Over 350k in Value-Add & Purchased in 2022

[Kevin Hoag]

Investment Info:

Office Space buy & hold investment.

Purchase price: $640,000
Cash invested: $20,000

I sold off several of my residential properties to purchase a 15unit 15,000 sq ft 100% office space commercial building. The property was 80% occupied when purchased and had many long term tenants in place. The tenant mixture includes and adult daycare, two law firms, tax/accountant, home health care, guidance counselor, and cell phone towers on roof for At&t and T-mobile. I moved in my insurance office to one empty space and rented out the parking lot as well.

What made you interested in investing in this type of deal?

I have done very well in the residential space and wanted to purchase a larger investment that would be a value-add commercial building and allow me to move my insurance office into it. I wanted something that was 100% office space and already cash flowing.

How did you find this deal and how did you negotiate it?

I found the property on the MLS and it had been sitting on the market for almost 500days! I represented myself and worked directly with the seller's agent to put a deal together.

How did you finance this deal?

I got the seller to finance the building with terms of 10% down payment, 15 year balloon payment, amortized at 30 years with a 4% interest rate. Down payment ended up being only 7% after rent and security deposit turn over plus tax prorations.

How did you add value to the deal?

I reduced overhead cost by more than $1250. I was able to get a local brewery and tow truck company to rent out my parking lot as overflow parking creating and additional $475 in gross rent. I then moved my insurance office into the building and pay myself rent at $1200/mnth. Lastly, I rented out one of the 2 empty units for an additional $700/mnth. Will be doing cost segregation for 2022 taxes to receive 150k in depreciation.

What was the outcome?

I couldn't be happier with the building that I purchased. It still needs a lot of work to be done to improve the buildings energy efficiency and reduce overhead cost even more. I have 1 unit that still needs to be rented out and several tenants who are coming up for renewals with price increases. Eventually I will refinance the building and use the surplus cash to purchase another large commercial building.

Lessons learned? Challenges?

I have learned a lot about maintaining an elevator, fire alarm system, public restrooms, boiler system, commercial air conditioners and most of all the different laws for commercial tenants vs residential tenants. This has been a positive change for my portfolio and I look to continue to purchase additional commercial buildings.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

I am a licensed real estate agent and insurance agent and represented myself for this deal.