All Forum Posts by: Bob Langworthy

@Mav Larson, I know what you mean about passing on properties. It's the same around here, "Why didn't I buy that years ago when they only wanted X for it?!?" And many guests on the BP podcast say their biggest regret is not buying more when they had the chance. 

In your case, no one here is going to know that small town like you do. As long as you proceed conservatively and keep some cash in reserves, you'll be fine. You can always re-purpose the space later on if you want to.

I bought an office building in a smallish town of 20,000. It needed some work and there was already a lot of office space in town, but it has worked nicely for me. The key for me, however, was having an anchor tenant (my accounting practice) in place before I bought the building. Here are some thoughts:

1) I would start talking with potential tenants in advance and look at doing the build out to their specs. 

2) How long will the micro-brew fad last? Remember when Curves was everywhere?

3) If it's a micro-brewery, then it is a very small business that may or may not be run well.

4) Does the town need a brewery?

5) What about nice, clean office space for an accountant, attorney, financial adviser, insurance agent, mortgage broker, etc.? 

Hope this helps,

I agree with @Dan Wallace. The balloon gives you the opportunity to refinance. The same bank may have a good financing option for you or you may want to look elsewhere. I have a balloon coming in 4 years and I'm looking forward to it.

Hope this helps,

I'm the son of a builder that worked with my dad during the summers. I went on to be a geology major that started an unrelated small business: a commercial greenhouse. I decided I wanted regular pay, hours, and benefits, so I went to work for a company doing internal accounting while working on an MBA. I got tired of having to deal with other people's mistakes (I can make my own, thank you very much!) and decided to be self-employed again. That's when I started an accounting practice with 0 experience or clients. After renting space for 8 years, I bought an office building and the rest is history!

@Danielle Z., this is an exciting possibility for you and one that (based on the limited information that you've shared) sounds like a good idea. Everyone's risk tolerance is different, but if I were in your position I would do it (I did it 2.5 years ago). Here are a couple thoughts:

1) Lower monthly payment, building equity, possibility of rental income to further decrease your out of pocket expenses sounds like a win. 

2) You may have tax planning opportunities depending on how you own the property and how your business is set up.

3) Around here, there are a number of office buildings that have various psychologists and counselors in them. They have different modalities, specialties, etc. and are able to co-exist. 

4) The short term financial pressure may be just what's needed for you to make a breakthrough in your business. 

5) I believe that hiring a full time provider in a clinical practice is a bigger risk than buying real estate. Yes, the real estate is a bigger number, but the potential challenges with a new hire can be far more overwhelming. Everything from lack of patients to work style to damage to your reputation can happen in a short period of time and cost you far more in the long run than a few thousand dollars for an emergency repair. Said another way, "Bravo! You made the difficult decision to hire another practitioner. Everything else will look easier in light of that."

6) Do the math on the building long term. When you retire, what will the building produce for income for you.

In the end, my advice is always, "Don't fall in love with the property, fall in love with the numbers."

Hope this helps,

@Wills Manning, here are some thoughts:

1) Commercial property is valued based on NOI (net operating income). It's similar to EBITDA if you're familiar with that. The NOI for this building would be:

Gross income: $24,600

RE Taxes: $3300

Insurance: $1500 (just a guess, but the owner pays it)

Repairs: $2460 (10% of gross)

Vacancy: $2460 (10% of gross)

NOI: $14,880

At a price of $190,000, the building would have a cap rate of 7.8%. Stated another way, if you bought it with cash you would earn a 7.8% return on your investment if you hit all of those figures above. If you finance the purchase, you would have $14,880 to cover the debt service and provide some cash flow for you.

2) As you see above, I'm using 10% for maintenance and vacancy. You may have a better sense of what actual maintenance may look like. You may also have an idea of what vacancy has looked like over the past few years.

3) If you move forward with the purchase, talk to your accountant about how much you should pay in rent. You should be able to realize some tax savings by paying at the high end of market rates.

4) I didn't include an allowance for CapEx. Again, this is something that you are going to have a good idea of based on your knowledge of the building. I know that I have to replace air conditioning units in two of my offices in the next few years, so I have put that aside for when the time comes.

Hope this  helps,

Here's what worked for me in filling my three small offices:

1) Craigslist

2) Vacancy/For Lease sign out front

3) Offering a one month rent commission to a local commercial real estate agent

4) Networking and letting everyone know

I've had 4 different tenants in the past 2.5 years and one came from each of those methods.

@Jesse Meddaugh, I made this move 2.5 years ago. I bought an empty 4 office building with a large parking lot and moved my accounting practice in. Now that it's fully leased out (including 7 parking spots leased to neighboring businesses) it cash flows nicely. A few things to consider:

1) Are you looking for a vacant building, full building, partially occupied? There are advantages to each.

2) May sure you understand NOI and cap rate. You'll also want to independently verify the typical cap rate for your area.

3) Determine how much you can afford to pay and stick to that figure when you're running numbers.

4) If you're looking at a building with existing tenants, you will want to know what they're paying and get a copy of the leases. Probably worth having an attorney review the leases.

5) Own the real estate in an LLC separate from the business.

6) Make sure you have cash reserves for the maintenance that you will immediately have to do after closing. 

7) Fall in love with the numbers, not the building.

8) Try to look at it from a prospective tenant's viewpoint. I.e., why would someone want to lease space in that building?

9) Consider seller financing if possible.

10) Expect to pay a lot for an inspection and an appraisal.

The list could go on, but this is a good start. Whatever you do, run your numbers conservatively.

Hope this helps,

If it's an illegal pot growing facility, call the police. If it's a legal pot growing facility, then you need to decide whether the potential for increased criminal activity at your new property is worth it.

Hope this helps,

@Naeconda Ivey, I got started investing in real estate after my accounting practice was 8 years old so it wasn't difficult for the bank to loan the money for the office building that we purchased. I am, however, in talks with the owner of another office building in town to buy his building using owner financing. He's a friend and is willing to finance the entire purchase price. There's tax savings for him and cash savings for me.