First time commercial buyer. Financial analysis advice.

4 Replies

1. Just paid off my student loans and have $53K in a mortgage, which has at least doubled in value, if not tripled. 2. I make $145K/year. I want to explore buying a $370K dentist office that rents for $2,810 a month and is listed at a 8.3% cap rate. The HOA is roughly $300. Im hoping I can put 10% down and then refinance in the future. There are 4 years left on the lease and two 5 year options left on the property. Ideally I would have 4-14 years of consistent payments above the monthly mortgage costs, and could refinance down the line after having years of payments in the property, plus I should have more personal cash to put into the property. If I take out a loan for roughly $330K at 5% interest a mortgage calculator says I would pay $1,600 a month. If I gain $2,500 a month after the HOA payment ($2,800-$300), what other cost additions should I add to the $1,600 to figure out my monthly net that I’m not thinking of? Does the math on this property make sense? Also, what would a reasonable interest rate be to pursue given I’m a first commercial time buyer? I have excellent credit.
@Jack Reed Durand Disclaimer: I am working on setting up for my first commercial purchase later this year and only have book knowledge. With that said, have you spoken with a lender or read any books? In general, lenders want to see a 25% down payment and a year of experience on your resume managing similar investments. Moreover, you'll want at least a 1.25 DSCR (1.4 recommended). You'll need to include costs of mortgage, property taxes, insurance, etc in that calculation along with your NOI. If you haven't already, I suggest reading Crushing It in Apartments and Commercial Real Estate by Brian Murray as an introduction to this realm of commercial real estate. In short, look at your numbers. Cheers.

Hi @Jack Reed Durand

So, first of all, I just want to say that those numbers don't add up unless the dentist is on a triple-net lease that includes the HOA fee. A $370k property at 8.3% Cap should net $2,559 per month.

$2810(rent) - 300(HOA) = 2510(somethingfishy)

I also think it will be difficult to secure commercial financing for this. I've never heard of 90%LTV in non-owner-occupied properties.

@Aaron Hunt asks a great question--how long can you reasonably expect to keep this tenant, and is there a replacement plan?

I believe that this deal looks good/not great once you figure in insurance, taxes, improvements needed.  The fact that it has a long term lease is exceptional.  If you are looking for a commercial loan I would say that the market is moving to 6-9 % some with lower depending if you want to pay points.  

Hope this helps.