I've recently moved to a quaint and growing small suburban town. This town has great restaurants, shops, etc. However, it is missing a coffee shop where people can meet and gather, stop in for change of scenery for those who work from home, or grab iced coffee on a Saturday morning.
I've found this building that has been vacant for over 3 years now. One of the owners has passed, but his wife is still alive. I also recently found that they have not paid their taxes in almost 2 years.
This is one of the few small stand alone 1-story building in the downtown area (land is about 20 x 100). It also appears to have significant water damage (previously a laundromat of some sort).
How can I go about making an offer to the widow that is fair? I've drafted a letter, but I'm unsure how to make sure I'm not overpaying for this building. Similar commercial building that is operational and leased is being sold for $375K.
Thanks in advance!
Updated about 1 month ago
Edit to add: I would be the one occupying and starting the coffee shop business.
@Jessica A. You are ambitious! What is your intention with the property? Will you be the proprietor who brews coffee and wipes tables? Or own the property and attract the tenant? Well then, one must have a way for the property to pay for itself. Property owners must consider the commercial tenants' business income to judge if their tenancy pays the bills. If you are to be the coffee shop owner, write a business plan. If you are to be the Landlord, write a business plan of owning the property. What are the costs to put the building into service? Work backwards to determine the value you could offer the current owner. Fair is defined as what you both agree on. She is an owner with a problem. You want to help her solve her problem AND not go in debt doing so.
Your first letter may not even mention a price. It might be a letter of intent, that you intend to buy the property after you find out some things and ask her help in doing so, like an property inspection. This might lead you to a conversation or three. After each session, write up a summary of what you think you heard. Ask for expense costs during their ownership and seek outside help in determining current market conditions of your area. Gather info and study the coffee business. Can your vision work with a coffee brewing tenant? This letter could eventually be the purchase and sale agreement, ironing out the price and terms.
Base your offer on facts. What is the cause and repair costs of the water intrusion? Don't overlook the seller's help in financing the sale. Maybe she would like to be paid in installments, mailbox money. But I might be getting too fancy for your first buy.
Agreed with Kathy that your initial contact with the owner should not mention the price you are willing to pay, rather that you are simply interested in purchasing the property. You need expense and income information to be able to accurately value the property. That said, you don't want to base your offer on what the space "could" rent for. Your offer should reflect the fact that it is empty and you will need to do the legwork to get it leased. Take your time, build rapport with the owner and be patient. Even if she isn't ready to sell now, you very well might get that call in the future.
You should be trying to get inside first before even thinking about an offer. How much have you seen and how do you know about the water damage? If the town is burgeoning and this property has been vacant for 3 years and deteriorating, it's likely that the main street investors (there are investors in every town who own multiple downtown buildings) have decided it's too much trouble or the taxes are just the start of the liens on the property. In concept, it's a great idea, but in practice there are hundreds of considerations you aren't seeing yet. With all that said, your letter would be to try to get a viewing, but it's more likely they are hiding, owe more than the taxes, and won't respond. Check the foreclosure site in your town to see if it's pending.
All good advice above, but I'd also reccomend getting together with a commercial broker to discuss value and CAP rate for a purchase like this. There is a great deal of confusion on these boards about how to value properties, especially when in comes to CAP rates. A commercial broker should be able to walk you through potential NOI for something like this and establish a market value and strategy for approaching the owner.
Also- I know it's cheesy, but EVERYTHING is for sale. Especially if this place has been vacant for three years, there may not be a sign out front, but it's definintely for sale.
I’ve purchased ten properties this way, mostly from elderly people living in their homes. I do not recommend sending a letter—letters are are perceived as coming from predictors trying to steal from them. Unfortunately, they usually are. You should reach out to her in person and show her that you are not such a person.
It is also like that she is very attached to the house—she has been there a long time, raised her kids there, good time memories of her husband…
She will want to know what you are going to use it for—you are a small business that is going to fix it up and such.
Keep in mind that the sale is not with an old naive person, but rather, her Davy children. Just make her like you.
Sorry for the autocorrects. Predictors = predators; Davy = savvy