First time commerical purchase

[David Day]

I am ready to make a move on my first commercial real estate purchase and I'm hoping this post will give me some peace of mind. To give you some background, I have an insurance business located in Southwest Louisiana and I want to purchase an existing dwelling to move my business since I'm currently leasing. My current rent is $910 per month for roughly 800 sq. ft. which is reasonable, but I would still rather own my location as opposed to rent.

The place that I am looking at purchasing is listed at $249k, the dwelling is 740 sq. ft., and the lot size is 0.56 acres (measurements are more or less). There are essentially 3 main roads in this town and the property is on one of those three, plus this particular road is almost all commercial. The building is older, it was constructed in 1960, but it has a newer metal roof. There would need to be repairs made to the interior such as:

• Drywall
• Ceiling
• Removal of a shower (see below)
• Floors

There are also some permitting issues that would need to be corrected such as:

• Ramp to comply with ADA guidelines
• 2 handicap parking spaces to comply with ADA guidelines
• 1 of the handicap parking spaces needs to accommodate a handicap van
• A landing would need to be built at the back door, currently there are only concrete stairs leading up to it
• Removal of the shower (it was not permitted)

Finally, I will need to pave part of the parking lot to comply with the handicap parking; right now the parking lot is mostly gravel though there is some (very little) pavement.

I was surprised to find that it is in an AE flood zone, but luckily the BFE is 11 and the current elevation is 12. So at a positive 1 elevation, my yearly flood premium will not be bad.

My goal is to not keep the existing dwelling, instead I would use it while I am paying off of my note, and once the note is paid off I would then demo it to replace it with a strip center with 6 units. I would make the driveway a one way where the entrance is from the main road (right of image) and the exit is a service road (left of image).

Here is a screenshot of the place I want to purchase outlined in red.

Something a little unique about this sell is that it would include a billboard. The owner leases a part of the land (like a 2x2 piece) to a billboard company and collect about $1,600 a year from that.

In terms of numbers, the taxes on the property is only $123.53 but the property is only assessed at $7,960 so I don't think that I would get away with that. Property insurance would run me roughly $3,000 a year. Flood insurance would run me around $1,200 a year, but I might get lucky since the property has a crawlspace and so the difference between the BFE and the top of the bottom floor may be a +2 (which would be nice). I would setup a new business to purchase the property so I would need to purchase a new general liability policy and that would run me about $365 a year. I am waiting to hear back from my general contractor to tell me how much repairs to the interior will be and how much the permit stuff will cost, but I'm hoping that it won't go past $10,000. I haven't gotten an estimate on the hard surfaces yet for the handicap spots, and to be honest, I don't know how much that'll cost me.

I've already talked with my banker and she said that I'm good so long as it does not exceed $500k (which it won't). She explained to me that it is 15% down, amortized over 15 years, and on a 5 year balloon. I was confused because I thought that a 5 year balloon was like on the personal real-estate side where the total balance is due at the end of the 5 years or it'd need to be refinanced, but she explained that it is more like a variable note where the interest rate changes at the end of each 5 year intervals. She told me to use a 5.5% interest rate just to be conservative on the numbers.

I'm using the mortgage payment calculator, and using all of those numbers it would put my monthly notes at $2,484.74 which is a little scary to me. It may be a little less because I would probably take the money from the lease of the billboard and apply it to my flood insurance. But ideally, I would feel more comfortable around the $2k a month range.

With all of this information overload, what would be somethings that I should consider? My dad always says "you don't know what you don't know" and so I don't even know if I'm overlooking something. What advise would y'all give me to give me a little bit of piece of mind?