How do building owners with sub 25/sq ft rent make money?
How do buildings with less than 25/sq ft rent make money? If your rent is 25 a foot and your 15,000 sq ft building is fully occupied, then you’re making 375k annually - prop tax/maintaince (100k)=275k. Monthly: 23k. Your mortgage on 25 year loan is about 20k a month. So your net profit is only 3k. Appreciate the help.
[{"id": "dzf0ggs", "text": "I\u2019m on mobile, but your mortgage payment seems high. How are you getting to your Debt Service number? ", "replies": [{"id": "dzf1gi9", "text": "It was an estimate", "replies": [{"id": "dzf6yy2", "text": "Typical expenses are 35-45% of rental revenue. At a 7% cap rate the cash-on-cash returns are pretty low. You\u2019d need to buy at a 8% cap rate, which could get cash-on-cash returns around 9%, which is pretty good. With 20% equity at a 6% loan interest rate for 25 years your paying $15k/month on your mortgage. Add in appreciation with rising rents of 3-5% annually and your equity growing in the building, and you could make an IRR of 14-16%+ when sold. This doesn\u2019t account for vacancy though. ", "replies": [{"id": "dzhlnk1", "text": "I'm sorry, how are you getting 9% CCR?", "replies": [{"id": "dzhmxe1", "text": "This is obviously just back of the envelope. 15k sf by $25/sf is 375k in revenue. Expense ratio of 40% means NOI is roughly 225k. At an 8% cap, that\u2019s a value of 2.8m. 20% Down payment is 562k in equity and 2.25m loan. At 6% interest rate and 25 year term, loan is 15k/month, 175k/yr. \n\ncash flow is 225k (NOI) - 175k (Debt) = 50k\n50k/562k (equity) = 9%. \n\nThat doesn\u2019t account for vacancy and credit loss though., and IRR is much more important than COC. This was a hypothetical question from OP, so this above is a first step into actually getting into the numbers and underwriting, or discussing with the owner that I wouldn\u2019t touch it for anything under 9% cap rate, and see where I got. ", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "dzf0l41", "text": "Sounds like you're talking about a gross rate of $25 and a net around  $18.33. \n\nBased on your numbers you're also assuming the building costs around $4.5MM ($304 psf). On a building like that, your $18.33 represents a 6.1% cap rate. Not great, but maybe not bad depending on other factors.\n\nAll I can say is that not all buildings cost $304 per square foot. A light industrial building or a class C office building might be half that. Rent is priced accordingly.", "replies": [], "depth": 1}, {"id": "dzf23wt", "text": "You are talking retail?  I rent my industrial buildings for 6/sf or sometimes less and do just fine.  My cost was 35-50/sf typically though.", "replies": [{"id": "dzf2arw", "text": "How much was it to build ur building ?", "replies": [{"id": "dzf2l4s", "text": "Building industrial here is about 55-70/sf plus land.   I bought these ones used.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "dzf25nl", "text": "The question is flawed. \u201cYour mortgage on 25 year loan is about 20k a month.\u201d Says who? ", "replies": [{"id": "dzfc7xt", "text": "On a 4.6 mill loan that is the mortgage", "replies": [], "depth": 2}], "depth": 1}, {"id": "dzfbfqj", "text": "You are making way to many assumptions that vary based on buildings. Most importantly your basis or cost in a building will drive you taxes and mortgage payment. \n\nYou just said a certain amount for a mortgage which makes no sense. You haven\u2019t explain the purchase price or cost to build, the amount of equity put in, etc. ", "replies": [], "depth": 1}, {"id": "dzgedfy", "text": "Return is relative to strategy. Low rent could mean easy to lease, and the goal might be to slowly grow wealth in stable investments. \n\nBut low rent is a bitch.", "replies": [], "depth": 1}, {"id": "dzizt51", "text": "Finnish high school first bud", "replies": [], "depth": 1}]