Small building approach

Hey all, new guy.

I’m looking to make a move on a small, three floor commercial property. The type you see sandwiched together when driving through a small suburban town. I’d have to finance part of the buy.

Overall the building is in good condition and was nicely refurbed 7 years ago. The tenant rents the entire building (basement/street/upper) and has been in place for about 8 years, triple net lease. There is little over a year left on this current lease.

This is the worksheet:

$250,000 cost
$75,000 30% down payment

$175,000 finance
$5,600 taxes
$1,200 insurance (wild ass guess)

$1,825 PITI (amortized 20 years @ 6%)

$2,000 /month rent
$467 triple net lease
$100 /triple net lease

$2,567 inbound monthly.

$742 +/- positive cash per month.

Toss me a bone,


Something is not right.

If you have a TRUE NNN (Triple Net Lease) taxes and insurance are paid by the tenatn as part of the NNN lease.

Bill H,

Thanks for the reply.

Perhaps I described the scenario incorrectly. The lease is triple net.

Simplified, I’d be responsible for

$1,253.75 per month PI (amortized 20 years @ 6%)

The tenant pays

$2,000.00 per month in rent.

Positive cash flow is $746.25.

Do not mean to be negative. But there are lots of other things I would have to consider before I got interested in this deal.

Remember if your tenant leaves…you have 100 percent vacancy factor. If if he is late you have 100 percent late rent.

The cash flow of 742 per month will not carry the 1275 mortgage. What is your game plan to cover in event things go wrong.

What is the credit rating for this tenant? Is he credit worthy? Do you know what this term means?

investigate BEFORE YOU invest!

Bill H,

Thanks for the comments and keep them coming regardless of negativity. Business is business. :slight_smile: And of course the future is unpredictable.

Sure, I understand I’m on the hook for the entire mortgage if the tenant leaves. As far as I’m aware, the tenant has been there for seven/eight years and doesn’t want to move out. There’s like 16 months left on the current lease. (I’ll need to confirm this information of course.)

If the tenant moves out I’ll need to find a new tenant. This is one of those three floor buildings in a town’s downtown area. If this tenant moves out I may possibly break-up the space and convert the third floor back to a loft apartment. The space has a kitchen, bath, etc. so the convert back shouldn’t cost much. Loft apartments in this town rent for about $1,000 a month. I’d rent the street level and basement to other tenants – there aren’t any vacant storefronts. If worse comes to worse, I have reserves in the bank to carry through any period of being tenantless. And could perhaps move into the third floor apartment.

How much are you guys getting for returns on your buildings?

At this time I’m not sure of the tenant’s credit rating. As I mentioned I’ll have to finance some of the price. With financing in mind I setup an appointment with a banker for next week. I spoke to his lackey yesterday and the bank will be asking for the financials of the building’s seller for sure. The banker may also ask for the tenant’s financials. I’ll know more next week. The listing agent has said this information can be provided.

“investigate BEFORE YOU invest!”

Yep. I’m in the beginning stages of the process and am hiring a lawyer (who’s also an RE broker) to see me through this project as well. So as far as resources go, I’ll have the lawyer, banker, myself and this board.


I totally agree about “investigate BEFORE YOU invest!”. And by the way good luck :slight_smile:

Hey all,

Does the description I provided seem like a good deal?? I ask here because you investors are impartial. The people I’m working with - a lawyer, banker, RE agent and seller - all want my money. The day after closing if it turns out I got screwed, they’ll walk off whistling.

I’ll offer less if I have too in order for this to be a good deal. And not afraid to walk-away.

What kind of returns are you investors getting on your buildings?

Thanks for all comments/incite.

After discussion with the bank I’m in the process of acquiring data.

What is the monthly cash flow? Will it carry the debt at 1.25 times?

Who are the tenants, what are the terms of their leases? Are the tenants financially sound?

How many other buildings/space for rent is available?

What time and financial commitment will this take/absentee owner?

What capital improvements will the building need over the next 5 years? (furnaces, air conditioners, roof, electrical, etc.)