Moving into Commercial

[Bret Burton]

I am a buy and hold residential real estate investor near Vail, CO. I've bought 4 places in 2.5 years valued at over a 1,000,000 and it looks like I wont be getting traditional financing from my lenders any time soon. Properties around here have exploded and the 25% down I have to find is temporarily out of reach. I recently found a commercial unit that the owner is willing to finance at 5.5% with 10% down on a purchase price of 295,000. Rent is $2950/mo with four years left on the lease. With these terms my cash flow is light because I'm pulling equity from another property to cover the down payment. It actually works out to almost break even. I'm hoping to negotiate down to 5%, which would cash flow $80. This is a number we would generally never accept for cash flow. My initial reaction is to say no on the property...

But, if I calculate a similar residential property that we have to put down 25% and we get the loan for 30 years, I would actually cash flow $800, which there's no question we would take that investment.

This would be my first commercial property and I'm very apprehensive to accept such a low cash flow, even tho the long term would be great. I'm concerned about being overly exposed if there's a vacancy due to the high monthly cost. 

I know there are a lot of different schools of thought on this, and I would like for someone who has some commercial experience and possibly some experience in a situation similar to this to give me some advice on this decision. Thank you for helping me on my first forum post!