All Forum Posts by: Sean H.

Mark, sounds like a project any city would be interested in. Everyone is trying to go green.

I'd be interested in seeing how the financial side is put together as well. Basically how you structure developments so you make money. Are you going to also own and lease out this space, making money from equity accumulation and rental income? Would things be different since you're developing this for the city vs doing it on your own parcel?

What are you going to propose to do?

I would be pretty interested to see how the political side of things plays out as well.

Love the enthusiasm, keep it rolling man!

Welcome Max! I invest in the greater Pittsburgh area and can attest to the abundance of great rental properties available. I'm sure they are out there, but I have had some trouble finding properties to flip, but if your strategy is buy and hold, you will not have to look too far to accumulate some great properties. Let me know if there is anything I can do to help you. Good luck!

I was in a very similar situation with a non-real estate related business. There were some loans that the previous owner had personally guaranteed. We basically went to the bank and had me added as the guarantor and him removed from the loan. It was pretty painless and smart for both of us to do.

I could see that being a fairly big strain on your relationship though. Imagine holding all of the risk but only getting 50% of the profit. Eventually he will (rightfully) feel that he is doing more work, more vested, etc and try to push you out.

It might be worth looking into having him just buy the entire company.

Everyone has made strong suggestions. I feel like there are some details you have left out but I will post some statements / questions regardless.

-Business and friendship will likely end sour. Are you prepared to lose this friend and the relationship you have with them over a real estate deal?

-Is this a new venture for future deals or will he actively be managing your current business? Everyone "strives" to be an entrepreneur. People see the profits of working for themselves but often hugely underestimate the time and work invested in working for yourself. There is a very good reason most businesses fail within 5 years of opening and I would be taking every step possible to not become a statistic. If this new person is taking over your company, I would have serious doubts about your ability to continue to operate successfully, especially if you're "totally not involved in all aspects and decision making"

Some food for thought, fill in some gaps so we can better evaluate whats really going on.

How is this purchase going, Charles?

Developing and commercial is a whole different animal so make sure you've done your due diligence. Make sure to chronicle your experiences on BP, I'd be very interested to see how the process goes.

Best of luck!

If that main tenant leaves it would definitely break this deal unless you have a good idea of someone to replace them.

"His thinks if the main tenant decides to leave, even after 5 years, that it would hard to re-rent, almost impossible to get the same rent amount."

Why would it be hard to get the same amount of rent that they are paying now? Are they over-paying currently? I would speak casually with someone from that organization to see if their goals align with yours (them staying in the building for a very, very long time).

One thing to look into, who currently owns the building? Is it a big time investor or a little guy? If a big time investor is looking to get out, they might know something about tenant's future plans that they are not letting on. Have you found out why the seller is looking to get out?

Keep us posted.

The numbers you have given make this look like an awesome project. I came up with a 50% return on your money assuming $125,000 down. A lot of the big boys in my area are looking for 15%-25% return. Seems too good to be true.

My next steps would be check the financial health of the tenants. Most of their leases expire relatively soon, definitely worth a look to make sure they'll be around. Why are they selling this property? I would get all of the various receipts for the items the seller is giving you (rental receipts, PM receipts, tax records, etc) for at least the past three years. Seeing that you confessed to no experience with commercial, I would run these numbers by your CPA and commercial lender to determine their validity and liquidity. What sort of condition is the building itself in? Are there any big ticket capital expenditures coming up? Get records of maintenance for as far back as you can get. What is the overall economic climate of your community? Speak to the property manager at length about the building and tenants.

Sorry to throw a million different questions and ideas at you, but at this point, you have to:

a) verify that the numbers provided are correct
b) find reasons not to buy the property

As harsh as it sounds, if you can't argue against your project (buying the property), you do not understand the project well enough to proceed.

Best of luck and keep us updated as you go through your due diligence. It sounds like this could be a real winner!

Lease agreements are huge as Charles indicated. Are they NNN leases? Who is responsible for CAM, Taxes, Insurance, and Maintenance? Are all tenants on the same NNN lease or are some single N, NN, etc? Gather these documents and go over them with a fine tooth comb.

Your numbers look something like this..

net income: $66,000
down payment (25% down @ $600,000): $150,000
ROI: 44%

That is an outstanding return. Does your net income number cover debt service? What is the condition of the property? Will you self manage or hire a PM company? If you broke down the $56,000 in expenses, we could have a lot better idea of the quality of the deal.

If everything lines up, good luck! It looks like you found a great one.