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The deal is still available. I was able to get an extension over the weekend.
The building has over $111,000 in rents per year.
All leases will be renegotiated, two units are combining into one unit, leaving an empty space for a new business.
The yearly rents will be much higher than the current $111,000.
The current tenants have asked to stay.
This is a well built building with new HVAC units installed last year.
A good deal at close to a 20% price reduction and tennants expecting new lease agreements, which should add about $15,000+/- to the current rents of $111,000+.
Thanks, RonI would consider a partnership or a loan in 2nd position to purchase the building.
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Ron, I have some thoughts for you that you may not enjoy hearing. Just as happened in the national economic downturn (circa 2008+) when many commercial investors in Las Vegas (and elsewhere) took a horrendous financial bath, the vulture capitalists on Wall Street are positioning to scoop up the pieces of several years ahead of us worth of collapsed commercial real estate deals. To play fast and loose with analogies, there is something very creepy about sailing into an incoming tsunami wave that one can see, even at a great distance.Let me mention that while the Cash Flow Depot focus has been on minimizing risk on residential deals, that same sense of minimizing risk can serve one well on the commercial side. While Cash Flow Depot only teaches master leasing for residential property, that is actually a very rare specialty on the residential side. Master leasing originated many decades ago on the commercial side (where it has its own quirks to learn). Let me suggest that while you probably don’t have the time for this Las Vegas deal to seek out a commercial properties master leasing instructor (they really do exist), if the commercial side is where your heart is, then it’s vastly safer to learn how to do commercial master leasing deals than to sail into the earliest financial tsunami. And commercial master leasing doesn’t take long to learn.
There is a reason why commercial lending banks insist on heavy collateral for such deals. When a major downturn is triggered by the Federal Reserve, the banking regulators swoop down on the commercial banks and demand that they increase their cash reserves. In the 2008 crash, I saw one Texas commercial lender’s entire staff replaced with a new crew fixated on foreclosing on as many commercial borrowers as possible, even to the extent of filing fraudulent foreclosure actions in court. The long term Arlington, Texas property developer with a perfect payment record (who I knew) had to spend $100,000 in legal defense fees to stave off FOUR sequential fraudulent foreclosure filings — that’s how desperate that commercial bank was to foreclose, and sell off the collateral, during that economic crash. Understandably, that property developer said he never ever wanted to borrow money for the rest of his lifetime from any federally regulated bank.
I met a lady a few years back whose family put up a section of prime land in Arizona as collateral for a high rise Las Vegas construction project. When the crash tanked that family’s finances, the bank was all too happy to take that entire section of land. When I talked with her, I asked if she had any knowledge of how business cycles are created, pumped up, and then bubble-destroyed on a predictably tragic schedule by the Federal Reserve. She didn’t show any awareness of that, but remarked (in a terrible case of denial) that if investors worried about such things, they’d never get any projects done. She clearly valued “action” over wise due diligence and prudent risk avoidance.
You didn’t discuss if you know why the owner(s) are wanting to sell (and some times, sellers play very fast and loose with the truth about such things). Are they looking to bail out, seeing the same economic downturn on the horizon that countless long term economy watchers are also seeing? Are they hoping you’ll provide them a life-vest in exchange for a heavy anchor for you?
In any event, I wish you the best of success with your prudent decision making.
–Dee
Ron,
As a 16 year resident of Las Vegas, I know the town. I’ve seen the bubble and the crash.
There is an old Chinese phrase / curse: “May you live in interesting times”
Those WERE interesting times.Dee has a point. Or 2, or 3. Las Vegas has been ground zero for hedge funds during the last downturn. That is likely to repeat. No reason it wouldn’t if the local economy turns south again.
There are 5 things I look at in a commercial deal to see if there is a reason to move forward.
1. current NOI
2. pro-forma NOI
3. current debt structure
4. sources and uses of funds
5. exit strategyThere is much to cover in each of the previous 5 items. I’d be happy to discuss them for your benefit and the benefit of the group.
Reason for discussing them: Jackie and the others have been SO helpful to me over the years.While I don’t know the price or terms of this deal, if we had the above 5 points, we could see if its worth our time (and $$)
BTW, if the cap rate is under 10, don’t even bother collecting the 5 points.
If you are reading this and don’t know what cap rate means, you are not prepared for this deal.I just saved you and I lots of time and $$.
Keep us posted,
Mike Weiss
Hey Mike and Dee. Thanks for your input. I had the same email conversation with Ron last week. I don’t think the 19% discount off retail is enough to get anyone interested. And when (not if) there is another real estate downtown, that property could be worth 50% less overnight. I also explained that a master lease would be a safer way to go for sure.
But back to single family houses. One of the reasons we encourage investing in single family houses at CashFlowDepot is because you can spread the risk around versus putting all your eggs in one basket.
Yes, this commercial property has a $9300 a month cash flow with the potential for even more. But it is all in ONE property. If it goes under, so does all that cash flow. And remember that the $9300 is BEFORE debt service. The actual cash flow would be substantially less. As we see more cracks in the market, some of those businesses who are renting now could cancel their lease. Then you’ll have more vacancies. To fill them faster, you may need to reduce the rent which would further reduce your cash flow but hopefully keep it above your debt service. Too much risks.
If you had just six houses renting for $1500 a month, you could get the same cash flow. If you master lease these houses you can reduce your risks and exposure to a potential down turn in the real estate markets. If you bought the houses subject-to the mortgage or with seller financing, then you never have to go looking for lenders or partners with money.
If I had a choice between buying a commercial property at 20% below market for cash (or getting a loan) OR buying six rental properties subject-to the mortgage or with seller financing, I’d pick the latter in a heart beat.
If you could get this commercial property at 50% below current retail and the seller were willing to financing with zero down and no or very low interest rate, I would still pass in the current market conditions.
People will always need a place to live. That’s why single family houses are such an attractive investment vehicle.
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