Benefit of CRE investment for a small time investor?
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[{"id": "if4z8rp", "text": "Sounds like you don\u2019t want to invest in this deal, so.. don\u2019t? \n\nIf the cash flow is not attractive then sounds like you are just helping them finance their business.\n\nIf you like the area and think it\u2019s an asset you\u2019d want to own if/when this family business leaves then that\u2019s a different story.", "replies": [], "depth": 1}, {"id": "if50jv9", "text": "I\u2019d much rather invest in a growing market. Population increases. Rents going up. Little replacement properties being built. Infill location etc. \n\nA couple of guys are doing direct LLC buying an industrial property in DFW 5.5 acres. For $2.4m. Lot more upside plus it\u2019s currently occupied for day 1 cash flow.", "replies": [], "depth": 1}, {"id": "if50oda", "text": "Generally speaking, what are the other opportunities you have to deploy the capital? I think a comparison is easier when you put it in that context.\n\nWhat\u2019s the value of the shopping center after they occupy it? That delta will be your equity appreciation. Do you think you\u2019ll be able to refinance after that, perhaps pull some chips off the table in a tax advantaged way? \n\nAlso, When would you exit? \n\nI would imagine that\u2019s the simplest way to frame the deal to think about your entrance capital vs your exit capital.", "replies": [], "depth": 1}, {"id": "if52fy9", "text": "300k in small town id pass alot of times you cant sell for much more then what you bought it for", "replies": [], "depth": 1}, {"id": "if53p20", "text": "This is all very dependent on the specifics of the deal.  However, I would be very careful with the conflict of interest inherent in the other partners also controlling the tenant:\n\n&amp;#x200B;\n\n1.  Would they pay market rent?  There's a lot of incentive for them to underpay.  What leverage do you have that the rent is fair?\n2. If there's any conflict with the tenants, would the LLC's management take the steps to maximize value for the LLC or would they be inclined to help the business?  EG, suppose there's a COVID-like shutdown and that business is unable to make rent; would the other LLC partners make the LLC forgive back rent?  If that business is struggling, would they make the LLC lower rent instead of evicting that tenant and leasing it out to someone else economically better?  \n3. If you wish to sell, the other partners may also be unwilling to sell as well as that may imperil their family business.\n\nSo, by entering this deal you're automatically at a disadvantage to the other partners.  Now it's entirely possible that they'll be completely fair and none of the issues above will come up.  But a lot of fairness is in the eye of the beholder ...  I'd ask myself exactly what's so compelling about this deal to make up for the potential problems.", "replies": [{"id": "if55xqu", "text": "To expand on this, the property is going to lose foot traffic from losing the grocery store. It is unlikely the other businesses will make for the loss in traffic. This could drive away other existing tenants.\n\nAnother component missing is the age of the property and deferred maintenance. This property could quickly slide into becoming a run down Class C retail center. With no loan on the property means no bank forcing the owners to hold escrows and do annual repair work.\n\nThis just sounds like a bad deal with no ability to easily sell out in the future. If OP was majority owner and managing member of the real estate then this could be much better deal.", "replies": [{"id": "if65ha1", "text": "Please listen to u/vulcanminds1, our wise and logical pointy-eared friend.  There is nothing more depressing than an old shopping center that has lost its grocery anchor.  The repairs/maintenance costs of an old center will very quickly suck up all available cash flow.    \n\nAnd what about that business plan of providing tenant space to family members?  What could possibly go wrong?  As u/bsdfish so smartly points out it is going to be interesting when it is time to evict the sister-in-law Becky whose scented candle business has just failed.  \n\nRetail is deader than disco.  Please take your hard-earned $300,000 and find a much better investment.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "if5a5ka", "text": "Partners found a bag holder. They get spaces for their business, which you are not a part of, so they can pay rent to themselves. \n\nWould you feel comfortable loaning these people money? Cause I may take a debt play, 300k loan at 12% for 5 years, rather than an equity play, big ass useless building in Hicksville where nobody wants to be.", "replies": [], "depth": 1}, {"id": "if5bt8q", "text": "What is the family business? Backfilling a grocery store with a family business that isn\u2019t a recognizable brand name to anchor the centre sounds like a recipe for disaster.", "replies": [], "depth": 1}, {"id": "if64t2g", "text": "Run", "replies": [], "depth": 1}, {"id": "if6f03t", "text": "Why would the family business partner with you rather than use SBA 504 loan to purchase the real estate for their business?\n\nWhy would you partner with the family business rather than buy it with institutional financing?", "replies": [], "depth": 1}, {"id": "if6fac3", "text": "I don\u2019t like leaving huge comments but as a broker/owner I can say a few quick points:\n1. Partners suck most of the time\n2. Your deal sounds risky and prone to market volatility.\n3. You don\u2019t sound confident in this investment, probably means you shouldn\u2019t go for it.", "replies": [], "depth": 1}, {"id": "if87s36", "text": "Retail wouldn\u2019t be where I would be placing capital in the current market.", "replies": [], "depth": 1}, {"id": "if8w3o0", "text": "What\u2019s the history of the property? These centers can have a lot of changeover, it\u2019s just part of the business. A good investment has been able to weather the changeover and find new tenants without big problems. A bad one might be too close to that successful property and lags behind the higher rent location by months or years of vacancies. A good connection with local CRE is key here.", "replies": [], "depth": 1}]