I have a Commercial Deal where the asking price is $300,000 there is 3 tenants in the building. A Grocery Store,Day Care, and Church the owner just wants to sell the whole building which includes all three units. As an Investor how do you run the numbers for a deal like this? NOI? ROI? The neighborhood is below value basically in the hood.
You look for sales value caps in that area on LoopNet.com
Cap needs to be really high on mom and pop stuff like this in run down areas.
With 3 tenants is it 100% occupied, or partially vacant? NOI with a cap rate target would be one way. However, you need to see what PSF comps are as well. Also, deferred maintenance may be a big issue. On a price that low, a $30,000 roof could be a significant factor.
The bottom line is that there is not just one way to value it. There are a lot of factors that come into play.
What is the NOI for the last 3 years? Also what is the occupancy? How long left on the leases? Are there increases built in? How strong are the tenants? How much deferred maintenance?
One other thing. Church tenants generally devalue a property. How much of it is taken up by the church?
Thanks @Joel I'll start there. @ Richard it is 100% occupied, and these are questions that I'm about to ask the owner. Its a unique situation because its a in-law property and she knows that I"m a investor and would like me to help her sell the building. She's basically wants to get rid of it and I'm looking at all sources and info I need to market the property.
@Richard Weisman Just out of curiosity, how do church Tenants de-value a property? I manage a property with a church as a filler Tenant. While I'll admit it's a little untraditional for that use at this property, they don't bother anyone, they pay market rates and are never delinquent.
Certain types of Tenants can certainly impact a properties value, but I guess I never put church users into that category.
I'm in a very similar situation. I purchased a 5 unit strip mall in a questionable part of town for $299,000. 4 units are occupied, 1 unit is empty. The 4 units are occupied by a barber shop, church, tax preparation office, and a private office. I normally wouldn't be interested in a property like this but it's in the path of development, the neighborhood is on the upswing, all of the tenants are currently paying below market rent, and I've secured an awesome tenant to open in the vacant unit. I try to look at cash flow above anything.
As for having a church as a tenant, I think it all depends on what your goals are for the property. Churches don't drive much traffic, so if most of the units are offices or some other type of business that doesn't rely on foot traffic then it's fine. But if you want to create a business climate that thrives more on visits to the stores, then I'd advise against a church as a tenant.
You need to make sure if you have a church tenant that most of the other tenant businesses in the building are closed on the weekend. Otherwise you could have a parking nightmare for services.
Where is the property in Chicago? I grew up on the northwest side. The church and the day care are not great customers and the grocery could be if a regional or national chain. Joel is right about parking. What type of guaranty do you have with the leases.
The Property is on the Southside of Chicago 1742 w 76th st. The grocery tenant has been there 30 years and the day care has been there 5 years and the church is only been there for 1 years.
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