Advice on purchasing a building

My two year shop lease is up, and going up in price again. The building owner told me properties are moving up and he only wants to extend a year lease, for me, or anyone. I asked for three year deal. I don't like the uncertainty, a year goes by fast, and then another nickel in price or more. I am in 2000 sq right now. I am paying .65 a sq now and going up to .70

I looked at a couple buildings for sale and I was thinking about the details. I own all but one of the machines, so the business has assets and has little debt and good credit.

Power, moving machines....I got all that. More looking for the info I wouldn't know in buying a building...property tax....tenants fucking something up with the city or an eco disaster...I imagine as the building owner I would be on the hook for anything like that.

The local Brain-trust here has never let me down, so I was asking for your thoughts and advice on buying versus leasing. Such as money-wise...does it make sense? When does it make sense? How much do you need in reserves to not get in trouble...things like that. Inherited tenant(s)? Good, bad?

SBP 15 year plan was to buy a four-plex or so, occupy one or two of the units and lease the others. I am about there right now.

The buildings I looked at would fit the bill.

What should I be thinking about? This is the next step, but it is a big one.

What say you?

Brian

The biggest problem the last machine shop I was at had when we moved, was the power. We ran 2 mori lathes a tsugami and a fadal. We didn't find a building with the power we needed but found one that was capable. Another thing to think about is does your material get dropped of by semi? Can they get to you easily? It's a big step, those are just the problems we ran into. Good luck

ltbaney1 said:

The biggest problem the last machine shop I was at had when we moved, was the power. We ran 2 mori lathes a tsugami and a fadal. We didn't find a building with the power we needed but found one that was capable. Another thing to think about is does your material get dropped of by semi? Can they get to you easily? It's a big step, those are just the problems we ran into. Good luck

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Cool thanks for the reply,

Power isn't the problem, 200A is pretty common. I am running on even less than that right now.

Material delivery would be different but could be unloaded streetside.

don't forget about sound levels, nothing sucks more then being a couple hours from done and having to shut down or be fined.

I say if you can swing it its the best thing for you. The hardest thing is collecting the rent...

but it would be nice if you were the one in the landlord position raising rent the next go around...:thumbsup

Yellowboat said:

don't forget about sound levels, nothing sucks more then being a couple hours from done and having to shut down or be fined.

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Sounds levels? If I own the building?

It is in an industrial area.

I would check and a look for space vacancy around the area for the type of building your gonna purchase.

But what I know the fourplex or strip style buildings rent out pretty good..

oh and check for roof leaks and condition. Those flat style roofs suck...

thetub said:

I say if you can swing it its the best thing for you. The hardest thing is collecting the rent...

but it would be nice if you were the one in the landlord position raising rent the next go around...:thumbsup

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One tenant seems to be hunkered down and I am good with that. The other seems...interesting.

Brian

thetub said:

I would check and a look for space vacancy around the area for the type of building your gonna purchase.

But what I know the fourplex or strip style buildings rent out pretty good..

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Did that already and looked at area rents and the rent seemed on par.

Not a lot of vacancies and all the buildings are leased out. I would be inheriting at least one good tenant.

Brian

wsuwrhr said:

One tenant seems to be hunkered down and I am good with that. The other seems...interesting.

Brian

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thats good. You have an "anchor" tenant that will always come up with rent if the other guys screw you around.

that is how it should be, but heaven help you if the local code enforcement wants to turn a quick buck.

had a shop that backed up to highway 50 and was 2 miles from the nearest home in every direction but the freeway.( that way was about 1000 yards)

the local city, started cracking down, got warned, 2 months later working at 10:25 pm, got a $800 fine. all the time working inside a tilt up. let me say that again, inside a tilt up.


it was the middle of summer, I was residing a house, all of it had to be milled.... several jobs running, guys running out of material, sitting around costing me $50/hour each... yeah good times. so glad I don't do that shit any more and even happier I am out of CA

Most area's commercial real estate is still fairly slow. They don't sell well, so its a buyers market right now. Finding tenants is easier over selling a building. The right building and you could actually make some money on it.

OK, good with that, nearest house is a ways away, residential no problem. The Riverside shop was a slight issue with one of the tenants next to me in a multi tenant building, but they never complained about me, but I haven't been there in two years.

Yellowboat said:

that is how it should be, but heaven help you if the local code enforcement wants to turn a quick buck.

had a shop that backed up to highway 50 and was 2 miles from the nearest home in every direction but the freeway.( that way was about 1000 yards)

the local city, started cracking down, got warned, 2 months later working at 10:25 pm, got a $800 fine. all the time working inside a tilt up. let me say that again, inside a tilt up.


it was the middle of summer, I was residing a house, all of it had to be milled.... several jobs running, guys running out of material, sitting around costing me $50/hour each... yeah good times. so glad I don't do that shit any more and even happier I am out of CA

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koenig said:

Most area's commercial real estate is still fairly slow. They don't sell well, so its a buyers market right now. Finding tenants is easier over selling a building. The right building and you could actually make some money on it.

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So that is what I am wondering, what is the right building? What do I need to be worried about? What do I need to be thinking about? What are the right questions I should be asking?

This is DOUBLE what I paid for my house. Likely will be everything I have, again. I only have a couple mentors, so this is school of hard knocks shit.

Trying not to make an easy mistake and I would rather learn from "who have already been there"

Brian

write offs and building depreciation come in handy

thetub said:

write offs and building depreciation come in handy

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OK, those are pretty good deductions? Can I write off building improvements and moving expenses?

I would look for 3 things...

1 function, does It work for what I need?(and the people I want to rent too)

2 how is the access? both for semi and public, have to explain how to get too your shop sucks, it needs to be easy to get too, not hidden.( much better for renters too)

3 cost, can I pay for it on my own or do I have to have a renter? in other words if you don't get paid how long can you last?


in that order.

wsuwrhr said:

OK, those are pretty good deductions? Can I write off building improvements and moving expenses?

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yes and no. some things you can, others you can not.

wsuwrhr said:

OK, those are pretty good deductions? Can I write off building improvements and moving expenses?

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im pretty sure you can, but I would check with tax guy to be sure of all the benefits.

commercial industrial is slower than other real estate,but the strip style buildings dont come by to often especially the ones with good steady tenants. probably can negotiate price some on this type of building if its been on the market long.

just remember worst case scenario if you could pay the entire payment if all the tenants got up and left,which is highly unlikely and to always factor in repairs for the building

Some what in the same boat. I am up to 12,000 ft and almost could use more. Tired of seeing the checks I write to the landlord. They make more money than me a year. Would like to buy a place but don't know the inns and outs of it. Very little debt but the down payment from what I understand would be a major bitch. I have heard 20% down on commercial loans. I am interested to see what this thread brings.

wsuwrhr said:

So that is what I am wondering, what is the right building? What do I need to be worried about? What do I need to be thinking about? What are the right questions I should be asking?

This is DOUBLE what I paid for my house. Likely will be everything I have, again. I only have a couple mentors, so this is school of hard knocks shit.

Trying not to make an easy mistake from those "who have been there"

Brian

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maybe check zoning also . light industrial, industrial or mix use etc...

See what type of security interest they will ask for as part of the financing...UCC1, Personal Guaranty [PG], additional Trust Deed interest against your personal residences.

If they ask for a personal guarantee, in addition to the security interest Trust Deed (secured by the building itself, and assignment of rents) as part of the commercial loan/Trust Deed, I would think long and hard about it. Life is full of twists and turns and if you ever had to bail, then you could still be on the hook.

bonesfab said:

Some what in the same boat. I am up to 12,000 ft and almost could use more. Tired of seeing the checks I write to the landlord. They make more money than me a year. Would like to buy a place but don't know the inns and outs of it. Very little debt but the down payment from what I understand would be a major bitch. I have heard 20% down on commercial loans. I am interested to see what this thread brings.

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So far, SBA is 10%, otherwise it could be as much as 40%

C-2 said:

See what type of security interest they will ask for as part of the financing...UCC1, Personal Guaranty [PG], additional Trust Deed interest against your personal residences.

If they ask for a personal guarantee, in addition to the security interest Trust Deed (secured by the building itself, and assignment of rents) as part of the commercial loan/Trust Deed, I would think long and hard about it. Life is full of twists and turns and if you ever had to bail, then you could still be on the hook.

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Yes sir,

I figured they would ask for some type of collateral and you are right, that is real concern.

Haven't looked into financial, Tuesday. This just all came at me all at once. Been trying to neg a new lease for three months.

Yellowboat said:

I would look for 3 things...

1 function, does It work for what I need?(and the people I want to rent too)

2 how is the access? both for semi and public, have to explain how to get too your shop sucks, it needs to be easy to get too, not hidden.( much better for renters too)

3 cost, can I pay for it on my own or do I have to have a renter? in other words if you don't get paid how long can you last?


in that order.

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1. Perfect. Room to grow for me and just slightly bigger than I need right now.

2 Access is ok. I can live with it. I don't run a retail location, and the existing tenants have been there awhile

3 DEFINITELY not. 2 times what my house cost and more than double my house payment. Hard question, short answer is not long.

thetub said:

maybe check zoning also . light industrial, industrial or mix use etc...

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Good on zoning.

maybe someone selling would be willing to hold a note for a while as far as financing.

that way you can build some history and refi later and pay them off.

just another option...

thetub said:

maybe someone selling would be willing to hold a note for a while as far as financing.

that way you can build some history and refi later and pay them off.

just another option...

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That is what I'm doing for the buyer of my building.

thetub said:

maybe someone selling would be willing to hold a note for a while as far as financing.

that way you can build some history and refi later and pay them off.

just another option...

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Two building owners so far did not hold the note. So owner carry paper is not an option.

Good luck, Brian...I hope your business continues to grow and that you can swing this deal.

rrrr said:

Good luck, Brian...I hope your business continues to grow and that you can swing this deal.

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Thanks, Me too.

It would be nice to have a permanent home.

There are a couple things I would consider Brian.

1. You will need more than 10% when it's all said and done. You will need to insure the building, pay property tax, water, disposal, sprinklers, moving fees, bank fees and any upgrades you intend to do.

2. Is everything up to code on the building? The city will not issue a business license until they do an inspection and you will be held accountable for all build out violations, once you purchase the building. I would have it inspected BEFORE you purchase it.

Make sure you have the financial side covered before you make the move. You could lose a good amount of dough by pulling the trigger to soon. Writing rent checks to yourself is nice, but it can also have greater down side if things go south.

One suggestion I would strongly make is if you can't afford the mortgage payment without the renter's input, you're exposing yourself.

Good luck Brian, I hope you find a building that works for you.

I will be a long time before I could afford the whole mortgage payment long term, if ever. If I can't, in your opinion, is this deal a bad idea?

The 10% is just the down, I figured it is the same as buying a house as far as fees go. I am working on the due diligence on the finance right now.

I am working on the building too, just like you said, there are some things that I don't like and I will check on those as well.

Thank you and thanks for your ideas.

When does it pencil out to stop writing a rent check to someone else? That is something I have no experience with. Which is why I am asking those with way more jing than me.

regor said:

There are a couple things I would consider Brian.

1. You will need more than 10% when it's all said and done. You will need to insure the building, pay property tax, water, disposal, sprinklers, moving fees, bank fees and any upgrades you intend to do.

2. Is everything up to code on the building? The city will not issue a business license until they do an inspection and you will be held accountable for all build out violations, once you purchase the building. I would have it inspected BEFORE you purchase it.

Make sure you have the financial side covered before you make the move. You could lose a good amount of dough by pulling the trigger to soon. Writing rent checks to yourself is nice, but it can also have greater down side if things go south.

One suggestion I would strongly make is if you can't afford the mortgage payment without the renter's input, you're exposing yourself.

Good luck Brian, I hope you find a building that works for you.

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regor said:

There are a couple things I would consider Brian.

1. You will need more than 10% when it's all said and done. You will need to insure the building, pay property tax, water, disposal, sprinklers, moving fees, bank fees and any upgrades you intend to do.

2. Is everything up to code on the building? The city will not issue a business license until they do an inspection and you will be held accountable for all build out violations, once you purchase the building. I would have it inspected BEFORE you purchase it.

Make sure you have the financial side covered before you make the move. You could lose a good amount of dough by pulling the trigger to soon. Writing rent checks to yourself is nice, but it can also have greater down side if things go south.

One suggestion I would strongly make is if you can't afford the mortgage payment without the renter's input, you're exposing yourself.

Good luck Brian, I hope you find a building that works for you.

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Not only the building but what you put in the building in some cities. Wife moved her machine shop from South Gate to Paramount. She had to have all her old machines and air compressors brought up to code before she could turn on the machines. Took 2-3 months. She also had to pay the inspector for each visit.

Havasu1986 said:

Not only the building but what you put in the building in some cities. Wife moved her machine shop from South Gate to Paramount. She had to have all her old machines and air compressors brought up to code before she could turn on the machines. Took 2-3 months. She also had to pay the inspector for each visit.

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Wow, what a mess. I will look into that as well. You have time to look at the fire sprinklers?

wsuwrhr said:

Wow, what a mess. I will look into that as well. You have time to look at the fire sprinklers?

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Yes on the fire sprinklers. Let me know and I can have a look.

We bought the company for the land and building, basically break up value. But decided to use the building ourselves. We didn't need inspections on all the equipment, one item needed a state inspection. But since we changed the use of the building, from cold storage into juice production, we had to get permits for the new use. This required public hearings and council approval, it was a little pain in the ass. We only had one problem with the county, after repaving 1,000ft of driveway, they decided it needed to add an additional 3inches at the end of the driveway to be in code. Cities and counties can be a pain in the ass. No matter what you buy, realize you are going to have to spend some money on upgrades and permits to get it to be suited for your needs.

My use is pretty simple. I need a roof, lights, air compressor and power. After being in this building it would be nice to have the shop air conditioned, but I could add that later.

The machines are self sufficient and need nothing else.

So if I bought the building, other than my own business permit, what do I need to get from the city? Are they going to come and want to inspect the building prior to or after I take possession of it? I don't know the procedure.

I am green on this area and leery of making a mistake.

Brian

x

wsuwrhr said:

I will be a long time before I could afford the whole mortgage payment long term, if ever. If I can't, in your opinion, is this deal a bad idea?

It's just a matter of how much risk you are willing to take IMO. If you can't collect rent for whatever reason, you will be in a bind. If you can save some money to handle it for say six months or so, you then lower that risk.

The 10% is just the down, I figured it is the same as buying a house as far as fees go. I am working on the due diligence on the finance right now.

Get pre qualified for sure.

I am working on the building too, just like you said, there are some things that I don't like and I will check on those as well.

Thank you and thanks for your ideas.

When does it pencil out to stop writing rent check to someone else? That is something I have no experience with. Which is why I am asking those with way more jing than me.

I don't have that formula, but any time you can use your money for your own equity, I personally feel that's a better situation, unless you have a better investment to put that money into.

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Most counties in the U.S. have an economic development corporation, a non profit corporation in the business of getting business to move into the county. I'll use Shasta county, only because I dealt with them, as an example: http://www.shastaedc.org/ They will usually help any sized business to move into the county. I wanted to set up another juice company in Shasta county, back in 2008. I like Lake Shasta and the sac river. Anyway, they had lots of things that made going through them easier to do things. Check with the counties you want to be in and see what incentives they offer. Just google county name economic development and the counties EDC should pop up like my Shasta example.

Be sure to look into the lenders requirements as to the Environmental status of the property. We had to go through phase one & two inspections (or level one and two). They core drilled the slab, tested the 13 drywells on the property. We are on an existing superfund site from many years ago, didn't matter. Bank wanted to be sure our building was compliant. It was damned expensive, added to the money required to purchase.

I know several businessmen who have done this and it has worked very well for them. I know others who have had issues. It sucks to pay a million dollars for a building, have a recession and owe $800,000 on a building that is now worth $650,000.

Over time, it will be fine....just distressing in the short term.

I had a friend with a carpet business who bought a building and occupies 1/3 of it. He rents out the other 2/3rds and those tenants cover the entire building cost. So he gets basically zero rent expense for his business, and in a few more years the bank loan on the building will be paid off. When he retires, he will rent out the last third of the building and have some great retirement income.

Most improvements can be written off, and I know many people with rental property who creatively have work done on their own homes and write that off as well. I assume the mortgage interest is a write off as well. You need a business accountant to tell you those types of benefits. Ihear that if can get an SBA loan, that is the way to go. I would expect they will want to see that your business is growing and profitable, and has been for several consecutive years.

I have looked at purchasing, but I do not want a long commute, so the commercial property near my home is not affordable enough in my situation. We have downsized in the past couple years and even rented out part of our existing space, and split our rent costs with our co-tenant. Our needs are small, and so is our space.

We pay maybe $2100 a month, owning would have cost me $3500 for an industrial condo not to far away. A larger building, would be $6500 a month and up. More than I wanted to be on the hook for.

If you can make the down, and have enough cushion, owning the real estate is a sound long term financial goal.

Don't forget all the ADA requirements, either.
There are a number of drive by lawyers that file suit due to non-compliant parking, lack of ramps, restrooms, etc.
Minimum extortion fee is $5k, and correcting the issues, which can get really pricey.

It's scary, I know. We bought our first building in 1999. bought it personally and lease it back to the business. Made sure the lease covered the rent. There were some times when we had to prop up the business to support the rent. Figured if I always received a paycheck, and the business paid my mortgage, I'd be golden. It's worked out so well, I'm now trading in my original building as down payment on a new one.

My situation.
Current building 40,000' own. 7 years to pay off.
Lease an additional 48,000' and 22,000'.

Building 136.000' subleaseing 14,000' to a customer(5 years) keeping 122,000 for myself. we can grow into the other 14,000' after 5 years. I will now have 22 years of payments.

It's worked for me, but you have to be willing to sacrafice and risk everything. If it all goes south, I have a seperate lot I own and I can pitch a tent. If it all goes well, I'm making over $100K a year in rent, in todays dollars. And I still own the building.

How much risk are you willing to take? Maybe find someone willing to share the risk/reward. They put up the money and risk, you make all the payments, split 50/50 Not as good as 100%, but it's better than continuing to pay rent. I've done this with my dad over the years.

Jerry

all good advise, might as well add my 2c having been in your position.

IMO look at it as separate entity/business, (actually create one to buy/lease/manage the property) google and get familiar with CAP rate, will the NEW business make money, have reserves based on rents, can the money used to purchase be put to better use?

End of day for me it made more sense to keep renting, but now were back looking into buying the building with one other tenant (2-user bld), the CAP will have to be pretty high for me to want to take responsibility for this old building

good luck! nice that your even in a position to contemplate it:thumbsup

Exactly, SBP will not own the building, it will be a separate entity and SBP will lease the building from the building owner.

FlatNv said:

all good advise, might as well add my 2c having been in your position.

IMO look at it as separate entity/business, (actually create one to buy/lease/manage the property) google and get familiar with CAP rate, will the NEW business make money, have reserves based on rents, can the money used to purchase be put to better use?

End of day for me it made more sense to keep renting, but now were back looking into buying the building with one other tenant (2-user bld), the CAP will have to be pretty high for me to want to take responsibility for this old building

good luck! nice that your even in a position to contemplate it:thumbsup

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If you are interested...............

Wife's mortgage company does commercial loans. she welcomes all phone calls to compare / discuss. They are local, in Fountain Valley.

PM me for her email & cell #.


NT