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No. of Recommendations: 3
I hope I am not too far off topic but the real-estate investing board seems dead.

I have no experience in comm real estate , in this case a professional office building. I'll explain the offer .If anyone sees areas of concern, questions to bring to the lawyer please speak up.

My SD rents a piece of the building and runs her hair salon of of it. The current owner wants out of the property management business. This is her last property to sell.

The deal offered to SD is a land contract at 2% interest ,30 year term. It also includes an additional payment that starts at 2000 a month and reduces to 1000 ending in 12 years. The contract makes the additional payment optional. The owner cannot take back the building if it is not paid.

The owner does not require a down payment as long as we (I) maintain approx 10% of the purchase price in an account that SD could access if needed. The owner doesn't care how it is invested as long as the balance stays above the minimum. We are still talking about that number.

The asking price is what the city estimated to be fair market value on the 2020 taxes.

The owner has supplied 5 years of her books. The numbers look complete and would result in positive cash flow with a cushion if 1-2 smaller tenants leave. Most tenants have been there for 10 or more years. Does this seem like a typical deal?

I might mention that the SD has been the defacto property manager for few years now. The other tenants are used to coming to her if there is a problem and she knows how get things taken care of.
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No. of Recommendations: 6
The deal offered to SD is a land contract at 2% interest ,30 year term. It also includes an additional payment that starts at 2000 a month and reduces to 1000 ending in 12 years. The contract makes the additional payment optional. The owner cannot take back the building if it is not paid.

I would have an attorney look over the land contract. Some land contracts don't actually transfer ownership until the debt is actually paid off. So it wouldn't actually be necessary for the owner to 'take back' the building if it's not paid, because they still own it.

Are there any pre-payment penalties if she, for example, decides to sell the building, or refinance it to take cash out for repairs?

That said - a commercial loan at 2% for 30 years is a great deal, IMO. Very few commercial loans have a 30 year term, and most are at higher rates than residential mortgage rates.

Does the extra payment decrease the term of the loan? If not, then I wouldn't bother with the extra payment.

I might mention that the SD has been the defacto property manager for few years now. The other tenants are used to coming to her if there is a problem and she knows how get things taken care of.

Since she's already acting as the property manager, she may as well get paid for it. And since she has already been getting maintenance issues taken care of, she should understand how much she needs to budget for that. Does she know if there's any deferred maintenance that is going to need to be done after she takes over? She should probably have the building inspected to see if there's something that a professional notices that she hasn't.

AJ
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No. of Recommendations: 2
Thanks aj485 I was hoping you would respond.

"That said - a commercial loan at 2% for 30 years is a great deal, IMO. Very few commercial loans have a 30 year term, and most are at higher rates than residential mortgage rates."

That is exactly why I am suspicious. It sounds like a too good to be true deal.

It appears that ownership would transfer at closing. We are waiting for the attorneys opinion.

No prepayments penalties

extra payments decrease the loan term

Yes - She is being rewarded for her management efforts. She is well aware of the ongoing expenses. She has a CPA that has perused the books and passed on the positive cash flow.

Building inspection is part of the offer to purchase. We are not aware of any maintenance issues at this time.
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No. of Recommendations: 4
I have been in the process of selling commercial real estate for awhile now. I know my limitations and since I’ve never done this before, I have my lawyer look over everything and make suggestions. There are so many traps that can bind you up in the end if you don’t know about them. It’s worth the time, trouble, and money to get GOOD, experienced in buying/selling commercial real estate, advice.

The devil is in the details and one thing for sure, I don’t want any regrets doing this deal, that means no surprises at the end where I’m saying “I didn’t know that”.

Good luck.

Lucky Dog
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No. of Recommendations: 2
Excellent advice

I have 2 attorneys looking at this. We will move forward very carefully.
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