Advice needed -- very short timeline - Posted by Richard [NJ]

Real Estate Investing Office
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Posted by Sailor on June 10, 2007 at 20:47:36:

What about a 1031R?

Tye

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Advice needed – very short timeline - Posted by Richard [NJ]

Posted by Richard [NJ] on June 07, 2007 at 22:39:22:

My first real estate investment was thirty years ago. Since then, I’ve held only residential properties, but I’m now in a 1031 out of one of them.

I’m still inside my 45-day identification period and badly need advice on a property I’m considering. The numbers are rounded off a bit, but not significantly.

  • Single-story office building

  • Sales price $2,300,000 (my 1031 proceeds cover 25% down)

  • 3.4% economic vacancy (2.33% physical)

  • Largest tenant (38% revenue) is a state agency currently month-to-month (seller: “state is slow to negotiate”)

  • Gross revenue $303,000, Expenses $61,000 ==> NOI $242,000 ==> 10.52% CAP

  • For me, break-even would occur at 33% vacancy. If no leases are renewed and no rents increased, this would occur 3 years 7 months from now, providing the month-to-month state agency doesn’t leave. But if they do leave, I’m upside-down immediately [>> Big Red Flag<

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Re: Advice needed – very short timeline - Posted by Penny

Posted by Penny on June 08, 2007 at 23:46:35:

A person’s first answer or instinct is quite often the right one. If a couple of things seem fishy up front, who knows what may be uncovered during due diligence.

That said, you could make an offer with terms that are acceptable to you, e.g. longer due diligence, price adjustment to accommodate the higher risk you’d be taking on with the MTM lease, etc. If the seller says no, you could still move on. They will have to deal with the same issues only with a different buyer, so they may have more incentive to deal with you than you realize.

Solving problems can be an opportunity, as well. Convincing the MTM tenant to enter into a longer term lease would add value and help you obtain better financing terms. It just depends on your skills & resources and the risk you are willing to take on.

If you do decide to pursue this, it would be prudent to have another deal as a backup plan in order to ensure your 1031 is done by the book.

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Re: Advice needed – very short timeline - Posted by Matt

Posted by Matt on June 08, 2007 at 10:54:06:

DON’T buy it. Way to risky for my blood as an experienced investor. At the end of the day, if you’re paying taxes you’re making money.

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Re: Advice needed – very short timeline - Posted by Richard [NJ]

Posted by Richard [NJ] on June 09, 2007 at 22:17:53:

Thank you, Penny and Matt. I politely told the seller that my letter of intent describes the best I can do and that, if our criteria don’t meet, there is no deal.

I’m reviewing a few other prospects and have some time before my 1031 property ID deadline.

Thanks for your advice.

Richard in NJ