All Forum Posts by: Tyler Derickson

There is not a bad time to buy if you have a long-term horizon, buy solid buildings in good locations. I share some similar concerns to yourself, but my partner and I are still buying commercial properties in 2022. To counteract some of the interest rate and recession risk, we are making sure our reserves are higher than normal before buying the next property along with focusing on operational improvements before acquiring the next one. 

Uncertainty in the market brings about fear and greed at the same time in which you can sometimes find great deals (think COVID in March-May 2020). There are folks who fear a recession and are looking for to sell and there are those who see inflation being an issue and are buying up hard assets. Each buyer and seller has different motivations. The hardest part in investing is filtering out the FOMO and FUD blasted everyday by social media and the press.

@Dwayne Estiverne You'll need to provide more information to what your investing strategy is. Where and how others invest may not be the way you want to invest and vice versa. Your investing strategy may then point to which lenders may be better suited for your style of investing. 

Larry, I have a few office and retail strip properties in a different state, but I'm currently paying 4% (of gross income) for buildings larger than 25k square feet and 5% for the smaller buildings. They also place a minimum per month rate of $500/mo regardless of income/property size to make sure the property is worth their efforts, so in your case the rate may be significantly higher than the quoted 5% if management companies in your area are similar. 

Nice value-add potential! You would follow what the lease states for notification as most leases state this info. Personally, I try to give 60-90 days notice in the event they need to move their business. 

Many times, I have taken the approach of staying at below-market rents as it keeps tenants in place as they can't find other places to rent for the price and keeps the occupancy full. Another strategy I've successfully used is rather than one huge rent increase (you're talking over twice their current rents) is doing a step system so each year increases a $1.50/sqft up to market so the businesses can absorb the overhead costs better over say a 3 year period. 

This completely depends on if you like the tenants, the risk you're willing to take to get market rents and your plan if the tenants decide to leave upon seeing the increase as vacancies can take several months to a year to fill. 

Overall this sounds like it has great potential and wish you the best of luck!

One of my neighbors just replaced a 20,000 sq ft rubber flat roof on an Industrial building for around $110,000 in the Fort Wayne area. I got one quoted one last year for a 16k tear off at $98k. Of course there are many variables and prices may have risen this year compared to last, but I would ballpark between $5-7/ sq ft.

I wouldn't think grass/landscaping would be much more than $10k for some very basic trees, shrubs and some grass seed. Again, depends on the size of your project.

Hi Gui, What type of developer are you looking for? There is redevelopment, industrial to retail conversion, mixed use, residential, ground up, retail, spec building, land development, sub-division development, the list goes on and on. Size also matters as you will want someone completely different for a $100k project vs $100 Million project. Are you looking to partner with a developer on something you own, vs selling a developer a piece of land or a building. The more information you provide, the more responses you will receive from people.

@Donald Bryant Every investor is going to tell you a different strategy that works for them. Some care all about cash flow as their lifestyle depends on the cashflow each month. Other investors invest in higher end homes with less cashflow and great school districts as it can sometimes cause less headaches and turn-over or they enjoy owning rentals they can drive by each day from work. Other investors buy brand new houses, so they don't have to worry about maintenance costs for several years. No two investors are the same as their circumstances and motives are drastically different. Maybe you have a full time job in which you can afford taking a slight loss in monthly income during a downturn or the replacement of a $4,000 furnace, because it affords you the opportunity to buy houses in your neighborhood ultimately letting you pick your neighbors. The great thing about investing in an area similar to yours would be you always have the option to sell if you find out it doesn't meet your investing style and it'll be highly sought after by families (whether they rent or buy) recession or no recession. There is always the appeal of having the extra safety net of being able to drive by your rental every day, especially on the first rental. Once you start understanding how it works with the first rental, venturing out a little further is easier to handle. Best wishes.

@Jaysen Medhurst I failed to elaborate more in my description of the seller terms, as I didn't want to get too wordy and left it open ended. I would most likely try to structure it as interest only (keeping it more simple with variable interest) with a guaranteed minimum interest rate of the 5 year treasury and a balloon payment at 7 or 10 years. The upside is I fully rent the units and the owners would receive an interest rate near 12%. Having a guaranteed minimum payment would allow the seller to foreclose if I didn't pay (thanks for pointing that out as I forgot to mention that portion).

The thought behind the variable rate was mostly to give the owners the benefit of the doubt that the property is running as well as they say it is. This allows me to give them a purchase price that's closer to their asking price vs what I would need to price it with more traditional financing. The trick is always finding the balance between terms and purchase price.

I'm looking into a commercial retail deal where I would have the seller carry back a portion of the property as a second mortgage. I like the property as it's in a good area, however with the lack of national tenants (mostly mom and pop tenants with decent lease lengths) and the maturing business cycle I want to protect my downside as much as possible, but still get deals done. 

With that said, I would bank finance 60% of the project and the seller and I would come up with the remaining 40%. If I don't include the seller second or my down payment portion, the DSCR for the bank debt would be 1.82 DSCR. I understand this portion well.

Now getting to my question. Has anyone ever structured the seller's second to be a percentage of the remaining cash flow after the banks mortgage payment? Because the property is setup as a MTNL, it's fairly easy to calculate the remaining cash flow after bank debt service. Example: NOI is $300k/yr, bank mortgage payments would be $165k/yr, remaining cash flow would be $135k/yr. Could you structure a seller second so the seller gets 65% of the remaining cashflow? In this example the seller would get $87,750 and I would get the remaining 35% or $47,250.

The appeal to me is that the cost is a percentage of the cashflow, so if the economy tanks and cashflow is reduced, both the seller and I get a smaller payout, but I'm still able to weather the downturn with the bank (keeping both my money and the seller's money more secure). On the flip side, if the economy continues to do well and I can actually increase the NOI (currently a few vacant units) the seller would also share in the upside potential as well, increasing his return!

Has anyone structured a deal similar to this? If so, were there any major concerns with the bank? Would this blend lines for the sellers between debt and equity? Thanks in advance for all your advise and suggestions!

@Devan Bermejo Why don't you partner with someone? If you're a decent contractor, you may be able to partner with someone willing to purchase the house, if you can front the construction costs? The trick with partnerships is building trust and providing a service to your partner, where the service you provide is worth splitting the equity vs just paying someone else to do it for you. 

  It will be much easier to partner with someone if you're willing to put money/knowledge and construction costs into a deal.