Buying my first Commercial property - Ideas?

Question

Hi all,

I am reviewing a property in a small city close to Dallas Metroplex.  The lot is ~1acre with an office building and enough room to build another office building. The major drawback is that the lot size has 600ft road frontage and ~70ft deep. There is a railway track behind the property which limits on what can be build here. There are easements of 20ft for power lines, cable and water pipes.

Current office building has a tenant and is open to sign a long term lease ( 5years)

Property details: Price : $240k, Building size: 2300sqft,

Rent: $2100/month. Landlord pays property taxes, insurance and maintenance: $700/month

Finance: 25% down and the rest bank loan.

This building takes half the property and another building of similar size can be build on rest of the lot. I am trying to see if this a decent deal for buy & hold and future expansion of another building.

Also, any creative ideas on what can be build with 300ft road frontage and depth of ~70ft?

Joel Owens · Answer

Railroad running behind it you would need to check and see how active that route is and at what times of the day.

Railroads are generally a plus for warehouse and industrial but not office. What does the current and future land map use show for the area for plans?? What kind of economic development is in place?? A bunch of old fogies who want to keep things status quo and old school or new young blood wanting to grow the city??

I do not like what I call "one economy" towns. Usually there is one main business carrying everything and if it has problems the whole town starts dying off. You can tell by driving the property and town if it is old school as a developer put it to me or the new part of town. Does the new part of town have mom and pop for development and expansion or some big corporate coming in?? Usually the national companies wait until the roads get widened a certain way and road counts are up etc. before making a move. If Wal-mart comes in then everything usually around it has a ripple effect.

Jon Klaus · Answer

@Joel Owens what do you think?

Jon Klaus · Answer

I like the numbers if the location is good, growing, and in demand. It's not hard to find commercial deals that look good on paper in  small towns.  But if the town is going no where I don't like it.  Can you share the town, or at least the county?   Do you know the traffic count?  What's going on nearby?

Rick R. · Answer

Appreciate for your valuable feedback @Jon Klaus.  I am discussing with an architect and civil engineer on what can be built in this lot. If another building can be built and have similar revenue stream, it would meet my goal.

I would love to get your input on the price and ROI

Price: $240k

Rent/year: 12*$2100 = $25.2k

Expenses (taxes, insurance & maintenance) : $7.2k

Cap rate = 7.5%

Additional benefit would be half acre commercial lot in addition to the revenue from existing building.

Jon Klaus · Answer

Welcome to BiggerPockets, Rick.

My first thought is that I would want to negotiate a discount because of the lot's limitations.  Not just it's depth, but the rail behind it.

Do you know what the setbacks are, do you understand the footprint of where you actually can build? Consider parking and stormwater requirements, as well.  You might want to get with a civil engineer if you are serious about developing the vacant portion.

I'm sure something can get built there, but it might be such a niche type building that getting it done might require so much time and money, that there is no value for you. Have you considered buying the property, subdividing it, and selling the vacant lot?

As to the current tenant, how much demand would there be for the building if they were to leave? One challenge in commercial real estate is potential long vacancies.   You want to be certain there is strong demand beyond the current tenant.

If this is not in a hot area, and the property has been on the market for a while, you might want to come in very low with your offer.