ORLANDO (FSB Magazine) -- You'd think that anybody busily running a small business would be crazy to jump into a different industry at the same time. And mostly you'd be right.

Running a plumbing company and a coffee wholesaler would be a stretch for anyone but Warren Buffett. But who, writing that steep monthly rent check for the office or storefront, hasn't had this tempting thought: "I'm making the landlord rich. I oughta become a landlord too."

Obviously plenty of small-business owners have cautiously and prudently purchased a shop or office to house the company. But bolder entrepreneurs are applying their hard-won business acumen and intimate knowledge of the communities surrounding them to a much more complicated venture: buying commercial real estate. The idea is to fix it up, rent it out, and reap the financial rewards - all while maintaining your original business.

Three entrepreneurs who took the plunge have no regrets. "You can't get hurt with dirt," says Stuart Paer with the ebullience of an investor who has not yet been burned. Paer owns a mattress business in Red Bank, N.J., along with two buildings in its booming downtown districts (and a house he rents to tenants too).

In Fargo, N.D., jeweler Brad Wimmer is having so much fun buying and repairing buildings that his brother and partner grumbles that it's taking up too much of his time. Ashok Soni started an oriental-carpet store near Orlando 17 years ago, but now carpet and flooring have become tools that help him and his son, Amit, expand their holdings of distressed storefronts, warehouses, and even a former roller-skating rink. "We sell carpets and flooring, but really we're in the real estate business," says Amit.

Don't bump your head as you enter the back showroom of the Red Bank Sleep Shoppe, where Stuart Paer, 43, has a tiny desk crammed in among wall-to-wall mattresses. A low-hanging stairwell and an air duct loom overhead, a setup that annoys Paer.

"People are afraid to come back here," he says. But Paer, a big man with slicked-back hair and a goatee, can't do much about it. He doesn't own the building--and that's fine with him. His properties elsewhere are booming. "I'm making money just looking at you," he says.

Paer started a chain of mattress stores in northern New Jersey in the early 1990s, sold it for a "few million," and decided to start over. He had seen articles on the revival of Red Bank, a town of 12,000 near the Jersey Shore, and in 2000, went down to investigate. He was immediately impressed.

"It was a rainy day," he says, "and I still saw people walking around with shopping bags on their arms." After several more visits, he understood the retail geography better.

"The south end of Broad Street was dead. I didn't want to be there. The west side of Broad was for the kids - that's where the skateboarders and the Starbucks (Charts) were. But the east side of Broad was different: There was a lot of parking, and I saw prosperous adult women walking to the high-end shops on that side."

Paer rented a 2,000-square-foot space for the Sleep Shoppe in a corner store on the east side of Broad for about $4,000 a month and then got the real estate bug. "It's every retailer's dream to own the store," he says. He badgered the landlord to sell for a while, then took a more effective approach - he offered a lot of money. Other potential buyers had bid $900,000, Paer says. "I offered $1.2 million and let him keep an office on the second floor at below-market rent. He went for it like a shark after meat."

Then, he says, he got lucky. "Two weeks after I closed, a couple came in. They wanted to rent my store. I said no. They kept coming. Finally I said I wanted $10,000 a month. That's $50 a square foot. The going rate at the time was about $30. They agreed. Unbelievable." The couple opened a high-end furniture store called Chelsea Home.

Paer agreed to move his mattress business across town. A few months later the man who sold Paer the building moved out of the second-floor office, and now Paer is renting it to a stockbroker for another $5,000 a month. The rent he's getting from the furniture-store owners is now $10,000 a month, and it increases 2.5% a year. The building mortgage is about $9,000 a month, and expenses are another $1,000. The bottom line, says Paer: "I'm making $60,000 a year on the place."

The Sleep Shoppe and its four employees moved about 500 yards away to a busy state road in Red Bank. To Paer's astonishment, sales are 35% higher than they were on Broad Street and hit about $1.5 million last year.

Why? "There's a huge volume of cars on the road, and a traffic light that keeps people stuck in front of the shop. I keep the lights on and the phone numbers visible. People notice and come back." He has contemplated buying his new location from its owner, but Paer is not the only one with real estate fever. "The guy wants too much. He paid $600,000 three years ago and wants nearly triple that."

Instead, armed with some of the money he got years earlier for his mattress-store chain, Paer bought another building on a main road into Red Bank for $525,000, with a storefront downstairs and an office above. "I had it pressure-washed and made sure it had a good roof," Paer says, and he spent another $11,000 refurbishing the interior.

A small phone-services company took the upstairs office. Paw Palace, a shop selling luxury clothing and food for pets (yes, pets), took the downstairs space. "The doggie boutique is paying below-market rent," Paer says, "but I like pets. And it's a steady, year-round business. I didn't want something seasonal. I figure finding a new tenant costs me $1,500 in lost rent each month, plus a lot of my time and effort."

In the face of rising interest rates and declining consumer confidence, Paer remains optimistic about the future of Red Bank. "Traffic is great, new buildings are still going up, rents are still rising," he says. "It's a bustling little town."

Making money in commercial property isn't always fast and easy. In Fargo, N.D., the real estate triumphs of brothers Brad and Randy Wimmer have been long in coming. Fortunately their day job is running Wimmers Diamonds, a family business started in 1919.

Their grandfather and father rented space for the jewelry shop in downtown Fargo for 41 years, but in 1980, Brad, now 52, and Randy, 57, bought two adjoining buildings a few doors down the street and relocated. The cost: $65,000 for a building on the corner of Main Avenue and Broadway and $40,000 for the space next door. There were tenants in both buildings at first, so they weren't able to take over the corner location until 1983.

"We rehabbed the upstairs of the building next door and rented it as apartments," Brad says. "A craft shop went in downstairs." The rent covered costs, but there were no skyrocketing property values to high-five about.

The problem: A shopping center had opened on the outskirts of Fargo ten years earlier, and businesses were still leaving downtown, not flocking to it. The brothers decided to cover their bets and open a second shop at the mall too.

"We've done well in both locations," he says, noting that Wimmers does about $3.3 million a year and has 20 employees, "though the mall store accounts for two-thirds of our business."

Six years ago, however, downtown Fargo started to turn around. City officials created revival districts and gave matching grants of up to $25,000 to property owners who spent that much fixing up the façades of their buildings.

The city also suspended property taxes on improved property in the zone for five years. The Wimmers plunged in, peeling off as much of the old 1960s-era facade as they could and restoring much of the handsome brick underneath.

They spent about $300,000 on the buildings, including an overhaul of the interiors. Neighbors did likewise. "There's a woman here who made a lot selling her business to Microsoft," says Brad. "She's done a hotel, bar, and restaurant. Somebody else put in a restaurant."

The Wimmers say their efforts and the work by other owners are paying off. "For the first 20 years after we bought the buildings, we couldn't have gotten 5 cents more than we paid for them," Brad asserts.

In the past three years, though, the value of their property has risen to about $600,000, or $200,000 more than they spent on the purchase price and subsequent renovations. Brad has enjoyed the fixing-up so much that he bought a third building, which abuts the two he owns with Randy.

"I like demolition. I like taking old things and fixing them up," he says. All told, he spent more than $400,000 on the new purchase and repairs. Fortunately he found tenants right away, and their rent more than covers the new mortgage.

Even with an iffy U.S. economy, the Wimmers feel that Fargo's real estate market will hold up. "The whole city is rising in value," Brad says. "I have my eye on a couple of other buildings. But my wife says I'm done renovating property for a while."

Ashok Soni moved from Canada to Sanford, Fla.., in part because South Florida weather is a lot more like that in his hometown of Delhi than Montreal's could ever be. But Soni had also learned some expensive lessons about real estate during his 14 years in Canada, and he was eager to begin again.

A CPA by training, Soni, now 58, got his start in Montreal in 1975 by importing and selling fashionable clothing for juniors. He soon began buying distressed buildings and, later, undeveloped land.

Eventually, with bank loans and by using some of his early real estate purchases as collateral, he came to own 30 buildings, two islands in the St. Lawrence River, and hundreds of acres of campground.

Alas, interest rates rose to more than 18% in the early 1980s, property values sank, and Soni had to give many of his buildings back to the vendors who had financed them. The value of his holdings, once close to $15 million, shrank to barely $1 million, he says.

Newly arrived in Sanford, a suburb of Orlando, he bought a small building for $250,000 and opened Rug King, an oriental-rug store. He also started buying commercial real estate again, sticking to his golden rule: Always buy it for half of what it's worth (based on his gut estimate of how much a building would cost to replace).

That's not as hard as it sounds, says his son and partner, Amit, 21. "The spot where my father bought the carpet store was one of the busiest intersections in the region," Amit says. Three years after the Sonis moved in, the state started widening the intersection. Neighboring retailers suffered from road closings and traffic during the months-long construction, and several property owners were eager to sell.

Soni's rug store was able to weather the slowdown, and he bought two distressed buildings next door at a bank auction for $400,000. That was about half the value set in a tax assessment a few years earlier. "When construction ended, he had three buildings at a great location," says Amit. They used one building as a rug warehouse and leased the other to a check-cashing business and a music store, clearing about $80,000 a year.

Other shrewd purchases followed. For $380,000, Ashok bought a 20,000-square-foot defunct roller-skating rink on land next to where a highway was to be built. "The owners lived far away and didn't realize that the new highway would send property values up," he explains.

After the Sonis won a zoning variance to allow new uses for the former roller rink, a charter school turned it into classrooms and paid a yearly rent of almost $200,000 (more than half the purchase price). When the school went belly-up a few years later and the Sonis couldn't land a tenant for a while, they used the building as a warehouse and sold rugs and art wholesale.

In March another private school decided to move in. It will pay $15,000 a month in rent, more than twice the $6,700 a month it costs the Sonis to carry the building.

Not every purchase is a slam dunk. The father bought a tired shopping center in 1989 and simply couldn't get enough tenants; other rents were low, and he was losing money.

The solution: Fill it up yourself. Ashok decided the shopping center was too big and in the wrong location for oriental rugs. But hardwood flooring? He made a deal with a Swiss manufacturer to ship cargo containers full of laminate flooring directly to the shopping center (at 25% of the going retail cost).

Soni turned one unrented space in the center into a warehouse to store some of the flooring and another into a flooring retail center. (The Sonis' flooring business pays the going market rent to the family's real estate arm, says Amit.) Once the Sonis filled some of the space, other tenants were willing to move into the empty stores there, and the place gradually filled up.

"Now the shopping center posts $300,000 a year in income," says Amit. "The shopping center has risen in value. And we make money on the flooring.

"The Sonis haven't stopped. In November they bought a former metal-fabrication plant for $27 a square foot. "We stole it," says Amit. "We got it for 50 cents on the dollar." Although similar industrial property nearby rents for about $8 a foot, a new high-end hotel a quarter mile away and a huge Harley-Davidson showroom under construction across the street will pull lots of potential shoppers to the area, thus driving up property values.

Amit figures that they could sell the warehouse for three times what they paid, but selling is something they hate to do. "You wind up giving 15% of your profit to Uncle Sam," he says. Better, they figure, to let properties grow in value and borrow against the equity when they need to.

Combined, the shopping center, roller rink, and Rug King store and adjoining buildings, along with a metal-fab warehouse and some undeveloped land, are worth about $15 million, Amit figures.

"We estimate it went up 20% last year," he says. "Sometimes it doesn't go up at all, but average growth around Orlando has been close to 10% a year." If others are questioning how long that growth can continue, the Sonis are not. "The county has a high per-capita income and lots of people moving in," Ashok says. He wishes he had investors so he could buy more property.

Does Amit worry that he's given away too many secrets about how his family does business? "Nah," he says. "Most people don't have the nerve to do what we do. You have to plunge in."

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