What to do with new commercial purchase?

Question

Hi

I pulled the trigger, a couple of months ago, on a 2000 sq ft building in a very busy road frontage location in Ocean Isle Beach, NC. We have no mortgage on the building, as we flipped a large waterfront home for the funds. We burned the money up in order to do the 1031 exchange. We bought this commercial property and another house. The commercial building is split into two separate sides of 1000 sq. ft. each.... Each of the 2 units have glass entry doors and a solid wall between them to totally separate them. With the purchase of the building, the owner sold me a Business and the Business name....... The business is a shipping, fax, copy, notary, mailboxes, shredder, center. It also came with an employee, who has been running the place for about 10 years. The business does not make a wonderful profit, as it basically sells paper things.... Not jewelry, Computers, Guns, iPhone's, Dental Services, ….. just shipping and paper services.

Now, one half of the building will be empty in about 40 days, so there will be a totally empty 1000 sq. ft. very nice open room / office available. The rents in that area for a road frontage place like this, in a great location, is about $800.00 to $1,200.00 per month.

What to do?........ Start some kind of store or service in there which could possibly make much more money, or play it safe and just take the rent money from a new tenant? If I started a store, what kind of store? …... I have heard about buying truck loads of liquidation items..... Perhaps start a small, Big Lots, type of liquidation store..... Thrift store...... Good Will type of store? …... I also have interest in some sort of Senior Service, as there are more and more baby boomers, and Senior Care is becoming more in demand.

Any Ideas?

Thanks,

Mike

Taylor Hazard · Answer

I second @Ronald Rohde, its a difficult question to answer without knowing your specific goals (for yourself and the property), risk tolerance and local RE market etc.

Are you trying to decide between opening up your own business in the second unit or is your list of business the potential tenant pool?

Ronald Rohde · Answer

You're asking some pretty broad questions outside the usual scope of BP. This is more life advice, what do YOU want to do with your time? If you want to manage a new business that you have no experience in, sure start it up. either way you better pay market rent to yourself or else you won't realize any gains in your CRE--which is why we are all here in the first place.

Mike Lynch · Answer

Thanks Everyone!

I am not really asking for life advice. I was just wondering what you would do if you were in the same position...... Every little bit of feedback narrows things down for me, or makes me think.

Well, I was thinking more in the lines of a Medical Supply / Senior supply store, rather than Adult day care. I would not be operating a store, or not forever... I still want to invest in Real estate. I realize that I would need to pay an employee or employee's. It just seems like with the huge amount of car traffic that I would make much more money than just $800.00 to $1,200.00 per month in rent from a tenant, in the long run.

John Mocker · Answer

Mike,

1. Open a business vs renting the space. It does not seem like you have a good handle on what you would want to do there so It would probably be best to rent it out. In order to evaluate what is best for you financially you would need to have projections on what the potential business could earn vs what you could earn strictly renting it out. The other issue would be how long a new business would take to earn you what you would be getting as rental income.

2. If you decide to do the adult day care business here are some things you need to consider:

- you may have to make alterations to the space to meet the fire codes for that type of use

(sprinklers?, emergency lighting, handicap accessible entrance, accessible bathrooms, etc..)

- you will need to get licensed

- the insurance costs for the building will likely increase

- the insurance for an Adult Day care will be more than a retail business in that space.

- you will need professional liability, and workers comp., that you may or may not need

for a different type of business.

Hope that helps. Good Luck

Ken Jernigan · Answer

Not sure I'd be that enthusiastic about adult day care. I've financed a couple of these in the past, and the business is basically day care for adults with minor disabilities. Business turns on referrals from hospitals and doctors and cash flow on reimbursements--private insurance, medicare, medicaid and the va. You need the connections for referrals and someone who can manage the reimbursement system. On top of that, this industry is heavily regulated by the state. Besides, 1000 feet is not really enough to run a profitable day care.

Sounds like you need to decide whether you want to run a business or be a real estate investor. If you run a business it's going to take all of your time, leaving little to develop real estate. And it sounds like the pack & ship needs a little cleaning up.

What to do with new commercial purchase?

What to do with new commercial purchase?

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