All Forum Posts by: Brian Schmelzlen

You absolutely should do a cost segregation study (hire a professional- a cost segregation company, not a CPA necessarily).  It has saved some of my clients a lot of money.

Besides New England, what states are you interested in?

In that case, perhaps take less than 50% and agree to handle all of the property management duties?

@Drake Espenlaub

None of it is deductible for 2017.  The fact that you planned on using it as a personal residence would make it non-deductible, but I'll ignore that for now.  Rehabing the property means that those costs have to be capitalized, and you cannot start to depreciate them until you put it into service, which in this case means holding the property out to rent.  The fact that you don't have any rental income isn't a problem (although it would raise a red flag); the problem is that it sounds like you didn't have it available to rent yet.  You will be able to start depreciating them once you put the property into service (talk to your CPA for rules about if you use it as a personal residence first).

Originally posted by @Georgee Gilbert:

My original post didn't include the 2nd paragraph. I'm still learning how to maneuver on this forum. 

Anywho, great questions.  This commercial build was not a part of my goal. My focus is residential. I so happen to see the build and  was thinking it may be a great opportunity. If it is a great opportunity 🤔 To be honest, I don't know the 1st  thing about commercial investment. I've been researching  but still not sure where to start. Any suggestions on books or sites   would be great. 

The asking price is $169,000. It's 911 sq ft plus a full finished basement and parking is great. The realtor said only one person was interested in purchasing since September and they withdrew and all other offers are for leasing but the owner is not interested they are really motivated to sale it.  

I have a little money set aside  but I'm hoping to obtain a loan. I'm not sure how to start my due diligence. That's what this post is for. Please advise. 

I would consider reading "Crushing It in Apartments and Commercial Real Estate" by Brian Murray.  It may give you some helpful advice, and I like it because it covers a lot of the fundamentals of commercial real estate investing.

The fact that the sellers sound motivated is great for you (as it is in all investing).  The lack of offers is a bit concerning, but that is probably due to the fact that it is a single tenant property so there is less room for forced appreciation and more concentrated risk.  The fact that you could be an owner-occupant as a fall-back is a great option though, so if the numbers work out you should consider it.

Patrick, trust but verify. You are going to need to check and make sure all the numbers they are providing you are correct. Don’t only get the rent rolls for the past 12 months, but look at the actual deposits. Look at the expenses for the past 2-3 years to make sure they didn’t defer some maintenance to increase their NOI artificially for the sale.

If the cash on cash return works, I would certainly consider it.

Originally posted by @Francesco Bonura:

In this area rents are between $12/$18 sf and the buildings are pretty outdated.

How do I get in contact with a national tenant? I don’t think I would have any issues finding mom and pop tenants but I would prefer to have National tenants 

I have never done it, but from my own networking I know that they typically use law firms to negotiate leases on their behalf.  I would start off by finding a law firm that does that and start talking to them.  Other options would be to research individual national companies to determine who is responsible for finding new locations in-house and contact that person.

Do you have opportunities to increase the NOI while keeping the rent at market rates? For example, can you add vending machines to the property?

Do you have opportunities to increase the NOI by decreasing your expenses? You should consider reviewing all the current contracts with vendors to see if there is any room for savings there (without sacrificing quality of service received).

Originally posted by @Patrick Gerrity:

Net operating income is $133,500

If the cap rate is 10%, for example, the building's value is $1.335 million.  If its 5%, the building's value is $2.67 million.