All Forum Posts by: Matt Evans

I don't know but I'm guessing probably not. The seller's agent has suggested (though of course I don't know how true it is) that they're near they're at or near bottom-line price for the property because they have a mortgage to pay off and no money to bring to the closing table. Correct me if I'm wrong but if that's true, that means they wouldn't be able to carry a note themselves, right? If so, that probably means it  would have to either be third-party financing (difficult to get for this property because of flood issues, I bet, and the insurance would be overpriced for the actual risk), cash or a master lease. Are there any other options?

Hi everyone, I have a newbie question about pursuing a master lease option on a commercial property versus just paying cash for it.

Briefly, the property is pretty inexpensive, hopefully we could get it for around $125k, which we have the cash to do (it wouldn't be just shaking out the couch cushions, but it's also not raiding our retirement funds or anything like that). We'd be buying it for the purpose of launching an outdoor recreation business there.

One piece of advice we've heard is to think about doing a lease option rather than buying outright to limit how much of our assets we're putting at risk. With a little Googling I understand in the commercial world that's called a master lease, and I think I understand the basics of what it entails and the potential advantages.

What I'm not so sure about is whether or not using one (if the sellers agreed) would actually be reducing our risk. Like any new small business, there's a decent chance it will fail, and I can see that if that's the case we might wish we hadn't put so much money into the property so we can just give it back to the seller and bail. But this business would be totally location-dependent, we could never pick it up and move it. So it seems even riskier to me not to have it totally under our control because if it does succeed it seems like there's a real risk either in bad luck - the seller gets hit by a bus, disappears, whatever might cause a complicated legal situation - or bad faith such as the seller seeing the success of the business and engineering some way to back out of the option so he can take it himself.

Also, this business would require at least some physical improvement to the property. I doubt we could get the seller to pay for it since I understand he or she is in some financial distress. It seems logical to me that it wouldn't make sense to pay to improve property you don't yet own, but from what I've read that's often the point of a master lease in increase value.

Anybody have any thoughts about whether pursuing a master lease would actually reduce our risk exposure?

Thanks!

Matt

I think that's right, thanks Joel. Actually I'm wondering if that's one of the reasons the property has been on the market for so long, the insurance issue related to the flood plain for anybody who would have to finance. If we pay cash I'd think about foregoing flood insurance - the odds of a flood reaching the building look very low, and if the contents are inner tubes and kayaks there probably wouldn't be much risk, I think.

Hi all, I'm just looking for feedback on a deal that my wife and I are considering since we're not professional commercial real estate investors. Thanks for any comments.

We live in a small town not far from a very popular tourist area where river-based activities are common - tubing, kayaking, canoeing, fishing etc. For various reasons the section of the river in our county is very under-utilized - there are tubing rentals and kayak outfitters and so on on every other section, but none near our area. I think the main reason has been a lack of good river access points, there are only a couple in the county, and there's a very long stretch with no good place to get in or out of the river at all.

So at the bottom or our hill there's been property for sale for a while, it used to be a landscaping business or some such but it's been vacant for years. It's about four acres all along the river, including a 1,200 square foot building with one large room, a small lobby, a small office and a small bathroom. Building looks to be in OK shape, but there's no capacity to expand the septic system beyond the one bathroom, we're told. It's in a flood plain, but there's no history of flooding and the building sits very high up from the river. It doesn't have a river access point now but we're told it could be put in easily.

Here are the two main reasons we're interested in the property:

• Location for a river-based business. It really seems perfect for a tubing/kayak rental sort of business (my wife and I paddle quite a bit). It's right on the river and would have its own easy access. This fall the county will put a new public access in upstream, and because of the particular course of this river it would take literally three minutes to shuttle customers to that put-in, from which they'd have a very scenic four-mile drift downstream and take out right at their cars at our place. That's a lot easier than most tube rental places, which may have to shuttle to a nearby put-in and then do an even longer shuttle from a take-out. Downstream from this  location (too far to tube, but a good kayaking day trip) is a huge new brewery that's a tourist destination in itself, and this brewery has plans to put river access and paddling facilities on their property at some point in the future. So this would be a good spot for people to put in if they plan to paddle down to the brewery in the future.
• Future bike path. A number of local governments and community groups have been pushing a new "rails-to-trails" bike path for an unused rail line. This property is literally right on that rail line - the tracks on one side and the river on the other. So if that comes to pass, a bike rental/service sort of shop would be a natural. I think the rail trail is more likely to happen than not and it should have a very beneficial impact on the value of this property, but it could be ten years away. Much less likely but still possible would be a recommissioning of the rail line for an industrial use, in which case I would think the value of this property would plummet.

The seller has dropped the price several times down to around $150k, having bought it for $170k in 2007, and the tax value is only $68k (about half and half land and building). The hint from the seller's agent is that they're close to their bottom limit because they have a mortgage and don't have money to bring to the table. Our agent can't find any record of a mortgage, so it must be private money and we don't know how  much they owe.

We don't much care for debt but my wife and I have enough cash to put together a credible offer. What I'd appreciate feedback on is:

• Is it dumb to use cash for some reason? We have no kids, live cheaply, have good monthly income (she'd keep her job, I'd mainly run the business) and lots of residential real estate equity. It would take most of our readily available cash to secure the property, but we wouldn't be tapping our retirement accounts or anything. We'd considering selling a residential property for more cash to invest in the business, though as far as I can tell with a building already there and paid for, doing a tube rental business shouldn't require all that much.
• Seasonality? The season for a business like this would probably be April to September, which is great for us since we don't like hanging around here when it snows anyway. Since the building would be paid for I guess it wouldn't be the end of the world for it to be idle off-season, but it'd be great to come up with some way it might generate income in the winter.
• Valuing for complete failure? I'd like it to be the case that, even if we decide we hate running an outfitter ourselves, nobody wants to paddle around here anyway and no bike path is ever built that we could at least still generate some income and see some long-term appreciation. What are some considerations or calculations I can make to see if that's a decent possibility?

Sorry for the long post, but if you've made it this far I appreciate any comments. Thanks!

There are several really great suggestions here from you all. Thanks very much for your help!

Thanks Dawn. I always tell agents to make sure they have license to use photos taken by somebody else, and I think in general that's the case. I agree with you about the value of virtual tours - I do include the key listing information when I write the scripts, but I also try to get agents to help me make the narrations more informative. One question I ask them is, 'what are some things you always point out when you're giving a tour of this house?' Sometimes a feature like a cool pop-out sorting table in the laundry room won't be mentioned in the listing nor obvious in a photo, but still could be something a potential buyer would be interested to know about.

That's true, David, I don't think most virtual tours do anything to help sell a property. But they do get clicks, probably mostly from people who like the photos they just saw and are hoping the promised "virtual tour" will add something more that is useful, though that's usually not the case unless they luck into a 360 tour or some such. A narrated tour does give them more information, points out details, adds some 'color' so to speak, and can hopefully convince them to take the next step. That's the idea, anyway!

I try to target agents with good photos for the reason you cite, and by using what they already have I'm trying to make it easy and affordable for them. As Tom said, the natural target is very high-end luxury homes, but I'm wondering if I might be able to bring such a tool more down-market by taking some of the risk out of the process. By the way, Tom, I'm actually already working with a yacht brokerage in Sarasota, adding narration to their 360 tours, maybe it's the same one!

Thanks very much for the welcomes!

Thanks Joan. To your point about agents setting themselves apart for sellers, I've been thinking about shifting the emphasis of my marketing that way. In these areas where lots of houses seem to be selling themselves, having something unique but easy to explain to potential clients that could help them land more listings could be more motivating. I always mention that, but maybe that's even more important than telling them it can help sell the house!

That's a great idea, Michael, thanks.  I'll get on the hunt for some offices that hold such meetings.