Commercial (Retail) Analysis Components

[Troy Fisher]

So I know there are a lot of "Rules of Thumb" on the Residential side of Real Estate.  As I try to transition into Commercial (Retail) I find that I have no idea on how to perform the proper analysis.  

What are the Expenses that one needs to account for on Retail Commercial Spaces?

What are the "Rule(s) of thumb" that an investor should run quickly to evaluate a property?

What are some of the signs that the property could be a diamond in disguise? 

[Dave Foster]

Hi Craig,  You absolutely can do a 1031 exchange even if you carry back a note.  You may or may not have to pay some tax. In order to do a total exchange The IRS requires that you reinvest all of the proceeds from the sale in the next purchase or purchases.  However you can take some of the proceeds (think of the owner carry note as part of the proceeds) as what is called boot and only pay tax on that amount.

Here's an example.  Say you were selling a $2mm retail center that you had paid $1mm for and are carrying back a note for $400K. Your exchange account has two proceeds in it - $600K in cash and a note for $400K.  You have a couple of options.  You can pay the tax on the 1mm gain (not fun).  You can do a partial exchange ( you would pay tax on the $400K note but shelter the remaining $600K in gain from tax which is better than a sharp stick in the eye but still meh!).  Or you could find an alternative source of cash and buy the note from your exchange account so your 1031 account has $1mm in it which you use to purchase replacement property - no tax.   Now outside and unrelated to your 1031 account you have a note for $400K secured by the property you sold and here's the great part about it - You paid $400K for it (remember you "bought" it from your exchange acct) so the only tax you will pay on it will be on the interest it produces.  

Yes, do the  exchange and carry some paper.  There are several ways to do it.