Advice on buying your own commercial office space

[Chris Rizzo]

I own my own business and was looking into possibly buying our office space.  We are locked in to a very good lease (with 3 years left and a possible 3 year tenant option to renew) which is making it tough for our landlord (who motivated to sell as he moved out of the area and doesn't want to deal with the property) to sell to an investor as the cap rate would be very poor. He is willing to sell to me at quite a bit below comparable units in our building.  CAMS seem very high at roughly $600/month. 

I have been looking into SFR, but figured this might be a great first step in investing as I could basically rent to myself. We have a stable business that is now almost 9 years old so I feel the investment is pretty safe.

One of my main concerns is how to structure this to maximize tax benefits.  My wife and I both have MASSIVE student loan debt ($200K+ each) and are on income based repayment.  So, our student loan payments are calculated from our adjusted gross income.  Therefore, keeping our taxable income as low as possible helps us on both ends.  

Appreciate any help you can offer!

[Andrew Johnson]

@Chris Rizzo  Just another perspective here, you've already got a "financial benefit" coming to you regarding your lease.  From what you're saying it's so far below market that's it's making it difficult for the owner to sell.  And this doesn't end up 12 months it sounds like you can keep it going for 6 more years.  That's a decent sized runway and your business needs then may not be the same as they are today.  Net result, you're walking away from Good Position A (below-market lease) for Good Position B (buy own office at a discount).  

If you buy another revenue producing asset (deprecation and mortgage interest can be used to offset those revenues) you might end up with:  Good Position A (below-market lease) + Good Position C (revenue producing real estate).    

Yes, this is horrible math but you would have to confirm that:  

C > A+B

So is buying this commercial unit that much better than the economic value of below-market rent for the next 6 years plus any revenue you could get from deploying your capital to another asset?  

The answer might be an easy "yes" but it's good to at least run through the exercise.  

The other thing to consider is that some of us (well, I'll just speak for me personally) use real estate investment as a form of diversification.  There's W2 income, stocks, bonds, real estate, etc. that can all provide revenue and/or appreciation.  By buying your office space you're (in a manner of speaking) "doubling down" on your W2 income.  And don't underestimate some of the hassle that comes along with it.  There's no landlord to call when XYZ happens, it's all on you.  And you'll be a part of other owners so assessments could pop-up from time-to-time.