First commercial property....
Gang,
Been reading this and the MFH forums a lot lately. I've got 4 SFR rentals around scottsdale az, and stumbled onto what I think is the unicorn of investments - a poorly run commercial building, cheap-ish, within 1 mile of my house, with a lot of room for improvement.
Its an 8-unit building, bought off courthouse steps last summer by some note buyers, and is about 2/3 occupied, rents are grossly undermarket, not well maintained, and LL paying all utilities, which are horrendous. I've driven/walked the place about a dozen times now, and know it pretty well.
I have a few road blocks in front of me, which I will gladly take some suggestions on.
first is financing this thing. I made a preliminary offer, and got close, but ended up walking away because honestly, I had about a $50K cash gap that I just couldn't figure out how to bridge in a responsible way. I'm sure that is small potatoes for some of you on here, but for me, being honest, its not. I can pull about 80% of the PP in cash together with selling my worst-performing rental (lots of equity, but older place) and I'm working now on a portfolio loan for the rest, but that is going to nuke me out financially. I've had some offers from friends and family who want to buy in, a la syndication, and am reading the "syndication bible" right now, but haven't pulled the trigger.
The seller has offered to finance it for a 1yr period, but wants a pretty steep interest rate to do it, and if something goes sideways in the first year, I'll be screwed if I can't bridge that gap.
second is that I've done fine with the SFR, found a nice niche in travel nurse housing, and get pretty solid 12-cap rates out of B-class stuff in my own backyard. This building, on the surface,, doesn't seem super complex from a numbers standpoint. Buy it, fix what needs fixing (I have a 12+ year construction background), raise the rents and shift utility costs. All in all, within 6-12 months there is 150K in forced appreciation to be made. However, I feel like I am missing something. I read a lot of the in-depth analysis on here, and have tried to apply it to this building, but at the end of the day, its a small, 8-unit office building, and all those numbers don't really sway me one way or the other. This place just isn't that complicated in my new-to-commercial eyes. Plus, AZ as a state royally favors the LL on commercial stuff.
Right now, the tenants are mostly hairdressers, which, my CPA (who is a hilarious guy about my age) told me are definitely the worst of the worst of commercial tenants. He was apparently engaged to one at one point, and had some pretty entertaining stories about them. Nothing against them personally, but apparently collecting rent can get interesting.
Sorry for the long post, but I'm trying to rack my brains and figure out what we (I run this with 2 family members help) can do to make this work. This deal seems to me on the surface to hit on all cylinders. Location is a 10/10, its poorly run, undervalued, and can be had for less than the cost of a nice SFR in my 'hood.