Former bank property

[Ryan Zapoticky]

I am new to real estate investing. I work as a dentist for my day job and looking to begin. I came across a commercial property listed for 500k. From what I can find, the last market valuation of this property was ~650k. The current property has a tenant which terminated the lease that runs through the summer of 2026(~80k). A buyout of 65k was offered by the current tenant to terminate immediately. What are some of the questions I should be asking and does this seem like a reasonable investment.

[Frank Barletta]

How many units?
What's the current cash flow and OPEX?
Are there any leads for new tenants?
Historical rent roll?

Best of luck @Ryan Zapoticky

[Nikolas Engel]

Can you share more details? A commercial property can be too many things.

In general, the value of any commercial property is determined by the NOI - Net Operating Income. That is all income minus all expenses, before any mortgage payment.

You might use the upcoming vacancy for your negotiation purposes. This could be a good or a bad deal, we don't have enough information. A good deal could be that the upcoming vacancy presents the owner a unique opportunity to reposition and add value the property (basically finding a tenant that pays higher rent and therefore raise the NOI).

[Nikolas Engel]

Can you share more details? A commercial property can be too many things.

In general, the value of any commercial property is determined by the NOI - Net Operating Income. That is all income minus all expenses, before any mortgage payment.

You might use the upcoming vacancy for your negotiation purposes. This could be a good or a bad deal, we don't have enough information. A good deal could be that the upcoming vacancy presents the owner a unique opportunity to reposition and add value the property (basically finding a tenant that pays higher rent and therefore raise the NOI).

[Evan Polaski]

@Ryan Zapoticky, former Bank spaces can be very tricky.  I am assuming this is your "typical" free standing bank on a corner somewhere.  

Bank properties are effectively office space in a retail corridor (typically). In my market, I have seen a couple get released/sold to other banks.  One became an enterprise, one became a veterinary office, one got demo'd and had 10-15 townhomes built on the property, and there is one in my neighborhood that has been for lease for a couple years now and still vacant (not sure if the owner is really just land banking it, since he owns the adjacent property too, a former medical supply store).

All that being said, I do not see this property as being something that will be easy or cheap to re-lease.  Now, if it is in an ultra-high demand neighborhood that is effectively land-locked, you will have more interest.  But my guess is you are effectively valuing the property at land, maybe a touch higher.  If that 1/2 acre to 1 acre of land is worth $500k or more on its own, then you could have an opportunity.  But depending on actual layout, banks require a good amount of work to turn into anything that isn't a bank.

[Jameson Sullivan]

There's not quite enough information here to give a detailed response, but banks can have great upside depending on where they are located. We have seen a lot of bank to medical conversions here - lots of dentists like banks actually - but they can be VERY expensive to convert. I would call some local leasing brokers in your area before you have any non-refundable earnest money to get an idea of the tenant demand for something like this and if you are new to retail leasing/investments I would highly recommend you hire one of those brokers to negotiate the lease for you. If you can find a national tenant who will pay $65 - $75k/year, NNN then it might be viable.

One note: BEWARE OF THE VAULT! 

[Joel Owens]

NNN 20 years + investor and broker.

Usable dirt it sits on size ( 1/2 acre ok, 3/4 acre good, 1acre plus best ) and parcel shape (most of it road frontage for land or is it narrow and deep? regular rectangle or square size or irregular?)

Tenants are looking for parcels that fit in their ideal box size layout for building and parking spaces requirements with any drive thru's wanted. The tenant is not as much focused on rent when they are strong regional to national in nature but the best spot they believe drives the most sales and profit annually.

It's the lesser quality smaller tenants that are more sensitive to rents because their model is not often proven with scale or over time as much.

So you have to know what you are buying and what to do with it.

I buy same stuff for cash but I am the GP on the syndications and my LP's put in minimum 200k per deal as accredited investors.

To convert the bank to medical would be very expensive. If the bank is a certain age of construction most tenants want it torn down and build new. This all comes with time and experience. After you buy many dozens of these nationally you learn which ones are hero's and zero's.

If you take 750k of your money to buy cash but you have little experience your risk profile is very high. If you invest with someone doing it for decades at 200k or more your risk can often be way reduced due to the knowledge of the sponsor. You can learn from the sponsor on the deals and then go out on your own if you desire or later decide you are happy to keep investing and not put in the work yourself. It is WORK to turn these properties around. Often not as much as retail centers with lots of property management but still takes work, knowledge, and skill.

I have a whole process I have developed to assess risk.

Hope it helps