I am looking into buy a foreclosed medical building. The previous owner had some personal issues which caused him to go into bankruptcy. The building has two major tenants who signed long term leased. As this will be my first endeavor as a landlord, what should I be aware of before making the investment. As long as I have the two tenants I should be fine but I am worried about how difficult it would be signing and retaining new leases.
what kind of medical building? What are the uses? Is this straight medical office? Any procedure rooms or surgery center? Regulatory changes can impact the building's value when the use is medical.
also, don't know about TX law...did the leases survive the foreclosure? In CA, if the lease was subsuquent to the original loan being recorded, then the lease is "wiped out" by the foreclosure.
It is a dental building located in DFW. The first floor has two dental offices while upstairs has 4 small offices spaces for businesses like StateFarm Insurance, etc. Great advice about the lease surviving foreclosure - did not know that was a possibility.
yeah, and don't forget that the last guy lost the property, so you need to ask yourself "why?". Was it poorly managed? Was he "robbing" this property to support something else? If he wasn't making the payments, what else wasn't he doing? Deferring maintenance, perhaps?
Confirm that each suite has a valid certificate of occupancy on file. Many building owners don't pull building permits or follow proper protocol with local govt. 1)If the suites don't have a valid "Cert of occupancy" on file with the city the occupants could be there illegally or worse it could give them an out on their lease. 2) If bldg was built in the '80's get ready to replace some HVAC units. 3) I would make sure you have the ability to afford the expenses that come with refurbishing existing units for new tenants. Painting, relocation of walls, adding bathrooms, carpet, etc. I would STRONGLY recommend you speak with a Commercial Real Estate broker before moving forward. They know the questions that you need to ask.
I am meeting with the listing commercial real estate realtor tomorrow. We might be able to get it in a short sale so I want to do as much research as possible.
Wait a second. Is it "foreclosed"? Meaning "bank owned"? Because if so, you won't be doing a "short sale". The term "short sale" means you purchase the property from the current owner for less than he owes the lender, with the lender's consent. You said "foreclosed" and "previous owner" in the OP. I'm starting to get the feeling that you would be better off finding a decent REIT to invest in. Otherwise, I urge you to seek the services of an attorney specializing in Real Estate before signing ANYTHING. No offense intended, but you are a novice real estate investor, and can get royally ****** really, really easy. Proceed with caution.
Asbestos and mold survey now, because the next time you renovate it’ll be required. Medical offices are big time mold infested places. It’s all the damn plumbing. Oh and good luck!
If you are diving into this and skipping out on a "very good" RE Atty, then you are nuts my friend...
thanks for all the advice - i have lined up a meeting to speak with a real estate attorney later on this week. thanks again
Get the attorney to run a title report and make sure there are no tax or MM liens. If so, it might save you a lot o time and effort. Slab? Roof? HVAC? Talk to the tenants before your earnest money is hard and see if they have any complaints or insights. Good luck.
Exactly. I would think the owner and/or bank would have asked the dentists if they were interested in purchasing the bldg. They might have had good reasons to say no.
No time to explain all the ins and outs right now, but I think you are getting in over WAY your head. Walk away. Seriously. Sorry to be so blunt, but this is 18 years in commercial real estate and billions of dollars in closed transactions talking to you. Bernard
I'm not Bernard, but I'll take a stab at it: There is NO "good time" for the OP to get involved with commercial RE. It's too complicated and involved for the casual investor. Based on the questions that he has asked, his knowledge base is rudimentary, at best. Basically, he's somebody that knows nothing about cars buying a high-mileage used car
Maybe the way to say it is that these are the times when those who know the exact value of things can and do take advantage of those who don't. If you know you are not a lion, then you are probably prey. However, if your attitude is that you are committed to get into real estate and can afford losing money gaining experience.... I own several residential rentals, and I can offer this advice. If you have a reasonably decent and demanding job, don't try to do it without having a property manager. I pay 8% to him. It makes it a JOY to own the property, whereas before it was a ROYAL PAIN. So, calculate the management fee into your calculations unless you want your quality of wife (oh, I mean life) drastically affected.
Another way to say it is this (and I've never heard a more accurate statement): In every commercial real estate transaction there is a sucker. If you don't know who the sucker is, it's probably you. I hate to rag my own business, but that is a FACT. Read the above statement VERY carefully. Re-read it. Read it again. I have seen the lambs led to the slaughter. Bernard
