All Forum Posts by: Aaron Xie

Thanks a lot for all the information :)

I am wondering in California, if a title search is necessary before submitting an all cash no contingency offer. I just want to have the option to back out if there is any lien, default mortgage, or unpaid bills on this house.

I am looking at foreclosed houses in auction in the Greater LA Area. Can anyone recommend a title company? And how much do they charge title search and title insurance? Thanks. 

Any recommendation of good commercial mortgage broker/banker in greater Los Angeles area? Thanks.

@Oren K. Thanks for the input. As to your first two points, seems you did not count in the down payment: the more down payment, the smaller monthly mortgage payment, and a larger portion of rental goes to my pocket after mortgage payment. So the return is not just the principal payment. Also, DSCR is not 100% if I put down a large down payment, say 40%.

What is the agent's commission for renewal? Do I need an agent for renewal?

This is not a new building. The branch has $110m deposit, and my agent told me deposit larger than $70m is a good sign. 

Oh, keep in mind that this is in CA/NV, not in Toronto. What would be a sensible Cap rate for a commercial building leased to a big national bank, say TD? 

@Roy N. Looks like every other term is uncertain and negotiable except the NNN .... Now I think a good lawyer and a good buyer agent are much more important in this business than for residential properties...

@Roy N., when they renew, do we renegotiate the monthly/yearly rental?

Originally posted by @Daniel Chang:

@Aaron Xie

Also you need to remember that the more stable/credit worthy the tenant is, the generally lower cap it is.  However, the cap should be inversely proportional to the length left on the lease.  

Your assumptions above assume that the cap rate remains the same.  However even a credit tenant that you bought at 5 cap with 7 year remaining left on the lease, means that if you try and sell the building with 1 year left on the lease, you need to sell at a discount, unless of course the tenant has indicated they will renew.

Cash flow properties (like other cash flow investments) are valued based on the discounted cash flow method.  And just like if the tenant has poor credit, which leaves future CF uncertain would require a higher discount rate (and hence higher cap rate), so does a good credit tenant with only a few years left on the lease (since there's a chance they won't renew).

 Thanks for the input. Yes, I need to find out the bank's intention to renew the lease. The contact says the bank has "four five-year renewal options". What does that mean?

@Daniel Chang Even if the rate increases over time, at the end of the 5th year when it is time for refinance, the remaining principal has declined, so unless the rate increase is large, I don't think there will be a refinance problem. In the worst case, I will have to put more down payments to qualify for a smaller loan, but the extra down payment won't be too big (I think). But I agree with you, a 7% cap rate is perhaps not worth this risk ...

Is there other type of low risk investment with higher ROI (>8%)?

Originally posted by @Eric Odum:

http://money.cnn.com/2015/07/15/investing/bank-of-...

Something to think about...I worry about Bank branches and some retail going the way of the dinosaur.  Walk in to any branch older than 10 years and they are usually serviced by one or 2 tellers when there used to be 7 or 8.  Banks do not need the number of branches they used to have.  If it is a first and main location, I would not sweat it too much.  You can probably find some other retail to take it (walkin clinic, restaurant, etc).  If it is a B location, you had better be compensated for the risk and have a good back up plan.  

 That's interesting and very useful info :) ....