Commercial Deal
hi experts,
I have this commercial deal but not sure how to proceed
purchase price 500K of land equipped with PG&E, water,etc (ready to be build)
can build up to 7000sq.ft with 2-story level where 1st level can have full retail, 2-story can be half retail + storage.
assumed cost is 1.2million
downpayment is 50% of 500K ( HELOC)
remaining 50% is owner financing
rental income after project completion is approx 15K
Does this deal have good potential ? could it be structure other way for optimized profit ?
Assuming Annual Rents of $180k, 10% vacancy & 25% expenses...
NOI = $180,000 - $18,000 - $40,000 = $122,000
Value @ 6cap = $122,000/ .06 = $2,033,333
You should be able to get 100% construction loan since you own 50% of the land...with an interest reserve to keep your out of pocket at a minimum. You could also throw in the land cost into the construction loan and pay off the owner. Show 50% as owners contribution and draw the other 50% to pay him off. <just an idea>
With $1.7 into the deal & a value of $2M, you could get a 75%LTV of $1.5M. That would pay off the const. loan and either (a) pay down your HELOC, (b) pay down the owner/buy him out or (c) do like the experts and roll that $300k into the next project
Also, I calculated $171/sq ft <1.2M/7,000> as your const. costs. Thats is about what we have here in Napa County but that is WITHOUT land. So, you might not be able to throw land into the const. loan like I said above. That you would need to talk to your const. lender about. Do you have a good one? If not, email me and I can give you a few people/banks we have used.
Thanks for your help and analysis. This is one prospect I have currently and first experience
If you could help me with some referrals, that will be awesome.
The only other thing to look at would be:
I said your NOI would be $122k / yr.
A loan of $1.5M @ 6.5% would have a monthly payment of about $9,500 OR $114k / yr. That would be a positive cash flow of $8k / yr. (note: Prop. Tax was factored into that 25% expenses)
Obviously if you financed less...say the $1.2M your cash flow would look better.