Commercial Strip Mall: What Am I Missing?

[Brian Ellison]

Hello! Here's the deal: I found a strip mall listed for $900k, 4-unit (fully-leased). Looking to approach the seller with a rent-to-buy option or seller financing at a 10% APR.

• List Price: $900,000
• Tenant 1: Chiropractor, $1,000/mo, 2,000 SF
• Tenant 2: Dentist, $4,000/mo, 3,000 SF
• Tenant 3: Salon, $900/mo, 1,000 SF
• Tenant 4: Individual Business, $650/mo, 1,000 SF

Tenant 1's lease is technically expired and are working off a 'handshake' agreement. Tenant 2's lease runs out in 9 months. Tenant 3's lease goes out 25 additional months, and Tenant 4 is month-to-month.

This is not an NNN property, so I'm accounting for $10,000/year in taxes (based off most recent assessment of $550k * 2 multiple to round to purchase price). Keeping a 10% vacancy reserve of $7,900/year, Property Mgmt of $7k/year, Main't of $7,800/year, and CapEx of $4k/year.

Still with all of these variables, the $3,350/month with a cap rate of 5.8%. 

I am thinking of asking the seller to consider a rent-to-own option where I can come in and work to lock down the handshake leases. From there, I estimate that I'll need to put in work on the exterior to repaint.

After this, I know leases in the area are going for about $14-15/SF (yearly) versus the $11/SF that's currently rented. I feel I could increase this value over time and have a nice monthly income going here.

Punchline: Am I crazy - This seems WAY too good to be true and I cannot help but feel I'm missing something here.

Thank you!