Blue Dirt
Blue Dirt: Commercial Property Investing delivers expert insights and strategies for building and managing a successful commercial real estate portfolio. Whether you're a seasoned investor or just starting out, this podcast uncovers market trends, financing tips, and key investment principles to help you thrive in the industry.
Blue Dirt
See What Others Don't: The Art of Spotting Undervalued Commercial Properties
Finding hidden gems in commercial real estate often means looking where others won't—or can't—see value. In this eye-opening exploration of opportunity recognition, Michael and Don reveal how they discovered a property that had languished on the market for ten years because of a critical listing error.
The warehouse, a 9,720 square foot cross-dock facility on four acres, had been categorized merely as "land" with notes indicating the building had "no value." While most investors ran from the property after seeing its condition—homeless encampments, human waste, stripped electrical, and overgrown landscaping—Michael and Don recognized the solid bones underneath the superficial problems.
Their journey from acquisition at $250,000 to a $760,000 sale just nine months later showcases the extraordinary returns possible when you're willing to get your hands dirty. The renovation presented unique challenges, particularly when a crucial electrical component was backordered for a year during COVID supply chain disruptions. Their creative solution—tracking down the exact part from a contractor in another state—highlights the problem-solving mindset essential for successful real estate development.
Beyond the impressive 307% return on investment, this episode delivers practical wisdom about marketing properties multiple ways to maximize visibility and potential uses. Whether you're searching for your next investment or trying to sell a commercial property, understanding how to see beyond surface conditions and listing limitations could be the difference between ordinary returns and extraordinary ones.
Ready to discover overlooked opportunities in your market? Subscribe to Blue Dirt for more insights into finding value where others see only problems, and share this episode with fellow investors who appreciate that sometimes, getting your hands dirty leads to the biggest returns.
Learn more about Blue Commercial Properties on our website.
Welcome to Blue Dirt, the podcast that digs deep into the foundation of commercial real estate investing. Unlike most real estate shows that focus on dealmaking and market trends, blue Dirt gets into the nuts and bolts of what truly builds long-term value the building itself. We break down how to spot deferred maintenance before it costs you, why a solid preventative maintenance program is a game changer and how triple net leases can maximize your investment returns. We'll also explore the importance of strong landlord-tenant relationships and how they drive stability and growth in your portfolio. Whether you're a seasoned investor or just getting started, blue Dirt gives you the practical knowledge to make smarter, more profitable decisions in commercial real estate. It's time to get your hands dirty and build value from the ground up. Let's dig in.
Michael Carro:Welcome to another episode of the Blue Dirt podcast, where even idiots can make a killing in commercial real estate. I'm Michael Kuro and this is Don Redhub, and today's question that we hope to answer is really simple Do listing agents always list properties correctly? Yes, 100% of the time, 100% of the time. Well, on that very rare occasion that they don't, we are going to tell you how we've been able to discover those and some of the opportunities that presented themselves to us. So today is actually going to be one of those cases. We're going to actually talk about a specific case study on what we found. So, without further ado, we're going to get into this. Adit Adit Adit. So this was probably five years ago. We're going to get into this, adit Adit, um so, uh, this was probably five years ago.
Donnie Redhead:Um, yeah it was right in the middle of 2020.
Michael Carro:Yep and so it wasn't we, actually I'll get it, I'll get into the specifics, but I get this specific.
Michael Carro:Tell me, guess. So we uh, I'm driving around and this happened to be a hot time, and this happens to be a hot time in Pensacola for industrial properties and and I know I thought I knew pretty well most of the industrial properties in town and I see a sign on a side street that is all faded and uh it, it's a company I knew and there was a building on it, but I don't remember seeing it. So as soon as I got the address and I went back and looked for the for this particular building it was a warehouse could not find it. And then I typed in the actual address and discovered it was listed as land only. And so in reading the agent notes, it said hey, there's a building on the property, but it's given no value, value. And so that to me was a real opportunity.
Michael Carro:And, as I discovered a little bit deeper, this property had been on the market for 10 years. 10 years. It sat on about four acres of land, it was owned by a non-profit and it was on the market. We put it under contract at 250 000. Now the building itself was really interesting. Let me see if I can get some, some specifics. We tried to offer a lot less.
Donnie Redhead:we we did try to offer less, because in their argument they said it was land. And when we pulled up all the, when we ran comps for land for that amount, it was like a hundred thousand. And they're like no, no, no, they're like well. How do you justify this? Like well, there's a building there, but you say there's buildings got no value, right.
Michael Carro:Well, and as it turns out, I think that the nonprofit had a mortgage that had to be satisfied yeah.
Michael Carro:And so the mortgage was pretty much what we paid for it, and so so we put it under contract in August of 2021. We put a $20,000 earnest money deposit down, we had a 60 day due diligence and the closing was actually took place, uh, december 17th 2021. The building had was 9 720 square feet and it was all dock high. Yeah, and it was actually a cross dock situation. Don how many doors run. It was total 12, 12 doors.
Donnie Redhead:so, uh, 12, six on side. And then there was a large one in the rear that was, I don't know, maybe 14 or 16 foot high door in the rear.
Michael Carro:Yeah, so listen to this. So we put it under contract for 250,000, 97, 20 square feet. The price per square foot that we bought it was $26 a square foot. We invested another $13 a square foot to renovate it, so we have a total of $39 a square foot. We felt like the market rent at the time was $6 a square foot, so we ran it. We knew that if we sold, if we leased it at $5 a square foot, we would be in high cotton and so so while and then Don you want to talk about the condition of the building and the renovation?
Donnie Redhead:Yeah, it actually wasn't in that bad of condition. Surprisingly for what you would if you were to tell somebody hey, this was, this building was occupied 10 years ago and then just left because the warehouse was just that. It was just a, I mean, a nice shell, but the the office needed some work. It didn't need to go back a step.
Michael Carro:He's right, but that's how we see it. When anybody that ever looked at this property would have run for the hills. And let me tell you why, and this is not something that scares Donnie and myself, but basically you could see that the homeless had lived in here forever. It was disgusting. There was human feces everywhere it there was, there was. There was bed frames and mattresses. I mean, this was the worst disgusting nightmare which we see, I guess I blocked that all out.
Michael Carro:We see that as opportunity. I see that as opportunity. But why is that? Because a lot of people are going to go in there and say, oh, I don't want anything to do with this, it's just roll up your sleeves and start cleaning.
Donnie Redhead:You know what I mean?
Michael Carro:Yeah, get the debris guy over there and say, oh, I don't want anything to do with this, it's just roll up your sleeves and start cleaning, you know what I mean? And get the debris guy over there and have them haul all the stuff. So yeah, we hire a couple people, they bring over some 30 yard containers, they throw all this stuff away. Boom, now, now, now you, you get a blank palette. And then, from that blank palette, that's where don actually started. But but the reason why it was vacant for so long is anybody who looked at this place ran. It was so horrific. But we live in the horrific. The opportunity lies in the scary.
Donnie Redhead:Yeah, I guess it was pretty ugly, but that's not how. Yeah, I guess I remember it, remember it. Gorgeous, that's not how. Yeah, I guess I remember it, remember it. Gorgeous, that's a gorgeous.
Michael Carro:Well, you're going to think it's gorgeous in just a moment when we tell you the exit Go ahead.
Donnie Redhead:I don't remember what I was talking about.
Michael Carro:You were talking about, the warehouse itself wasn't in bad condition.
Donnie Redhead:Yeah, the warehouse itself wasn't bad. I mean, obviously, landscaping wise overgrowth a lot of overgrowth there. Landscaping wise overgrowth a lot of overgrowth there. The front office part, you know just was not in good condition but the exterior part was fine, you know, but overall, I'm going to take this takeover on this show because I mean, this is horrible. First of all, I'm going to tell you all the mechanical had to be replaced.
Michael Carro:All the electrical was already stolen out of the building. I mean, they literally took all every wiring out of the. The entire building was gone. So we had to put in all new electrical, all new plumbing, all new mechanical. We had to repaint and redo a lot of the walls in the office again. This is not a bad thing, this is just what we had to do. And then we replaced how many roll-up doors? Uh, I, I thought it was all 12, all 12. So we replaced all roll-up doors, all 12 plus the rear one, and we came up with a really cool color scheme to to add a little bit of pizzazz to the building. And yeah and uh. And then don did a really good job. He had the full building scraped on the landscaping because it was. It was two feet high, going out maybe 30 feet from the building, and you went in, remember, you went in and scraped it all.
Donnie Redhead:Yeah, it was kind of interesting. We got, we got to the property and there was this nice fence all the way around. You're probably two acres of it Right, right, roughly, and we're like we're starting to clean off some of the. The area that had just been overgrown I'm talking 10 years of overgrowth is is now soil, right soil and and and vegetation, and we were cleaning off some areas and we're like hold on a second, how much of this is actually paved? So you know, went back on the property appraisers and they have aerial property appraisers. So we went back 10 years and the whole thing was paid. So then we're like, okay, now we know at least where we need to be scraping Cause, otherwise we would have had somebody come out and scrape a little bit here, a little bit here, and we scraped the whole thing and we had a giant parking lot.
Michael Carro:Again it turned out to be great, okay, okay and so, so a lot of work had to be done in that into it. But really, if you talk about it, 9,700 square feet times 13, what's that?
Michael Carro:100 and not that much money 120 grand ish yeah, very reasonable, especially when you look at today's and so, and we had, um, one of the things that again I looked at this as a long-term hold. We even paid extra with our lender to get a 10-year term, because I like long-term. So we had a 20-year amortization and a 10-year term. So what happens is we get an offer and so we went back and forth, we ultimately sold it, and so let went back and forth, we ultimately sold it. And so let's talk about the exit.
Michael Carro:All right, so we sold it for $760,000. Our payoff, because we had a down payment. Our down payment was probably closer to $80,000. We had a payoff of $323,530, which gave us a check at closing that we ultimately put into a 1031, but a check at closing at $326,242. If you subtract out our $80,000 down payment, we netted in nine months $246,242, which is a 307% return on investment. So, even though our plan was a long-term hold, when you can make a hit that fast, we'll take it, because you know our goals are are still sporty on our return on investment. But you know our sporty is maybe 20, 30%, which is a lot, don't get me wrong. But when you can, when you can get 10 or 15 years of a return in nine months, I'm saying take that money and go buy something else, which is exactly what we did. So what else you want to talk about this property?
Donnie Redhead:I think the part that will probably always stick out is because it was during COVID was the electrical panel problem.
Michael Carro:Oh yeah, that's right. So I said it took us nine months to exit, but we could have exited a bit sooner. I mean, we probably could have exited in five months, which would have been fine, but in a normal scenario right In a normal environment like we're in today from a supply chain and logistics standpoint.
Donnie Redhead:Otherwise, we so basically we get the electricians in there working and he goes hey, our main challenge is this is this electrical panel? It was actually. It's the service where the meter socket goes in. Okay, so he goes. This part is we can't find it. It's on crazy back order. Like, okay, he goes. So right now it looks like it's five months out. Right, okay, not a big deal. Like that's right at the end of the project, we'll get absolutely everything done. We'll throw that in and call it a day, and even then it was kind of a stretch, and probably two months goes by. He goes hey, they just delayed it again. I go what do you mean? They delayed again? He goes it's going to be about a year. So you mean to tell me we're going to have a fully complete building besides this meter socket for a year? He goes yeah, and I mean I trust these guys. They're, they're calling everybody, they're trying to get this, you know, through all their normal channels and we're just like what there's got to be, one there can't be, there can't be. So call all the other electricians. They go yeah, we can't get it. It's not, it's not existing. It's just not existing right now with COVID. So we go to the electrician and get a packet from him. He goes this is the packet that golf power gives us and it's all the approved model numbers and serial numbers of these meter cans, these meter sockets for the building, because it actually has to coincide with GolfPower's communication and how their meter cans insert into it. So it can't just be anyone. It has to be specifically a certain type for the certain type of service, the size of the power for the building, and it has to communicate with and be approved by the, the Florida power and light.
Donnie Redhead:Now and we're searching, searching. Finally we find it from a guy out of, out of like Texas. Oh yeah, that's nicely. I said I did Good timing. So we cross-reference it with the attorney, look at all this and literally drive to Arkansas, almost meet the guy, get this meter socket, drive back and throw it in. It was amazing that it was like and we had to find the guy on Facebook. We got so lucky and he goes. Yeah, I'm really dead in the water with this project. He goes because the way that the the riser came out of it, it came out of the top of this, this mirror, can he's like I needed one that came out of the side of it, so now my project is dead for another hour long.
Donnie Redhead:So he ended up getting this as a mistake and then we ended up getting it, but I just I'll never forget that one. It made no sense. It was ridiculous time you had to go find it, get creative.
Michael Carro:In real estate. One thing you'll hear us say a lot is time kills deals. So it's not to say that this buyer wouldn't have waited. But what if this buyer found another property and said I'm tapping out, yeah, then our 307% return is out the window. It doesn't mean that we wouldn't have found a tenant and had a good return, said I'm tapping out, yeah, then our 307% return is out the window. It doesn't mean that we wouldn't have found a tenant and had a good return. So I'm not suggesting that. But time kills deals.
Michael Carro:So Don and his team did everything they could to look across the country for these specific types of of meter boxes and ultimately found one. We had a successful closing, everybody was happy and uh, but again, again the recap of this this would not have existed for us had these brokers. These other brokers could have done it a little bit differently. They could have advertised the building so it would have shown up on searches. Hey, we have a warehouse, it's in need of a lot of work, it's in need of X, y and Z. I mean they could have listed it all out. So we're heavily discounting the whole thing. It's on four acres of land, so they could have talked about all the attributes of the property and still said, hey, we're not giving any value to the building. But to not list the building itself, I think is a mistake and in that market it would have sold in a week and I think it would have sold pretty fast.
Donnie Redhead:It would have sold super fast.
Michael Carro:So but instead it was on the market for 10 years. So you know, so do whatever you can to figure out how you can. And, by the way, occasionally I'll get a listing that I will market multiple different ways. You know, I'll market it on a retail site because sometimes you have a property that can really it can be a retail, can it be an office, can it be a warehouse. So sometimes I'll market the same property different ways so you can make sure that it shows up in search engines. And so if you have a property that you own and you're trying to lease it out, um, who are the, are the potential types of users for your building? I mean, you might be thinking it's this, but can it also be that? So think outside the box, outside of what you think, and maybe what other people might see that property and its value.
Donnie Redhead:And that statement to me, especially because in our office a lot of the other agents will still even come to me even though I don't do the sale and listing. They'll just hey, what do you think about this? And this is how I plan to do the floor plan. But I don't think it really makes sense. And I'll even say to your point market it both ways. And they're like well, do you think we really should divide it? I go, I think it can be divided, but here's why I would market it both ways.
Donnie Redhead:I go, if somebody walks in, a lot of times you know you're just opening up that funnel, that you that I think that's the term you use opening up the funnel to where it's going to show up on so many more search engines. And there's a lot of times you know these businesses that are growing are saying, hey, we're looking for 2000 square feet and you take that, that space, it's 4,000, and you're marketing it for two, another one for two and then combined right for four. They show up, they look at the 2000 because that's what they were looking for and they're certainly if it was just being marketed as 4,000, they would have said no, looking for and they're searching. If it was just being marketed as 4,000, they would have said no. But they get there and naturally, as the entrepreneur that they are, their wheels are turning, they go. You know, we are growing pretty fast. Yeah, I do like that part of the space, and they go.
Donnie Redhead:You know what, nevermind, I'll take 4,000. Right, and it happens. I mean countless, countless times it really isn't. It's. Or they get there and they go, and this maybe is a new entrepreneur, and they go. Gosh, I thought I only needed 2000, but none of my stuff is going to fit in this. I really need 4,000. I really didn't know, because this is the first time I've looked at a space, you know, and they just think of it different, because maybe they think of a 2000 square foot house, maybe is what they live in. They think, hey, this will fit everything right it's just, it's different.
Donnie Redhead:So, yeah, opening up that funnel, getting more eyes on it and allowing you know more, more people to see is, is always a very positive thing yeah.
Michael Carro:Well, if you enjoyed this episode, we ask you share it like it. Uh, follow us and um, and we would appreciate that and sharing with your friends. So that wraps up another episode of the Blue Dirt Podcast, where even idiots can make a killing in commercial real estate. That's right, come on. That's a wrap for this episode of Blue Dirt. We're here to help you build smarter, invest wiser and create long-term value in commercial real estate, one solid foundation at a time. If you found today's insights useful, be sure to subscribe so you never miss an episode. And if you know somebody who could benefit from these discussions, share Blue Dirt with them. Got questions or topics you'd like us to cover? Reach out. We'd love to hear from you. Until next time, keep digging deep, stay sharp and remember real value is built from the ground up. See you on the next episode.
