This year has been a little slow with the number of rentals I have bought, but I did buy a $2.1 million rental earlier this year with 68,000 square feet. I just got my second rental property of the year under contract, which is a much smaller property with only 1,200 square feet. They are both commercial properties as I have not bought a residential rental property since 2015. The property I got under contract was used as a restaurant. The property was listed for $110,000, and I made an offer on it the first day it was listed.
Do I like house flips or rental properties more?
I have slowed down buying rental properties, but not because I don’t like rentals. Our market in Colorado changed drastically, making it almost impossible to cash flow with residential properties. I was going to start buying rentals in Florida but instead found I could make money with commercial rental property in Colorado.
I have been flipping a lot of houses because I can flip in just about any market. You can make a lot of money flipping, but once you sell the house, you don’t make any more money. With rentals, I may not make as much money in the short term, but the property makes money for many more years. House flipping is a great way to earn income that I can invest into rental properties. If I had to choose which investment I like more, I would say rental properties, but flipping has been very good to me as well.
Is it smart to buy a restaurant as an investment?
The restaurant business is not an extremely stable business. However, a good restaurant can be a very good tenant. I bought the 68,000-square-foot commercial property earlier this year, and there was a restaurant in that building as well. That restaurant is only a small part of the building, and we are not depending on it to do well for us to make our money. There is also a grocery store, coffee shop, office space, and my own office in the building.
The new rental property is only a restaurant, but it was also very cheap. The property is located on a very busy street with a lot of development occurring around it. A local company had been buying up property along this street, tearing down old buildings and rebuilding new apartments and retail properties. Two of those projects are located right across the street from this rental. While restaurants can be risky, this property is in a great location and was super cheap.
How much am I buying this rental property for?
I have not bought this property yet, so I cannot disclose the exact price. However, it was listed for $110,000, which is really cheap in my area. The median price for house sales is over $300,000. It is really hard to find any property, no matter how beat up it is, for less than $150,000. A burned-out house that needs to be torn down just sold for $110,000. It’s near this one.
I saw the property come up for sale in the MLS and recognized the restaurant immediately, although I had never been there. I drove by it all the time and knew it was in a great spot. The property came up for sale on a really busy day for me, and I was not sure I could see the property that day. I decided to make an offer on it without seeing the inside or even driving by it. I could not decide whether to wave my inspection contingency or not, but in the end, I decided to wave it because it was a great price. I ended up getting my offer accepted over another higher offer because I waved my inspection.
How much money will I make on this rental property?
It can be tough investing in commercial real estate because the numbers are not always what you think they will be. It is pretty easy to figure the rent and values on residential houses because there are so many of them. There are much fewer commercial properties, and they are all unique for their uses. I bought four commercial rental properties last year and rented them out for about what I thought they would rent for. I think I could rent out this property for at least $1,500 per month after a light rehab. The property is also coming with the kitchen equipment, which is in decent shape and should add value for a restaurant tenant.
Using my cash-flow calculator, I should make over $500 per month on this property assuming I get a 25% down commercial loan amortized over 25 years. I may use private money to buy it, get it rented, and then refinance next year. Banks prefer to finance commercial properties when they are rented and not vacant.
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I will have more information on this property as soon as I buy it. I will also have more pictures and will shoot a video on the property. One of my contractors says he already has someone interested in renting it, which would be fantastic. I love flipping houses, but I really love to buy rentals, and I love adding the cash flow to my passive income every month.