Anyone Know Anything About Buying an Office Building?

[Rob37]

I have 2 opportunities to buy office buildings within the next year or so. Both sellers have shown interest in selling to me, and both are going to make certain concessions on price and payment schedules to encourage me to do it. They are both buildings in office strips. One has 4 units and the other has five. I can get both for substantially less than the tax assessors' appraisals. One is in the town where I live and the other one is in a different town about an hour away.

I have not spoken to my accountant yet, but my idea is that they will make effective tax shelters. In other words I am thinking that some of the purchase price can be subsidized by depreciating the property over ten years as well as the deductions I can take for local taxes, upkeep and repairs.

Then there will be the stream of income that can be generated on these things. They are all professional buildings in good locations. However, I will not want to be bothered with maintenance. I am thinking that I would employ a management company. I have no idea as to what they charge. I am also not sure if I will have to escrow funds that the management company can draw from for repairs and maintenance. I am guessing that the ongoing rental receipts would be used to pay the property manager's fees.

Has anyone done this?

 

[Rob37]

I have 2 opportunities to buy office buildings within the next year or so. Both sellers have shown interest in selling to me, and both are going to make certain concessions on price and payment schedules to encourage me to do it. They are both buildings in office strips. One has 4 units and the other has five. I can get both for substantially less than the tax assessors' appraisals. One is in the town where I live and the other one is in a different town about an hour away.

I have not spoken to my accountant yet, but my idea is that they will make effective tax shelters. In other words I am thinking that some of the purchase price can be subsidized by depreciating the property over ten years as well as the deductions I can take for local taxes, upkeep and repairs.

Then there will be the stream of income that can be generated on these things. They are all professional buildings in good locations. However, I will not want to be bothered with maintenance. I am thinking that I would employ a management company. I have no idea as to what they charge. I am also not sure if I will have to escrow funds that the management company can draw from for repairs and maintenance. I am guessing that the ongoing rental receipts would be used to pay the property manager's fees.

Has anyone done this?

Are these management companies usually bonded?

 

[CrusaderFrank]

1. Who are the current tenants,
2. how long have they been there,
3. how long are the leases
4. Whats the relationship between their rent and the market rent
5. Are the buildings in good physical shape
6. How are the buildings heated and cooled, how old is the boilers and hvac
7. How old is the roof
8. Management usually charges a percent of the rents...etc

 

[yiostheoy]

Revenue capitalizations normally run around 1 to 10.

So if the office building is running an X profit, then you can expect to pay 10 times X for it.

If it is running a loss then you need other profitable office buildings to offset the loss.

No one would sell a profitable office building.

Therefore this one that you are looking at is probably a loss.

So you better have other profitable ones that you already own.

Otherwise the gamble is not worth it.

Good luck.

 

[Rob37]

Revenue capitalizations normally run around 1 to 10.

So if the office building is running an X profit, then you can expect to pay 10 times X for it.

If it is running a loss then you need other profitable office buildings to offset the loss.

No one would sell a profitable office building.

Therefore this one that you are looking at is probably a loss.

So you better have other profitable ones that you already own.

Otherwise the gamble is not worth it.

Good luck.

One of them is a profitable building, the other is not. The profitable one is being sold because the owner will be retiring soon.

 

[blastoff]

Revenue capitalizations normally run around 1 to 10.

So if the office building is running an X profit, then you can expect to pay 10 times X for it.

If it is running a loss then you need other profitable office buildings to offset the loss.

No one would sell a profitable office building.

Therefore this one that you are looking at is probably a loss.

So you better have other profitable ones that you already own.

Otherwise the gamble is not worth it.

Good luck.

One of them is a profitable building, the other is not. The profitable one is being sold because the owner will be retiring soon.

Any opinion/fact as to why the other isn't profitable?

 

[waltky]

Yeah...

... Granny says the more offices it got...

... the more money ya gonna make.