In this episode, Erik shares an update regarding his six-unit real estate investment he made summer of 2021.
Erik J. Olson: (00:01)
Update on my six unit real estate purchase from summer of 2021. What’s up? This is Erik J. Olson. Yeah. In the summer of 2021, I think it was actually like August. I bought a six unit property. It’s five commercial units and one residential. So it’s technically called mixed use. And since then I’ve been doing a bunch of things and I wanted to give you an update. Cause I think I’ve mentioned before on this podcast that I bought this and then I want to get more and more into real estate. So since then for the five commercial units, I was able to get all of those with the help of my property manager under new leases. Those leases spanned from between six months and three years now, when I bought the property, those tenants were there, but they were all month to month and their rent hadn’t been changed for years now.
Erik J. Olson: (01:01)
Initially I thought that was a bad thing that they were month to month, but it’s really a good thing as the purchaser, because that gives you an opportunity to renegotiate and lock them in for a longer period of time. And when you do that, you can negotiate up in the rent. Now as a tenant, you don’t want to move. So you can’t like really like really, really, I mean, you could, you could do whatever you want. You could really increase the rent, but you just, you just wanna raise them a little bit, right? Get them closer to market value enough where the people will, you know, the tenants will pay, um, but not enough to drive them out. That’s kind of the goal. So I did exactly that. And what I was able to do was increase the revenue of those five units quite a bit.
Erik J. Olson: (01:44)
Now the one unit was the guy would only lock in for six months. We went ahead and we took that deal. He has since, as of today, locked in for another 18 months. So that six month deal turned into a two year deal total. And that’s, that’s pretty good. You know, if you can get one to two to three year commitment from a business, that’s fantastic. Now the sixth unit is the residential. The lady that had been there was there for 23 years. And like within a month of me buying the place, she was out . So, uh, much older lady has a lot of health problems. Her son, um, moved her out. So when she moved out, I went in to take a look at the unit and it was in pretty bad shape. This is C class real estate, uh, which means that it’s, you know, it’s got some issues it’s sold. So, uh, I’ve been trying to sell that unit along with the unit in front. So outta the six units, I was trying to carve out two and sell them that hasn’t moved. We haven’t got a contract. So what I decided to do was I was going to renovate that unit and I’m working right now with my bank to borrow the money, to renovate that unit and then to get it rented. Now it just so happens that we have a verbal
Speaker 2: (02:59)
From a business to move into that space. Now I said it was residential before, but my plan is to convert it. I’m actually convert it into commercial and have a commercial business move in. So we’re meeting with that person on Monday, if we lock in that’s another, a thousand dollars a month and that’s pure profit right there. So even without that unit being rented with only five outta six, I’m making more money now than the previous owner was. And when I get that sixth unit, then I’ll, I’ll be making an extra thousand dollars a month on top of what I’m making now with no extra cost. Uh, now granted I have to sink out to borrow money and sink a bunch of money into the unit to get it fixed up. But that’s, that’s real estate for you. So the, the value of the property has significantly increased, especially when I’m done with the renovation, when I’m done with this renovation, it will, it will close to have doubled in value, which is mind boggling.
Speaker 2: (03:59)
So it’ll probably have increased actually not double about 70 to 80%. It will have increased by because when it comes to real estate and when you’re renting in particular, not flipping or anything like that, not moving in to live there, but when you buy something, that’s an investment and you’re renting it out. The value of the property is based on the rent that you collect. It’s not based on like the, the replacement costs or like the appraisal costs of the property itself. It’s based on how much rent you collect and the profit in that rent. And it’s all just basic math that, that commercial investors understand. And so when I do the math, when I look at how much we’re collecting in my minimal expenses, and I do the math, it’s significantly more now nothing’s worth anything unless someone’s gonna buy it for that amount.
Speaker 2: (04:52)
So, you know, selling it is, is a totally different situation, but if it appraises for more based on the rents that we collect, then I can actually borrow more poll money out tax free. So there’s a lot of options here. Um, like as a summary, this, this was my first significant real estate investment, uh, six units. And, um, it’s turning out great. Now lesson learned, um, I would prefer my next purchase, uh, to either be a money maker like this one or to be much higher quality. So as an example, this residential unit that I have to work on, uh, it’s, it’s, it’s basically trashed and it’s old, so it’s not, it, it’s not like ADA compliant, right? So the doors I have to enlarge from like 30 to 32 inches up to 36 inches to make it wheelchair accessible. The bathroom is not ADA compliant. I have to move a wall in order to make that happen. So it’s, it’s just more work than I would expect or than that I wanted to do.
Speaker 3: (05:56)
But in order to rent it out to a business, I have to do that. If I were to have bought a newer unit, it wouldn’t have those kinds of problems. So there’s pros and cons, right? So like I’m getting good cash flow right now, but I’ve got kind of a problem than I need to deal with. So the alternative is, uh, you get less cash flow for a higher value property, a newer property. Um, but you don’t have problems. So, and it’s probably a mix and match of, you know, what you want. Do you want the high cash flow or do you want the lower cash flow with no problems? It seems like investors typically go in one direction or the other, they usually don’t mix and match. So what I mean by that is I know investors that have a lot of like really bad property, like D class like hood, like you do not want to go into their units, like even during the day bad.
Speaker 3: (06:44)
And then I, I know others that are just the opposite where it’s like, Nope, it’s all a class, like the best of the best, you know, you would live there yourself. So, um, different people have different styles and different opinions, but, um, anyways, that’s, what’s going on with my real estate. I figure I’d bring up to speed. If you’re interested in finding out more about what I’m doing, if you’re looking to invest in real estate as well, I’m getting into that. I’m putting together some deals hit me up on Instagram. You can find me there at Eric dot J dot Olsen. That’s E I J O L S.