Purchasing a commercial building for my office

[Amanda Nardo]

Hi, I'm a real estate agent in Redding CA and I recently obtained my broker's license and opened my own brokerage.  I've been looking around at office spaces and haven't found anything quite right, plus I hate the idea of leasing a space and throwing $1200/month down the drain.

I'm brand new getting into investments myself, but I've been reading and researching so I can eventually break into real estate investing.

I've identified a building I like for an office and I'm just trying to figure out if it makes sense.  It's an old residence that has been converted into an office.  Built in the 1940s and located in a great spot downtown.  It's been renovated and although I could make some improvements later down the road, it's turn key right now.  It has fresh paint, updated fixtures, new flooring.  The way the floor plan is set up, me and the one agent working with me can utilize what used to be a large, rectangular living room/dining area, and then there are two other offices in the front of the building which are nice large spaces I could rent to other professionals.

In the back half of the building it's currently set up as a residential area.  There's two good sized bedrooms, a full bath, and a kitchen.  I can separate this area from the front office space with a door, as well.  There's an exterior door in the back that serves as a separate entrance to the back.

The building is listed for $395k which is in the ballpark of correct pricing for the home.  The area it's in has been improving and being revitalized so I believe it will be a good asset for appreciation.  However since I don't have 25% down, nor business credit since my brokerage is brand new, I don't think I can obtain traditional financing.  The seller is possibly interested in carrying the note and we are negotiating terms.  Right now we are considering 10% down at a 7% interest rate, but nothing is official yet.  My payment with taxes and insurance will likely be around $2500-2800/month and I'm assuming utilities will run around $500/month.  I could most likely refinance it into a traditional loan hopefully with a better interest rate in a year or two.  

I could rent out the other four bedrooms at around $500-550 each.  Or I could rent out the front two as professional offices, and the whole back part of the house as a month to month furnished rental for traveling nurses.  I think I can get $1k a month for that area, conservatively, but I'd probably need to turn the second bedroom into a living room/dining area, since they wouldn't have use of the front part of the house where me and two other offices would be used. 

As my business grows and I add more agents and need more space, I can remove the tenants and utilize the other areas of the home, which is something I like about this space.

I guess a few questions I have are:

-As a business owner who needs an office space, is this a wiser purchase than leasing even though the rents don't quite cover the payment?  My thought was that it's better than leasing, allows me to grow, and allows me to get the building appreciation.  

-What do you think is the best way to configure the rental spaces?  Would you keep it all as office rentals or is it more lucrative to use the back residential half as a furnished rental?  The house is located close to both hospitals and we have a lot of traveling nurses here.  However, we would occasionally need access to their area in order to use the bathroom or kitchen area where the fridge is.  

-I also saved $130/month with this building because I have a storage unit with my staging furniture, which I could then store at the building instead. 

Thanks for your thoughts.

[Jonathan Taylor]

@Amanda Nardo one note on SBA is you need to have two years tax returns to prove a viable business. You can close with 10% down but business financials need to be documented. I agree with @Ronald Rohde as it may be too early to jump on a building purchase.