All Forum Posts by: Tyler Kastelberg

@Mason Clark @Aamir V.

Great question. Like residential tenants, commercial tenants don't want a big increase in their rent. If you elect to convert gross leases to NNN leases, you'll most likely need to reduce the rate so it is equivalent (or maybe slightly above) the amount the tenants currently pay.

Before you walk down this road, make sure the commercial units are separately metered. Some multi-unit commercial buildings are tough to lease as NNN because the utilities are on one meter.

@Archana Rath: Retail can be a real solid investment, especially if it is grocery anchored. You need to underwrite the deal to determine what you're willing to pay and the associated risks. The trick to modeling retail is centered around evaluating the current leases.

@Thomas Rutkowski

Thanks for the clear explanation!

@Thomas Rutkowski

Thomas: I've had it explained to me as a 1.5% lender origination fee, and 5% dealer fee for facilitating the transaction. Am I incorrect to call it 6.5% of fees? Are you going to give me back 5% of the sale proceeds in 30 years?

Garrett Blanchard Garrett: Consider investing in a $500 market study before seriously embarking on this adventure. A market study will provide detail about current occupancy in the market, rent rates, and the amount of new units the market will support.

Forrest Williams Forrest: You have quite the predicament. Consider that two of the most important factors in the success of a real estate investment is location and property management. You won’t regret the smaller asset in a good location so long as you have a good management option. Depending on your aspirations, you might consider investing alongside a professional on a much larger asset. The learning will be invaluable, and the return potential might be better than buying a personal asset.

@Gary F.

Correct - probably not your best bet given costs.

@Gary F.

To clarify, MIS only makes sense for highly depreciated (or appreciated) property that would have a large capital gains obligation.

@Gary F.

Yes. The benefit is that you'd defer your capital gains tax (~37% in California) for 30 years, allowing the saved tax dollars to be re-invested and multiply before you need to pay the tax in 30 years.

@Gary F.

Don't hold me to this number, but I believe the fee is circa 5% of the net sale proceeds.

If you go with the lease option route, you might consider setting the option price as a floating number based on the market at the time the option is exercised (95% of new appraisal, etc.)