All Forum Posts by: Chad Gray

A lot of good replies here so far, however I don't think there is necessarily a "smartest" option as a lot of it is contingent on your current goals and what you're looking to get out of the property. One thing that hasn't been pointed out is that the property has to be your primary residence for 2 out of the previous 5 years prior to selling in order to avoid capital gains. So, if you did turn it into a rental, if you were to sell after the end of year 3, you would now owe capital gains on the profit of the sale. (I'm not a CPA this is not financial advice). If you don't need the equity out of it at the moment, converting into a rental for cash flow and appreciation wouldn't be a bad idea, however I would be cognizant of the potential tax implications. 

I wouldn't do it. I invest and live in Raleigh as well, it's a competitive market but there are plenty of deals to be had, this does not sound like a deal at all. A few month's of vacancies, capex or tenant repairs and your wife's commission is wiped out. 

Investment Info:

Office Space commercial investment investment.

Purchase price: $285,000
Cash invested: $74,750

Purchased two office condos in North Raleigh to utilize as a furnished shared office space. There are 7 individual offices within the two units that are rented out. Tenants can rent each individual office on a daily or weekly basis. The units were purchased off market direct to seller in which we immediately did a full interior rehab after closing. My wife currently uses one of the offices 3 days a week for her private practice while we rent out the remaining offices.

What made you interested in investing in this type of deal?

My wife was previously renting a similar type of unit for her private practice. Where she was renting was not exceptionally nice but appeared to have quite a bit of demand from other's with private practices. From my perspective, there is a discrepancy between the lack of supply for this time of furnished unit and the amount of local demand.

How did you find this deal and how did you negotiate it?

Purchased off market direct to seller.

How did you finance this deal?

Standard commercial loan from a local bank. We were able to secure owner occupied terms which gave us better financing options.

How did you add value to the deal?

We did a full interior renovation as well as replace the hot water heater and HVAC. Following the completion of renovations we have about 60K in forced equity.

What was the outcome?

So far it is going great and am looking to purchase additional similar spaces in the area.

Investment Info:

Office Space commercial investment investment.

Purchase price: $285,000
Cash invested: $74,750

Purchased two office condos in North Raleigh to utilize as a furnished shared office space. There are 7 individual offices within the two units that are rented out. Tenants can rent each individual office on a daily or weekly basis. The units were purchased off market direct to seller in which we immediately did a full interior rehab after closing. My wife currently uses one of the offices 3 days a week for her private practice while we rent out the remaining offices. Currently it nets $1600/ month with additional upside. At current rates, if all week days are rented, it will net aprox. $2,550 per month, with the potential to reach $3,700 if it is fully rented on the weekends as well. At the moment most tenants are not interested in renting on the weekends which is understandable. TH=his has been a great learning experience and are currently looking to purchase similar investments in the Raleigh / Durham area.

What made you interested in investing in this type of deal?

My wife was previously renting a similar type of unit for her private practice. Where she was renting was not exceptionally nice but appeared to have quite a bit of demand from other's with private practices. From my perspective, there is a discrepancy between the lack of supply for this time of furnished unit and the amount of local demand.

How did you find this deal and how did you negotiate it?

Purchased off market direct to seller.

How did you finance this deal?

Standard commercial loan from a local bank. We were able to secure owner occupied terms which gave us better financing options.

How did you add value to the deal?

We did a full interior renovation as well as replace the hot water heater and HVAC. Following the completion of renovations we have about 60K in forced equity.

What was the outcome?

So far it is going great and am looking to purchase additional similar spaces in the area.

Hey Rafael,

Looks like you've received some good responses here. A couple quick points to some of the questions you raised.

- Don't pay cash, leverage. That's the largest benefit of real estate. Personally, I like to target 30% equity retention in each deal.

- Section 8 income isn't guaranteed. There are cases of local governments delaying payment due to budget constraints. If they do delay payment by weeks / months, which has happened with horribly mismanaged localities, what recourse will you have? I don't invest in section 8 housing and also have no desire to so maybe I am biased.

- I live in Raleigh, 10-50 unit complexes will be hard to come by unless you're okay paying a premium. I would check some of the sub markets 15-40 minutes from Raleigh city center that still benefits from the Raleigh economy.

- Everyone's situation and goals are different but I would assume there are a few quality markets within an hour of where you are located in Florida that would check a lot of your boxes. I would start speaking with residential / commercial agents and property management companies close by and get a feeling if something closer by will meet your criteria.

I would look in the smaller markets in the outer band of RTP. Clayton, Zebulon, Fuquay, Pittsboro, Hillsborough etc. You can find something in Durham and parts of Raleigh, specifically zips 27610, 27603, and parts of 27604 that would meet your criteria, however generally speaking most of the inventory that would fit what you are looking for in Raleigh or Durham would likely be in neighborhoods that I personally wouldn't want to invest in, C- to D type neighborhoods.

Mitch already touched on it but this is a good example of "correlation does not equal causation". The Raleigh market may have increased by 40% after the Apple announcement, but it wasn't because of Apple, at least not solely. A lot of companies are moving to Raleigh and the surrounding areas. Compounding on one another sure that will have a big impact on the market but there are a lot of factors at play. I think smaller markets say sub 50k population would have a larger impact from one big move from a manufacturing facility or something like a Amazon processing center. Depending on the salaries of the new jobs they may also price out the local residents on new home sales which would further drive up the price. Depending on the number of jobs and number of new development going on in the area it may just be simple supply and demand.

Feel free to add me to your list for NC and GA.

Very competitive and very low inventory. I don't know your criteria for a good deal, but if you're strictly looking on market for a quad in Raleigh you likely won't find one in the near future that meets what you're looking for.

You'll have a tough time finding decent cash flow in Raleigh given your numbers if your approach is buying turn-key on market properties. Generally speaking long term rental rate hasn't kept up with price increases. If you're keen on Raleigh I would recommend expanding your search to some of the surrounding markets.