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Updated 20 days ago on . Most recent reply

User Stats

45
Posts
29
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Shuff Mauldin
#1 Real Estate Deal Analysis & Advice Contributor
  • Investor
  • MS AL TN, GA
29
Votes |
45
Posts

Getting my feet wet with small commercial.

Shuff Mauldin
#1 Real Estate Deal Analysis & Advice Contributor
  • Investor
  • MS AL TN, GA
Posted

Investment Info:

Retail commercial investment investment.

Purchase price: $150,000
Cash invested: $30,000

Small retail building where the current business did not match up with who was listed as the owner.

What made you interested in investing in this type of deal?

I noticed the tenant in this commercial building wasn’t the same as the owner, which usually signals opportunity. The building itself had potential, and I knew I’d need office space for myself sooner than later, so it checked a personal box as well.

How did you find this deal and how did you negotiate it?

I sent the owner mail, and when they called back, it was exactly what I suspected: a long-term tenant in place with a year left on their lease at $1,200/month. The seller’s price was $150,000, and I agreed. The interesting part came in meeting the tenant — I had to explain what a triple net lease is and show them they were way under market rent. Fortunately, they were willing to adjust.

How did you finance this deal?

Traditional bank financing at a great 5% rate fixed for 10 years.

How did you add value to the deal?

The biggest win was restructuring the lease:
Rent increased to $1,500/month (with 3% annual bumps starting month 24).
Tenant agreed to reimburse insurance costs, cover property taxes, and provide an HVAC service contract.
That essentially converted it into a clean NNN lease.
Value Add Chapter 2 will be to make it an A class office/retail space.

What was the outcome?

2 years back the city announced plans to boulevard the road and my building was in the demolition path. I have operated under the assumption I’d lose the building to eminent domain. Recently, the city released updated plans, and my building is no longer on the chopping block. That turned the deal around completely. Now, instead of a ticking clock, I’m sitting on a solid lease with built-in rent growth and a building in a prime location with awesome traffic count.

Lessons learned? Challenges?

Commercial has a lot more moving parts. Don't freak out w/ circumstances make the picture look bleak on that day or week. In fact, just plan to be surprised.
Be an empathetic landlord and put yourself in their shoes. Some conversations suck, so have them while keeping in mind you have no idea what the other person might be going through.

  • Shuff Mauldin
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