I'm new to both real estate investing and the Bigger Pockets community. I have been reading through every possible book on real estate investing and trying to keep an eye out for my first opportunity. I'm also trying to attend local real estate investor clubs both for networking and to potentially find a mentor.

I was talking to a coworker about my intentions and he happened to be new to real estate investing as well. We got to talking and he had just purchased a SFR and duplex from his bank. He then told me that his bank had other properties available and that he would put me in touch with his banker.

Long story short, he told the banker about my intentions who then got in contact with me. He proceeded to tell me about three commercial properties that he had available in Illinois. Apparently a customer of the bank who happened to be an investor went through a divorce and the bank ended up with his properties. The bank had been holding the properties for a few months and had completed some maintenance on them. The bank is only looking to get the maintenance costs and loan balances out of each property. The property info I gathered is as follows:

Property 1: 2 unit storefront with two long term tenants. The property brings in $1500 from unit 1 and $800 from unit 2. The taxes are $700 a month on an assessed $255k. The bank pays $200/ month for insurance with $700k in coverage. The tenant in unit 1 has invested $30k in their storefront and eventually wants to rent the entire building. The bank installed a new roof, and two new commercial HVAC units in the last three months. They want $180k.

Property 2: 5 unit storefront with tenants in all units. The property brings in $3250 a month in rent. The taxes are $1000/month and they pay $300/month insurance. The bank put on a new roof on 1/2 of the building. They want $208k.

Property 3: 7000 sq ft commercial facility with bar and commercial kitchen. I am told that it is in need of renovation inside and the bank has received multiple offers to lease but it is currently unoccupied. They say it was rented for $3500/month with $1200/month in taxes. They want $185k.

I have run the numbers on property 1 and 2 and have come up with the following:

Property 1: ($2300 Mo. Rent) - ($230 Vacancy Factor of 10%) - ($700 Taxes) - ($200 Insurance) - ($250 Maintenance & Owner Utils.) = $920 Mo. in Net Operating Income x 12 months = $11040 NOI annually

$11040/$180,000 Purchase Price = 6.1% Cap Rate

The bank offered me 3% on 20 yr amortization with 5 yr balloon for a P&I payment of $890.

Monthly proceed after expenses = $30

Property 2: ($3250 Mo. Rent) - ($325 Vacancy Factor of 10%) - ($1000 Taxes) - ($300 Insurance) - ($300 Maintenance & Owner Utils.) = $1325 Mo. NOI x 12 = $15900 NOI annually

$15900/$208,000 Purchase Price = 7.6% Cap Rate

The bank offered me 3% on 20 yr amortization with 5 yr balloon for a P&I payment of $1030.

Monthly proceed after expenses = $295

The catch to the above numbers is that I think I could have the property taxes reassessed using the purchase price and significantly decrease the tax burden thereby increasing profit.

I have asked the bank for rent rolls or income statements and he agreed to provide the information. The banker has been very honest and transparent as far as I can see. I asked for comps or assessments and he admitted that he had none. I have had a hard time finding any comp information for the area. I also asked why not just put them on the market and he had two points: first he didn't want to pay seller fees since he would have to increase the price to cover the costs and second he said that selling the properties isn't his main priority. He is looking for an investor to build a relationship with to take the past investor's spot. He said the investor relationship is more important than selling the properties for a profit.

Now, for the catch:

I am new to real estate investing and have no experience in commercial properties

I am a Missouri resident and have no working knowledge of Illinois, their economy, or the real estate market

I have my doubts about the area that property 2 is located. I feel that if I lose a tenant I may not get someone else in there and that the property value may never increase.

What do you all think? I'm sure there is some angle that I'm not seeing here as I'm new to this. I see an opportunity for good monthly cashflow but I also see the risk involved by not only not knowing commercial property but also not knowing the Illinois market. I also realize my numbers are conservative and may allow some additional cashflow. If you made it this far thanks for reading and thanks for your input.

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Newbie looking for second opinion on St. Louis area opportunity

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