Why do good deals sit on the market?
I'm buying my first commercial investment property.  It's multi use, 8 units, fully leased for the next few years.  Running the numbers, after all expenses, 10% vacancy reserve, 5% repair/maintenance reserve, taxes, insurance, etc this property will cash flow about $1,800 per month on an all in cash investment of $128,750 (25% down payment &amp; closing costs).  My calculations show a cap rate of 10.55% and cash on cash of 16.27%.

The property has been on the market for about a year and a half now.

I've run the numbers several times on this building, I've walked through it and everything looks solid. It's a brick building. The largest unit is currently being renovated as a brewery with all renovations being paid for by the tenant and they're putting a lot of money into it. It is starting to look fantastic.

The deal is set, just doing final due diligence before closing.

It just baffles me that such a nice cash flowing property could sit on the market for so long.  Maybe I'm looking too much into this and my local market just doesn't have people with money looking for commercial real estate?  I look at the numbers and the numbers say this is a great deal.

&amp;#x200B;

Edit: I wanted to add details on the units.  1 unit is a nice fairly updated office space currently being used as a drs office, the other 2 units are retail spaces, 3rd/4th unit were both leased by the brewery/restaurant. The other 4 units are simple, single garage storage units.
[{"id": "ewyp9ol", "text": "Either you're missing something or everyone else is.\n\nCould be that the property is simply outside of the investing parameters for multiple groups and it's sitting. (FYI - this is great place to be as an investor)", "replies": [{"id": "ewyvl5q", "text": "3 of the tenants leases are up mid to late 2020 and the brewery just signed a 5 year lease a few months ago.\n\nI could definitely see the risk of having a mostly vacant building as a deterrent for investors since there's a risk that I'm buying a building that could potentially be 75% vacant within the first year of ownership.  With the renovations being done to the largest \"anchor\" unit and the potential high traffic of a brewery/restaurant I think that it has the potential to attract other businesses fairly quickly if a vacancy opens up?  \n\nMy thought on the reasoning for the current tenants lease to not be renewed yet is because the current owner is out of state and is using a local commercial real estate firm for lease administration.  From what the commercial realty company tells me, when the seller sells, any future leasing fees is due and paid by the seller. So it makes sense to me why the seller wouldn't try to get new leases signed because they don't want to have the cost of paying the leasing fees for the duration of the new leases if they're not going to own the building.", "replies": [{"id": "ex0kt1k", "text": "The brewery space was vacant a few months ago? And needed a lot of TI $?\n\nIt probably sat because w/o the brewery or similar new lease, the value was not there in the existing RR and the seller couldn\u2019t get the number they wanted.\n\nAnd whatever commissions paid to extend the other leases should be realized in the sale price as long as term/increases are market+.", "replies": [{"id": "ex0pf7c", "text": "Correct, the space sat for about a year vacant. Before the brewery leased it the space was basically a big open warehouse and custom auto shop where they customized off road vehicles. Now the brewery is turning it into a brewing facility and a nice sized bar and restaurant. \n\nThe brewery is paying the full cost of the build out on their own.", "replies": [], "depth": 4}, {"id": "ex0ptp0", "text": "Right now I'm thinking that when the other tenants, hopefully, renew their leases that I can have my attorney review the current leases to make sure they're good in his eyes and then administer the leases myself instead of using the realty company. \n\nIf I end up having to find new tenants then I'll use the realty company.", "replies": [{"id": "ex1wfxp", "text": "Good idea. Introduce yourself to the tenants if you haven\u2019t already and communicate regularly. As long as you have notice of anyone vacating, you will be in a good position to find a replacement. Sometimes you actually do want to replace tenants as a way to increase rent but you certainly don\u2019t want to have a pace become vacant even for a month as whatever increase is probably less than 8.5%.\n\nIt sounds like you did the research and have a lot of the risk covered for a few years. Just make sure you always know what\u2019s going on with the Brewery.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ewytfwe", "text": "Quality of tenants for retail space has a big impact on how long these will last on the market.  Ideally you would want 5-10+ years on the leases left to justify the purchase.  Try running the numbers at a bit higher vacancy to see a \"worst case\" scenario and then judge the numbers.  Also, if the tenants are \"mom and pop\" it would be beneficial to try and get personal/business financials.  Edit:  Keep in mind this is a very simplistic answer.  There are other concerns such as what the build out for each unit is.  I.e. are they unique build outs?  can a new tenant move in without much change?  If they need it changed are you willing to offer TI?  Also the leases need to be dissected with a fine tooth comb to make sure you aren't missing anything.  Triple, double, single net?  These are just some ideas for you.", "replies": [{"id": "ewyuhe2", "text": "This is a good point.\n\nI did run a worst case scenario on numbers and cash flow would be in the negative $341.71 IF all of the tenants vacated except for the brewery.  Brewery is on a 5 year lease and putting a lot of money into build out so I'd assume they'll be there for a while. And if not, it'll be a beautiful finished space.\n\nSo worst case, all but the brewery leaves then I'm stuck looking for tenants and have negative cash flow of $341.71\n\nI did use this scenario as part of my negotiation and got the seller to drop the sale price by $20,000.", "replies": [{"id": "ewyw20k", "text": "All that to say, though, that if most of the tenants vacate I do have a plan for the 2nd to largest unit to use for my own personal purposes.  It is the second largest space with an overhead garage door but it's mostly garage space with a small office. It would need renovations to make it nice as a full office or retail type space. So worst case I'm paying $341 a month for a nice sized personal garage and small office while marketing the other 2 units for rent.", "replies": [{"id": "ex1a8tq", "text": "What if the brewery goes belly up and files for bankruptcy? I don\u2019t know the legalities but I\u2019ve seen $3M sunk into a restaurant and then fail. Like a previous poster asked, would it be easy to get another tenant into that space?", "replies": [{"id": "ex1r3r5", "text": "If they go belly up then I'd have a very nice finished space that was renovated for free. They're footing the bill for everything including new HVAC.  Renovations are about halfway done at this point. \n\nI think that would still be a win because before the brewery started renovations the space was half office/ showroom and half warehouse/ garage. But the office/ showroom was very dated. So much so that it was covered in fake wood paneling. Now it's fresh drywall. \n\nI think it would make the space much more attractive to a new tenant?", "replies": [{"id": "ex1u6ba", "text": "I guess my question was more about taking a look at your market more closely, not how much better the property will be. \n\nHow is the population, job, and income growth for your area? Also, look at the past rent rolls to determine average occupation over the last 5 years. How easy was it for the previous owners to keep it filled?\n\nLook for reasons to talk yourself out of buying it. If you can\u2019t find any you know you must buy! It does sound like a sweet deal.", "replies": [{"id": "ex1ui95", "text": "Good advice, thank you!", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ewyyo5j", "text": "What kind of loan are you going to get? \n\nWhy doesn't the brewery purchase it? If they are spending a bunch of money for their equipment, it would make sense for them to own it, since moving all that equipment would be a pain, along with getting all the permits ect. \n\nYou may have found something that nobody else sees, since it is will under the radar of most investors.", "replies": [{"id": "ewz0otu", "text": "That's a good question that I don't have an answer to. Perhaps capital constraints?  I really don't know.  I do know that this would be the first location/opening of the brewery so it's definitely not a large corporate brewery or established brewery moving into a second location.\n\nI'm hoping that I'm seeing something no one else sees....with this being my first venture into commercial I'm worried I'm missing something though.", "replies": [{"id": "ewz979j", "text": "Guess we will find out. As long as it is a growing area that people want to be in, should be find in the long run. I would look at the financials for the brewery since your fortune will be tied to theirs. \n\nMaking sure they have the proper permits, liquor liscense ect may be a good step as well, since I have seen many breweries stuck in permitting limbo and then eventually going BK.", "replies": [], "depth": 3}], "depth": 2}, {"id": "ex01elx", "text": "Also, I'm doing a 10/25 loan.", "replies": [{"id": "exkzivr", "text": "Scratch that, I'm actually going to do a 15 year full amortization loan.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "exkk9yn", "text": "**It just baffles me that such a nice cash flowing property could sit on the market for so long.**\n\n&amp;#x200B;\n\nCash flow is not profit.  You can be profitable but not have cash flow to sustain operations and you can have cash flow and not be profitable.  Novices are led to believe cash flow is profit.", "replies": [{"id": "exkkck4", "text": "Your statement doesn't make any sense. Please give a scenario.", "replies": [{"id": "exkkzt3", "text": "1.  A business can be profitable on paper but if there is a delay on their receivables and they can't pay their bills timely they can go out of business.  \n2.  Rent coming in covers expenses that need to be paid.  In 10 years you sell at the same price you bought and inflation has been 30% and that amounts to the cash flow you collected so you did not make any money.", "replies": [{"id": "exkqhim", "text": "&gt;A business can be profitable on paper but if there is a delay on their receivables and they can't pay their bills timely they can go out of business.  \n&gt;  \n&gt;Rent coming in covers expenses that need to be paid.  In 10 years you sell at the same price you bought and inflation has been 30% and that amounts to the cash flow you collected so you did not make any money.\n\nYes, I'm aware that a business can be profitable on paper. I own 3 businesses.  All highly profitable, all built from the ground up.  Your statement is still irrelevant to the discussion.  I can see your point about being slow on receivables but in my 15 years of business I've never allowed the businesses to use credit and have never allowed any receivables to delay longer than at time of purchase. Payment is always received immediately before any service rendered or product provided.\n\nSure you have a decent point in an inflation scenario however what you're forgetting is the cash flow is received in real time, not 10 years later.  Therefore there's no comparison to now dollars vs 10 year dollars. Cash flow is received in real time and then immediately used to invest in more assets which uses the full value of the current dollar as its received.  Even *IF* the property in question somehow doesn't appreciate or goes down in value over your 10 year scenario you're still in the green since the cash flow was used to invest in other assets, diversifying the portfolio.", "replies": [{"id": "exktn5l", "text": "&gt; Your statement is still irrelevant to the discussion. \n\nOnly if you want to ignore a factual statement.  You are confusing cash flow with profit.  For all you know your three \"highly profitable\" businesses will eventually fail because you don't understand business basics.  All you have done is try to nit pik a factual statement.  \n\n\nWhat if you had spent your \"profit\" in my second example.  Shouldn't you be able to spend \"profit\".  See you made my point that the cash flow wasn't profit because you had to invest the cash flow in another asset to make up for your losses in the first investment.", "replies": [{"id": "exkv2b8", "text": "Your statement is irrelevant to the conversation because we're not discussing cash flow of a service or product based business.  We're discussing cash flow on a single piece of real estate with fixed costs. I ask you again to provide a scenario where a cash flowing piece of real estate is not profitable.\n\n&gt; What if you had spent your \"profit\" in my second example. Shouldn't you be able to spend \"profit\". See you made my point that the cash flow wasn't profit because you had to invest the cash flow in another asset to make up for your losses in the first investment. \n\nWhat are you talking about? When did I ever say that the scenario was spending profit to make up for losses in another investment?  I said the cash flow is received in real time and is used in real time to continue building up assets. You're stuck talking about a scenario where someone is taking their profit and keeping it under their mattress for 10 years.", "replies": [{"id": "exkw6ky", "text": "&gt; We're discussing cash flow on a single piece of real estate with fixed costs.\n\nFixed costs!?!  What fantasy world do you live in.  Geez, cash flow is not what you think it is.  That is the point.  If you have \"cash flow\" and you think it is \"profit\" why can't you spend it on hookers and blow or keep it under your mattress if you want to?  Please explain why your \"profit\" has to be reinvested.", "replies": [{"id": "exkz9jg", "text": "Well, you could certainly spend it on hookers and blow if you wanted too. In my opinion, that'd be a bad use of cash.\n\nI also never said profit had to be reinvested. I certainly wouldn't want my cash to sit in a bank account losing money. I want to keep my cash invested in something to retain or grow as much value as possible during my time on Earth. \n\nWe were discussing your statement about a scenario where a property is sold 10 years later with zero appreciation and 30% inflation. Try to stay on track.", "replies": [{"id": "exl5pah", "text": "&gt;I also never said profit had to be reinvested. \n\nThis is your exact statement,\" Cash flow is received in real time and then immediately used to invest in more assets which uses the full value of the current dollar as its received.  Even *IF* the property in question somehow doesn't appreciate or goes down in value over your 10 year scenario you're still in the green since the cash flow was used to invest in other assets, diversifying the portfolio.\"   \n\n&amp;#x200B;\n\nYou are still confusing cash flow for profit.", "replies": [], "depth": 9}], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "exkl9h0", "text": "&gt; Your statement doesn't make any sense.\n\nIt is soooo easy to scam novices.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "exldpx9", "text": "How thoroughly do you know the market and are your pro-forma rental comps your own? Every CRE owner underwrites differently.", "replies": [], "depth": 1}]