Need some input and Advice

2 Replies

I live in a small market where the entire county is about 60k people. The largest town is less than 10k altogether. I am looking at two commercial, mixed use properties. I really need help on figuring both of them out, but I'll start with the one that I'm trying to lay out a plan for at the moment. It is a 6k SQFT warehouse. It needs a ton of work - a ton. I'd like to potentially use it as mixed use: 2000 soft up top for 2 rental units and the 4k below has potential, but I am undecided at this point. I have considered converting to rentals as I could possibly get 3-4 in that space. Maybe. I think the rehab is likely 100k+, I'm guessing here. I've looked at it, but I don't have experience in the commercial rehab space so... In any event, I'm going with 100k+ as a good first estimate until I can get someone in there to look the building over for me. I'm trying to figure out what kind of numbers work. The owner is asking for too much, something around 160k. I think 120k is fine for this market even in this beat up condition (some small back story - the town is working to change the central area and make it a destination for the local region so values should be on the rise soon). 

Here are the options that I have considered with the idea that I would need to get two tenants in the building and then attempt to make the purchase and cash out the owner: 

Option 1

Sale Price: 130k

Monthly $: 1k (the owner's pmt is estimated at 2k, but this is uncertain as I haven't spoken with the owner directly). 

Option Period: 18-24 months w/right to renew at least once.

Carry over toward final payment: 10%

Deposit: 2.5k

Option 2

Sale Price: 120k

Monthly $: 1.5k

Option Period: Up to 36 months w/right to renew at least once.

Carry over toward final payment: 10%

Deposit: 2.5k

Option 3

Sale Price: Balance Due + 5k with owner financing

Monthly $: 2k +/- with payments to start in 3 months after agreement

Option Period: 36 months w/right to renew at least once.

Carry over toward final payment: 10%

Deposit: 5K

Option 4

Sale Price: 130k

Monthly $: Monthly payment 2k +/-

Option Period: 36 months w/right to renew at least once.

Carry over toward final payment: 10%

Deposit: 5k

Here's my thinking: I'm pretty certain I can rehab the space (well, almost certain) and get some tenants in within six months probably sooner depending on the amount of work. I think I could get the building financed (it already has a mortgage on it) with a couple of tenants in it up top. I could then use some of the cash and rehab the bottom area for either additional apartments or an artist space where people can rent little rooms by the month $200, $250 etc. 

Alternatively, I could buy a mixed use space at 425k +/-. It already has tenants in it. It has space for a restaurant and one additional commercial tenant (has 3 residential and about 7 commercial).  I can go into details on that later I suppose, but I first wondered if anyone had any input like don't do it. Not worth it, etc. Or some things that I need to consider. This is my first commercial purchase. I already know the owners for the 2nd are flexible and willing to hold a note. The first owners are open, but are waiting for a letter of intent so they can consider the offer. 

Well, that's all for now. I've probably flubbed up somewhere in my rationale, but that's why I'm posting. :) Cheers.

@David Clay I didn't see the rent rates in you summary. Rents & leases are what give a commercial property value.  The residential units will have a monthly rates set by local markets.  The leases on the commercial space specify a tenants obligation to insurance, the common area maintenance and building repair.  Commercial space us rented by the square foot, for ease of discussion.  In such a small town, you may be your own leasing agent.

When my employers buy a warehouse, they do repairs and freshen it up to be vanilla ready.  The commercial tenant will negotiate the build out according to their business needs.  

Meanwhile, you will have those monthly payments due.  The money clock will tick until you have a signed lease for a tenant.  Write up a expense plan on where you are going, how long it will take to get there, how long you can go before you anticipate finding a tenant?  What level of rents do you need to break even?  Write up a business plan.  This will be the start of determining you offer price.  Ignore what the owner is asking.  Offer what it is worth to you to make it happen.

What gives you the idea that the central area is on the rise?  Talk to people.  Talk to artists.  Start your marketing research today.

@Kathy Henley Thanks for the feedback. I forgot to add the rental rates. To be honest, I don't know that there is a clear answer. In the SFR market for this community it can range from $600-$1000. The second mixed use space has three units in varying degrees of quality. The 3000 soft unit is rented at $900 month, but honestly, it could use some freshening up. I've seen it with and without tenants and it looks better with a tenant in it, but some freshening wouldn't hurt. the other 2 residential units are rented at $575 and $350; ~ 1500 SQFT and not sure of the smaller one for SQFT. There is another building in the central area renting space as well. Not sure of those rents right now as I just learned about it and haven't had a chance to talk to the owner yet. A California investor has a 4 story in the same area and is planning to install a restaurant on the street level, and apartments on the 3 stories above with a banquet hall in the basement. The local group called Main Street (a Florida community improvement initiative) is actively working to enliven the community and recently received a grant to refurbish the courthouse. I think things are moving in the right direction and if there is enough space for people to live, I believe some things in the central area will be possible. The region around the town is becoming more and more populated as Tallahassee continues to grow. So, I think there is growth.

I will do as you suggest and get more information. I, unfortunately, don't have enough research to know the rents is the short response. I believe that I could rent the apartment spaces for at least $800 a month, but that could be a low number depending on how nice the units turn out. The commercial space is less certain, but there are some indications that rents could average out to about $400 month and with 4k sqft available it may be possible to get 3-4 spaces set up. 

I will go do some work over the next few days and see if I can come up with more definitive answers. 

Thank you so much. I really appreciate your input. 

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