All Forum Posts by: Bob Langworthy

Consider changing your perspective: every commercial building without a for sale sign in front of it is off-market and potentially available to the right buyer for the right price. Think about your own house. It's probably not for sale right now, but if someone approached you with the right offer, you would consider selling it. @Theo Hicks has a series of Syndication School podcasts as part of the Joe Fairless podcast and in JF1618 he goes through 10 ways to find off-market properties. It's worth listening to a couple times.

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As the other accountants have mentioned the answer is, "it depends, but probably not". If you are considering being an LP in a syndication, there isn't a place for you to take these travel expenses on your 1040. If you have some sort of business structure setup through which you make LP investments, then it could be possible to write off the expenses. 

At least it's a nice time of year to make a trip to the Southeast!

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@Sunny Singh, the first place to start is city hall or the local town office. Find out how the property is zoned and what uses are permitted. Next step is to evaluate the area to determine the highest and best use of the properties: residential, office, retail, etc. Once you have that sorted out, you may need to get permits from the city/town. If the property manager is good, they should be able to tell you what you can expect for residential rent, but they likely don't know the commercial market. You would need to do some online searches of your area to determine what office and retail space goes for. 

Once you have estimates for income based on the various uses, you will need to run numbers on expenses for each type of use. You may also have to renovate to make the properties suitable for office, retail, etc. Factor that in as well.

In the end, let the numbers drive your decision making. Too many investors fall in love with a building or with a niche and miss out on better opportunities.

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Welcome to BP, @Jon Gorman! I am in a similar position to you with my accounting practice occupying one of 4 offices in our commercial building. Here are a few thoughts:

1) Treat real estate like a business. If you wouldn't set up your medical practice to just break even, then don't do that with real estate. 

2) As soon as the lease allows, raise the rents to whatever the market will bear.

3) Find the next property soon. You might be able to refinance the existing building and get some cash out for the down payment on the next.

4) As has been mentioned, NNN for medical is preferred to gross lease. It will be a bit of work to transition the clients in the current building, but plan on setting up the next building as NNN.

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Brandon Turner's book would require a small outlay of cash, but it's literally called "The Book on Investing in Real Estate with No (and Low) Money Down: Real Life Strategies for Investing in Real Estate Using Other People's Money"

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@Leonard Nester, the best option for you is owner financing for the deal. Depending on the industry, there may be a rule of thumb that applies to the value and purchase of a business. In the accounting industry, a practice is typically values at one year's gross income and paid out over 3-5 years adjusted for retention. 

If the current owner isn't interested in seller financing, I would wonder what he knows about the business/industry that you don't. If he's willing to take payments over several years and help you during that time, that's a good sign.

As an aside, have you owned or managed a business before? Is it an industry you are familiar with? Does the business have any profit after all employees (including you) are paid?

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@Will Crimmins, there are a lot of residential to commercial conversions near me in Maine. A couple of considerations:

1) Can you make it ADA compliant? A long ramp up the side of the building and an ADA compliant bathroom might be attractive to potential tenants.

2) Flexibility. Instead of one tenant up and one down, you might get multiple tenants/floor (financial adviser, attorney, accountant, bookkeeper, etc.). You could create a small business center of sorts.

3) Parking is key. Is there adequate parking for tenants and their clients/customers?

4) Additional revenue. Storage in the basement? 

My office building was once a house, although I bought it long after it was converted. It has four offices and 20 parking places. I pay all of the utilities which makes it easy for the tenants to just write one check/month. It also keeps things like internet service to the building much simpler and easier when a new tenant moves in.

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@Tchaka Owen is correct and that's the beauty of owning real estate. Congrats on owning a 41 unit. You will be forcing appreciation by raising the rents and that's the primary reason why I like commercial property over SFH.

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@Jason Lieberman, you are taking time to think this through and that's the right thing to do. Get input from people here on BP and then make your own decision. One factor that hasn't been mentioned is risk tolerance. That varies from investor to investor and makes a big difference in the decisions that we make. @John West has made the same decision that I have and many other investors have: scale up using leverage to build cash flow. Appreciation and reduction in mortgage balance are nice, but you can't pay bills with either one. Only cash flow will do that for you.

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Kim @ Sea Glass in Topsham is highly regarded by my clients. 

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