Someone offered me $310,000 for my office building last Tuesday and I don't know what to do with that

Question

I own the building the brokerage runs out of. Bought it in 2019 for $204,000, put about $31,000 into it over four years, mostly HVAC and the roof on the back section. I have always treated it as a separate asset from the brokerage, which is probably the one smart thing I did when I set this up, because the brokerage rents from me at $2,400 a month and that rent shows up on my personal return.

The offer came from a guy who does small commercial acquisitions, not a developer, just someone who wanted the location. He was not hostile about it, said he'd honor a two-year leaseback at current market which he put at $2,800. That part is actually fine. What is not fine is that I have no idea whether $310,000 is the number or whether it's a number he floated because he thought I hadn't paid attention to what's happened on that corridor since 2021.

I pulled three comps myself. Two sold in the $280 range, one at $330, but the $330 one had a tenant paying above market and the buyer was counting on that income. My tenant is me, and I could leave. So I don't know if I'm closer to $280 or $330.

The part that is genuinely stuck in my head is what I do with the proceeds. $310,000 minus whatever I owe on the basis, minus depreciation recapture, minus capital gains, is not $310,000. I should know exactly what that number is before I even think about responding and I don't have it yet. I asked my CPA two days ago and I'm waiting.

The other thing is that the Whitehaven house I've been watching just dropped $12,000. If I sell and have dry powder I move on it. If I don't sell I keep collecting $2,400 from myself and nothing changes. I can't tell if I'm talking myself into the sale because of Whitehaven or if Whitehaven is just a real opportunity that the timing happened to surface.

stephen_ok9 · Answer

What does the Whitehaven house cash flow at after debt service?

Rena Expert · Answer

The assumption doing the most work in your comp analysis is the tenant covenant. The $330 sale priced a locked-in, above-market tenant. You are the tenant, which means the buyer has to price in the risk that you walk after the leaseback period. That probably puts your ceiling closer to $295 to $305 on the open market, which means $310,000 is a real number and he may know it.

The structural question before anything else is your adjusted basis. You bought at $204,000, put in $31,000 of capital improvements, but you have also been depreciating the asset since 2019. Your basis for gain purposes is not $235,000. It is $235,000 minus accumulated depreciation, which on a commercial building over roughly six years is not trivial. The recapture on that depreciation is taxed at 25% under current rules, separate from your long-term capital gain rate. Your CPA needs to run that exact number before you respond, because the after-tax proceeds are the actual decision variable, not the gross price. The tax treatment of your specific situation is for your CPA, and that conversation is already in motion, so let it complete.

The Whitehaven framing is worth examining separately. You said it dropped $12,000. That is a price movement, not necessarily a value signal. The question is whether the property would perform on its own merits if you funded it from somewhere other than this sale. If the answer is yes, then the sale is a separate decision. If you need the sale to make the purchase viable, you are running two underwriting problems simultaneously and using momentum from one to justify the other, which tends to obscure the weaker leg.

The leaseback at $2,800 for two years is actually the cleanest piece of the deal. It gives you operating continuity and a defined runway to relocate if you want it.

What is the Whitehaven acquisition structured as, and do you have the liquidity to move on it without this sale closing first?

Someone offered me $310,000 for my office building last Tuesday and I don't know what to do with that

2 replies