Anybody know commercial real estate?

[Larry Ashcraft]

Here's the deal:

I've been in the trophy business for over thirty years.  I own the building I'm in, 1800 square feet on about a half acre lot, built in 1976.  I bought the business in 1978 and bought the building in the late 80's.

This has always been a light industrial/residential neighborhood on the edge of town, with lots of empty land around.  Most of the big box stores are on the north side of town, I'm on the extreme south side.

So, I'm thinking about semi-retiring and moving to a smaller space, and my real estate agent tells me my building is worth about 125-150k.

THEN, Lowe's announced a few months ago that they are going to build about a half block south of me.  All of a sudden, all the empty lots around have for sale signs on them.  They're building something across the street from me to the east right now, reportedly a small shopping center.  And I hear Home Depot is looking at land about a half mile east.  This area is about to boom big time.

Anybody have any idea how much the value of my building will go up?  Should I sell or lease?  Could it be I am in the right place at the right time for the first time in my life?

[The Rabbi]

Property is worth whatever someone is willing to pay for it.
If it were me, I would look to lease the building and if someone offered just a terrific deal to buy it I would take it.  YMMV.

[Headless Thompson Gunner]

DON'T LISTEN TO YOUR LISTING AGENT!!!  If your corner of the world is about to be developed, then your listing agent is probably seeing your property as a easy turnover.  He knows that there will soon be high demand for your property, which means selling it would require no effort on his part.  He wants to make a quick and easy sale and pocket his commission, even if selling right now isn't in your best interests.

If you really want to know what the property is worth given its development potential, you'll need to hire an appraiser.  A good one.  Try to find one who holds the MAI designation (the highest designation a commercial appraiser can attain), and don't settle for anything less than a specialized commercial appraiser.  Estimating the value of land with development potential is not trivial.  It's not cheap, either, but it's money well spent if it prevents you from selling your property for fifty or a hundred grand less than it's potentially worth. 

Development land is worth a lot more than its square footage and existing improvements would merit.  Exactly how much more is a question for that highly qualified appraiser.  It might be 10% more more valuable, or 50%, or maybe even 200% more valuable.  Or there might be some factor that prevents it from having any increased value.  It all depends. 

I'd try to estimate just how much the development adds to your property's value (again we come back to that appraiser), and then compare that against how strongly and how quickly I want to move away.  But above all, don't do anything without being properly informed.  Don't do anything rash.  You might have an opportunity at a windfall, so don't piss it away.

[Fly320s]

Larry, something else to consider:

If you think you may need extra cash for your retirement, you may want to keep the building and lease it out.  Talk to a professional CPA/tax advisor, of course, but you may be able to find some tax advantages in keeping the property as a rental business.

Since the area is about to grow, there is no hurry for you to make your decision.  Take the time to do some solid research.  Maybe look into incorporating or starting a trust.  Or find another person/business to lease the property on your behalf if you don't want to deal with it yourself.

It all really depends on how bad/how soon you want the cash.  Sell it for big, instant cash, or keep it for a smaller, longer payout and possible tax write-offs.

I don't know jack about real estate.  But that won't stop me from commenting. 

If I was "semi-retiring" then I would keep the property.  It would give me something to do, and may help my bank account.

[Larry Ashcraft]

Fly320s,

That's what I'm thinking.  Lease it out for a while until the value peaks.  Its not like I have to make the decision this week, or even this year.

And capital gains, I need to talk to my accountant about that.  I paid $65,000 for the building.  If I sell it for a huge profit, I'm bound to be hit with a big tax bill.

If I lease it out for say, $1200 a month, rent a smaller place for around $350 a month, and continue to gross around $50k a year from the customers I choose to take with me, while working a lot less hours, how could I go wrong?

Thank you Lowes, for helping me provide for my retirement. 

[Brad Johnson]

If you really want to know what the property is worth given its development potential, you'll need to hire an appraiser.

Appraisers work on previous value (residential) or current rent rates (commercial).  Getting an appraiser to tell you the value will only give a spot-check on values right now.  No appraiser is going to stick their neck out and give you a presumption of future value.  Ever.

I second the "rent it out and sit tight" strategy.  Let the market do what it's going to do and take advantage of the upturn at a peak and not on the beginning of the upswing.  If Lowes is going to buy, they will clean out all the quick-buck suckers first then start dealing with the serious landowners.  In the meantine the building is generating clear income for you, and will for the forseeable future.  Heck, if anything find you a smaller building that you can rent for a portion of the income from your current building rental.  If nothing else it's keeping you in a shop and providing a few extra bucks a month.  And you don't have to pay any taxes on the sale.

Brad