Buying cheap commercial property out of state?

10 Replies

Hello! I'm a 23-year-old future investor that wants to get into real estate. I don't want to buy a single family home, but rather wish to purchase a commercial property because of more professional landlord/tenant relationships and different types of valuations. 

A friend of mine turned me onto buying post office buildings and I saw that a few were priced in the 60-100k price bracket.

I'm trying to buy a commercial property out-of-state, with a 150k budget. I'm wondering how I would manage the property, audit my property management firm, and respond to repairs needed. 

Does anyone have any experience with buying commercial property out of state? 

Hello and welcome to this site Mohit!  I've been listing to a man that owns over 4,000 apartment units and I tend to believe what he says and he thinks that apartments is only the good way to go and not to make investments on only other retail, office, or hotel business right now because most retail will continue going down versus on-line shopping with few exceptions and one of them is to acquire retail or office buildings in a high demand area and is in the path of growth and a good economy with diversity, population growth, and job growth and must positive cash flow on day 1.  

Go with a location that is already popular and making money and that it's a good location. The price may be larger per square foot but if its already making money it will eventually pay off, even with some appreciation.  One downside of retail is a vacancy might be harder to fill and can take 6 to 12 months to lease with a new tenant.  If you go medical it needs to be fairly new and up to date to get new tenants.

I grew up in Dallas Texas and still live in Dallas County.  I am 61 years old and have about 30 years of experience in construction management and also had a real estate broker license for about 30 years.  I was into residential and commercial projects.  This knowledge of me knowing what I talk about might make me knowledgeable and believe in.

If you buy something out of state you will want an experience property management company that will take care of the daily action and will call you to keep you up to date.  Budget accordingly. Good luck to you!

Hire a good team, find a broker you trust, and thats all you need to get started. I hope your cash flow is strong enough for large capex, commercial repairs are not as cheap as an SFR.

I second Ronald's opinion. As an out-of-state investor, you CAN'T manage your property remotely without the help of a team, and in particular a property management team. You pay them 2.5%-10% of the property's income (depends on the location and size of the property - the bigger the size, the lower the fee %), and they take care of everything: from maintenance, repairs, finding tenants and collecting rent. This way, you'll have time to work on your NEXT deal instead of spending it maintaining your property. And this is true even if you invested in a property across the street from you.

Best of luck!

Ellie

Originally posted by @Michael Lee :

Hello and welcome to this site Mohit!  I've been listing to a man that owns over 4,000 apartment units and I tend to believe what he says and he thinks that apartments is only the good way to go and not to make investments on only other retail, office, or hotel business right now because most retail will continue going down versus on-line shopping with few exceptions and one of them is to acquire retail or office buildings in a high demand area and is in the path of growth and a good economy with diversity, population growth, and job growth and must positive cash flow on day 1.  

Go with a location that is already popular and making money and that it's a good location. The price may be larger per square foot but if its already making money it will eventually pay off, even with some appreciation.  One downside of retail is a vacancy might be harder to fill and can take 6 to 12 months to lease with a new tenant.  If you go medical it needs to be fairly new and up to date to get new tenants.

I grew up in Dallas Texas and still live in Dallas County.  I am 61 years old and have about 30 years of experience in construction management and also had a real estate broker license for about 30 years.  I was into residential and commercial projects.  This knowledge of me knowing what I talk about might make me knowledgeable and believe in.

If you buy something out of state you will want an experience property management company that will take care of the daily action and will call you to keep you up to date.  Budget accordingly. Good luck to you!

 I'm extremely bullish on apartments. My old company was the biggest property management firm and they also did development and acquisitions with large institutions! 

Basically the building that I want to buy is an existing post office in a rural area (since that's what my budget allows). I figure the post office isn't going away from rural areas anytime soon and the USPS has a AAA credit rating. I'm not sure what I would do in terms of property management, since in a rural town, property management firms are just scarce in number. 

150k can get me a post office with a 6-9% CAP rate and I've heard USPS is pretty lenient with rent increases. I spoke with my friend who buys them and they say USPS usually stays in that same location and an option of 5 years is baked into the lease.

@Mohit Asthana my advice would be:

1) Develop an investing criteria and a business plan

2) Research the areas that interest you and become an expert in the area, go visit it, learn the demographics etc. 

3) Use the process of elimination to narrow down the areas that you're focused

4) Build a team to support you on your REI journey.

Hello again Mohit!  You will never know about a Property Management Company will react until you ask them.  I would talk to the previous property manager to see how frequently they would call for any maintenance or repairs and being a tenant in general.   You did not mention how far the subject property is which might still work if their office was real far away..  If that is a typical post office construction it may be harder to lease that subject property to anybody else.  It maybe a good short term income and not necessarily a good long term investment.  Just beware of that possibly that the subject proximity and does not match their goals or their requirement plan.  You might be surprised and ask them if they would charge an extra fee to do that property management.

Good luck to you!

@Mohit Asthana I know it’s not a popular on this site but I would really recommend researching a mentorship group for going into commercial. Especially when you are looking to play the big kids game.

Originally posted by @Lane Kawaoka :

Mohit Asthana I know it’s not a popular on this site but I would really recommend researching a mentorship group for going into commercial. Especially when you are looking to play the big kids game.

Would you suggest that for a commercial property that's >150k? 

I'm hesitant to pay for a mentorship since I prefer to learn by doing and I figure 150k isn't a huge risk. Plus, my friend's dad does it and he's actually helping me find a post office! 

You need partners who will sign on the loan for you. Unless you friends dad is going to be a key principal for you then your need to get in a group of people where matchmaking can happen. I don't think the same can be said for SFH but yes for MFH.