Trading Spaces

[WebEagle]

Ok, you’ll figure out soon enough, I’m a rookie.  Been reading a long time, got my feet wet (but not my hands dirty).  Now I need advice/opinions/conjecture – you guys are smarter than me!

Item 1:  My wife’s been in (a non-RE) business for 20 years, paying rent that amounts to 21,000 per year.

Item 2:  Our four BR brick rancher in the burbs costs 1100/month on the mortgage, with very little equity because of some money problems years ago.  Comps say its worth about 180,000

Item 3:  Credit is recovering; OK, but still not great.  Cash flow is minimal.

Point of all this: We have been offered a 6000 sq/ft two story, dual zoned (commercial AND residential), plus two out buildings that can house other businesses (total of about 8000 sq/ft), for a price of 700,000.  Location is one block from wife’s current office in a good part of town on a main thoroughfare.  It’s clean, used as a sales floor, and would need some interior walls put in.

The owner has offered to finance, but I think we need more cash to complete the move.  We would be essentially trading the rancher mortgage and the rented space for an upstairs loft and a single monthly payment, plus a job as landlord.

Some local prognosticators say the city is planning a build in this direction, with prices jumping maybe 50% in 10 years.  Regionally, growth has been a steady 3-5% for almost a decade.  The only bubbles seem to be in the condo market.

This should be a no-brainer?  But cash is short.  I don’t want to get everything locked in, and then not be able complete the job.  I'm anxious to start testing my "knowledge", but this would become our primary residence (something you don't mess with).

How would you tackle (or not tackle) this situation?

I’m not asking anyone to do my homework for me.  But I’ve enjoyed very much and learned a great deal from reading your posts, and I’d just like to see what happens when this one hits the fan.  ;-)

Thanks in advance?

[RentalCashflow]

look at what it will do to your cashflow.  How does the monthly cost(mortgage plus utilities) compare to what your currently paying?  

Is her business a retail business?  if so business will probably slow in the short term because of the new location, however if you properly notify cutomers/ market, business should be fine, also you may  be able to capture new business through marketing.  ie.  business is so good we have had to expand.

If it is not retail, location does not matter as much.  

Other questions you need to ask yourself...
Do we need additional space?
Dow we need it now?
When will we need it?

Many people, myself included, have had failed businesses because they want to be too big too fast.  

If you can rent out part of the building you may be able to offset the additional expenses.  If you can actually lower your monthly bills, go for it, but remember you now have addtional duties, so budget your time as well.

[WebEagle]

Wow!  Thanks for the fast reply.  I should have said in my original post: Wife is a professional Health Care Provider in private practice, so yes, location is important, but she probably won’t lose too many patients from a one block move.  Also the move would involve relocating files and equipment, such as an x-ray machine (which requires licensed technicians to move, recalibrate, etc.) so add another 6000-8000 to the cost of moving.

I’m looking at the other units as potential rental income, but haven’t satisfied myself yet as to why they’re vacant right now.  The current owner is a widow looking to get out from under the taxes, but she’s been a business person herself.  Those units should be occupied?!?

[RentalCashflow]

There are many possible reasons for the vacancies... If she is trying to sell, it might be more attractive to some purchasers to have them vacant since they may want to occupy the entire space.  Since she is a widow, she might also just not want to be a landlord.  You could start by asking her, and also just take a look at the vacancy rate around town.