In the process of buying 3 office building. Needs work any pointers? NC
In the process of buying a commercial 3 separate suites office building. Needs HVAC, any many more rehab issues. I have bought many residential properties, fixed them and rented them. This is the first commercial. I need to inspect for all issues with a contractor. Any pitfalls I should be aware of? There is one tenant in one unit.
[{"id": "i37qzcf", "text": "Hire someone you trust &amp; it wouldn't hurt to have them named in the contract as an authority &amp; a $ limit for repairs so you have an out of it's gonna cost more than anticipated.\n\nI'd be more concerned about the rentability &amp; likelihood of getting a tenant at a rate that's profitable &amp; in your risk tolerance. With work from home lots of companies learned they don't need as much space.", "replies": [{"id": "i37s4wf", "text": "Thanks for the info. This is right across the street from the Court house and jail. Current tenant is an attorney.", "replies": [], "depth": 2}], "depth": 1}, {"id": "i37wqw1", "text": "One building, divided into 3 units? Layout (3 street level, 1 each story, some other configuration)?\n\nAre you perchance buying it from the sole tenant? \n\nIs it in a historical zone (courthouses tend to be in the older parts of town)?\n\nWhat's the parking situation like?", "replies": [{"id": "i386ury", "text": "Three units street level. I am not buying it from the tenant. Parking is public parking only. It is probably historic.", "replies": [{"id": "i38b64p", "text": "Roof, drainage issues, street/sidewalk obligations, grandfathered uses &amp; ADA regs, improvements limitations due to historical look limitations (windows especially).\n\nThere's a dozen minor issues that will potentially be a thorn in your ass but basically why is it 2/3 empty and how soon/what is it you need to do/spend to get it rented.", "replies": [{"id": "i38bt47", "text": "Thank you", "replies": [], "depth": 4}], "depth": 3}, {"id": "i38ctnb", "text": "&gt;It is probably historic.\n\nIt is or it isn't.\n\nThat's like saying \"*I'm looking in to buying a car, it may or may not have an engine, please advise for any pitfalls*\".\n\nWell, emmm.....the first one I'd give some thought to...is errr....that engine thingy....", "replies": [], "depth": 3}, {"id": "i391h6y", "text": "You really need to find out if it is historic as that may limit you on what you can do to the building and how repairs need to be done. \n\nRegardless of the historic or not historic you need to know if there was any unpermitted work. I am not talking paint and carpet I am talking about moving walls etc", "replies": [{"id": "i395txd", "text": "Thank you", "replies": [], "depth": 4}, {"id": "i3erhs5", "text": "Not historic", "replies": [], "depth": 4}], "depth": 3}, {"id": "i39ry3d", "text": "Historic districts can be their own pile of hassles. Definitely investigate any requirements or rules during your dd.", "replies": [], "depth": 3}, {"id": "i3erf9p", "text": "Not historic", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i381kt4", "text": "Sounds like you are acquiring property with deferred maintenance.\n\n1. Inspect all HVAC units and collect proposals for repairs or replacement.\n2. Inspect all mechanical systems (water heater, etc).  The cost of these units are significantly higher than years past.\n3. Inspect the roof.  Install date?  Last repair?\n4. Inspect the parking lot.  What is the condition?  Will it require repaving or repairs soon?\n5. Confirm there are no issues with the foundation.\n\nInclude these items into your assessment.  Best to contact the techs who last worked on these items or installed them.  Then obtain a second and third opinion on their status.", "replies": [{"id": "i3871ce", "text": "Thank you", "replies": [{"id": "i3cdvi1", "text": "Sometimes the roof has a warranty from the contractor. Make sure to ask if it is transferable \u2014 get it in writing or some form of proof like a prior bill of sale where the warranty is spelled out in a signed contract.  \n\nI just bought an office building. Inspection showed a bad roof due to hail damage.  Seller\u2019s insurance covered repairs.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i3886rk", "text": "Sometimes people get burned by unexpected zoning issues usually in down town districts. One building I  own any \u2018use\u2019 change can bring significant unexpected cost. I had a sun glasses store move out of a 2000 SF space COVID casualty from lack of business.  I had a lease in hand with a chiro for the space but chiro classified office medical and sunglasses retail - city said this use change would require sprinkler the suite.  Then I had a hair salon concept and city even classified that as a use change. So understand zoning. If a tenant leaves what does it take to acquire new tenant. Some tenant been there 15 years and leaves - well code has changed since then. May have high costs get to code.", "replies": [{"id": "i389m52", "text": "Thank you", "replies": [], "depth": 2}], "depth": 1}, {"id": "i38cfsm", "text": "Sf'g, price, condition, zoning, age, general market....and a million other questions.", "replies": [{"id": "i39shtx", "text": "Code is my biggest worry.", "replies": [], "depth": 2}], "depth": 1}, {"id": "i38dan7", "text": "I start my list of questions Monday. Thanks for your input.", "replies": [], "depth": 1}, {"id": "i38kzo0", "text": "Are you under contract yet? Be sure to have an out and get all EM back if any PCR findings are deal killers. \n\nFor those types of properties no reason to lose any money on EM.", "replies": [{"id": "i38onyt", "text": "PCR findings? I am not familiar with this term?", "replies": [{"id": "i38r90x", "text": "Property Condition Report - You should hire an engineering firm like [this](https://www.partneresi.com/services/building-assessments/equity-property-condition-assessment) one, to basically walk the building and call out problem areas (with cost estimates). Most lenders will require this along with a Phase 1 enviromental report.", "replies": [{"id": "i38rjxi", "text": "thanks", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "i38oq2k", "text": "Previous code requirements?", "replies": [{"id": "i3bf8qy", "text": "Sergio alluded to it but make sure you conduct environmental due diligence, especially as you say the property is historic. The general rule with environmental is that when you buy a property you buy whatever is beneath it too.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i39ssb6", "text": "Cash deal, as is.", "replies": [], "depth": 1}, {"id": "i39tgc5", "text": "Figure out why the building is only 1/3 occupied.  Is it because of conditions in the building that a new owner will improve or is there a lot of empty/better space available nearby?  Check out the publicly viewable listings on loopnet to see what your competition will be like and their asking prices.\n\nUnless you are very lucky or location is outstanding it takes a lot more effort and time to get a solid commercial tenant than a residential tenant.    Being across the street from the courthouse is great but attorneys have been known to walk a couple blocks to the courthouse from their better outfitted offices down the street.", "replies": [{"id": "i39uzku", "text": "Thank you", "replies": [], "depth": 2}], "depth": 1}, {"id": "i39y29l", "text": "May I ask what tactics you used to find this deal? And are you buying it solo or in a partnership or as part of a syndication?", "replies": [{"id": "i39yo38", "text": "I am buying it, I will put it under our LLC. I was watching several properties. This one I low balled and the seller walked. 3 months later it was back on the market. When I saw it it had a pending offer. The deal fell through. So we offered and this time they said yes.", "replies": [{"id": "i3apqmo", "text": "Thanks for sharing. Did you originally find it on Loopnet or through direct mail to the owner, etc?", "replies": [{"id": "i3erpsw", "text": "No Just searching local MLS", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i3axvof", "text": "If you buy this and start rehab, keep an eye on your GC. Mine does good work but IMO is way overpriced, and every little gotcha and change order is another 5 figures gone. The only saving grace is I got the building for a super low price. :/", "replies": [], "depth": 1}, {"id": "i3b21io", "text": "Try to get the last tenant to leave so you can renovate all units at the same time.  \nRefinance after renovation and new leases.", "replies": [], "depth": 1}, {"id": "i3chvcg", "text": "If possible, in the negotiations, have the seller deposit $150,000 in escrow that can be used during the next eighteen months if base rents are not a minimum $ amount, or for certain repairs.  I bought two properties this way, one had looming lease terminations with unknown income potential. The other had stable tenants. The potential was that we were able to draw out of escrow each month that the property did not hit a minimum base rent income, or if expenses were over $XX. If at the end of the term, funds were left in escrow, they went back to the seller. We used all of the funds for the first property, and only used about $10,000 for the second property. With your upcoming expenses, this can help finance those.\nTips:\nRule of thumb: Get bids for all the repairs and then double it. When there are multiple items needing repair, you will undoubtedly find other problems along the way. \nTalk to contractors who have done similar work in that area. How was the permitting process? Some jurisdictions are terrible to deal with.\nI am a commercial broker in the Seattle area.", "replies": [{"id": "i3er9h2", "text": "Thank you!", "replies": [], "depth": 2}], "depth": 1}]