Last week I closed on a 68,400 square foot commercial property with a grocery store, restaurant, coffee shop, and office space in it. I bought the property for $2.1 million and a partner went in on it with me 50/50. We financed 75 percent of it with a local bank, so we each had to bring a tad under $300,000 to buy it.
I have had a goal to buy a 50,000 square foot or larger building for quite some time and finally did it! The property brings in about $20,000 a month in gross rent. The tenants are all on NNN leases so they pay all of the expenses except for the vacant spaces portion. There is about 9,000 square feet of vacant space which we could rent to make even more money.
Why was this a good deal?
It is hard to evaluate large deals like this but I think we got a smoking deal.
The replacement cost on their property is over $7 million.
It has 4 acres of land on the busiest street in town, which is worth close to the purchase price.
It sold for a 9.5 CAP rate when similar properties are selling for a 7 CAP (the lower the CAP the more expensive).
We will make about 12 percent cash on cash returns on our money as it sits. We will make much more if we rent the vacant space or manage the property better (I think we can do both).
One reason the property was cheap, was because the grocery store pays very low rent rates. They pay about $2.70 a square foot a year, when market rent is more than double that. This entices the grocery store to stay in the building and if they ever leave, we should be able to rent the space for more money, making the property more valuable.
I have also decided to start my own real estate brokerage in one of the vacant spaces. I will save a ton of money having my own office, and I will be able to design my own space.
Here are a few more interesting things about the purchase.
We got a loan with a local bank for 75 % of the purchase price. The rate is 4.6 % for a 5 year ARM, and 10 year balloon.
The inspection on this property was almost $4,000.
The appraisal on the property was $4,000.
Insurance is $13,700 a year, but the tenants pay most of that.
Property taxes are over $50,000 a year, but again the tenants pay most of those.
You can see the full article I wrote on my site with many more numbers below
https://investfourmore.com/2018/02/05/commercial-rental-property-21-bought-2-1-million-68000-sqft/
You can see a video of the property below
