I’m a commercial tenant and I want to buy the building I’m leasing.
Our landlord wants to sell. He’s asking $650K. How do I find out if that is a fair asking price or if I should offer less?

Also, how do I finance this? I have had a hard time finding information. Would this be like a residential mortgage or something else? And how much of a down payment is typically needed?

Thank you!
[{"id": "ht5ljzt", "text": "It\u2019s impossible to answer this as we don\u2019t know the area you\u2019re located, the type of unit, the rent you pay, the market you\u2019re in, what similar properties are selling for etc. In this case I would speak to a broker to get their opinion\n\nYou\u2019ll need a commercial mortgage and again it\u2019s worth speaking to a broker for more info on this", "replies": [{"id": "ht5nec8", "text": "Agreed. \n\nAlso speak to a lawyer. He'll be able to guide you to structure the deal. There's a scenario where it's tax advantageous to set up an LLC that owns the commercial building which then charges rent to, what I presume, is the company you run/own in that same building. Get proper legal advice once you've determined whether or not its a good deal.", "replies": [], "depth": 2}], "depth": 1}, {"id": "ht5mzor", "text": "This is definitely something right up my area of expertise. I do deals like this practically every day. You definitely in a good position seeing that your landlord wants to sell usually we have to negotiate that sale to begin with.\n\nAs for what the building is worth. Depending on where you\u2019re located you can contact a local broker with commercial expertise and access to certain databases that can help you come up with a broker opinion of value. Depending on the brokers expertise and access to comps, The price you guys come up with should be fairly close to market. You definitely want to have a broker who will help negotiate on your behalf since you\u2019re hiring them. Ultimately if you finance it the bank will have an appraisal done on it so regardless of what you or the seller think it\u2019s worth, the appraisal is going to matter as far as getting approval on the purchase loan.\n\nYou said your landlord is selling the building that you were a tenant and so my guess is you run a business in the space you lease. I know that this is not true 100% of the time, I do lease some commercial space to people who just use it for storing their classic cars and other silly things like that. But let\u2019s assume for a minute you do operate a business in that space you currently lease, and hence the building you would buy wood how is that business, there is a good chance you can get SBA financing which my capital division does loans for literally every day on top of brokerage deals. The benefit of getting SBA financing as you can likely purchase this building with as little as 10% down payment.\n\nI hope that answer adds value which is all I like to do on Reddit. This does however sound like something I can assist with as far as the Loan goes and maybe even on the CRE side. \n\nYou can private message me if you want to have a quick 15 minute call.\n\nGood luck and congratulations in advance", "replies": [], "depth": 1}, {"id": "ht5vw7y", "text": "There are some good responses on possible LLC setup and SBA loans already posted; I would read that stuff. I agree with the others that you want to hire a broker to represent your interests and guide you on pricing. \n\nOne last thing I wanted to make sure you were aware is you may have to put more money down than you would for say a house. It depends how you structure the deal and what type of lender you use ultimately, but loan to value ratios tend to be higher than the bare minimum for residential.", "replies": [], "depth": 1}, {"id": "ht68kqk", "text": "A good  non biased appraisal is a great place to start.", "replies": [], "depth": 1}, {"id": "ht6dycc", "text": "Do you occupy more than 50%? \n\nOwner occupied financing is very attractive right now. Otherwise I\u2019d set up a separate LLC as landlord and sign a new lease with your operating tenant entity. \n\nMost small banks, credit unions can do this small of a loan. Probably 25-35% down", "replies": [{"id": "ht8487i", "text": "If they occupy more than 50% they could get an SBA loan fixed for 25 years with 10% down.", "replies": [{"id": "ht8qoby", "text": "In my experience SBA loans aren\u2019t always fixed. Maybe the bank was mistaken when they told me that, or maybe it depends on the bank. Regardless, SBA loans are a nice option for owner occupied buildings.", "replies": [{"id": "ht8r1u9", "text": "You're right, 7a loans arent 504 loans are, at least the CDC portion", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ht6f9ah", "text": "Take your gross rent. Subtract what you think the landlord pays in expenses. Divide that by a reasonable rate of return.", "replies": [{"id": "ht7difo", "text": "This assumes the rent is at market, which is a HUGE assumption.  It assumes the OP can arrive at anywhere near a reasonable expense estimate.  I've seen people over pay by 50% doing this.  Don't do that.  Either get a BOV or hire an appraiser.", "replies": [{"id": "ht7du9i", "text": "Oh absolutely agreeing with getting a certified general to give you an appraisal. This was a back of the envelope assuming market rent and single tenant responsible for OpEx.", "replies": [], "depth": 3}], "depth": 2}, {"id": "ht93023", "text": "Doesn't this assume that it is a gross lease not a net lease? If net rent is specified in the lease, then there's no need to subtract expenses.", "replies": [], "depth": 2}], "depth": 1}, {"id": "ht6pmc3", "text": "I\u2019d get the property under contract so you have control. Then have an mai appraisal. Talk to you bank about SBA and conventional loans. Sba is more expensive in terms of fees but only 10% down. Conventional is less fees but 30% down.", "replies": [{"id": "ht84fis", "text": "I'd talk to several banks about SBA, but otherwise this is good advice.", "replies": [{"id": "ht8g6ff", "text": "I agree to always shop the rate. Only reason I said his bank first is because they likely have all his financial info and what they offer in terms of deal structure will be a good barometer. If he goes to a new bank they will ask him for all his financial docs plus  want to sell him on personal banking.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ht6pstl", "text": "If you used a broker you could ask them for comparables in the area. A bank could help you with the commercial loan.", "replies": [], "depth": 1}, {"id": "ht967vz", "text": "First get yourself an agent you trust, ideally a friend or friend of a friend that can be recommended to get you a fair price. Sure you can pull comps yourself but comps aren\u2019t an absolute on value all the time, it\u2019s more of a starting point.\n\nIf your landlord is first, selling, and second, someone you\u2019ve got a good tenant to landlord relationship, he may be willing to hold paper for you (basically finance it internally). If you\u2019ve been a long-standing tenant he\u2019ll be able to feel confident it\u2019s a low risk and such, I see that often. \n\nOther than that, the other financing means are very simple to find, I\u2019m sure all have been listed here.", "replies": [], "depth": 1}]