First commercial property tips

[Ryan York]

We've discovered what we feel is a solid commercial deal via a motivated seller. 

Building is 4000 sq ft

Gross revenue of $4500/mo

Taxes are 12k annually

She's asking 185k but is negotiable. 

It's a c- area. 

Can anyone in the commercial space offer some advice on what to look for on your commercial deal? 

Any tips or cautions would be awesome. Thanks!!

[Johnny Kang]

@Ryan York

Yikes, if it's vacant, that's a totally different story, because most commercial lenders finance based on the fact that it's cashflowing, so they know they can get their money back. Since it's not, you'll have to get the place fixed up (either by using hard/private money) so you can put tenants in, refinance it with a regular commercial loan so you can pay the hard/private money back, assuming it's cashflowing enough to meet the commercial lender's standards. But before you can refinance after the renovation, rent roll would have to be "seasoned" for about 12 months depending on the bank. So if the renovation takes 6 months, and let's say it takes you another 3 months to find a commercial tenant, plus 12 months of seasoning time, you're looking at close to 2 years of having that hard/private money in place. 

Another thing you have to consider is, if this is in a C area, what type of commercial tenant you can really attract; if so, whether that business will be viable enough to pay your rent every month.

This is exactly what we're looking to do with the 6 unit mix-use, but it's in a B area, with the city having written plans on revitalizing that area just like their down-town 10 blocks away, where buildings are trading at around 3.5~4% cap, which is highly appreciating. I know we can find good commercial tenants. Even if we're not able to, we already have plans on what businesses we'll put in ourselves. So on commercial, you really have to look at some micro & macro economic trends, demographic shifts, as well as looking at the integrity of the property, leases, etc. so that at the end of the day it's cashflowing.