Commercial Purchase

This week, it’s time for something different.

My articles tend to present my amazing readers with one of my opinions, supported by data of course. This week I’m going to present a decision I’m grappling with, give you data I’m using to make said decision and see what you folks would do. In a previous article I mentioned an auction I was attending. Well…we were the highest bid on one of the properties…go us!

What I’m trying to figure out is how should we take title for said property?

The Question

The funds to make this purchase are in SBRE4, an Indiana LLC with assets approximating 4 million dollars, 1 million of which is cash. This property is a retail location in Minnesota and will cost about $700k all in and yield about $75k in cash flow a year.

There are a number of options of how we take title:

  1. Buy the property into SBRE4 like any other investment to date.
  2. Form a new LLC, which is a wholly owned subsidiary of SBRE4, and put the building into that.
  3. Buy it into a new LLC, and take the funds out of SBRE4 to do so.

Removing an Option

Psych! We’re not going to do number 3. We believe that our investors, including us, should all be treated equally. Creating multiple fund pools will create conflicts of interest and the hurt the overall diversification.

Financing

We’re making the initial purchase in cash. We plan on working with a lender to either get conservative financing (50% loan to value) or a secured credit line (I like to call them YOYO’s). This should bump our return a bit, but more importantly it will keep our “power dry.”

I’ve talked to a number of bankers to see what structure they would prefer. Here are some …read more