How I Made 25% IRR on My Worst Investment!

Welcome to the commercial real estate investing from A to Z podcast. Named one of the best commercial real estate podcasts by Business Insider. I'm your host, Steph Bodrini. We review all aspects of commercial real estate investing and bring the top people in the industry to share their best tips and lessons learned. And in today's episode, I'll be sharing how did I make money on my absolutely worst investment. I'm going to be breaking down my first investment and how I ended up actually making money on it and getting a free storage facility even after I closed down the business for two full years. As you may all know, I started looking for deals seven years ago. The market at the time was very hot. I was only looking at deals on websites like Kxy and Loopnet because I didn't know any better. brokers. I didn't know that I could send letters to property owners. And it took me a year to find something that made sense in that market. At that time, as you may also know, my specialty is self- storage. So, I was looking for my first self- storage deal where I could add value either by increasing rents, decreasing costs, or building more if the facility came with some land. And because the cap rates were so compressed during that time, none of the deals that I analyzed made sense. And after a year looking for deals, I finally found one. That one, the cap rate was higher than the other facilities. And the reason why it was higher is because it came with three selfs served car washes. And cap rates for car washes are normally higher than self storage. So, I thought, what could be hard about learning and managing a brand new asset class that I know absolutely nothing about? I don't know anybody in the industry. I don't know one soul that owns a car wash. I didn't even go to any conference. I didn't even bother to ask anyone about car washes. I didn't bother to ask a consultant for help and get their feedback. What is the worst that can happen? What is the hardest thing? Where who are the vendors? Who could help you? Maybe partner up with somebody that has done that asset class before so that things can go smoother than they would have otherwise gone. It took one year to find it and then it took another year for me to complete the purchase. As soon as I found that property, I reached out to the broker and started getting some documents from them and then something personal happened with the owner's family and so they were not being responsive and it took a lot of followup. I followed up for the entire year. I'd say at least once or twice a month. And then when the owner started chatting with us again, COVID hit and that is when I was able to negotiate a lower price. I said, "COVID hit. We don't know where the market is going. Things could be catastrophic and I need this price for this deal to work. " And so we ended up coming up with a better purchase price. I believe it was around 30 to 35% below their sales price at the time. I literally just said, "How hard could it be? The numbers make sense. " So that was mistake number one. And before diving deeper, I also want to share that yes, I just released a podcast sharing how car washes are great and they are great for the right investor. They're great for someone that wants to focus on car washes as an asset class. It is great for people that want to have car washes as an asset class. As someone just reminded me the other day, pick your hard and car washes is not my hard. I'll pick any other asset class except car washes. But it does not mean it's a bad investment. I just didn't bother learning about it. So these car washes were very basic, all self-s serve, and the owner at the time was only accepting coins. So, one value ad I thought was

going to be was to change to 100% credit or debit. And I did that. I spent a pretty good amount of money converting these car washes to credit card only, not knowing that there are some cities in the country that people do not have credit or debit cards or it's not widely accepted. And so we had to go back to accepting not only credit cards but also coins which was one of the problems because we had multiple breakins. I did not live in that town. People were just stealing these coins. But regardless that first year we still managed to make a really good income. However, the employee that I had inherited at the time had a personal problem and unfortunately ended up going to jail. So, I lost my best employee. And after that, it was incredibly hard to find good, reliable people in this town that were honest. We went through at least four or five managers and we continued to have cash stealing problems and also things were breaking and in a car wash when things break you have to fix it that same day or that week otherwise it'll become an exponential problem. And so these people were not fixing the problems as they happened and things started to get completely out of control. I spend a lot of time trying to solve that problem. And then three years after purchasing these properties, I decided that it was not worth my time. So I'm just going to put them up for sale and I'm going to close all three car washes. not knowing when I was going to be able to sell them. This was in the beginning of 2023 that I closed all car washes and I said I would just take the hit on the mortgage until I managed to sell them. This was a business decision because my time was not worth the time that I was spending trying to solve that problem. The mortgage was cheaper than my time. So, I chose to close them because my time was not worth it. And so, they stayed closed for two full years. Last year, I managed to sell one of them. And then this year, I managed to sell the remaining two car washes. This was two years after closing them completely. And by the grace of God and Jesus Christ, not only did I end up not losing any money on that deal, I actually made money and I ended up with a quote unquote free self storage. So, I got 100% of my down payment back. I paid the car wash mortgages and I made money in the end. And I also have a free self- storage facility. That storage facility still has a loan in it, but I got 100% of my down payment for all properties. So, now let's think about lessons learned. Obviously, number one is to absolutely not get into any asset class without learning about it, going to an industry specific conference. definitely have a consultant that you pay to analyze every single deal when you're getting into a new asset class. Another lesson learned with the fact that I did not lose any money on this was that clearly buying a portfolio of properties can be a great thing. You get a discounted rate and then you can sell each property separately. That is one of the reasons why I did not lose money. Another lesson learned that is not really related to this, but I have heard recently that the first offer you get is typically the highest offer you're going to get. And it turned out to be true for this deal. When things were actually working and the car washes were still open, I received an offer that was higher than I sold them for. Granted, the car washes were still working and it was based on an actual NOI, but I chose not to sell because they made an offer that was pretty lowball given the income we had at the time. However, it confirmed what I heard recently from someone that the first offer that you get is typically going to be the highest

offer you're going to get. Another thing that I think I did right on this was to work with a broker that sold car washes exclusively. She was definitely working this deal on a regular basis, but I was also following up on a regular basis just to make sure that I was top of her mind for all of the deals she had. I'm a firm believer in showing up and following up because people will so easily forget about you. Whether you are selling anything or you're buying anything in this market, you have to keep people accountable. I'm not saying that the broker wasn't working. All I'm saying is that I was also following up once a month or once every other month to make sure that they knew that I was very interested in selling this property. And this deal also confirmed a saying that is very known in the industry, which is you make money when you buy. So I did get a good price when I bought it. That is another reason why this deal worked out in the end. Even though it was a complete failure and a lot of headache, I hope that my stress over the last five years and my lessons learned are helpful to you so that you can learn from my own experience and not make this mistake. And if you have any specific questions that would be useful for you to learn, feel free to reach out to me directly at steph stfff mon carloi. com and I will be glad to answer your questions maybe in a form of a podcast episode or directly to your email. And if you haven't already, make sure to subscribe to our newsletter at monik carloi. com or to our investor list at monikarloi. cominvestors. And I will see you next time.