Hi:I am new to real estate investing and need some professional help or ideas to create some cash flow and equity. I have an opportunity to acquire a commercial property in a small town. Asking price is 250,000.It is 3 units;a barber shop, a clothing store, and a residential apartment. The owner(my barber) has indicated his intention is to pay off his house mortgage (180,000 or 1500 per month payment) with the proceeds of the sale. The apartment rents for 700 and the other tenants (barber and barbers wife)would like to stay and carry on their businesses. The taxes are about 4800 per year and insurance is about 1200 per year. I would hope to pass on utility costs to the tenants. I have some ideas and I have asked some others what to offer but have not been satisfied with their input and so I am trying out this forum as I have realized recently that there are some great things happening here. WHAT TO DO?
Dewey,
This is little more complicated than a simple commercial building or a simple SFH rental. Additionally, you did not provide sufficient information in your post.
What are the gross rents for the commercial units?
What kind of leases do the commercial tenants have? Do they have a residential type lease where the owner pays taxes, insurance, maintenance or do they have a NNN lease. “Hoping” to do anything is irrelevant. Who do the leases say will pay for the lease? How long have the commercial tenants been in the building? How is the demand for commercial space in your city?
We need the answers if you want an intelligent answer.
Good Luck,
Mike
Mike: Thanks for replying. There are no leases in place and would have to be new. This would have to be part of the offer to purchase I think i.e. the purchase would be conditional on the seller agreeing to lease back the two units.The gross rents for the commercial units are not set because the current owners occupy both units and they do not pay rent to themselves. Since they would like to stay and rent the units, the rents are negotiable. Market rents are about 600-700 each.The taxes, insurance and maintenance I would pay and I would get the tenants to pay the utilities. The barber has been in the building for about 30 years and his wife has operated the clothing boutique for about 5 years. They just want to be motgage free on their home and not have to worry about ownership of the commercial building (including having the hassles involved with renting out the residential unit). If the owner takes all cash he would pay more taxes than if he would take a payment. He does need to pay off the real estate commissions and selling expenses when he sells (about 20000). I am thinking that this could be a win win situation but am not experienced enough to know what is the best way to proceed with a creative offer. I hope this is enough information for you to suggest something.
Are you saying each of the commercial spaces should only rent for 600-700? If that is correct, I would just move on. I don’t see how you would get a positive cash flow w/o getting the price dropped A LOT! I take it the property is already listed through a realtor. Only advice I can give is to look elsewhere for deals. If it was that great of a deal, it would not be on the market anymore(and the realtor probably would have bought it or called an investor).
I’m a newb too, so my opinions shouldn’t be taken too seriously. Just thought I’d give my opinion. Good luck with your future hunting 
Dewey,
This looks like a real loser to me. With you paying all the expenses, this is basically a residential deal with all the downside risk of commercial. This property is certainly not a good deal at $250,000 and personally I wouldn’t even consider it for more than $105,000.
Good Luck,
Mike