I am hoping to get feedback or suggestions on how to proceed.
In 2005 I bought a 1.5 story 40'x100' piece of commercial real estate in for $550,000.
Since that time, I have rented it out to a series of business. I have also taken the maximum depreciation on it.
It is now vacant.
In the interim, the city has changed the zoning so that a much larger building can be built on it, and the demand for such a larger building is strong.
The market value for my property is somewhere between $6,000,000 and $8,000,000.
I currently have a mortgage loan at 4% with a principal balance of just under $2,000,000.
Between loan payments, taxes, insurance, minimum utilities, there is cash outflow of ~$250,000 per year.
The market rent for the property, as-is, is likely about $180,000/yr.
I have a high degree of confidence that the market value of the building will rise greatly in the next 10 years -- I would not be surprised if it increases to $18mm-$20mm. (The area was recently upzoned again and there are a great many, very large development projects planned.)
I believe my options include:
1) Renting it and losing money every year, dealing with a tenant who will likely fail (as so much retail in does), and, if not, being prevented from selling it to a developer because of it being leased;
2) Selling it now to a developer, and either paying the capital gains or 1031 into another property (which is far easier said than done well); I estimate that selling and paying the capital gains will result in about $2mm-$3mm in my pocket.
3) Developing it myself -- I have done quite a bit of total (gut) renovation, but never any ground-up (where I'd be building a 17 story building on a 40' wide lot between 2 other tall buildings -- not an easy job).
4) Keeping it vacant, taking the loss, and waiting to see if things change soon. This has been what I've been doing for almost a year now -- and it is not pleasant.
Thank you.
In 2005 I bought a 1.5 story 40'x100' piece of commercial real estate in for $550,000.
Since that time, I have rented it out to a series of business. I have also taken the maximum depreciation on it.
It is now vacant.
In the interim, the city has changed the zoning so that a much larger building can be built on it, and the demand for such a larger building is strong.
The market value for my property is somewhere between $6,000,000 and $8,000,000.
I currently have a mortgage loan at 4% with a principal balance of just under $2,000,000.
Between loan payments, taxes, insurance, minimum utilities, there is cash outflow of ~$250,000 per year.
The market rent for the property, as-is, is likely about $180,000/yr.
I have a high degree of confidence that the market value of the building will rise greatly in the next 10 years -- I would not be surprised if it increases to $18mm-$20mm. (The area was recently upzoned again and there are a great many, very large development projects planned.)
I believe my options include:
1) Renting it and losing money every year, dealing with a tenant who will likely fail (as so much retail in does), and, if not, being prevented from selling it to a developer because of it being leased;
2) Selling it now to a developer, and either paying the capital gains or 1031 into another property (which is far easier said than done well); I estimate that selling and paying the capital gains will result in about $2mm-$3mm in my pocket.
3) Developing it myself -- I have done quite a bit of total (gut) renovation, but never any ground-up (where I'd be building a 17 story building on a 40' wide lot between 2 other tall buildings -- not an easy job).
4) Keeping it vacant, taking the loss, and waiting to see if things change soon. This has been what I've been doing for almost a year now -- and it is not pleasant.
Thank you.
Statistics: Posted by josephny — Sun Aug 25, 2024 4:51 am — Replies 6 — Views 501