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Updated over 6 years ago,
Industrial Building Beginner / need opinions on deal
Hi, I am a beginner just starting into real estate and am trying to learn at a quick pace. I have priced up various different deals and learnt a decent amount from doing so, but I would love to hear a few of your opinions on a deal I have came across. The industrial building is in a great location and is selling for 2.2m. As of right now it is renting to two different companies, one at 9$ per sq/ft for 4000 square feet(lease ending in 1.5 years) and the other at 13$ per sq/ft for 12000 sq/ft(lease ending in 2.5 years). Our agent has told us that the 13$ per sq/ft company is willing to take over the whole building for 15$ per sq/ft after the other companies lease is up. They would be willing to sign for a 5-7 year lease. This is of course word of mouth. My real estate agent also insists to involve him with the renewal of the lease to raise it up to $15. What would he charge for this, and is this something I could figure out myself ? I am also thinking about taking the real estate course. This is also a triple net lease.
My calculations before the lease is taken over:
Net profit= (9x4000) + (13x12000)= 192,000 Monthly = 16,000
Sale price = 2,200,000 Down payment= 25% = 550,000
Loan amount = 1,650,000
Monthly payment on 25 years with 5.5% interest = 10,132 yearly = 121584
Cap rate = .872 = 8.87%
DCR = 192,000/121,584 =1.58
COC = (192,000- 121,584) / 550,000 = .1280 = 12.80 %
The numbers look good to me but I am confused about a few different things. For example the loan is paid over a 15 year amortization instead of 25 the COC and DCR would drop drastically. So when I see on forums that a good COC is between 8-12% and a good DCR is over a 1.4, it confuses me because this could change depending on the amortization. Any tips or help would be greatly appreciated!