We have our 1st Commercial Deal under contract

[Jack Knochel]

Hello, we just locked up our first commercial building.  The building is a 6400 sq ft  block/brick building built back in 1965. All the interior walls(partitions) are also block.  The building is set up as 2 separate buildings, 3200 each side and each side can be spilt into a 2000 sq ft and a 1200 sq ft section.  It was used for medical offices in the past but 7 years ago the owner(doctor) thought he and his buddies should renovate it and were working with out permits.  They were shut down and it went into foreclosure.  So we are now looking to purchase it and are in the process of trying to figure out the best use.  The county government center is across the street(old hospital) and there are lawyers, dentists, orthodontist offices around the area, as well as a new brewery and pizza parlor, and the local high school is 2 blocks down the road.  This building is on a corner lot, about an acre with good parking.  We are pretty much looking at a complete rehab, electric, some plumbing, roof, hvac, knocking down walls and rebuilding once we have tenants and work out plans.  We are just looking for any advice from the commercial investors in here as to how to go about making this a success, we don't want to make the same mistakes others have if we can avoid.  We have experience in residential rehabs and rentals but this is a different animal all together.  Here is what we have done so far: meet with multiple commercial brokers out there to talk about the building and possibilities, meet with one architect, meet with multiple GC's and other contractors to start working on numbers, met with the city and country inspectors to get the relationships going and get on good graces with them since this building has a target on it, met with the city planner, meet with the chamber, talking with banks and also other lenders.  We feel like we are being fed information with a fire hose and don't want to become overwhelmed.  The ultimate goal of this is to keep it as a rental for many years to come.  Questions?  Thoughts?        

[Jeff Kehl]

@Jack Knochel so I guess my question still stands, why are you buying it? Just to try something different? It sounds to me like you're just sort of in love with the project. If you're getting a great deal on it great but why spend a ton of money on construction when you don't know who your prospective tenant is?

I see this as a key difference in residential and commercial. I can buy a dated house that needs work and rehab it and there will be many potential purchasers. I don't have to worry too much about who is going to buy it. 

For office or retail it's a completely different story. You shouldn't spend any money on rehab until either A) You have a signed lease where you've agreed to certain tenant improvements or B) You have a very clear picture of the exact tenant you are trying to attract.

As I said before, there are a ton of buildings just sitting empty in my area because of structural changes going on in the economy. I could easily go broke buying them and rehabbing them. 

But, if you get a good price on the building and then very strategically go after the right tenants I think you can be successful. 

I can give you an idea of some of the types of commercial tenants I want but it is going to be very specific to what is going on in your local area. Your best bet is to chat up the local commercial leasing agents and ask them what kinds of businesses are looking for space. 

Another idea is to look for similar size towns in your area and see what kinds of businesses are moving in there that aren't yet in your town.