Office Space buy & hold investment.
Purchase price: $285,000
Cash invested: $10,000
7000 sq.ft. office bldg in Appleton, WI. Purchased on land contract under a wrap. Neglected property with great bones & curb appeal in a vibrant downtown location. Former tenants on m2m rentals at extremely submarket rates. We have renovated 60% and are in the process of renovating remaining space. 60% occupied at market rates, the building does not cash-flow, due to the ongoing renovation of 3200 ft. vacant space,however, immediate equity at closing and est. cashflow of $1800/mo. when compl
What made you interested in investing in this type of deal?
I generally look for off-market with signs of distress and/or poor management. this was a CL ad by seller, and the bldg was also under a listing agent. That signified seller was desperate to move it. From that, I begin due diligence - reviewing the tax records, title records and a drive by and site "scouting" visit to see if it meets additional criteria. Then I reach out to the seller to start a dialogue and plant seeds for a possible seller financed deal.
How did you find this deal and how did you negotiate it?
Craigslist listing. Started negotiations with an email dialogue. A of my deals thus far have been 100% seller financed at closing, so in all communications I am planting the seeds and observing responses on how receptive the seller may be, and how I may pitch the way I prefer to close.
How did you finance this deal?
While I prefer a straight seller note, this bldg. was under a bank lien, and they would allow a land-contract, but seller mortgage in 2nd position. Seller actually signed the Offer with mortgage terms, but in working with seller's bank, I opted to be flexible and meet the bank's requirements. The cash invested cited above is a little off. I was out-of-pocket appx. $7500 at closing with prorations, etc. but we have put appx. $20,000.00 into renovations over the past year.
How did you add value to the deal?
As noted above, immediately removed some (3) severely submarket rent tenants, then marketed and remodeled the vacant space, and brought in new (and converted an existing) tenants at market rates.
What was the outcome?
This has been a great project, the tenants are excited about the improvements, and we are excited to complete the remaining renovations and put this one on the books in the cash-flow column. It should be a healthy performer for many years to come.
Lessons learned? Challenges?
COVID lockdowns and supply shortages tanked keeping renovation schedule - lost 4 months due to that, and that is lost rental revenue because we couldn't renovate the last space until renovations were complete on the then vacant space for the existing tenant's move. We can't rent the now vacant space until those renovations are complete, so we lose some rental income. Upside was the tenant still had functioning space, so we didn't have a prospective tenant back out due to our delays.
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