Buying an office unit

General Real Estate Investing
1

Recently I come across a seller who wants to sell his 900 sq feet Condo office in a building, He was using it for his own business.

so I’ve done some research

The building is in good condition.

the area vacancy for office is 6% to 9%.

The maintenance fee is $151 x 12 = $1800

the market rent is $1200 + utilities x 12 = 14,400

it looks pretty simple from the surface, so assume 10% vacancy I should expect $13000 gross rent, subtract maintenance fees let’s say I should get $11,000 net rent right?

of course nothing is always as simple as it looks, so what am i missing? What other cost should I consider?

If I offer $110,000 that would give me 10% return. It’s not deal of the century but I’d still consider it a good income property to hold. Residential property in my area won’t ever get this return.

2

Recently I come across a seller who wants to sell his 900 sq feet Condo office in a building, He was using it for his own business.

The building is in good condition…good is a descriptive adjective, how about structual, electrical, HVAC, parking, roof, fire preotection, janitorial, garbage collections, etc.?

the area vacancy for office is 6% to 9%…is this with good sound almost credit worthy tenants or mom and pop?

The maintenance fee is $151 x 12 = $1800…this will continue regardless of your vacancy factor. Hard to believe that 151 per month will cover all the expenses of the building. How many units? How much can this rise per year? You are at the mercy of the majority of the owners and only have one vote about anything. who takes care of the roof, taxes, insurance?

Do I NOT like condo/hoa/co-op, associations…yes…been in them.

the market rent is $1200 + utilities x 12 = 14,400…If this be the case why is the previous owner not renting instead of sellint…does the HOA or Condo rules say “OWNER OCCUPIED ONLY”?

it looks pretty simple from the surface, so assume 10% vacancy I should expect $13000 gross rent, subtract maintenance fees let’s say I should get $11,000 net rent right? …MAYBE, under the best of dontitions this is OK.

of course nothing is always as simple as it looks, so what am i missing? What other cost should I consider?..Like I said above, what type of area?

If I offer $110,000 that would give me 10% return. It’s not deal of the century but I’d still consider it a good income property to hold. Residential property in my area won’t ever get this return

3

Hi thanks for the reply and all the suggestions.

Let’s see,

  1. the building is in great shape. It’s managed very well and in a good area.
  2. The maintenance fee is very low for the area and that’s what caught my attention in the first place. It’s been 8 years only and the maintenance cost has stayed low.
  3. The owner needs to buy a house, that’s why he needs capital out. I don’t know if he had listed this for sale before. He is also retiring in 4 months so he is also ok with long term lease if someone can pay him 1 year full rent upfront so he can buy the house.
  4. The 6-9% vacancy is market report for all offices in the general area. I do not know the exact figure for this type of office, the building is currently 95% occupied, but has 3 much larger units for sale.

oh of course i forgot about tax and insurance…that’s another $1500