Seeking feedback on my first commercial property in Denver

[Paul Martin]

I'm looking at my first commercial property in south Denver. I've been investing successfully in residentials for a few years, so this is new territory. I don't truly know what I should expect—which makes it kind of fun!

If I may, I would love to hear feedback on how this deal sounds. It is a little out of the ordinary, I would imagine, and it seems very good.

With the majority of the DP coming from the tenant-buyer, I lease-optioned a home 18 months ago with a one year strike date, which the tenant buyer fulfilled. Went smoothly and he would now like a similar arrangement for a commercial property. (The recession took away several of his taekwondo studios and he's now rebuilding.)

We found one in a reasonable area with apprx $30,000 in deferred maintenance in an area with some new commercial construction.

These are the macro numbers:

List price $890,000 (Minimum agreed upon Strike Price within first 12 mos $910,000, 2 yrs $925,000, 3 yrs $950,000.)

Of the approximate $250,000 for DP and repairs, we each bring $125,000

Annual Rent $135,432

Expenses. $ 38,650

NOI $96,782

CAP 8.77%

1st yr CF is $22,963, ConC 18.49%; 2nd yr CF is $25,123 accumulative 38.4%, 3rd yr CF $27,283 accumulative 60.3%

If TB executes option in 12 mos, total return 49.4%; 2yrs, 113.4%; 3 yrs, 164.1%

These figures are with 10% vacancy, 5% property management, 1% appreciation, $20k annual maintenance and snow removal.

Thank you,

Paul Martin, My Three Sons Real Estate 

Micro #s:

1st unit—CURRENT TENANT-Hair and nail salon Leased thru 11/19 w $2400 annual increase.

3500 sq ft $$3850.00/mo $46200.00 annual

2nd unit–NEW TENANT Restaurant

3800 sq ft $5436.00 mo $65232.00 annual

3rd unit—Vacant (Windowless Basement) Estimate

4416 sq ft $2,000.00/mo $24,000.00 annual

Total $135,432

TAXES $15,700.00

INSURANCE $12,000.00

UTILITIES EST $ 2,350.00

MAINTAINENCE EST $8,000.00

PARKING maintenance and Snow EST $6,000.00