Newcomer Commercial Real Estate Strategy Question

[Jon Gorman]

Hi All!

I am brand new to BiggerPockets--someone just recently told me about the podcast and website, and this is my first post.

I have two question:

1. Any feedback on my investing strategy?

2. When is it time to make my next purchase?

Background:

I am a healthcare professional in Towson, MD, north of Baltimore. In 2016 I went into private practice for myself. Instead of renting an office for myself, I was able to buy a vacant six-office property. 80% loan from the bank and the 20% downpayment was financed through a personal loan. I did a renovation to build in a 7th office. I am occupying one of the 7 offices, and the other 6 are rented out full time.

I priced rents based on what was just enough to cover the mortgage and personal loan and all operating expenses, including a little extra for any potential maintenance issues. There is a positive cashflow and my renters seem to be happy and plan to stick around for the foreseeable future.

First question: I've been reading that commercial properties are valued based on rents. I also saw something about a 2% rule: monthly rent should be 2% of the purchase price. My gross rental income is a good bit lower than this, approx 1.1%. In my mind, I'm not too worried about this, because the renters are covering the mortgage and operating expenses. In 17.5 years the property will be paid off, and the rental income will be my retirement income. I'm not looking to sell the property any time soon. Am I shooting myself in the foot by keeping rents low relative to the purchase price, thereby decreasing the value since I purchased it? Or should I not worry about it because I don't intent to sell the property for at least 20-30 years?

Second question: Colleagues in my field constantly ask me if I have any more office space to lease out, but I do not since my office property is full. While I have a positive cashflow, it is not high enough to be saving for a downpayment for another property. Though the demand is there. I have one colleague who is looking for 4 offices within the next year, another who is looking for another 4 offices, two colleagues who are looking for solo offices, plus my practice is growing and I am trying to hire some employees to work under me, so I could two additional offices. If I found the ideal office space with 10 or so offices that these other colleagues would be interested in, I am relatively confident I can fill those offices quickly. Should I start looking and seriously considering purchasing another space? I would probably need to do another personal loan or seller financing for the downpayment. Or would it be better to wait, build some more equity and savings?

Thanks in advance for your feedback! Looking forward to interacting here in the future.

Jon

[Jon Gorman]

Thanks @Greg Dickerson for your encouraging comments! Would be happy to connect further offline!

@Jorjio Hopkins--I'll definitely keep these things in mind.

@Ronald Rohde--the current tenants pay me a rent and that is their only expenditure. With the rent that I collect, I use that to cover maintenance/insurance/tax/utilities/landscaping anything else that comes up. (This wouldn't be a NNN, would it? Just a single net? I'm not too sure, just starting to become acquainted with this terminology). It hasn't been too big of an issue since I also occupy the property with my own practice, but yes, if I buy a second, I would definitely want to look into someone that could potentially manage both properties. Any tips for finding a reasonably priced property manager?