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question about commercial property I inherited and what to do with it
Posted on 12/6/23 at 9:46 pm
Posted on 12/6/23 at 9:46 pm
Let me preface by saying I've lurked here for years, I never really made an account because I didn't want to get sucked in as im sure this is very addicting, I see the post counts. I am not a real estate investor. I'm actually a high school teacher in Texas. So this is a bit out of my realm but I made an account today and figured I'd ask for an opinion
I just inherited a couple properties 2-3 months ago and one is land and one is a a small office warehouse built in the 80s on a big lot.
The big property is 91,000 sq ft and currently rented through February 20,2024 to an 18 wheeler owner who has 6-7 trucks on the property and he's paying $2500/mo which seems really cheap to me for the lot size and office space, but once he leaves it has an office warehouse built in 1989 but is in ok shape. It is 3800 sq ft and has 7 offices and 2 bathrooms, I'm slowly learning about the space and understanding how values work and the VPD is 14,000 per day. That's low right for commercial property? From my reading online it seems so.
If I can't rent this I'd like to maybe knock it down and build something. What exactly would you build on a lot this big ? Is 14,000 VPD enough to build a shopping center? Would it be better to build townhomes or something slowly? there's a couple apartment building nearby, there's a neighborhood behind it. I have investment accounts I can liquidate if need be to try and build something here.
The other property is a 22,000 sq ft lot on a decently busy commercial road in a neighborhood of $300-400k homes surrounding it and its completely empty.
I was planning on sitting down over Christmas break when I'm not busy with school and calling a few realtors to see what I'm looking at. I just thought maybe some guys here could give me some ideas or thoughts. Also when you own the land and it's paid for, can you borrow against it to build? Or are banks willing to lend to you when you own it?
Sorry for all the questions, just really not my thing at all and now as the tenant runs out in 2 months im starting to worry about carrying costs ie property taxes, electricity,etc on the place if I can't find a new tenant so trying to figure out what to do. Thanks again
I just inherited a couple properties 2-3 months ago and one is land and one is a a small office warehouse built in the 80s on a big lot.
The big property is 91,000 sq ft and currently rented through February 20,2024 to an 18 wheeler owner who has 6-7 trucks on the property and he's paying $2500/mo which seems really cheap to me for the lot size and office space, but once he leaves it has an office warehouse built in 1989 but is in ok shape. It is 3800 sq ft and has 7 offices and 2 bathrooms, I'm slowly learning about the space and understanding how values work and the VPD is 14,000 per day. That's low right for commercial property? From my reading online it seems so.
If I can't rent this I'd like to maybe knock it down and build something. What exactly would you build on a lot this big ? Is 14,000 VPD enough to build a shopping center? Would it be better to build townhomes or something slowly? there's a couple apartment building nearby, there's a neighborhood behind it. I have investment accounts I can liquidate if need be to try and build something here.
The other property is a 22,000 sq ft lot on a decently busy commercial road in a neighborhood of $300-400k homes surrounding it and its completely empty.
I was planning on sitting down over Christmas break when I'm not busy with school and calling a few realtors to see what I'm looking at. I just thought maybe some guys here could give me some ideas or thoughts. Also when you own the land and it's paid for, can you borrow against it to build? Or are banks willing to lend to you when you own it?
Sorry for all the questions, just really not my thing at all and now as the tenant runs out in 2 months im starting to worry about carrying costs ie property taxes, electricity,etc on the place if I can't find a new tenant so trying to figure out what to do. Thanks again
3
Posted on 12/6/23 at 10:26 pm to thesabanizer
I am commercial banker and can answer the lending question. Yes absolutely could borrow against the property to do a building or some other kinda improvement. Can use the land for down payment or pull cash out of it based on value to improve it.
Where are the properties located?
Where are the properties located?
Posted on 12/6/23 at 10:48 pm to soupboy10
they are in north Houston, spring area
Posted on 12/7/23 at 5:59 am to thesabanizer
All I know is they are not making any more land so over generations land is usually a good investment.
Do you have anyone in your network in real estate?
I don’t know anything about this type of thing, but I’d look at my network and see who could help me sort it out.
My brother in law made his fortune in commercial real estate development/leasing. Maybe someone you know is in the space there?
Do you have anyone in your network in real estate?
I don’t know anything about this type of thing, but I’d look at my network and see who could help me sort it out.
My brother in law made his fortune in commercial real estate development/leasing. Maybe someone you know is in the space there?
Posted on 12/7/23 at 7:00 am to makersmark1
I'd love to keep it, its just the taxes, insurance and electric bill of this warehouse would be a lot for me if it were not making money, right now its covered, but I spoke with this tenant and he is retiring when his lease is up in February.
I can list it for rent again or I could sell it, Im sure neither happens quickly but I was thinking more of what can I do and maybe get out of teaching. It's a great opportunity if I can figure out how to do something with it and I'm trying to learn more about that.
I called a couple commercial brokers already and all seem too busy to call you back/answer an email. I think I reached out to maybe 7 and 2 replied.
I've read some about getting a NNN tenant online to come in, build them a place like a fast food restaurant and lease it to them, I'd love to do something like that if wife and I cash in our retirement accounts/borrow but again the realtors haven't been much help to this point, that's why I'm trying to figure out the best course of action online. Thanks again
I can list it for rent again or I could sell it, Im sure neither happens quickly but I was thinking more of what can I do and maybe get out of teaching. It's a great opportunity if I can figure out how to do something with it and I'm trying to learn more about that.
I called a couple commercial brokers already and all seem too busy to call you back/answer an email. I think I reached out to maybe 7 and 2 replied.
I've read some about getting a NNN tenant online to come in, build them a place like a fast food restaurant and lease it to them, I'd love to do something like that if wife and I cash in our retirement accounts/borrow but again the realtors haven't been much help to this point, that's why I'm trying to figure out the best course of action online. Thanks again
Posted on 12/7/23 at 7:13 am to soupboy10
quote:
I am commercial banker and can answer the lending question. Yes absolutely could borrow against the property to do a building or some other kinda improvement. Can use the land for down payment or pull cash out of it based on value to improve it.
I bank with chase, should I go in there and seek out a commercial banker or is this more something you need a local bank for? I know when it was time for us to get our mortgage, even though I banked with chase, they weren't the friendliest and we ended up doing our mortgage with truist bank
Posted on 12/7/23 at 7:56 am to thesabanizer
I have doubts Chase Bank will even touch it. They are not doing much investment property. If you were in Louisiana I would do it no problem.
I would go to a community bank in Houston and see if they can help you out.
I would go to a community bank in Houston and see if they can help you out.
Posted on 12/7/23 at 9:26 am to thesabanizer
I think you would be wasting time at Chase. Get some leads by calling local and community banks first.
Posted on 12/7/23 at 9:32 am to Roy Curado
Thanks for all the input guys. Is there a consultant or someone you can talk to about figuring out what is the potential best use for the properties? Or is that just what a good commercial realtor does? Any recommendations in north Houston for someone you've worked with?
Posted on 12/7/23 at 10:02 am to thesabanizer
Follow up with the commercial brokers and get a value for the properties OP. I would follow a couple different angles and go from there.
Once you have your value if you sold it, take some time and honestly ask yourself if you had that money if this is something you would buy. If you wouldn't buy it, you should strongly consider selling it considering your lack of experience.
Worst case scenario here: You quit teaching, get a loan to rebuild the land, and it costs more than you expect and bankrupts you. Unlikely, but you need to be honest.
You should also consider renting it through a broker. If brokers aren't interested, that maybe a sign its not worth much. If its a slam dunk for someone they are going to jump on it.
VPD is only one aspect and pertains more to certain types of business, like retail and food service. Something like construction, logistics, etc. a central location off a busy street maybe more important then a busy street.
Once you have your value if you sold it, take some time and honestly ask yourself if you had that money if this is something you would buy. If you wouldn't buy it, you should strongly consider selling it considering your lack of experience.
Worst case scenario here: You quit teaching, get a loan to rebuild the land, and it costs more than you expect and bankrupts you. Unlikely, but you need to be honest.
You should also consider renting it through a broker. If brokers aren't interested, that maybe a sign its not worth much. If its a slam dunk for someone they are going to jump on it.
VPD is only one aspect and pertains more to certain types of business, like retail and food service. Something like construction, logistics, etc. a central location off a busy street maybe more important then a busy street.
Posted on 12/7/23 at 10:19 am to baldona
Thanks for the input, while I do think they're both movable, maybe not quickly, but in a few months, I just hate selling and buying some regular rental properties with a 1031 exchange because this big property just seems to have so much potential being over 2 acres on a decently busy road, warehouses, self storage, apartment complex all around it. I guess I just feel like if I can teach myself, and I'm a decently smart person, physics teacher here, I feel like it can do something life altering money wise that just regular rentals wouldn't do.
It's just the figuring out the best course of action part that I've never been a part of with RE.
It's just the figuring out the best course of action part that I've never been a part of with RE.
This post was edited on 12/7/23 at 10:23 am
Posted on 12/7/23 at 10:23 am to thesabanizer
One play to consider in Spring is future value. You maybe best off relisting the one property for rent just to pay your bills and may a little money with the idea to sell them down the line with increased values.
Without knowing exact locations and much more info, its really hard to give you a clear answer. I wouldn't share that on TD personally.
I would personally suggest being very conservative here. Making a little money as a side hustle while you learn is better then losing a little or a lot.
Without knowing exact locations and much more info, its really hard to give you a clear answer. I wouldn't share that on TD personally.
I would personally suggest being very conservative here. Making a little money as a side hustle while you learn is better then losing a little or a lot.
Posted on 12/7/23 at 10:37 am to baldona
I thought about that and a friend said just keep it Houston is growing so fast you probably won't regret it in 10 years. As long as its rented id love to keep it, I just dont want it to end up needing lots of repairs, it is 34 years old I think? I don't know much about that part and/or it sitting empty and needing to come out of pocket for the taxes/electricity part while waiting for a tenant. I did the math it needs probably $3k/mo of taxes, electricity if vacant, wife and I are both teachers, we do ok, but that would be a sting to us if it was empty for a few months.
You guys have steered me in the right direction need to talk to some banks about loan options over Christmas break, talk to a few realtors about listing for rent possibly, and likely just listing the smaller lot as having some cash as a cushion would be nicer
You guys have steered me in the right direction need to talk to some banks about loan options over Christmas break, talk to a few realtors about listing for rent possibly, and likely just listing the smaller lot as having some cash as a cushion would be nicer
Posted on 12/7/23 at 2:41 pm to thesabanizer
Call Bo Pettit . He's an LSU guy that's a commercial realtor in the Houston area.
Posted on 12/8/23 at 7:15 am to thesabanizer
quote:
needing to come out of pocket for the taxes/electricity part while waiting for a tenant. I did the math it needs probably $3k/mo of taxes, electricity if vacant, wife and I are both teachers, we do ok, but that would be a sting to us if it was empty for a few months.
Don't forget maintenance and repairs. Imagine the roof needs replacing, the HVAC goes out, or there is a major plumbing problem. Those kinds of expenses can break a regular working guy.
You may be like I say about some big houses. If you gave it to me, I couldn't afford to keep it.
I've always heard Houston is the wild west as far as zoning/land use, but it is worth checking into to see what uses of the land are permitted. Some of your business ideas or potential tenants might now be allowed.
Posted on 12/8/23 at 7:32 pm to thesabanizer
If your current tenant is looking to retire, have you considered looking into buying his business? Maybe worth looking into, maybe not. I’d consider it at least.
Posted on 12/8/23 at 8:03 pm to thesabanizer
It's aggravating that a commercial broker is not giving you much of a response, but you really need one who knows the market to give you some advice on the warehouse site.
Most industrial leases are Triple-Net(NNN) which means that the tenant is responsible for utilities, pro-rata share of expenses, repairs, etc. You’d need a broker, or real estate attorney, to check out the existing lease and see what type of rent structure there is and give you some market insight.
Try to hold on to the current tenant if you can. If not, have a broker determine if it’s marketable and try to attract another tenant. Small industrial stuff can be a good fit for an owner-user sale if you decide you want to exit. Keep that cash flow going while you determine the best course of action.
Most industrial leases are Triple-Net(NNN) which means that the tenant is responsible for utilities, pro-rata share of expenses, repairs, etc. You’d need a broker, or real estate attorney, to check out the existing lease and see what type of rent structure there is and give you some market insight.
Try to hold on to the current tenant if you can. If not, have a broker determine if it’s marketable and try to attract another tenant. Small industrial stuff can be a good fit for an owner-user sale if you decide you want to exit. Keep that cash flow going while you determine the best course of action.
Posted on 12/9/23 at 8:10 am to thesabanizer
quote:
thesabanizer
I’ve got a buddy who just spun off his own commercial firm in Houston, give him a shout. Doc Perrier - 832-752-1608
Posted on 12/9/23 at 9:22 pm to thesabanizer
Why would you have to do a 1031? You just inherited them. You will likely have no capital gains or very little
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