Newbie Investor and Seeking help on this possible deal

[Michael Hoss]

Hi everyone,

Thank you in advance to all the help and advice you provide on this great forum.

I am looking at a Shopping Center in Dallas that is for sale, possibly going under contract today but before I do that I need some input and analysis of how to go about this without major mistakes.

1- Older Shopping Center Built in 1969 in Downtown rough area

2- % 100 leased with leasing contracts extending for 2 to 4 years - Long term Tenants

3- Exterior painted in 2012

4- Roof repaired in 2011

5- New Signs in 2012

6- Resurfaced lot in 2012

7- 13,314 SF with 2 legals - 7 stores - I have a copy of all leases

a- Liquor store since 1984

b-Grocery store since 1999

c-beauty shop since 2011

d- barber shop since 1969

8- Utilities are seperate metered and paid by tenants, tenants do own repairs

9- Seller pays Taxes: $12000/Year, Insurance: $7000/Year, Exterior and Sign Electric $1800/Year, Parking lot daily cleanup $3600/year, management fee is 12000 / Year ( I can eliminate that and do it myself?), Lawn care: $2400

10- Original Asking price: $850K

11- Accepted price:$650K if all cash offer and close in a month, seller husband died(verified) and she just wants out

12- Price per Sf at $850K is $63.84, at $650K is $48.20

13- 2012 Gross Income: $106,080

14 Operating Expenses: $20,840, $12,000 of that is management fee

15- NOI: $85,240

16- Pre tax cash flow: $81,840

17- Cap rate at asking price of $850k is %10 higher if i get it at $650K

18- Cash to invest $500K, I own a paid off home worth $175K, talked to a lender who can get cash out of %80 loan to Value at %3.5 - 15 year loan

so I can get $130K from House and $20k borrow from family to come up with the $150k short to pay the $650K

19- 2013 Current rent collected increased from $8500 to $10090

Breakdown: Rent collected: $10,090

Monthly Expenses with current management company: $1730

Gross: $8360/Month = $100,320/Year

Tax: $12000

Insurance: $7000

NOI: $81,300 with management company - add $12,000 if no management company used

Please let me know how to proceed, good deal or stay away? How to get a proper inspection on a commercial shopping center with 7 tenants, who to hire, an attorney for the contract?

I am in TX

thank you

[Chris Winterhalter]

You definitely can't forget about management fees. Do you have experience with retail leasing? If you don't good luck filling your vacancies properly. Properly leasing your shopping center takes experience, from having the right industry contacts (retail tenants) to being able to properly structure the lease and underwrite the deal. The first thing I would do is reach out to a management company in the area that deals with these types of complexes (C and lower). Get their opinion on the investment and make them a partner in your due diligence i.e. verifying financials and helping build realistic projections.

Secondly I would call your local banks for financing. I know the offer accepted is based on all cash however you need to know if you can obtain financing. Also you are missing out on a lot of safeguards put in place by lenders with paying all cash. You need to underwrite the deal just like a bank would...with professional inspections, financial verifications, an appraisal, possibly an environment phase 1 study etc. Also find an experienced attorney and CPA (in CRE) that can help you through the transaction as well.

As @Jon Klaus pointed out it looks like you are spending a lot of your money on one deal. Make sure you have the proper reserves set in place for WHEN unexpected expenses come up the first two years. Good luck and keep us updated!