Sell or Build? $2.5M Cash tax free or Invest $1.5M buildout for $275,000 NOI?
Tax free because of stepup basis. Or build a new restaurant for $275k? NOI that will cost $1.5M in renovation? 

Wish I can sell for $4M, but commercial market is down. Or do I  wait?
[{"id": "ilwtyrl", "text": "How certain are you on that NOI? If it's a solid tenant, do the build in a heartbeat. That's a great return.\n\nIf it's on spec I'd sell it. Restaurants are a fickle industry.", "replies": [{"id": "ilwusj5", "text": "We're negotiating a LOI in that range. Probably 5% cap. Like all things, I worry restaurant won't do well and tenant declares bankruptcy. Our previous tenant left and the building was vandalized. And $1.5MM for TI/remodel is A LOT of money. \n\nSince I'm new to this, can you tell me why it's such a great return? What if we sell it and user it as 30% down to buy something even bigger?", "replies": [{"id": "ilx115t", "text": "If you buy something bigger then you have to get a commercial mortgage with high interest rates and more annoying loan terms than conventional residential mortgages. You currently own the property outright and have nobody to answer to but yourself. Get a loan and that situation changes.", "replies": [], "depth": 3}], "depth": 2}, {"id": "ilx5y54", "text": "what constitutes a solid return? NOI being what fraction of investment?", "replies": [], "depth": 2}], "depth": 1}, {"id": "ilwxt4u", "text": "What makes you think it is a great return?", "replies": [{"id": "ilwyeqo", "text": "If u turn it around and sell, you could easily recoup the $1.5M is what I'm told.", "replies": [{"id": "ilxmsa6", "text": "You mentioned 5 cap earlier.. cap rates are rising across the board, not sure a 5% cap sale is attainable unless it\u2019s a rock solid national restaurant tenant.. run your numbers at a more conservative figure and if it still hits your goals then go for it, and anything above that is gravy!", "replies": [], "depth": 3}, {"id": "ily2gb0", "text": "Based on WHAT?\n\nThis is where so many novice investors get scammed!  Sure buy this $50,000 \"value add\" property from me.  Then give me $50,000 to rehab and you will end up with a crappy reno that is still prolly only worth $20,000.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ilwyrnw", "text": "You will probably get better advice from someone local, ie a broker, who knows your market. There are a lot of omitted details that go into this decision, ie is it build to suit and who is guaranteeing the lease? Like someone else said, restaurants are fickle.", "replies": [{"id": "ilwz4ew", "text": "Yeah I worry my broker won't like that but I'm not sure. I just wanted a 2nd opinion. It's build to suit. And the guarantor is a franchisor with a $50M nw. It'll be a national chain.", "replies": [{"id": "ilx2qzg", "text": "If you are including the franchise in the net worth I would back that out. How much liquidity do they have and how leveraged are they? Have you seen their operating company financials?", "replies": [], "depth": 3}, {"id": "ilxoutg", "text": "I specifically broker NNN. You can run it by me as I\u2019m heavy in the QSR/fast casual/sit down space.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ilx0had", "text": "Think about it this way. If you had $4 million, would you buy that specific property for $2.5 million and renovate it for $1.5 million?", "replies": [{"id": "ilx4sho", "text": "I would if I can sell for 5.5MM", "replies": [], "depth": 2}], "depth": 1}, {"id": "ilx3vgi", "text": "It really depends on the asset class. The 6.9% return on cost you\u2019re talking about is good for industrial or multi, but definitely too low for some spec office or retail.", "replies": [], "depth": 1}, {"id": "ilxaqgh", "text": "Depends on your risk tolerance and your confidence in your exist assumptions. If $2.5 is the value as is, then you invest $1.5 in improvements, you\u2019re looking at a yield on cost of 6.875% assuming you have soft costs baked in to the improvement budget.  At a 5% cap exit, the spread is 188 basis points, which is in line with the targets for most developers.", "replies": [{"id": "ilxb5vb", "text": "Thanks for this analysis. Can u help me understand the 188 basis points?", "replies": [{"id": "ilxbu7v", "text": "1.88%", "replies": [{"id": "ilxc9uh", "text": "Ah okay. And would it be sellable at a 5% cap? Why would someone buy a $5.5M property with only 275,000 NOI?", "replies": [{"id": "ilxdfrr", "text": "That would be a question for a local broker\u2026 would definitely see what you can find in terms of recent sales transactions\u2026 my gut is a 5% sounds low in terms of exit cap\u2026 probably too aggressive.", "replies": [], "depth": 5}, {"id": "ilxfql3", "text": "I agree with the other guy that you should consult a broker, but local shouldn\u2019t be the emphasis. Emphasis should be on someone who knows the product type.  Exit cap will be based primarily on three things; the lease economics (length of lease, rental increases, expense structure), the real estate itself (market, age of construction, frontage) and the credit. That fact that you mentioned in another comment a fear of tenant going bankrupt would make me think tenant may be local, franchisee, or poor credit. A strong national credit will be necessary to achieve a 5% cap.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ilxqs1j", "text": "My brother in Christ\u2026 take that tenant lol. That\u2019s great return. You can cash out refi once stabilized if you need cash.", "replies": [], "depth": 1}, {"id": "im05lmw", "text": "The credit behind the NOI seems important", "replies": [], "depth": 1}]