All Forum Posts by: Bob Langworthy

I did a cash out refinance on an office building in May. It was with a small local lender. 3.875% fixed for 7 years on a 25 year amortization.

@Samuel Bergen, congratulations on getting ready to invest, saving up a pile of cash, and looking for insight. Here are a few thoughts:

1) The answer will vary widely depending on your market.

2) Strip malls are getting hit hard in parts of the country due to the response to Covid. With a new administration, we may be looking at further lockdowns which may adversely impact tenants.

3) I own an office building and residential units. People always need a bed, they don't always need an office.

4) What about a small apartment complex? There are some economies of scale with an apartment complex that make them better than a group of SFHs.

Hope this helps,

@Justin Reader, you're going to get a wide range of answers on this. Here are some thoughts:

1) In most parts of the country it's cheaper to buy than to build.

2) The 2021 housing market could be a buyers market.

3) It will depend on what your goal is. If your goal is high end apartments, you may be better off building.

4) What about a BRRRR?

5) Evaluate the needs of your particular market to see if you  can get a sense for which direction to go.

Hope this helps,

Is it an off-market deal or currently for sale? A commercial broker may be able to give you an idea of prevailing cap rates in your area.

@Kambon Kali, Here are some thoughts:

1) With the properties being SFH and duplexes, I would run the numbers like you would on a SFH. If it was a 20-unit apartment building, it would be a little different. Being a numbers guy, I'd run all 20 and put them side-by-side in a spreadsheet. Expenses like mortgage you could divide by 20 (or the number of buildings).

2) The inspection will be key. You may find that a couple of the buildings are a disaster. 

3) You'll need to develop a good list of CAPEX projects based on the inspections.

4) Quick math shows that the properties should cash flow.

5) Are those rents at market for the area?

6) Financing may be a challenge. I've found that small, local banks are often able to offer more creative solutions than a larger bank.

Hope this helps,

Mathematically speaking, an all cash purchase produces the lowest CoC that you could have. Leverage introduces risk while also increasing the CoC return as high as infinity (a mathematical infinity, not infinite cash). Risk tolerance is the key factor in determining how you approach this. One of the more well-known all cash real estate investors is Dave Ramsey. He states a 10% CoC on his properties. That seems low to me given that he has held some of them for a long time.

@Armaine Austin, there are a lot of considerations with a purchase like this. But don't let that discourage you from doing your first deal. 

1) Is the business profitable? Have you seen 3 years of tax returns?

2) Will you be running it? If so, do you have experience in the industry? If not, can the business support the cost of someone running it?

3) With it being a commercial garage, you will want to make sure that the inspection looks closely at all utilities.

4) The closing process will include a title search which will address leins.

5) I haven't seen a DUNS number be of value for a small business with the exception of government contracts as Travis mentioned.

6) If the garage is not currently in operation, is there a need?

Hope this helps,

@Kathy Henley is right that anything is possible with a commercial lease. It's usually the case that what the tenant improves, the tenant maintains.

Hope this helps,

@Tyler Hardy, there have been three different methods that worked.

1) Personal relationships. Small town networking.

2) A local real estate broker that took one month rent as a commission. He had a sign out front and listed it online.

3) Craigslist.

@Sean Rooks makes a god point if this is a primary residence that you are selling. I'll assume that it's an investment property, hence the need for a 1031 exchange. If that's the case, here are some considerations:

1) You can't do a 1031 after you sell the property. The process has to begin prior to closing.

2) You have to use a Qualified Intermediary in order to do a 1031 exchange. 

3) Talk with a QI now to learn more about the process and their fees.

4) Ground up development of an office building is risky right now unless you are doing a build-to-suit with a signed long term lease in place.

5) Financing will most likely be through a commercial lender at a bank in your area. They will understand the process and the 1031.

6) If you're building new, there's less value in a property manager. I own a 4-office building that I remodeled prior to moving any tenants in. The systems are solid and I hardly have any problems. I've never had a problem that made me say, "I wish I was paying someone 4-7% of monthly rent to take care of this." 

7) Office tenants are easier to deal with than residential (we also own residential rentals). Office tenants are typically only there during business hours. There's no kitchen and all that comes with that. Eviction is much easier (thankfully, I haven't had to do that yet). They will tend to take better care of the space because they are most likely seeing clients/customers/patients there and want it to look good.

8) I'm sure you've done some research on the demand for office space in the area, but I would do even more research. Maybe a co-working space would be a good idea. Perhaps office suites with a common bathroom and kitchenette would be better. 

Hope this helps,