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I am back again with another question about a commercial building....
I am currently looking at a former Board of Education building. It is being sold by the BOE so any offers must be approved by the board.
Here are the specifics:
The building has been empty since last March.
They have had 5 offers the highest being $40,000. They were all turned down by the board.
It was built in 1924
It was appraised at $75,000.
It needs a new roof and although the heating and air conditioning are in working condition they are old and need to be replaced. Other than that it appears to be pretty solid but will obviously need to be inspected.
They claim they do not have a specific asking price but are accepting all reasonable offers. They realize that work needs to be done on the building so they won't get the appraisal value.
Although, they aren't asking for a specific number they are definitely working from the appraisal value as that is why the other offers were turned down.
The BOE is selling it themselves so I am not sure that they would be willing to work with a buyer's agent but they might be. Unfortunately, from what I have seen on some of the local real estate sites they don't seem to be as ummm sophisticated as some of the people on these boards so I am not sure that would even help my case.
Currently, I am in the process of getting an estimate to put on a new roof and replace the heating and cooling units. The best ball park figure I have right now for those costs is somewhere between $20,000 -
$30,000. The building is about 5,000 square feet not including a full basement. It sits on a 16,000 square foot lot that includes a private parking lot.
I also think it would be prudent to get a second appraisal.
Apparently, it seems clear that the offer would need to be above $40,000 or they just won't accept it but I won't go over $50,000 due to the extensive repairs need on the building.
Any advice on the best way to approach making an offer? I feel like the more information I give the board on the costs involved for the repairs the likelier they are to accept the offer.
Make sure you have an exit strategy; that is, what you are going to do with the building yourself, or how are you going to sell it. Before buying any investment property you must know how you will dispose of it when things begin to go wrong.
You need to know what the building is worth to you and to your buyer if you sell it tomorrow or 5 years from now; how much you'll be able to rent it for, and who you'll rent it to.
You need to have a commercial lease available and know how to negotiate a commercial lease to make sure you're protected, if you plan to lease it out.
What is the cap rate on the building after repairs and using the rent you can conservatively expect, and the expenses, including management fees (even if you'll be managing the building-you need to include that). What is the cap rate on similar buildings in the area?
The people that can help you answer these questions are commercial agents that have a lot of experience in your local commercial market. Not an agent that occasionally does a commercial deal, but one who specializes only in the commercial market, in your area.
"The people that can help you answer these questions are commercial agents that have a lot of experience in your local commercial market. Not an agent that occasionally does a commercial deal, but one who specializes only in the commercial market, in your area."
That is sort of my predicament. There just are not many commercial transactions that happen in the area. This is a small, rural town in Kansas. The real estate agent's sites don't even have many (if any) commercial listings. The ones that do are mainly for land. Many of the commercial buildings in town have been owned by the same people for years. There just isn't a lot of inventory.
My parent's over the years have purchased several commercial buildings (in town) and none of those transactions were done with agents. It seems that when I find out something is available it is always FSBO, unless the person who owns it happens to be from out of town and can't manage the transaction. Of course, my parent's transactions were slightly more straight forward but they, at least, have some experience.
I am not going to lease out the building. I have plans for it and am working on a business plan. I also plan to live on the top floor and have already read through the zoning laws and it appears to not be an issue. This will be my only debt.... I don't have a mortgage on a house.
I understand that an exit strategy is needed but considering I am paying less for this (with repairs included) than most people pay for their homes I am not overly concerned about getting in over my head... I could be wrong.
My business plan will include an exit strategy.
It sounds like you know exactly what you'll be doing with the building; living in it and doing something on the ground level floor, so you've got those bases covered. It also sounds like you're quite capable of working the deal through by yourself and don't need an agent.
It may help if you get another appraisal because it may come in lower. Explain the situation to the appraiser, and point out the problems.
If you can make your offer contingent on an inspection then that will help you in case other problems are found. Otherwise you may wish to get permission to have your inspection made before. Then you will have the inspection report to use as a negotiating tool.
You know your bottom line is $50k, so the inspection and appraisal will tell you if that is ok or if you should lower it.
Since the highest bids are $40k then you may be able to get it at 45k by using the inspection report to show the issues.
My strategy was pretty much what you outlined I just needed a little affirmation.
I know what I can swing... so if they aren't willing or can't come down to that then I will just walk.
It would be a pretty neat place to own though. Before it was the BOE building it was the telephone office. My grandmother and two aunts worked there as young women.
If this one doesn't work out then I am on to the next!
My strategy was pretty much what you outlined I just needed a little affirmation.
I know what I can swing... so if they aren't willing or can't come down to that then I will just walk.
It would be a pretty neat place to own though. Before it was the BOE building it was the telephone office. My grandmother and two aunts worked there as young women.
If this one doesn't work out then I am on to the next!
I hope you can get it because of the history and especially the personal family history.
The house I was born in is still standing in Dickson TN. A family owns that and quite a few acres around there. My father and mother met on the property at a spring (where drinking water is collected). It was a local hangout for the farm kids. My maternal grandparents owned the home, and my parents lived there for awhile. I would love to have the discretionary income just to buy the place and rent it back at a bargain to the owner. If I get to that position I plan to try.
Keep us informed. We would be happy to hear your success story.
arkcitynative, when you present your offer I think it would be good to let the board know about your business plans. Since you plan to live and work in the same building you are fully committing to this space. Your choice of business could be something that the board would like to see in their town. So many small towns are losing businesses or lacking interesting ones. As a working artist I have considered an arrangement where I live above my work space - I know I would let someone know what I had to offer the community if I were in your situation.
arkcitynative, when you present your offer I think it would be good to let the board know about your business plans. Since you plan to live and work in the same building you are fully committing to this space. Your choice of business could be something that the board would like to see in their town. So many small towns are losing businesses or lacking interesting ones. As a working artist I have considered an arrangement where I live above my work space - I know I would let someone know what I had to offer the community if I were in your situation.
Clay Lady makes excellent points that will help you. And that reminds me of another point to add.
Do inform them of the historical and family importance of that building to you. They will appreciate that the building has that intrinsic value to you. Possibly you could make some sort of plan to commemorate the family members in some way that would make the building interesting to the town. Others also have family members who worked there and perhaps you could gather many names and have them on a plaque on the outside of the building. The townspeople would love to see their family member names on a plaque. It could sway them to accept your bid over another bid that they may receive at or very close to your bid.
I am thinking a coffee/shop cafe so those ideas could easily be incorporated. In fact, they used to take portraits of you when you worked there and I am hoping my grandmother still has hers because it would be awesome!
The really neat thing about the building is the parking lot. Apparently, the city does not allow you to have seating on the sidewalk... bummer. However, this lot is large and because it is just off the main street we would have space on both the side and the front for outdoor eating space. There isn't anything in town like that!
Clay Lady- I was just talking on a blog about the town and how neat it would be to create a little artist's community. There are plenty of buildings in the downtown area that could be live/work space.
The one potential snag is that we may not be to sale wine/beer because there is a church on across and down the street. I read through the city ordinances and it said 300 feet from the shortest available route. It is pretty ambiguous for obvious reasons but that isn't a deal breaker anyway.
I'm excited for you. I can see everyone in town coming in sitting around in comfortable chairs with all the nostalgia.
There is a coffee house near me that is a chain competing with you know who, and I really like the place. It has more comfortable chairs than the normal other brand and he has a jazz/blues theme with large painted photos of Billie Holiday and other jazz and some blues greats. I love to sit there and look at those paintings.
Keep us informed.
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Thanks~
