My Journey with the VA Home Loan: Part 3 — Buying My First Commercial Property
- lnguyen45
- Mar 27
- 3 min read
Hey everyone, welcome to part three of my real estate portfolio journey! This isn’t the last step, but it’s the most recent one. If you’ve been following along, you’ll remember that I last left off with the purchase of my duplex. Now, let’s dive into the next big move in my real estate journey.
Moving On From the Duplex
After owning my duplex since 2016, I made the difficult decision to sell it in 2023. This wasn’t an easy choice because, by that point, the property was generating a solid $1,100 per month in net profit. That rental income covered my mortgage on my condo, leaving me with about $200-$300 in extra cash flow. On top of that, I had built up over $200,000 in equity. I originally purchased the duplex for about $267,000 and walked away with roughly $216,000 after the sale—effectively doubling my investment.
Despite the strong cash flow and appreciation, I had bigger plans. I wanted to take the next step into commercial real estate and utilize a 1031 exchange to transition into an office space.
The 1031 Exchange & Commercial Property Purchase
The main reason I wanted to buy a commercial property was that my office lease was expiring. As someone who had owned real estate since I was 23, I figured, why not own my own office space instead of renting? I shared my vision with my mentors and real estate contacts, and as luck would have it, the owner of a waterfront office building in Silverdale, Washington, was looking to sell.
Understanding the 1031 Exchange
A 1031 exchange allows you to defer capital gains taxes when selling one investment property and purchasing another. Here are the key rules I learned:
The exchange must be from real estate to real estate (residential to commercial was allowed).
There’s a strict timeline:
45 days to find a replacement property after selling the original property.
Additional 45 days as long as a property has been identified.
90 total days to close.
The proceeds from the sale cannot touch your personal bank account; they must be held by a qualified intermediary and directly transferred to the escrow for the new property.
The process was surprisingly smooth with the help of a 1031 exchange lawyer and my real estate team. Once the duplex was sold, I was ready to roll those proceeds into the purchase of my commercial space.
The Challenges of Commercial Financing
Unlike residential loans, commercial lending is a completely different beast. Instead of focusing primarily on the borrower’s credit and income, lenders care more about the property itself, its location, and potential risks. For example, one lender was concerned about a dry cleaner nearby due to potential environmental hazards.
Initially, I worked with two commercial lenders who ultimately couldn’t get the deal done. The last lender wanted me to put 60% down—an unreasonable amount. With the deadline approaching and financing falling through, I had to pivot fast.
The Solution: Seller Financing
Instead of scrambling for another lender, I proposed a seller financing deal:
I put down $300,000 (including my 1031 proceeds and some additional cash).
I agreed to an interest-only payment of $3,500 per month.
In two years, I planned to refinance and secure a traditional mortgage.
Thankfully, the seller accepted, and within four days, the deal was finalized!
The Reality of Owning a Commercial Property
Since purchasing the office space, I’ve made several upgrades, though commercial properties are expensive to maintain. The rental income from my company’s lease helps offset costs, but I knew going in that the property wouldn’t be immediately cash flow positive. With plans to refinance and repurpose the space for events, networking, and additional rentals, I see a strong future for this investment.
One major advantage of ownership is flexibility. I’ve converted the garage into a workspace, hosted men’s mastermind groups, and plan to leverage the space for additional revenue streams. Plus, with the waterfront location and property improvements, I anticipate its value exceeding $1 million by the end of the year.
Lessons Learned & What’s Next
This experience taught me a lot about:
The importance of working with the right lenders.
Being prepared for creative financing solutions when deals don’t go as planned.
The fundamental differences between residential and commercial real estate.
Right now, my focus is on maximizing the income potential of this office space. I’m also keeping an eye out for new investment opportunities, including flips and other commercial properties. The real estate market has been challenging, but I’m optimistic that rates will drop, making refinancing and future deals more favorable.
If you’ve made it this far, I appreciate you following along on my journey! If you have any questions about the 1031 exchange, commercial real estate, or anything else, feel free to reach out. I’ll keep you updated on my next big move!
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