My agent emailed me over the listing information on the new prospective commercial building. It seemed to fit most of the criteria that I would want to see in a commercial property, at least from my general lack of experience with this type of real estate:

1. It was large enough to hold multiple units (4 or 5 units currently).
2. It had good visibility and location with regard to traffic and signage.
3. The building looked like it was relatively new– built within the past 20 years. (Although this may not seem new to many of you, I live in an area where many if not most of the existing buildings are often 50 to 100+ years old.

What initially caught my eye was that the property had been on the market for about nine months. I was also able to find out from my agent that the initial price had been over $50K higher than it was currently being listed. This, of course, started to get me excited.

Next I checked the tax records. Now, one of the beautiful things available in the great State of New Jersey is the availability of online tax records. Type in an address and BAM! You have the current owner. In many cases you also have the price they paid, the assessed value and other valuable information. Well, what did I see with this property? BANK FORECLOSURE! Yes, the property was taken back by the bank over nine months prior and this REO still had not sold.

My agent made an appointment for us to see the property which, of course, was vacant. Driving up, I noticed right away that the building had a major lack of curb appeal and almost screamed “abandoned eyesore!” There were also a bunch of issues that I was able to identify on the first walk through. Namely, a leaky roof, damaged siding, rotting wood, previous interior leaks, well and septic system and a few other potential problems. It also appeared that at least part of the property existed much longer than other parts of the building. So, I although I may have been generally right that the age of the building wasn’t all that old, some of it was probably much older. Unfortunately, the electric and gas were not on and the well and septic were winterized/currently nonfunctional. I estimated the necessary repairs at somewhere between $35K to $50K. That would include the rehab necessary to outfit my new office.

So, why did I feel it was worthy of pursuing? Well, there were also a lot of things right with the property. Wiring and pluming looked up to code, it had a fire suppression system and an alarm system which looked like they were in very good shape. The interior, overall was in very good condition. The layout of the building was well planned and the floor plan overall was flexible. Combine that with the factors that I noted in the beginning of the article and I was convinced that it was at least something to continue doing my due diligence on.

Some of the questions that I had to now answer were:

• what needed to be done to purchase a commercial property (ie. what was different than buying a residential property which I had lots of experience in doing) and
• what kind of cash flow could the property generate to support the expenses, which would directly affect negotiating the deal.

But that’s a lot to digest in one segment. These questions and more will be answered on the next episode of “Purchasing Commercial Property”.

Steven Boorstein
Landlord & Author