All Forum Posts by: Brett Peters

@Matthew Rembish To follow up on what has already been said. You have to look up your local tax assessors website. There will be a page where you can search by name, parcel number etc. Whether or not the property has a mortgage will be on the results page.

@Murali Mudddan I am a commercial agent from the PA area. To answer your first question, yes you should use an agent that specializes in commercial. Due diligence, Comps, and Financial Analysis are completely different in CRE than in residential. I can provide various examples of this if you would like more detail. Your best interest will be served by hiring a commercial agent. Secondly, 25% down is realistic. However, if the building is vacant you could be looking at 30% plus. Thirdly, the office market is very soft right now. I have several office listings in the PA area and there is not a lot of interest due to the pandemic. Office is riding a middle wave in the CRE sector. Industrial and MF are leading the pack, while Retail and Hospitality are on the bottom end of that spectrum. Depending of course on the sub-type of those particular asset classes.

An important fact to keep in mind, Office locations are priced by the number of employees that occupy the location. Because that number is currently being limited by big brother, it could be difficult to find a tenant at market rent. And I would bet that the potential tenant will be requesting a rental decrease for at least the next 6 months (especially if it's NNN). That is what I am currently dealing with at the moment. Also, in CRE we do not do seller disclosures and are not obligated to give consumer notices. The closest you will get to this is CPI, but in general we operate on the principle of buyer beware. Welcome to the Wild Wild West!

@Eric Lilly, here are the list of steps to analyze cash flow from NOI, to before tax and after tax. I only do CRE, so you can skip any steps that do not apply. Hope this helps!

1 Potential Rental Income 

2 − Vacancy & Credit Losses 

3 = Effective Rental Income 

4 + Other Income (Collectible) 

5 = Gross Operating Income

6 − Operating Expenses 

7 = NET OPERATING INCOME 

8 − Interest – 1st Mortgage

9 − Interest – 2nd Mortgage 

10 − Participation Payments 

11 − Cost Recovery – Improvements 

12 − Cost Recovery – Personal Property 

13 − Amortization of Loan Fees/Costs 

14 − Leasing Commissions 

15 = Real Estate Taxable Income 

16 Tax Liability (Savings) at_____%

17 NET OPERATING INCOME (Line 7) 

18 − Annual Debt Service 

19 − Participation Payments 

20 − Leasing Commissions 

21 − Funded Reserves 

22 = CASH FLOW BEFORE TAXES 

23 − Tax Liability (Savings) (Line 16) 

24 = CASH FLOW AFTER TAXES

@Ray T. Interesting, I didn't know about the mansion tax. That is definitely a motivator to seek a different market. My clients from NYC buy only MF properties. Our company conducts the entire purchase and closing process via email, as well as overnight any necessary physical documents needing signature. So, after they visit the property, they literally don't have to travel again unless they absolutely want to. Once they hire property management, they are completely hands off. The Reading market is a hate it or love it type of deal. Properties are very cheap, real estate taxes are insanely low. I did a 5 unit in the city and the property/school tax was only $1,800 per year! However, the inspectors are a huge pain in the neck. During one of my rehabs they made me replace a brand new window I installed because it was 2 inches short from code. They said if I left in the window I couldn't call it a bedroom! Also, city hall is very unprofessional. Everyone in building and codes knows me by my first name since I've appealed and won every violation they tried to impose on me.

@Mike Medina This is a great question. I am from the PA area and only do commercial real estate. I seen you referenced both a strip center and a mixed-use type of property so I will comment on these two alone. Commercial real estate is a very diverse asset class and types would all need to be discussed individually. In reference to the mixed-use property type. I just listed a 6-unit mixed-use property, 5 apartments and a retail store front. I got a full cash no contingency offer in 5 days! To, add it was a multiple offer situation. I say this to say that I deal with retail and the like on a daily basis, and even though the conversations have changed, there are still deals to be had and deals being done. I'm currently getting a lease signed for a restaurant/bar (NNN) and at market rent! Just with a rent reduction in the first 6 months. People are making it work.

Now, there are many types of retailers. Some are skyrocketing as we speak, Dollar General is one of them. There are also certain types of retail that are struggling, but that is in no way a reflection on the entire industry. One has to take into account the underlying product type and financial strength of that particular business. Did the business go under because there was a pandemic? Or did they go under because they were over leveraged and poorly capitalized? What we are seeing is the evolution, not the death of retail. What you have to focus on is consumer staples as well as the supply and demand of the product types in your area. A "retail gap analysis" will tell you everything you need to know about what type of store/location to choose.

In regard to financing, it will be harder on certain product types. But much of that depends on whether the space is currently occupied. It is hard to finance anything that's vacant to begin with. But for the sake of brevity, is there friction in the market? Definitely. But if you have the stomach for it, there are deals to be had. CRE is called the wild wild west for a reason. Would you buy a JC Penny store location? Probably not, I know I wouldn't. But guess who is....Amazon.

@Yana Feldman Simply put, fire her. She is getting paid to represent you and she is not fulfilling her basic fiduciary duties as your representative. Now, I am strictly commercial. In our world, there are no seller disclosures and we function on the concept of buyer beware. The previous purchase price is only irrelevant if you can comp it out. There are a number of problems in this situation. Firstly, it sounds like this property is completely vacant and need repair. If that is the case you are going to have a difficult time financing it and your down money will be at least 25-30%. Secondly, you need better representation so you can acquire the info you need to make an informed decision. If you do decide to make an offer make it contingent upon appraisal and inspection. Best Wishes!

@Casey Groves I specialize in CRE, in the PA area. He means both the purchase price and the preferred number of units.

@Ray T. I am a commercial agent and investor in the lancaster, Pa area. I own property in that general vacinity, namely Reading, Pa. I also have clients from NYC that invest in the Lehigh Valley, and all have been very pleased with the results. In general rental rates are strong and property taxes tend to be very low. My only suggestion is that you research the transfer tax in those areas. Reading city for example holds the highest transfer tax in Pa, 5%. This may not seem like a big deal, but it is something that you will need to nail down and factor into your analysis. Best Wishes!

@Shafi Noss I would strongly suggest getting a membership with "NMHC" (National Multi family Housing Council). This will give you data at a national level quarterly and is a great resource. However, to get more granular detail you will have to get a service like Costar or Real Capital Analytics. Both of those are not cheap but they will give you exactly what you are looking for.

@Jalon Wilson For good measure. I would like to add that if you purchase the property in your personal name and later decide to transfer ownership to an LLC, you will have to pay transfer tax.