Opinions on a deal
Have a family member who owns a commercial property with a mechanic shop on it. Rents for 3k a month, tenant has been there 5 years, pays late often. The property tax is 6k a year. The tax appraisal says 255k. The family member needs some liquid cash and wants to sell half the property, and has valued it at 300k. So I would be paying 150k in cash and collecting 1500 a month in rent. I’m not interested in any loans or mortagages so that’s not a viable option. Just want info on this deal, thanks. 
[{"id": "ebka01l", "text": "You will likely not be collecting $1500/month. Half of what the tenant is paying is equal to $1500/month, but unless you have a triple net lease, you will have expenses that are being paid out of that $1500 in gross income and your net income will be lower than that (insurance, building maintenance, snow removal, legal fees, etc.). Also, how long is the lease? What happens if the tenant who already has payment issues falls behind or leaves? Could you replace them? At what cost and time?", "replies": [{"id": "ebkav6x", "text": "I wish I could upvote this twice. Definitely look at what expenses are and the lease structure. By not taking a loan, you might be tying up a lot of money in a deal that doesn\u2019t make much sense. ", "replies": [], "depth": 2}, {"id": "ebmildo", "text": "Yes I have factored in maintenance and taxes. The building is relatively new so it\u2019s in decent shape as of now, like I said the taxes are 6k a year. So I calculated a year gross income of 18k, and subtracted 5k for my half of taxes and possible maintenance. The lease has 3 years left, and both my family member and I are in the car business so if we kick out the tenant we have no problem taking over and running the business, either both or one of us. It\u2019s just a mechanic shop. ", "replies": [], "depth": 2}], "depth": 1}, {"id": "ebkallw", "text": "Depending on the type of work the mechanic does, there could be environmental issues at the property. This could be an issue if/when you try to sell or finance the property and a future lender does a phase I environmental report. I work for a lender and we typically avoid properties with auto mechanics, on site dry cleaners, etc for that reason. If you\u2019re going to spend $150k, i think it would be wise to spend a few grand extra and have a phase I done. You might want to have an appraisal done as well. ", "replies": [{"id": "ebktsgx", "text": "Upvote+3. Determine residual value of property to help decision making. ", "replies": [], "depth": 2}], "depth": 1}, {"id": "ebkaow3", "text": "You need to know what your net income will be. Get a copy of the lease and read and understand it. Get copies of the last couple of years of financial statements and see what the property nets after all expenses. Is the property owned free and clear, or is there any debt to service? You need more information at this point.", "replies": [], "depth": 1}, {"id": "ebkap4r", "text": "Who pays property tax and insurance? Who pays maintenance?  How long is lease?  Who are guarantors?  What is their financial strength? Whats the environmental situation?  What is market rent for the building?  What other types of uses could it work for? If you dont already know the answers to these questions, then you're in over your head. ", "replies": [], "depth": 1}, {"id": "ebkau9z", "text": "Gonna need more info, but it sounds like a hard pass to me.  Tenant sounds like a pain in the ass, and at best you\u2019re getting a 12% cash on cash return.  Plus all the issues that come with not having a majority owner. Liquidity would be an issue in the future.  Also, who would make decisions?", "replies": [{"id": "ebminoq", "text": "In terms of the 12% cash on cash return, how does that compare to better deals? What\u2019s the percentage someone should aim for? ", "replies": [{"id": "ebmirw2", "text": "Decisions will be 50/50, and yes I am worried the most about the partnering up part. I think later down the road when neither of us needs the other ie. he doesn\u2019t need cash and I don\u2019t need a partner to buy a property we will start thinking of how one of us can take the whole building over or sell to the other, which can get messy. ", "replies": [], "depth": 3}, {"id": "ebomz35", "text": "Risk adjusted, the 12% is not good.  Besides your inexperience, you have a tenant with zero credit, a partnership structure that could get very messy, you\u2019re wanting to use no leverage, and an illiquid product that will practically be impossible to sell when you want/need out.  You\u2019d be better off sticking to a S&amp;P index fund then trying to squeeze out another 2%-3% returns.\n\nThe firm I work for gets 12% CoC on $50M industrial buildings with credit tenants.  If I were you, I\u2019d need like 15%-20% to even begin to feel comfortable.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ebl1gtr", "text": "It would be better to do a lot more learning about CRE before you invest into a property like this. At this point you don\u2019t know what you don\u2019t know.\n\nNot being an asshole, but people lose their shirts all the time.", "replies": [], "depth": 1}, {"id": "ebl5nlh", "text": "Maybe better to sell all for a smaller property, or just take a loan against it?", "replies": [], "depth": 1}]