All Forum Posts by: Ben S.

@Logan Hartle

I have done a couple like this and as Greg said the hard part is guessing what your future tenant will need. (# and size of offices, bathrooms,doors, windows, floor drains, lights, truck docks).

If you make an educated guess you will likely still be tearing out or changing brand new walls and concrete, but if you leave it incomplete it is harder to rent.

Plan on some extra expense for those tenant improvements.

Henry has good points. My first building was 20,000 SF and it ended up almost double what I budgeted. I was lucky to have a nice bank. They probably had to be nice considering they probably should have realized my budget was out of whack!

To add to Henry's ideas, maybe start by drawing up a site plan and going to the city. They will tell you if you need a retention pond, where the water main is, what paving requirements there are, what size building requires sprinklers, etc.

That's a good question for your CPA. Sometimes the building needs to be broken out in your taxes to the portion that is rented to others and the portion that is rented to yourself. In general, the real estate income is a lower tax rate than the business tax rate assuming both are profitable. So in general your business paying rent to your LLC is best. That is a good question for your CPA.

4-6 months after groundbreaking.  Here in South Dakota it's best to start as soon as the frost is out of the ground to buy as much time as possible before it gets cold again.

I would ask a local broker for what the building/land ratio should be in your area.  My 30,000 sf building is on a 120,000 sf lot.  Plenty of room for outside storage/truck parking.

If you use a submetering company you only have to install 1 meter from each utility company.  Then as you add tenants, you can add submeters to break down the usage between suites.  I'm sure it varies with electric companies, but locally it would have been $90/meter/month.  Submetering is free after the purchase of the meter, unless you have them bill direct.

The sprinkler company you hire will need to do a pressure/flow test to design the system.  If it is too low, you will need to spend more on bigger pipes or even a pump.  Do this test during the due diligence period before closing on the land.

Yes I would contact an architect before buying the land.

@Steven Bates I have done this a couple times in the 20-30 thousand sf range. Finding the right land is hard, as is guessing what a future tenant will need for utilities. Hiring an architect is probably a good idea, although I have not. Hiring a GC is more important unless you have done projects like this in the past. I have GCed my own and got a couple quotes to make sure doing it myself is worth the headache. I believe it is, but I did learn that estimates from the professionals vary greatly.

Definitely know what the local regulations are for sprinkler systems/fire walls/smoke hatches as these add up fast. If you need a sprinkler system have the water main flow tested during your dd period.

For utilities if you are having multiple tenants I recommend using a submetering company. Since I didn't know if I would have 6 5000 sf units or 1 30000 sf unit it leaves things flexible. Better than paying meter fees for meters you won't need.

Anything more specific you would like to discuss?

Check the local building ordinances.  Where I am at there is no need for sprinklers if the space is under 12,000 SF.  Over 12,000 you either need to divide it into spaces smaller than 12,000 with fire rated walls or sprinker the whole building.

I have few tenants in industrial flex space.  Average 12,500 SF/tenant.  Very easy to self manage in relation to residential.  Also much scarier with vacancies. All of my leases have been 5 year terms with 5 year options.

Your responsibilities with maintenance will depend on your leases.

And your vacancy rate will depend on your area.  If you have a big brokerage nearby I would bet their website has local absorption and vacancy rates.

There was a property near me which had a portion of it taken through eminent domain.  The owner "gifted" the remaining portion to the county.  That property sat vacant for years.  I asked around and eventually asked the county auditor.  After months of bugging him he put it on the county commission meeting agenda.  After a couple meetings it got labelled as surplus.  After that the auditor was able to put it on the next tax deed sale.  So after months and months of pushing this through I got outbid at the auction...

So I guess if you know it is city owned, go to city hall and start bugging people.

@Matt Devincenzo Thank you!

@Matt Devincenzo I appreciate the info, it sounds like fee simple ownership of the underlying land is the key for it to be a townhouse. But then I've also heard that a buyer won't be able to get FHA financing on a unit that is part of an unapproved HOA...

@Wayne Brooks Thanks for the info. I like the sounds of the HOA for the purpose of maintaining the roof and exterior for the reasons you stated. Without the individual lots it does look a lot like a condo...