UPDATE : I want to invest in Commercial real estate, but no one else thinks I should. AKA: A business owners search for the perfect commercial property.
[Link to original thread](http://www.reddit.com/r/CommercialRealEstate/comments/2f0hed/i_want_to_invest_in_commercial_real_estate_but_no/)

I want to thank everyone for their input on my last post. The overwhelming majority of you do not recommend purchasing the building I mentioned. 

Shortly after I submitted my question to reddit, I asked my agent to provide me with more numbers and data of the surrounding area. I got those back yesterday. It was mostly a curiosity, but also that there was a very slight off chance that maybe, just maybe there might be another building out there under $400,000. If this guy did it, then anything is possible. He sent me back anything that is on sale, as well as anything that has been sold in the last 3 years. 

Just a quick recap, the building I was looking at is 10,000 sq feet and is on sale for $650,000. The original purchase price was $350,000 one year ago. The selling party needed a quick sale.

This is what I got back for buildings that are in similar areas within a 30 mile radius. 

* Building 1 - 10,000 sq ft - $950k
* Building 3 - 11,000 sq ft - $650k - sold
* Building 4 - 10,000 sq ft - $650k - sold

There were a few buildings that I have omitted due to the fact that they are not in the same area (off a main road so higher price) or a building that could not be used for a similar intent (a retail shop or a tire center). There is a single building that is outside the 30 mile radius and in a very poor town that is about 10,000 sq ft and being sold for 400,000. However, I have no interest as it is more than I want to commute to work, and is in an area that would require tons of surveillance and alarm systems. 

Everything else is not for sale or has not been sold lately. 

As I find a lot of interest in reading the real estate subreddits, I made the decision to create this account so I can stop lurking and start participating, while this is not a throw away account, it is an account that I can use to speak freely about real estate topics without doxxing myself. I completely understand that location plays a HUGE role in real estate, however, I have no interest in revealing the area or even the state I am located in, so for those of you who asked in the previous thread, I will not be answering that. 

It seems that whoever purchased the building I am looking at got a hell of a deal and is attempting to rent it out at a price that is higher than the current market rate. Perhaps they paid cash and need to make that money back, or maybe they just don't need the rent all that bad. 

I think I also gave off the wrong impression in my last post regarding the upstairs portion of the building (not included in the sq footage of the building). I described it as "in poor condition" but really it is unfinished. There is no carpeting on the floor and there is no drywall on the walls. I do not know why but the upstairs does not interest me to be honest. If there was something that was preventing me from using the upstairs it would not hurt my view of the property as it is maybe 2000 sq feet total (a very generous estimate). 

A comment in the previous post mentioned that doubling the price of his original offer was a joke, and I wanted to get more historical sale information. As you can see from the above, the asking price is not too out of touch with the current pricing of the market. He managed to get a very very lucky deal and since it has been empty for a year wants to unload it, taking into account capital gains and taxes from the early sale. 

There is no landscape maintenance needed for the property as it is surrounded by concrete. The roof, parking, and HVAC all appear in good condition but has not been officially inspected. As mentioned the first floor is in perfect condition. 

I am not looking for approval nor am I attempting to sway any of you. I value the honest feedback you have given me so far. This is just my attempt at providing all information that I have while I continue my search for a new office. 

I figured it would be something different to read, and give everyone the chance to pick a part a commercial real estate noobs first time mistakes. 

For the curious:

I am not in the real estate business. 

Any building I do rent/purchase would be owner occupied at around  5,000 sq feet.

I enjoy sunsets and sunrises but don't ever have the time to stop and enjoy them. 
[{"id": "ck9xnm5", "text": "Did you have a specific question? Or is this more of a 'coming out' piece?", "replies": [{"id": "ck9yvd6", "text": "No questions. Just... thoughts. ", "replies": [{"id": "ckapnr8", "text": "I'm more curious to know what your banker, CPA and other professional advisers are telling you vs the advise you keep getting here.  After reading through this and re-reading the earlier post - it sounds like you aren't on the fence about what you should do as much as you've decided that you should buy it and can't seem to find anyone to back you up on that decision.   \n\nNot trying to be ugly about it, but you admit that economy sucks where you are, that the building is selling for twice what it was bought for last year and your justification is that new construction would cost you double that.  There is no justification for a price being double from a year ago - the market value is only what buyers would pay for.  In this case, you've combed out a couple of similar sized buildings that have sold for the price range that you are trying to justify paying for this building you've found - but I don't see any discussion about the income from those properties which is a critical part of the valuation process.  It sounds as though you are looking to purchase this as an individual and lease it to your company as well as one other but no mention on what sort of returns you are willing to accept on your soon to be parted cash.\n\nThe biggest glare is that you've stated that you possess, in your mind, some special ability to predict what the market is going to do before others - and that alone puts you in a position to profit where others fear to tread.  There are no tenants for a year and it's the fault of the owner and the broker - and you can fix this by reducing the rent $0.10-.20 - in spite of having no experience with this compared to the broker and owner who presumably have much more than you.\n\nThat isn't an investment strategy - it's ego.  And bubble mentality that has no basis in reality.  If you'd like to pull $150.000 out of the bank to fuel that ego, buying a building with shitty numbers is somewhat better than blowing it all on a new sports car or other midlife 'strategies'.  \n\nIf you're honestly interested in getting into real estate investing - and are in an area that isn't going through some huge, overpriced boom again - then you should be able to find 20-40% cash on cash returns with your money all day.", "replies": [{"id": "ckat213", "text": "It could be ego, which is why I am still here typing all this out. I haven't made any moves yet and still getting information from the banker. Haven't approached my CPA on it, but I most likely will if it comes down to crunch time. \n\nIn all honesty, I am speculating about speculating. Normally I discuss big decisions with my group of friends and mentors, but none of them have been in this position before nor have this amount of money to invest, so I can't use my normal ways of bouncing my ideas off of people. This place works for that. You guys are a bit harsher and quicker to call me an idiot, but the method works. \n\nI did want to point out one things that everyone seems to keep missing, (this is not a justification it just keeps coming up) the price the seller bought the building at was priced to sell quickly. He got in at the right place and the right time. The current selling price is market value, but also takes into account his taxes from selling the property early. \n\nThanks for your feedback. ", "replies": [{"id": "ckawjsc", "text": "So what has gotten so much better in your market that prevents you from finding a building that you can buy at 30-40% off market if he found one at 50% last year?  Just because it's not listed doesn't mean it's not for sale. ", "replies": [{"id": "ckb5xjo", "text": "I am still looking for that building. Haven't found it yet. ", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "cka77m3", "text": "I say do your homework and if the numbers workout then why not? It's a lot better than renting out someone else's place and having the rent money go nowhere. But keep us updated. I am eyeing a building in my town in an area that is about to take off. Good luck", "replies": [], "depth": 1}, {"id": "cka7xox", "text": "&gt;Any building I do rent/purchase would be owner occupied at around 5,000 sq feet.\n\n&gt;I am not in the real estate business. \n\n\nThis is the key point right here.  If you want to diversify your talents by entering the real estate business, then sure, but why complicate your business?  Spend your energy focusing on your core business.  I'm not sure what it is like in your area, but where I live the rate of return on owning **unleveraged** real estate is lower than the typical return you could get on a conservative reit.  That means instead of buying a 650,000 industrial/office building, what you are better off doing is buying 650,000 worth of shares in a diversified portfolio of buildings via an appropriate reit(s).  You actually wouldn't want to put 650,000 in, as you would want to hold some back for paying rent, generating a return that can pay rent, as your lease is essentially an investment in RE already, and you might not want to be over exposed.\n\nWhere owning becomes interesting is when you can obtain financing and get a leveraged yield.  So instead of making/saving 50,000 a year with a 650,000 investment of cash, you are saving that 50,000 a year (or earning) on say 325,000 cash effectively doubling your return rate.  That said, where big REITs have the advantage is being able to have cheaper financing, access to lawyers, professional management, essentially economies of scale.\n\nNow I don't want to scare you off, but I was in a position where I inherited an ownership interest in a few buildings, and since I was able to sell and keep the buildings in the family, I did so at \"market\", as I would rather have a diversified portfolio than a single asset complex.  Another factor in my decision is that cap rates are at historic lows in my area, so the required return to get the same return as the buildings on the money was very low.  (basically I perceived the market price to be as high as it is going to get without rents rising in great strides).\n\nThe owner in the example you mentioned above might have bought the property knowing it was having trouble being leased, or because it is an odd building/hard to lease.  Again, this is not your area of expertise, so it would be unwise to sink such an amount of money without covering all your bases.\n\nGood luck in whatever you do, but especially in real-estate, something small like an old underground storage tank that is leaking fuel, or was previously leaking fuel can cost a lot, especially if the contamination migrates off site.  There are all sorts of other things that novices won't know to look for.\n", "replies": [], "depth": 1}, {"id": "ckaf6os", "text": "Real estate value is based on cash flow, which is determined by rent - operating expenses. I wouldn't put a lot of stock in comparable sales when looking at investment propreties because each property is different. The fact that the previous owner didn't lease, and now wants to sell should be a red flag. I would pay for an actual inspection and discuss the leasing market with your broker. Could still be a good deal, but too big of a risk to not do your homework. ", "replies": [], "depth": 1}, {"id": "ckdsxfn", "text": "If you're new to real estate and you're buying anything other than stabilized apartments, stabilized self storage, or multi-tenant commercial with staggered roll in a good market, you're doing it wrong.\n\nDo you want to throw in as JV equity with someone who does this for a living?  I'm not on the owner side anymore but I'm sure I could point you towards some folks.", "replies": [], "depth": 1}]