to acquire the property and conduct the rehab. Over the next 12 months Chris was able to complete the rehab, stabilize the property, and refinance with a Fannie Mae Loan. At the time of the refinance the property was appraised for 3.8 million dollars.
Once the property was completely stabilized it was valued at 6.3 million dollars. That is a substantial increase from the 3.1 million Chris payed for the property a little more than a year ago. After all his hard work, if he sold the property today, he would pocket over two million dollars.
