We’ll break it down into more detail later, but here’s the high level:
1. Buy a great piece of commercial real estate (great means it cash flows from operations is in excess of your debt service)
2. Borrow 50-75% of the purchase price with fixed rate bank debt.
3. Improve real estate and it’s cash flow (by either remodeling portions of the facility or improving the operations and tenant mix).
4. Go back the bank and refinance the building based on it’s new value, which was driven up by the increased operational cash flow in step 3.
5. Receive all the original cash invested in the deal back after refinance.
You know “own” a large commercial asset with zero dollars of principal in play. Your “contributed basis” is now zero. Yet your ownership stake and the cash continues to stream in.
Infinite returns!
