Is this a good Deal???

Question

A buddy of mine has a fully functional dayecare center fully appraised @ 650K. He is only asking for 500K (but will possibly settle for 450K no less than 400K). Would you personally consider this a deal? BTW: we are in So. Cal (if that matters) this w Please let me know what you think! Also if this is a deal how would you go about wholesailing this prop??? All advice, suggestions are welcomed!

BE BLESSED!!!
Jorvon

BE BLESSED!!! 
Jorvon

Richard Warren · Answer

Itâ€™s impossible to evaluate with the information provided.

Is he selling the business or the building?  If heâ€™s selling the building what is the rent?  If heâ€™s selling the business you would need to evaluate the financials of the business.  The appraisal doesnâ€™t mean a whole lot.

:cool:

Arthur Donald · Answer

If you don't have an exit strategy, I won't recommend buying it.

Michael Rossi · Answer

Have you talked to a commercial real estate broker or agent (2 or 3 would be better)?  A GOOD commercial agent should know the answers to the questions that Jon asked (land value, market demand, other businesses that would fit in the space, recent sales of similar buildings, etc).

I would start there.  Before you do ANYTHING else, you need to determine the true value of the building in today's market.

Good Luck,

Mike

Will Barnard · Answer

It is much more difficult to valueate a commercial building that currently generates $0 in income due to 100% vacancy.

I live and work in this area, so perhaps you can send me more details. I am very interested in this deal if the price is right for the property.

My contact info is in my signature.

Eric Byrd · Answer

Jorvon,

Jon has many valid points. You are not taking into consideration how to value this building...No income is presently being generated, therefore, how are you guys determining the $400k price or any price?  The appraisal of $650k, when, how? Have you seen the actual appraisal and what is it based on? At 1st you said fully functional daycare, then say bldg is empty..  I will simply say this...I'm not selling something worth $600k for $400k... The business might of made the value of the appraisal.

Good luck, but really not nearly enough info to really help out with further analysis....

Brian Haskins · Answer

I would option it and then place some ads or use a business broker to wholesale it.

Brian Haskins

James Vermillion · Answer

Also, this should probably be in the deal analysis forum.

James Vermillion · Answer

There is definitley not enough information here to analyze this deal. We would need to know about the income of the daycare, how you would finance it, typical expenses, bills, etc, etc, etc. Are you planning on keeping this property to cashflow, or are you looking to get it and re-sell it to make some quick money? All of these things and more would go into whether or not it is a good deal. In todays market, or really any market, you cannot always base a deal off the appraised value.

Jorvon Smith · Answer

My apologies, please alow me to be a bit more specific. I am a newbie to RE investing. I am learning more and more everyday thanks to all of you. Now, regarding the "Deal:" My buddy wants to sell the vacant daycare building (sorry I did not specify this earlier) his wife ran the daycare, however they relocated to Lancaster, CA (approx 60miles away), and now runs a daycare in Lancaster. The building in question, again is vacant and paid off. My buddy just wants to sell it to make some cash,  and he knows I am new to this business. My objective would be to sell this building for him that way "we both get paid!!!"  :D  I don't now how this would work, I just see all of the equity in the building. I hope I have provided enough info, or @ least you all now know my intentions. My intentions is to help him sell this property so that I can get paid.

Jon Holdman · Answer

The information needed to evaluate this deal includes a value for the building.  You say he would take $400K.  Is that the price for similar buildings?  What have similar buildings in the area sold for recently?   Are there lots of similar buildings available?  Is the a lot of vacant commercial space available?

What other sorts of businesses could go into the space? What's the land under it worth?  Commercial buildings themselves often have very little value.  You only have to look at how many empty big-box store building there are around the country to understand that.  Could this building be gutted and turned into office space?  Could it be used as medical or dental space?

Commercial property values are driven strictly by the income it can generate.  "Cap rate" is the base number. This is defined as net operating income divided by the purchase price.  A 10% cap rate for a property is possible in some areas.  That would mean the place would need to generate $40,000 a year in net operating income to justify a $400K price.  If its triple net, meaning the tenants pay all utilities, insurance and maintenance, that would translate into rent of $40K a year.  Is that possible?

Where is this located?  Its value is radically different in Santa Monica, Bakersfield, or Barstow, all of which are about 60 miles from Lancaster.

Is this a good Deal???

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