What would you do?

[Cornell M. Dayne]

I have found a couple of commercial properties in which the owners are extremely motivated.

The first one is small C-class mixed use property in an A-class area in a small town. The company is fairly complex (could be an advantage for me in the negotiation). It has 4 uses: 1) 11 residential/apt, 2) 40 self-storage units 3) Retail storefront 4) Automotive garage.

All gross leases.

The owner hasn't kept good records so there aren't any tax returns for the last 3-4 years (another advantage possibly). The proforma NOI looks like it would come out to be about $90,000 per annum. I estimate that its probably closer to $80,000 at the moment especially since the owner manages the property himself and I would need to pay someone to manage the property for me. I also expect a little bit of turnover after the purchase.

Since I typically like the spread between current interest rates and my CAP to be a minimum of 2 points. I would be looking for AT LEAST a 9 cap in valuing this property since I expect the bank to charge me 7%. But a 10 cap would probably be my sweet spot. The complexity of this property is also good reason to look for the higher cap.

My question is what would you all do to set the deal up?

Would you go 2 year master lease stabilize the property and then cash the owner out/sell?

Would you make a cash offer just to see if you could get it?

Would you ask the owner to carry some of the financing like say 15-20%?

Would you value it differently than I did?

What would you do?

I will put the second property up in a second thread.