Help me work through a $375k purchase for Light Commercial building that needs renovations
Hi everybody.

I am currently leasing and have an interest in a piece of commercial property that is listed at $375k. I believe there is roughly $100k in renovations. The property is C-1 here (light commercial) and on a road that is perpendicular to a large street that is heavily gentrifying and that has some significant future growth. Again, light commercial but is not zoned retail.

I have owned a professional services company for over 10 years and have always leased. My lease runs around $1850/mo in cash plus $300 in barter so is in fact $2150/mo for roughly 1850 sq feet. We are in growth mode, meaning I have been putting money into sales and we doubled the company size and staff last year. Our free cash flow is several thousand per month. I do take a salary so owners comp is covered.

The property is 4500 sq. feet, has a large enough lot to build parking for several cars, and I believe I can alter the layout as follows:

* 1 4500 sq. feet single-tenant
* 1 2500 sq. feet for us; rest for another large tenant
* 1 2500 sq. feet for us; break out 3-4 offices and have multiple 1-person tenants

I lean toward a multi-tenant property to generate cash flow from the property long-term even if I stay in there. That said, we may outgrow this building over time. If that happens, I would most likely lease out the portion we used.

A few questions:

* Well, in writing this I am thinking I need to do a full estimate of car parking or determine if street parking is legal. Hmm. This place was used by a church before so I suspect parking is handled on the street. Need to research.
* If I created an LLC to own the property would I be eligble for a 504?
* I am most concerned about sucking cash out of the company to do a 20% down payment. I'd prefer to use that cash on sales. I'd like to reduce upfront cash spend.
* Options for me to consider for financing the renovations?

I did reach out to my commercial banker (naturally I'll bid this out a bit). He responded that they will finance up to 80% and I am looking at around 4% APR. He suggested I do a line of credit for the renovations.

Special note: I am doing research on this property to see if it qualifies for a local "redevelopment zone" law where the property tax is locked in at the purchase price even after renovations.

I'd love your feedback, questions, or suggestions. I am more than happy to study, study, study and I am using reddit as my jumping off point.

Thanks!

Edit: most interested in solving the 20% down payment issue.

Edit2: Not really interested in turning this into retail. I was just mentioning that it is NOT zoned retail.

[{"id": "cs59ga1", "text": "I'm hoping you get some informed replies. My business is in a similar situation. What kind of professional services do you offer?", "replies": [{"id": "cs59j95", "text": "IT! You? ", "replies": [{"id": "cs5a08d", "text": "We're a commercial exterior services company. Parking lot sweeping, pressure washing, snow removal, striping, etc.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "cs5bayz", "text": "Zoning designations are hyper local, so what is allowed under C-1 zoning in one city will be completely different in another. You need to speak to someone local about that.", "replies": [], "depth": 1}, {"id": "cs5bdyi", "text": "Call the City Planners office  Regarding parking", "replies": [{"id": "cs5og4f", "text": "Great point.", "replies": [], "depth": 2}], "depth": 1}, {"id": "cs5f1j0", "text": "Check your local regional and state economic development councils. Improvements coupled with the hiring of full time employees could get you some great benefits. ", "replies": [{"id": "cs5oful", "text": "Agreed! ", "replies": [], "depth": 2}], "depth": 1}, {"id": "cs5me8h", "text": "Can't help, but I'd be really interested in following your journey if you decide to share;  I've considered doing something similar in the past.  ", "replies": [{"id": "cs5ofow", "text": "Will do!", "replies": [], "depth": 2}], "depth": 1}, {"id": "cs5thga", "text": "You could tie in the renovations/capital projects into your loan request. 80% is a high loan to value. Will you be personally guaranteeing the loan (ie recourse)? \n\nRetail generally needs 4 parking spaces per 1,000 SF of leasable area, so you probably want at least 40 parking spaces if retail is your long term goal. Of course it varies in heavily walked areas. \n\nIt sounds like you're considering future retail zoning as upside. Make sure you accept the value of the investment as just light commercial--buying properties without entitlements is very risky. ", "replies": [], "depth": 1}, {"id": "cs5tqbm", "text": "Look at sba loans, it could help you by only having to put 10% down. \nYou will how've to occupy at least 51% of the building to get the loan. But it sounds like you will. Good luck! ", "replies": [{"id": "cs5v1cy", "text": "I'll check this out,  thanks! ", "replies": [], "depth": 2}], "depth": 1}, {"id": "csjej4d", "text": "Is there a demand for Single office suites with amenities in your market? Can you develop a shared office concept and have your current IT business provide the infrastructure?", "replies": [{"id": "csjjsh5", "text": "A friend asked me the same questions yesterday.  I'm going to research. ", "replies": [{"id": "csjlls7", "text": "I like that niche, market depending, you might be able to maximize income if you can provide a good product for your market (Space/amenities).\n\nAs far as zoning, depending on the local code the mandated requirements can be stated by PSF or business. Depending on your structure with this you should see what the implications would be.\n\nEither way. Whats the going cap rate on an asset like this? \nAssuming I understood correctly you rent  1859sf @2150$ after putting in the 100k you will keep 2500sf for yourself and rent out the other 2000 for a total of 4500? \nBack of the envelope numbers given your rental assumptions.\nThat you can net around 60k lets say gross 40-45k\n\nCan you get more than a 10 cap for it?", "replies": [{"id": "cskwcgc", "text": "Can I tell you something? I do not under what you mean by \"cap\" here. Can you refer me to some good reading material to learn further?\n\nI did have lunch with a good friend to discuss this potential project. The lot is large and very close to an area that is heavily gentrifying, so there is a lot of potential. Plus, the tax credits in the area let me fix the property tax at the purchase price regardless of the appreciation due to renovation on the property so long as I kick off the renovation within 12 months of the purchase.\n\nSO, my friend had an excellent suggestion of adding another 2000 sq ft to the property. That would give me 6500 sq ft total of revenue-producing property. Something I'm digging into as a potential renovation project.\n\nI did get a pre-qual the other day from the bank so we're going to lock down the property for 60-90 days while I do further homework, including getting estimates on a renovation; working with the bank (and a second alternate bank) to get a package deal on the purchase+renovation financing; and potentially looking for a partner to help on the down payment.\n\nMy job right now is to study, study, study. I'd love any references to good reading material to dig further while I work through this. I'm fortunate that I have several friends that have gone down this road, but I also want to be 100% clear on everything before things get too serious.", "replies": [{"id": "csl24hi", "text": "I would definitely look to maximize SF during the renovation if feasible.\n\nThere are three ways to value real estate: Cost to build, Comparative analysis and Cap rate. You can look a little into cap rate on investopedia etc.", "replies": [{"id": "csl2qa7", "text": "Ok. Books are now ordered so i can study this. Thanks for the lead on what to read up on. ", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}]