Commercial Property

wcc · 03-14-2009, 04:47 PM

Can you 'personally' buy commercial property or do you really have to come up with a business plan, 3yrs of income/expenses etc.. I've been thinking of selling my 930 for a good down payment for commercial property. I've never bought anything like that before but it seems like a great time to buy. When I say CP I mean a building for retail or service business, not a rental property. Maybe I'll try a business out of it or lease it out I don't know but prices are really good right now. Any thoughts, comments, advice, is greatly appreciated.....

stomachmonkey · 03-14-2009, 05:30 PM

I think getting into hock on something without a plan is simply a bad plan.

Racerbvd · Racerbvd's Garage

Quote:

Originally Posted by wcc

Can you 'personally' buy commercial property or do you really have to come up with a business plan, 3yrs of income/expenses etc.. I've been thinking of selling my 930 for a good down payment for commercial property. I've never bought anything like that before but it seems like a great time to buy. When I say CP I mean a building for retail or service business, not a rental property. Maybe I'll try a business out of it or lease it out I don't know but prices are really good right now. Any thoughts, comments, advice, is greatly appreciated.....

I never heard that you can't buy it, maybe the zoning & use regulations tell you what you can & can't do with it.

Porsche-O-Phile · Porsche-O-Phile's Garage

Who exactly do you think you're going to rent to?

Lots of "going out of business" signs around here and even more "for lease" signs on commercial properties. Can't imagine how it is in Michigan...

If you've got the money to hold it for a while, I suppose it might not be a bad idea...

MT930 · 06:59 PM

You don't need a 3 year business plan.

You will need, in this climate at least 20% down and a tenant that the bank likes (strong regional business or health care type, doctor or dentist is best)

The banks here anyway like to see a 2.0 X debt coverage ratio.

$5000.00 per month gross rent to $2500.00 debt service. your area may vary.

Most commercial lease's here the tenants pays taxes, insurance and maintenance above the $ per square foot rate.

Look for buildings with tenants in place that give you a 10% + return try to get it with 3-5 years remaining on the lease.

Easier said than done! We have seen some tough times in the commercial RE world. Lease rates are eroding even on grade A properties.

A few business are selling their buildings and leasing back to generate cash. I would look for those first.

Approach with caution !
When it's good it's really good. When it's bad it's pretty bad. Keep 6 months of debt service cash for surprises.

red-beard · red-beard's Garage

20%?

It's more like 40-50% down. The banks are crazy conservative now.

I'm working on buying a small strip center!

Big Ed · 03-14-2009, 07:37 PM

What MT930 said. Bank is more concerned with the building numbers than any plan you could put together.

Keep in mind that a lot of commercial property is cheap now for a reason (businesses closing faster than they are opening). I imagine this is particularly true in Michigan.

Big Ed · 03-14-2009, 07:37 PM

Quote:

Originally Posted by red-beard

20%?

It's more like 40-50% down. The banks are crazy conservative now.

I'm working on buying a small strip center!

My local banks are still doing 20-30% down, but the underwriting is tough for sure.

MT930 · 03-14-2009, 08:49 PM

Your odds of long term success are better with more money down. No question

If you have a track record with the bank they will be more interested in the quality of your tenant / tenants, this is what I have found.

More risk of vacancy means more money down. I have seen medical offices for sale go with 20% down.

Restaurants 60% down. The banking industry is quite unsure of itself right now.

Multiple tenant buildings like strip centers are safer but again it depends on the the tenant mix. Mom & pop retailers are vaporizing quickly.

The key is making enough return to justify your risk. Right now the banks maybe your best friend in keeping you from getting in to a bad situation.

I would not consider purchasing a com property unless you can make 12- 20% after debt service. I would look a multiple unit office suites with broad tenant mixes.

Areas with big economic impacts are seeing better cap rates because the values are failing, they are also much risker.

Aways target the best properties in the best areas. Commercial fixer ups can be a bag of snakes. Don't ask how I know. I have seen many of them burn in.

I would also recommend against tying your home to anything.

911Rob · 911Rob's Garage

Quote:

Originally Posted by red-beard

20%?

It's more like 40-50% down. The banks are crazy conservative now.

I'm working on buying a small strip center!

I'll second Red.
I'd be very leary of dealing with a bank that told you otherwise? Of course this is for COMMERCIAL property that we're talking about.

In addition, you better have deep pockets, similar to the development game; often you have to be patient for the returns to show up; years patient.

Nothing a good business plan can't overcome, but I've been in the commercial development business for many years and its not a simple concept; most of my clients were "all cash" with deep pockets.

Red: Good luck on your strip center, that's exciting!

wcc · 03-15-2009, 04:50 AM

Thanks guys. I'm just scratching the surface and kicking around some ideas. There are a few buildings on busy main roads that are pretty cheap compared to what they were a few years back. Probably due to economic times. My main plan would be to re-sell it in a few years after the market turns around. But in the mean time possibly I would try to lease it out or put or maybe try my hand in a small retail shop or a service business of some sort. I suppose if a business went well I probably would sell the building. Lots of different ideas but no definite plan yet.

FWIW I talked to 5/3 on Friday and the lady said for comm prop it would have to be a SBA loan.
Must have:
Business plan w/ 3yrs of expenses/income
Proof of income from current job.
Resume
Application
20% down

She said she had to look into my question about being able to buy a comm property personally.

mudman · 03-15-2009, 05:08 AM

Bill, where bouts you looking? (Don't worry, I'm just playing the residential game, for now anyway) I've seen some sweet deals between me and Flint. I think there is money to be made on larger lots in good zoning with close proximity to good roads. I've seen a few that I could have cash flowed by just renting space to buddies with cars/boats/rvs for storage.

FWIW I've called on some stuff along Dixie Hwy for rent/lease. From nice but small(1200sf) offices @450/mo to 3000sf 'rear' buildings with paved parking storage for 800 the commercial scene is desperate right now.

Good luck Bill!

mudman · 03-15-2009, 05:13 AM

Oh btw, if you can spend the time to do your due diligence and write what the bank wants, the SBA backed loans are easy to get (from what I've heard) they have several programs available.

If you don't think our govt is incompetent yet, look for help and info on the SBA website, it'll have you cursing.

Gogar · 03-15-2009, 05:19 AM

Remember, the PROPERTY TAX and insurance for business-zoned properties, (at least here in CO) can be VASTLY DIFFERENT than a residential property, so keep that in mind. I know the property tax on our business-zoned property is almost four times that of a similarly valued res. property.

Might get on your nerves if you buy a property and have it just sitting there.

turbo6bar · 03-15-2009, 05:30 AM

Quote:

Originally Posted by mudman

FWIW I've called on some stuff along Dixie Hwy for rent/lease. From nice but small(1200sf) offices @450/mo to 3000sf 'rear' buildings with paved parking storage for 800 the commercial scene is desperate right now.

At those prices, I don't see much reason to buy.

The momentum in commercial is still downwards. A cursory review of the commercial side will cause you to think residential RE is in a boom.

My dad is helping an associate renew his lease (oriental foods store). During the old lease, the landlord sold out to a big investor. The new investor bought at the top, and is now eating the crap sandwich (vacancies and demands for lower lease rates). The already low cap rate is being mauled. Unless your fetish is popping antacids tablets like Chiclets, tread carefully.

wcc · 03-15-2009, 01:04 PM

Quote:

Originally Posted by mudman

Bill, where bouts you looking? (Don't worry, I'm just playing the residential game, for now anyway) I've seen some sweet deals between me and Flint. I think there is money to be made on larger lots in good zoning with close proximity to good roads. I've seen a few that I could have cash flowed by just renting space to buddies with cars/boats/rvs for storage.

FWIW I've called on some stuff along Dixie Hwy for rent/lease. From nice but small(1200sf) offices @450/mo to 3000sf 'rear' buildings with paved parking storage for 800 the commercial scene is desperate right now.

Good luck Bill!

There is a couple on Michigan Ave, one near the expressway, and a few others scattered around that look tempting. All are in the Lansing area and most of them have good locations with high ADT (Average Daily Traffic) numbers. The prices ranged from 70k to about 120k. Some had apartments above and others had finished basements etc...