Commercial Questions & Evaluation
I am currently a residential investor but I am thinking that future purchases may be commercial.
Questions
1) Can you 1031 exchange out of residential into commercial property?
2) 16,870sq.ft.(building) leases at $7 /sq ft (83000 sq ft land I think most of the land is parking lot) Tenants include a diner, a bar, a hair salon, a sandwich shop, a chinese restaurant, a tiny convenience store, a finance company, and a small vacant office on the side.
Does this mean the yearly gross income is $118090
What would you pay for this?
Would you get a loan based on 20% down or would you put higher. I did a few calculations but I would really love to hear form an expert what I should do to learn about commercial investing. Chances are it will be a bit before we buy. I am in the learning stage.
As long as the residential property is an investment property you can do a 1031 exchange.
You need to determine what your true net profit will be so that you can determine what is a fair price. For example if your net profit is 100,000 and you were looking for a rate of return of 8%. Then the sale price of the property would be $1,250,000. You have to look at the surrounding areas to figure out what the going cap rates are for your type of property. Properties with more managment, short leases, and maintenance covered by the landlord should have higher cap rates (rates of return). Simply put, the more risk and involvment, the higher rate of return you should be seeking.
As long as the residential property is an investment property you can do a 1031 exchange.
You need to determine what your true net profit will be so that you can determine what is a fair price. For example if your net profit is 100,000 and you were looking for a rate of return of 8%. Then the sale price of the property would be $1,250,000. You have to look at the surrounding areas to figure out what the going cap rates are for your type of property. Properties with more managment, short leases, and maintenance covered by the landlord should have higher cap rates (rates of return). Simply put, the more risk and involvment, the higher rate of return you should be seeking.