I guess this is a story of a failed RE project.
I've been seriously considering buying a small abandoned commercial building nearby. It's in a middle-lower income neighborhood that is on the up slowly, large park a block away, new school going in 3 blocks away. A few brave millennials.
It's a flat roofed concrete box of 2600sqft. Needed gutting inside. Could also get the empty lot behind.
Plan was to get it, gut it, whitebox it, replace facade, secure it, and lease it. Maybe even partner with someone to put in an anchor tenant - small deli/sandwich place on the end.
$100k Budget:
Purchase & secure: $35k
Gut & whitebox: $30k
Landscaping & facade: $15k
Legal & Contingency:$20k
Should lease (if you get tenants) for $8 -$12 adjusted gross/sqft/yr. Taxes and expenses $2k/yr
Sounds pretty good right?
BUT, it used to be a dry cleaners. Oh Oh.
Spoke with enviro guy: He says "no problem. We do a level 1 & 2 and baseline survey of any contamination ($12k), and anything there is not legally your responsibility. You don't have to do soil remediation. If there was contamination of dry cleaning stuff, and if you need to protect inside building from vapor, another $12k for a vapor barrier. A lot of this might be tax deductable too.So worst case $25k"
OK. Then,
Structural guy - you need a new roof - $30k.
OK. Then,
Enviro guy again. "I did a quick check for you, and that car parking area adjacent to the building on the corner [note: my target for this space is a future outdoor seating area], well, from at least 1941 until at least 1967/1971 it was a gas station, with 2 underground storage tanks. "
Me: Ok... so if the tanks are still there and there's been historic contamination...?
Him: "Oh, well then you have to remediate, but there are some state funds you can apply for that covers soil removal. Tank removal cost is yours. And you'll have to do it. About another $10k.
Contractor: "hey your new mechanicals will cost more too - add another $10k for that, and facade is now $20k, not $10"
Now I have a project with big environmental unknowns, costs as estimated (and we know what tends to happen to those...) are now $190k+ and lots of hassle, all to get the 2600 sqft nice white box all fixed with new mechanicals and roof and outside facade, and would be awesome, right. For ~$75/sqft...
In 5 -7 years it'd probably be worth $350k, rented out. Yield in the meantime wouldn't be too bad.
But I don't think I'd buy it right now if someone else did all the work and sold it post renovation, for $200k. And indeed my realtor admits is wouldn't be immediately worth $200k on completion.
So I'm, if not walking away, putting it on hold. It would be my first commercial property.
Thoughts?