Investment Info:
Office Space buy & hold investment in Champaign.
Purchase price: $990,000
Cash invested: $20,000
Sale price: $990,000
Crazy to think the first purchase I did was two years ago on a little 725 sq ft two bedroom house for $32,000. It was the cheapest house on the market…….but it got me in the game. Below is some details of the deal that closed yesterday for $990,000 (last sold $1,350,000) which included 10,776 sq ft office space!!!
Built in 1970, 100% leased, 5 tenants (all long term), strong traffic corridor, and 40,355 square ft lot size!! The location, stability of tenants, and being able to get some terms made this worth the risk. As Sam Zell mentions in his book "Am I Being Too Subtle" not to avoid risk, but manage risk, and know the downside. I have been looking for a more scalable model and more income under one roof (instead of across multiple properties). This one fills that void. Around 150k in gross income annual income. Due to mix of NNN (less expenses) and gross leases still had great NOI that can be around 100k….. translating around a 10 CAP day 1.
This property was last purchased $1,350,000 in 2005, which had assessment reflect high value. Under the listing of taxing bodies on this Champaign parcel the total tax rate is 8.998500 Properties. Properties are assessed at 1/3 of fair market value so the Township puts the estimated fair market value at $1,202,760 ($400,920 assessed). That translates $36,076.79 annual property taxes.
We were able to purchase $990,000 and will be appealing property taxes when the appeal window opens up this summer. Bringing in a purchase contract (fair arms length transaction) or recent appraisal are two common methods people can appeal property taxes.
Post Purchase: 990,000/3=$330,000 assessed
$330,000 x .0899850 = $29,695.05 annual property taxes
Difference $36,076.79 - $29,695.05 = $6,381.74 in annual savings…….which means increased NOI***
$6,381.74 increase to NOI
8 CAP = $79,771.75 value created
9 CAP = $70,908.22 value created
10 CAP = $62,817.40 value created
We can also accelerate the depreciation schedule faster (residential is 27.5 and commercial 39 years) and do a cost segregation study. What I learned from Tom Wheelwright earlier last year is cost segregation can allow up to a 30% deduction ($297,000) the first year.
Fun variable about commercial property is value is based on the NOI (unlike residential sales COMPS). NOI divided by CAP rate = Value. Depending on what the CAP rate is for the property type and where we are at for the market cycle, we have a range of $62,000 - $79,771 equity created without picking up a hammer or tool belt. Now you can see how increasing NOI gets fun. This was value created in just proper
ty taxes. Value add renovation projects, ground up construction, etc…. Those opportunities to increase NOI can be endless
Anyone looking to buy, sell, or invest in real estate feel free to reach out anytime.
**I am a licensed realtor with eXp Realty
#CommercialProperty #SamZell #RealEstate #Investing #BiggerPockets
What made you interested in investing in this type of deal?
Recession proof businesses had the current leases and the leases are long term leases.
How did you find this deal and how did you negotiate it?
On the MLS and it took 5 months with the initial point of contact in August of 2019.
