I just got a call from an LLC who ended up with a Self-Storage Facility through foreclosure. The facility has not been open in several months - perhaps years but is in overall good shape in a great location. I asked why they were selling and he said they were the original lender to a Doctor who never got the proper insurance and didn’t have good management to run it so they eventually foreclosed.
The facility has 144 non-climate controlled units plus some car parking room, units are in varying sizes from 5x10, 10x10 and 10x20, all concrete paving, good lighting, access on two roads - one highway feeder and within spitting distance of two large apartments complexes. He says it was cash flowing between 5 - 7k/month. They will take ‘considerably less’ than the $365k they have in it currently to get it off their books but will only do owner financing with 50% down. Taxes are $5223 for schools, etc and $1382 for County on a CAD value of $217,105. CAD is showing 63856 sq. ft of storage space.
They are asking for a final offer so as to not waste their time - they’ve had some low ball offers already but he wouldn’t say what they were. Any idea of where I should make an offer on this one? I really just plan to wholesale it but could end owning it if I can get the right money partner(s). Thanks!
There is very little wholesaling of commercial property in spite of what you may here from time to time! I buy a lot of commercial property however I will not look at properties being promoted, and certainly will not buy from someone other than the principles or managing partner / officers or directors of a corporate entity. This does not mean we don't talk to commercial brokerages or investment advisors dealing in commercial real estate.
The reason commercial property is not wholesaled is that commercial property is bought and paid for according to cap rate’s (Income and Expense) and the 50 / 50 rule basically applies. The very first thing you do is forensically rebuild your income according to unit size and market rental averages for your area, come up with gross possible income, then re-adjust for vacancy factor for your area. (Storage vacancies averages)
Then go through and figure all your expenses including:
Taxes
Property Insurance
Business Insurance (Storage Business Insurance)
Management
Utilities
Legal
Advertising
Property Maintence
Landscaping Maintence
Snow Removal?
Long Term Replacement Reserve’s
Office Supplies
Internet, Phone & Fax Services
These item’s may actually cost more than 50% of revenue, the left over dollars equate to ability to handle debt service and the most value this property will ever have according to income and expense (For current market rent’s), then figure out what the commercial cost of money is for storage unit’s and factor in cash on cash returns for an investor and you have got this retail value figure. Your debt service dollars should equate to your area’s market cap rate for commercial storage facilities and show value at NOI X Cap Rate = Value? (Theoretically depending on market strength)
Now since this property is vacant you can expect a good deal since it needs to be rented up, however the full asking price of $365k may be a good deal depending on these numbers, in fact if square footage is correct the $365k price is less than the price to build or replace this, however you won’t know until you put together and project your numbers.
And in the case of this property you may be able to make a little assignment fee to move it to an end buyer just because it’s currently empty! Transactional funding does not exist for commercial property transactions and the new owners will have to carry all the cost’s and expenses out of pocket until the property is rented up!
Most of the time when buying a commercial property there will be agent between the seller and buyer the reason for this is to vet the buyer so no one time is wasted.
Thanks GoldRiver et al!
I’ve been doing due diligence on the property with the criteria you listed, also working through Scott Meyers course and materials, and this looks like an even better deal now! They just opened a new Class A apartment complex less than a mile away and another Class C complex is being upgraded that is on the same block. Plus it looks like I might be able to add a Billboard to the site as it is now on an upgraded highway.
I went and inspected the property last weekend and am now going to get a commercial broker to help negotiate the deal for me. I think I also might have some private money lined up as the LLC will only finance 50% of the purchase price. Since it’s not currently open I’m trying to get them to at least do six months of interest only until I can get the place cashflowing.
Wish me luck and if anyone is interested in partnering, let me know!