All Forum Posts by: Ash Patel

Shane, thanks for that wealth of info.  The building is in Maineville OH, a suburb of Cincinnati.  If it was located 5 miles in any direction, it would be a gold mine.  This little two square mile village just does not get much traction.  

The music school is on the first floor and they mostly operate during the evenings.  They are very quiet and have insulated rooms.  My intention is to collect a portion of the utilities and snow removal for CAM, however, to get tenants in the door, I am offering just a flat rate for the first 6-12 months.  

I attached a pic (hopefully correctly).  I just need to keep pounding the pavement.  I appreciate your advice on the broker.  I assumed 18 months and money upfront was the norm for office space but sounds like that is definitely not the case.  

Thanks Christopher,  I probably needed some grounding from my whimsical ideas.  I will start to look into the residential conversion numbers.   

I may get tar and feathered for this reply but I struggled with the same question.  I have a mix of res/retail/office space and use Excel.  One spreadsheet for deposits and one spreadsheet for each property.  Each month I reconcile my business credit card and allocate expenses.  My online bill pay is separated by property so at year end I just download and allocate.  

All I am doing is essentially bookkeeping.  At the end of the year, I turn in one spreadsheet per property to my CPA and he works his magic.  I researched the quickbooks route and found some people who wished they stayed with Excel due to QB over complicating things.  I wonder if there are others like me or if I am just being resistant to change and trying to justify it.

I agree with partnering up with a builder.  Scattered site builders also like using other peoples money.  If you carry the land, they spec the build and split profits down the middle.  Depending on the equity you have in the land, you may qualify for a partial construction loan.  Speak with several builders and their banks to get a better grasp on your options.

Back in Feb '15 I purchased a beautiful 3 story brick office building.

Quick Facts:

Year built - 2007 - bank owned in 2009 - vacant for last 5 years

total sq ft - 10,000

Build cost - $800k

purchase price - $230k

Reno cost - $80k (sump pump caused flooding and interior finishes)

1st floor is finished small offices (300-500 sq ft)

2nd floor is white boxed

3rd floor is former hair salon (plumbing gutted) and white boxed

The building is in a sleepy town but is surrounded by areas that are booming just a few miles away.  I am a buy and hold investor and have experience in residential, mixed use and retail.  This was my first office building and its been very challenging to find a tenant.  I inherited a music school that occupies 500 sq ft and pays $600/month and they are the only tenant.  I am considering a few options:

commercial realtors that want an 18 month exclusive contract and I would have to provide several thousand in upfront marketing costs to help find tenants.  The benefit of this route is that they would try to find a single tenant to occupy at least 2 floors.  

Convert floors 2 and 3 to residential.  This would be easy to rent but very expensive to convert.  

Make floor 3 artists studios where we give away the space very cheap to various artist to work and showcase their wares.  Maybe once per month host an open house.  I'm thinking art gallery with wine and music.  My thoughts are this would help the building gain traction and bring in some revenue.  Maybe its wishful thinking but I think it would be cool to have office space in a building that is also an art studio.

I would love to hear any feedback you can offer.

Ash

Are you going to repurpose the church or keep it as is? We purchased the church and converted it to our primary residence and it was a nightmare. Everything from getting loans, insurance, appraisals, tax reductions etc gets complicated if repurposing.

I recently wanted to leverage the equity in my properties so I looked into similar options. My bank was able to give me an equity line of credit. They used the difference between 70% of the appraised value at the time of original financing and current equity to determine LOC dollar amount.

Example:

100,000 appraised value (at time of purchase)

70% = $70,000

Loan balance $50,000 

Equity Line of Credit = $20,000

They did this across all of my properties financed through them.  While this may not be the most aggressive lending, it suits my needs.  I will be able to purchase the next 1-2 commercial properties with no money down using this ELOC.

Hope this helps. My local bank (3 branches) typically loans 70% LTV on a 5 years fixed 15 year AMT. Again, not the greatest but they finance the deals that most banks wouldn't touch.

One month post closing update:

Joel Owens hit the nail on the head.  The optometrist is growing rapidly and they wanted the real estate off of their books.  The numbers verified by received rent checks are as follows:

$620k purchase price

NOI - $115k

100% NNN with long term leases in place now.

I purchased this property at an 18.5% cap rate.  

This is not to brag but there is a valuable lesson to be learned here. Every single day for the last three years, I look at the MLS and loopnet listings for several surrounding counties. This commercial property was listed by a residential realtor who does not understand cap rate. I found this listing (original sale price $645k) on a Friday night and blew up the Realtor first thing Saturday. We had a signed contract first thing Monday morning for $620 and soon after the Realtor received several full price offers. Before my closing I had an offer to flip the paper for $1.15m which is still a 10% cap rate.

This same diligence allowed me to purchase a lake property for $70k under asking simply because an out of town realtor did not understand how to price homes on and off the water.

I know we often read the success stories and wonder, how did people get so lucky.  My luck came after 3 years of relentless searching.

Best of luck to all BP'ers.

mark, I live in Loveland and have a mix of residential, mixed use, and commercial.  Hit me up if you ever need advice.  

Adam,

I buy failed commercial/retail/office buildings as well, nowhere near this scale though.  I agree with a lot of Martin Z.'s recommendations.  Professional pictures, no urinals, definitely name the building, full brokers commissions.

The supply far outweighs the demand right now for this type of property.  I would also sign on a broker and throw a brokers open house party.  Band/food etc.

Offer smaller spaces with no build outs and short term leases.  Attract those who are on the verge of moving out of their home office.  

Finally, get out there and hustle.  Steal tenants from other buildings, incentivise them with a few free months/build out allowance etc.  Offer more perks to your building, common kick *** conference room, common break room/kitchenette, possibly a doorman.  

Entice brokers with a ridiculous signing bonus for the next 90 days.  Setup agreements to have dry cleaners come onsite daily (when more occupied but advertise now), possibly have a local catering business provide on demand made to pre-order lunches.  Get a daycare in the building (would likely need a fenced in outdoor play area to meet code) to attract companies who employ young people with kids.

Good luck and keep us posted.