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Looking for Experience Buying Office Space for Small Business
Posted on 8/21/19 at 6:42 am
Posted on 8/21/19 at 6:42 am
My wife runs a small service business n Baton Rouge and has done so for about 6 years now leasing a space. One of her realtor clients suggested they have a new listing that's about the same size for around $70k. Apparently on a small business loan for 15 years this works out to similar cost to her rent. I've no experience with purchasing this sort of thing. But of course this all materialized on Monday afternoon and now she's ready to go to the bank yesterday. The business is successful and should stay that way for a long time as long as she doesn't get hooked on crack or some shite like that.
Any tips, thoughts, experience gotchas on purchasing a condo style office unit?
Any tips, thoughts, experience gotchas on purchasing a condo style office unit?
6
Posted on 8/21/19 at 6:47 am to BeerMoney
15 years can be a long time....look at the surrounding area. Is it on the rise or decline? How developed is the surrounding area? Demographics, comps, etc. you’re not just buying a place tohouse her business, it’s a real estate investment. Treat it as such.
Posted on 8/21/19 at 6:53 am to BeerMoney
I own an office building in BR off Justice Ave. I "house hacked" the office and have all four of the individual rooms leased. It's working for me.
Posted on 8/21/19 at 7:04 am to BeerMoney
quote:
Apparently on a small business loan for 15 years this works out to similar cost to her rent.
add a good chunk over that for maintenance and what not, plus various insurance she'll need
Posted on 8/21/19 at 7:11 am to BeerMoney
What the VPD, what’s the zoning, what’s the # of parking spaces, what’s the average income within 3mi, what’s the number of people within 3mi, single tenant or multi-tenant, building class, etc are some of the very few things you need to analyze.
Posted on 8/21/19 at 7:12 am to Cousin
It's actually off Sherwood Forest pretty close to there. About 25 years old I'd say.
What does house hacked mean? Just sub-leasing?
What does house hacked mean? Just sub-leasing?
Posted on 8/21/19 at 8:05 am to BeerMoney
Yes, sounds like he sub leased offices inside.
I know several people that do that. They bought the building for their business but only needed 2/4 offices. Then they share reception/common areas and lease out the other offices.
I know several people that do that. They bought the building for their business but only needed 2/4 offices. Then they share reception/common areas and lease out the other offices.
Posted on 8/21/19 at 8:36 am to BeerMoney
quote:
about the same size for around $70k. Apparently on a small business loan for 15 years this works out to similar cost to her ren
How is this possible? She is only paying like $500/ month in rent?
With 25% down, your monthly payment on a mortgage note should be less than rent. If its not, you probably shouldn't buy.
Things to consider are if she would ever want to move locations due to change in business, growth, etc.?
Main reason to buy is to lock in your rates. In 10 years, her rent could double or more but her mortgage will stay the same.
At $70,000 there's not much downside to buying. Even if real estate flops she's likely out no more then $30,000. She could always rent it out as said.
I'd also consider how valuable others see it. Not very if its only $70,000. No reason to buy if its not likely to go up in value. Last thing you want is a commercial property you can't sublease or sell.
Tell her to get ALL of her costs worked out. Call an insurance broker to get the insurance, get her internet, power, etc. utilities. HOA dues can be a big one.
This post was edited on 8/21/19 at 8:38 am
Posted on 8/21/19 at 9:34 am to baldona
That’s correct she is paying like $700. I didn’t think about rent increase so that’s a great point. I know she doesn’t want to move out of the area because she is accessible to her client base.
I do worry a lot of property seems to be for sale or lease in the area around Sherwood
I do worry a lot of property seems to be for sale or lease in the area around Sherwood
Posted on 8/21/19 at 9:50 am to BeerMoney
I'm not sure what she pays as far as rent goes for her commercial property. But I own some mixed use commercial space, office/ warehouse. my costs are:
Insurance
HOA
Power
Cable
Mortgage
Maintenance/ Upgrades
(Trash and water included in HOA)
Pretty standard expenses. The other benefit of owning is she can do what she wants with the property. With a small office, not a big deal.
But at $70k and multiple options it sounds like in that price range, tell her to shop around and be patient. No reason to pay $10k to have it remodeled at that price point. Find an office arrangement that fits her needs at the time of purchase. For example, a bathroom in the lobby is good for some places but terrible in others.
Insurance
HOA
Power
Cable
Mortgage
Maintenance/ Upgrades
(Trash and water included in HOA)
Pretty standard expenses. The other benefit of owning is she can do what she wants with the property. With a small office, not a big deal.
But at $70k and multiple options it sounds like in that price range, tell her to shop around and be patient. No reason to pay $10k to have it remodeled at that price point. Find an office arrangement that fits her needs at the time of purchase. For example, a bathroom in the lobby is good for some places but terrible in others.
This post was edited on 8/21/19 at 9:51 am
Posted on 8/21/19 at 10:33 am to baldona
To add to this, be very picky about the A/C unit(s) and roof. I've done something similar and had the AC go out for a $6,000 fix after the down-payment. I knew it was coming and was included in my analysis, but if it's not, an additional expense like this could really hurt.
For the roof of a 25yo building, I have an uncle that inherited a property and the roof had to be replaced... I won't bore you with the nightmare of not being able to lease units that require a 30k new roof (that he didn't have, plus the damage caused by leaking).
All this should be snuffed out in the inspection, but definitely include replacement costs if necessary in your numbers.
For the roof of a 25yo building, I have an uncle that inherited a property and the roof had to be replaced... I won't bore you with the nightmare of not being able to lease units that require a 30k new roof (that he didn't have, plus the damage caused by leaking).
All this should be snuffed out in the inspection, but definitely include replacement costs if necessary in your numbers.
Posted on 8/21/19 at 11:02 am to BeerMoney
Lot of good advice about what to look for.
If she decides to buy it, have her form a new LLC and put the building in that. Have the business pay rent to the building LLC in an amount enough to cover the PITI. Have a lease, etc.
If the business goes down the shitter, at least then it won't touch the building. She could then sell the building, become a landlord to a new tenant, etc.
If she decides to buy it, have her form a new LLC and put the building in that. Have the business pay rent to the building LLC in an amount enough to cover the PITI. Have a lease, etc.
If the business goes down the shitter, at least then it won't touch the building. She could then sell the building, become a landlord to a new tenant, etc.
Posted on 8/21/19 at 11:32 am to LSUFanHouston
quote:
If she decides to buy it, have her form a new LLC and put the building in that. Have the business pay rent to the building LLC in an amount enough to cover the PITI. Have a lease, etc.
I believe you are a CPA and I am not, but I just went through this about 6 months ago with my office purchase.
Florida requires a 6%ish commercial lease sales tax. That along with forming the new LLC costs, additional CPA costs, etc. made placing the office in an LLC outside of my business not worth it financially.
ETA: The reason being was the building would have no "income". You would only pay yourself enough rent to cover the bills. So you would miss out on some deprecation ability.
Also, I talked to an attorney about this. Depending on your type of business you likely don't need much protection for the building. We are only talking $70k not $1 mil. But unless the OP is working a dangerous job in the office like manufacturing, then the chances of being sued for the building is incredibly small.
This post was edited on 8/21/19 at 12:50 pm
Posted on 8/21/19 at 1:42 pm to LSUFanHouston
Appreciate all the advice people. Definitely helping us put together a plan.
Posted on 8/21/19 at 2:31 pm to BeerMoney
25 year old building. You're gonna be replacing HVAC, roof and a lot of other things.
You need to look at other buildings on the market. And you might want to look at building a new office with several units that can be leased. Right area, finished out correctly, and leased at triple net terms, you'll have tenants paying for her office building.
You need to look at other buildings on the market. And you might want to look at building a new office with several units that can be leased. Right area, finished out correctly, and leased at triple net terms, you'll have tenants paying for her office building.
Posted on 8/21/19 at 2:48 pm to eng08
quote:
Yes, sounds like he sub leased offices inside.
Correct. This is what I did and if she buys the office and doesn't need all of the space, she can do that as well.
Posted on 8/21/19 at 4:56 pm to LSUFanHouston
She hasn’t kept enough cash in the business to cover the down payment on a business loan. How do you take $10k from our personal account and put it in to the LLC business account? We’ve never actually had to put personal cash in to the business so I don’t know if there’s something special behind doing that.
Posted on 8/21/19 at 7:27 pm to BeerMoney
quote:
She hasn’t kept enough cash in the business to cover the down payment on a business loan
She won’t make that in the next month or 2? Have her not pay herself for a bit and use your savings for your living expenses. Then take the money from not paying herself as a downpayment.
Posted on 8/21/19 at 7:29 pm to BeerMoney
quote:
She hasn’t kept enough cash in the business to cover the down payment on a business loan.
I would love to see that statement of cash flows.
Posted on 8/21/19 at 8:19 pm to baldona
That will work. Thanks for the suggestion.
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