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First Rental Property

davycoppitt

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#1
Closed on my first property today. Going in on it with someone 50/50. Came across it by accident and at the time it wasn't for sale. Its been a welding shop since 1949 and the owner is ready to throw someone the keys and walk away to his cabin. He loved the idea of selling to a couple of young guys who would take care of his building. His grandfather and him put the second level on in the 70s.

Today he accepted our offer of 300,000.

3600 square feet in an amazing area. The city is working on this area to get nice retail stores in and fix the entire place up. It is right across from the citys high School. We face their football field. The city will match what we spend on fixing up the front of the building up to 10,000. They are also offering us all other sorts of programs to help with the remodel. Will be fully researching them in the upcoming months. There are 2 tenants on the second level. Originally 3 units and the city will allow 3 units. Eventually we would like to make that space offices. The first floor would then be retail of some sort. The inside has a lot of character with block walls and huge I beams. Very sweet building overall. Roof is 6 years old.

The building has no sprinkler system, so that will need to be installed. Runs about 40-70k. I'm looking to see if I can do that myself. Very simple to do. We do the HVAC work for the largest sprinker fab shop in MN and will be contacting the owner of that next week. All the HVAC will be changed out. I will make it a very sweet system.

This will be the first commercial property for both of us. We have been talking along time about getting into commercial rentals. This is sort of getting into it with training wheels with tenants upstairs. The person I am going in on this with already owns 2) 4 plex units.

My contacts through work is the reason we can pull this thing off. We deal with commercial property after commercial property. I take care of the buildings of a lawyer who owns 7 properties in this area and I chat with him monthly. He offered any advice needed on the place. He is even coming out to give us ideas on what to turn it into. Our shop will pull the mechanical permits for us.

Anyway no matter what happens this is going to be interesting.

IMG_2676_LI.jpg
 
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Thecrensh

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#2
Closed on my first property today. Going in on it with someone 50/50. Came across it by accident and at the time it wasn't for sale. Its been a welding shop since 1949 and the owner is ready to throw someone the keys and walk away to his cabin. He loved the idea of selling to a couple of young guys who would take care of his building. His grandfather and him put the second level on in the 70s.

Today he accepted our offer of 300,000.

3600 square feet in an amazing area. The city is working on this area to get nice retail stores in and fix the entire place up. It is right across from the citys high School. We face their football field. The city will match what we spend on fixing up the front of the building up to 10,000. They are also offering us all other sorts of programs to help with the remodel. Will be fully researching them in the upcoming months. There are 2 tenants on the second level. Originally 3 units and the city will allow 3 units. Eventually we would like to make that space offices. The first floor would then be retail of some sort. The inside has a lot of character with block walls and huge I beams. Very sweet building overall. Roof is 6 years old.

The building has no sprinkler system, so that will need to be installed. Runs about 40-70k. I'm looking to see if I can do that myself. Very simple to do. We do the HVAC work for the largest sprinker fab shop in MN and will be contacting the owner of that next week. All the HVAC will be changed out. I will make it a very sweet system.

This will be the first commercial property for both of us. We have been talking along time about getting into commercial rentals. This is sort of getting into it with training wheels with tenants upstairs. The person I am going in on this with already owns 2) 4 plex units.

Anyway no matter what happens this is going to be interesting.

View attachment 140693
Good luck!
 

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#3

Strawboss

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#4
You expressed every detail about the building - but, nothing about your partner you are 50/50 with.

In my experience and opinion - the "partner" is 1000% more important than the building.

People tend to be funny when it comes to money...

People you thought you knew suddenly become something far different when money is involved...
 

Goldhedge

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#5
Yeah, that 50/50 bit is a concern.

Same with 'partnerships'. Avoid them at all cost!

You are liable for the other half's mistakes! THAT is a big red flag.

You better know them better than you know yourself!

It's worse than being married to a real nasty person sometimes....

As soon as you can buy them out, do! Or sell to them? Do!
 

davycoppitt

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#6
You expressed every detail about the building - but, nothing about your partner you are 50/50 with.

In my experience and opinion - the "partner" is 1000% more important than the building.

People tend to be funny when it comes to money...

People you thought you knew suddenly become something far different when money is involved...


Sharp as a tac. Financially conservative. Exact opposite skill set as mine. I know the dangers of partnerships. What it boils down to. Without him this is not even a thread. Same to him without me. What the most important to me on the whole thing is the lesson on commercial real estate. Can I do it or not. If the answer is yes I can , my life could be changed forever. I don't want to work the rest of my life making someone else rich. This is a chance to try something. No matter how it turns out what I learn on this deal will be priceless, even if the lesson is I screwed up. With that being said I have 100 percent confidence in the project and the person I'm going in on it with.
 
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hoarder

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#7
Even if the partner is of the highest integrity, I think partnerships are dangerous because anyone can get sued for the stupidest reasons and a partnership is the path of dirty legal tentacles that punish both partners.
 

davycoppitt

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#8
Even if the partner is of the highest integrity, I think partnerships are dangerous because anyone can get sued for the stupidest reasons and a partnership is the path of dirty legal tentacles that punish both partners.
Is that still the case with a LLC?
 

ttazzman

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#11
lot of good advice above on partnerships....i HIGHLY suggest getting a competent lawyer to do a partnership agreement...there are many many things to write into a agreement you probably had never thought about....IE one is survivership...one is their spouses...etc (good paperwork keeps friends friends)

one thing about commercial property that most dont consider is the HUGE HUGE property taxes most areas have on commercial....its very common for a building like that to have 5 digit annual prop taxes

i dont see a reason you couldnt do the sprinkler system as long as its designed to code and the work done approptriately ...its just pipes and fittings and alarms...(hopefully you have enough water flow at the main in the street, usually the supply is the most challenging part of the project)
 
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Buck

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#14
next to the high school???

i'd sell drugs...

or recruit girls for some deep-state underworld spy


jk
 

newmisty

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#15
Closed on my first property today. Going in on it with someone 50/50. Came across it by accident and at the time it wasn't for sale. Its been a welding shop since 1949 and the owner is ready to throw someone the keys and walk away to his cabin. He loved the idea of selling to a couple of young guys who would take care of his building. His grandfather and him put the second level on in the 70s.

Today he accepted our offer of 300,000.

3600 square feet in an amazing area. The city is working on this area to get nice retail stores in and fix the entire place up. It is right across from the citys high School. We face their football field. The city will match what we spend on fixing up the front of the building up to 10,000. They are also offering us all other sorts of programs to help with the remodel. Will be fully researching them in the upcoming months. There are 2 tenants on the second level. Originally 3 units and the city will allow 3 units. Eventually we would like to make that space offices. The first floor would then be retail of some sort. The inside has a lot of character with block walls and huge I beams. Very sweet building overall. Roof is 6 years old.

The building has no sprinkler system, so that will need to be installed. Runs about 40-70k. I'm looking to see if I can do that myself. Very simple to do. We do the HVAC work for the largest sprinker fab shop in MN and will be contacting the owner of that next week. All the HVAC will be changed out. I will make it a very sweet system.

This will be the first commercial property for both of us. We have been talking along time about getting into commercial rentals. This is sort of getting into it with training wheels with tenants upstairs. The person I am going in on this with already owns 2) 4 plex units.

My contacts through work is the reason we can pull this thing off. We deal with commercial property after commercial property. I take care of the buildings of a lawyer who owns 7 properties in this area and I chat with him monthly. He offered any advice needed on the place. He is even coming out to give us ideas on what to turn it into. Our shop will pull the mechanical permits for us.

Anyway no matter what happens this is going to be interesting.

View attachment 140693
Shoot, you already made $10k! I'd say you're off to a great start. Congratulations DC
 

edsl48

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#16
Is that still the case with a LLC?
Federal tax law does not recognize an LLC meaning it will remain a partnership for Federal tax purposes and that says a lot right there. I also suggest you obtain a competent tax adviser because there are some tricky situations when dealing with the 700 series of the Code.
 

D-FENZ

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#17
Good luck. And be careful who you let in there to do rehab work. The age and looks of the place screams asbestos to me- from window caulking to roofing to heating insulation to floor and wall covering. Asbestos is a small deal for a residential project but turns into a monster for anything commercial. And the people who profit from the removal are positively ruthless. I've got some personal horror stories about that, complete with recurring nightmares of white suits with respirators and calculators milling around doing drone duty.

The financial destruction of asbestos abatement has probably ruined more lives than any of the health aspects of the asbestos itself.
 

Unca Walt

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#18
davycoppitt: There are some really savvy folks here. They have given you advice/opinions worth a veritable fortune right in this thread.

I congratulate all serious businessmen here who helped.
 

Goldhedge

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#19
i dont see a reason you couldnt do the sprinkler system as long as its designed to code and the work done approptriately ...its just pipes and fittings and alarms...(hopefully you have enough water flow at the main in the street, usually the supply is the most challenging part of the project)
Not saying this will happen, but supposing you install the sprinkler system and through no fault of your own 'something' goes awry and the building burns down.

Tenant sues you for improper install and goes after you AND your partner!! (Private company install insulates you)

Partner had nothing to do with the install, yet his name is on the lawsuit!

Just one example of why getting a lawyer to write up stuff is important.

Like I said, not that this will happen, but stuff you don't even think of can ruin your day in a partnership.

It's a marriage... unlike any 'marriage'!
 

gliddenralston

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#20
"you'll never get ahead working for someone else", my dad beat me to death with that saying when I was growing up...I became self employed at the age of 26..my first lesson no more 40 hr weeks, its 24/7/365. Bought some rental properties with a friend in the 80's, friends and money don't mix, never again, I was on my own after that, happy to say our friendship survived. Any way good luck to you!!
 
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Strawboss

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#21
Is that still the case with a LLC?
An S corp is better than an LLC. In an LLC - there is no requirement that distributions be in accordance with shareholder equity. For example - you could own 49.99% of an LLC - but if the other guy has a majority - he can pay himself all of the profits and give you nothing - and there isnt much you can do about it...unless you specifically have language in the LLC addressing this. But even that wouldnt fly as the majority owner can change the bylaws anytime they want to...

An S corp requires distributions to be doled out based on the ownership percentages...
 

Goldhedge

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#23

TAEZZAR

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ttazzman

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#25
:dduck::dduck::dduck: There is NO such thing !!!

.... i fully acknowledge they are a rare and dieing breed but not totally extinct yet.....

one hint for finding a good business or contract lawyer ....such as in the OPs case is to find one that owns and leases a lot of commercial property in your area sucessfully since he/she has had personal investment in such similar ventures they will have dealt with the pitfalls and issues on a personal level and should have pre-developed documents and can provide advisement specific to your venture....in the case of a partnership i always made sure i personally paid and was the said client of the lawyer so all advisement was specific to me and he would then represent me in case of a future issue...

fwiw ....never had any issues .....all joint ventures were done via LLCs or C-Corps.... single ventures were LLCs or S-Corps
 

davycoppitt

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#27
Thanks for all the thoughts and concerns guys.

Was at a job Friday with the fire marshall out there. Stopped him to get some ideas. There is a program that the city will pay for the sprinkler system, then we repay them on our taxes over the next 10 years. He thought the interest rate was about 2 percent. Ill call to get exact details.

Fire Marshall did say that he thinks this area is the place to be over the next 10 years. Its the cities main focus on building this area up. He mentioned a well known restaurant coming in right down the road in 2020.

When we take ownership he will be coming out there to check it out with us and go over all the rules. There is a chance we may not need a system, depending on what we do with the place. We are right on the edge of square footage of needing one. Its all about how many square feet are remodeled. Under 2000 you usually do not need to install one, again it is all depending on exacts in the situation.

Other than that got the HVAC system designed and now I can start looking for cheap parts and scratch and dents to make it happen. With a little bit of work and time we should be able to get some sweet deals on material for this building.
 
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Goldhedge

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#28
You could keep us informed of the progress... might be interesting...
 

ttazzman

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#29
anything to do with pallets and pallet stacking will be like adding gasoline to the fire as far as sprinkler requirements are concerned ...so keep that in mine when considering tennants and tennant ussage