Commercial Real Estate Opportunity

1 Reply

Almost 3 years ago we acquired a 4-plex that was owner financed, one which we would have had limited opportunity through conventional financing to purchase.  We have since refinanced (3.625%) and cashed him out and now have a very strong long term and desirable asset in our portfolio.  We have built a trusting relationship with him and his family (they have many properties and are looking to downsize) and they are giving us the same opportunity (owner financing) on one of their desirable commercial properties.  He is offering us the same financing structure, which is ideal for us as we both have good w2 income but we're not in a position to acquire a commercial loan.

I understand that there is risk in all real estate transactions but with Covid19, I'm particularly cautious with commercial real estate at this point. Or at least until the covid dust settles. I've read all the dread and predictions, particular with commercial, but I also know that real estate is very local. These 9 units are not retail but more office/professional. Attorneys, financial planning, educational (reading center), counseling, etc. in a prime location. All rents have been current and the complex has 100% occupancy. Most are on 3-5 year leases with 2 on MTM. Additionally, this is in a desirable Sierra foothill town that has seen a recent influx of Bay Area folks that want a more simple and safe place to live and do business. Just hope the fires don't reach us!!!

The cap rate is pretty steady here at 6% and I have most of the numbers to determine a fair price. We have already discussed initial ballpark numbers. There is more due diligence to be done on my part and he's not in a hurry, but I'm starting to think about the potential of this acquisition. Additionally, l have a trusted property manager, who I also have a good relationship with, that has offered to manage this property for me (he's current manager).

Any thoughts on this?  I just like to take the temperature of the BP folks and get your thoughts and perspectives and perhaps think about things I haven't pondered yet. I'm a school teacher in the middle of my first week of seeing students, so my analytical skills are shot!!  Send me your initial thoughts!  Thanks.

Cap rate is low for commercial.  Many commercial properties have not yet corrected their prices for “covid risk” so unless their experiencing vacancies their still high.

I know a few professional (real estate agents) who are leaving their offices for good since very few get visited in their office.  Just be careful but I’d be looking at the +7% caps at least.