Hey y'all, I have a customer that I bought a house from last month, that also has industrial buildings, and he is wanting to sell them to me. I have a meeting with him tomorrow to lock this deal up, and I could really use some help from y'all. Please help.
First off, let me tell you a little about the property. It is a total of 7 lots with buildings on each of the lots except for one. The lot without a building had one, but a fire destroyed that structure, and it has since been torn down. One of the lots has two buildings on it, so there are a total of 7 lots and 7 buildings. Total acreage with all of the lots combined is 15.941 Acres. The buildings are light industrial/warehouse structures with each building having a small office and restrooms. Each building is supplied with their own wells, and separate septic systems and all are furnished with heaters throughout. Each of the buildings are fully occupied with renters with most being there for 15-20+ years. The buildings condition wise range from a 6-8 on a scale of 1 - 10. I have had a BPO done for this property, and my agent states that the property is worth in it's "as-is" condition around $1,500,000 with an ARV around $2,060,000. The seller wants $1,365,000 for the property, and wants to owner finance the property for 6 years with a 3.5% interest rate with 20% due at signing. I am trying to negotiate with the seller on the balloon payment due at the end of the term.
Here's my dilemma, each of the renters have been getting away with murder when it comes to paying rent. Rent rates currently being charged are from $0.1333/Sq Ft to $0.2776/Sq Ft. Going rent rates for the area should be around $0.45/Sq Ft. None of the companies are under lease currently except for one, AT&T, that is on an automatic renewal lease every year. Their original lease was signed back in 1982, and it has been renewing ever since under their original agreement. This also happens to be the tenant that has been here for 20+ years. Their current rent rate is $0.1905/Sq Ft. Obviously these rates will need to change. Should the subject of leases be brought up to the tenants after the sale has taken place, or before? On a side note, there are a couple of companies that owe thousands in back rent, so it probably would be good if some of them vacated the buildings.
Part two of my dilemma, the seller would like to finance the entire amount for six years with no balloon payment at the end. Doing this means that the property would negative cash flow over $6,000/MO for the six years of the term if rent rates stay where they are. My proposal to the seller has been to divide the amount financed in half, finance half of the amount for 6 years at 3.5% interest, with a balloon payment of the remainder due at the end of six years. This would allow for the property to positive cash flow $3,000/MO with rent rates remaining where they are. The problem is that he wants to receive $200,000/YR of income from the payments being received. My proposal means that he would receive $101,000/YR of income. He wants this amount because he is 80 years old and wants to retire, and needs that amount to help with paying property taxes on all of his other property that he owns.
My last dilemma is how do I structure this deal using his financing option? I mean, I know that he wants 20% down, but how do I add on my assignment fee, in order for me to get paid on this deal? I am looking to assign this deal because I am too in experienced to take on such an endeavor. Also, does anyone have a good contract for commercial real estate that I could use for this deal?
Thanks for taking the time to read this long post. All help would be greatly appreciated!!
Best regards,
Aaron
