All Forum Posts by: Nikolas Engel

First, I would ask the broker for financials for the building. Check it against the information that you have, if it doesn't match, make your own calculation.  If your calculation makes sense investment wise for you make an offer based on your numbers.

It is hard for the seller to completely manipulate the income of a commercial property, if your lender is thorough it will be revealed in the financing process. 

Have you looked into using a local credit union for financing?

Can you share more details? A commercial property can be too many things.

In general, the value of any commercial property is determined by the NOI - Net Operating Income. That is all income minus all expenses, before any mortgage payment.

You might use the upcoming vacancy for your negotiation purposes. This could be a good or a bad deal, we don't have enough information. A good deal could be that the upcoming vacancy presents the owner a unique opportunity to reposition and add value the property (basically finding a tenant that pays higher rent and therefore raise the NOI).

Can you share more details? A commercial property can be too many things.

In general, the value of any commercial property is determined by the NOI - Net Operating Income. That is all income minus all expenses, before any mortgage payment.

You might use the upcoming vacancy for your negotiation purposes. This could be a good or a bad deal, we don't have enough information. A good deal could be that the upcoming vacancy presents the owner a unique opportunity to reposition and add value the property (basically finding a tenant that pays higher rent and therefore raise the NOI).

I will do this quick and dirty, only using DP and cashflow to analyze the deal. I assume that all expenses are covered in the NNN.

Out of pocket cost to purchase (DP 20%): $135,200

Monthly cash flow: $5,400 - $4,000 (mortgage) = $1,400

Months to recover only DP: $135,200 / $1,400 = 84.5 

It will take you about 8 years to recover your down payment. Only then you start making a profit. This does not account other expenses like TI, commission. If you add those out of pocket expenses it will take you almost 170 months to recover, that is more than 14 years.

This is a terrible deal! 

Thanks @Joel Owens, great support from you!

Thank you @Joel Owens

Great advise. How common is it in commercial leases that tenant discloses sales? My assumption is that all tenants have an interest in keeping their cards close.

Thank you @John McKee and @Don Konipol

I appreciate your input! We are still negotiating and tenant might accept original terms. 

Thank you @Chris Mason and @Ronald Rohde

I see your valid points.
I was thinking from the other way, if tenant is not comfortable with PG then he/she might not trust the strength of their business... But maybe I am overthinking here.

I would not even consider option 2. Why? Because the more money you have in the deal the higher your risk. Cash payment is the only way forward if the property does not qualify for a loan until it is stabilized, your situation is different. Since your property apparently qualifies for a loan I would take it - but shop around with different lenders and try to negotiate any prepayment penalty out of the contract. 

I had good experiences with credit unions and community banks as well. 

In the meantime, you can use your cash for another down payment....

Folks,

I am negotiating an owner-operated restaurant lease and tenant agrees to a personal guarantee for the initial lease term of five years but rejects a guarantee for the two options (five year each). We had not talked about it during the LOI negotiations, the issue popped up during the draft lease review process. Obviously it is in my best interest as LL to have a guarantee in place for the entire lease period, including options.

How would you deal with a situation like this?