Pre-Lease Office Space before purchase?

[Paul C.]

Is it legal to, and how can you pre-lease office space before you close or even offer to buy an office space?

It seems that I have found what looks like a great deal on a small office building but would need help raising all the down payment money. Is it possible to find potential tenants and sign a long term lease contengent on my closing the deal? My strategy would be to use deposit money to make up the difference I'm lacking.

[Bill Gulley]

Pre-leases are possible, but generally are either done by very sophisticated owners and tenants or between parties that know each other.

While there is no prohibition against using pre paid lease amounts for your down payment in commercial deals, any deposits may be strickly regulated by you state. Deposits may not be considered your funds.

Which brings us to the lender. You will need to disclose your source of funds in any event if you have not had sufficient amounts available (on deposit) prior to contracting, exceptions made for sources of funds that can be explained without connection to the property.

Another aspect is showing the property when you don't own it. Next is the tenant finding out the place is for sale and buying it out from under you. You might use an option.

Another possibility is partnering with someoneto occupy the property, several strategies there.

Another way is to have the lease made prior to closing with the seller, which is assigned to you at the sale. All deposits and any pre paid rents will be credited to you, but this won't help necessarily with cash requirements to close, but could.

Not knowing what the zoning is or what kind of occupant there might be, code requirements may make it harder, especially if the building is not finished. Office space is pretty plain and uneventful, but any in fill may be a problem if you are short on cash.

IMO, the fact that you asked the question is very good, you're thinking, but if you had to ask it's probably something you don't want to try as commercial is another world from residential and financing would likely be harder if the lender thinks you need rents to swing the deal. Good luck!