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Updated 11 days ago on . Most recent reply
Help me analyze a deal on purchasing an office building please!
I have found a deal that I am considering as an entry into commercial real estate investing. Would love input from experienced investors as I consider my options. Here are the details:
3200 sq ft building in a desirable location. Very close to a freeway exit (but not exposed to the noise) and in the city center. It is next door to a nearly identical building in which I am currently renting an office so I have a pretty solid understanding of the market and day to day operations of the building.
Seller posted a small sign and is just feeling the market out without a broker so an off-market deal is possible.
Asking price is about $2.1m
Building would have some minor remodeling required upon possession. This would allow for some use specific upgrades. Construction, permitting etc. is all in my wheelhouse I have done enough to know my numbers and timelines are accurate.
Building would have 19 or 20 offices that could be rented for between $14,000- $15,000 a month based on the building next door with a near 0% vacancy rate (offices are often rented before they are vacant with a wait list.
Based on some research I have done financing is a challenge as %20 would be the expected down payment and to raise those kind of funds I would have to pay %5 interest on the down payment in addition to the approximately %6.5 interest on the property loan.
Inclusive of taxes, utilities, insurance, and management costs I would have expenses of an estimated $14,700/ month on a property that most likely would yield $15000/ month for the first year. Year two with a 3% increase in rent prices would look better at about $15,500/ month income. After the down payment was repayed it would look more like $20000/ month on a property with expenses near $14000/ month.
Obviously I need to head over to the finance forum and get more information on the best ways to go about all of that. My question is would you take on the risk especially if it was an all your eggs in one basket type investment (as opposed to buying two or three houses in the same market for the same amount of money. Other thoughts?