Waterfront Mixed-Use With Dock!

[Rio Tomlin]

This is my first time posting a deal analysis to the BP community, so here it goes!

A broker friend who lives in New England has brought a deal to me that he wants to go in on 50/50.  The idea is we both put up equal downpayment, and he manages the property we buy together.  He owns property in the area and lives nearby, so I'm not worried about his abilities in doing that.  Building details:

4-Unit Mixed Use, asking price $1.75M: 

1st Floor commercial (currently rented to restaurant for $4,900/mo)

2 Bedroom - 1400

2 Bedroom - 1350

3 Bedroom - 1600

Since this is a waterfront property, it also has 12 boat slips on a dock!  The boat slips are rented seasonally, paid up front, and currently generates $2,000/month (when averaged over the year).

Total monthly income: $11,250 ($135,000/year)

Expenses run very low, from what we can tell, listed annual expense:

RE Taxes :12,000

Insurance: $6,500

Water + Common Electric: $3,000 (heat and hot water is paid by tenant)

Maintenance + Repairs: $2,000

Management: $10,000

If we do 40% down ($700,000) and finance $1,050,000 @ 4% over 15 years: $93,300.

Add for vacancy, misc, etc...  Total annual expenses plus mortgage are about $130,000.

Mortgage numbers are a variable, as we are unsure what we will put down and finance so far.  Also negotiating with friend how much we will establish as his management fee.  I made the mistake of using 8% in my calculations (to be conservative) but now he seems to be thinking that is the benchmark he 'should' be getting.  More realistic, fair, and practical, would be 5%, which will lower the expenses by about $4,000 annually.

If you're still with me at this point, here are some other details:  

New exterior and roof on building.  Heat and hot water may have to be changed at a rate of maybe 1 every 2 years for the next 10 years.  Building has 30 parking spots for the restaurant and tenants.  Restaurant also uses the yard overlooking the water.  Boat slips, however, is an area where a LOT of additional income can be generated.  Current owner only caters to Summer slip space, and has them empty over the winter, as he won't work with boat owners and lower his price in the Winter.  Big missed opportunity, but don't want to base all my numbers on "what could be".  Also worth mentioning that the location is 100% primo.  Lots of car, bike, and foot traffic past the building for the restaurant and exposure, beautiful views of river, harbour, bay for all units.  

My goal here is to break even on cash flow the first 3-5 years, with gradual income increases, and enjoy owning a beautiful property in an amazing location, holding it while it increases in value, and any increase in income serves us well over the duration of our ownership.

Your thoughts?