Considering a small strip mall

[Mark Yuschak]

An agent in my office is looking to sell her small strip mall. The strip mall is located on a busy through-fare near where I live. She and her husband built the property in 1989 and have owned it ever since.

It's 4 suites and they're all occupied. One of the tenants consumes two of the suites. Here are the rent rolls per month:

$2400 - Hair salon, uses two units. 3 years left on lease, been there since 1996 and has an option contract on the property which expires when her lease expires (but the seller doesn't think she'll want to buy the property)
$1350 - Cigarette store. The owner is reviewing when the lease is set to expire. Been a tenant since 1994. However, the salon has expressed interest in taking over the cigarette store if he ever decides to not renew his lease (the salon is doing that well, apparently).
$1150 - Pet grooming store. Been there since June, 2006 and their lease is up for renewal this June and they intend to stay, per word of mouth.

The total square feet of the property is only 4,000. Unfortunately, the property does not lend itself to future growth. It's developed as it can get, and either side of the parcel are already developed.

Here are the expenses:

Snow removal - $20 per snow fall (seems concerningly low)
Lawn care - $25 per week (seems about right considering there's very little grass)
Insurance - costs her $1600 a year
Taxes - $8100 per year
Water/Sewer - $175 per month

She acknowledges her rents are very low, but attributes her 100% occupancy rate to the low rents. Makes sense, especially since I follow the same practices.

There are appears to be no deferred maintenance.

Her asking price is $625,000. I almost fell out of the chair initially when she told me, and still think the price is very high. However, I'm not sure how to correctly assess a good deal vs. a not so good deal when it comes to commercial. I can handle determining a great deal with residential all day long! I asked her how she came up with that price and she indicated that the gross income is 1/10th of the property's net worth. There's still a disparity, however, the pet grooming shop will have its rent raised and that will then show an annual income of $62,000.

She is willing to owner finance it at 8.5% over 30 years with 100K down.

This deal seems like a real dog to me.