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Last week I spoke with a good friend...

He told me his uncle has amassed a $1 Billion real estate portfolio with no outside funding. Let's call his uncle Sam.

Here is how Sam got wealthy...

He finds a strip mall center for sale. Say the anchor tenant is a Safeway, with a lease that expires in two years.

The mall is selling at a discount because buyers are worried Safeway may end their contract and move. If Safeway leaves, they have a large gap in the real estate they need to fill.

Sam gets the property under an exclusive contract to buy the property. He has 60 days to raise money and complete his diligence.

But Sam's uncle is incredibly crafty. He uses this period to increase the value of the property before he buys it.

He has a 60-day free option on the property. If he's successful at increasing the value of the property by the end of the 60 days he buys it. If he doesn't succeed in increasing the value of the property, he doesn't buy the property.

How does he increase the value of the property?

He hustles to sign as many renewed leases in the mall as possible. Safeway here is the most important tenant. And he happens to know the head of leasing at Safeway. So he gives her a call and asks her to sign a renewal on the property.

As soon as Safeway signs its lease, the property can be worth 40% to 60% more immediately. Now he's able to buy into this property worth tens of millions for free essentially.

Here's how it works:

The property is selling for $40 Million before the lease is signed. He can go to a bank and get a loan on 65% of the property.

After he signs a new lease with Safeway the property is now worth $65 Million. 65% of $65 Million is $42.25 Million. So his loan can cover the full value of the purchase price above.

(I've simplified the math to make it easy to understand)

Sounds easy, right? So why doesn't everyone do it? Why doesn't the owner do this?

Two things come to mind...

Owners may be tired, not paying attention, old or unsophisticated. If the owner is managing a $50 Billion portfolio of malls, this little $40 Million mall is likely being managed by a 22-year-old analyst looking at a spreadsheet. That person isn't incentivized to hustle extra hard. They're likely incentivized to minimize the company's downside and dispose of this asset.

If the owner is 70+ years old, or their inexperienced kids inherited the property, there isn't a lot of motivation to work very hard here. Take your $40 Million check and live a good life.

Therein lies your arbitrage. Look for great opportunities like this one...

Decades of compounded learning

When Sam gets a property under contract, he already has a vision for the property. He's not going in blind hoping to clip a 10% return on his property. He's only buying it if he can lease up the vacant units, and get into the project for free.

This comes from 20 years as a real estate professional who focuses exclusively on strip malls. Some people spend their entire lives dreaming of making $10 Million. Sam pulled that off in 60 days in the deal above.

Learning compounds. Networks compound.

Where you are in your career, think to yourself, where do you want to compound networks and learnings? Assume your first couple of projects may fail. But 15 years later you'll have experience, knowledge, and a network. Will you be able to leverage those to create a lot of wealth and value?

Choose your path wisely.

By the way, we look at hundreds of investments a month and only invest in a few of the best cash-flowing businesses a year. If you want to hear about our deals and invest alongside us sign-up here (accredited investors only). We've purchased 20 companies so far across Software, HVAC, Plumbing, pool construction, B2B Service, and more.

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🔑 One great listen

​The World's Best Fundraiser: David Rubenstein grew up middle class, the son of a postman, and went on to build 5th largest private equity firm in the world with over $300 Billion of assets under management. He's also hired famous politicians such as H.W. Bush (US President) and John Major (British Prime Minister).

I particularly enjoyed this interview. It felt human and went deeper than other conversations I've heard with David in the past. Give it a listen. (Listen on Spotify)

Sieva

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Disclaimer: nothing here is investment advice. Please do your own research. The information above is just for information and learning.

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