Investing 102

[Vegas69]

Originally Posted by ErikLS2

Todd, I wish it were that easy, but it's a Walgreens store and it's in TX. The loans for these types of properties are kind of like bonds to the investors (lenders) in that they want all the return they signed up for at the outset. This means there's a significant pre-payment penalty, called a defeasance penalty. So, it rarely pays to sell (or refinance) early. The penalty on this property 4 years out from loan maturity was around $600K!! That's the price for getting a fixed rate loan vs. an adjustable rate. In the meantime, Walgreens is about as solid a tenant as you can get, it's a 75 year lease and unless this 100+ yr old company goes out of business it's guaranteed and it's NNN so there's nothing to do except make sure the money is in the bank every month. Oh, and we still get to depreciate the building and contents, even if Walgreens buys new ones!



Todd gave you some good advice. Some of the bigger firms that would know what your building is worth are CB Richard Ellis, Marcus & Millichap, and Hendricks & Partners. All should have offices in your area and any of them would be happy to give you an opinion of value and tell you all you want to know about your local market. In your situation though I don't think I would have them handle the purchase/sale. I'm assuming that you know the current owner (you're making lease payments to them right?) so there's no need for them to do so and their contracts are great at protecting them but don't do much for you or the seller so you really need a lawyer to review the contract anyway, and they get a healthy commission, mainly for putting buyer and seller together and it sounds like you might already have that part handled. I would highly suggest if you want to buy it that you just find an experienced commercial real estate lawyer draw up a contract and have the seller's lawyer review it and negotiate that way. You'll be much more protected that way too.

You probably know this already but I would also add that if you can swing it to own the building the tax benefits can be considerable, you have the business LLC (or however it's structured) lease it from another LLC (or similar entity), both of which are you. You'd basically just move money from one bank account to another and deduct a lot from your income taxes along the way. How the rich get richer! I wouldn't suggest you have one entity own both the business and the real property, but I'm not a lawyer and Calif is especially unique in it's laws for most of this kind of stuff so do your homework. Good luck!

Sounds solid and complicated... Can't beat that tenant! I own NNN if you are referring to the stock.

Disclaimer: This is coming from a licensed real estate agent. ha A skilled agent can give you insights that could be a big negotiating factor. I do agree that an attorney is crucial for a commercial deal, but their focus is law, not market dynamics and what should be expected in a negotiation. Bottom line, the money you pay them could be a wise investment. The attorney will ensure the deal is sound.