Commercial building downtown

I haven't written anything for awhile. That either means nothing interesting has been happening or I have been so busy that I haven't had time to write. I think a bit of both...

Rebecca (my wife) and I went and looked at a commercial property for sale downtown yesterday. Now it is downtown retail space which I normally wouldn't have much interest in except that it has 2 upstairs apartments as well, and boy are they cool!

The property is listed at $99K. The two upstairs units rent right now for $350/mo each, but they are much larger (and cooler!) than the apartments in our 4-plex that we have rented for $400/mo each. We think without doing anything, we could raise the rents to at least $950/month total.

These apartments have hardwood floors, lots of brick (in the larger one especially), I would guess 12-foot ceilings through most of it, and dining rooms! The larger one even has a beautiful wood staircase up to a "penthouse" room on the roof. From the outside it looks like someone plopped a small house on top of the roof. The penthouse has hardwood floors, a baseboard heater (window A/C could be added, I think), and access to the roof, where there is plenty of space to hang out, BBQ, watch fireworks, etc.

Needless to say, I like the apartments, but I am not going to get all emotional and do something stupid! (at least I hope not!)

The retail space could potentially lease for about $800/month. There is also a 2500 ft^2 concrete basement under this the building with tons of shelves. Great to storage - either for the retail lessee (you know, the person that leases the space - I just know that term because I looked at a lease today) or someone else that needs storage.

Right now, the apartments are occupied (no surprise at $350/mo) but the retail space is not.

Where it gets tricky (for me) is the fact that it is commercial property. A loan on commercial property will be at higher rates (typically around prime with a small bank, currently 8.25%) than residential (where even for investment property we might be looking at 6.5-7.5%). They also typically want a lot of down payment. Oh, and interest rates adjust to the index rate every 3-5 years (so it is not a fixed rate). And terms are generally not as long (20-25 years).

We don't have a lot of money laying around right now (really not any with our upcoming Costa Rica purchase), so the down payment becomes a little tricky. Also, if we are looking at 8.25% with a 20-year term, we might just be break-even on cash flow even with a renter in the retail space.

There are also several repairs that need to be made. Nothing too major, but probably $5-10K (up to $30K if you wanted to make it really nice). Factoring all that in makes it less of a slam dunk than I first thought.

I think it could be a very good property, though (at the right price). I will keep you informed as to what happens!