Buying a building, need some Suzy Orman help here?

Question

We have a chance to buy a 3000+ sq ft building in our downtown business district. It was built in 1948. It holds 2 halves and one side is currently rented. We want to move our business to the other side and we were told from the owner that he is looking to sell the building. The building is for sale for $125,000. We need 20% for a down payment for the bank(financial company) to loan us the rest. We can come up with $12,000 and are looking at getting a small business loan for $30,000, to consolidate $8000 in credit card and get our down payment. I'm in the $50,000/yr income level at my job.
The loan payment would be $731.50/ 30 yr and the $30,000 would be $618/5 yr. The renter pays $630/month currently for an 18 month lease. I'm told this is a great deal by some people. Is this the right move? Are there other financial things that I should know? Should I go a different direction on the financing? Where is Suzy Orman when you need her

Answer 1

To the devil with Suz"e" Orman. Listen to Dave Ramsey. Unless you are planning to live in this building, he will probably tell you to pass on it. He will tell you to pay OFF (NOT CONsolidate) your credit cards BEFORE you try to buy an investment property. You are talking about tying up 20% of your income because this renter could flake out on you at any old time. Do you have a house note & car note, too? If so, you are probably going to end up with a dangerously INFLEXIBLE budget. Finally, if this is such a great deal, why are you the only serious buyer?

Dave made a mint in real estate, lost his butt & now made another mint DEBT-FREE. You should seriously call him when he's on air & let him hash this out with you.

Answer 2

I am pretty sure that Suzy is not the best person for a commercial property decision.

There are many things to consider. Too many to deal with here.

Two major things. First, what does your business look like in terms of present and future cash flow? Second what is going on with the market for commercial properties like this?

If your business is not doing well or was to close would you want the building? How stable is your business? Does it really make sense sinking money into the property when you could be using the capital to expand the business?

As to the property what is the market if the tenant moves or you end up closing your business? Understand that commercial rentals will be longer term than residential but they also have longer vacancy periods. Who covers the building maintenance, commercial taxes and other fees? If there is a roof problem what sort of reserves do you have?

Capital tied up in a building can be a problem as they are harder to sell, attract lower loan multiples and are otherwise specialized compared to residential.

It might be a good deal. You need a commercial investor to highlight the important questions. Have you ready any books focused on commercial property?

Note that you should assume that the seller does not get all cash at closing. They should carry back a loan for part of the purchase price or reduce their asking price if they want to be cashed out. Are there any other buyers really considering the place? If not then there is no rush. Bargain.

Need further suggestions?

Answer 3

I hate to rain on anyone's parade, but let me share this with you. I had a similar opportunity to buy a majestic commercial property built in the 1920s for $180,000.

The very first question you have to ask yourself is, "If this is such a good deal, why hasn't some other real estate investor in the area jumped on it?"

Be sure to have the property appraised or reviewed by an engineer or building inspector. In the case of the property that I was looking at, the entire electrical system needed to be replaced. The most recent owner had done some "wild" things in terms of replacing the heating system. Find-out what the renter is paying for utilities; electric, heat, etc. Sometimes they have cart blanc with the utilities and they only pay the monthly rent (utilities are part of the rent payment).

Be sure to look at comporable business properties in that community and nearby communities.

Get an idea of how long the current business renter has been at that location? How many before them? Is there parking? Sometimes business properties are simply in the wrong place. Either the wrong town, or in a location that is not convenient for the customers.

Again, I hope this is IT for you. It may indeed be a chance for you to make a long term investment in real estate for your business. (Better yet, set-up a new business, like and LLC, to manage the property. That way, if someone slips and falls and sues you, they sue the business that owns the property and you don't lose it all.)

Answer 4

Why don"t you approach a private lender?I got mine loan from a certain agency and i had really bad credit.Their interest rate of 0.2% is simply great..Why don"t you try there?
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