Trading One Pasta Property for Another
Announcement: I've decided to end www.pastadollar.com. I might do one more upcoming post looking at our Poppy Seeds portfolio, and will let the website expire early next year.
If you prefer to think of it this way: I'm trading it for another pasta-related commitment. More on that later. Why am I shutting down? For a few reasons:
1) A website is much more work than an email newsletter
2) I probably spend 50% of the time on each post working on search engine optimizations, which led to Google search impressions, but zero organic subscribers from those impressions.. to a free newsletter.
3) Blogs are largely a product of the 2000s. Most people consume my type of content on social media sites like TikTok, YouTube, and Instagram. The type of blogs that are still around post 4-10 times daily with a staff of writers.
4) My time is, unfortunately, better spent elsewhere, such as my new pasta property, or my existing website that actually makes money, snowcap.me.
Sometimes, when a door closes, a window opens. For me, it was a lot of windows. My brother Connor and I recently split an 8-unit commercial property in the Italian Market neighborhood in Philadelphia. The ground floor has 3 commercial units, and the upper floors hold 5 residential units. And I swear I'm not making this up - the property used to be a commercial pasta producer. Here's the Google Street View:
Making an Offer on the Pasta Property
In May, Connor was watching new property listings like a hawk. He saw the property hit the market on day 1 and immediately requested a showing. On day 3 of it being listed, we toured it and decided to make an offer. Why did we move so fast? Because we love the neighborhood and the financials are a home run. The seller's asking price was 39% less than what she was trying to sell it for only 2 years prior.. meaning she was trying to dump the place - at a slight loss to her - and we were happy to scoop it up. The price per unit of under $140k was the best I've ever seen on any property listing in Philadelphia since moving back here. For some context, when I was house shopping years ago, I came close to paying $233k per unit on a 3-unit residential property. Market rents have marched upward since then. Anyway, Connor and I made the seller a full-price offer, and she accepted our bid.
Assuming you get a fixed-rate mortgage (which you should versus an adjustable one), your payment is fixed and won't change with inflation. That means in 10 years, a $1000/month mortgage payment will still be $1000/month. It will probably "feel" like $800 then because purchasing power becomes worth less with time. Rents have been going in the other direction - up.
The NY Times has a great rent vs. buy calculator to forecast whether homeownership makes sense for you.
Financing the Pasta Property
Commercial lending is a tedious, slow, and rough process that I wouldn't wish on my worst enemies. The interest rates, loan types, and term of years are all worse than residential. I contacted about 15 lenders, and all the banks you've heard of wouldn't even talk to us. Big banks only want big deals, like 10-20 million dollars minimum. We needed under $1 million, which left us with local lenders. We took two credit unions through the whole application process. Multiple lenders in play was a great move because we needed to switch to our second choice when our first choice moved too slowly. It wouldn't have been worth slightly better loan terms if the deal had fallen through because of a slow lender. We closed the deal in mid-July after starting an LLC to buy the place and providing loads of documentation to our lenders.
Owning the Pasta Property
After analyzing a bunch of software platforms, we decided on TurboTenant. For $99/year, this SaaS product does payment collections, marketing open units, e-signing documents, maintenance requests, and detailed background checks. We LOVE it.
We had our first vacant unit on August 1st, after a 1-bedroom tenant decided to move out. We took pictures, wrote a description, and turned Turbotenant marketing for the unit "on." TurboTenant propagated our listing across 25+ websites, and we started getting renter leads. About half of our leads filled out a self-reported screening quiz that TurboTenant provides, and we invited our favorite candidate to apply. His background was solid. PA has a standard lease we prefer, so we filled it out, the candidate signed it, and our residential units are again fully rented. Not so bad!
We have had one or two minor maintenance requests, which unquestionably come with building ownership. I am pretty happy that Connor knows how to do everything maintenance. More importantly, he has many contacts across the local construction community. Financially speaking, it makes more sense to hire someone for maintenance so we can deduct their labor as an expense against our books. If we did the work ourselves, we could only deduct the cost of materials. Work smarter, not harder.
Wrap Up
Connor and I are thrilled this deal for our 'pasta property' went through. The pasta sign will probably come down soon to make way for new businesses, so let me know if you have an idea for a fresh new building nickname!
With 7 of the 8 units rented as it is now, the building has a cap rate of 7.5%. With the final unit rented, it's 9% and above, which is fantastic. 9-10% cap rates on investment properties are quite rare at this price point and in this decade.
This purchase shows that if you keep your ear to the ground, you can still find gold in real estate, even in this expensive housing market.
So that's what's next! When I thought about wrapping up Pastadollar, I thought of this profound image below. Words to live your life by.
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