Buying my first commercial property.... Is this a good idea?

Question

Buying my first commercial property. $1.8 million / 30,000 sqft / annual rent $175,000 .

Currently negative cashflows $4k a month on a new 20 year term loan at 10% and 20% down.

But, currently only half the space is rented out.

Talk to me, please

Bill F. · Answer

I used to have a boss who would say " If there's doubt, there is no doubt" I think that applies here.

Questions that come to mind for me:

How long can you float the -$4k/month?

How much experience do you have finding and vetting retail tenants?

How much do you understand the drivers of a successful long term retail business?

What's your investment thesis for infilling the vacant sq footage w/ a tenant that will compliment the existing tenant?

Tyson Curtis · Answer

I have a couple partners, and between us we can float the negative $4k cash flow for a year or so before it starts to hurt us. However, having the funds soak up negative cash flow prevents us from using that money to improve the property and excite new tenants.

The good news is this, I have a committed new tenant that is a highly reputable medical professional that will commit for a long term lease and wants to be in and operational within a year. His rent alone will put the property in a positive cash flow situation. Then I just have two more spaces to fill (total of 6,500 sqft) for 100% occupancy.

Aiming to have all the spaces occupied within 18 months after taking possession. Experience is vetting retail tenants would be 0/5 stars. I have only ever dealt with residential

Daniel Logan · Answer

Ah. Retail is a bit of a different story, if it were industrial I'd say go for it all day long. If it is a high-demand area and you think you could fill the vacant spaces quickly an upside would be that you could start your new tenants on NNN leases, thereby reimbursing you for at least a portion of your property taxes, insurance, and CAM expenses. But that negative $4k/mo is going to hurt you starting off.

Have you already explored a seller carry option?

Tyson Curtis · Answer

The $175k rent is Gross.  Its a 30 year old retail shopping plaza. $60 / SF seems unobtainable :(

Daniel Logan · Answer

Is this an industrial property? Looks like you are getting roughly $11.50/sf but is that gross or NNN? Depending on the property type and condition $60/sf is pretty good.

Buying my first commercial property.... Is this a good idea?

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