Negotiating offer on a commercial

[Bharath Raj]

I am trying to buy a commercial office space that' 100% occupied. The NOI is $34k (I verified it to be true, with a more seasoned investor). I am trying to buy it for a cap rate of 4.8%. The local commercial bank said that they typically find 4% to 5% as being good deals at this time. I offered $7000000 (discount of ~$100 k from asking) with 10% down and 90% owner financing for 10 years at 4% rate. They accepted the price, but not the owner financing terms. I had previously offered $550000, but increased it because the seller' broker had led use to believe that he could work on the owner' financing. My goal is to pay off the loan in 10 years. The bank will give me a loan for 10 years at 5.5 % to 6% (fixed rate), with 20% down. I calculated by 10 year cost of buying the property as being ~$830000 based on my desired terms of owner financing. How can I get my terms, while also keeping the seller motivated? Seasoned negotiating tips will be greatly appreciated.

[Joel Owens]

To accept a cap rate of 4.8 there would have to be for me at least some other angles such as it comes with a bunch of land to redevelop, the property is single story but has some valuable air rights,etc.

As a pure investment purchase only 4.8 cap is very poor. You would be encumbering yourself with a large amount of debt for little to no cash flow.

If it was a national tenant with a long primary lease say 15 years guaranteed and rent increased each year 2.5 to 3% annually then it might be worth it for a blended cap rate over the long haul.

Banks lend on crappy stuff all the time when they know they have  an unlimited  personal guarantee against you for the property.

If seller wants you to buy this with conventional financing with a lot down and a low cap rate it doesn't seem that great of a deal.