Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
Waiting to learn more, but this is what I know:
--11K SF REO class B office building in a great location
--25 years old, estimate $60K in deferred maintenance
--Vacant
--Current comp rents--$12-$15/SF -- Was $15-20 1-2 years ago.
--Current comp asking prices $75-$125/SF --Was $110-$200/SF 1-2 years ago
It could probably be leased up at $9-$11/SF+E over 6-12 months.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
16y
Assuming it is leased out at $10 per sq. ft. annually, and it is leased on a NNN, your potential gross income is $110,000 and your expenses should not exceed 25% of the gross.
That would make your max NOI at $82,500.
On the low end for valuations, you stated they are $75/sq. = $825,000
That comes out to a 10 cap.
Since you have no income at 100% vacancy, you have to buy buy the pound and not off the income since there is none.
I would not pay more than 50% as the absolute max, thus $412,500 and would probably offer something along the lines of $350k ALL CASH since it also requires $60k in deferred maintenance.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
16y
Assuming it is leased out at $10 per sq. ft. annually, and it is leased on a NNN, your potential gross income is $110,000 and your expenses should not exceed 25% of the gross.
That would make your max NOI at $82,500.
On the low end for valuations, you stated they are $75/sq. = $825,000
That comes out to a 10 cap.
Since you have no income at 100% vacancy, you have to buy buy the pound and not off the income since there is none.
I would not pay more than 50% as the absolute max, thus $412,500 and would probably offer something along the lines of $350k ALL CASH since it also requires $60k in deferred maintenance.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
16y
Also, keep in mind you will be negative cash flow for at least 6 months so allow for that in your cash reserves, preferably have 1 year in cash reserves.
The figures above will give you a fairly large upside once you hit the 50% occupancy mark.
Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
16y
Thanks Will. Your thinking is very much what I was thinking. I just got off the phone with the broker and it went under contract today in the mid $400's. He is checking to see if the buyer would be open to flipping the contract. Or the property. I was guessing on the deferred maintenance. Broker says all it needs is paint and carpet, which we could do for $25K. Of course the real expense is the vacancy.
Lender · Fort Pierce, FL · Member since 2009 · 825 posts · 486 votes
16y
Get a list of "deferred maintenance" items in writing! Have the current owner and the broker sign it attesting to the list's completeness.
Also, do a walk through with a qualified engineer and other maintenance professionals.
Of course the broker thinks all it needs is paint and carpet but if it also needs a new A/C unit or something else major, you are out major bucks or could lose prospective tenant until the item is fixed.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
16y
Even if it is true that the repairs are only $30k, your max offer should still be only $380k. The fact that it is locked up for $400k and then tack on an assignment fee, you would be paying too much in my opinion.
Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
16y
Originally posted by nationwidepi:
Even if it is true that the repairs are only $30k, your max offer should still be only $380k. The fact that it is locked up for $400k and then tack on an assignment fee, you would be paying too much in my opinion.
Wait and see if it falls out of escrow or NEXT!
You are so disciplined. This really is a great location--Preston Rd & 190. But... I... will... hold... OFF (for now).
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
16y
Jon, you have to be in this business.
The second you loosen your grip or release some line, you get taken for a ride (an unenjoyable one at that)
There is ALWAYS the deal of the century next time.
Who knows, this one could fall through and you could be first in line. I would submit my highest and best all cash offer with a 7-10 day closing as their first in line back-up offer.