What would you have done ??

Folks,

Looking for some feedback on a deal that I reluctantly passed up on two weeks ago. It was a nice solid chunky building with an established tenant on a 15yr lease (3yrs to go…). An unrelated, reasonably clued up agent who knew nothing of the deal reckoned the rent was way over the top and would drop dramatically after the lease expired.

The deal showed a healthy cashflow of $ 92K per year. Total cost of ownership for the nothing down deal..(100% loan plus stamp duty) was $151K p.a., with a rent of $243K p.a.

Spoke to the CEO of the tenant and he wouldn’t / couldn’t commit or deny what the plans of his company was in 3 years time re: exercising one of the 2x 5yr options. A non-committal but thoroughly reasonable answer.

The only downside to the deal was that the actual land and building content (i.e. in 3 years time with the tenant gone) was worth $800K less than what I could buy it for.

My reasoning was 3x92K = 276K was far less than the very real risk of holding a property worth $800K less than I paid for it.

On the upside, happy days in clover for the next 3 years…in one foul swoop would turn my very negative portfolio into a slightly non-negative one. Tenant was fantastic and ran his business very professionally…nothing to do on that side and they had their own mechanical and electrical dept to service all the building. I was simply buying the dirt, concrete and steel girders….not alot to service there !!

Bank was happy to fund it…but I coughed..

Can anyone suggest of a way to allieve the rather large downside and turn it into “an opportunity”.

Whaddayarekon ??

Dazzling