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To sell or not to sell commercial property?
Posted on 1/27/24 at 5:36 pm
Posted on 1/27/24 at 5:36 pm
Location in a typical suburb in the South that has experienced exponential growth. We currently have an offer on the table that is double what we have in it, and we have about 8 years paying it down.
Yet… literally every day there is an announcement about some major development coming. We are smack dab in the heart of it all, but it is on the way not fully developed yet.
So keep it and lease it out you say. Well we don’t exactly have much in the way of cash reserves, our tenant is good for maybe a year lease (and isn’t paying market value), and our note matures next month.
Add to that the building needs a parking lot and some other miscellaneous upgrades (roof, HVAC).
So my options would be to sell the building and realize the gains (well over $500k) or convince the bank to renew with the upgrades included in the loan but with a not ideal tenant while we look for a more market value NNN tenant.
Initially the thought is to take the money and run. But I believe I’m sitting on a gold mine of sorts here. Of course I could be biased, but this area is exploding, it just isn’t quite at its apex yet.
Not a guru, sort of lucked into it as an owner/operator that no longer owns the business. Would love the MBs advice.
Yet… literally every day there is an announcement about some major development coming. We are smack dab in the heart of it all, but it is on the way not fully developed yet.
So keep it and lease it out you say. Well we don’t exactly have much in the way of cash reserves, our tenant is good for maybe a year lease (and isn’t paying market value), and our note matures next month.
Add to that the building needs a parking lot and some other miscellaneous upgrades (roof, HVAC).
So my options would be to sell the building and realize the gains (well over $500k) or convince the bank to renew with the upgrades included in the loan but with a not ideal tenant while we look for a more market value NNN tenant.
Initially the thought is to take the money and run. But I believe I’m sitting on a gold mine of sorts here. Of course I could be biased, but this area is exploding, it just isn’t quite at its apex yet.
Not a guru, sort of lucked into it as an owner/operator that no longer owns the business. Would love the MBs advice.
6
Posted on 1/27/24 at 5:40 pm to Mohican
How much post tax net money are we talking? Like retirement level money?
Posted on 1/27/24 at 5:42 pm to Billy Blanks
quote:
How much post tax net money are we talking? Like retirement level money?
600+
Posted on 1/27/24 at 5:51 pm to Mohican
What part of youngsville? Lol
Posted on 1/27/24 at 6:00 pm to BayouBengal23
lol not youngsville but think typical suburb of a Southeastern metro area where everyone is getting out to avoid the riff raff.
Posted on 1/27/24 at 6:10 pm to Mohican
What’s your worst case scenario? You realize you will get a new loan with much higher interest right? Will you be able to afford that?
I’d talk to a commercial rental agent and see what they say and see if you can afford to keep it.
Your other option is to 1031 the sale into a new property that you CAN afford. Sometimes a bird in hand…
I’d talk to a commercial rental agent and see what they say and see if you can afford to keep it.
Your other option is to 1031 the sale into a new property that you CAN afford. Sometimes a bird in hand…
Posted on 1/27/24 at 6:45 pm to baldona
Same as above, do you need the $$$ now? Have you advertised it? 1031 Exchange, long term personal goals?
Posted on 1/27/24 at 7:05 pm to TJack
I don’t have much. I’m self employed and have very little in the way of retirement. $600k is a lot of money for me. A LOT.
My long term goals are like most here. I’ve always been interested in building wealth through real estate and I absolutely see an opportunity to hold on to this property for a long time and have income and eventually pay it off. It wouldn’t take long to fulfill a tenant.
But the lack of cash reserves and the upgrades are big deals I know. I’ve been told the bank would work with me until I find a tenant and I have enough equity for the upgrades, but that would be rolled into the loan adding to the note. Its just tough for me because I know what’s coming and I know the potential.
I reached out to a broker knowing the upcoming renewals in both the lease and the note. He said we could advertise it for sale or lease online but wouldn’t put signs out. He didn’t even post it online. He made a phone call. Second offer was for list price.
My long term goals are like most here. I’ve always been interested in building wealth through real estate and I absolutely see an opportunity to hold on to this property for a long time and have income and eventually pay it off. It wouldn’t take long to fulfill a tenant.
But the lack of cash reserves and the upgrades are big deals I know. I’ve been told the bank would work with me until I find a tenant and I have enough equity for the upgrades, but that would be rolled into the loan adding to the note. Its just tough for me because I know what’s coming and I know the potential.
I reached out to a broker knowing the upcoming renewals in both the lease and the note. He said we could advertise it for sale or lease online but wouldn’t put signs out. He didn’t even post it online. He made a phone call. Second offer was for list price.
Posted on 1/27/24 at 7:28 pm to Mohican
How old are you? Family? Wife? Would this be like putting all your eggs in one basket for retirement? Or do you have other investments?
ETA: if you sold would you put all that toward retirement? And would that generate your retirement number?
ETA: if you sold would you put all that toward retirement? And would that generate your retirement number?
This post was edited on 1/27/24 at 7:35 pm
Posted on 1/27/24 at 8:05 pm to TJack
40 y/o, married 2 kids.
All our eggs are currently in this basket, yes.
I run a construction subcontracting company that does about $1-1.5M per year. Pay myself about $70-75k plus bonuses when I can. Wife makes 40k.
If I sold I would want to immediately put the money in some kind of investment. Being self-employed I don’t really have a retirement account per se. It’s this building and that’s about it. But real estate just seems like such a magic bullet and this has been a damn good one.
Worst case scenario I can’t fill a tenant and have to sell out. Would I get list price? Who knows but I mean it pulled list without even listing it lol.
No guarantees though that’s for sure.
All our eggs are currently in this basket, yes.
I run a construction subcontracting company that does about $1-1.5M per year. Pay myself about $70-75k plus bonuses when I can. Wife makes 40k.
If I sold I would want to immediately put the money in some kind of investment. Being self-employed I don’t really have a retirement account per se. It’s this building and that’s about it. But real estate just seems like such a magic bullet and this has been a damn good one.
Worst case scenario I can’t fill a tenant and have to sell out. Would I get list price? Who knows but I mean it pulled list without even listing it lol.
No guarantees though that’s for sure.
Posted on 1/27/24 at 8:13 pm to Mohican
Sell it
Posted on 1/27/24 at 8:45 pm to Mohican
Agreed and sounds like you want to sell it anyway..will relieve some stress
Posted on 1/27/24 at 8:55 pm to shamrock
If you sell it, then invest 600k and get a 6% return, it will be 2 million when you are 60. You could retire at 60 with roughly the same income as you and your wife make now
Posted on 1/27/24 at 8:56 pm to shamrock
quote:
Agreed and sounds like you want to sell it anyway..will relieve some stress
Does it really? That’s interesting.
My gut tells me I will have some serious sellers remorse. But you are correct there would be less stress. Crazy as it sounds I kind of enjoy the stress.
But if that’s coming across in my post maybe there’s something to that.
I will say this, my wife and I have fought like hell to get to this point. We’ve had a business in the building that’s not a stable business model (youth sports) and it has taken a lot out of us. It’s nice to see it pay off. But the market makes this decision very difficult.
Probably the hardest I’ve ever had to make.
Posted on 1/27/24 at 9:26 pm to Mohican
Commercial banker here - sell it if it’s that kind of life changing money to you. A one year lease is a short fuse and a lot can change between now and then. Plus if you switched out tenants you’re probably looking at a few months of no income plus all the expenses of doing upgrades for the new tenant (given you can finance that in to the new loan).
On the flip side if you have a much stronger tenant in your back and can get the bank to finance in the rehab work then keep it. A stronger tenant at market rates is going to make the value of the building go up even more. But have that tenant in the back of your pocket. Don’t go to the bank looking for a new loan with a single tenant lease in place that has less than a year to it. Might not be a great conversation.
Why don’t you sell it, 1031 the money and put it into two or three cash flowing properties to diversify your holdings? Get with a good COMMERCIAL broker and discuss the options. Whatever you do, don’t use a residential realtor.
On the flip side if you have a much stronger tenant in your back and can get the bank to finance in the rehab work then keep it. A stronger tenant at market rates is going to make the value of the building go up even more. But have that tenant in the back of your pocket. Don’t go to the bank looking for a new loan with a single tenant lease in place that has less than a year to it. Might not be a great conversation.
Why don’t you sell it, 1031 the money and put it into two or three cash flowing properties to diversify your holdings? Get with a good COMMERCIAL broker and discuss the options. Whatever you do, don’t use a residential realtor.
Posted on 1/27/24 at 9:51 pm to Im4datigers
quote:
Im4datigers
Awesome stuff. Thank you.
I think some of my gut-feeling trouble is I don’t feel like I’ve maximized my leverage. If I’m getting list price before listing it, what would happen if we did?
Also I’m troubled by the fact that we haven’t even tested the lessee market. Is a prime tenant a phone call away as well?
I’m also fighting the emotional attachment to the building. It’s a nice building and sort of one of a kind for the area. Never thought I could own it when we started out in it. But perhaps it is time to let it go and realize the fruits of our labor.
Posted on 1/27/24 at 10:06 pm to Mohican
I was going to say lay both scenarios out on a spreadsheet. But you have 2 kids and you are 40. Bank it. It’s the prudent thing to do. I’m sure the MB will have various ways for tax relief and investment options. Focus on your business.
Posted on 1/27/24 at 10:19 pm to Mohican
quote:
How much post tax net money are we talking? Like retirement level money?
600+
That's good money. It's not a life changing amount though. I think you'd regret it based on everything you said.
Posted on 1/27/24 at 10:23 pm to Billy Blanks
quote:
That's good money. It's not a life changing amount though. I think you'd regret it based on everything you said.
Thanks for the feedback.
Posted on 1/27/24 at 11:03 pm to Im4datigers
Im4datigers hit the nail on the head. A year-to-year tenant situation.can put you in a tough spot in multiple ways, especially with low cash reserves.
Run this by a few different commercial brokers that are active in the same asset class. Gaining a long term tenant at market rates would be ideal but you’ll need to determine if you can fund a market commission and tenant improvement allowance.
Run this by a few different commercial brokers that are active in the same asset class. Gaining a long term tenant at market rates would be ideal but you’ll need to determine if you can fund a market commission and tenant improvement allowance.
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