Buy and Hold Commercial

[Georgee Gilbert]

I used the BP buy and hold calculator to analyst a commercial property and the numbers didn't make sense. Not sense to purchase and lease out. Can you use this tool for commercial properties or am I missing something. They are asking $169,000 for a standalone 911 sq ft building. The leasing price is $14.00 sq ft. I adjusted the offering price to $80,000 and the cash flow is $105.14, ROI is 7.42% and the cap rate is 7.69%. I have never purchased commercial before only residential and this would be a terrible deal. Please advise.

[Jon Holdman]

Is this a "triple net" property where the tenant pays all taxes, insurance and maintenance?  $14 per sq.ft. and 911 sq.ft. translates to $1062 a month.  Commercial loans typically have a higher down payment and a shorter amortization than conventional residential loans.  Assuming 30% down, 5% interest and a 20 year amortization, your monthly payment would be $739.  If the tenant is paying for all expenses, you would have cash flow of $323.  If you're covering some or all of the expenses, then those would cut into the cash flow.  Commercial loans also often have balloon payments, so you'll often end up needing to refinance or sell when the loan balloons.