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Re: Commercial Real Estate
Old 12-23-2006, 05:26 PM   #21
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Re: Commercial Real Estate

Do you manage the properties yourself? How much work is it?
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Re: Commercial Real Estate
Old 12-23-2006, 06:08 PM   #22
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Re: Commercial Real Estate

I manage them myself, with the help of my sister and borther in law, who I pay a small sum (less than a property manager). I may reassess that once I retire, but while working full time I find I need the security of a back-up. Honestly, there hasn't been much to deal with. We had some grafitti on a couple of doors, we had a roof leak and had to call someone out for that. We had to arrange for lawn care and snow removal. My strategy is to buy newer buildings (you may sacrifice some potential profit margin) to minimize maintenance issues.

I got a list of recommended contractors from my agent, and we use the phone book and get estimates. That's where my sister comes in. She runs all that down for me.

One of the buildings is true triple net, and I spend about 30 minutes a month transfering funds and reconciling payments with expenses.

From what I've seen, a property manager will charge about 5% of the gross lease amount, which really cuts into the profit margin at the beginning. I may re-look at this down the road once I start having some vacancies. As I get deeper into this, I can forsee that I will have to learn something about dealing with contractors and building out office/retail space to suit new tenants as I get some turn over. That's a challenge, but I'm amazed how much I've learned over the last 2 years and how much more comfortable with it I am as I review each new potential deal.
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Re: Commercial Real Estate
Old 12-24-2006, 03:46 AM   #23
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Re: Commercial Real Estate

Quote:
Originally Posted by Tracy42

The first stip center we did was a smaller one. 3 tenants, $450K purchase price with $67,500 down.
Tracy, I'm impressed by the leverage you take, of course when everything goes on well it is a good way to fasten growth. I usually invest a down payment of 50% and only invest in commercial properties (downtown city shops, hotel, warehouses and the like).

Commercial RE is the best investment I know, but of course you need to know the market you invest in and the prospective demography of the place (among other things).

Nevertheless, as with investing in stocks, you need to be prepared to when things go astray. For example, over the last 4 years I had in the same warehouse (1000 square meters) two tenants that went belly up. The last bankruptcy this year (April) was the most painful. It took me 6 months and going to court to get back my keys (as the assets were auctioned in the meantime), 35.000 of rents lost over the six months, 90 tons (yes tons) of garbage left behind the production of curtain walls (what the tenant manufactured) and to remove, plus all the chemicals so hard to get rid of (polymers, resins, liquid latex, unkown stuff stinking acid, aceton and the like ?), etc. plus 6000 of local taxes on the property left vacant. I had to clean everything, to repaint the facade, still welded yesterday "calendrite" to patch holes on the huge roof, will remove large stacks of clays that deposited and clogged the evacuation system of the roof today, etc...

Still empty, nine months after the last check, no income since only expenditures + lawyers. Hopefully, when I ERed, I paid down all mortgages to sleep well, so it does not cost me more than the loss of income, the lawyers (to no avail so far), the local taxes + tax on wealth (hate that one) !

Fortunately, I just had one on the several properties I own which ditched at a given time.

Commercial RE is great, but take care, it can also go wrong :-)
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Re: Commercial Real Estate
Old 12-24-2006, 12:38 PM   #24
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Re: Commercial Real Estate

Quote:
Originally Posted by brewer12345
Tracy, how did you find the strip mall to invest in? As the pile grows, I become increasingly interested in commercial real estate, but I've no idea how to even find it.
I don't know how close you are to your firm's customers, but my BIL the CPA has learned a tremendous amount about businesses and investing from his customer's tax returns.

When he goes over their returns with them he asks a few tax-planning questions of his own. Almost everyone is happy to brag talk about it, and with their 1040s in hand it's pretty easy to determine who's credible and who's just boasting.

I'm thinking that I might find commercial REITs more profitable than going it on my own...
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Re: Commercial Real Estate
Old 12-24-2006, 08:56 PM   #25
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Re: Commercial Real Estate

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Originally Posted by Nords
I'm thinking that I might find commercial REITs more profitable than going it on my own...
Risk aside, I'll take a NNN over a REIT for profitability.
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Re: Commercial Real Estate
Old 12-25-2006, 09:23 PM   #26
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Re: Commercial Real Estate

Quote:
Originally Posted by poyet
Still empty, nine months after the last check, no income since only expenditures + lawyers. Hopefully, when I ERed, I paid down all mortgages to sleep well, so it does not cost me more than the loss of income, the lawyers (to no avail so far), the local taxes + tax on wealth (hate that one) !

Fortunately, I just had one on the several properties I own which ditched at a given time.

Commercial RE is great, but take care, it can also go wrong :-)
Ouch, I feel your pain! After hurricane Ivan, our rental condo sat open for about 18 months, and we were bleeding $2500 a month, not counting the assessments for insurance deductibles, rebuilding the outdoor swimming pool, and the like. In the end, we ended up doing OK when we sold, but it was not pretty for awhile there.

With our commercial properties, though, I try to limit our exposure by staying with multi-tenant strip centers. My agent has pitched several single tenant buildings, but I am leery of them, no matter how "credit worthy" the tenant appears. If I have 1 open space in my 3 unit building, I can still just about cover my mortgage with the other 2 lease payments. I can carry that for awhile. With a single tenant building if they default, it's all you.
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Re: Commercial Real Estate
Old 12-27-2006, 02:10 PM   #27
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Re: Commercial Real Estate

Quote:
Originally Posted by Tracy42

With our commercial properties, though, I try to limit our exposure by staying with multi-tenant strip centers. My agent has pitched several single tenant buildings, but I am leery of them, no matter how "credit worthy" the tenant appears. If I have 1 open space in my 3 unit building, I can still just about cover my mortgage with the other 2 lease payments. I can carry that for awhile. With a single tenant building if they default, it's all you.
Tracy, I have a three tenant commercial strip as well. A little over half of the space is occupied by our only "national credit tenant". The other two spaces are occupied by small local businesses. Overall the building has performed well and appreciated nicely.

We have had a number of headaches with the small tenants. Over the course of four and a half years, we've had five different tenants in the two smaller spaces... with some empty time in between occupancies. At one point I offered the big tenant a deal to reduce their cost per sf if they would expand and take over the neighboring empty space. The corporate office dediced against it.

Are your three tenants nationals or locals? Have you had similar issues with the smaller local businesses as tenants? I imagine it would be difficult to find a three tenant commercial property with three national credit tenants.
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Re: Commercial Real Estate
Old 12-27-2006, 05:28 PM   #28
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Re: Commercial Real Estate

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Originally Posted by califdreamer
We have had a number of headaches with the small tenants. Over the course of four and a half years, we've had five different tenants in the two smaller spaces... with some empty time in between occupancies. At one point I offered the big tenant a deal to reduce their cost per sf if they would expand and take over the neighboring empty space. The corporate office dediced against it.

Are your three tenants nationals or locals? Have you had similar issues with the smaller local businesses as tenants? I imagine it would be difficult to find a three tenant commercial property with three national credit tenants.
One national tenant, one independently owned franchise, and a local business. The local business has a 15 year lease (yes, 15 years!) and we are into year 6 of it. The franchise just renewed for their 1st 5 year option and (hopefully) the national tenant will exercise thier 5 year option to renew next year. That's the other thing that is good about this particular building is that the leases are staggered.

Our 7 tenant building is all local businesses, but so far so good. They are all on 3 or 5 year leases. There are a couple of franchises in it, but both are independently owned.

Do you own any other strip centers or just the one? Do you manage it (including leasing it out) yourself?
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Re: Commercial Real Estate
Old 12-29-2006, 04:36 PM   #29
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Re: Commercial Real Estate

Tracy, sounds like you're doing well with your properties.

This is the only strip center I own. All other properties past and present have been apartment buildings. I've become more comfortable with the retail building over time but I think I'm still more inclined to invest in multi-unit residential.

I manage the retail propty from a distance, which has been a bit of a disadvantage.
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