Read this if you want to build real wealth.
Happy Friday Gym World,
After running 5 gyms, I was given my honorary doctorate from the School of Hard Knocks.
My best professors were NYC landlords—they taught some of the most expensive lessons I learned in business.
Here are a few of them:
- Own the real estate your business sits on
- If you can’t, remember EVERYTHING is negotiable
- Get the most expensive real estate lawyer you can afford
This week I sat down with a gym owner that built real wealth in under a year via real estate. I am going to share her process and her advice for buying your first building.
Let’s get into it.
Use your gym to grow a real estate empire
Andrea Savard is a Two-Brain Business mentor and the CEO of Reebok CrossFit FirePower in Milton, Ontario, which she runs together with her husband.
But if I were writing her resumé, I’d add in commercial real estate mogul.
Andrea’s story starts when she first ran a small boxing gym in 2005 before becoming a CrossFit affiliate in 2008. The gym was her passion, and she knew she was in it for the long-run.
She also knew she needed a viable retirement plan. There was no question of how or what — the answer was always real estate.
🚨 If you don’t wanna scroll (smh b/c you should), watch Andrea’s full interview on Gym World. Otherwise, get comfy and grab a notepad.
Start with the end-goal in mind.
Milton, Ontario is now a booming city about 1-hour west of Toronto with new developments left and right. 15 years ago, it was a quiet, rural area.
Though Andrea had no real estate experience nor money when she was looking to purchase her first building, she recognized that the town had a promising commercial real estate market.
She knew this was the place to operate her business full-time for years to come.
Many gym owners take “go big or go home” almost too seriously, which sabotages their profitability because either,
- Their space is way too big when they first open, or
- They expand too much — I know some that have gone from 2,500 sq. ft. to 10,000 sq. ft.
When Andrea started her boxing gym, she rented out a high school gym for $20/hr. As her client base progressed in size and she became a CrossFit affiliate, she opted to rent a 7,500 sq. ft. space in a local strip mall to accommodate her needs.
CrossFit FirePower expanded over time and slowly took over 75% of the strip mall, which ended up being around 12,000 sq. ft. total.
Andrea claims that the key to maximizing one’s profitability stems from a combination of keeping lifestyle & business expenses low and reinvesting any remaining profits into assets that appreciate in value. That includes things like:
CrossFit FirePower grew to generate $75k/mo before Andrea made the move to own property in 2014. It took 6-years to get to that point, but those profits allowed her to have the money she needed to close on her first building.
Get creative with financial resources.
Finding a space for a gym that could actually work is not only hard, but it can hurt your pockets if you don’t ask for & get help. Most of us probably know this feeling:
$1.2M was the price tag of an ugly little building that stole the heart of Andrea’s husband — that building was supposed to be the future home of CrossFit FirePower.
$300k was needed to close on it. They only had $100k available. That’s when Andrea’s parents got involved and remortgaged their farm to make the other $200k attainable.
🗣 You’re probably thinking, “bUt I dOn’T hAve RiCh ParEnTs.”
While that may be true, you don’t need rich parents. Andrea’s parents weren’t rich either — just incredibly supportive of their child’s dreams.
There are a couple of options available if you need the $$$ to pursue ownership. For example:
- SBA 7(a) loan → This program is designed for small businesses that need the capital. You can buy a building up to $5M with 10% down and can rent up to 49% of the space to another tenant for increased cash flow.
- Private lender → This type of loan is more flexible than traditional bank loans and provides funding more efficiently. Kilo’s CEO, Kaleda Connell, bought her gym’s building using this method.
Work the phone & pound the pavement.
Looking for real estate isn’t a passive activity that you do on some website. You need to make those calls and actively look around to get deals done. Andrea made 15 offers before she secured her first building.
Remember, every realtor has choice clients that have cash and close fast. That means they see deals way before they hit the websites for everyone else.
So how do you become that person?
Brokers will feed listings to clients that won’t give them headaches. Be honest. Do what you say. Preferably pay in cash. Close the deal as FAST as possible.
Build out a good team.
Walking into real estate blindly can be extremely costly. Andrea learned this the hard way when she hit obstacles time and time again that made her lose thousands throughout the process — you’ll hear about them in a moment.
The silver lining, however, is that she met the right kind of people along the way that she could rely on for future real estate matters. This included:
- A commercial realtor → They will get you access to the best listings on the market.
- Mentors → Real estate people love talking about real estate and sharing their knowledge. Andrea sets up coffee chats to share her RE experience and learn from others.
- A lawyer → I’ve signed 7 commercial leases over the course of my career. I have yet to meet a big landlord that doesn’t have a team of bull shark lawyers working in their best interest.
- City officials → Work the phone to find someone that is willing to help you. It’s valuable to have someone that knows the ins and outs of your town’s commercial laws & regulations.
Buying and selling was never a part of Andrea’s master plan. Remember that $1.2M building Andrea bought in 2014? That didn’t last long. 3 years later Andrea was faced with expropriation by developers in order to “benefit the town” — aka she was being kicked out.
In those few years of ownership Andrea spent $125k on renos before shit hit the fan. The developers offered her $1.5M to take over her property. She took it, but not without battling for more.
🗣 Spoiler: It’s been 6 years and she is still fighting negotiations for nearly $3M.
Flash forward to 2020 and Andrea finally found the only property available that suited her gym’s needs.
Interestingly, it was the same property Andrea looked at and was making a deal for back in 2012 for $2.3M. Her first mistake at the time was befriending the owner, moving in, and renovating the space before the deal was finalized. When a new $500k “change of use” tax was implemented, the owner blindsided Andrea and closed his doors. The deal fell through and she lost everything.
In March 2020, Andrea bought that building for $6M. She used the money from the developers as a down-payment and wrote a letter of intent to show how she would use the property in order to secure her mortgage.
Understand how commercial real estate is valued.
Commercial real estate is valued using Cap Rates. It looks at what one’s rate of return is on an investment based on how much income the property generates.
This means that you can add millions of dollars in value to a commercial building simply by changing the tenant. That’s exactly what Andrea did.
Just as Andrea moved in to her new location, the pandemic shut down the world. There was no way for the gym to make profits, so the only viable solution was to find a new tenant.
That new tenant ended up being a Cannabis company. They were the best possible tenant for 3 reasons:
- They were profitable — they covered Andrea’s mortgage and had extra $ leftover
- They signed a long lease — commercial tenants can lease anywhere from 3-5 years
- NNN lease — the tenant basically pays for every expense instead of the landlord
The biggest risk is having a really good tenant leave. Stuart Bauer’s micro-gym generated $21,000/mo in profits for the owner before he retired after 10 years in operation.
Because of the Cannabis’ gains, Andrea had no problem selling the building to an eager investor for $7.8M.
And that’s how she made an extra $1.8M profit in 10 months.
Advice for gym owners (tl;dr)
Not everyone will make a $1.8M profit when they get into real estate. That being said, the fundamentals of making the jump to owning your first building are what matter.
- Set a goal & take steps to achieve it. Do you want to rent long-term or own? Where do you see yourself operating your gym location-wise?
- Talk. To. Everyone. Listen to peoples’ experience in real estate and pick their brains to build knowledge that’ll help you down the road. Ask about structuring deals, the pros and cons of owning vs. renting, how to come up with mortgage payments. Know what you’re getting yourself into.
- Be profitable before buying. Think about how you’ll be able to pay the mortgage and make any necessary lifestyle changes that’ll help your savings.
- Start small & be smart. You don’t need to buy a $5M building from the get-go. Trade up when the time is right.
- Expect the unexpected. Be prepared to face obstacles that inevitably arise. RE isn’t always smooth sailing.
The pending question: did Andrea find a home for her gym?
Hear from Andrea herself. Her story’s a wild one and 100% worth the watch if you’re a gym owner wanting to break into real estate.
Until next week,