case studies
L. Commercial Rehab Purchase, Financing and Deal Structure Training!

This is a detailed Training and Case Study on a Commercial Rehab Deal.  We go through commercial deal valuation, deal structure, commercial rehab financing, various Rehab Incentives that you might be overlooking, and how they turned this deal from a total lemon into a home run!  Watch, take lots of notes and share with your friends!

Here’s just some of what you’ll learn about investing in commercial property:

  • How I bought a commercial property with seller financing at only 4% interest and got 97% of my purchase price funded!
  • How to determine value (especially ARV) of commercial properties
  • What “cap rates” are and how they’re calculated
  • How to find hidden deal incentives that can be a game-changer for your deals (you may be leaving a lot of money on the table!)
  • How to make home-runs out of real estate deals that other people pass on
  • How to use seller financing + bank financing for short term and long term deals
  • What “market cap rates” are and how to use them for valuation and to get financing
  • And much much more

(And if you don’t have Rehab Valuator Premium yet, take advantage of the best deal we have and save 43% Here!)

Video Transcript Below

Hey guys. Daniil Kleyman here. I’ve got a really awesome case study that I’ve just recorded for you about this beauty right here that I am currently working on. With Rehab Valuator and our community, you’re getting access to something that I think it unique unlike most people out there that are teaching real estate or coming up with products to sell you, I’m actually out there doing deals. I’m a full-time real estate investor and developer and I’m a pretty open book in terms of how I do business. I love what I do and I love to share what I do. I really don’t hide any information. When I’m doing deals, I love to record these case studies and show you exactly how I’m doing these deals. These are pretty great learning opportunities if you actually pay attention.

Today we’re going to talk about creative financing, bank financing, deal structuring, various rehab incentives that you may have access to that you’re not even aware of. We’re going to learn about commercial deal evaluation and much more. Again, this is a very unique piece of content and I highly suggest you pay attention.

Who should be watching this video? This isn’t really for wholesalers. If all you want to do is wholesale, then we’ve got plenty of other content at rehabevaluator.com/wholesaling. Now I will say that you can still learn from this because even if all you want to do is wholesale, you should understand how your buyers think. You should understand how your buyers value deals. If you want to wholesale commercial deals, you should actually still watch and learn the concepts I’m going to teach in this video.

Really this is for you if you’re currently buying or you want to buy commercial properties, apartments, mixed use, office, retail. This is really for you if you like complex deals that others aren’t really willing to tackle. The money in real estate is often made not from the low hanging fruit, not from the easy deals that everyone else is bidding on but from deals that are hard to wrap your head around, hard to make happen, deals that not everyone necessarily understands or can figure out how to make them work. That’s what we’re going to talk about here today.

Here is a fair bit of warning for you. This video is on the longer side. If you’ve watched any of my other case studies, you know we go deep here. There’s no bullshit. There’s no fluff. There’s just going to be hardcore content and deal analysis that you must be able to master in order to do these types of deals.

If you’re impatient, distracted, if you’re short on time, then come back to this video later when you can focus 100% on the material. Otherwise, you’re wasting your time.

I really don’t know anybody else in our space right now teaching this stuff. I really don’t know many people unfortunately in our space right now that are actually doing deals that are then teaching, especially for free. Pay close attention.

A couple of interesting insights that you’re going to get from this deal and from this case study. We’re going to talk about how to use combination of seller financing and bank financing to make the deal work short term and longterm. We’re going to talk about how knowing all available deal incentives turns a complete total lemon, which this deal at first appears to be, into a great deal. You may have access if you’re rehabbing properties to tax credits, to local economic development incentives that you’re not even aware of and you’re leaving money on the table. We’re going to cover some of those today.

Let me give you a little backstory on this deal. This is our local tax public record mapping tool. This is an area where I already own a lot of rental properties and do a lot of development. There is a block here where my partner and I have bought two of the three properties and we’ve been planning a large mixed use development that’s going to break ground next year. It’s these two parcels right here. One. Two.

There’s been a stubborn property owner for the last three years who we have not been able to get to sell to us, which is this last third piece right here. We’ve basically given up on buying his property and instead we’ve designed a really cool building basically completely around his property. You can see here this is the building that’s going to be erected on this block. We’ve literally built it around this guy because we haven’t been able to get him to sell to us. Currently on that property there is a large piece of land and then there is a one story little law office which we’re going to tear down.

The project that we have going up is going to be pretty incredible. It’s going to have 12000 feet of commercial space, close to 30 apartments. But you can see in our renderings, we’re basically just building around this ugly eye sore because there’s nothing we’ve been able to do about it. The guy has always wanted too much money and he actually hasn’t even wanted to sell because he was going to develop the property himself. You can see these are the rendering of the building that we have going up. Three stories. Really cool rooftop deck here with a fourth story kind of amenity space. At some point maybe we’ll even be able to do a rooftop bar here. Really great project but you can see in our renderings that there is this block here that we basically have almost given up on doing anything about. We were just designing our project around this guy.

We’ve stayed in contact with the seller. Over the years we’ve just continuously followed up with him. Eventually we got him to the point where he said, “Okay, I’m willing to sell.” But his price was always really high. It’s not a price that I felt comfortable paying but because we are getting ready to invest $6 or $7 million on the rest of this block, we have been willing to pay him more money than I think almost anybody else. We struck up a deal.

Let me walk you through the numbers of this deal. I should preface it by saying that this building is falling down. It has multiple structural issues on the inside. It’s completely gutted. It’s a shell. It’s going to need a ton of structural work, exterior work. Either it’s going to be actually more complicated than just tearing it down and rebuilding it. Again, we wanted to control the entire city block, which we now own.

We agreed to a purchase price of $345000 with the seller. The building is about 4400 square feet. On a dollar per square foot basis, it’s a pretty high price to pay. But the seller was willing to seller finance the deal for two years with a possible extension at only a 4% interest rate with 10% down. That was a plus. We said, “Look, what you’re asking for is pretty high. That’s a very high price. $345000 for this building is in reality too much but we are invested in this block. We may be willing to pay you that amount but you would need to seller finance it.” With only $10000 down, he’s seller financing it at an interest only payment for two years and we put into a contract a possible two 6 months extensions to that balloon. He’s carrying back the note on the majority of the purchase.

What this does is by getting him to finance in short term, it allows us to actually get our bearings on this project, put together a full detailed set of architectural plans, get construction bids, apply for historical tax credits which we’ll talk about in a second, and get permitted. If we took out a construction loan right away on this, we would be under the gun because the construction loan usually is 12 months max which would include all of our applications, permitting and then construction. By getting short term financing from the seller, it gives us breathing room to do this project currently.

Then once our permits are in hand, our historical tax credit applications are in hand, we will then go to a local community bank that’s going to provide a construction loan and the construction loan after the construction is finished is actually automatically going to roll over into a permanent bank loan. They call it a mini perm because basically that they do is they give you six to nine months with interest only payments for construction. Then that loan rolls over into an amortizing loan over 20 years. The payments increase from being only interest only to amortizing payments. It’s a 20 year loan but commercial banks don’t let you have a fixed rate for 20 or 30 years because they’re not stupid. Usually in five or seven years that loan will have a call in it which basically means if the loan is in good standing then just renegotiating the rate with the bank based on where market interest rates are at that time.

The bank always wants to be in first position though. When we put the bank loan in place, we would have to take out the seller and pay off his note either with proceeds from the bank loan or with our own cash or with some kind of a combination of that. I hope that makes sense. There’s a short term loan from the seller. Then in order to actually renovate the building, we will bring in a bank and we will have to take the seller out and pay the seller off.

Typically local community banks will finance 85% of the cost or 80% of after repair value, whichever is less. Now this refers to my lenders community banks are all different. Credit unions are all different. Their lending criteria is different. Even in your town you will have five or six different banks with completely different criteria. This is not a rule of thumb for all of them but this is a rule of thumb for my lenders.

Step one, what I need to do here is run some numbers to see how much the new bank loan will cover. For that we need to value this deal. Let’s talk valuation. You with me? For any deal analysis of rehabs whether it’s residential or commercial, even if you’re looking at a single family house, you need to start with the end in mind. What is the after repair value? That should be your starting point. What is this property going to be worth when the renovations are finished and either I’m ready to sell this or I have it leased out and it’s fully stabilized with tenants?

For commercial deals, valuation is completely based on projected properties’ income. Here is a very simple formula for commercial deals. ARV after repair value equals NOI, which is the net operating income, divided by the market cap rate. ARV, after repair value, when the property is renovated, leased, and producing income. What is the value of that property? NOI is the net operating income. Net operating income is simply annual gross operating income, which is your rent minus your operating expenses. Your operating expenses are all the expenses required to run this property. Maintenance, landscaping, legal, real estate taxes, insurance, pest control, utilities, etc. etc. etc. Net operating income is what your property generates before paying the debt service, paying the mortgage and taxes. Cap rate, which stands for capitalization rate, it is the rate of return a property generates before any leverage is applied. Before you take financing into account.

Let’s say you buy a property for $100000. It produces a net operating income of $10000 a year. That’s a 10% cap rate. You with me? Market cap rate, it’s the cap rate at which similar properties are trading or selling. The higher the market cap rate, the lower the valuation. The rule of thumb is you want to buy at a high cap rate but you want to sell at low cap rates. Let’s look at at example.

Property generates $100000 in annual NOI. Its market value at 8% cap rate would be $1,250,000. At 10% cap rate, $1,000,000. A 12% cap rate, $833,000. If I’m buying, I want to buy this property at the highest cap rate I can because that gives me the lowest price. If I’m selling, I want to be able to sell at the lowest cap rate possible. Or if I’m getting this property valued. If I’m going to a bank and saying I want to borrow money to renovate this property, I want to be able to tell the bank market cap rates are low. I want to be able to justify as low of a market cap rate as I can because look at this formula. That gives me the highest valuation. Make sense?

Let’s determine the after repair value of this mixed use project. If we log into our rehab evaluator account, and if you’re watching this video you should already have a light or a premium account. If not, you can create a free account with this software and you can do all of the analysis that I’m going to show you even with the free version. The premium lets you do a lot more cool stuff but even with the free version, you can do most of the analysis that I’m getting ready to show you. When we log into rehab evaluator I’ve got a deal here that I’ve already prepared. I’m going to click view. I’m going to walk you through my thought process on this deal. I want you to see how commercial values are calculated and then from there how we determine how much of the deal we can finance. Then I’m going to show you how I actually make a presentation to my lender.

If I go in here, I’ve already entered my purchase price for this building. I’ve just entered some assumptions for my closing and holding costs. I’m ball parking that my rehab is going to cost $400000. Now as I start getting some bids, I’m going to go in here into detailed input which I can do with the premium version and start putting together a detailed rehab budget for this project. For now, I’m just ball parking the renovations at $400000. What I want to do first is I want to go the extra strategy to hold and rent analysis because that’s what I’m going to do. I’m going to hold this deal. I want to determine the after repair value. It’s actually pretty straight forward in this software. The first thing I’m going to do is I’m going to ignore all this other stuff here and I’m going to click enter projected operating income.

What I have here is four apartments upstairs that are going to be … they’re going to be studios. I’m projecting that they’re going to rent at $799 each. Then I have one commercial space here, 2200 square feet and I’m projecting $3500 in rental income for that commercial space. I’m going to enter an 8% … to be conservative I’ll enter a 10% vacancy here. I’m going to click update. This you can see, I can enter all sorts of different units. I can enter it completely different unit mix and I can add even more units here if I want to. This is a very flexible platform where you can enter hundreds of different apartments and units and commercial spaces if you want. I’m going to click update. Then I’m going to project my operating expenses. You can see what I’ve entered here. I can enter my operating expenses as $1 per unit per year. I can enter them total monthly or total annual.

I’ve entered some assumptions about my operating expenses here, monthly insurance cost, monthly maintenance. It’s going to be a brand new building so my maintenance is going to be fairly limited in the first couple years. Property taxes, utilities. I can enter whatever else I need. There’s no grass so there’s going to be 0 landscaping. Shouldn’t be any janitorial expenses either. Then my legal costs are paid by my umbrella company. Again, when you go in here you can add all sorts of other items if you want at the bottom. I’m going to click update.

Here’s what we do from here. I’ve entered what I thought was the after repair value here. $600000. Based on this number, my cost of the project and my operating income and expenses, I have my cap rate here. Cap rate based on cost basis. But this is cap rate based on after repair value. At $600000, this would be my cap rate. What I’m going to do is I’m going to adjust this number until I get to about 8%. I think 8% is an extremely conservative cap rate, meaning I could go lower. But what do I need to do to get to 8% cap rate here? You can see $700000 puts me at about 8.8 so I’m going to go a little bit higher. Actually what I’m targeting is going to be a 7% cap rate. That’s the cap rate that I want to be at. If I go to $800000, that actually puts me right at 7%. Let’s leave it there. I’m going to say the after repair value of this building is $800000 which puts me right at a 7% cap rate which I think is market. That’s pretty on point.

What do we know? We know that this deal costs $345 to buy, $400000 to renovate. My total all in cost at the end of this rehab is going to be $748000. I think the best case scenario for my ARV is $800000. Let’s review that really quick. If you’re paying attention, you’re probably saying hold on a second. Let’s run this math again.

My purchase price is $345000. It’s going to cost me $400000 to renovate this building. I’m going to have another $26000 in closing, holding, financing costs roughly. My total cost at the end of this project is going to be $771000 but my ARV is only $800000. Again, if you’re paying attention you’re saying, “Wait a minute. Something here doesn’t look right. Why are you even doing this project?” My equity best case scenario … and rehab can potentially overrun $400000. My equity best case scenario is $29000, 3.6% sweat equity when I’m done with this deal. This is incredibly low. This doesn’t make any sense. Right? Again, why in the hell am I even doing this deal in the first place? Seems weird, right? I’m going to do all of this crazy work and I’m going to have almost no equity whatsoever. Wouldn’t I be better off buying something that’s already renovated? If I’m going to be at market value, why do all the work just to get to market value?

There is a method to my madness. This deal qualifies for federal rehab tax credits, state rehab tax credits, enterprise zone credits, and a real estate tax abatement. Let’s talk about that. Federal rehab tax credits. 20% of my qualified construction costs, and the numbers here I’m using are just illustrative because in reality not all $400000 of my construction will qualify. Then I can tack on a developer fee. There’s some intricate details to how to do these deals.

But I want to give you the broad picture so you know these incentives are out there. I can get 20% of the $400000 back as a federal tax credit, which offsets my tax liability one for one. Not my income. My tax liability. So $80000 I get back as a federal tax credit. State is another 25%. I’m going to get another $100000 back as state income tax credits. I can sell these in the secondary market if I want at 80, 85 cents on the dollar and get cash right away. Then this happens to be in an enterprise zone. I can get another 20% of $300000 back as enterprise zone credits. That’s a cash payment. That’s another potential $60000 in cash that I get at the end of this deal back. Then there’s a real estate tax abatement.

In Richmond city, if you renovate an existing property, what they do is they come in, they appraise your property in the beginning when it’s in really rough shape and that is what you pay your taxes on over the next 10 years. Even though I’m vastly going to improve the value of my property, I’m not going to pay real estate taxes on that improved value. That’s equivalent to about $48000 over the next 10 years additional.

Let’s run this math again. $29000 in equity plus $180 in tax credits. Another $60 in enterprise zone credits. My new equity from these incentives is $270000. That’s pretty good. Even Stallone would be proud of a 33.6% equity position.

Let me quickly show you how to present this deal, how I’m presenting this deal to my banker to make sure I get funding. I’m going to give you more info exactly about where to go to find information on all of these tax incentives I outlined below to see if your deals qualify because you could be leaving a lot of money on the table right now.

Before I put together my presentation I need to finish my analysis. I need to determine exactly how much I want to borrow from my bank in order to rehab this property. I’ve got my purchase price. I’ve got my rehab budget in here. I’m projecting it’s going to take eight months to rehab. I’m going to go in here and I’m going to switch to financing. I know that the bank will lend me up to 80% of ARV. If I go here, exit strategy 2, I can see the maximum that can be financed is $640000.

Here’s what happens. Again, this is complicated so I hope you pay attention. The bank will give me a loan. It will be a construction loan. Then that loan will automatically roll over into a longterm amortizing loan. How do I model that in the software? This is where we get advanced now. I’m going to go in here and under refi I’m going to click yes. Effectively even though we’re not doing a manual refi, this loan effectively refinances itself from an interest only loan here to an amortizing loan. At the same rate amortizing over 20 years, there’s no point to pay because it automatically rolls over into this loan.

If I borrow $640000 in my construction loan, that’s going to be the principal amount of my new loan that I refi into. I have to do a little bit of math here because right now this says refi loan amount is $400000. In reality what I need to do is I need to take $640000 divided by 800. That’s going to be the percentage of my refi. This is a little bit complicated but it allows me to exactly model out this deal.

If we take $640000 and divide it by $800000, that means I’m refi-ing 80%. It’s the same percentage as this. All I’m doing is I’m actually taking this percentage and plugging it in here so that my refi loan amount is the same as my construction loan amount.

Here’s what I’m going to get if I take on this much money in order to refi the property. My cash out at refi is 0 because again I’m just rolling over an existing mortgage. There’s no profit. There’s no ROI on cash invested because again I’m just taking an interest only loan and converting it to an amortizing loan. My monthly cash flow is going to be $720. I’m going to end up having $138000 tied up in the deal because what’s going to happen is the loan is going to come in, pay off my private seller, and I’m going to have to contribute more cash in order to renovate the property.

Here’s what I don’t like. This is what tells me I can’t actually take on this much financing. My debt coverage ratio is only going to be 1.18 which means that my banker won’t even give me this loan. What this tells me is I’m going to have a very, very thin margin before my income can’t cover my new debt payment. Debt coverage ratio is how much income am I getting versus what is my monthly mortgage payment. I’m only getting with this loan scenario 1.18 times the mortgage payment. That means if I have a single vacancy, if all of a sudden one of my four apartments is vacant, I can barely cover my debt service. I hope you’re paying attention. This is important.

What do I need to do? I need to go back and I need to reduce my loan amount. Instead of borrowing $640000 what we’ve actually decided to do is when it comes time to renovate this property, we’re going to go in and we’re going to pay off the private seller, the seller finance note with cash. Then we’re going to borrow the amount of the rehab. We’re going to borrow just enough to rehab this property. I’m going to drop my max percent cost to be financed to 50% of my after repair value. All of a sudden if we go here you can see that what I’m going to be borrowing is going to be $400000 which is my rehab amount.

Now all of a sudden you can see as I adjust my refinance number my monthly cash flow when this property is built is going to be $2200. That coverage goes up to 1.88. That means this is going to be a healthy loan for my banker. Anything over 1.3 banks are usually pretty happy with. My banker is going to be happy to see 1.88. Now I’m going to have quite a bit of cash into this deal but remember I’m going to get a lot of this cash back as tax credits and enterprise zone credits which is not taken into account here.

Now all I need to do is put together a simple presentation to send to my banker. Let me show you how to do that. To generate the presentation for my banker it’s actually going to be pretty simple. I’m going to click view reports and I’m going to select these three reports, cover page, executive summary, and marketing sheet hold. I’m just going to use those three. I’ll show you instead of selecting the private lender funding request why the marketing sheet is more appropriate in this case.

Cover page. It’s going to have a picture of the property, my logo. Then this new report that we just came out with, executive summary. I can add additional text here. Then the marketing sheet hold. Let me show you why the marketing sheet makes more sense. This is going to give a better picture of the deal to my banker.

After repair value, this is what I’m paying, this is what it costs me to rehab it, holding/financing costs, total project cost basis. Total amount that I’m going to finance. How much cash I’m putting into the deal. Then I’m showing what the property will look like once it’s stabilized and once we roll this loan over into the mini perm. You can see I’m determining my ARV based on my cap rate of 7.2%. This is how long the renovation is going to take. The new loan amount once the building is stabilized, my projected monthly cashflow and then the debt coverage of this new loan once it becomes an amortizing loan assuming 4.5% and 20 year amortization. This gives my bank a full view of this deal from purchase through construction through when that construction loan becomes a permanent amortizing loan.

For these types of deals, this is what I send to my lenders and a couple of other pictures. I’ve actually inserted some pictures of how this building used to look a few decades ago. All I have to do now is click show PDF and it’s going to generate this presentation for me. This is what it looks like. Cover page, my executive summary with a map, and then my financial summary of this deal. This is exactly what my lender needs to see, how much money am I looking to borrow, what percent that is of the after repair value and what the debt coverage rate is going to be of this new loan that the lender is going to make me.

I hope this makes sense. Again, this is a pretty complicated deal structure. This is not your typical rehab and flip. If you have questions, post it in the comments below. I’ll answer any of your questions in the comments below this video. Obviously from here I can simply click get unique link and I can actually email this directly to my lender. When my lender pulls this up, I simply email him this link. My lender opens his email, pulls this up, and now actually my map is interactive and my executive summary, he can look at exactly where this deal is located, what it’s near. This is pretty cool. This is what’s there right now. This is the land that we bought first, then the law office that’s going to get torn down. Then we can even do street view. It’s pretty cool. This is the building right here that we’re going to finance. Here you go. There it is.

My lender can do all of this just from this link that I’ve sent him. Then of course all the numbers in the deal. This is incredibly, incredibly powerful. If you send this to your bankers, they’re going to be blown away. I can supplement this with a detailed rehab budget if I have it, picture of the property, and all sorts of other reports to supplement my presentation if I want to.

All right. Let’s review. We bought the deal for $345 with seller financing projecting it’s going to cost around $400000 to renovate, potentially even more. Closing/holding/financing costs around $26000 brings the total cost basis to around $771000. My after repair value is $800000, which means I’m only going to get $29000 in equity. But we’re getting federal and state tax credits, enterprise zone credits, which bumps up my equity by $269000. Now my total equity position is over 30% when this deal is complete.

My cash setup on the deal is $371000 not counting the money I get back from my tax credits and enterprise zone credits. If I take all those incentives into account, my real investment into this deal is only $111000. Property is going to generate monthly cashflow after all expenses and management fees, everything, of $2239, which means my annual cash and cash return is going to be over 24%. That’s pretty good. If I can execute the deal correctly and these are the true numbers that we end up seeing, then this is a home run deal. My initial equity position is over 30%. I’m generating over 24% return on my cash. I’m amortizing my note pretty quickly because it’s on 20 year amortization and not only that but because this sits in a block where I own the rest of the properties, this is going to improve the property values of the adjacent projects that I’m working on.

Some takeaways that you should be getting from this, start with the end in mind. Like we talked about, everything depends on your final building value, which in this case for commercial deals in turn depends on income. Look at the project debt coverage ratio when it’s going to be fully stabilized. You may be able to borrow $1 million based on after repair value but the property maybe can only support half a million dollars in debt. The debt coverage ratio is a hugely important sanity check to see how much you’ll be able to borrow. Finally, hidden incentives can turn the pig into a prom queen as you’ve seen here. Know your market. Research every carrot offered to investors and developers. They can be a game changer and there can be a lot of different incentives that you’re not even aware of that you could be taking advantage of right now.

Let’s talk about it. Let’s talk about tax credits. Big word of caution on tax credits. They are highly regulated by state and federal agencies overseeing them as well as the IRS. These are income tax credits and so it’s not something you want to mess with. Care must be taken to make sure that your rehab follows very specific guidelines the department of historic resources and national park service sets and that all costs have to be very accurately accounted for. They require independent CPA certifications now of all your rehab expenses because there’s been a lot of cases of people lying about how much money they spent and getting more tax credits than they’re eligible for and going to prison for it. This is a very serious thing that you have to be very careful about and do everything by the book if you’re going to apply for historical tax credits. Get educated on these thoroughly, make sure you’re doing everything above board before pursuing these to make sure you stay out of trouble.

Federal rehab tax credits, this is the website for it. If you just go to NPS.gov/nationalparkservice, they oversee federal rehab tax credits. But I suggest you actually start with your local state preservation office before working on federal credits. Your state rehab tax credits, if you just google Department of Historic Resources in your state or state preservation office in your state, you’ll get the website of your local state preservation office. Then look for a map of designated historic districts to see if your property sits in one of those historic districts to see if it’s eligible. If it is, then look on your website. There’s going to be a contact person that you can reach out to at your local state preservation office that you can reach out to for questions and guidance and you can download application forms.

The other thing I would suggest is if you’re going to pursue these, there are probably consultants in your town that specialize in historical tax credits if your town has districts that are eligible for historic tax credits. For all of my projects, I hire a consultant to put my applications together, put my paperwork together. It costs me a few grand. It saves me a huge amount of time. Ask around. There are probably people in your local town that specialize in applying for these credits.

Enterprise zone, tax abatements. By the way, these are just ones that I’m taking advantage of. There could be different incentives in your town that I have no idea even exist, that don’t exist in my market. Enterprise zone credits. Reach out to your local county economic development office and ask them, give me a list of all economic and tax incentives available to people that renovate properties, to people that do new construction, to people that invest in this area. They’ll give you a list and they’ll give you information about all of them. Real estate tax abatement, again, this is something that primarily exists in places with older housing stock. Best place to start is going to be your local county tax assessor’s office. Call them and say, “Hey, are there any incentives? Are there any programs in place that incentivize redevelopment of property where you freeze property taxes?” They’ll tell you.

I hope this has been eye opening. What to do next. If you have any questions, comments, feedback, comment below this video. I’ll answer all questions as best as I can. Share this case study using the buttons below if you’ve enjoyed it. I’m sure a lot of your friends will probably get value out of this as well if you have. Finally, if you do not yet have access to the Cloud based rehab evaluator, premium software that I just demonstrated for you, you can still lock in a pretty laughably low price if you go to rehabevaluator.com/pricing and you get pretty crazy amount of bonuses just for signing up. I really don’t know how you could be doing these deals without a software program like this, so obviously I recommend if you don’t have the software yet you sign up right away and you’re going to lock in a low price for as long as you have the software even as we raise prices, release new features, you’re going to be grandfathered in. That’s it. I hope you’ve enjoyed this. Thank you for watching.
 

Comments (80 comments so far)


  1. Hard L

    Daniil,

    This video made my brain hurt, dude…thanks! I’m using rehabvaluator here, not rentalvaluator for this, my first deal for a rehab & rent. A few questions & comments:

    My deal is not seller financed. I’m looking at either bank or private lender. Still valid?

    Reference determining/increasing line 32, ARV, which reduces line 62, Cap Rate, it appears to be theory, not realistic? Lender sees through the process?

    I modeled the video and accept the figures produced up to 00:25:00-0027:30, where you analyze the mini-perm?
    – in order for the refi loan amount to match the rehab loan amount (in my case, not your construction), I could not simply use the 75% cost to be financed, line 9, as you described in the audio. I used the division you first described and divided line 38 by 32, which resulted in a 53% line 46, and a close match on line 38. Good?

    Line 59: 2.06
    Line 60: 6.62
    Line 62: 7.03%

    Any info needed for you to keep me on track, while I research tax incentives?

    Thanks,

    Hard L


    • Daniil

      Bank or private vs. seller – doesn’t matter as far as model is concerned. For the purposes of this modeling, I was assuming we’d pay the seller note anyway with cash so $345k purchase price as far as my bank is concerned for the construction loan is all cash (after we pay seller note off).

  2. Great video Daniil! Learned a few things that I didn’t know especially about more about how the construction loan process works and the additional credits you can get and how/where to search for them.


    • Daniil

      My man Ken! You’re well on your way buddy. Glad you learned a few things here!


  3. Lulu Alfeo

    I would like to know more about Commercial Rehab Purchase, Financing and Deal Structure Training!


    • Daniil

      That’s what this video is for….. 🙂

  4. Daniil,
    This video is right down my alley. Thank you very much as I always enjoy your video lessons.


    • Daniil

      You’re welcome, Joe! Always good to hear from you!


  5. Madrew Brewer

    Great can you do a video on single FAMILY Total rehab down to the studs

    Oh I had my husband get the upgrade Laval Brewer

    Thank you


    • Daniil

      That’s a good idea. I’ve done a ton of single family guts so I definitely should be able to do a video on that


  6. Tony Power

    Great easy to understand presentation and process. I am new premium member. ARV calc for commercial property is relatively straightforward & mechanical. For residential property, we spend $ to buy a detailed appraisal from a professional valuation person in the area (effectively buying a bank style appraisal upfront, to ensure proposed investment on the particular house makes economic sense.know any better ways to assess residential ARV?


    • Daniil

      Tony – spending money on an appraisal every time is pretty crazy and expensive. All you need to do is find a reliable source of comps and figure out the ARV yourself. That source can be MLS, Zillow (they have good comps data in disclosure dates, though Zestimates are garbage). Check out this blog post: https://rehabvaluator.com/wholesaling/how-to-calculate-arv-and-find-comps/

  7. Daniil–
    I really enjoyed this video and hopefully learned something. I just today purchased a 1927 house 100% cash with a private investors money. Paid $47,000 and ARV will be $80,000. The investor will get 4 or 5 times the 1.2 % or so interest rate he was getting at Ally Bank The house will be rented @ $840/mo for 2 years$205/mo cash flow- then refinanced @ 80% ARV taking $6540 cash out while continuing $205/mo cash flow. Have a long term renter. Then rent will be $900/mo. This motivated seller was found on the MLS. Low ball offer to a frustrated seller 171 days on MLS. Now I need to look into some of your TAX BREAK IDEAS. 2nd deal so far this month.
    Phillip


    • Daniil

      Nice job, Phillip! Make sure you’re taking maintenance into account to calculate your cashflow. If that $205/month is before maintenance and cap-x, it could get eaten away pretty quickly


  8. David

    thanks for putting this video together. extremely eye opening. stumbled upon this site (again) and going through the information links.


    • Daniil

      Glad to hear it, David! Thank you


  9. VickyMorales

    GREAT educational information. This software is awesome. Thanks Daniil.


    • Daniil

      Thanks, Vicky!


  10. James J Jarmon

    I am a long time user of your premium products. When you offer bonus for new user, do the older members have access to those bonuses?


  11. Dan

    As always… Very nice and thank you! We need more people like you out there. Like the subtle reference to legal in the holding/umbrella company. Did you ever put together a video or docs on entity creations and structures for commercial? The what and why surrounding “off book” costs and such. Again, thanx a ton for what you are doing… Have a great day!


    • Daniil

      Dan – I try not to give any formal advice about entity structure or other legal matters. Always best to consult with a good asset protection attorneys. I have everything either in single member LLCs or some of my LLCs have up to 8-10 properties each. I have one commercial insurance policy covering them all, then another umbrella liability policy on top of that.


  12. daron

    Great information because I am try to buy some condo’s and I was all lost.


  13. Michael

    I need to learn this system.


  14. James

    You did not tie in your new project on the rest of the block. Why not?


    • Daniil

      We actually are tying the new building directly to this one. So the whole block is getting redone lot line to lot line!

  15. Great presentation! You really got my creative juices going when putting together deals.


    • Daniil

      Glad to hear it, Kyle! 🙂


  16. terry demeritte

    I am interested in working with commercial building and would be so grateful
    if you would mentor me along the way. Many thanks. Terry


  17. Joseph Nader

    Daniel it was a very good presentation amazing information
    I want to start doing real estate like commercial buildings and also
    Homes and apartments. Tell me more about this software and other stuff you have

    I like to know also what’s the price to get all the materials and software
    I need to start.

    Thank you so much Daniel


  18. christopher green

    when you gonna step up to the plate and show ME how to get, make, and run deals like this ?


    • Daniil

      Kinda what I am doing here 🙂 Can’t teach you everything in one video!


  19. Mary

    that’s a fantastic incentive to do commercial projects. from what I understand each city/state offers various types of credits for developing commercial projects. this is my goal indeed as I am in it for the long haul. residual income properties are a must for longevity investing in real estate.

    fyi to fellow investors: just type in the city that you’re working on projects in followed by commercial property tax credits in the google search bar and a few government websites will be revealed. i.e. ‘baltimore commercial property tax credits’

    as usual good stuff, Daniil. thanks a bunch.


    • Daniil

      You’re welcome, Mary! Good points!


  20. Mark Sexton

    Great presentation. I am getting into the CRE market place and this will be great to present to my private bankers.


    • Daniil

      Glad you liked it, Mark!


  21. Anthony smith

    Good morning DANIil just sat in on your rehadvaluattor class ,it hit home , it hit all my question I had for you , but I am having a great deal of a problem most of the buildings that I have look at they have a number on the building to call , but no one seems to call me back ,or if they want to sale or lease so am stuck on what I must do next to get in contact with the owner, plus my capital is not that large ,I have great ideas that I would like to put fourth on these buildings can you give me more in site on how to get incontact with the owners to answer the phone , let me tell you I’ve been to the town office , I have done my home work still no answer.


  22. Tracy

    Hey Daniil,

    Thanks for this. Hearing what you’ve done makes me think of something I’d love to be able to put together someday, but I’m not as far along in my business as you are. I don’t yet have the confidence or knowledge for it now.

    I’d like to buy the abandoned school in my hometown, and turn it into living rental loft space above, and storefront on the ground floor. I can’t even begin to think what all would be involved here in the rehab, but what you present about the financing and the tax abatement and tax credits could make it doable, somehow. I’m going to do some research on that…

    This school is in a small town, which is relatively depressed economically. However, I think there could be a market for this sort of rental from local college professors and medical professionals in a neighboring town.

    I’d be interested to hear whether you, or any of your viewers here, have done or explored rehabbing a school for another use. Or, maybe it doesn’t even matter that it was a school? The numbers are the numbers, etc.

    Thanks again for taking the time to break this down for us!


    • Daniil

      Tracy – I did a similar project a few years ago to turn an old school building into a restaurant and 4 apartments. Actually it was a building that used to house a school and a cafeteria downstairs. Similar size project as one in this video. It’s not that hard. Just build a good team!


  23. Tracy

    Hey Daniil, Thanks for the quick reply about my dream of bringing the abandoned school back to life. I’m going to explore this idea some more. I think it would be good for our town in general, too. But of course, I want it to be a money-making project for me too!

    I think it would likely need to be a gut job, but I want to keep as many cool characteristics as possible. Every apartment would need a kitchen, bathroom, etc. It probably has asbestos in it.

    I need to get more experience in a smaller rehab first, I think. In the meantime, I doubt the school will be going anywhere, so when the time is right, I will make my move.

    Thanks again for taking the time to create this video, Daniil. It opened my eyes to some bigger possibilities for sure!


  24. Teofila

    Thank you ,for this case presentation. i can use this as my model in my next project. YOU’RE so smart .Well done.


  25. Michael Gaines

    Daniil, presentation was very – I’m looking at similar deals now and happy to be a premium user as the reports and presentations are great. I was hoping to hear more about the other side of the project – the vacant lot deal and how valuator could be used for that part of the project. Thanks for sharing, Michael


  26. Frank Petrasich

    What if the seller would subordinate to the construction loan with a payoff due upon refinance?


    • Daniil

      Frank – you can definitely do that if the seller is ok with it and if the construction lender (bank) is ok with it. Often banks won’t like having notes in 2nd position if they’re in 1st


  27. Lucius Bloodworth

    I would join your training where is the sign sheet ?


    • StefanieK

      Hi Lucius,

      Rehab Valuator is a software program. It’s used to analyze and market fix and flips OR fix and holds to cash buyers (wholesaling) or to lenders if you’re looking for funding. All of training, like on this page, is free. We don’t charge for it.


  28. Jessica Knapp

    This is a great video Daniil!

    I really love the way you put this information together. I also love that you share it all so openly. I have VERY much enjoyed watching / learning in your community. This will be my next adventure (a mixed use building). It is funny but I seem to be following along in adventures that you are broadcasting information on. My latest was an AirBNB specific unit in a town with a 35% gap in hotel nights. Some people around me think I am crazy. Many people around me think my love of mixed use as my next project is crazy too! You don’t with the right planning and the right tools, and I love that support. Thank you.

    I would like to know how you do in finding commercial tenants for this project. In my experience that is the one area of weakness in these deals and that area looks a little sketchy.

    All my best –

    Jessica


    • Daniil Kleyman

      Sounds like you’re following right along with the stuff we teach, Jessica. That’s awesome!

      How we’re finding commercial tenants: personally, for this project and a bigger mixed use project we’re working on, it’s through existing relationships, contacts and word of mouth. You can always hire a commercial leasing broker to advertise your space and seek clients for you. Find someone who specializes in the type of tenants you look for: office, restaurants, retail.

      And get the word out through your entire network: “Hey, if you know anyone looking for a great commercial space, have them reach out to me! etc etc”


  29. James J Jarmon Jr

    I am analyzing a deal in N C. Combination of mobile home park, 3 residential home and 2 apartment building. The owner is will to hold financing with 20% down. How will I used your premium software to model this. Thank you.


    • Daniil Kleyman

      It’s not really a software for a full portfolio analysis. Better to use it on a per property basis


  30. Anand Dahya

    i have learn quite a bit from your case studies buy and hold investor and know because of your education committed to building duplex in arlington tx


    • Daniil Kleyman

      Awesome, Anand! Congrats on your duplex. Arlington is a great area. If you can build at the right cost basis, I am sure you’ll have an awesome rental property on your hands!


  31. Duke Marquiss

    Thanks for the video. We have moved out of the house rehab into the commercial space and this will help a bunch. Some of ours are industrial buildings that we demise down into smaller spaces and in many cases the tenant decides the size and configuration but I can allocate a $ per square foot and get it pretty close for bank financing.

    Very helpful.


    • Daniil Kleyman

      $ per sq foot is a great way to go. Glad you’re enjoying the case studies, Duke!


  32. Pat

    This is one the most clearly presented commercial presentations of a large project I have ever seen.
    Very impressive Daniil 1

    Your information just gets better then anything out there and you offer more with each presentation.

    Pat


    • Daniil Kleyman

      Thanks, Pat! That means a lot!


  33. Syeda A Rasool

    Okey if I accept 4%and really want to buy building with seller financing would you do business waiting reply I no need to be your video few video are in my mind too difference is you have system and I will put myself


  34. Joe

    Again you did a very good job in educating us Thanks


  35. Beverly

    I don’t understand. Looks like this deal applies to the small hard-to-get building. What about the overall project?


    • Daniil Kleyman

      Correct. This case study specifically talks about the smaller, existing commercial building. Not the big project


  36. Todd

    Why don t you show the tax credits as additional income each year? Wether you sell tax credits in secondary market or keep yourselves the result is the same additional income,cash flow as a result of tax reduction dollar for dollar.


  37. Todd

    Can you sell tax credits for lump sum on secondary market?


    • Daniil Kleyman

      Todd – yes, you can sell tax credits. State are easier to sell than federal, as federal tax credits require the owner to hold the property for 5 years. So there’s more risk to the tax credit buyer when buying federal. Selling state credits are far more common


  38. Morace Wren

    I am working on a 150 unit 55+ Senior housing project in Dallas Texas. This project does not need rehab, but need tax credits to handle the financing which has a sale price of 3.5 million, do you think rehab valuator can handle the job.

    Morace


    • JacobC

      Hi Morace,

      It’s probably not ideal for this scenario. We’re working on adding in long-term rental options which will hopefully be released by the end of this year. The biggest limitations inside Rehab Valuator in regards to long-term rentals are: Rehab Valuator upfront financing is interest only, all cash, or profit split and 24 months or less (or a combination). The reports the program creates revolve around this financing period. In addition, the program doesn’t show income during that 24 months (or less) period.

  39. Hello Daniil. This video wanted to be confusing because I thought it was supposed to be about NEW construction. NEW construction do not use ARV… instead you would use EMV — estimate of market value. ARV is only for residential stuff, and where you are doing renovations,not new construction.
    At one point you mentioned that upstairs was 30 apartments, yet you only used 4 apartments. Wouldn’t it less confusing to simply use the actual number of apartments? Also, in your presentation, you have a commercial unit renting for a huge amount when “common sense” tells you this makes no sense! It makes no sense doing this when in real life you know that should this tenant move out, you are at a substantial loss, and cannot make debt servicing from income. Last, but not least, you talk about a building that you can get a million dollars of financing, when you only have HALF million dollars of income! Which Lender would do something like this? This is called financial suicide or a FORECLOSURE waiting to happen! Please clarify……….


    • Daniil Kleyman

      Actually this video, if you pay attention, is about a rehab, not new construction, and is about a building with commercial downstairs and 4 apartments upstairs. You’re confusing this with the new construction project that is going in next door. Also, the rents for commercial spaces I am using have been well researched and thought out. But I do appreciate your input! (kind of)


  40. Everard Campbell

    Comps is for residential situations only. Value for commercial / mixed use is totally dependent on income & cap rate.


  41. Ryan Smith

    Hi – the commercial deals I do do NOT have bedrooms and bathrooms. Is there an option to remove those details from the reports we present to our investors? Thank you very much. Ryan


    • Dylan Hampson

      Hi Ryan,

      Thanks for reaching out! Currently, there is no way to remove bed and bath details from the reports as they are geared more towards residential. Please reach out if you have any other questions.

      Thanks!


  42. Thomas Rodgers

    I’m not understanding how to choose an ARV! In this case, the property is a vacant 22unit apt bldg. the melt rents are $750/month 1 br and $850/ month 2br apts. Expenses, are based on a 33 percent estimate. I calculated the NOI times 10 to arrive at the ARV which seems high for the area.


    • Daniil Kleyman

      Then maybe you should be using a higher cap rate than 10%. Try 12%. is it a rough area?


    • Dylan Hampson

      Hi Thomas,

      Sometimes ARV is a little difficult to calculate for commercial properties. Please see this case study that might be helpful: https://rehabvaluator.com/case-studies/commercial-rehab-purchase-financing/ Please reach out if you have any other questions.

      Thanks!


  43. Marcia Fischbach

    I thoroughly appreciated this great information. I will like to watch it one more time and let it sink in better.

    Thank you for being so generous with your help and time. You are indeed a remarkable individual., one of a kind!!!


    • Daniil Kleyman

      Glad you’re getting value out of this, Marcia! Definitely worth watching multiple times.


  44. Alan Pecherer

    Quite the comprehensive lesson and presentation of a sophisticated project. I really appreciate the insight you bring. For people who have not done nor participated in these types projects (that would be me) there are so many moving parts that it’s not generally understandable, but your explanation was very clear as to how you worked your way through this project and the feasibilities, and the potential hazards. I’m nowhere near this level of sophistication in terms of any deals I am involved with, but there is considerable value in thinking on this higher level you bring. I am sure I will watch this a few more times. Thanks again! Top notch material.


    • Daniil Kleyman

      Appreciate your feedback, Alan!

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