Will this work? - Posted by Elena
Posted by Elena on October 04, 2007 at 19:57:17:
I have made an offer on a commercial property that has been for sale for about 18 months now. It has been vacant since the owner relocated and he is paying taxes, insurance and utilities each month with nothing coming in. Originally he was asking $1.2 million, then it was under contract at $893,000 last spring but it fell through. He says it was appraised at $925,000 though comps show it may be closer to $700,000.
I offered him a lease with option to buy at $800,000 within 3 years, then a renewable lease for another 3 year period with a 2% rent increase.I offered a yearly lease price of $81,100 for the entire property,or about $6758 per month.The building consists of about 8040 sq ft of space that can be used for retail, studio or office space, and is already divided but can be further divided easily to create smaller amounts of usable space. I should be able to easily rent for $15-$18 a sq ft all the space as it is in a very desirable location that stays nearly 100% occupied, and rents go for about $18-$20 per sq ft.I requested that 10% of the monthly rents go towards the purchase price, and that everything is contingent upon me being able to pre-lease the space within 90 days.
He countered with an offer of monthly rent at $8000, a purchase price of $925,000 and should he do any buildout then the rent would be increased by $2000 per month. One area of the building needs heat and air, plumbing, sheetrock, paint and floor treatments, but I can have all that done for far less than $2000 a month, as I have been in the construction business for 10 years. He only wants a renewable lease for 1 year and a rent increase at 5% then.
I plan to put up a sign that says “Now pre-leasing, call Elena etc…” as this weekend there will be a lot of traffic by there with a fall festival taking place. I also plan to go to the festival and hand out my cards to the exhibitors and see about getting people lined up as possible tenants. I already have possible tenants who may lease about 1/4 of the total space, and I could use about 1/4 as my own studio and office space which I would get free, plus clear a profit of a few thousand a month, more should I not occupy any space.
I then made a counter offer of rent at $7000 per month, purchase price of $825,000. I refuse to pay another $2000/month in rent and can do the buildout myself so I am not considering his offer for buildout. I don’t want this negotiating to continue forever, as I want to get busy so possible tenants can take advantage of the upcoming holiday shopping season.
I think it is a great opportunity as property values in that neighborhood are rising rapidly. I have been working with the city planner who knows what plans the city has and values can only continue to increase. He has told me that I can obtain a low interest loan from the state for about 50% of the purchase price up to $250,000 and the owner said he would be willing to do some owner financing should I go ahead and purchase the property. I have never done any real estate transactions, other than buying my home,and I have about $53,000 in equity in that. However, my credit score is not good and I have no savings with which to use as a down payment. I welcome all advice here.