How much would you pay for this property?

Property type: Office/Warehouse, Total 8500 Sq Ft
900 sq. ft Office(Concrete finish, heat & Air), 4100 sq. ft shop area(cinder blocks, heated, 20ft high), 3500sq ft storage (Metal building, no heat/air).
Would be ideal for repair shop…exterminating business…construction…paint shop…

I’ve done a lot of calling around and rent per sq ft would be around $4.50/year. So here are the numbers:

Asking Price: $450K Thinking about offering $300K AS IS. Based on that:
Income: $3187/mo (@4.50/Sq. Ft.)
Insurance: $200/mo
Tax: $346/mo
Would like to do NNN lease, not sure how much to set aside for costs. $200/mo for expenses?
P&I (if I can do 20 years at %7.5, put 50K down) = $2013
Total Expenses: $2761
Cash Flow: $425?

What would your offer be?

It’s a loser. BIG TIME!

I have NEVER purchased a FINISHED commercial building. I BUILD them myself. For me to build a similar structure I would be looking at $125,000 just for the building. The land would have to come in around $125,000. (that’s a steal) for at total cost of $250,000.

For a new building like that in my market I would break it up into 4…1000 sq. ft. units usually 25’ wide by 40’ deep or 20’ x 50’. I get $1500/month for those for a total of $6000/month gross. That’s why I got out of residential rentals. A single family home that costs $250,000 rents for $1500/month :flush

What you have to do here is find out what type of space your market needs. In my market I do very well renting to small business owners like… electricians, mechanics, boat repair facilties, warehouse businesses, plumbers, ect. These guy’s are GREAT tenants, they pay on time and they really have a business interest in the property. A great location is HUGE to these folks.

Having said that I can tell you right now there is NO WAY your going to build a building for what I can. I’m not bragging here, I’ve been doing this for a while and have it down. I build the same building OVER and OVER. Concrete form guy’s love 'em because when we laid out the first one we put our heads together to make it easy on everyone. Same thing with my mason, he doesn’t even need a plan anymore. (we have them) Most of these buildings are concrete block, it costs more initally but there is virtually no upkeep. I recently purchased a metal building that went up like a breeze and looks great. It cost a lot less than block. The $125,000 number I gave you was for a metal building.

I’d walk away from this one. It’s a loser. If you have cash and can low ball the guy you might be able to break the building up into units and increase the rent. BIG open commercial buildings actually rent for less per sq. ft. than smaller ones because the market for that size building is relatively small. There are a LOT of people out there looking for 1000-2000 sq. ft. The nice thing about breaking these buildings up is if you have a guy who is willing to pay top dollar for your location but needs 2000 sq. ft. you just convert 2 units into 1. Just a thought.

Now on to that metal building on the property…This deal all depends on how much $$$$$$$$ you have to put into this deal. That metal buiding might be suitable for SELF STORAGE!!! You’ll need to check zoning, and get an idea of what self storage space rents for in your area. There will also be the expenses associated with converting that building into individual 5’ x 10’ and 10’x 10’ spaces. Figure out how many you can get in there and at what cost, what rent, and you may find at a reduced price this thing could put you over the top. Lot’s of leg work before though.


Many thanks for taking the time and answering my question. Not even you answered my question you provided ideas on how to potentially make this deal a potential prospect. I’ll research your suggestions and go from there. Just tell me one more thing…

How do you structure costs? That’s one thing I can’t figure out from calling around. When you put pencil to a deal how do you estimate your month to month costs and what sort of profit margin are you looking for?

Thanks a lot.


On the example you gave (4 units, 1000sq ft each)…are these offices or office/warehouses? You are making $18 sq ft for office/warehouse? At my location that would get you REALLY nice class A/B retail.

Here’s EXACTLY how I do this…

First thing I do is FIND A TENANT. Doing it any other way is just gambling. Most of the time potential tenants are actually coming to me to inquire about space. At that point we’ll sit down and discuss what their needs are. I may have a project either coming up or something I can reconfigure to accomidate their needs.

As far as the space itself…I have a nice mix. Some of it is used 100% for office space. I have a nice building that abutts another office building. My units were originally built by a specualtor who went broke. He built these units just for storage, and they looked like sh*t (dirt parking lot, no lighting). I purchased them and converted the space into very nice, clean, well lit, and EASILY accessable professional space. I have a CPA, a Lawyer and a Business Consultant in that building. The ONLY reason that worked was because I had an office building next door. If that same building (the one next to mine) was being used for auto repair there is no way in hell I get CPA’s and Lawyers in there.

As far as putting pen to paper…I buy the land with cash. That cash comes from buying and selling homes… single family starter homes. The land is purchased at steep discounts (usually 50% off.) It’s my price, or I DON’T BUY!
Now that we have a parcel, my homework should be already done as far as the needs in that area. I wouldn’t buy the lot otherwise. Then it’s just a matter of permits and talking to tenants who have already asked me about space. We’ll meet onsite and discuss what they want and what they need. I try to buy property in very visable areas. I’ve found that just BUILDING the structure will bring in potential tenants. I ALWAYS spend money for a very nice (BIG) sign with an Artists rendering of the finished building. It becomes a GIANT BILLBOARD for me. I KNOW in my market I can get $1200 to $1500/ month for 1000 to 1300 sq. ft. of commercial space. I never build smaller than 5 units/ building. These buildings are BOXES. Putting carpet over concrete and having a crew go in there and blow up steel stud walls and a dropped ceiling is not a major project. THAT IS THE ADVANTAGE. I can reconfigure these buildings to a tenants needs in a very short time period. Try that with a single family home.

I keep my fingers in the single family buy/sell business because it generates nice big chunks of cash. That gets rolled right into land purchases. BANKS LOVE THESE PROJECTS because the land is NOT part of the loan package.

You have to be VERY careful when you start throwing numbers around based on sq. ft. in commercial space. Let me give you an example. You have a beautiful building with space avaible on the second floor. There is no elevator in this property which you may think is not a big deal. Hey, it’s only one flight of stairs right??? WRONG. you just cut out half your potentail tenants RIGHT THERE. That space will not rent for the same sq. ft. amount as first floor space. Add to that your totally removing any type of business that needs to store things in their space. My Business consultant needed an overhead door for various props they use for presentations. If that space was on the second floor there would be nothing I could have done. My buildings are almost all 1 story so we just cut in a door for them and BOOM. 3 year triple net lease signed!! They’ve been there 6 years now.

So in a nut shell I can’t give you numbers to crunch. Every market is different and you need to get to know yours. I shouldn’t take long, just start out buy calling a realtor and tell them you want to look at some commercial space that is available FOR LEASE> Don’t tell them your doing research. Just get out there and look. A word of WARNING here…most of the stuff realtors will send you to look at is crap. That’s why THEY have it. Stop and ask at buildings that look like their in great locations. ask if you can get the owners contact info. Find out what they pay. My bet is the GOOD stuff is rented FULLY and that owner is getting top money for it!!!

As far as costs go…what do you want me to tell you??? I BUILD these thing MYSELF. Do you really think my numbers are going to be any where near numbers your looking at for exsisting commercial property??? There not. These numbers aren’t even close to what you could build out for. So I hesitate to put a number here because there is NO WAY they are going to be the same for you and me.

It’s like this…someone’s trying to buy a new home in a new developement. I’m the builder…enough said?
Do you think that buyer could build a new home for what the builder can??
So what are we comparing here?
If you want sq. ft. costs on my build outs I’ll give them to you. You won’t come near those numbers though. So what’s the point?

You said you’d like to do triple net leases. Well you better decide IF you can because I’ll tell you that with a triple net lease your expenses fall through the floor!! The question is… Can you get that space rented with a 3net?? I can’t answer that for you.


Once again a big THANK YOU! A great wealth of information here.

" It’s like this…someone’s trying to buy a new home in a new developement. I’m the builder…enough said?"

Yep! That says it all right there.

Is there any hope for a new guy in this game? I mean if the pros such as yourself operate on these sort of margins a new guy would not have a prayer getting into this game. The learning curve here is not a curve. IT’s a WALL! A lot of pros on this forum genuinely try to show newbies (like myself) the ropes but as in any business you really can’t learn until you roll up your sleeves and get your hands greasy. There’s no class for this sort of stuff…it is all school of hard knocks but it seems that unless you are a PRO you are destined to fail.

So…let’s back up a bit…what would you recommend as a first step property purchase for a guy who wants to get into commercial but does not have the efficiency and effectiveness of a pro like you (and don’t say…MOVE ON because I AIN’T)! :biggrin

I like the attitude!!!

This is the hardest thing for most residential investors to grasp.

There’s only 2 ways to get into commercial real estate…

  1. Start with a HUGE pile of money and just buy for appreciation. These types of people usually have other sources of income such as dividends of businesses and they just want a place to park a large sum of money were it won’t disappear one morning when they check their stock quotes. They put big money into these buildings and buy for a percentage return on their invested dollars. It takes DEEP pockets to do it this way.

  2. BUILD THEM!!! This is the only way I could have ever got into this.
    My first building was that burned out house I told you about. It was a nice tie-in for me because I was very comfortable with the costs associated with that type of rehab. The house was in a commercial zone so I converted the building from a single family home to what looked like an office building when it was finished. I use a lot of DRY-VIT on these projects. It can make a single family home look like a commercial building in about 1 week. (Check Dry-Vits web site for pictures) Great product. I worked for them as a field service rep for 3 years. LEARNED A LOT!!! I have also spent almost my entire adult life in the construction business. Everything from single family spec homes to $100 million Bridge projects that spanned a local bay. So I know I am coming at this with a lot more experience than the average investor, so bear with me if I make some assumptions that maybe I shouldn’t.

Another problem residential investors have breaking into commercial is they have NO EXPERIENCE when it comes to CHANGING the use of an exsisting building. If you buy and rent homes it’s cut and dried. It’s a home, you know what it will rent for, you know what the market is, and it has ONE USE. In commercial, a single building can have dozens of uses. The KEY to buying is actually exploiting those uses. I look for buildings that are zoned for as many uses as I can get. This opens up options for you as an investor. Remember me telling you to “find the tenant first” this is why. With these properties you can reconfigure them to suit a tenant. A single family home is a single family home. That’s it…DONE.

What you have to do starting out is this…First, how much CASH do you have? Notice I didn’t say funds. CASH is CASH. Funding can mean LOANS. You WILL need 6 figures in cash to do this. Now before you throw up your hands, 6 figures in cash is about 2 or 3 flipped homes. I would start there. Your going to learn estimating, scheduling, project management, and permiting processes, it a great education that should pay you NICELY. Take that money (if you don’t have 6 figures now) and THEN start looking for a SMALL property that you can CONVERT from it’s current use to something that will generate BETTER numbers. This is what makes commercial so difficult for new guy’s. It’s also the reason you see veteran residential investors move into commercial. They have paid their dues and learned the skills needed to do this by buying and selling homes. It’s not a giant leap to go from rehabbing 6 to 8 homes a year into rehabbing one commercial property. Most of your contractors will be completely capable of doing that type of work and you’ll find that commercial is actually EASIER to build out. Think about the bathrooms and kitchens in a home, they are the two most expensive rooms in a home. Now think about the bathrooms in a commercial building? A TOILET AND A SINK!!! NONE of my buildings have kitchens in them. The problem for residential investors is LEARNING to take a building and CHANGE it’s use. They have NO experience at this. It can be learned, YOU can do it. It’s not in a book somewhere like renting homes is. YOU HAVE TO DO IT or know someone who has.

You hit it on the head…this is a get in the trench, roll up your sleeves business. The only other way is to come in with millions of dollars and just buy something as a place to park that money. That system works, it’s done everyday. But…it’s like buying a Duesenburg or fine art. Your not making MONEY on it until you sell it and hopefully you picked the right item. I don’t have that kind of money so I build this stuff because it is INFINITELY less hassle than renting homes to MORONS.

Find that small building or home that you can CONVERT. You drive by this stuff everyday. My lawyer just purchased a small single family home (1800 sq. ft/ Cape) he converted it onto an office duplex. The front yard and back yard was paved over for parking, he used DRY VIT (your welcome Rich) and he has a beautiful commercial property that generates $1500 per SIDE. Show me a 1800 sq. ft. single family that you can rent for $3000/month triple net??? His costs on this thing were dirt, he got the home through a bank forseclosure. It WAS a single family home BUT the area was ZONED FOR BUSINESSS$$$$$$$$$$$!!!
A simple application to the zoning board to add in office use to that designation and BINGO,

OLE JED’S A MILLIONAIRE!! (well not really, but he’s not renting to maniac, loser, scumbags) TRIPLE NET BABY, TRIPLE NET!!!

I hope that helps you. Get out there an find the stuff that can be TURNED into commercial property and I think you’ll see the numbers start to add up!! But you WILL need cash reserves.

How much cash are you bringing to the table?? The answer to that question will help ME, help YOU.


This stuff is gold. Thanks for being so straight with all the advice.

I read your post this morning and when you talked about finding a property that its zoning can be changed it reminded me of a house that I’ve been driving by for couple of years that is next to a line of very nice offices. The house (a bit run down) is around the corner from an office strip and very separate from the neighborhood behind it. So I don’t think it would face a tough fight from the city to change its zoning. In many occasions I’ve thought to myself that this puppy is primed for rezoning (I’m sure I’m not the only one!) but never realized the importance of what I was thinking until I read your post. So at lunch I drove by the house, left a note in the mail box saying that if you are interested in selling call me. This weekend I’m going to look it up on the courthouse computers and see who owns it and write to them as well (in case it’s a rental).

My biggest regret is that I did not start real estate earlier. I’m in my late 40s and started owning residential about 10 years ago. Small quantities. I have a day job that pays well but all I think about is real estate (especially commercial). Unfortunately with a full time job I don’t have a lot of time driving around checking out prospects or meeting people (I do it during lunch hour and weekends). I go to Sheriff foreclosure sales but there’s so much money after so few choice properties that prices bid are getting ridiculous. As far as cash, I have around 80K cash but I have a kid in college and another getting ready to go. So I need a nice cushion and just in case the job situation gets uncertain. I have no car payment, no credit card balance, and in 4 months the house is paid off (that’s a milestone for me :bobble).

With your advice I have a better view of where I stand. I’m sure other people on this forum appreciate your candor and advice as well.
Thanks a lot.