Quitting His Teaching Job and Going all in on Flex-Space Rentals

0:00I'll start with financing so we were just talking about private lending from friends and family and one of the keys to that was just listening so I would I I had this kind of core group of friends and family that expressed interest in real estate they had been involved in real estate in their past and I expressed interest in real estate and so it was just little comments like hey if you get a deal let me know I I've got this self-directed Ira I'd be interested in Lending on it potentially and so when I first heard that comment the first time I wasn't ready with a deal but it was maybe six months or 12 months later that eventually I was ready and so I put that comment in the back of my mind and and brought that back up and said hey man I have this

0:48Deal you previously mentioned that you were interested be happy to talk to you about this deal if you're interested in lending and and so that that's what led to the a successful experience with that private lender I'll tell you I kind of had two first deals and so I'll I'll tell you about both of them so the first deal was a home for myself and then and then the second first deal was my first single family flip that I did so the first deal that I did myself was a house that I planned to live in I purchased it from auction.com it was an auction and it was I I haven't bought bought a house at auction since but this was a property that you were allowed to view beforehand I think a lot of the auctions you you cannot look

1:36Inside but for whatever reason you were able to get a tour and so I contacted the agent that was giving tours and so I I gave it a tour and this was a really rough property it had holes in the walls holes in the floor but it had really good bones including a side entrance to the basement that created a possibility of a house hack and so at this point I was going into a year of teaching I had almost no money but I saw this incredible potential in this deal and so I got some comps from an agent and ended up purchasing this single family property for $135,000 and it needed everything so it was in Cheyenne W okay

2:25Cheyenne Wyoming is where I've done the majority of my real estate deals it was a really rough property but it had great bones and so I was willing to do the hard work myself so I was going into a year of teaching I bought this over the summer was able to do a bunch of work over the summer and my goal was to have it livable by the time the school year started because I knew my my time my rehab time was going to be significantly reduced once teaching started and so I had it livable I had the kitchen functional had a bathroom functional we had a place to sleep and and so then you know over the course of the next six to 12 months I just chipped away at it and fixed it up and created a second unit in the basement and and was able to house hack

3:13That first that first residence for my wife and I the time we had no kids and so we were able to be really Scrappy and kind of live in a construction zone at that point really love you yeah she I mean to her credit she saw the vision and so you know we were doing the Bigger Pockets thing together we would listen to these podcasts and get inspired and and she saw the vision and and so she really believed in it so that was really great and then so the second first deal was we had some success on this kind of live-in flip house hat kind of thing and and so we we got connected with the local real estate Meetup in our town and we talked with another investor who was selling a couple deals this

4:02Was you know this this was the kind of flipper who does like 50 or 60 flips in a year so they had a couple deals that they you know it was you know at the time they said they just they they had too many projects but I'm sure they these projects were just a headache and and they didn't want to deal with them and so we bought a single family home from them for $67,000 and this was the purchase where we used balance transfers you know 0% credit card balance transfers and and some private money to to to buy that house and and Rehab it and you know we learned so many lessons along the way I did a bunch of work myself hired out some of the work that was largely a summer project for me but it worked out really well I

4:50Think we ended up making about $38,000 on that single family flip and and then we ended up buying a duplex that was on the same street it was unlisted it had a sign in the front yard but it was unlisted and so you know I investigated that and I was like wow it's a 1% deal on this duplex and so that was my first duplex that I bought and I knew about it because of that single family flip and and so those first few deals are so important to build confidence and and establish that track record that that you know your numbers you know how to get the work done and and you can be successful great great advice yeah and that was super Savvy of you most people buying their first properties for themselves especially aren't going to auction.com I

5:39Mean you know they're they're going to the MLS they're getting a buyer agent and you know I think that was really smart and to look for a property that works as a house hack I I've said it so many times on this show house hacking is the best Finance personal finance decision you can make in my opinion so it sets you up for that next flip and and more deals after that so I think that's where a lot of people either accelerate their real estate investing or it dies right there on that first deal because you know it can can go one of two ways typically and and I talked to a lot of people who were decade later they're like yeah I did a deal 10 years ago and it went sideways so I stopped and now I want to get started again you know so I'm glad to hear that it that it went so well so what was the transition point from

6:27Residential to that office building what year was that and how did you decide that you were going to make that change I bought the office building in early 2022 so not that long ago just over two years ago and there were multiple kind of inflection points that made me go that direction I still owned plenty of small multif family at that time deals were getting harder to come by in 2018 2019 even 2020 I was buying 1% deals off the MLS so 1% deal you know if gross rents are $2500 then you can pay $250,000 for it that's gross

7:16Monthly rents being $2,500 that's kind of quick back of the napkin math that I use to know hey is this deal worth pursuing or is this a pass and so if something hits the 1% mark I know hey I should look into this deal a little more I was buying those off the MLS I I bought duplexes multiple fourplexes that were 1% deals and did really well there was definitely there definitely seemed to be a shift during the covid years 2020 2021 where people got super interested in real estate and housing prices just really skyrocketed and it was really tough to find these deals that office building was kind of an experiment I had some 1031 money to use and this office building was had

8:04Been sitting vacant in my town for it was probably on the market for six to nine months and I was really intrigued by it I it just seemed like a challenge and it seemed like a natural transition from multif family to the non-residential world this office building was divided up into I'm sorry 10up can you explain what the 1031 is to for people who might not understand what you meant by you had 1031 money available for sure so 1031 exchange is a way to to defer capital gains taxes on the sale of a rental property so I sold let's say you know I sell a duplex I'm going to make $50,000 in capital gains taxes instead

8:53Of paying the 15 to 20% capital gains tax on the sale of that property I can do what's called a 1031 exchange there's lots of Hoops to jump through but if you follow the rules correctly and you do it right you can roll that money into another property and in exchange you don't have to pay taxes on it and the you know one strategy is to just keep kicking the can down the road and there's a phrase that goes swap till you drop and so if you keep 10:3 wiing again and again and again then you never have to pay these taxes and then you die and your properties are passed on to your airs and then your your heirs get a step up in basis and and they don't have to pay taxes on it either

9:42And so it's just it's a tax strategy it doesn't eliminate taxes necessarily but it defers taxes and so I'm a fan of the 1031 strategy there are plenty of investors that do not like 1031 because it can kind of box you in a little bit with some of the rules and and timing deadlines but if I can make it happen I'm I'm all for at least trying a 1031 exchange so yeah so I had I had this money to put down on a new property and I was I just like these challenges and so this property seemed this office building seemed like an interesting Challenge and so it was already divided into 10 different offices and so it felt like a natural transition from multif family to non-residential properties and so I

10:31Thought hey I can buy this property and I can find small business owners that are going to lease up these offices and so that was my plan and it did work there were tons of lessons along the way I kept that property for about 18 months and made some money on it and was able to upgrade into another property after that and so yeah I was able to take money from that property by an indust Ral property with the proceeds from that property and so I just I I love these different properties and these different challenges because I can learn so many lessons and become a better investor for it along the way yeah awesome so can you share a little bit about that deal then what did you buy it for and then what type of tenants did

11:19You get in there to to rent it sure so that office property great location right near downtown about 20,000 cars per day pass by that property 20,000 cars is a really good so vehicles per day is a metric that people in the commercial world use to kind of give an idea about how busy is this area and 20,000 when you get to 15 to 20,000 you know that that's it's got some decent traffic flow and 15 to 20,000 would be my minimum if I'm buying an office or retail property for how many cars per day I would want just you you want eyeballs on that property if it's tucked away

12:08Where nobody knows about it it can be hard to find tenants and so this was in a location where people know about this property tons of people pass by it and so if you put a sign out front people are going to see it they're going to read that sign and so I purchased that property for $500,000 and I put about2 $1,000 down and I got a bank loan for $300,000 this was a vacant property it is not easy to get financing on a vacant office building especially now but I was able to do it because I had a relationship with this Bank I'd probably done 15 deals with this bank and so I have a relationship with this Banker where I can pretty much just send him an email with some brief details

12:56About this deal I can say hey are you interested lending in it lending on it he'll email me back and say Yep looks good and you know a lot of times that's the extent of the underwriting that I go through with this particular bank so the banking relationship was crucial in order to get financing on this and so I bought it completely vacant except for a satellite dish that was on the roof so one of the cool things about about these commercial properties is there are sometimes these creative income streams like some properties have a billboard on their property and you lease out the billboard to a billboard company and they pay you rent and you don't have to do anything well similar to the satellite dish this satellite dish was being leased out to some company I don't even know what the

13:45Satellite dish was for but they were paying me $700 a month to have a satellite dish on the roof and so it wasn't taking up square footage inside the building wasn't taking up an office they would justay me to you know they used a little bit of electricity that kind of thing but other than that other than that satellite dish it was completely vacant and so I wanted to make this my my vision for this office property was to make this kind of a hub for small business owners and so I wanted to make it really easy for small business owners to come in so I ended up leasing these offices to bookkeepers accountants a massage therapist a a

14:34painter a construction guy so people like that that need an office outside of their home because we we've all learned over the last few years it is really hard to have an office in your home especially if you've got kids or pets or something like that it's just hard to get stuff done at home and so this was an all-inclusive office suite that would include wireless internet parking all utilities I charge about 500 bucks a month per office and people could come in they had 24-hour access to the office building and everything was included they had their own locked office that was just for them and so it wasn't like a co-working shared space or anything like that

15:22I remodeled the bathrooms and I made the offices kind of like trend or attractive I repainted the offices and put up like one a shiplap wall on one of the walls and so it was kind of different kinds of Barnwood or just different kind of trendy trendy featur so someone could walk in there and say oh okay that's cool I can I can picture myself working for eight hours a day in this office and so that's really what ended up happening it took me a little longer than I thought it would to get offices leas up and so that was definitely a lesson but I did get it fully occupied and the value ad strategy in these commercial properties is to add value and then sell because once you increase the income

16:11you increase the value of the property and then it becomes attractive to other investors and so that's exactly what I did I I I got it leased up I did some other Capital things like I repaved the parking lot and and did some things like that and so made it really attractive to another investor and so I told you I bought it for 500,000 I put in about I'm guessing I put in somewhere around $75,000 into the property and then I sold it for gosh what did I sell it for I sold it for $700,000 and so after all fees and and my rehab expenses I think I I ended up making about $110,000 on that property so after holding it for 18 months

17:00It's not like a home run of a deal but hey pretty good you know making $110,000 and then I did not pay taxes I did not pay capital gains taxes on that $110,000 I ended up rolling that money into another property and so then I I used the proceeds from that to buy an industrial property and so I never touched the proceeds I rolled it into another property and yeah so that that transaction worked out really well learned tons of lessons made a little money along the way and so that that's kind of how I like my real estate deals to go absolutely