Is an sale offer on an industrial building at 20% below assessed value a good deal?

I'm currently a tenant in an industrial complex. My lease ends in April 2012. The current owner offered to sell me the building at 20% below assessed value and will put up the cash for down payment. I will have the numbers tomorrow. I've known him for 10 yrs and he is an honest guy. Seems like a good deal, b/c building is in very good shape and 90% occupancy. What should I be looking for here, what are the downfalls? I think he just wants to cash in on his investment, he bought low, spent a lot of money w/ new roof, nice interior space. Would really appreciate any input. Thanks
In Buying Property - Asked by Kevin H. - Jan 5, 2012
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Answer(s)

Chris R.
Broker/Agent
Denton, TX

It may be a good deal. You need to analyze the data. If you are not adept at doing so - you need the help of a commercial RE Broker, CPA, Appraiser, etc. to help review and analyze the info you obtain. You might want to have the property inspected by a professional licensed inspection company to know the physical conditions that you may not be privy to. Without analyzing the numbers - ie: income / expenses for the last 2 - 5 years, review of the leases and terms therein, inspection report, etc. you can't judge wether or not a 20% discount off of the assessed value is good or not. It may be but - there may be something that would indicate otherwise.You say he will put up the cash for downpayment so you will have to seek financing - contact a commercial lender / banker in your area and they can / will assist you in reviewing of the numbers and will likely require an appraisal to see if the property will support the price and all the numbers that go with it.

Jan 5, 2012
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Jerry K.
Owner/Investor
Philadelphia, PA

hello kevin,
if by "assessed value" you mean the municipal tax assessor's valuation, you should know that a tax assessor's valuations may be hugely different from market value. i know this first hand, as i've been doing commercial real estate development and consulting in metro-philly and south/cental nj for the pase 25 years. you can ring me at 609-805-2146, if you need further guidance.
best regards,
jerry

Jan 5, 2012
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Victoria N.
Broker/Agent
Chicago, IL

This is a good deal. The assessed value is about 1/4 of market value and this seems like a great offer for a good property.

Jan 6, 2012
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John H.
Owner/Investor
Somerset, NJ

Figure out when the last revaluation was done on this property..Has the current owner appealed his assessed value? In 2008 my townshp reassessed my property. My assessment jumped 90%.And my taxes 100%. I spent about 8k with an attorney who brought them back down 40% almost to where we started...... All within a two year period... The assessor valued 200 year old barns as if they were new construction using a blanket rental valuation method. Those who couldn't or didn't appeal are taking losses on fully rented properties.

Jan 6, 2012
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Paul R.
Broker/Agent
Denver, CO

I have been doing industrial investment properties for 25 years and Chris R, the first answer has given you the best advice. Follow his suggestion.

Jan 6, 2012
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Alan C.
Broker/Agent
Suwanee, GA

On the face of it, it sounds like a good deal. Let's look a little deeper:
When do the leases expire? If a major tenant is about to expire or go bankrupt, can you carry the expenses? Can you do a little covert research of the long term viability of the tenant base? Income property pricing depends very heavily on the stream of income they produce. Verify it as best as you can.
When was the property last assessed? I just sold a foreclosed shopping center for $1.1M that was assessed at $1.6M, yet was appraised at $1.15M. If it was assessed in 2006; the market peak, that's a very different story than one that was reassessed recently, to reflect the current market. Call the county or look it up online.

Jan 13, 2012
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Glen W.
Lender/Mortgage Broker
Atlanta, GA

It depends. We own and manage a number of industrial properties throughout the country. Historically in our properties we have been overassessed. It should be easy to figure out if teh price is in the right ballpartk. Take your current lease rate (assuming it is at market), subtract out a vacancy factor, managment, etc.. to come up with your NOI. Look on loopnet to see what cap rates properties are listed for in your area. You can also do a quick loopnet search to see recent sales. This will at least give you a feel for the value of your property. Historically the assessed value is a very poor indicator of market value

Apr 16, 2012
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