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Remember the last time you tried a new dish at a good restaurant and it opened your eyes to a whole new set of tastes.... like the first time you ate Thai food or your first piece of coconut cream pie. Mmmmmm.

That's how I feel about finding a new business plan. Weird hunh?

I'll admit it ... I am a business plan junkie. I am also a pretty good cook. I love to learn new ways people are making money in real estate just as much as a really good new recipe.

I learned a real spicy new "Profit Recipe" this week.

I have a friend who has made over $1M in the last several years working the following business plan in his spare time.
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1) He finds apartment complexes with upside in the form of vacancies, renovations that are needed, high loss to lease

2) Buys them at the right price using his own cash as the down-payment

3) He purposely takes no cash flow from the operations of the property and instead pumps every dime of profit back into capital improvements to upgrade the building. He constantly looks to upgrade the quality of every aspect of the property

4) My friend even says that he raises rents with the hope that a certain number of tenants will move out so that their units are available for rehab. They aggressively upgrade the vacant units and raise the newly remodeled unit's rent even more

5) His goal is to force just $1500/month in increased income from the property over a 12 - 18 month holding period. Do your calculation and $1500/month in increased calculation at his market's 6% CAP Rate is a $300,000 profit

6) Once he has achieved that goal, he sells - usually at the same CAP Rate as he bought the property

7) He does a 1031 exchange of his profits into the next property and does it all over again

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Here is the special sauce...
He is a Real Estate Broker and gets commissions on both ends of the deal. While he purposely does not make money off of the property's cash flow, he does make a commission on both the buy and the sell of each property in this daisy chain.

Please Note: This plan works for him because he has additional income sources and businesses that pay for his monthly living expenses.

He doesn't need cash flow; he needs the large amount of depreciation the property spins off to write off his existing income.

This is a fantastic example of the flexibility of investing in Commercial Real Estate.

This "Recipe" is specifically tailored to my buddy's financial situation. Commercial Property iskind oflike ...Thai Food .... so many flavors, so many recipes.

One more thing...
He tells me the only change he would make is to get a cost segregator consult and accelerate his depreciation deductions even more.

This is a tasty business model for you if you have substantial income from other sources and are looking to simultaneously build your Commercial Real Estate Portfolio and shelter some of your income from taxes.

Even tastier if you are a real estate agent or broker and can pump up your returns with sales commissions.

Take another look at this unique "Recipe" for real estate profits and ask yourself these questions,

"What aspects of this business plan could I use to build my portfolio?"

 

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