All Forum Posts by: N/A N/A

What type of property is it? I've not seen a commercial property valued based on comps, but instead the income. If the property has a tenant like WalMart then you've got near guarenteed income from a proven profitable business system and expect 5% cap rate. If the tenant is Cluck Cluck Chicken, one of a kind, actively being investigated by the health department, you've got a strong negotiation stance. In my opinion, thinking it out and presenting the rational to the seller should get you somewhere. Unless the seller has their head in the clouds on value and reasonable return on investment, they should be open and willing to listen to their market. If not, I would think the property will just sit until they finally get motivated enough to sell it for a price that will catch the market's attention.

Any Commercial Property Owners,
Would you mind sharing a bit of your history as to how you started in commercial? Also, what do you currently hold in your commercial portfolio? Last question, how do you locate and evaluate commercial opportunities?
Thanks,
Glenn

SoBe,
I've often considered in researching carwashes with the objective similar to yours - not run the business, but still have the benefits. Having no prior experience nor specific technical knowledge, consider my message as sheer analytical observation. So here goes:

Taking into account the basic function of a car wash, manned or un-manned, you have a considerable amount of moving parts and tremendous amounts of water and chemical treatments. With these elements I imagine a considerable amount of deterioration to go along with that. This would probably lead to an accelerated depreciation of fixed assets and machinery and short life span for expensive equipment. In addition, I suspect the revenue generated by the business is predominately a cash basis, which may make it difficult to track and/or identify skimming from the register. Perhaps not of major concern, but a possible element none the less. In addition, the type of labor involved in operation of such a business is certainly not highly skilled, so I would imagine high turn over which could be detrimental to productivity and customer satisfaction. Lastly, but most importantly, the environmental impact of such a business I'm guessing will almost certainly depreciate the land value if the usage were to change as it would require clean up and perhaps remediation. In addition, with environmental impact becoming a greater concern you may be seeing this effect happen and evidenced by the increased inventory of such business on the market as owners are realizing larger and larger impact fees levied by state, county or federal entities.

Most of what I've previously described relates to the operations component, I'd like to shed a little light on the financials as well. In most municipalities, the water and sewer services are provided by public works. Water being the most consumed element in the operation, it's usage can be tracked on a per gallon basis. In addition, the consumption of water by the machinery can be calculated and is usually indicated in the the design specs from the manufacturer. By combining these factors you can calculate with fair accuracy the expected sales revenue (gallons used/#gallons per wash = # washes * cost per wash = total sales). From there work down your expenses, cost of water, other utilities, salaries, etc.

Finally, as I understand, triple net leases means the tenant is responsible for all maintenance, repairs and utilities. Even tax increases are passed through. Beyond that I don't know anything more about lease structures.
Good Luck
Glenn

Josh,
Congrats on the web site success. WELL DESERVED! To address your question, I don't feel it's a good idea to use pop-ups or pop-unders. I'm not a web marketing expert, but I'm a web user. Great, now I sound like the hair club for men - I'm not only the owner, I'm a member.....Anyway! Users browse and surf for information and content, not advertisements. That's the beauty of the web, when you want to get information you can find it and when you want to buy something, you can find it. This site has a very soft sales presence, which is probably why the viewership is so high. If the sales tactic took an agressive approach, it may or may not create more conversions.

I personally, don't pay any attention to a pop-up or pop-down. It's simply another alt-f4 that I have to hit in sequence of key strokes needed to get where I want to go. Think, how do people get where they are on the web? Is it following a series of interuptions or by locating what they want through searching, relevance, referal? I don't have the answers by the way, just things to contemplate.

More food for thought, if the goal is to increase membership, how can you query folks leaving - those that aren't already members? The subtle "hey, thanks for stopping by, see you again soon" similar to your local convenience store. That, I think is a better customer/vistor experience.

Anyone else?

So, here's my story. I purchased an 8-unit at 75% LTV using my older brother's capital. I strolled through the due diligence process without verifying financials or looking closely at the property condition, which had major issues that later came around to be huge headaches. The property was class D all the way. I didn't have a plan for filling vacancy, nor maintenance, nor management. I simply thought I'd make some improvements to the units, raise rents, and collect income each month. Renovating a unit was more than expected and wasn't received by the market as anticipated. I experienced months of 50% vacancy until I finally made drastic changes by splitting the floor plan and renting as two single room occupancies instead of a 1bd/1bth. Now there's no more negative cashflow, but some major repair items still exist, which I can't put more capital into having repaired.

I've learned a great deal, but haven't been able to recoup the capital investment that was sunk into this project. It's been my experience that commercial projects require larger down payments, 10%, 20% or even 25%. There can be more moving parts to a commercial project and more compliance concerns. As far as office space, warehouse, or retail, I don't know how to go about evaluating those opportunities. I have an understanding of analyzing the income statement determining a cap rate, but when it comes to individual expenses: contracted services & maintenance, utilities, insurance, reasonable vacancy, advertising, management etc. I haven't a clue. In addition, the income: what lease terms are reasonable, lease type (triple net or gross), tenant screening. Also if you purchase a property with high vacancy, one in which the income doesn't support the holding expense, is it worth considering a buy and hold until the vacancy is resolved to get back to black?

It seems the landscape is overwhelming. There seems to be so much information to injest.

Mike,

How are you coming along with IRA? Haven't seen you comment lately. What have you learned so far? These are new paths we're pounded, so share the knowledge wealth as you break ground.
Glenn

I hope someone is taking an interest in reading this. I'm sincere in my desire to move forward with commercial investing. Certainly there's someone out there that can offer insight and wisdom of how to get off on the right foot?

I've been investing and managing properties for two years here in Dallas. Most of my experience is in residential. I do own an 8 unit apartment, which was a huge learning experience for me. I knew nothing when I purchased it and was taken to the bank. I'll spare the details, but suffice it to say, it was not a money maker. I'm determined to get back in the game now that I'm approaching a full recovery, but I'd like advise from senior commercial investors. Any recommendations?
Glenn

Finding money to do deals can be difficult. If nothing else time consuming. For me, networking has opened the most leads. Simply getting out and talking to people who are involved with what I'm trying to do. Just let them know you're in the need for borrowed money, and referals should come your way.

I've found several hard money lenders that will lend 100% for purchase and repair. There's no shortage of these type lenders. At least not in Dallas. Problem is, they demand 3-4% in origination, and charge 14-18% in interest. This sucks a lot out of a deal. I've not used a hard money lender, but just might here soon b/c I need a non-recourse loan option for my self directed IRA, but that's another topic. Some banks do provide investor loans. I've found a local bank that advertised investor loans and construction loans. They provide 90% of purchase and repair with 1% origination and index + for interest (I think they use prime index plus 2%). Whatever the case, my last loan was 11% interest only payments. Their requirements focused upon capital assets (ability to make payments on the loan) credit history (do you have a track record of paying your bills), and they ask about experience and my business plan (need to explain how the deal makes sense and how I'll make money).

In any case, if you really find a great deal, the money will show itself just by putting the word out about your deal.

MikeOH,

Excellent reply. Well put. I would echo the sentiment reguarding starting small at single family. I jumped into REI at the deep end - multi families - with a 5plex and 8plex. I nearly drown and am still extracting the proverbial water from financial statements.
Glenn