Industrial Building Beginner / need opinions on deal

[Mike C.]

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!

[Ash Patel]

Originally posted by @Mike C.:

Thanks for the replies! If I borrow as much as I can wouldn't that mean id be paying more interest in the long run ? Trying to minimize that by using what i'm making to pay it off quicker. I was just confused by how some can consider 8-12% COC a good investment but do not specify with what amortization.

We all have a finite amount of cash, so cash on cash returns should be your #1 metric. If you are going to pay it off early, your COC return number goes lower. Do the numbers on paying off that entire loan over 10 years vs. paying the minimal and acquiring more properties. What will ultimately return a better yield? "But I don't want to get over leveraged", then don't, keep enough cash on hand so you are not over leveraged.