2135 S.E. Loop 410 (Commercial Land)

2135 S.E. Loop 410 (Commercial Land)

One of my Businesses builds and sells portable buildings. (1988) I needed a property to which we could relocate the business. I found a 1.86 acre track of bare land on a major expressway for $130,000, owner carry note at 10% interest with $16,000 down.

The seller offered to finance the deal with a twenty-year loan amortization, and a five-year balloon note on the balance. In addition to the down payment, we would also need money for driveways, water, sewer extensions, re-platting, and for electrical power line extensions. The improvements would be $16,000 (they actually ended up being closer to $18,000). I knew when I purchased this property I was paying too much in a down market but my lease was up where I was and I needed a place to move in 90 days. I also needed owner financing as the banks were not doing any deals at the time.

I cashed my and my wife's IRA's, and took my brother-in-law on as a partner on the land. He jumped at the chance because, for the prior eight years, everyone in the family knew we were making money on real estate. They wanted in. I leased this property to my company for enough to cover the payments, and taxes.

Four years later a sign went up on the property next door. A bank had re-possessed 1.5 acres with a balance owed of $70,000 on a $90,000 loan. I sent the bank a letter offering to buy the property for $40,000 if they would finance it with 10% down at 10% interest. I further stated that this was a standing offer good any time. About two years later in walked a real estate agent carrying that letter. With no cash on hand, I used a credit card for the down payment and I purchased the property. This time without a partner. The two properties together made for a large property (3.36 acres), at a good averaged price.

By the this time I had held the original 1.86 acre property eight years. I had paid down the mortgage a little, dollar cost averaged the cost per square foot by buying the 1.5 acres next door, and inflation had increased the overall value to $198,000

At this time we had decided to move my business, so I put up a for lease sign. A mobile home sales company offered to lease the property. As I needed money now (my business was losing money at the time), I struck a deal. Here is the deal I struck. A two-year lease at $2,300 per month with four two-year renewals, at each renewal the rent would increase $200 per month. They would get a $200 per month discount off the first years rent if they pre-paid the entire year. All improvements, maintenance, taxes, and insurance were their responsibility. This is known as a triple net commercial lease.

The Mobile home sales company put in $95,000 worth of improvements to the land, paid me a year in advance, and they have since renewed the lease three times. I got the cash I needed at the time and a $95,000 increase in my net worth on the improvements alone. The following year I re-financed the land paying off the original loans and taking out $60,000 in equity. The appraiser used the income approach to value the property at $300,000.

Since purchasing this property the area has improved greatly with new businesses near by and a new super Wal-mart is under construction across the expressway .

(2002) A 1.5 acre piece of land adjacent to our property is on the market at $298,000. Even if they only get $250,000 (it sold to a bank) for the property next door that would revalue our property at $557,000. ($250,000 divided by 1.5 acres X 3.36 acres = $557,000)

As you can see owning this property for the past ten years has paid us several different ways. Our future plans call for this property to be redeveloped as a mini storage, or motel, or fast food pad site, or strip center when the leases expire unless a better deal comes along. In the meantime I am re-financing again at a 6.5 % interest rate on a ten-year amortization with another five-year balloon. This will reduce the payment and allow for a larger monthly cash flow.

Update: (April 1st. 2003) The renter finally surrendered the lease back to me. I will now have to pay the taxes and payments from other sources until the property is leased or sold or developed.

Update: (April 1st. 2004) We will be doing a self-storage project on this property. See the self storage case study on this web site for more details.

Update: (Oct 1st. 2004) I leased out 40,405 square feet of the property. The rent amount is $2500.00 per month with an option to the lessee to buy at $300,000. I have 2.45 acres left on which I can build the self-storage facility.

Update: 2008 sold the place for $900,000