All Forum Posts by: Adam Craig

Please help with paint ideas for this 1852 historic office building I am buying. I plan to paint house, deck, freshen landscaping, add hanging baskets, maybe some rocking chairs. Any other ideas are appreciated. I am using this for my office and renting out 4 spaces. Its near a popular downtown area so I want it to shine :)

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Originally posted by @John Kennedy:

Adam: I'm very familiar with your dilemma...I also have banked with Chase for (too many) years, and have rental properties financed at a small local bank. It sure seems like a no-brainer that you should switch at least one or two accounts over to the smaller bank to show a little love (and get the line of credit increase). I guess it comes down to how badly you want that LOC. I will say that the small bank I use did NOT make that requirement of me in order to extend a healthy line of credit...and it seems a little petty of your bank to coerce you that way, considering the amount of biz you are already giving them. I suppose you could suggest to your small bank banker that if they don't give you the bigger line of credit you might have to shop your mortgages somewhere else (but if your existing rates are really good, that's an empty threat!)

I hesitated to switch to the small bank for checking accounts (we also have three separate businesses), because there's a Chase on every corner around here (Indy), while the small bank is 30 minutes away. But, I agree, Chase is totally useless when it comes to helping out with any real estate financing.

So, just how bad do you want/need that LOC?

The 50K line they are offering me I dont care too much about. But if they can get my upwards of 200K I would jump through some hoops to do it. Thanks for your thoughts.

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I have baked with Chase for 10+ years. They hold 80% of my accounts. Between 3 business I have 4 checking accounts and 3 credit cards with them. They are great with customer service and technology but cant do much for me with real estate investing.

I have a lending relationship with a very small bank. They finance 12 of my single family homes through commercial loans. The banker contacted me recently and said he could possibly offer me a line of credit as a second position on the equity on those 12 properties as high as 250K )(depending on appraisals) which I know is rare because I called dozens of banks looking for LOC as second position on rental properties.

He sent it to underwriting and they said since I have no accounts with them they could only do 50K. If I move over some of my business and they see my solid cash reserves they can go 100K and likely hit the 200K number after they get to see my activity.

Is this worth it and should I do all my business with a smaller bank at this point? In hindsight I should have established a relationship with a smaller more flexible bank long ago. But now the daunting thought of switching everything over... Quickbooks/websites/ect is hard to swallow.

Thoughts?

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Thanks for the reply. Most of my properties are completely remodeled so I'm able to fetch a premium rent upwards of 1400-1500 which it pretty high for single family homes in this area. Out of 31 rentals I have about 3-5 that are meticulous about the beds. The rest not so much :)

I even thought about offering a $100 credit at move out or something. This type of job below is one of the worst ones because it has a big back bed. Most of my properties we do a small bed in front of house with some slow growing perennials.

This cleanup a little more costly...

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My tenants are responsible for all utilities/lawn/snow removal. I am wondering if I can work out a way that that can maintain the flower beds.

So many times the mulched/planted beds are never touched and we have a jungle of weeds to clean up. Is this something I can work into the lease as a requirement and take it out of security if I need to hire landscapers to clean? I was even thinking about offering some kind of $100 credit if they leave the beds as clean as they found them on move in.

Thoughts?

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Originally posted by @Ronald Rohde:

Contact a commercial broker. And be sure to sign a lease for yourself to pay rent.

Thank you! That was another question I had. I assume it makes sense because when I refinance with the bank they can count that lease towards the debt service. So I will have the write off on one and end income on the other?

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Originally posted by @Bob Langworthy:

Congratulations! I own a similar property and here's what I would do:

1) List the space as is.

2) Talk to a commercial agent to get some ideas.

3) Only modify the space if you can't lease it in the current configuration.

If you haven't already considered it, you may want to work with a commercial agent on the listing. They may charge a month's rent, but in my experience, it's worth it.

Hope this helps,

When you say lease the space as - we were going to do new paint/carpet/lighting throughout the building. Are you saying leave it as "build to suit" and dont remodel?

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I finally made the jump from residential to commercial.

I am under contact on a hold historic home converted into a 5 unit office building near a popular trendy/quaint down town area. Its walking distance to all the trendy restaurants and coffee shops. Purchase price 275K - seller is carrying 55K and the rest is financed through 2 of my private lenders and I will bring some cash also. Plan is to do carpet/paint type rehab, lease it, then refinance.

I am going to use 15% of the building as my office and lease out the rest. 4 of the units are small-ish so they are pretty strait forward. The question I have is on the bigger unit which was used for a small/medium sized law firm. It has 4 offices, reception area, bathroom and storage area. To be honest this is the space that scares and confuses me. Do I try and break up the space into 2 smaller spaces because I know the large the space the harder it is to rent.

Since this is my first go around leasing office space would it make sense to contact a commercial agent/broker and get some ideas or have them help lease it? Picture of the common area in the bug unit is below...

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Originally posted by @Kevin Van Schepen:

There are 3 different methods of valuating the property. Sales Comps, Income Approach, and Cost approach. A commercial appraiser will typically take two approaches to come up with a value.

As far as the # of units is concerned, it shouldn't matter whether is 4 or 6 units. If this was an apartment building, I would agree that 4 unit would get better pricing than 6. However, this is a converted office building and your lender is going to price your transaction based on the overall risk associated with the deal.

As a lender, I would look at this deal more favorably as a 6 unit rather than a 4 unit. With 6 units, there is more diversity in the rent roll. This helps prevent cash flow issues should you have lease rollover.

If your marketplace favors smaller work spaces, it would be beneficial to convert the larger space into smaller units. It's easier to rent smaller spaces than larger ones. The tenant pool is much greater for smaller space than larger space given what has transpired in the overall office market over the last 7-10 years.

The key is to know your marketplace and know how your building and plans fit into it.

Great stuff thank you! I have extensive knowledge in single family with more then 50 deals and 30 properties. But I am just beginning to dip my toe into commercial. My goal is mid size to large apartment buildings but as I was looking for a place to rent for my own business I came across this building which is in my city and seems to be a good fit. My early numbers show good cash flow at full occupancy and I have a free or low rent spot for my business.

I have no experience leasing office space but we do a great job on our single family with professional photos/ listing to all the marketing websites and I have researched leased and available space in the area.

Would this type of building ever warrant a commercial broker to fill the space or should we just use our in house PM company like single family?

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Originally posted by @Stephanie P.:

Originally posted by @Adam Craig:

Originally posted by @Stephanie P.:

Originally posted by @Adam Craig:

Originally posted by @Kevin Van Schepen:

Every commercial lender is different. Some lender's may lend a certain percentage of the purchase price even after the renovations have been made.

Some lenders will lend based on the appraised value at the time of the refinance.

Every lender is different. As a commercial lender, I like to see at least 6 months of stabilization prior to refinancing.

If 6 months are not attainable, I will require the appraisal to be done upfront prior to underwriting so we know what value we are working off of.

Follow up question - This is a 4 unit office and the plan is to convert to 6 spaces. When I looked for comps I went back nearly a decade and I was unable to find what I would consider a comparable - this is an old historic house converted to office space. There are around 8 other properties in this down-town area like it but not have sold. How are commercial lenders going to determine the value - comparable buildings or the rent coming in?

Adam,

You may be in a pickle. Converting it to 6 spaces limits the number of available properties to comp it to, it changes the make up of the available financing and shrinks your clientele.

The answer to your question is the valuation for commercial properties derived at using the income approach. The appraiser will do a narrative appraisal (usually around 85 pages) and they do a comparable market analysis which includes market rents, market trends and any external obsolescence depressing the market like wage stagnation, population growth, industries leaving or coming into a market etc... They do want to see comparable sales, but the income approach is what they will use for valuation.

Can you take it back to 4 units?

Stephanie

Right now it is 4 units. But one of the units is so large (used for small/medium sized law firm) I wanted to break it up in hopes of having better success renting it out quick. So you are saying leave it as a 4 unit and it would be beneficial?

4 unit properties are easier to finance for the borrowers and the rates are generally a bit lower. Also, when you go to sell it down the line, the pool of people who will qualify for the financing is greater.

I would get my financing in line first and then change it to 6 units or whatever, just knowing you may have to convert it back later.

Thanks for the insight. I am buying the property on hard money and plan to refinance when it is filled. So I will try and leave it as a 4 unit if possible.

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All Forum Posts by: Adam Craig

Adam Craig has started 263 posts and replied 568 times.

Post: Need exterior paint help on 1855 historic home.

Post: Should I switch all my banking to a small bank?

Post: Should I switch all my banking to a small bank?

Post: Do you require tenants to weed the beds?

Post: Do you require tenants to weed the beds?

Post: UNDER CONTRACT on first office building - couple questions

Post: UNDER CONTRACT on first office building - couple questions

Post: UNDER CONTRACT on first office building - couple questions

Post: How soon can I refinance a commercial building?

Post: How soon can I refinance a commercial building?