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Discussion Starter #1
Hi everyone,

this forum has been a wealth of information! so thanks in advance to everyone who is an active member. i look forward to all of your feedback.

I'm looking at my first commercial investment property - any comments, good and bad are welcome.

It's a 7500 sq. ft. commercial building in Orangeville.

There are two commercial units on the ground floor and two residential units upstairs.

Monthly income is approximately $5300. Hydro meters are separate and the building runs on oil and radiant heat. Taxes are $8100/year.

List Price $629,000
 

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Can you give us a little more information about your history with being a landlord, perhaps you have some residential property too...

Also...what type of commercial tenants are there, how are the leases structured (if you need a lawyer to look over the lease I know of someone not too far from you), what condition is the property in, have you have it inspected, will groundskeeping/maintenance be done by you.....

The more info you provide the better the feedback.
 

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Welcome!

Okay. Knowing the property that you are considering, these would be my concerns:

1 - It's a very old building. Due diligence is definitely required when it comes to the structure.
2 - Why does the current owner want out?
3 - How sound are the businesses in it? The westerly unit seems to change hands frequently; the easterly unit has a lot of competition in town.
4 - Parking is an issue
5 - If you trust their numbers, it would still take 15 years to pay off

Otherwise, I love it. I would be tempted to convert both upper floors to one loft and move it myself! :D
 

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My main concern would be that you need a high cash outlay because of the commercial property. In general, you also need to remember commercial properties are worth less than residential properties. I would argue that the purchase price is probably a little high right now.

My main concern would be what Arcaneind said above: "Why are they moving if the cash flow is so positive?" So I think you need a good home inspector to look around ... what needs to be fixed and improved?
 

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Discussion Starter #5 (Edited)
Thanks for the replies, here's more detail - i look forward to hearing more from everyone.

this would be my first experience with landlording - it's a big jump into the land of investing.

leases are currently due to expire in 2014 with escalators.

haven't done an inspection yet, but overall the building looks like it's in good condition and has been well maintained for the age of the building. the boiler is old and will need to be replaced.

current owner is a large investment company and they want out of their smaller properties... as far as i know.

the west tenant has just signed on their lease and has invested significantly into the building and their business through lease-hold improvements.

it is a huge initial investment/outlay and i want to make sure it's right.

i realize that commercial isn't as valuable as residential in some cases, a lot of revitalization is happening in the area and it seems like a safe long-term investment.

thoughts?
 

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You might want to run your building through the cap rate spreadsheet.

The one I am giving out has a spot where it calculates what you should pay for a certain property depending on what return you want on your investment.

You could base your offer on that. Commercial properties are much less liquid than residential and require 30% down so prices are much more negotiable.

You can get the spreadsheet over at Million Dollar Journey at my post on Landlord Math

http://www.milliondollarjourney.com/landlord-math-cap-rate-and-return-on-investment.htm

Good Luck :)
 
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