Business Condo as an Investment?

[ExFlyBoy5]

Long story short, we have an investment property (single family home) that I picked up a few years ago quite cheap. I haven't had any real tenant issues as of yet and the return is decent. Odds are that in the near future, I will not live locally and trying to manage the property could be quite a pain.

Anyway, my DW has told me of a business condo (actually two) that are getting ready to come onto the market. They each have long term tenants (one lease is due for renewal end of 2017 and the other mid-2016) and are both being offered for sale at $140K each. The rents are $13.50/SF and $14.00/SF (respectfully) and each one is about 1,100 SF. Current lease rates in the same condo park are running @ $15.00/SF.

The current return on the SFH is in the neighborhood of 6.5% and my back of the napkin figures show I would return about 8.4% on the cheaper-rent office condo.

As it stands now, I don't want both. The DW (who is a R/E Broker) says we could sell our SFH in the neighborhood of $275K in a relatively short order. If we decided to do the office condo, it would be a cash deal for one or both.

I have heard lots of bad stories of HOA issues with condo HOMES, but just not real familiar with office condos.

It *seems* it would be easier to manage a business condo than a SFH from a distance. Also, I don't want to wait around and try to sell the house in a couple of years when the market could very well be down.

So...what say you?

 

[pb4uski]

While I would do neither, if you're going to do one or the other I would do the two business condos rather than the 1 single family home. Roughly the same investment... better return... and likely less hassles. Besides, if the lessee defaults, I suspect it is a lot easier to evict the business than the SFH.

 

[Chasing Retirement]

Office condo

I am a real estate broker also and have been down this road before. My situation was a retail condo, but I imagine it may have the same potential downfall. When the economy tanked, I lost my tenant and I never could rent it out again. It sat vacant for 3 years while I tried to get a tenant that could pay the amount of taxes and maintenance fees in rent. It never happened. I ended up selling it for half of what I paid. The thing I learned from my mistake is that people always need a place to live, but they don't necessarily need an office or store. It could be a great investment, but step carefully.

 

[ExFlyBoy5]

I am a real estate broker also and have been down this road before. My situation was a retail condo, but I imagine it may have the same potential downfall. When the economy tanked, I lost my tenant and I never could rent it out again. It sat vacant for 3 years while I tried to get a tenant that could pay the amount of taxes and maintenance fees in rent. It never happened. I ended up selling it for half of what I paid. The thing I learned from my mistake is that people always need a place to live, but they don't necessarily need an office or store. It could be a great investment, but step carefully.

Wow...3 years, that's pretty bad. The area is pretty good where it sits and none of the units have come up for sale in the last 18 months. It just so happens that the gentleman that owns them also has some SFHs that my DW manages. His wife died about a month ago, so he's looking at doing a "fire sale" and moving overseas somewhere. I know this sounds "scammy", but my DW has been managing his fairly large portfolio for about a year and 4 of his houses hit MLS this AM, so there must be some credence to his story. I am set up to have lunch with him tomorrow to go over some numbers.

 

[Sunset]

I'm not sure a business condo will be easier, my understanding is with a business things are a lot more brutal.
Their business goes down, so they stop paying rent. You have to change the locks and impound their stuff before they backup a truck and move the business. You sue for unpaid rent, they declare bankruptcy and open a new business registration doing the same business.
I also know of a company that bought an entire building, then set up a separate company to manage the condo for themselves and other tenants, except that they literally hired and told the "manager" what to do etc.. I'm pretty sure the costs/expenses were never evenly split amongst tenants.

But your deal sounds more legit, but why do you want a long distance relationship ?