What is the creditworthiness of your tenant? A three year lease to someone who bails out in 6 months due to business failure can be disastrous.
Tenant has been in business since 1993 and has good credit. They sell sports related equipment.
What is your competetion for space…Now?
Not much. There are some very large Class A office buildings downtown right now and they house most of the governement related businesses.
What will be your competetion for space in 3 years?
Not too sure. There is a lot of development going on in the area and I’m sure there will be more offices however they expect population to grow rapidly over the next decade.
HOw does the price you are paying stack up? What are the amenities of the building you condo is in? Is this what you consider a good price, fair price, etc?
Price is on target with other developers ($145 to $155 a sq.ft. for shell). Amenties include the standard landscaping, parking, etc. No extras. I would consider this a fair price.
If you chose to sell in 3 years, what are the prospects?
If interest rates stay the same (not likely) there may be a good market for owner-occupants but it’s a growing area and I’m sure I could get another investor to buy it even if I had to compromise on price.
What is your tax situation? With a triple net lease your writeoff on the building are limited.
I own a business and already have too many write offs and not a lot of personal income. The structural depreciation alone will be around $6000 (39 year straight line) which is more than my cash flow.
If all went bust, can you carry it to re-rental?
Yes. It would cost me almost $2500 a month to carry and it wouldn’t be fun, but I do have enough income to handle this burden.
I have the opportunity to buy a brand new office condo for just under $270k with about $10k in closing costs and I already have a tenant ready to move in on a 3 year triple net lease for just under $24700 a year. I’ve already lined up private investors and loans to cover 100% of the acquisition that would currently put my debt service at $19740 a year. I calculate my cash flow to be just under $5000 a year with a GRM of 10.93 and Cap Rate of 9.15%. The office condo is right in the downtown area of a major city ($75k median income) within a mile of the town hall. Does this look like an average deal, great deal, or not so good deal? Thanks.
Is this commercial office space deal any good? - Posted by Bill H
Posted by Bill H on December 11, 2004 at 21:50:04:
Have not done commercial leasing in a number of years but the things that I see are:
What is the creditworthiness of your tenant? A three year lease to someone who bails out in 6 months due to business failure can be disastrous.
What is your competetion for space…Now?
What will be your competetion for space in 3 years?
HOw does the price you are paying stack up? What are the amenities of the building you condo is in? Is this what you consider a good price, fair price, etc?
If you chose to sell in 3 years, what are the prospects?
What is your tax situation? With a triple net lease your writeoff on the building are limited.
If all went bust, can you carry it to re-rental?
Number look OK at first blush, only you and your closeness to the deal can determine how good a deal it is in relation to the local marketplace.