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Real Estate Office Hacking - How I get a "free" office and an asset

DrkSide

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I'm sure a lot of members have read and heard about house hacking and living rent free. Well, that didn't really interest me since we prefer to have a little more space. But in the hunt for a new Office/Warehouse location I came across a building that I could do the same thing with and just closed on it last week. Below is a short breakdown of the financials on a deal like this and how it looks on paper. I did have some inside knowledge on this deal since I was actually one of the tenants that was renting a space so I knew the other tenants.

Building -
List - $525,000
Paid - $425,000

Yes, I lowballed them. The building was a foreclosure that they had repossessed from the owner and was held by the bank. I actually went in at $385k but they didn't take that.

The building consisted of 4 units. 3 are 1750sqft half office, half warehouse and the 4th is 1750sqft of office and 3500sqft of warehouse. Rent is currently below market average for the area but not by much. I will be increasing is over the next 2-3 years to bring it in line with averages.

Rent Breakdown -
Unit A - $900
Unit B - $900 (my unit)
Unit C - $900
Unit D - $2700

The current tenant in A is wanting to take over B so I am going to be subleasing half of Unit C but the financials won't change. Unit C and D are currently rented by the same tenant.

Building Payment - $2,524
Expenses - $955
Rent Collected - $5,400
Monthly Profit - $1,921

Expenses were calculated using as close to real values that I could get from respective sources and added 10% extra. I do still have to pay rent since the building is owned by another entity than the one renting it. This was done for liability reasons to separate the real estate assets from possible liability reasons.

Normally I would not have looked at commercial buildings since the vacancy in my area can really hurt. I have seen buildings that have sat for 10 years without a tenant. However, those are asking high rents and don’t necessarily have the square footage to back up the asking price. With 4 units the risk of vacancy goes down. The tenant in Unit A has also done a large buildout at their cost and have no expectations to move in the future with the addition of Unit B.

So for the time being I get a "free" office space and if I don't need that can rent it out to another tenant.
 

DrkSide

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Did you get an SBA loan for this?

Buying the building you rent is a GREAT business move!
No, this was done with a commercial loan through a local bank. I pitched the deal to 4 banks and chose the one with the best terms. They offered better rates than an SBA loan would have.
 

fastbo

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May 26, 2017
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I'm sure a lot of members have read and heard about house hacking and living rent free. Well, that didn't really interest me since we prefer to have a little more space. But in the hunt for a new Office/Warehouse location I came across a building that I could do the same thing with and just closed on it last week. Below is a short breakdown of the financials on a deal like this and how it looks on paper. I did have some inside knowledge on this deal since I was actually one of the tenants that was renting a space so I knew the other tenants.

Building -
List - $525,000
Paid - $425,000

Yes, I lowballed them. The building was a foreclosure that they had repossessed from the owner and was held by the bank. I actually went in at $385k but they didn't take that.

The building consisted of 4 units. 3 are 1750sqft half office, half warehouse and the 4th is 1750sqft of office and 3500sqft of warehouse. Rent is currently below market average for the area but not by much. I will be increasing is over the next 2-3 years to bring it in line with averages.

Rent Breakdown -
Unit A - $900
Unit B - $900 (my unit)
Unit C - $900
Unit D - $2700

The current tenant in A is wanting to take over B so I am going to be subleasing half of Unit C but the financials won't change. Unit C and D are currently rented by the same tenant.

Building Payment - $2,524
Expenses - $955
Rent Collected - $5,400
Monthly Profit - $1,921

Expenses were calculated using as close to real values that I could get from respective sources and added 10% extra. I do still have to pay rent since the building is owned by another entity than the one renting it. This was done for liability reasons to separate the real estate assets from possible liability reasons.

Normally I would not have looked at commercial buildings since the vacancy in my area can really hurt. I have seen buildings that have sat for 10 years without a tenant. However, those are asking high rents and don’t necessarily have the square footage to back up the asking price. With 4 units the risk of vacancy goes down. The tenant in Unit A has also done a large buildout at their cost and have no expectations to move in the future with the addition of Unit B.

So for the time being I get a "free" office space and if I don't need that can rent it out to another tenant.
Great job! I bought my first office building for my ecom business... same as you, grossed about $2400/mo. Banks love lending to owner occupied buildings .... if you can get to 50%+ owner occupied you can often get similar rates to home loans. You should also get significant capital appreciation over the years.
 

BrandonS85

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Sep 8, 2015
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Ohio USA
investmentjoy.com
Cincinatti's largest real estate broker does this (Sibcy Cline) with a pretty significant number of their offices. I was driving by one of their branches and was awestruck at just how nice of a office they had in a relatively small town.

I asked a friend how they could afford it, when we were working for Columbus' largest broker (HER) and our offices in comaprable towns weren't nearly as nice. He told me that they 'office hacked' many of their locations, of course 11 years ago no one called it hacking. They would pay to have a really, really nice office suite built for them, then take up maybe 1/5th to 1/6th of the total square footage, lease out the rest and get it all rent-free while holding an asset and also plastered their name on the side of the building. This way everyone (Even me!) thought it was a gigantic office for their real estate company, when in fact a bank, insurance company and such also were tenants there.

This is the best picture I can find of their one location -
 

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