First commercial deal??

He wants to sell the building for $275,000 he currently gets $2800 for rent and it's a triple net lease (the bar pays the insurance and taxes of about $400/month).

I'm thinking it's not a good deal.

What do you think?

Matthew08

P.S. I don't know exactly what constitutes a good deal in the commercial world. The bar is definitely covering the mortgage payment. What do you think?

Edited: 06/26/2010 at 04:41AM

Michael Shores

Commercial Real Estate Broker · Marianna, FL

7 posts
50 influence

Feb 11 '08, 08:48 AM

Spacewaya

it seems like a possibility given the trip net. are there any other expenses involved with this property? the price may be a little too high, however you need to know what the commercial vacancy and collection losses and capitalization rates are for your area. the cap rate is used to value the property based on its future income payments with respect to present day values.

short version:

(total monthly rent) - (% of average vacancy and collection losses) = effective gross monthly income

effective gross monthly - monthly operating expenses(these usually include property taxes, insurance, maintenance, management, and so forth. these should be included in the trip net, save for management) = net operating monthly income

net operating monthly income x (12) = net yearly operating income(NOI)

NOI / capitalization rate = value(price you should offer)

the cap rate is the percentage of return (return on investment ROI) you would receive if you were to purchase this property. if you would like to make more on your money, say 20%, replace the cap rate with this number. you will find that there is an inversion ratio here in that the higher the cap rate, the lower the price you should offer, and vice versa.

let me know if I can help further

Edited: 06/26/2010 at 04:41AM

Matthew Stover

Real Estate Investor · Jackson, TN

29 posts
1 award
50 influence

Feb 11 '08, 08:50 AM

Originally posted by "MichaelShores"

Spacewaya

it seems like a possibility given the trip net. are there any other expenses involved with this property? the price may be a little too high, however you need to know what the commercial vacancy and collection losses and capitalization rates are for your area. the cap rate is used to value the property based on its future income payments with respect to present day values.

short version:

(total monthly rent) - (% of average vacancy and collection losses) = effective gross monthly income

effective gross monthly - monthly operating expenses(these usually include property taxes, insurance, maintenance, management, and so forth. these should be included in the trip net, save for management) = net operating monthly income

net operating monthly income x (12) = net yearly operating income(NOI)

NOI / capitalization rate = value(price you should offer)

the cap rate is the percentage of return (return on investment ROI) you would receive if you were to purchase this property. if you would like to make more on your money, say 20%, replace the cap rate with this number. you will find that there is an inversion ratio here in that the higher the cap rate, the lower the price you should offer, and vice versa.

let me know if I can help further

Yes, you can help me further. :)

First, do you invest heavily in commercial real estate?

Matthew08

Edited: 06/26/2010 at 04:41AM

Michael Shores

Commercial Real Estate Broker · Marianna, FL

7 posts
50 influence

Feb 11 '08, 09:53 AM

Spacewaya

the only comm property i purchased was a mobile home park when i was in college. and i found it quite lucrative. the cash flow is higher than i expected because i purchased it with 30% occupancy.

i am still trying to build my wealth in order to build a commercial strip mall next to my local walmart, but my main focus at the moment would be to become an affordable housing developer. so, yes i have purchased comm RE before, but am not an avid comm RE buyer....yet

that being said, i do broker commercial properties for buyers on a regular basis and can help you with your knowledge base, if you like. i received a degree in commercial real estate from Florida State, and am currently working on my ccim designation. keep posting and i'll try and answer your questions as best i can.

you might even want to solicit advice from some of the more prominent posters, such as " Wheatie" , to get more perspective on your affairs.

Edited: 06/26/2010 at 04:41AM