Updated over 2 years ago on . Most recent reply
To sell or not to sell.... Commercial small warehouse
I have done a about a dozen residential flips this last year, some I intended to hold but due to market (Tampa suburbs) prices rose fast and I had a chance to get out of some class C / D properties with some good profit. I used my profits to buy my first commercial building and promised myself I wouldn't sell, as I want to build wealth and not just be flipper. However, one of my potential tenants made an offer on the property to purchase! Here are the details.
Purchased 6000 sqft warehouse / automotive shop for $515,000. Invested $15,000 into paint, facade and some repairs.
Purchased 120 days ago on a 20-year note, 25% down ($138,000) and no balloon 6.7% fixed interest. My total monthly expense is $4250 per month.
The potential tenant offered to buy for $800,000 with no brokers on either side and splitting closing costs. It's an SBA loan so the 4-5 months it will take to close put it really close to being 1031 eligible although I don't mind just paying the tax now.
Another potential tenant is ready to sign a lease for $6500 a month gross NNN, so about $5500 rent and $1000 is for taxes and insurance. They asked for a 5 year lease with 5 year option so plan to stay.
My thoughts: the building is in a decent little town (Port Richey). A little older building in a lower income neighborhood but a decent spot. Not necessarily in the path of progress as most of the immediate area has been built out already. The building will need a roof in the next 10 years and insurance in high due to age.
Leasing it offers a great cash on cash return of 20%, but when I calculate my return on equity and cash is only about 6.8%
Part of me wants to sell and invest into a newer multi-tenant building and the other part wants to take my home run deal and set it and forget it. Any advice!?? Last option is at the 6 month mark refinance my down payment out and have no money in the deal.. The lender also offered to allow me to cross collateralize after 6 months so I can access the funds to use as a downpayment on the next one, just makes me nervous maxing out debt on a single tenant building.
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I always look to be sure there is a better investment to purchase. I always recommend that Investors who no longer have w2 income make sure to hold income-producing assets that produce enough income to cover their personal "nut". Peace of mind and not having to make risky deals just to pay the bills are a big plus.