Posted by cory on August 27, 2008 at 16:54:24:
I am a broker in the DC metro area and work a lot with investors like yourself. I come across a lot of properties that are not being actively marketed because of the marketing and networking that I do. I know you indicated that you were working with a broker. However, let me know if there is anything I can do to help.
Legal/medical office space/building questions - Posted by Eric
Posted by Eric on August 25, 2008 at 01:16:06:
Hello
I recently inherited a trust, have long been interested in commercial RE and plan to convert the trust’s bond assets into office space here in Northern Virginia. I am just starting out.
First: I don’t have a clue (nada!) as to how to practically analyze these buildings, and have appointments this week with seller agents and a buyer’s rep to track down opportunities. I’ll get some help from them, but can anyone recommend a really good book, or other resource?
Second: I have some dings on my credit record from back in '99/00 when I got destroyed in the Nasdaq crash. How important is this if I have high cash down payments, good collateral, and good financials on the building(s).
Why medical/legal space? There’s a serious shortage.
Thanks in advance,
Eric
Re: Legal/medical office space/building questions - Posted by lee
Posted by lee on September 13, 2008 at 01:07:06:
There are many ways to finance an existing building. Owner carry finance AITD, a seller carry second etc, Lease options bla bla bla, The real question is does the building cash flow. CAP rate is one of your key components to finance with a CSMB commercial securitized mortgage bond ie a “bank conduit loan”. There are ways to maximize a CAP rate. NOI or net operationg income is driven by maintienece costs, vacancy rates, tax rates, management expenses etc. To reduce overhead costs my firm builds and rehabs buildings to meet the LEED accredidation standard set by the USGBC many banks will increase ltv about 5% extra including Wells Fargo. Many states have reduced tax rates on certified buildings that are rehabed or new built to LEED accredidation. Energy, water, gas heating costs can be as much as 30 to 40% less then a traditional basline case building + tax incentives.
Any questions do not hestitate to ask.
Lee
LEED NC Accredited Professional
lee.lobaugh@cox.net
Building Green Makes Financial Sense
$3 Billion in Funded Volume Expierence and Rising
Re: Legal/medical office space/building questions - Posted by John
Posted by John on August 26, 2008 at 06:25:05:
As a quick rule of thumb, have a bank will look at the investment as though you were going to finance it. Your lender will not loan money on a dog.
Quick formula I use on investments:
Gross Rents-7% vacancy-7% management-36% expenses=Net operating income (NOI).
NOI divided by an appropriate cap rate= value.
To get the cap rate call a local RE Commercial Apraiser, they can tell you.
I second… - Posted by brandoncbsre
Posted by brandoncbsre on August 26, 2008 at 24:14:34:
…everything Penny has said. Above all DO NOT RUSH into this! There will always be good opportunities for those with the means to capitalize.
Good Luck
Re: Legal/medical office space/building questions - Posted by Penny
Posted by Penny on August 25, 2008 at 21:43:27:
Read the articles on this site by Ray Alcorn, you will get some excellent insight on how to analyze. Also, I have Ray’s Dealmaker’s Guide to Commercial Real Estate. I’d highly recommend getting a copy. Then pick some properties at random from LoopNet or GoFishCommercial and practice analyzing them to get a sense of pricing in your market.
Study the parts in depth about how to offer what it is worth TO YOU, not what somebody else thinks it is worth.
Ray’s book is well worth the price. I refer to mine often and so do others who post regularly on this site.
That said, be very wary of deals presented to you by agents before you know how to work the numbers, particularly since you have some capital to work with. Agents can help you find all sorts of things, but you have to verify any information provided by them independently.
I routinely see most properties listed by agents that are overpriced and won’t cashflow unless I offer a ridiculous discount.
Don’t be in a rush to go buy something before you know what you’re doing. That can be very costly for you. There will always be good deals out there, so don’t have a scarcity mentality.
Hope this helps & good luck!
Re: Legal/medical office space/building questions - Posted by Nate(DC)
Posted by Nate(DC) on August 27, 2008 at 13:42:53:
Talking to a commercial lender is not a bad idea, especially when you are first learning the ropes. However, in general the bank will be more liberal than you are, because, as the lender, they get repaid first. You as the equity investor are last to get paid, so you should be more discriminating than the bank about what you buy and for what price. I have seen many cases where someone will buy a property for well more than the price at which they would make good money, and they get a bank to finance a significant portion of the purchase price.
On the other hand, if your bank thinks you are overpaying, it’s definitely a clunker. The bank can be a good smell test until you get better about having your own sense of “smell” developed and can analyze a deal quickly on your own.
Re: Legal/medical office space/building questions - Posted by Eric
Posted by Eric on August 26, 2008 at 01:14:37:
Penny,
Thanks so much for taking the time!! I’ve downloaded your post into my “knowledge” folder and will order Mr. Alcorn’s course.
I’m detailed and careful by nature, and hope that helps. You certainly have.
Thanks,
Eric