Funky commercial investment for personal use
November 11, 2019 12:59 PM   Subscribe

There is a commercial building in my neighborhood for sale and I'm interested in purchasing for personal use (i.e. art studio), but need advice on how to go about looking into it. Details below.

There is this funky little commercial space a few blocks away from my house that was an old gas station turned commercial (the last business there was a bronze sculpture studio and that tenant retired). It has been on the market supposedly for six months.
I currently rent out a studio in my residential house to a friend's personal business and we have a good relationship with them and is long-term so I figure this is a good opportunity to both make an investment in another space, still get rent for my existing residential studio, and use a commercial space already set up specifically for doing what I'd use it for (art space, personal gallery).

Other details -
Do not intend to lease the space nor live in it
Current house paid off, good income / credit, savings as well
Place will need some work done for sure

My questions are:
- How do you go about finding the owner of the property or is it better to work with a realtor? I'm wary for both reasons. I shared a listing with my friend who is a realtor and she said she was curious about the place and wanted to go check it out, said I should come with her. Was that a mistake?
- Any financial tips... likely would still be comfortable after a 20% down payment and monthly mortgage but interested to hear if there are other options
- Any red flags or things to be wary of on the listing but also on-site visit?
- Does anyone know people who own commercial space for their own personal use (not business) and if that has done them well?
- Any questions I should be asking that I haven't thought about?

Have an itch to invest, a need for a commercial space, the means to do so (I believe), and need help navigating how to get started and what to expect.

Would love any help! I'm pretty novice in this area so thought I'd run by the wonderful Mefites for any tips without too much judgement.
posted by hillabeans to Work & Money (8 answers total) 5 users marked this as a favorite
Was the gas station properly decommissioned?
posted by Botanizer at 1:21 PM on November 11, 2019 [5 favorites]

Red flag: the fact that it was a service station. If the underground storage tanks have not been removed and the surrounding dirt either analyzed and found to be safe, or else removed and fully remediated, you could be buying responsibility for a huge environmental liability.
posted by aramaic at 1:31 PM on November 11, 2019 [9 favorites]

I think knowing the city and state would help. I was planning on opening a business in an old gas station and ran into a few surprises. The main one was that the site had what here in NYC they call a "little e designation" which meant that there was at one point in the last hundred years a leak from one of the underground tanks and the entire lot had to be remediated. Since I wasn't going to spend many dozens of thousands to do this to property I didn't own, we walked away from the deal.
Also, here in NY, if it's a commercial property you're required to put 25% down for a mortgage.
Also, again, here in NY you can look up property and tax records online to find the owner.
I hope it works out for you though, I think the potential for repurposing old gas stations is fantastic, they can be such interesting spaces.
posted by newpotato at 1:35 PM on November 11, 2019 [1 favorite]

Get in touch with a realtor who can price it out for you and see if you need a loan to buy it or not, then if you think you can afford it, do your due diligence. Last step is to contact the owner directly with an offer if you think it will work for you.

Commercial and industrial investments are valued by how much income they make, not by comparable sales in the area like normal houses or buildings with 4 or fewer units.

You can't get a loan to buy a commercial property as easily as you can a house, there are higher net worth requirements, and they will want a higher down payment, usually at least 25%. If you and your friend buy it together you probably need to have a joint net worth of at least the amount you are trying to borrow. If you buy it on your own, your net worth has to equal the loan amount.

You might be able to get around those restrictions if you can finance it another way, like with a home equity line on your house, a private loan, or a business line of credit. Or ask the current owner if he is willing to do seller financing and have a lawyer draw up a mortgage agreement between the two of you. If you have never heard of that before, it's a great tool, ask your realtor about it.

The realtor is important to have because commercial and industrial transactions are so complex. You want someone who is working in that asset class and has worked with other artists/owners of art galleries or has bought and sold for similar businesses/in similar types of buildings. Make sure your realtor helps you clarify zoning (existing legal use of the property), whether or not any dangerous un-permitted construction has been done, and how much it will cost you to insure the property, as well as other expenses like property taxes and utilities, or inspections that may be required in your local area. Obviously in this case the realtor needs to look into whether or not the gas station was shut down properly and if any city inspection or environmental testing has happened to confirm it was done right.

Also check on who is responsible for maintaining the city amenities around the property - sometimes commercial property owners are responsible for their own sidewalks and curbs or for the cost of having fire hydrants inspected by the local fire department. These kinds of expenses are hard to anticipate if you've only ever bought a house before, but the realtor can help make sure you aren't missing something that becomes important later.

The only people I know who have bought a commercial space for personal use and didn't lease it or otherwise use it to make income are independently wealthy and used the loss from that building to offset a profit from another real estate investment and minimize their income taxes.

In general, in commercial real estate, the listings are not accurate, and you shouldn't believe what you read right away. Transactions have long due diligence periods where sellers must be able to provide documentation and evidence of their claims about the property. Never just take someone's word for it.
posted by zdravo at 1:36 PM on November 11, 2019 [5 favorites]

Wow thank you guys!

Here's some follow ups -
1. Location is Dallas, TX
2. Decommissioned unknown but it hasn't been a gas station since the 50s and since been several businesses leased out. My realtor friend said she'd likely pull in someone who has done commercial real estate work for the past 20 years (she was independently curious)
3. Good info on the difference between commercial and residential purchases. This is an 'up-and-coming' neighborhood (I wish there was a better phrase for this, I know that's condescending even if I live there). I'm very familiar with the neighborhood and reputation and the price of the property probably reflects that. I anticipate making a profit if even sitting on it a few years if there are no hidden costs - which I can see now I have a lot more questions to ask.
posted by hillabeans at 2:07 PM on November 11, 2019

Dallas is filled with variances for polluted ground water for decommissioned service stations, dry cleaners, and other similar buildings that have poisoned the local groundwater. I'm pretty sure you can look up on line if it is already designated one - look for Dallas MSD locations. Other than that, everything others have said.
posted by The_Vegetables at 2:27 PM on November 11, 2019 [1 favorite]

Make sure any above-ground environmental issues were addressed (given the last tenant), too.
posted by Iris Gambol at 9:23 PM on November 11, 2019 [2 favorites]

If your house is paid for, talk to a mortgage broker about taking a mortgage on your house and using the funds to pay cash for the investment property.
posted by AugustWest at 11:49 PM on November 11, 2019

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