All Forum Posts by: Bob Langworthy

And to add to what @Chris K. said, don't forget to talk to an accountant! There is much to consider from a tax perspective as well.

My basic thought on this is:

SMLLC: online or free resources are good

Multiple member LLC, S Corp, Partnership: talk to an attorney

Hope this helps,

I was tired of paying rent for my accounting practice and I found a vacant 4-office building with a huge parking lot (parking is a challenge in my town). The building needed some work (new roof, complete remodel of two offices, new decking on the handicap ramps, etc.). We got a good deal because the lack of any tenants scared off other buyers. It took 1 year to get all of the offices and the 7 extra parking spaces leased out, but now it cash flows beautifully. 

Top 3 reasons I like commercial: 

1) $100/door/month is a depressing metric. 

2) Long term leases.

3) Forced appreciation. 

@Erica Baruti, the realtor gets paid by the seller based on the sale price of the property, not on the type of financing. It sounds like you have some research to do before you can move forward or step away from this property. The research process will be helpful for you as you will repeat it over and over as you continue to evaluate properties.

Kind regards,

@Erica Baruti, depending on the type of entity that owned the property, the tax returns could tell you a lot or not much at all. If there is enough information on the returns, you can work backwards from the returns to figure out NOI. If you know the prevailing cap rate in the area, you could then calculate a value: value = NOI/cap rate. My questions would be:

1) Why has it been empty for so long?

2) Any deferred maintenance?

3) Do you have any prospective tenants?

4) Is there the possibility of seller financing?

5) What have similar properties sold for in the area?

6) What are similar spaces leasing for?

7) Have you developed pro forma financial statements and if so,what are you assumptions based on?

Hope this helps,

Don't do this deal, I know a guy in Maine who may be interested....

Kidding.

This sounds great. If I were in your position I would:

1) Try to talk at length with the current tenant to learn more about the industry and what problems they have encountered. 

2) Confirm that $3000/month is reasonable. You may have to do some work to find out if that's a solid number, but it would be worth it.

3) Regarding the AirBNB, is the noise from the restaurant going to be a deterrent? 

4) Be careful with who you let in as a restaurant tenant. As @Ronald Rohde mentioned, turnover is high in the restaurant industry.

I like that you have AirBNB experience, that greatly mitigates the risk of purchasing the building. If you hadn't done either restaurant or AirBNB, I'd be a little nervous. 

Hope this helps,

This is a personal decision that varies by investor, but I chose commercial for the following reasons:

1) I wanted to stop leasing office space for my accounting practice.

2) The thought of "$100/door" as a metric/goal for residential was depressing.

3) No calls from tenants at all hours of the day/night.

4) Easy to evict.

5) Commercial is much easier to force appreciation than SFR. It's just a formula: value = NOI/cap rate. Anything you do to increase NOI yields an increase in value that can be quantified. For example, if you increase rents by $5k in a year and the prevailing cap rate is 6%, you have just added $83,333 to the value of the building.

Hope this helps,

@Stephan K., the answer to this is very market specific. In addition to the various online options listed above, you may find that there is a local daily or weekly publication that is the place where people look for office space. 

In addition, you may want to work with a local commercial broker. I have used a broker and craigslist to fill office space.

Hope this helps,

@Chris Myatt, sounds like an interesting opportunity. A couple questions for you:

1) How much cash are you bringing to the deal?

2) Do you have experience running a small motel?

3) Have you invested in real estate before?

4) How confident are you in the $450k figure?

Seller financing could be what makes or breaks the deal.

And whatever you do, don't over pay.

Hope this helps,

@Tommy Ciccarone, I agree with you. I'm seeing a lot more businesses like this popping up all over. I've also seen laser tag, indoor amusement centers, and large churches taking over retail space. There will always be creative uses for retail space.