All Forum Posts by: Bob Dole

I'd ask for a meaningful deposit to extend the closing.  And it has to be a reasonable timeline, not 90-days, etc.

Quick story.  Property we were buying, everything was moving along.  Literally a couple of days before I was to lift the financing contingency the bank decided to bail.  I was not happy, my agent was not happy, seller was not happy, etc.  No reason given on why the first bank bailed.

So we reached out to the selling agent and told them what the situation was.  Needed more time to close as financing fell through, etc.  We offered additional deposit as a sign of good faith.

Seller agreed.

Long story short, we got financing and closed a couple of days BEFORE the original agreed closing date.  I think it was a blessing in disguise as the new financing was for a longer term and better rate.  I'm still on it, sub-4% on a commercial loan!

If the buyer is serious, they'll offer more for the deposit.  If they're not, or they don't have the funds, they would never be able to close anyhow.  Take the initial deposit and relist. 

Quote from @Solace Medina:

Quote from @Bob Dole:

Quote from @Solace Medina:

Does a medical office investment mastermind/investment group exist? I want to learn how to analyze, find, acquire, and lease medical offices from investors who are in this space. I want to do this as a single investor (or with a partner) but not through joining a syndication. I'm located in Wichita, KS but location doesn't matter if there is an online group! 

Alternatively, if you are an investor who owns medical offices, I'd love to chat with you.

I've invested in a couple of commercial medical properties.  This was by design as I feel medical is more ecommerce proof.  The sunk cost is somewhat substantial, so most of these medical practices won't leave unless business is bad, or rents are out of control.  I purposely avoided retail and entertainment (restaurants) types of properties as I feel business can boom for 10+ years and all of a sudden it doesn't.  For medical, depending on what it is, you're going to have to see a doctor.

One other thing I've seen is that the doctor(s) generally owned the property at some point.  At some point they may wish to sell their practice.  The cost of the practice and property would make the sell price quite prohibitive.  So they sell the property first, rent back, and sell the practice a couple of years later. 

 This is exactly what is drawing me to medical offices. The stability during economic downturns, the in person necessity, sticky tenants, strong tenant income, etc.

Did you invest in these medical properties by yourself or with a group or partner? How did they perform? I'm trying to assess if and how I can get into this investment class. 

We closed on our first property probably ~2 months before covid and lockdowns happened!  It was quite interesting as our bank (major national bank) started calling me asking if my tenant was okay and if I needed any relief from the mortgage payments.  The bank called me 2-3 times about the property just to double check.  

The tenant was still operating.  But instead of patients in the waiting room, they had patients waiting in their cars.  And only essential visits were allowed.  This is a surgery center, so some of these issues could not wait.  Were day as busy as previous?  No, but they were essential and still busy.  This was my thesis for medical. 

Invested with a partner, my spouse. So essentially, I'm the lone investor as my spouse doesn't care or manage any of this.   I think having partners is challenging.  Are people on the same page?  What's the goal?  Buy and flip?  Income stream?  What if someone wants to do a cashout refi?  What if someone wants to sell?

I originally had conversations with a couple of potential partners.  Everyone has an opinion and nothing would get done.  I wasn't sure if this was a venture we'd want to do on our own, especially for the first time.  I'm 100% glad we did it on our own.  No 2nd guessing (nothing wrong with 2nd guessing when it's productive -- but it's a clown show a lot of times.)  I have the ability to make unilateral decisions after a quick conversation with my spouse.  

I guess it depends on your situation and who your partners are.

BTW, I tried to bring in a family member for prop #2.  Made no traction and went on our own again.  I'm 101% sure I'll get the, "Why didn't you tell me?" spiel later on about this.  I'll be in ignore mode. 

For us, it's straightforward.  We wanted a strong income stream.  We have no medium or long term plans to sell and buy more.  MAYBE, I may do a cashout refi in the future and leverage the equity for another property.  TBD.  

In terms of performance, I'm happy.  Cash on cash has been great.  If I were to price out the property just based on cap rates, we're "up" ~23% in equity in about 6 years.  This has made me rethink about a potential cashout refi in the future.    Let's put it this way, I wish we bought a couple more back then.  Great interest rates and great cap rates!  Now the math is a bit fuzzier because of borrowing costs.  

Quote from @Lesley Resnick:

Today Lesley loves cash flow.  

Future Lesley loves appreciation and equity, except you can not spend it.   

My strategy has not changed.  Buy good assets and leverage them with low cost long term loans.  The best assets (A+), don't cover their debt service, i.e. the 3m house that rents for 10k a month.  This would be a terrible investment, since you would have to take money out of your pocket every month to own the property.  

In the words of Warren Buffett, "my hold period is forever."

I expect my daughter will inherit my portfolio.  Now if anyone wants to buy it above market, everything is for sale!

I have been slow to adopt new strategies, I never jumped into the AIRBNB business, I wanted to to see how it played out with the municipalities (HOA). The other problem is you need top properties to make it work, ocean front, TPC golf course. It is the hotel business, not real estate.

I have one pad-split type property, down from 4.  The first and only one remaining has turned into a home run.  This led us to convert 3 other properties to that model.  It is a tricky model and high touch.  If you need to live in one of these places, something has gone wrong in your life.  With a a roommate or a family member to share the rent, you could have your own place and not share with strangers.   

I wait for my pitch and swing for a double.  Home runs are rare and can lead to bad outcomes.  If an amazing opportunity came up, I would jump in with both feet.

You must chase 2 objectives.  Long term strategy and goals are just that, long term.  Second, listen to the market, don't second guess or try to predict it in the short term.

I check the daily forecast, but keep an umbrella in my car just in case.

I'm about cashflow.  If it flows well, the equity will come.  The math doesn't make sense to me when there's great appreciation, but bad cashflow.  A tenant not paying and staying there for 6-months and you're screwed.  All the appreciation you make will be spent booting the tenant out etc.  

When I do my math, I always look at the cashflow first.  Then when I'm doing estimates for appreciation, I use a conservative number (in my mind at least) of 1%.  

Quote from @Solace Medina:

Does a medical office investment mastermind/investment group exist? I want to learn how to analyze, find, acquire, and lease medical offices from investors who are in this space. I want to do this as a single investor (or with a partner) but not through joining a syndication. I'm located in Wichita, KS but location doesn't matter if there is an online group! 

Alternatively, if you are an investor who owns medical offices, I'd love to chat with you.

I've invested in a couple of commercial medical properties.  This was by design as I feel medical is more ecommerce proof.  The sunk cost is somewhat substantial, so most of these medical practices won't leave unless business is bad, or rents are out of control.  I purposely avoided retail and entertainment (restaurants) types of properties as I feel business can boom for 10+ years and all of a sudden it doesn't.  For medical, depending on what it is, you're going to have to see a doctor.

One other thing I've seen is that the doctor(s) generally owned the property at some point.  At some point they may wish to sell their practice.  The cost of the practice and property would make the sell price quite prohibitive.  So they sell the property first, rent back, and sell the practice a couple of years later. 

Quote from @Don Konipol:

I've owned a few medical office properties in the past. Minimum total price for a smaller, yet still "efficient" property would be in the $1,500,000 + range in the less expensive states. Financing of up to 50% at 2 or 3 % over "base rate" can be had. Any LTV over that would require hard money rates, which would make cash flow negative. So, if you are able to find a cash flowing property in a low cost area you would realistically need $750,000 plus emergency capital of your own money to do a deal that has any chance of success.

Most smaller medical office buildings were occupied by solo practitioners or small partnerships.  In the last 5 years those are gone, ALL medical practices are now part of major group practices.  As leases expire the major practice administrators either consolidate and relocate practices into large medical campuses, or negotiate leases with retail strip centers that have empty space and are willing to sign a long term lease at way below market rent to attract an “anchor”.  

I no longer invest directly in medical real estate, I invest in medical office REITs. 

Hi Don,
Are you saying that smaller medical offices are gone due to these medical groups being absorbed by larger practices?  

I invest (dabble) in medical offices so would really like to hear and understand your thoughts on this.

As an example I have a tenant that is a dermatology group.  The business was owned by a sole proprietor, but the doctor sold it to a PE firm.  He know works the derm practice still and I assume he gets a cut of the action from the PE firm.  He has a couple of locations.  I can't imagine this type of medical would be consolidated.

Would love to hear your thoughts.

TIA!

Following!  I want to learn and understand the mindset of pulling cash out and redeploying it.

No plans to pull any equity out currently, but need to start thinking and strategizing this for the future.  Have a property that has about 4 years left on a 10 year loan.  If I apply a cap rate to the property, the property has probably increased by $500k.  In theory, I could pull that and some additional equity out.  BUT, the rate is also 3.75% so I don't want to lose it.  

I may be in a different situation than most of the investors here.  I'm here for CF so my outlook is different vs. equity increases, sell, buy, and then rinse and repeat.   

But being able to pull out $500k+ in the future is very tempting to purchase another property.  

@Wilson Lau, @Corey Williams, and @Amit M.Thanks for your insight thus far! These are things I hadn't even thought about it.  I was just assuming it could be done because of the surrounding buildings are a mix of commercial, industrial and housing.  

The area is zoned for mixed use of residential and commercial/industrial.  Think of the Mission & Valencia area in SF.  Just a mix of everything.  The building next store are apartments/condos.  The building to the other side I believe is a restaurant.  

The current building that I'd consider demolishing is already a mix of industrial (downstairs) and residential (upstairs).  I don't know if we'd need to do any rezoning or not because of this.

But assuming $600 per foot gives me a ball park.  If it was 3 stories, the top 2 floors would be the largest and the bottom would be the smallest.  If we assume 1800 sq feet for each of the top 2 floors, and say 1000 for the bottom, we're talking about 4600 sq feet here.  Build cost would be $2.8m easily.  Throw in permits, studies, legal, etc we're talking $3m easily.  I'd need to see how much we unit could be sold for, but I'd assume $2m a piece on average for the larger units and 1.5m for the smaller unit.  So that's $5.5m. 

So a potential net profit of $2.5m.  Plus whatever the current property is.  I believe I can get the property for a good deal, ~$1m'ish.  So that would knock off another $1m in profit.  Down to $1.5m in profit potentially.  

The location would be in the San Francisco Bay Area,so very high labor rates.  I know a SFH would be $600-$800 a foot.  But I'm trying to get a ballpark of how this would work for say a 3 story, 3 unit condo situation. 

Just trying to run some rough numbers to see if it's worthwhile to dive more into this.

Not sure what forum to post this in, so I figured here.  Can also move it I guess.  Hopefully this gets some eyes on it.

I have access to an industrial property.  The cap rate on it isn't great and the value to sell it isn't great currently either (due to interest rates and economy in general).  

Does anyone have any estimates of how much it would cost to construct a 3 story/unit condo in its place?  I did some searches and it's giving me estimates of $600-$800 a foot.  But that has to be for a SFH.  Otherwise, if each unit is 2k square foot, we're looking at $1.6m per unit.  You'd have to sell for $2m per unit to make it worth your while.

Any thoughts or can anyone point me in a direction for further research/analysis?

Find another agent.  Be upfront that you're remote and that you'll make an offer site unseen and that YOU ARE depending on your agent to take a look at the property and offer their PROFESSIONAL opinion on the property.  You also have to show you're serious as well.  I think that will make a huge difference as well.  

I've purchased a couple of commercial properties out of state.  Both times, I've made offers without seeing the property in person.  I get my broker's opinion, and I make an offer based on that.  When the LOI is signed and we're moving along, I'll fly into town to do a walk through of the property.  

Find an agent that knows the area, property, etc very well.  I trust my guy.  I'll send him properties and he'll give me his opinion on them.  9 out of 10 times he'll tell me, "I don't like it because of x, y, z."  He was actually the selling broker on my first property. I like the guy, his knowledge, etc, so I approached him afterwards for future purchases.  He knows I'm serious since I've worked with him before.