Creative seller financing and free property management

[Andrew Austin]

Investment Info:

Office Space buy & hold investment.

Purchase price: $600,000

I recently purchased a nine unit office building in a B class area. The building had been inherited and when I met the sellers only 4 of the nine suites occupied. After a year and a half of negotiating and failing to get a bank to loan on a mostly vacant office building, the sellers agreed to both a lower price and to seller finance 90% of the price. The 10% down came from a 1031 exchange of roughly $80,000, so no money out of pocket.

Overwhelmed by the management, they also agreed to a due diligence period of 6 months during which I would manage the property. The advantage to them was free property management, and the advantage to myself was the chance to build rapport with the existing tenants, fill up the remaining suites to grow cash-flow, and we split all repairs 50/50!

At closing, the exterior of the building had been repainted, 3 of the 4 empty suites had been completely renovated, the roof has been repaired (by a new commercial roofing tenant who traded repairs for a month's free rent) and the building was now 100% occupied and cash flowing $5250/month. Note: The seller financing payment was almost equal to what they had been making before.

Anecdotally, I have found smaller B/C class office space is still in demand, even as large A class offices sit empty. I am continuing to speak with owners of these types of buildings and offer the same owner financing and PM during due diligence. A little sweat equity in managing the property before hand allowed me to lower risk, understand the building better than a dozen inspections could have, and allowed me to hit the ground running at closing with a fully occupied building, great relationships with he tenants, and systems in place to cash flow day one.

Has anyone else had success with similar type arrangements?