What are your thoughts on this deal?

[Stephanie Ferrante]

Hi All!  

I am a SFR fix & flip investor and this will be my first look at a commercial deal so I wanted to hear your thoughts.

This is a ugly office building in the downtown area of my small town.  It was 2 houses, combined, then renovated into a office building.  It has 9 small offices, 2 half baths, 2 kitchenettes, parking, storage, etc. plus several entrances.  

I think best use would be to do a light reno ($15-20k), furnish the offices including some equipment, and rent as individual offices.  

Quick Numbers:

Purchase Price  $110,000

Rehab $20,000

Furnishings/Equipment $16,000

TOTAL COST  $146,000

Gross Monthly Rent $3,600

I think using the 50% rule would be quite accurate here, giving me an annual NOI $21,600 CAP 15% ...I would think the resale on this would be $250,000 ..

Now I just need some private money to fund it :)  

Eager to hear your thoughts!  Thanks in advance!

[Jaysen Medhurst]

@Stephanie Ferrante, 15 Cap is a huge red flag to me. That's REALLY high.

Double check all your numbers and make sure you're getting actuals. How much IS the property bringing in, not how much it COULD be. Are all of the offices currently rented? If not, why? Are you sure that your small town has the demand for this kind of property?

I'd be careful about the 50% rule. A cobbled-together property like this is unlikely to have all of the utilities split out. Plus, it will be more expensive to work on, driving up maintenance, Cap Ex, and initial reno.

Good luck and let us know how it goes.