All Forum Posts by: Aaron K.

Thanks guys.  Many good points listed above.   I agree - environmental may be an insurmountable hurdle.  I don't know what was there before, still doing research on the history.  Population is also an issue.  We have about 30,000 people within 30 minute drive of this property, which is probably about as far as they'll drive for a warehouse space without already having one closer to them.  I had also considered using the unrented portions for some sort of attraction like paintball, snowmobile, indoor go-kart, haunted house, etc. but again, the population probably isn't there to support it.  I don't think I'd have much luck grabbing the casino traffic either since they'll have their own amusement parks in-house.  Not unless I did something exceptionally unique.  Other issues mentioned above like asbestos and obsolete buildings are also cost-adders.

I was figuring a $100k renovation per 25,000 square feet of space.  That would go towards delivering electrical and plumbing to the space, repairing superficial and minor structural damage to the space, building partition walls, and cleaning/painting of the space.  Any major structural or environmental issues would be a deal-breaker anyway so I'm not adding those into general renovation costs.  At $3/foot, it's not such a bad return unless I'm missing something.  I'm posting this to get feedback, so please, tell me if I'm completely off base with my line of thinking.

Here's a what-would-you-do scenario.  There's an ex-manufacturing property near me that is for sale.  It sits on 25 acres near a small town of 9000 people.  It sits away from other industrial areas, and consists of 140,000 square feet of industrial warehouse broken up into multiple buildings.  Some buildings are brick/stone, others are steel buildings.  It's been sitting vacant at least 20 years, so ALL buildings need work.  Some will probably need to be torn down eventually, say 25%.  For calculations sake, figure 100,000 square feet of rentable space.

Asking price: $500k negotiable
Property tax: $30,000 / year
Comparable rental rates: $1 - $5 per foot depending on condition

Some options are:
1. Clean up the grounds, leave the buildings as-is and try to rent NNN at reduced rate to tenants who want to repair the buildings.
2.  Clean up the grounds AND get the buildings functional 25,000ft at a time, rent at higher rate to multiple tenants.  Use the income from each partition to continue fixing more and more of the space, eventually renting out the entire 100,000 square feet.
3.  Convert one portion to finished office space, and rent at an even higher rate.
4.  Apparently the property has a power transmission line, which could allow for a solar farm, so that's a bonus option.  
5.  Turn the whole place into a haunted house.

Info about the area:  The immediate area has (-)2.2% population growth years 2010-2014 and is not a heavy industrial area.   However, it's 90 minutes from New York City via a major interstate located 10 minutes from the property.  There's a good sized hospital in town which serves NY, NJ, and PA residents.  However, there is a concern that there's not enough of a demand for commercial space due to the distance from other industrial areas and large cities.  However #2, it's 30 minutes from the construction site of a $1B casino project to be completed in 2018.  They're expecting 2000+ new jobs and 2 million visitors annually.  On paper, this should boost the area - but will it affect commercial/industrial property?

So - what would you do??  Is it a score at such a low price compared to it's potential, or is it a definite pass?  

I always, always do an inspection.  Unless you're a contractor with knowledge in wiring, plumbing, structural and more, the $400 you spend on an inspector is well worth it.

 Got it, I was missing the minimum monthly payment aspect of it, and instead had him paying 12/24 equal payments to pay off the loan.  Great way to leverage debt if it works, learn something new every day!

Joe - just posted the below before I saw your post, but this is what I'm figuring.  Tell me if I'm missing something, I'm interested to learn.

He gets the loan for $150,000.  Immediately, he pays the 10% fee of $15,000.  He's now down to $135,000.  Let's say he finds a really cheap property for $30,000, it needs $80,000 of renovation.  It takes him 4 months to renovate and he spends $20,000 each month on renovation (all arbitrary but reasonable numbers) plus $12,500 each month on loan payments.  In 4 months, he's spent $130,000 total.  There goes all the cash.   If the property doesn't sell the very next day for at least $165,000, he will have zero dollars to make his next 8 loan payments.  

Not quite. He needs to pay back the loan DURING the year - not at the end of it. If he sinks $150k into his flip but it takes him a year to recoup that cash when he sells the flip, where is he getting $12,500 a month to repay the loan during that year? He can't take it out of the loan money, he used it already for the flip.

First, it's not 0% financing.  You're immediately paying a 10% fee up front.  So you get 150k, 15k of that goes away on day 1, and your monthly payments are then $12,500 or $6250 per month after that (12 or 24 month term).  What investment will you make that will at least earn you back your $165k after 1 or 2 years, AND enable you to make those payments every month?

My comment is similar to the above.  It's not your agent's responsibility to run your numbers, he's only there to bring you deals that he things might be viable.  Your job as the investor is to determine whether or not the deal is for you.  That includes running numbers.  The agent should of course give you comps in the area, but working the numbers are up to you.