How we made $352,500 in 60 days

(without spending a dime)

Welcome to Biz Brainstorms –

I think y’all are going to love todays story.

It’s a behind-the-scenes glimpse into a deal we just closed on last week that netted us $352,500.

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The Odessa Deal

If you’ve been following along for a while, you know my team buys & operates storage facilities (mainly in Texas).

Well, if you’re in that business, you also know that both of those things (buying & operating) has gotten a lot harder over the last 12 months.

Sellers want unrealistic price tags.

Buyers don’t want to pay 9% interest.

So things… slow down.

Some $100M firms have gone 1+ year doing zero deals.

Sorry to use a Supply & Demand chart but this made more sense in my head

People don’t transact. Because they are looking at value differently. And sellers want the price tags they were promised when interest rates were 0.

But this past December, we finally made it happen and got a new property under contract.

An old, rusty, 28,020 Square Foot facility in beautiful oil town Odessa, TX.

For those uninitiated with West-Texas, it’s the oil capital of America. High-paying blue collar jobs but the entire culture & economy is boom or bust. And it is a very dusty place.

The population & consumer spending can change overnight based on the price of an oil barrel.

The owner of a previous facility we bought & sold in West Texas told us that the last bust market they had storage occupancy dropped by 50% overnight.

But… we like it. So we got this property under contract:

It’s not pretty, but it doesn’t need to be in the West Texas market.

Rule #1 when buying Off-Market Real Estate – Always get the seller to say their price first.

It took 5 calls to this owner to get him on the phone.

When we finally did, the seller wanted $375,000.

Napkin math: 28,020 SF… $375000 for the property…. $13.38 per square foot.

It costs over $50/SF just to build a new empty building. And this one had PAYING tenants. You take that deal every day of the week.

So we got it under contract to purchase.

And for anyone thinking “wow that’s ugly”

Just remember, a little paint & landscaping goes a longgggggg way.

This was the last facility we owned in West Texas

So… how did we make $352,500?

Well, spoiler alert… we didn’t buy it (I’ll explain).

This is a home run deal. It cost $375,000 to buy and we’d probably spend ~ $200,000 to fix it up & lease it up (currently only 30% occupancy). Once all was said and done, it would be making over $17,000/month.

Our underwriting told us it would be worth between 1.4-1.6M once done.

The metrics in our spreadsheet were amazing.

  • 30%+ Cash on Cash return

  • $1,000,000+ Equity creation

But, we didn’t buy it.

There were a few issues.

  1. Odessa – Being an oil town, you’re making a bet on how oil performs over the next few years. If oil tanks, you’re going to have a bad time.

  2. Spreadsheet Fantasies – More lies are told on spreadsheets than anywhere else. While all looks good, the reality is that 2 columns on our underwriting translates into 2 years of hard work leasing up and dealing with problem tenants. It’s not easy.

  3. Team Bandwidth – We have a small team (intentionally) right now, and are still pulling our hair out on 2 other value-add lease up facilities.

So as we were deciding, we looped in a broker we have a good relation with to see what he’d do.

He mentioned he has a buyer who might also want to take a crack at the deal.

I’ll spare the details but we mentioned we’d part with it for $840k ($30/SF), they offered $785k, we settled at $792,500 because they said they could close in 35 days flat. So we went under contract to sell to a new buyer for $792,500.

You might be wondering, why not just buy it yourself and execute the playbook?

Well, real estate is a game of risk.

And while there was a high upside, there were also years of hidden headaches baked into this deal.

So our options were:

Option 1: $352,500 fee in 60 days with zero headaches & zero risk (not even a penny).

Option 2: Potential for $1,000,000 upside for 2-3 years+ of work and the risk of it going a lot longer/spending more money was very real (especially in oil town Odessa)

If I had $10M in the bank and a bigger team, I’d probably do Option 2.

But I don’t, so we took the fee 🙂

We had a few renegotiating points during the process, some problems like the Texas Department of Transportation (TDOT) had a 9 month construction project planned right in front of the facility. So we took off $65k (more than we wanted) to make the deal go through. That brought the final price to $727,500.

Learnings here:

  • If you want to make more money, sell bigger things.

  • Take the money when the risk = 0.

  • Get the seller to name their price first

✌️ See you next week

PS – What would you have done?