Want to retire early in comfort? Learn how to buy a building.

In “A New Way To Retire,” I wrote that “Rich Dad, Poor Dad” changed the way I thought about retirement. It gave me a second perspective that was far more appealing than the “save money until you die” strategy. That perspective led me to build and test a third strategy that’s available only to entrepreneurs.

My retirement stocks, bonds and funds are really just a way to defer income and avoid overtaxation now. They’ll start paying me in a decade or so. But my building-asset strategy is the reason I could retire now, at 43, with cash flow for life.

Every month, I collect just over $12,000 in rental income from my three commercial properties. Two have a bank balance owing; those payments total just under $7,000. I could pay those balances off now but don’t for tax reasons. However, when I do, my loan payments will go to $0—but the rental income will keep coming as long as I own the building. In fact, rents go up over time.

Buying a building is far easier than most believe.

Here’s how to do it, how I did it and how I’d do it differently next time.

How to Get the Money to Buy a Building

Rent Payments Vs. Loan Payments

First, you have to start with Kiyosaki’s greatest question: “How can I afford it?”

That replaces the statement “I can’t afford it.”

A building purchase costs less than most believe. In fact, many gym owners pay more as a tenant than they would as the owner. This is because the building owner has done the math I’m about to teach you.

The space I rented in 2012 cost me $5,200 per month. I had 7,200 square feet on a “triple net” or NNN lease—that means I paid for property taxes, power and everything else in addition to rent.

Here’s the loan calculator I used. Because your business will be paying for the building—and not you personally—you should consider the bank’s money a loan instead of a mortgage. That means slightly higher interest rates but a much faster repayment period—much cheaper in the long run.

Use the loan calculator linked above. Start with 6 percent interest and a 10-year repayment period, but play around with it. Change the “how much do you need?” amount a few times. Run it backward: Raise the “how much do you need?” amount until the current rent you pay shows up on the “monthly payment” side. Don’t worry about how much buildings cost in your neighborhood yet. Just figure out what you could own for the amount you’re currently paying in rent.

In my case, I was paying $5,200 a month in rent, plus triple net. I plugged that in, and here’s what I got: For what I was paying in rent, I could buy a building worth $468,400 on a 10-year loan at 6 percent.

Down Payments and Third-Party Lenders

When Kiyosaki raised my curiosity enough to do the calculation above, I quickly realized cash flow wasn’t going to be the hurdle. In fact, owning a building would save me money on a monthly basis. The hurdle was getting the money to buy it. But I started asking questions. I booked an appointment with my banker and simply asked, “How do I buy a building?”

She told me two important things:

1. The bank would lend me 90 percent of the building purchase price. I only had to come up with 10 percent—$46,840—to buy a building priced at $468,400.

2. I could probably borrow the first 10 percent from another lender. Investopedia calls these “third-party lenders”: “A thirdparty mortgage originator is any third party that works with a lender to originate a mortgage loan.”

In other words, some lenders exist precisely for this specific reason!

I immediately called some third-party lenders in Canada and filled out some applications for pre-approval. These folks really want your business. They make a commission off the sale. To say it was easy to borrow $40,000 for a building down payment was an understatement. One of the third-party lending banks hounded me for months afterward to lend me money!

Keep this in mind: This was 2012. My business had recovered from the low points of 2008 and 2009, but I didn’t have $40,000 in cash on hand. Not by a long shot. We were cash-flow positive, and I was taking home around $52,000 in salary plus some perks in 2012. I was reinvesting heavily into my programs—such as IgniteGym and Spark Rehab—but I didn’t have anything close to $40,000 in my bank account. It didn’t matter.

(If you need help with a loan, fill out our FREE editable copy of the Ultimate Business Plan for Gym Owners!)

How to Buy a Building: Right Property, Right Tenants

With the money question largely answered, I started looking for buildings. It took me two years to find the right combination of space and price. I’ll share those lessons below.

Finding the right building took longer than finding the money. Start looking before you’re perfectly ready to purchase. Get your name in the market. Find a broker who will think of you when a new commercial building comes on the market, because they can flip fast.

If you can’t find real estate near you now, don’t worry about it: New properties show up every day, and many are never even advertised. Find a commercial broker and tell him or her exactly what you want.

A last-ditch option would be to find a partner for the building. I’ll cover that in Corporate Ownership Structure below.

What to Buy

Rule No. 1: The first tenant pays the mortgage.

When I bought my first building, I was only thinking about my current business. I wanted a building for my gym, period. I looked at the building as a 10-year retirement plan: I’d pay off the loan over 10 years, and then the business would just pay me rent forever. So I bought a 6,400-square-foot building and filled it with gym stuff. I became the sole tenant and paid the mortgage instead of a lease.

This was my only mistake, and it wasn’t a big one.

If I had it to do over again, I would have found a building big enough to sublet space to someone else, hedging my mortgage that way. Even a small tenant paying $500 per month helps a lot. But you have to make sure they pay more than the mortgage value per square foot because you’re not in this to break even. Your gym should show a return on every square foot; that includes rent paid by your tenants.

Read more on that here.

Tenants and Risk Management

Here’s the potential downside to being your own tenant: The building next to my new gym was owned by a daycare company. It purchased the building for around $780,000 (I looked at it before buying the building next door). It found a tenant who could pay around $3,000 per month for some of the space in the building, leaving the landlord with around $5,659 per month to pay on the loan. (Put the numbers into the loan calculator to see the specifics.) Then the company used the rest of the space for its day care.

Unfortunately, the daycare business didn’t generate enough money to pay staff, ownership and rent. Then the roof started to leak, and the company didn’t have the cash or credit to fix it.  When the building’s loan payment relies on the owner’s business, and the business isn’t stable, the owner could lose both the business and the building. I’ll explain a better strategy below in Corporate Ownership Structure.

In this case, the building owner had to sell when she closed her daycare. I bought the building in May 2017 (almost exactly two years before writing this article), took out the tiny toilets, painted over the butterflies on the walls and began subleasing space. Six months later, the building was generating revenue above the loan payment. I put that money into a new roof and two new HVAC units, upgraded the flooring, and kept a few offices for Two-Brain staff. Come and visit the Workshop to see it anytime.

The super bonus: I convinced the chef at the daycare to open her own cafe in the same kitchen she’d been using. Now I eat Mary’s food two or three times per day when I work at the Workshop.

Corporate Ownership Structure

Should your gym own its own building?

Catalyst is the sole tenant in its building. It’s still a great investment—the gym pays rent to my holding company, which actually owns the building. But if Catalyst owned the building itself and ever got into trouble, it could fall into the same trap as the daycare next door.

A better plan is to form a holding company that owns the building. The gym owner can own both companies. But a legal separation means that the failure of one won’t pull the other down with it.

It’s also a good strategy to avoid overtaxation. It also helps with liability: What happens if you’re ever successfully sued? Separating the building from the gym business means you won’t lose both in a lawsuit.

Cash Flow

Here’s how cash flows on the Workshop building:

Catalyst Gym pays rent > Holding Co. is the landlord > Holding Co. pays Chris and Robin as employees as needed.

This structure saves us around $7,000 per year in income taxes (Canadian tax laws punish single-earner families, so we split our income) and gives us some other corporate tax benefits.

I mentioned above that some might take a partner or borrow money from a private person to cover the down payment. In that case, it’s even more important to form a separate holding company instead of selling shares in your gym. If the lender wants to own a share of the building in exchange for covering part of the down payment, this is a far better deal for them: They’re not assuming ownership risks in your business. It’s also a better deal for you because you won’t have to give up part of your business to someone who really just wants to own a building.

To sum up: The holding company owns the gym. The gym pays the holding company rent—usually slightly more than the monthly loan payment. You can own both companies. There are tax and partnership benefits to splitting them that are beyond the scope of this article.

But you don’t absolutely have to have a holding company: Your gym can own your building, too.

Build-Outs and Hidden Fees

You’re going to have to deal with some extra fees and bureaucracy when you close on the building. New landlords usually anticipate the money but often don’t foresee the cost of delays.

First, zoning: If your building isn’t zoned for gym use—this zoning type is different in almost every city—you will need at least a month to be rezoned before you can open. My city has a 30-day appeal period, which means rezoning can take 60-90 days.

In the case of my gym, I made my application to change my zoning from “light industrial” to “commercial” in June. We had to wait for city planners to get to the application. We had to wait to get the property on the list for discussion at city council. Then we had to wait for city council to meet, which it does less often in the summer. The approval itself was a snap: a 10-second reading and a unanimous decision and it was done. But the process took months to work through the system.

Red Tape and Bureaucracy

Second, inspection. When you borrowed the money to buy the building, your bank probably insisted on a couple of inspections—foundational, environmental, etc. But now the city is going to do an inspection before they grant occupancy permission.

When we opened Catalyst, our plan was to have a grand opening on Sept. 7. Our work was done before the end of August. But we didn’t realize that we had to schedule a final inspection way in advance, and city inspectors were busy with the opening of a new hospital. We had to beg to get an inspection done as quickly as possible and still wound up holding our workouts in a nearby park on “opening day.”

And we failed that inspection: I left a 20-cent wax seal sitting on top of a toilet, so the inspector knew it wasn’t installed. If I’d hidden the wax seal, we’d have passed. But as it was, he gave us a two-week temporary occupancy permit. If your city won’t grant an occupancy permit, ask for a temporary one so you can open while you make the adjustments.

Our inspector also told us to add a push-button door opener to one of our bathrooms, which cost $2,400. It was an unexpected cost but made life better for our chaired athletes.

Of course, you’re also going to have to submit building plans and have them approved.

My advice is to hire contractors and ask them to include all permits and fees in their quote. Trying to DIY the approvals process might seem like a good way to save a few hundred dollars, but you simply can’t afford the time and frustration. If you’re running back and forth to engineers and city hall in between coaching classes and picking up your kids, you’ll extend the process by weeks. You can’t afford that.

Tell your builder to take care of permits, teardown and cleanup. It’s worth whatever you pay if it means you open sooner.

Long-Term Strategies

Paying off the Building Early

Four years after buying my first commercial building, my greatest temptation is to pay off the loan balance on each of them. I have the money; I could just write a check and erase the debt.

But every single month, my bookkeeper tells me to keep making monthly payments instead. Yes, I’m paying a bit to the bank in interest. But if all the money went straight to me, I’d pay more in income taxes. It’s a crazy system, but until I’m ready to retire and make less income from my businesses, I’m better off riding out the loan payments.

Flipping Vs. Holding

My other great temptation is to sell one of the buildings. Every few months, I get an unsolicited offer on one of them. As our city recovers from its economic depression, real-estate prices are slowly creeping up again. I could sell the Catalyst building for 50 percent more than its purchase price right now, and it’s tempting to do so.

But “flipping” buildings is only a sexy strategy on TV. The real strategy is to buy and hold forever.

For example, let’s say I sold the Catalyst building for $750,000 and made a $250,000 profit. That’s not enough to retire on. But if I held the building for five years and nine months, I’d make that same amount in rental income—and still own the building. I’ll make that same amount again and again every five years. And because I’ll be retired for at least 70 years, I want to keep that rent coming in.

A New Way to Plan for the Future

Current future planning is a thing of the past.

Many retirees who spent their lives saving are now realizing they lost out. Because cost of living compounds, too: inflation, increasing taxes and rising energy costs are forcing people to downsize their dreams.

The best plan is always to remove fragility from age: both in fitness and in finance. But real diversification means more than buying different stocks; it means putting money into cash flow assets, secure investments and–maybe–the market. Constantly varied functional moves at varying intensities.

The most important epiphany I took from Kiyosaki was this:

“If I can generate autonomous cash flow in the next ten years, then why wait? Why can’t retirement happen at age 35, 40, or 45? And why can’t retirement mean continuing to do things I love?”

It’s all changing for the better. Embrace the new functional retirement!

(And if you need help with a loan, fill out our FREE editable copy of the Ultimate Business Plan for Gym Owners!)