All Forum Posts by: Bill Haywood

No docks, just four large 16' x 18' doors where you can drive trucks/machinery into. And yes it would be easy to divide into two with a wall.

I have over 150k in cash if required. Though I am looking to buy a strip mall in the near future. 

Andrew,

What ended up happening?. Did you make the purchase?

Best

Hi Sam,

No independent appraisal done but it wasn't needed. My father owns 5 commercial buildings in the same city and knows the area very well. Also, we are very close to the top commercial real estate broker there so we know comps and what the value is.

Regarding the environmental, its a good question. Yes one of the subjects was a stage 1 environmental. No issues came up.

I don't want to say exactly where this is but its one of the small town around Edmonton.

Thanks

Great discussion and thanks to everyone for contributing!

Regarding the 15 year amortization, point taken. I modelled that moving to a 20 or 25 year mortgage makes sense. Assuming I put all monthly free cash flow against the principle (which I assumed before) it will still be paid off in 11.5 years. However, in the event the tenant doesn't renew, the payment will be lower so I wont be under as much pressure. As such only upside. Will try and renegotiate this.

Also, to clear a few things up - seller is selling because he is old, his health is failing him, and he is moving to Florida, not because the economy. That being said the economy is weakening in Alberta.

In terms of out clauses, they were one of the first things I checked given 1 tenant occupant. They are very stiff. Tenant will have to pay rent until vacancy is filled so fine with that.

In regards to 8% being high for commercial, I agree that is the case if you are in a major metropolitan area, however if you are in the smaller towns and city I would say its not unusual. My father has 5 commercial buildings in Alberta and one in BC. Every one was bought at a 9 cap or higher.

Joel, thanks so much for responding!!! Was hoping to get your opinion. 

For background, i am overseas but am from Canada which is where is purchased the property. Alberta to be exact.

To clarify. The loan term is for 15 years, with a 4 year 5% fixed mortgage. Yes the mortgage payments are high. Approximately $5,500 per month payment vs rental income of $6,375 per month. But i set this up on purpose. Goal is to pay the building off as fast as possible. By putting the excess cash generated every month against the mortgage, i can pay off the building in 11.5 years (assuming two modest rent bumps over that period - hopefully will actually be higher). 

If i can put another 200k down in the next year, which i should be able to do, will be able to pay off the building in 8 years. 

In terms of the tenant, the corporate parent is guaranteeing the lease. They don't have any franchisees. All locations are owned by corporate so happy about that. 

Regarding the cap of 8% being low relative to where you are. Can you let me know where that is. If that is true would happily look there for my next investment.

Best,
Bill

Hello all,

I have just bought my first commercial building and would love your thoughts on it! Deal and building stats below. A bit of context for you all, I am 28 years old and this is my first real estate deal. The seller of this building is 72 years old and wanted out so he could move to somewhere warm. I saw it the day after he called the real estate agent and put down a deposit two days later after doing my due diligence.

Deal Stats
Purchase Price: $950,000 (owner wanted $1,000,000)
Down Payment: $250,000
Mortgage: $700,000
Mortgage Years: 15
Rate: 5% fixed
Mortgage: Previous owner is providing the mortgage though i can get a mortgage from a traditional bank at any time and repay him with no penalty. Good flexibility for me. Want to see where rates are going to go.

Building Stats
Building Type: Light Industrial building with good roof, large laydown land surrounding the building (good for big equipment and trucks) and a brand new fence encircling the property. Building looks brand new.
Size: 6,350 square feet
Annual Rent: $76,200 
Lease Type: Triple net lease (NNN) - No costs for me to bear at.
Tenants: 1 Tenant - Global industrial company (Worth over $20 billion - listed in London)
Lease Period : 3 years with two 3 year renewal options (10% rent increase per renewal
Previous tenant: Was another large industrial company, they left 6 months ago and moved to a new building. I went in and asked to speak to the manager and asked why they moved, was there any problems with the building etc. He said the building was fine. No issues ever. They moved because they needed a bigger space (there new building was double the size).

My calculations indicate that by putting the excess cash generated every month against the principle, I should be able to pay it off in c.11-12 years.

Would love any thoughts the collective BP community has!!