All Forum Posts by: Robert Siverd

Omar, I like the way you made me think about the situation.  Building the facility would be the best option for growth no doubt.  In terms of flexibility, the building gives me more options later on with owning the real estate, but takes away flexibility from our company since we won't be able to move easily like we could if renting.  I don't think we will need to move from there, so I would like growth a lot more than flexibility.  I totally agree with you in growing the business as quickly as possible along with then being aggressive(but disciplined) with real estate.

Dan, the bank does require that we guarantee the loan personally along with our business guaranteeing it.  I assume this is how they can offer that deal.

Whit, thanks for taking the time to chime in. In regards to ROI with the same money, the 100% financing really frees up our capital to use on other projects. We are going to be investing soon into a new technology that is expensive. We are lucky enough to have the cash on hand to soak that cost up as well.

Ash, I can run those scenarios out for 15-20 years.  The issue is what will the property be worth in the future.  Nobody can know that, but it is probably the most important factor that would determine which option would be most lucrative.

Sanjay, I appreciate your thoughts. There is a strong demand in my area for commercial space currently.  There is a lot of demand in this specific park as well.  There are only a few lots left to purchase in the park.  I believe that values will only increase over time once the land is all purchased in this park.  Purchasing would give me options in the future as there will be extra space on the land to build out for commercial leasing purposes.

Omar,  I think you are down to  the core of the decision.  What do I want to do long term with my career.  Purchasing would tie up more cash each month from our business which is less that would go home.  This would limit my ability to grow my personal real estate portfolio without including other investors.  I am strongly leaning towards building the new facility as it will give me a lot of options in the future.  The tax implications would be great in the first few years of owning the building as well.  The one major key would be to go out and get a lot more revenue for our business that would make all projects possible at one time.

Thanks for the input Ronald.  I have thought that the 100% financing could be great for us.  We have a 10% down payment set aside, but it would be nice to keep that around as operating capital in case it is needed.

Thanks again Andy.  I do agree that if your business has to be located somewhere, it might as well be paying for real estate that you end up owning.  It provides multiple opportunities in the future.

Dan B, we have considered building extra space on the building for tenants.  I invest in residential real estate, but have never invested in commercial.  My thoughts are that I want to stick to what I am good at.  That is currently residential real estate and our current business  My partner and I would have to decide if we want to be commercial landlords.  I do know how that could help to offset some of the costs going forward.

Dan W, I am interested to know more about your concern with the bank offering 100% financing.  This is my first deal of anything this size or type.  Would the concern be that the terms would be ridiculous?  Would you be concerned that the bank could go under?

Thanks Joel.  We looked into a SBA loan, but have since found even better financing.  There is a local small bank that is trying to grow into our specific area and is really aggressive.  They are offering 100% financing on the new building.  This makes it even more attractive.  I like your idea of having the sale and leaseback as an option down the road.  We honestly hadn't thought of that.  There are some buildings around that are the size we need and could be changed to fit our needs.  We want to build in this specific park that has a lot of medical buildings and is in a great location.  Some of our big referral sources are in that same park and it would be a great fit for us to be there with them.

Thanks for the reply Andy.  I was hoping that someone on BP would have some real world experience with the same situation.  I like the idea of the company paying for the building over time.  The obvious major concern is how to  I ever make money on the deal in the end.  The plan would be to sign a long term lease with the company before I sell the company off to someone.  If the market is right, I could also sell the building at that time.  There are so many things that play into the decision, but I am certainly leaning towards the buy option.

So far my personal accountant and our company accountant have pointed out positives and nevatives for both situations. They have not provided any definitive answers.

I posted this in the "off topic" section and got no replies:

This is a situation that is not typically seen on BP. I am a partner in a small business. We have three locations currently and we rent all three spaces. We are considering opening a fourth location by constructing a building. We do not plan to have any tenants in the building other than our own company. We would plan to take our current main location which is the largest and downsize in the same business park. The building that we have built would become our new main office. The new building budget to complete it is about 2.5M. We have been all set to move forward with this plan until today when our current landlord brought up the possibility of us moving to another building in the same office park as our current main office. We would be able to rent that location for about 10k a month. This would cause us to not build the new building and only put a satellite office where we were going to build the new building.

There are two scenarios that we see.

1. Build new building for 2.5M that we own and open a smaller office where our current main location is that would cost about 2k a month. The building would cost about 17k a month for 25 years.

2. Rent a small space in the area where we currently plan to build our building. That rent would be 2k a month. We would then rent a new space in the same park as our current main office for about 10k a month and have that be our main office.

Assuming both situations work just as well for the company as far as patient treatment and meet all other needs, which would be the best move financially moving forward for my partner and I? I know that there are many things to consider. I am looking for feedback from anyone that thinks they can help. I invest in residential real estate as well and know that is what BP is for, but I thought there may be members with expertise to weigh in on this issue as well.

I look forward to the discussion and if a moderator feels that this discussion would fit better in another area of the forums, please feel free to move it.

This is a situation that is not typically seen on BP.  I am a partner in a small business.  We have three locations currently and we rent all three spaces.  We are considering opening a fourth location by constructing a building.  We do not plan to have any tenants in the building other than our own company.  We would plan to take our current main location which is the largest and downsize in the same business park.  The building that we have built would become our new main office.  The new building budget to complete it is about 2.5M.  We have been all set to move forward with this plan until today when our current landlord brought up the possibility of us moving to another building in the same office park as our current main office.  We would be able to rent that location for about 10k a month.  This would cause us to not build the new building and only put a satellite office where we were going to build the new building.

There are two scenarios that we see.

1. Build new building for 2.5M that we own and open a smaller office where our current main location is that would cost about 2k a month.  The building would cost about 17k a month for 25 years.

2. Rent a small space in the area where we currently plan to build our building.  That rent would be 2k a month.  We would then rent a new space in the same park as our current main office for about 10k a month and have that be our main office.

Assuming both situations work just as well for the company as far as patient treatment and meet all other needs, which would be the best move financially moving forward for my partner and I?  I know that there are many things to consider.  I am looking for feedback from anyone that thinks they can help.  I invest in residential real estate as well and know that is what BP is for, but I thought there may be members with expertise to weigh in on this issue as well.

I look forward to the discussion and if a moderator feels that this discussion would fit better in another area of the forums, please feel free to move it.

Thank you for your response.  I have a property in particular that I have the data for.  Maybe you can help me through the numbers and give your opinion if you have time.  I am concerned about cash on cash return and want to get around 8-10% cash on cash.  I am working with a partner and this deal is a single family rental.  It is a short sale.  I am aware of all of the time it can take and headaches that can come with these properties.  I bought my only other rental as a short sale.

We made an offer of 100k even and are waiting to hear back from the bank.  It was accepted by the seller as expected.  rental comps make me confident that it will rent for 1150 once repaired and possibly more, but 1150 should be a conservative number.  We are certainly using leverage and are putting down 20%.  We are definitely using a property manager as well.  We plan to do 8k in repairs to the house before starting to rent it out.

Prop tax - 117.08

Insurance - 75

management - 115

P&I - 429.46

HOA - 17

Vacancy/repairs/capex - 172.50

1150 - 926.04(monthly expenses) = 223.96 x 12 = 2687.52

We will be putting in 34k total to put down 20% plus the 8k for repairs. Seems to work out to just less than 8% return.  Obviously vacancy/repairs/capex won't come into play every month, but want to work them into the math now.  I do feel that 5% vacancy rate is normal for my market.

50% rule would tell me we would make cash flow of 145.54 a month.  Big difference in the long run from 223.96.  Makes me wonder what I am missing.  I would love to know now if it will indeed end up being 50% in the long run because I am missing something in the math.  Thanks again.

I would like to get members' opinions on this topic. I have read many articles and forum posts about the 50% rule, but always find a large discrepancy between the rule and the actual numbers. I am aware of accounting for property management - 10%, P&I, taxes, insurance, maintenance - 5%, vacancy - 10%, HOA costs, utilities, and CAPEX - 5%. When I do the math on specific properties I find that the actual numbers never add up to near what the 50% rule would suggest for expenses. I frequently read from experienced investors that over the long term they eventually find that expenses end up being 50% after all. So what makes up for the difference that is not being accounted for on the front end in actual numbers?