Rentometer for Commercial Properties?

Question

Hey guys, this is my first post here and might be a total newbie question. I'm looking to buy a commercial property from a family member. Its been owned for years and used as a plumbing business, it was never rented so I have no idea of what it could rent for. In doing some research online it was tough finding a website like rentometer but for commercial properties instead of residential.

I tried looking at other commercial properties in the area that are for lease but there is such a wide spectrum out there and commercial properties can vary in size and purpose and the renting potential varies greatly as well. Any help in this area would be appreciated since I'm trying to analyze the deal and see what I could rent it for if I did buy it.

Regards,

Bryce Kammerzell

Greg Dickerson · Answer

@Bryce Kammerzell what @Joel Owens said plus You should run multiple scenarios based on similar properties that he mentioned and run the numbers backwards.

You should be able to determine rents for the different types of properties and subtract operating expenses to get to an NOI.

You can talk to local commercial brokers for some guidance on potential uses and income and expense expectations and assumptions.

Joel Owens · Answer

You need to see what current zoning allows for. Look at current land use map and future to see what city or county has designated they want the area to be currently and become in the future.

From there see what is highest and best use for the building and the site. Retail is typically highest rents per sq ft, followed by office, then warehouse/industrial. The type of lease structure also varies by assets class.

There is a lot more to it then people think.

Salvatore Lentini · Answer

@Bryce Kammerzell - make friends with a commercial broker or commercial mortgage broker in the area and you should be able to get the numbers you need.  If you find a decent one they should be happy to help as you are a potential customer in the future.  And if they're smart they are always looking to keep their pipeline full even if it's a couple years out.  I know that's how I think.  I can't tell you how many investors I've given free advice to via phone and email with no immediate expectation of business.  Months and years later these investors have come to me for financing, referred business to me, told me about an off market deal or asked to partner on a deal.  What goes around comes around and there plenty others out there that feel the same.

Art P. · Answer

@Joel Owens

As an experienced Commercial RE investor, when @Bryce Kammerzell suggests a BRRRR strategy on the property itself to make it appealing to a potential Lessee, can you please tell us a little about how you would approach this scenario with the assumption the space is zoned industrial?

Would you broker out the commercial property or self-advertise? Would you make any improvements prior to advertising it? Would you leave as is and negotiate on improvements with a future Lessee?

Lori Greene · Answer

@Salvatore Lentini I agree with Salvatore about talking to local commercial brokers. And also, loopnet.com is a Commercial RE listing site. Those listings often have rents listed in them. Search up all of the local commercial listings to see if any are similar in size, location, condition or use to yours. If they don't list the rents, call on them and ask. Who knows, maybe you'll find another great commercial property in process as well. Good luck!

Bryce Kammerzell · Answer

Thanks Guys! @Salvatore Lentini @Greg Dickerson

Greg Dickerson · Answer

Yes this strategy works for all types of assets, classes as well as ground up. BRRR is simply doing a cash out refi. (buy, renovate, refi, repeat) however, sometimes you do not even need to renovate you just need to create more value from an income standpoint. Sometimes you can buy a great property with built in equity (below market) and do nothing at all.

Commercial lenders are all a little different and offer different types of loans, LTV and rates so you need to shop several to get the best deal and highest LTV.

Bryce Kammerzell · Answer

@Artem Pyryev .... that's the hard part. I have no idea what a conservative rent rate would be. Its so hard to tell with commercial properties compared to residential.

This property could be rented out at one or two separate businesses as their are technically two office spaces inside. There's two office spaces, a shared kitchen/break room. Two separate bathrooms w/ showers, two large working bays w/ tall garage doors (large enough to fit a semi inside), plus a back lot ~1acre in size with chain link fence surrounding it. It's tough to find a property to accurately compare this one to in the same area.

Art P. · Answer

@Bryce Kammerzell seems like a win-win scenario if you were to purchase it. Do the number's make sense if you were to use a conservative rent rate to get your target CoC return?

Bryce Kammerzell · Answer

@Artem Pyryev so long story short; I work in commercial construction for a large GC. One friend of mine, who owns a roll off dumpster and recycling company locally, is actually interested in renting the property already if I were to buy it. He is not turned off by the 1980's decor inside and he is willing to let me update it as he occupies the building as I think most renters would be. Being that I work in commercial construction, I have good connections for cheap or free materials like; LVT flooring, tile, commercial carpet, etc. My father in-law owns actually owns a flooring installation company as well so I have good connections when it comes to rehabbing a property.

If he were to back out and not rent, I would probably self-advertise. Being that the economy in Northern Colorado is booming, I don't imagine I would have a very hard time finding an oil field company, electrician, plumber, etc to lease the building. But perhaps i'm being overly optimistic...

Rentometer for Commercial Properties?

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